Thursday, December 30, 2010

looking beneath the left-right distinction: the tradition of critiques of economics pedagogy

Greg Mankiw made a quick reference the other day on his blog to a panel at the AEA meetings on economics education. He linked to a paper by Lopus and Paringer that compares the leading textbooks on the market today. Here is a link to Mankiw's post, which has a link to the paper:

Here are some bullet point comments:
  • I certainly agree with Lopus and Paringer's claim that Samuelson's book still sets the framework for economics education, even as other texts have superseded it. In content and approach, Samuelson's successors including McConnell and Mankiw are focused on political balance built on fundamental principles of market mechanisms, limited government intervention, supply and demand, and thinking at the margin, among other key features of a mixed economy.
  • But Lopus and Paringer simply miss the big issues when they claim that the main problems scholars had with Samuelson's book (and thus the later texts as well) were that it was either "too Keynesian [or] not Marxist enough" (pg. 3), depending on one's place in the political spectrum. This is a very narrow summary of the debates surrounding Samuelson's books. Marc Linder's criticism of Samuelson in particular is much more fundamental. Shunning the left-right distinction, Linder showed how Samuelson's approach to teaching economics was also ahistorical because it pretended to teach "core" economics concepts of scarcity and market efficiency as if they were God-given aspects of economics. Linder argued that these concepts are actually the product of the particular socioeconomic system of capitalism. In short, by ignoring key changes in the history of economic thought, Samuelson's book naturally fits itself into market rhetoric and, if I might add, indoctrination -- precisely because it does not even question principles and ideas which are not wholly absolute or scientific.
  • It was interesting to learn that McConnell's book overtook Samuelson's in sales by 1975. I thought it was later than that, but it does make sense. It shouldn't surprise anyone because during the mid-1970s a lot of turmoil in the political economy was brewing which led people to question certain basic Keynesian fundamentals. This was also around the time that Harvard started using a different book for its Ec 10 course (i.e., not Samuelson), causing a lot of uproar which has been documented in the Harvard Crimson. The story here goes as follows: after WWII Samuelson had a visiting position at Harvard, but he was denied a full professorship there, purportedly due to the fact that he was Jewish, so Samuelson ended up going to MIT instead. This caused a lot of negative sentiment between the two schools, with one Crimson article arguing that it would take decades for Harvard to recover from their mistake. Thus, when Harvard switched away from Samuelson, this also caused some discontent, seen as another political move against Samuelson and his brand of economics. I talk about some of these controversies more in depth in a post relating to Anti-Mankiw from a while back; you can find it here:
  • Of course, the paper finds little difference among the leading books, aside from small differences in the level of mathematics, policy orientation, and range of topics. While some would qualify an important difference in the top books in terms of their hegemony in the field, to some this is not an important distinction. I for one would certainly not argue that Mankiw's Principles is more hegemonic than any of the others, since economics education itself is partly a political project. But it would have been nice to hear more about different methodologies, in particular when dealing with economics education!
  • Paper notes that Mankiw's intro does not address the short run as fully as other texts, and there is no discussion of the Keynesian aggregate expenditures model.
Overall, I was not thrilled with the paper, but it is a useful introductory discussion to different economics textbooks. We still have very far to go...

Tuesday, December 28, 2010

imagining leisure time

Here are some of the main things I'm working on over break and which will most certainly be subjects of more in-depth posts on this blog in the weeks to come:

Finishing Tomlins' Freedom Bound

This is a fascinating history of law, labor, and society in the U.S. from early colonization up until the Civil War. Not only is there tons of new material in here, but Tomlins does an excellent job of synthesizing demographic research and the existing legal history of the colonial period to make some compelling new arguments. For example, he gives a more refined view of English feudal law's implementation in the colonies, and he argues that there are some striking institutional continuities before and after the Revolution which question the notion of the Revolution as a "sharp break" with the past. Here is an interview with Tomlins about the book. Really an amazing scholar. I recommend anything by him; he has deeply influenced my work.

Watching Cowboy Bebop

An anime with a theme that is very dear to my heart, Cowboy Bebop is about a group of wanderers, a sort of 21st century "Lost Generation" that has a fantastic soundtrack and moving story. It was a bit slow at first, but the story and themes develop quickly after the first 8 episodes or so, as they move into more personal accounts. I very rarely watch anime, so when I do I try to look for the best. This is definitely up there with the others I've watched -- Deathnote and Full Metal Alchemist: Brotherhood.

Staring at Stata output

I'm working on an applied theory project which lies at the intersection of contract theory and labor history. The fact that it is my first serious empirical paper means that I am spending many hours slogging through manuals and websites for the simplest commands. Needless to say it is a very frustrating experience.

No fiction for me this holiday! Normally I take the winter weeks off to catch up on favorite authors. Unfortunately that is not the case this year as I move into an important stage of dissertation writing and as other activities crowd out the leisure time normally associated with reading. This is a very readable discussion of the most effective econometric tools used in applied analysis today. It may not solve any problems with your code, but it will give you a good primer on important studies and ideas behind each idea.

Professor Layton and the Unwound Future

The latest installment of the Professor Layton series leaves much to be desired. I firmly believe this is the worst in the series. The puzzles are uninspiring and at times are a real insult to play through. I'm serious, some of the puzzles are just that bad, relying on subtle tricks which require absolutely no logic. The music is bland and unmemorable. The minigames, while much more varied than in previous installments, lack the depth and quality which they had in previous games. Maybe I'm getting sick of these games, but I doubt it -- I was really excited to jump into Unwound Future and now I just can't wait to get back out.

Assassin's Creed: Brotherhood

The latest AC is really just as much an improvement over II as II was over I. This series keeps getting better and I'm extremely excited to see where the developers go in future installments. Focusing on one very big city (Rome), the game adds more challenge, reduces some of the nonsense sidequests, and slims the game in other areas to give the gamer a truly high-quality sandbox experience. I'm only about halfway through so I can't say too much about the story, but I've heard from around the web that it's the only drawback to this installment.

Sunday, December 26, 2010

political economy of the arts

A very interesting comment thread today over at MarginalRevolution on unions in the Arts. I think that it's a great example to use in a labor history or just a (heterodox) labor econ class. It's a fun example that highlights many of the important themes of trades unions such as protection of trade skills, skilled vs. unskilled issues, and how politics and economics intersect for labor on a macro scale. Anyway here is the link:

I had something to say about the ways in which political entities have historically restricted access to a trade and why we're not necessarily worse off for it. I then drew the grad school analogy, asking "Are grad schools an enemy of scholarship?" to which one person replied, "I could name some that certainly are :)"


Saturday, December 25, 2010

considering economic history as narrative

Apparently Brad DeLong is teaching economic history at the graduate level next semester and will be posting his notes. Here are some things he has to say about why we should study economic history:

It is either a " history of thought" type of motivation or maybe Brad just doesn't understand the reasons why economics as a whole (that includes New Keynesians such as himself as well as Chicago guys like Fama) turned away from historical and institutional approaches after WWII. I can really never tell with him -- sometimes he has some thoughtful things to say about methodology, and other times (say, when he is talking about why we shouldn't talk about Marxian economics) he just comes off as stunningly ignorant. See this piece:

I think this is a very insincere discussion of the theory. Or take his views on Polanyi, which I think are superficial (he gives a "supermarket analogy" for understanding the concept of embeddedness, which doesn't seem appropriate when applied to labor markets, thereby missing an important part of the 'embededness' idea):

In short, in reading DeLong's notes on why we should study economic history, he seems to appreciate the discipline as a tool for understanding "what really happened". That's fine if you want to point out in an ad hoc way the blind ignorance of most of modern economics to reality, but I contend that economic history is much more meaningful as an actual discipline. We should study economic history because it forces us to understand institutional processes, like how market integration occurred, or how the transition from Feudalism to Capitalism occurred.

