Fairly Recently: Must- and Should-Reads, and Writings… (May 21, 2019)


  1. Nico Schmidt: https://t.co/xeKxYpazgs?amp=1: “Facebook massively pressured EU experts to keep them from inquiring into whether the platform‘s business model enables disinformation, eventually leading to weak EU mechanisms on disinfo…

  2. Noah Smith: Trump Plan to Lower Imports Risks Lowering Consumption Instead: “Stuff made overseas isn’t the drag on growth Trump thinks…

  3. Daniel Patrick Moynihan et al.: The Negro Family: The Case for National Action

  4. Amit P. Mehta: Donald J. Trump, et al. Plaintiffs, v. Committee on Oversight and Reform of the U.S. House of Representatives, et al.: “[Buchanan] maintained that the House of Representatives possessed no general powers to investigate him, except when sitting as an impeaching body…

  5. Josh Barro: @jbarro: “So I’ve never watched this show before but I do like where Peter Dinklage picks up the illuminated manuscript like it’s POLITICO, only interested in what it says about him…

  6. Maxine Berg (1980): The Machinery Question and the Making of Political Economy 1815-1848 #books

  7. Kevin Robillard and Igor Bobic: Vulnerable Republicans Who Backed Obamacare Repeal Aren’t As Fired Up About It Now | HuffPost: “Incumbents facing reelection in 2020 are softening their rhetoric about the Affordable Care Act even as Trump seeks to strike down the law in court…

  8. Tim Worstall: Open-Ended Bond Funds Can Cause Systemic Instability-In Extremis, They Can’t Liquidate Fast Enough: “We know that banking itself is fragile as assets cannot be recouped as fast as depositors withdraw money-possibly. Closed-end funds don’t suffer from this problem. Open-ended funds possibly can-it depends on the liquidity of the market they’re invested in…

  9. Willem Buiter and Catherine L Mann: Modern Monetary Theory (MMT): “What’s righte is not new, what’s new is not right, and what’s left is simplistic…

  10. Wikipedia: Numa Denis Fustel de Coulanges | La Cité Antique

  1. The Gap asked researchers to quantify the benefits from offering its employees more regular schedules. The benefits are substantial: Alix Gould-Wirth: Retail workers’ Unpredictable Schedules Affect Sleep Quality:: “Retail outlets of The Gap, Inc…. surprising connections between retail workers’ schedules and their sleep patterns…. Randomly assigned 19 stores to a treatment group to implement the intervention and nine stores to a control group that did not…. The intervention made a substantively (and statistically) significant impact on the sleep quality of workers…

  2. One of the wisest people I have met on the internet: Jack Ayer: The Best Books on Bankruptcy: “If you see bankruptcy as a creditor’s remedy, you can understand the history of the word. There’s a founding legend—I’m not sure I believe it—that it comes from the Italian, ‘banca rotta’ which means a ‘broken bench.’ The theory is that if the debtor couldn’t pay his debts, you destroyed his trading place. It was only later that creditors began to realize that sometimes you could get more out of the debtor by encouraging his cooperation…

  3. What does the left—the Democratic—wing of the Democratic Party find itself reading this winter? Well, it looks like it is reading, in part, me and my coauthor Steve Cohen. Admittedly, “tells much of the same story… in language even more accessible and unobjectionable to mainstream and centrist audiences” is not the most enthusiastic endorsement I have ever had. But I will take what I can get: Demond Drummer: New Consensus Reading List: “A new consensus in economic thought is emerging…. This reading list is designed with the goals of winning over people who–whether they’re progressives or centrists–are still entrenched in the old consensus of neoliberalism, and also providing converts with a deeper understanding of various aspects of the new consensus….  Bad Samaritans [by]… Ha-Joon Chang…. Concrete Economics [by Steve Cohen and Bard DeLong]…. Made in the USA … [by] Vaclav Smil…. Mariana Mazzucato _The Entrepreneurial State…. Kate Raworth[‘s] Doughnut Economics…. Rana Foroohar… _Makers and Takers…. [Invisible Hands by Kim Phillips-Fein…. Mariana Mazzucato and Michael Jacobs [Rethinking Capitalism]…. Ha-Joon Chang [Economics]…. Justin Yifu Lin [Against the Consensus]…. The Public Banking Solution [by] Ellen Brown…. Ann Pettifor [The Production of Money]…. The End of Alchemy by [Mervyn King]…. Martin Wolf [The Shifts and the Shocks]…. Mohamed El-Erian [The Only Game in Town]…. +Freedom’s Forge [by Arthur Herman]…. Mark Wilson’s Destructive Creation…. [When Small States Make Big Leaps) by Darius Ornston]…. The Park Chung Hee Era [by Byung-Kook Kim and Ezra Vogel]…. MITI and teh Japanese Miracle [by Chalmers Johnson]…. Why Europe Grew Rich and Asia Did Not [by Prassanan Parthasarathi]…

