Tuesday, July 13, 2010

keynes our lord and master

I thought a little more about how I would fit my discussion of the causes and consequences of unemployment into a nice clean argument and framework for students of macroeconomics. In the process I realized how great the beast I had summoned really is. Because it turns out that you need a full appreciation for how investment ties into the economy to really understand the interplay between politics and investment (political conditions influence investment which influence government policies which influence political conditions...). And then to tie it all back to unemployment... I certainly need to think about these ideas some more.

Nevertheless, this blog is making a clean break from tradition with these posts. Normally I've presented ideas which have been long in the making and had a great deal of thought behind them. But I get the feeling that these posts dealing with teaching over the course of the next month are going to be significantly informal, representing works in progress undoubtedly containing a few logical gaps. Hopefully it makes reading them more interesting! And as always, I welcome criticism and comments.

So, here's one of these "crazy" posts, for sure.

This post is related to teaching but it is once again highly experimental. I started to rethink unemployment, focusing simply on the idea of unemployment, how social perceptions of it have changed over time, and what it might all mean for understanding Keynes' views. I started thinking about how society has treated the unemployed, past and present. This thinking led me back to Keyssar's book, which is why I posted a quote from it earlier. And when I started thinking about the history I realized a few things.

First, I realized that society has always been concerned with the unemployed in some way or another to an important degree. Second, Keynes' model has much stronger implications for the role of state policies than almost anyone realizes (including obviously the New Keynesians, but even some of the "truer" Keynesians such as Krugman). The ultimate implications of this thesis are huge. Keynes' program for investment-led stabilization, fueled by a desire to solve the "unemployment problem," are a modern example feudalism in which the state becomes something like a feudal lord and the workers serve the role of peasants. In this (twentieth century!) model, the state becomes the direct appropriator of the profits from investment (through the planned system) in order to maintain as close to full employment as possible.

This post is a sketch of the two-pronged argument made above, which I hope to elaborate on very soon. The end goal is to arrive at a synthesis of unemployment with Keynes' views on investment by constructing some powerful continuities between the two concepts, driven by a history of social concerns for the unemployed.

Our story, interestingly, begins in fourteenth century England.

After the Black Death had pretty much run its course through England, the Statute of Artificers was passed. Reacting to the drastic cut in labor supply and the consequences which come with it (such as a better position for laborers to bargain for higher wages), the statute was meant to do two things. First, keep every able-bodied person working -- either for wages, serving under a lord, or serving as an apprentice in some trade. Actually it was considered a crime if you weren't working. Second, the statute placed a ceiling on wages and regulated several other terms of the labor contract. The statute called for regulation of wages by allowing town governments to determine "fair values" (as they were also doing for food such as bread and other goods at the local market).

For me, this is really the beginning of the modern story of the relationship between the state and unemployment. Why? Because the American colonies were not much different -- settlers imported many institutions from Britain, including the Statute of Artificers (and later, in the 16th century, the Statute of Laborers). Towns regulated wages and enforced the assize on bread, coerced people to work when needed, and took care of their poor through either workhouses or some other local welfare system.

And obviously the Revolution would change some of these feudal institutions, but not all of them. The change was far from a radical shift, contrary to what some histories of the Revolution may suggest. Surely a republican society was indeed no place for shackled workers and regulated wages. And some of these institutions slowly began to fade away, particular.y unfree forms of labor in the North, as the ideological contradictions with the South grew. But the simple fact that the North was comparing their free (I would say, "relatively free) labor markets with the South should set off some bells and whistles. For example, controls on unemployment stuck pretty well. Overseers of the Poor in local towns were still prevalent, housing the poor and handling apprenticeships when needed (and compelled by statute). Workhouses, another British-inspired institutions, were quite prevalent in early America.

Poor relief took on a new, private character as we moved further into the nineteenth century. At the same time (and arguably, as a result), workers increasingly looked toward institutions on the state (and later federal) level for aid, and this included aid for unemployment. As Keyssar argues in Out of Work, a variety of forces acting on labor markets particularly 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 through various tramping laws passed in the 1870s and 1880s. Such a contradictory state of policy, where the state had a hand in both punishing the unemployed and (marginally) helping workers out through workplace investigations and reform!

And then in the early twentieth century we have the pamphlet which is mentioned in the quote from my previous post, setting out an expansive program for state policy in addressing unemployment. So there we are, early 20th century and we are faced with how to solve issues of unemployment. In several ways, as I noted above, things sound quite familiar. But Keynes, I would argue, added a remarkable twist.

However, this post is already too long. The second half (really only two parts I promise) coming soon! But to sum up so far and bring back my main argument:

The Keynesian welfare state, specifically in its state-led investment policies, isn't much different from the landlords of 14th century Britain who kept their serfs bound to the land and working, appropriating any surplus value directly from the workers without markets in between to intervene and reallocate. But just because it's an old institution does not mean it is insignificant or even wrong. But viewing the intersection of unemployment policy and investment theory, we can see the true scale of Keynes' plans.

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