Both of these examples are studied in the economic history classes at UMass because these are issues which demand more tools and a broader view of study than economics alone permits. Yes, on the way we at UMass still encounter a greater range of "facts" with which we illustrate theories, but more fundamentally we get to understand the social relations and (political, cultural) institutions that underly economic activity.

What we find is when we add social relations and institutions to the mix, economic activity becomes much more varied and thus much more beautiful as an object of study.

Friday, December 24, 2010

gamer heaven

Although this deal has been out for a while, I'm only just getting around to blogging it. Check out the Humble Indie Bundle (HIB) 2, which recently added games from the first HIB to it (including the extremely famous World of Goo): so in addition to getting the games from the first HIB, the second one adds solid titles including Mechanarium, Osmos, and my personal favorite Braid. Here is the BoingBoing announcement, which will direct you to the relevant site for downloading:

How does it work? You get a bunch of really cool computer games made by independent developers for... however much you want to pay! With the latest additions, you get 11 games for a minimum price of $7.60. Not a bad deal! You can even choose how much goes to the developers and how much goes to select charity organizations.

I would suggest you act fast on this deal -- not sure if it was around for very long the last time they did this. But trust me, it's certainly worth it -- I'm already having tons of fun with Braid and Osmos, and World of Goo was a really excellent experience. All three are innovative action/puzzle games that are really great in short bursts when you want to take a break from work (or other games!).

Thursday, December 23, 2010

santa shouldn't wear red

This article in the FT yesterday caught my eye -- while the theme is nothing new, I think it does a good job of reminding us of the distinction between social relationships and market incentives. In particular, the article's focus on how the "public realm" of being a good citizen is distorted by economics is really good. Take this paragraph and bring it to a mainstream micro theory course:
The public realm continues to rely on thousands of people who offer services voluntarily, and the very nature of health, or education, or policing demands that it be undertaken by people who do not have a purely instrumental view of their vocation. Perhaps it was appropriate to build Blenheim Palace for John Churchill, or to offer his distant descendant Winston a dukedom: but these measures were recognition of great achievement, not performance incentives designed to encourage the individuals concerned to try harder. If Marlborough and Churchill had needed such incentives, they would not have been the right people for the roles they fulfilled.
What may strike the reader about these arguments is the somewhat unnatural dichotomy implicit in the above discussion -- specifically 1. that we must delegate things to either the public or private realms, and 2. that we should not wholly rely on either the public or private realm to advance policy. Like all social concepts this dichotomy is a social construction, and a really interesting history of thought question would be to ask, how did this social construction evolve? To what extent was it influenced by economics?

Pragmatists such as Margaret Radin would argue that the goal of democratic policy is to draw a finely-tuned line between the public and private in a way that preserves our innermost sense of personhood. For example, we may permit prostitution as a way for females to further their economic position in society, but we could reduce the role that contract plays in its operation so as to sidestep issues of commodification (the state could severely regulate contracts, lessening the role of private enforcement).

More extreme solutions might take note of the historically contingent character of the public-private distinction, calling for an embedding of the two within each other. That is, they would recognize that within the history of capitalism these public-private distinctions take place as part of larger ideological forces which attempt conceptualize private relations as different from public ones. The goal was (and is) to delegate a set of relationships based on hierarchy and unequal exchange in the private sphere.

Of course, this is quite a bit of a digression from the FT piece. But it spurs an important point related to the article: the "department store Santa Claus" is not absurd because we need to hide the fact that he's intimately related to the market from the children. He is absurd because he fundamentally accepts capitalist social relations -- that's true whether we look at his relationship to the department store or his own factory in the North Pole.

In this way he is no different from the bastardized western Nanny state -- gift giving with a cruel historical twist re: labor relations.

Wednesday, December 22, 2010

group intelligence, hierarchy, and the history of society

Found via 3QD, the Boston Globe reports on new research showing how an individual's intelligence is partly contingent on the group it's in.

A particularly noteworthy paragraph:
More broadly, groups and the complex social structure of human interactions may help account for how people got “smart” in the first place. The dramatic changes in science, culture, art, language, technology, and music over the past thousand years are not due to the development of brand-new mental or physical capacities. Instead, it is a particular kind of group benefit, Goldstone argues, in which human progress bootstraps upon itself through a collective cultural memory. Knowledge ratchets up in successive generations without our having to reinvent technologies, discover laws of nature anew, or risk tasting all the mushrooms in the forest.
Old institutionalists and of course Marxists have known this for a long time. It is a richly historical idea. It may also improve the scientific foundation of some modern-day studies of team production and other ways of decentralizing authority in the workplace.

Interestingly, the article ends with this passage:
“There’s been a tendency to focus on the negative, the mob psychology, the idea that people can bring out the worst in each other,” Goldstone said. “There’s just as much evidence that people can bring out the best in each other.”
Depending on your view of "good" and "bad", this can become a very important statement. The implication of the above paragraph is that successful groups are founded upon the promotion of efficient individual behavior. And so my question to the reader is -- does capitalism bring out the best in people, fostering its own success?

Perhaps one would retaliate to this question by saying that hierarchies are different from groups. Essentially, it may be the case that groups are more efficient but capitalism is built on a different network structure. I would agree with this argument, but I don't see it reflected in these studies. For one, the study finds that group unity is unimportant -- high levels of group technology are behind the efficiency results.

Of course, Gordon, Edwards, and Reich have argued that in America, the development of firm technology was not due to efficiency considerations. But I suppose another, simpler, test of the issue would require examining the efficiency of different types of groups (hierarchical, egalitarian, and so on). I wonder if this has been done before?

Tuesday, December 7, 2010


Some of you may be wondering where I currently am, having sparsely updated the blog in the past, oh, 2 months or so.

I promise to update the blog and get back to writing very soon -- the classic dissertation has been getting in the way. Although it never really leaves you, the past two months have been particularly difficult...

For those interested, my project is contract law, social conflict, and labor in early nineteenth century U.S. history. Some interesting results, and while I can't give away too much I will be sharing some interesting ideas soon.

I really miss writing here. More to come soon!

In the meantime:

Sunday, November 21, 2010

ideas on the theory institutional economics, written for various (important) purposes

I can still remember what my initial reaction was when I was first exposed to institutional economics as an undergraduate. Basically, what attracted me to it was my realization of just how fundamental were the questions being asked, essentially what was at stake, in those views. For whatever reason, I've always been drawn to these big questions in my studies -- economics, math or whatever. I have this obsession with understanding what's at the core of any one particular idea or event. In institutional economics, I was struck by the discussion of the fundamental rules shaping economic activity in whatever capacity, and also how variations in those rules can explain variations in economic performance.

Surprisingly enough (given where I ended up on the political spectrum), that first exposure to institutional economics was from some work by Douglass North, the Nobel Prize-winning institutionalist and economic historian. Still, there is a lot of at stake in some of these views, in particular the idea that the West developed so quickly in part because of its institutions of private property, free markets, and so on.

Nevertheless, regardless of the politics involved, the combination of a "big question" approach and a set of tools and conclusions privy to the majority of the mainstream's political agenda (look no further than the Washington Consensus) made this type of institutionalism highly applicable to economics and economic theory in particular. In other words, Douglass North and others in the new institutionalist tradition were able to answer a very important, if under-appreciated question at the time in a very attractive way (to the neoclassical paradigm):

Why should economists care about institutions? What kind of primary explanatory power can economists give to institutions?


Fast-forward to graduate school, roughly 4 years later, and I am sitting here at my desk with a stack of books on legal and social history of all kinds, written in academic fields where such a question, "why should we care about institutions?" is not even entertained. Obviously, social history is all about how different cultural, political, and economic institutions develop through (and in turn shape) the course of history. Staring at them now, my mind dips in and out of the ideas captured in them, searching for the reasons why I'm in an economics department... My question is, why should economists care about that stuff? For example, why should economists care about the cultural or economic reasons why women might or might not have become some of the earliest workers in the textile mills?

Of course, I've tried to answer some of these questions here on this blog. But aside from using the social history to point out mistakes in economists' explanations, sort of an ad hoc critical style, I haven't gone far enough. Certainly this kind of approach lacks the analytics to form a powerful critique of new institutionalism, or of economics in general. In other words, in the abstract, why ought economists to be concerned with the writings of Alice Kessler-Harris, Christopher Tomlins, and other social or legal historians?

Just as the nature of institutional economics is "big" and "fundamental" in and of itself, so is the answer to this question. And I don't pretend to know all the answers. But what follows is a suggested way of thinking about the issue.

The way in which historians and social scientists conceive of the path that institutions take, including where they arrive, has important effects on how we should see economic agents' behavior in those institutions, either over time (e.g., historically, the transition from feudalism to capitalism) or in a particular phenomenon (e.g., socially, racial discrimination). The job of the theoretician is of course to separate out analytically the processes deemed most crucial to understanding economic behavior, and this is partly a political decision. But still, to the extent that a phenomenon is subjected to rigorous economic analysis, that phenomenon is embedded in institutions, and we can therefore see the historians and social scientists as doing the necessary "legwork" for the economist by enriching his understanding of that context. The point is then to understand economic behavior in that context.

The kind of rigorous economic analysis to which I refer above is not immediately evident in some of the older works in the new institutionalist tradition, which I think was highly influenced by the very political project of neoclassical economic theory. There is more evidence for it in more recent work. We still have far to go.


Looking ahead, the kind of institutional analysis that works best for economists is the work on the social, i.e. the ground-up work being done by various scholars in other social sciences. Also, any close analysis of how political structures have evolved over time, which would give us a better idea of the ordering of power and the economic interests of those vested in different orderings, can be a powerful explanatory factor for understanding the behavior of economic agents. Such pressing questions and controversies over the nature and origin of the political institutions of capitalism, I would contend, shed light on the economic behavior of agents during the rise of a market economy.

Such matters are certainly not to be left, for example, to the political rhetoric of "private property" and "freedom of contract". The other social scientists have gotten us too far for us to turn around and be so sloppy.

Monday, November 15, 2010

keynesian orchestration

[Technically a repost of an earlier article ("Keynes our lord and master"), it is considerably revised in particular regard to how detailed the story is as well as more quotes. Enjoy!]

As a PhD student in economic history, I am always trying to turn my teaching duties into opportunities for uncovering the historical background of concepts economists usually take for granted. Unemployment is a perfect example – it’s one of the most-watched statistics in the news, nearly every economist you talk to will have a different explanation for why we have it, and for a year and a half now the official unemployment rate has been over 9%. So, walking to my macroeconomics class one morning, I started to rethink the entire idea of unemployment through the lens of history. In particular, since his name has been thrown around quite a lot lately, I was interested in uncovering what was the particular historical circumstance of the Keynesian view of unemployment.

As most of us have read or heard about in the news, Keynesian policies revolve around the importance of government spending in stimulating a weak economy. For example, John Maynard Keynes saw the problem of chronic unemployment in the U.S. during the Great Depression as primarily a result of insufficient spending and investment in the economy. His prescription was a demand-centric view of economic stimulus: the government should invest more money in the economy, through either the creation of jobs or the spending of money on goods and services. In either case, government spending puts money directly into people’s pockets. Those people then go out and spend that money, fueling more job growth and funneling more money back into the system. And so on. The process has been termed a “multiplier” process because of its continuously compounding effects on economic activity.

Simply put, I wanted to know the historical circumstances of these views: how social perceptions of employment have changed over time and what it might all mean for understanding these basic Keynesian views of both the causes of unemployment and how we might get around to fixing the problem. I started thinking about how society has viewed and treated the unemployed, past and present. And when I started thinking about the history I realized a few things.

I realized that, at least since feudal times, society has always been concerned with the unemployed in some way or another. I also realized that when viewed in historical context, Keynes' views of how to alleviate unemployment have much stronger implications for the role of state policies than many people realize. This surprising finding is against the more conservative “New Keynesians” such as Greg Mankiw (who admit that there is a very limited set of problems which government spending can solve) as well as some of the more “extreme Keynesians” such as Paul Krugman (who generally have argued in our current downturn for a very large stimulus package, much larger than that which was actually passed in Congress, i.e., the ARRA, in 2009). The ultimate implications of this finding are huge. I will argue that Keynes' program for investment-led stabilization by the government, fueled by a desire to solve the "unemployment problem," are a modern example a feudal state in which the government itself controls investment. In this (twentieth century!) policy, the state becomes the director of investment (through the planned system) in order to maintain as close to full employment as possible.

This article is a sketch of the two-pronged argument made above. The end goal is to arrive at a synthesis of social understandings of unemployment with Keynes' policy proposals for investment-driven stimulus by constructing a powerful continuity between the two concepts.

Our story, interestingly enough, begins in fourteenth century England.

After the Black Death had run its course through England, the nobles passed a law titled “Statute of Laborers” (1351). Reacting to the drastic cut in labor supply and the economic consequences associated with it (e.g., a better position for laborers to bargain for higher wages), the statute intended to save and protect the economy from the destabilizing tendencies of the Plague. The statute required every able-bodied person to work – either for wages, serving under a lord, or serving as an apprentice in some trade. (It was considered a crime if one weren't working.) And since the shortage of laborers meant that the economy really depended on them, the statute did something to curtail the ability of these workers to bargain for ever-higher wages. The statute placed a ceiling on wages and regulated several other terms of the labor contract, regulations enforced by town governments who were allowed to determine "fair values" for wages. This was intended to maintain the viability of the local economy (these fair values were also imposed on bread and other goods at the local market where farmers could sell their surplus).

This statute represents the birth of the modern relationship between the state and unemployment. When the English landed on the shores of the New World, many of their institutions and social practices were carried over, including the Statute of Artificers (passed in 1583, it was the 16th century revision to the original Statute of Laborers, containing many of the basic features of the original statute). Towns in the middle colonies and New England regulated wages and enforced the assize on bread, people were coerced into work when needed, and town officials took care of their poor by feeding them temporarily and getting them jobs.

The American Revolution changed some of these feudal institutions, but not all of them. Surely a republican society was no place for shackled workers and regulated wages. And some of these institutions did slowly began to fade away, particularly unfree forms of labor in the North, as ideological contradictions developed between the North and South with the growth of slavery.

However, the simple fact that the North was using the South as a baseline for celebrating their free labor institutions should set off some bells and whistles. For example, controls on unemployment in many northeast states stuck pretty well. Overseers of the Poor in towns were still a prevalent part of the local political economy, housing the poor and distributing apprenticeships when needed (and, in some states such as Massachusetts, as compelled by statute). Workhouses, another British-inspired institution, were also quite prevalent in early America.

As we move further into the nineteenth century, and as capitalism develops as the dominant economic system in society, the unemployed take on a role in the ideology of this new system. The case for understanding this transition that I know best is the U.S.: previously, in colonial times and through the antebellum period, the poor were taken care of by the public because of traditional laws and institutions. But two trends in the evolution of capitalism roughly beginning sometime after the Civil War led to fundamental changes in how the unemployed were conceived: the privatization of welfare institutions such as the workhouses mentioned above, and the success and rapid development of industrialization.

Allow me to explain.

In this new world of industrialized capitalism, poor relief took on a new, private character as charity became increasingly supported by agents outside government. And the success of industrialization led to a new ideology of society where the unemployed are seen as “mistakes,” people who had failed to integrate themselves into the new system. (This is not an alien concept – Tea Party arguments against unemployment insurance assert that such policies foster laziness and ineptitude at finding a job, and should therefore be cut back significantly.) For this group of unemployed, the threat of poverty and of being an outcast from the new socioeconomic system was enough incentive to keep all employed – no public programs were needed to get people to work, and if people didn’t work, they were to be corrected for their mistakes. As Alex Keyssar argues in his history of unemployment in the U.S. titled Out of Work, a variety of forces acting on labor markets after the Civil War made unemployment a more acute problem, leading to crime and other social problems. In turn, unemployment itself was considered a crime just like it had been five hundred years ago in England: various tramping laws passed in the 1870s and 1880s saw the poor as having failed the system and who were therefore criminals. Such a contradictory state of policy indeed! The late 1800s and the onset of the “Progressive Era” saw the state having a hand in both punishing the unemployed and (marginally) helping workers out through factory inspections and reform!

Alex Keyssar documents how in the early twentieth century various pamphlets argued that American capitalism needs to be saved from the threats to social stability of joblessness. These pamphlets spelled out movements for an expansive program for state policy in addressing unemployment, including proposals for public employment programs. So there we are, early 20th century, still faced with the problem of trying to cure the issue of unemployment. In several ways, as I noted above, things sound quite familiar from previous eras. Social pressures to eliminate unemployed were bound up in state policies which are strikingly similar to the same regulatory controls placed on the unemployed over 500 years earlier in England. But as we turn to the last part of our story, enter John Maynard Keynes, we see that he added a remarkable twist.

Keynes took a long history of social concerns with the unemployed and coupled it with a precise answer for why unemployment fluctuates; thereby producing both a diagnosis and radical prescription for curing spells of protracted unemployment. The logic of his argument is straightforward and parts of it remind one of the events surrounding our latest financial crisis.

Keynes takes private investment as the primary variable in his story, focusing on how it determines cycles of growth and stagnation in an economy. The problem with investment behavior is that it is highly volatile in a capitalist economy with a developed financial sector. Essentially, the reason for the volatility is that stock markets in capitalist economies promote short-sightedness on the part of its investors: investor behavior on the stock market floor fails to reflect the “genuine expectations of the professional entrepreneur” (151). Instead, investors in the stock market focus on short-run expectations concerning the value of stock prices in a future world that is fundamentally uncertain. Thus, not only does short-run investment fail to meet the needs of a stable, growth-focused economy, but since investment affects cycles in the economy, it has perverse effects on employment. These cycles are certainly not natural. Indeed, Keynes noted in the General Theory that “[d]ay-to-day fluctuations in the profits of existing investments, which are obviously of an ephemeral and non-significant character, tend to have an altogether excessive, and even an absurd, influence on the market” (154).

Thus the diagnosis; what about the prescription? Most Keynesians today, in one form or another, argue that government stimulus is necessary in times of economic distress. Governments should take over some of the responsibility of investment in times of high unemployment because private investors are unwilling to take risks necessary to boost job growth. In this way, governments can act to stabilize the system.

Keynes himself was more explicit: government investment should not be a temporary solution – it should actively control the investment of resources in an economy, because that is the only way we can wrestle investment out of the hands of hot-headed private investors in order to stabilize employment levels and eliminate unemployment. “Our final task,” he tells us in the General Theory, “might be to select those variables which can be deliberately controlled or managed by central authority in the kind of system in which we actually live” (247). And in the final book (VI) of the General Theory titled “Short Notes Suggested by the General Theory” he discusses the variables influencing investment behavior and how they may be controlled in order to bring about full employment. He states his case simply, that investment should be directed by the state: “It is not the ownership of the instruments of production [i.e. tools and machines] which is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary” (378).

In conclusion, Keynes is part of a long tradition of those wishing to solve the “unemployment problem” in society. Many of the solutions involved major government policy at either the local, state, or federal level – this was as true in the 14th as in the 20th century. There’s nothing new in that. The novelty of Keynes’ approach was that by tying investment decisions to problems of unemployment, the natural response in terms of the historical circumstances was to make investment a crucial matter of state policy.

This is not Keynes as stimulus check-writer: this is Keynes as state conductor of the orchestra that is the economy. With diagnoses of a 9%+ unemployment rate, Depression-era symptoms, and no end in sight, isn’t it time for a new prescription?

John Maynard Keynes, The General Theory of Employment, Interest, and Money (Harcourt edition, 1964)

Alex Keyssar, Out of Work (Cambridge University Press, 1986)

Monday, November 8, 2010

class and technology in history

Anything to give me a boost in confidence during these times of thesis writing! Here is Brenner talking about why technological determinism cannot explain social transformations. His argument is for power and the role it plays in bringing about the conditions for technological advance. The method is similar to saying "O.K., we have the economic conditions in place, but there are still political processes which need to occur in tandem with the economic in order to bring about change in the social system." At any rate, here it is: enjoy!
There were, in fact, known and available agricultural improvements -- including the ultimately revolutionary 'convertible husbandry' -- which could have brought significant improvements in demesne output. Indeed, as Professor Searle has recently demonstrated, fully-fledged convertible husbandry was systematically adopted on Battle Abbey's manor of Marley from the early fourteenth century. It is most significant that this manor consisted entirely of a single consolidated demesne (with no customary tenancies) and was farmed entirely on wage labour, marking a total break from feudal organization of production and class relations. ... Because these tenants were freeholders, Battle Abbey had not been able to increase its rents, although it had tried to do so.

Brenner, "Agrarian Class Structure and Economic Development," Past and Present (1976)

Tuesday, November 2, 2010

quote of the day, tomlins part MLXII

Another great excerpt from an excellent scholar:
Though unquestionably an important source of early colonial-era labor power, migrant indentured servitude was nevertheless considerably less significant in establishing a foundational character for the performance of work in the colonial era than has been assumed. Participation in the performance of work was widespread in the population as a whole -- virtually everyone worked in some capacity -- and the institutional structure of performance far more diverse. Correspondingly, the companion assumption that the American political economy followed a clear trajectory from ubiquitous 'unfreedom' toward a late eighteenth and nineteenth-century 'free' waged workforce norm (market driven allocation of individual capacities to labor through unregulated wage contracts) also becomes suspect, or at the very least vastly more complicated than prevailing analyses have supposed.
From Christopher Tomlins, Freedom Bound: Law, Labor, and Civic Identity in Colonizing English America, 1580-1865 (Cambridge, 2010)

Monday, November 1, 2010

are property and contract efficient?

Anastasia writes in the comments of this post:
Isn't that sort of contradictory that the same neoliberal or libertarian thought-path would lead to a legal structure that hinders its own model to efficiently operate? Is this an example of the inefficiency of the legal system itself, as you explained, especially in that it is a "passive" institution in this case. Maybe I read into this wrong?
[By the way, the point about "passive institutions" is something of my own invention. I tend to see two competing views of institutions which either treat property rights and other parts of the law as passive (in the sense that the economic agents involved simply respond to, say, carrots or sticks on the playing field) or active (in the sense that economic agents can actually be "pushed" by an institution in some way or another toward a path which they would not otherwise have gone in the absence of a change in that institution).]

At any rate, yes, I would agree that it is contradictory to the neoliberal model of, say, development which emphasizes the establishment of, e.g., secure private property rights and sound financial infrastructure as key elements to successful growth paths. I don't really know what to say to that, except that I agree. Does anyone else have any thoughts?

As I see it, one can go about developing a critique to the neoliberal worldview as contradicatory through two ways.

1. You adopt the trend which Horwitz does for the U.S. case, which is to show how states were necessary to capitalism's success everywhere and at every time. People should check out the work of Ha Joon Chang as an accessible introduction to this idea in support of the late developers such as S. Korea. Another good book here is Alice Amsden's Asia's Next Giant.

2. You adopt a more theoretical route, which is the path taken by people like Duncan Kennedy. On this route, you demonstrate the inconsistency of common neoliberal assertions, either by pointing out theoretical cases which are not covered by the model or you introduce some empirical inconsistencies with the theory. Kennedy has a great paper with Frank Michelman which addresses the theoretical problems with libertarian views titled "Are Property and Contract Efficient?" It's a really interesting critique of the law and economics movement from the perspective of CLS. Here is a link to the paper.

It's a tough paper so if anyone wants to see my notes on it feel free to email me. Here is a small summary that gives a flavor of their approach:

The authors use a unique methodology for analyzing the efficiency of systems of private property and enforceable contract. They identify the system, say private property (hereafter denoted PP, to stay consistent with the article). They then introduce two alternative systems: state of nature (SON) and forced sharing for needs (FSN). The former is simply a system with no enforceable private property, while the latter is characterized by rules similar to PP (i.e., enforceable private property in most dimensions except for one) but where ownership takes on an additional qualification: if someone “needs” something someone else owns (in order to stay alive), there can be state-enforced taking. The authors’ goal is to compare the variable “hours of work” across systems and see which systems maximize this variable under five different arguments popularly used in support of the PP regime.

The authors identify five arguments for PP: 1. security increases production; 2. theft is inefficient; 3. PP reduces uncertainty; 4. Coordinational Failure; 5. Distribution of the tradeoff between work and leisure. We will briefly sketch a one of these arguments in how they study the variable “hours of work” in the regime of PP vs. the alternative system of SON.

On (1), that security of property increases production. The standard argument is that the security which enforcement of property affords leads to greater incentives to work, increasing the maximal number of work hours. However, the authors argue that this is merely an empirical assertion: people may work more hours under the SON since the chance of theft is higher here, so they have to take account of this risk when supplying effort. However, one in support of PP may then argue that (5) this alters the distribution of the tradeoff between work and leisure, since people would work more but at the expense of less leisure and therefore efficiency is reduced in the SON. However, the authors argue that these same issues of efficiency over distortion of the tradeoff between work and leisure hold in PP. For example, consider a Crusoe economy where an individual chooses the optimal amount of work time given his preferences. Now, expand this model to imagine a multiple-Crusoe economy where each owns his own island. If one island is wiped out by a storm, the Crusoe on that island must work for another Crusoe in a kind of employer-worker relationship. Thus, for a specific amount of time each day, the unfortunate Crusoe is forced to work for another Crusoe just to be able to reproduce himself. This is time out of the unfortunate Crusoe’s day which cannot be devoted to a labor-leisure tradeoff on his own island and so the distribution of time between labor and leisure is distorted under PP as well.

Saturday, October 30, 2010

birches, by robert frost

When I see birches bend to left and right
Across the lines of straighter darker trees,
I like to think some boy's been swinging them.
But Swinging doesn't bend them down to stay
As ice storms do. Often you must have seen them
Loaded with ice a sunny winter morning
After a rain. They click upon themselves
As the breeze rises, and turn many-colored
As the stir cracks and crazes their enamel.
Soon the sun's warmth makes them shed crystal shells
Shattering and avalanching on the snow crust --
Such heaps of broken glass to sweep away
You'd think the inner dome of heaven had fallen.
They are dragged to the withered bracken by the load,
And they seem not to break; though once they are bowed
So low for long, they never right themselves:
You may see their trunks arching in the woods
Years afterwards, trailing their leaves on the ground
Like girls on hands and knees that throw their hair
Before them over their heads to dry in the sun.
But I was going to say when Truth broke in
With all her matter of fact about the ice storm,
I should prefer to have some boy bend them
As he went out and in to fetch the cows --
Some boy too far from town to learn baseball,
Whose only play was what he found himself,
Summer or winter, and could play alone.
One by one he subdued his father's trees
By riding them down over and over again
Until he took the stiffness out of them,
And not one but hung limp, not one was left
For him to conquer. He learned all there was
To learn about not launching out too soon
And so not carrying the tree away
Clear to the ground. He always kept his poise
To the top branches, climbing carefully
With the same pains you use to fill a cup
Up to the brim, and even above the brim.
Then he flung outward, feet first, with a swish,
Kicking his way down through the air to the ground.
So was I once myself a swinger of birches.
And so I dream of going back to be.
It's when I'm weary of considerations,
And life is too much like a pathless wood
Where your face burns and tickles with the cobwebs
Broken across it, and one eye is weeping
From a twig's having lashed across it open.
I'd like to get away from earth awhile
And then come back to it and begin over.
May no fate willfully misunderstand me
And half grant what I wish and snatch me away
Not to return. Earth's the right place for love:
I don't know where it's likely to go better.
I'd like to go by climbing a birch tree,
And climb black branches up a snow-white trunk
Toward heaven, till the tree could bear no more,
But dipped its top and set me down again.
That would be good both going and coming back.
One could do worse than be a swinger of birches.

From The Poetry of Robert Frost Edward Connery Lathem ed., 1969, Henry Holt and Company

Tuesday, October 26, 2010

703 10-27

The "old" labor law history around the turn of the century was conservative in the sense that it focused solely on the operation of the institutions -- law, the state, and so on. Thus these works were generally seen as reformist -- they focused on the "successes of the New Deal" and other ways in which workers were able to advance their economic power over employers. Even somewhat radical scholars in this "old" tradition, such as Edwin Witte's work on labor injuctions, was focused, in the end, on how to reform legislation so that the court decisions were more favorable to workers.

In particular, take the classic example of conspiracy law. At the turn of the century, unliked Britain, conspiracy law (the law of labor unions) still held that unions were illegal. This was maintained up until the New Deal when the NLRB was established. Witte, arguing in the 1920s, observed that over the latter part of the nineteenth century court injunctions were increasingly used against striking workers instead of holding full criminal trials. In fact, (I believe this is something noted in DuBois' Black Reconstruction though I'm not sure) the 14th amendment was more commonly applied to businesses during this time period than to blacks for racial crimes.

At any rate, the focus of this older tradition was on reforming law to give workers and unions a broader space for collective bargaining. Concentration was focused on the internal evolution of unions, law, and other institutions.

Interestingly, and I can't understand why this is the case, but there is another similarity among these early institutionalists (including Commons). They focused mainly on the postbellum period -- and in particular, on the 1870s and 1880s -- as crucial turning points in American capitalism. Forbath for example, while part of the "new" labor law history, also focuses on the postbellum period as central for understanding important debates in American economic history, including American Exceptionalism (he also uses many of the same themes as the old labor historians, including the issue of injunctions). I call attention to this fact because the social historians of the 1960s and 1970s, we will see, are much more interested (and rightly so, I think!) on antebelllum developments in political economy.

This was the older "camp". The "new" labor history was in part influenced by the social historians, but it is also more generally a product of the rise of leftists in academia in the 1960s and 1970s. In terms of the work of the social historians, the "new" labor history was inspired by Christopher Hill, David Montgomery, Herbert Gutman, and others. These social historians were all interested in the economic and cultural causes and effects of capitalism, to varying degrees. (Some of the names associated with social history which I mentioned last time are also important here.) Thus, part of the project of the new labor law historians was to find either a solid framework in which to discuss law and society, or to simply integrate some of the sources of data used by social historians into their analysis. As I mentioned on Monday, some did have explicit theoretical models, and the influence of the Marxian tradition in academia aided this trend.

Of course, the question is not simply to tie the two together. The more general point is the law's social-historical importance both theoretically and with respect to particular time periods and places. People are still debating the social-historical importance of the state. And when constructing our own ideas, we have to be careful, of course, of the extreme opposite of the new institutionalists -- i.e., we cannot simply assert that market or agent behavior is epiphenomenal to the law! the best labor law histories are therefore very clear about the place of the law in history, and try to tell stories which weave economic processes with political ones. But it is definitely much harder than it sounds. Even Christopher Tomlins -- one of the premier labor law historians of the past 20 years -- was criticized in his earlier work for focusing too much on rules and internal mechanisms of the law. Certainly they were Marxist-oriented conclusions and much more politically driven towards radicalism than the "old" labor law historians, but his research was still largely sterilized from underlying socioeconomic forces.

To appreciate the socio-historical relevance of the law, let's deal with an analytical problem which might get at a solution to this issue. Let's say we want to understand the "conditions of existence" of capitalism. The rise of capitalism involved the destruction of some of the aspects of the old system (stage 1: household ownership of the means of production, work primarily from the home, seasonal fluctuations in output, work for use instead of profit), as well as the creation and legitimation of new features: stage 2, capitalist social relations (wherein workers sell their labor in exchange for a profit), ownership of the means of production, a new organization of work. The processes at work in both arenas are, in turn, cultural, economic, nautral, and political in nature.

We have stage 1 and 2, with 4 aspects working between them.

To narrow down our thinking we're going to think of this transition in terms of the limiting factor of politics, and discuss in what ways keeping our foot on politics limits the transition between the two stages. In other words, let's think of some of the economic, natural, and cultural factors contributing to the evolution of stages.

Economically, the development of the power loom allowed employers to make cloth faster and in greater quantities than home production. This is an economic advantage of working in the firm. The power loom was essentially able to out-compete home production, leading to the general decay of home production. So, workers are left with much less to do in the home. Now, as long as workers don't leave their homes (say, for the west), you have a bunch of people at their home with nothing to really do. If the means of production are gone and they don't have any property, those are economic freedoms to leave. Consider the religion. If there are changes in the religious atmosphere, such as a cultural norm resistent to laziness, then there may be cultural freedoms to leave, as well -- religion spurs the productive spirit to leave the household. Or, the family relations are broken down. Natural freedoms are also created, since in the winter time, when there is little to do on the farm, freeing up some laborers to go to the new factory.

At any rate they join a factory and start to work. My point is that they were free economically, naturally, and culturally, to leave home. What could still be holding them back?

There are political freedoms to consider, since a variety of laws and political norms may entrench certain power interests with a vested interest in keeping workers home, such as feudal interests or (as with Steinfeld) indentured servitude's status in the law (if it were still legal, this would create a problem for employers who needed a free labor force).

The question is where do the political freedoms come from? And this is the first half of the story, the first stage, addressed by Steinfeld as well as many others. The question, simply put, is what kind of political justifications or reasons can we make for the freedom of workers to leave their homes for the factories? Part of Steinfeld's contribution to the story is that the political freedom is not all about rights, or political freedom. Rather, it's that such political freedom to leave the home is also contingent on law. And in fact, law actually mattered because law played a role in defining the freedom of the worker.

That's a pretty interesting idea. If the American Revolution wasn't this outburst of world-changing individualism (in the sense that while it may have been about individualism it didn't change everything else about institutions in the process), but rather that individualism instead needed also to be changed and accomodated by law, then we've added another part to the story.

We are also, at this point, confronted with a very important choice. Still in stage 1.

On one hand, we can assume radical individualism of the Revolution and then say the law still had to work out the legal status of political freedom. This is the path taken by Steinfeld.

On the other hand, we can assume some other significances of the Revolution and then ask what role the law played in freeing up the worker in that case. This is the path taken by Tomlins and some others. (Mostly Tomlins. He is a key figure in the new labor law history, having just finished a 600+ page tome on the history of labor and law in the U.S. from colonial times to the Civil War.) We probably won't get to it in this post, but it is a highly intriguing idea, especially with reference to the precise social-historical relevance of law to labor.

As I said, Steinfeld is focused on the first of these two points. In short, he argues that the American Revolution had an "ambiguous" impact on the development of free labor because law still needed to sort out what it meant to be "free" in an employment relationship, from the standpoint of Master-Servant law. The interaction between the two processes of law and work (i.e. the entrypoint for Steinfeld's discussion) is indentured servitude. [Interestingly, the role of indentured servitude has been called into question empirically by some later law and labor scholars. What are the implications?] Citizens increasingly believed that indentured servitude was too close to slavery and thus incompatible with the ideals of "possessive," or republican, individualism. Thus the case of Mary Clark is a turning point in the labor law because this is a woman of color who had the right, according to the courts, to both voluntarily enter into, and voluntarily serve, in a labor contract.

However, Steinfeld believes we have a slight problem, even with this groundbreaking result -- notice that Steinfeld keeps "free" in quotations precisely because the economic power of workers was still reduced in this process. In particular, in individuals' arguments for freedom based on notions of self-government (a political kind of freedom, borrowed from the Revolution's ideals of republican individualism) led to it being much harder for these individuals to argue for freedom based on the ownership of property. I.e., they had a political right to dispose of their persons as they saw fit, but the propertied notion of freedom was reduced to another sphere -- that of the economic sphere. It therefore became increasingly harder for workers to argue for freedom in the economic sphere -- i.e., their freedom vis-a-vis the work process (since they sold their labor power as property).

This particular process supposedly came about because journeymen and other laborers argued on the grounds that they should be treated as juridical equals in the employment contract, not on the grounds that they cannot be directly compelled by their masters (148). Nevertheless, this is something laborers (read: indentured servants...) apparently "achieved", and it is very important to realize this:
What was left to masters was 'persuasion.' Masters would no longer be entitled to rule, to use law directly to compel workers to do their wills. Instead, they would be limited to 'influencing' the decisions that workers were entitled freely to make for themselves, to structuring the 'incentives' workers faced. But it is important to be clear about the significance of this influence. Employers would continue to have power, derived from law, to control workers. Only now this power would take a different form: it would not be based on rights physically to coerce workers but would be based instead on rights masters had under property, contract, and labor law. These legal rights would constitute the basis for the economic pwoer they would continue to wield over wage workers. (148)
Another quote: "it comported with the emerging model of labor that left to the laborer the formal decision whether to stay or to go" (148).

At this point it is useful to step back and realize what has been accomplished. Steinfeld has theoretically fulfilled both criteria for understanding the transition to capitalist relations (i.e., stage 1 and stage 2). First, he explains very well the freeing up of certain forms of labor in the early nineteenth century. Unlike the historians of liberal democratic capitalism (take your pick: Wood, Appleby, Smith) which simply focused on individualism, Steinfeld adds an initial barrier but ends up with the same conclusions: a breaking down of the old model in exchange for the new one. The enemy is us.

In other words, the institutions were still liberal democratic in essence. That point is clearly made by Steinfeld, and we end the discussion of Steinfeld here (pg. 159):
One perhaps unintended consequence of the Revolution wsa that the hierarchical forms of traditional society began to meet with greater and greater resistance. Increasingly, ordinary working men and women refused to accept the formal hierarchical practices that had defined traditional master-servant relations, denouncing these as a slavery unsuited to liberty-loving Americans. Over a number of decades, a consensus emerged that traditional practices in the employment relationship violated the basic equality promised by the American Revolution.
What do you think -- did Steinfeld hit it on the mark or is something else going on here...?

Sunday, October 24, 2010

econ 703 topics, 10-25

The early 1960s saw the birth of the law and economics movement, the tenets of which are most famously represented by Ronald Coase's 1960 article on "The Problem of Social Cost" in the Journal of Law and Economics (that journal began in 1958 and is published by University of Chicago Press). From that article many have extracted the famous “Coase theorem” regarding the efficiency of private bargaining solutions to externality problems, in the absence of transactions costs and regardless of the initial distribution of property rights. Ronald Coase moved to the University of Chicago in 1964 and became editor of the Journal of Law and Economics there. In the 1970s the discipline generated more steam as Richard Posner published his Economic Analysis of the Law in 1973. (Posner moved to University of Chicago in 1969.) Law and economics was heavily influenced by libertarianism and many of its proponents argued for strict private property rights and enforceable contracts, as well as an overall market-oriented view of society.

One can see how this field made a strong impact in economics as well as law departments. The institutional world view encapsulated in law and economics perfectly captures the Walrasian model of microeconomic theory: general equilibrium, arising from enforceable and complete contracts, clear property rights, and perfectly competitive markets. One might say it was a match made in heaven.

Interestingly, just as discontents with the neoclassical model of economics led to certain contradictions in the field in the late 1960s and 1970s (look no further than our own department's radical history for evidence of that), a similar dialectics occurred in law, beginning in the late 1970s with the Critical Legal Studies movement (CLS). And on another point of similarity, CLS also began at Harvard. Influenced by post-structuralism, Frankfurt school critical theory, as well as social problems such as with race, CLS had its reactions against the law and economics school. (In fact, in the late 1980s when Obama was a law student at Harvard, the CLS scholars were constantly in heated debates with the law and economics group, all the while Elena Kagan, Supreme Court Justice, was dean of the school: source.)

In particular, CLS was fueled by some of law and economics' assertions. For example, CLS had an issue with the idea that that law must leave (or, in general, does leave) matters of distribution to the legislative branch. I.e., they contested the claim that property law was not distributional. Also, CLS took law and economics to task for its assertion that that law, in a liberal democracy, fosters Pareto efficiency through enforcing contracts, protecting property rights, thereby promoting private bargaining solutions to problems of externalities. On the first point, CLS (recall their Marxist influences) argued that law shows clear evidence of class bias and is therefore not distributionally neutral. They also showed that a social definition of property completely excludes the possibility of neutrality. On the second point, CLS argued that there are a multitude of real blockades to the efficient bargaining model that are more than simple perturbations from the standard Coasean or Walrasian bargaining model. Economic agents play by a fundamentally different kind of game than the one asserted by the law and economics school.

The CLS critique, like their brother radicals in economics, was both contemporary- and historically-oriented. Horwitz’ book, whether consciously or not (asked years later whether he thought Transformation was Marxist, he replied that he didn't think so), illustrates the relative autonomy thesis of Marxism in historical context. This thesis, advanced by Althusser and later expounded upon by Poulantzas, holds that in a base-superstructure framework, law is relatively autonomous from the economy to the extent that law serves no particular class, though does, in its reproducing of the existing order of social relations, promote the political position of capitalists. In other words, after the American Revolution, the courts began to make reasoned decisions that just so happened to aid the propertied class.

This is supported by the three-stage transition outlined in Transformation. We are familiar with the first two stages: the shift from law as custom to law as an instrument. Beginning in the early nineteenth century, judges consciously changed their views on the nature of the law: when defending their position in the cordwainers’ case of 1806 (denying workers the right to strike) they appealed to the law as “the will of the majority. It is law because it is their will – if it is law, there may be good reasons for it though we cannot find them out” (22). “Judges began to conceive of themselves as legislators,” Horwitz writes, in a thesis that highlights the judges’ reasons behind their decisions to consciously favor one economic group over another.

In other words, law has its own political mechanisms, but courts in this period became more conscious of their role as promoter of economic performance. They saw law as an instrument for economic growth, but they themselves were not instruments of a social class. They were the ones that changed their views and took on a more powerful role in American political economy – it was not a direct propertied influence from a new class of merchants and entrepreneurs in the sense of, say, Ralph Miliband’s view of British politics in modern capitalist society.

If it seems like we have strayed a bit too far from law and economics at this point, that is because we have! The CLS arguments are so radically different from the view of the law as a distributionally neutral institution which promotes efficient bargaining. In the language of political economy, Horwitz is an institutionalist because he refuses to see the law as epiphenomenal to market activity. He believes, to the contrary, that our "present conceptions of the rule of law" rest on a "Hobbesian vision of the state and human nature," so that the law essentially vindicates the "adversarial, competitive, atomistic conception of human relations" (565).

Why should economists care? How can we operationalize, or make use of, Horwitz’ insights concerning the law? Consider this quote, again from 1977: "a recent interpretation of Marx's political theory [by Avineri] ... has demonstrated that Marx himself consistently asserted a regular interaction between 'substructure' and 'superstructure' through which thought, values, and social arrangements actually do affect consciousness and, ultimately, history" (563). In other words, while it is true that economy constitutes law, law also constitutes economy.

This is the central point of Friedman’s view of law and society – society makes property, and the types of property regimes in law serve to promote certain types of accumulation over others. Any regime of intensive property rights is going to have these effects. Under the Walrasian model, enforceable and complete contracts are assumed with absolute property rights to lead to an efficient allocation of goods and services. This is in a market of price takers. But as Friedman points out, absolute property rights are intensive property rights which confer a monopoly to a certain group. Thus, the competitive model needs to assume, in addition to absolute property rights, constant returns to scale. Otherwise, in the face of increasing returns and market power, average costs fall and so prices have a distributional effect in the market. Horwitz too highlights this on pg. 43, in the debate between priority and reasonable use, the latter of which operates under a doctrine of proportionality. Priority implies monopoly, "depriv[ing society] of the 'benefit which always attends competition and rivalry'" (43).

Furthermore, this is not a story of absolute property rights or of promoting the Walrasian model of competition -- in fact, that would be the case if priority were upheld. The point is that by operating under an instrumental criterion the courts simply moved property rights in a new dimension. That is, while priority was not upheld, later reconstructions of sic utere gave substantial intensive property rights to proponents of property development such as mill owners and builders, who would not bear many of the costs of compensation to the people whose property (say, downstream or from a canal product) was damaged.

At this point it also is important to remember the role Coase plays in this story. Coase found that if a railroad, in its operation, was giving off sparks to the surrounding village, a private bargaining solution (in the absence of transactions costs) is feasible. In particular, the initial distribution of property rights did not matter to the ability to find a solution. Consider a related example: the land of a farmer is occupied by himself and a cattle raiser. The cattle raiser's herd comes over and eats the crop of the farmer. The data look like this:

Number in herd (steers) | Annual crop loss (tons) | Marginal crop loss (tons)
1 1 1
2 3 2
3 6 3
4 10 4

Given that the crop price is $1 per ton and the cost to the farmer of fencing the property is $9. The cattle raiser must pay the farmer for the lost crops given that the farmer owns the land, and given the total crop loss of 4 steers, then it is clear that if the cattle raiser wants 4 steers, he will pay the farmer to erect the fence.

But all that is important here is that, for any desired herd less than 4, the cattle raiser must factor into his decision to raise more cattle the marginal costs of $1 per ton of crop lost. Coase brings up a very curious problem, however. Given that the farmer is being paid for any lost crop, shouldn't he simply produce more crops, in fact produce more crops to the point that an inefficient allocation of (crop, herd) will arise? No, Coase says -- "If the crop was previously sold in conditions of perfect competition, marginal cost was equal to price for the amount of planting undertaken and any expansion of output would have reduced the profits of the farmer."

Notice the issue here -- in perfect competition. The marginal cost of the crop is $1, so that the price paid for any lost crop offsets the value of the crop and no difference in production decisions arises. And in particular, the pricing mechanism in the theory of perfect competition does not permit market power from increasing returns, which we noted is quite possible in any intensive property rights regime. In this case, price might be greater than marginal costs, leading to a misallocation in the system: the price of the lost crop paid by the cattle raiser may distort incentives and thereby lead to increased production, hindering the herder's decision to reach a an efficient point for his own decisions.

Translating to U.S. economic history: Horwitz and Friedman both make clear the fact that different property regimes promote different distributions of income, violating the predictions of the Walrasian model in the process. In canals and mills, where substantial damages to property occurred due to the decisions of entrepreneurs, monopoly power was distributed to a particular group, violating the assumptions of the Coasean model in the process.

Is it efficient? At this point, the question may seem absurd. It is, however important and in fact, Horwitz does briefly bring up the point of whether legal subsidization of economic growth was efficient. I personally think we would need to focus on technical efficiency, which is useful for understanding economic growth but not for understanding policy or, more broadly, questions of social welfare. In particular, pushing against the incentives argument by North and others, I would argue that the law does much more than passively create the appropriate incentives. Through the conscious choices law, it actively takes a part in redistribution of income, thereby promoting growth.

In fact, more recent, more explicit, and even somewhat more mainstream examples of this train of thought can be found in the literature on the late developers. Through directly subsidizing and promoting some industries over others, and coercively protect some industries from outside competition and eliminate others the government was able to promote growth.
At any rate, we see that the project of the early nineteenth century courts was to argue, through the rhetoric of classical economic thought (pg. 3), that competition were to be promoted by destroying certain obvious forms of monopoly but really they were just allocating intensive property rights to different actors in society in that process. This is the lesson learned from the Charles River Bridge case, when intensive rights were distributed from the traditional owners of a bridge to the new property developers. This is a direct subsidization of growth.

It is also the case in labor contract disputes, though we will talk more about those on Wednesday. But briefly, because it relates to the point raised here concerning the law favoring the entrepreneur, we find that in building contracts if the entrepreneur had partially fulfilled his contract (maybe by not doing a "sufficiently good" job in constructing the house) he would still be given compensation for the work performed. Horwitz has found that in a similar type of case involving the laborer, he or she was not given partial compensation.

More to come on labor on Wednesday, but for now, wrapping up, I think we can gain a better appreciation of why law should matter to political economy. And in the early nineteenth century, as law changed its views concerning economic development, the entire playing field was shaken up.

What did it all mean for labor?

Saturday, October 23, 2010

coppage v. state of kansas (1915)

From Samuel Bowles, Microeconomics: Behavior, Institutions, and Evolution (Princeton University Press, 2004):
Wherever the right of private property exists, there must and will be inequalities of fortune; ... it is impossible to uphold the freedom of contract and the right of private property without at the same time recognizing as legitimate these inequalities of fortune that are the necessary result of the exercise of those rights.

Monday, October 18, 2010

repeat after me (or, ch. 2 [sketch])

Chapter 1 is meant to be an introduction to the style and logic of the rest of the text. As you can see from my short exercise, I am really interested in demonstrating the irrelevance of bourgeois economics for understanding questions of what I see to be of greater importance to society.

Of course, part of this project is purely a matter of choosing to analyze some variables at the expense of others. For example, focusing on why the poor are poor, or placing another variable into a production function, are choices that purely reflect my political bias. I completely acknowledge that. However, unlike mainstream texts, I am not going to present my proposed weights as principles, absolute and without a history. In other words, an emphasis on bourgeois economics' larger place in social science, as well as a recognition the institutional and historical contingency of its concepts, is a very important part of the project.

The point of the post was to integrate each of Mankiw's 10 principles into a discussion of those same principles' inconsistency, irrelevance, and class bias. Taken as a whole, it addresses problems of logic and methodology which will be expounded upon in later chapters. At times, it is tongue-in-cheek -- I don't really think unemployment benefits are detrimental to unemployment, but that is the view you adopt when you follow the principles.

In other words, it sets the theme for the rest of the project.

In Chapter 2 of Principles of Economics (4e), Mankiw addresses the question of why economists disagree. Three reasons are given: "Differences in Scientific Judgments"; "Differences in Values"; "Perception versus Reality" (pp. 32-33). (The last reason has to do with how economists mostly agree on the benefits of policy-relevant issues such as rent-control and free trade while the majority of voters ignorantly allow such blemishes on society to persist.) Here's what Herbert Gintis had to say about why economists disagree:
Thus the problem of the economist's role in social affairs is resolved. With the
understanding that our ultimate service is to a social movement grounded in everyday work and community life, the radical economist is nonplussed by his or her separation from the dominant sources of power. Radical theory exists today in America only because of the depth of the contradictions of capitalist society, and will wither and disappear if and when the ruling elites succeed in temporarily attenuating and/or suppressing these contradictions. We hold our jobs and disseminate our thought only insofar as we are part of a movement.

Dialectical analysis must also be used to explain why increasing numbers of economists are willing to assume the status of outlaw (a rather mild type of outlaw compared to the George Jacksons, Angela Davis's, and Vietcong fighters, but outlaw just the same). In essence, we are subject to the same dialectical laws which produce black rebellion, wildcat strikes at General Motors, as well as counter-culture and radical student movements. We must be outlaws to preserve our sanity and to seek a decent world for our children. We must be outlaws because, along with other workers, the rationality of our expertise is otherwise divorced from us and perverted toward ends incompatible with our personal self-realization in our work. But we will not be outlaws forever. Join us. ("Consumer Behavior and the Concept of Sovereignty," AER 62: 1/2, 1972, pp. 267-278)
In other words, there are economists out there that see disagreements as essentially political -- not one of disjoint values, but rather of profound importance to our view of human society. Economists can and do often disagree because of fundamentally different political conceptions and goals for society.

Furthermore, and what is perhaps most surprising, is that this is something that Mankiw would totally agree with with -- I never told you the title of chapter 2. It's "Thinking Like an Economist," and like the popular book (and now movie) Freakonomics which drives a similar message, the whole point of Mankiw's principles text is to get you thinking in the world view of markets.

So, what's wrong with a little awareness of the important reasons why economists disagree?

Tuesday, October 12, 2010

10 principles of economics - or anti-mankiw, ch. 1

Thinking about whether a "8. country's standard of living depends on its ability to produce goods and services" I am reminded of the growing gap between worker productivity and compensation in the U.S., and I wonder about the growing levels of inequality in society. If "7. governments can sometimes improve market outcomes," then why can't we use government policy to solve these types of problems? I guess we have to accept that the "two broad reasons for a government to intervene in a market ... [are] to promote efficiency and to promote equity" (pg. 11) are fundamentally at odds with each other: "1. people face tradeoffs," and that includes the government's decision to promote one of these two goals at the expense of the other.

But is it really a tradeoff? Only if we believe that "6. markets are usually a good way to organize economic activity," because then any government efforts to achieve greater equality through promoting a more secure society (better healthcare, government programs to protect the unemployed) are confounded by "leaky buckets" because they are outside of the market. But what if these measures for greater equality led to greater efficiency because we are a stronger, more stable community?

I guess we can't think like that -- "4. people respond to incentives" after all, so unemployment insurance reduces the incentive for "3. rational people [who] think at the margin" to enter the workforce. And since "2. the cost of something is what you give up to get it," unemployment insurance makes your leisure time cheaper than it would have been otherwise, causing you to misallocate your time between work and leisure.

Let's think about this "market" in the broad picture.

When Marx addressed to workers whether they should be for or against free trade, i.e., whether "5. Trade can make everyone better off," he came out neither for nor against it -- it was, he argued, simply not on the table of worker concerns, since in capitalism the fundamental point of reform is the labor process and who controls various aspects of it. That is, economics today -- certainly not an abstract idea which has existed in its same form since the Greek's gave the term "oikonomos, which means 'one who manages a household,'" -- is not "the study of how society manages its scarce resources," (pg. 1) it is about who has control and rights and property in the workplace -- that is, after all, what distinguishes capitalist economics from former economic systems (e.g., hunter-gatherer, feudalism) in the first place.

And so the so-called "principles" that "9. prices rise when government produces too much money" and that "10. society faces a short-run trade-off between inflation and unemployment" are far from god-given facts and concerns of all of economics: they are products of a unique way of thinking about the economy which is rooted in concepts particular to the market-oriented view of society, and not necessarily real concerns of workers fighting for better living standards (because productivity does not give it to them), women searching for equal treatment in the household (because they could care less about incentives for entering the workforce), or even big financiers (who are far from rational people at their margins).

All principles from Mankiw, Principles of Economics (4e, 2007)