  4. In large part, this desire to resort to high marginal tax rates is a counsel of despair: an admission that we cannot think of policy tools that would command congressional assent and that would restructure the economy that would “predistribute” income in a significantly more egalitarian way. But to the extent that people assign market prices some special moral status—as what you “earn”—this may well be a moral-philosophical mistake, even if it is not a utilitarian-economic mistake: Dylan Matthews: How to Tax the Rich, Explained: “It’s no accident that the Democratic Party went from wanting a 39.6 percent top tax rate to wanting much more. The 1990s Democratic Party made friends with the rich. The 2008 Democratic Party was eager to bail them out. The 2019 Democratic Party seems ready to declare war…. The Democratic urge to tax the rich isn’t a wholly new development. In the 2016 general election, Hillary Clinton embraced Sanders’s proposal for a 65 percent top estate tax rate, and both Bill Clinton and Barack Obama were able to raise the top income tax rate by a few points…

  5. Given how much cars are used for commuting, it always seemed to me that much of the case for Uber was based on a refusal to note the peak time demand problem. But I concur with the conclusion here: the S-1 is devoid of meaningful information because the meaningful information is bearish: Ben Thompson: Uber Questions: “What an alluring pitch it remains! The fundamental idea of paying tens of thousands of dollars (more or less) for a large metal box that sits idle the vast majority of the time, doing nothing but depreciating in value, doesn’t really make much sense in a world where everyone carries Internet communicators that let you call up a ride when—and crucially, only when—you need it…. Here’s the problem, though: it’s impossible to tell if theory matches reality….. Uber’s S-1 is particularly lacking…. This is at best disappointing, and at worst feels like a cruel trick on retail investors…. Uber may still be worth the investment: the theory of the company remains plausible, and the company is decreasing its losses…. However, if I bought individual stocks… I would be out: this S-1 is so devoid of meaningful information (despite its length) that it makes me wonder what, if anything, Uber is trying to hide. If I am going to be taken for a ride I want at least some idea of where I am going—isn’t that the point of Uber in the first place?…

  6. Find a community, gain a special skill within that community, build something worthwhile that may outlast you, play your position, find people who will respect your work. Is this the answer to how it is that people are able to work together constructively in groups? These are Michael Nielsen’s ideas, and I think they are good ones. I think that they apply to students just as much as or more than they do to researchers and to political communities: Michael A. Nielsen: Extreme Thinking: “Three principles that I believe are critical to success in any tough learning situation…. Balance three activities… development of a common understanding with… people with whom one is later able to feel a common sense of community… development of abilities which are not common to your community… making a creative contribution to your community, to something larger than yourself. To develop effectively, we need to balance all three of these…. Effective learning requires long-term vision…. The example of kids playing soccer…. Create a social environment that will support and reinforce the change…

  7. Ezra Klein: 2020 Democrats Need a Power Agenda, Not Just a Policy Agenda: “Concentration of power is the problem, so redistribution of power is the policy…. The Roosevelt Institute’s manifesto-ish new paper, ‘New Rules For The 21st Century: Corporate Power, Public Power, and the Future of the American Economy’…. Concentration of power is the problem, so redistribution of power is the policy…. TThe traditional economic analysis is that growth comes from innovation, innovation comes from competitive markets, and competitive markets come from government getting the hell out of the way. The Roosevelt authors say we’ve gotten that dead wrong. Yes, growth comes from innovation, and innovation comes from competitive markets, but competitive markets—be they economic or political—don’t come from a laissez-faire government. They come from policymakers breaking up concentrations of power, because the last thing power wants is competition…

  8. Scott Lemieux: The Latest Selective Campus PC Panic: “Yglesias has a very good explainer on the campus PC panic du jour. A few points: Paul has already explained why the claim that criticizing Sullivan—who is not a public defender or professional defense attorney—for taking on Weinstein somehow undermines the Sixth Amendment is silly…. The critical point here is that Sullivan could have represented Weinstein and continued to hold one of the most prestigious and well-compensated jobs in American academia. What was not renewed was his contract to be a quasi-ceremonial RA at an undergrad residence hall. Much of the discourse around Sullivan is built around treating losing a side gig as a glorified RA as if it presented the same issues as losing a tenured position…. As I’ve already argued with respect to Saint Christakis, if PROVOKING undergraduates is very important to your identity as an academic, it strikes me that ‘being head of an undergraduate dorm’ is not the side gig for you. Relatedly, the argument that it’s outrageous that undergraduates should have a say in who supervises their residences is farcical on its face…

  9. I should long ago have told people to read this pinned tweetstorm from Equitable Growth’s Will McGraw. A great many people who should know better—especially people on the ideological right—do not understand that when one assesses factors, one wants to control only for those complications that confound the effects you are trying to study, and that you have no business controlling for those complications that mediate the effects you are trying to study: Will McGrew: “Some claim that the wage gap disappears if you control for all relevant variables. This is 100% false. According to the evidence, workplace segregation and discrimination are the largest causes of the wage gap faced by Black women…

  10. It is pretty clear that the post-2008 U.S. labor market is such that it totally deranged the unemployment rate as a meaningful measure of labor market slack, and we now need to look at primate-age EPOP. But it also deranged prime-age EPOP—only not as badly: Josh Bivens: Predicting Wage Growth with Measures of Labor Market Slack: It’s Complicated: “Why have wages grown so slowly in recent years despite relatively low unemployment rates? This puzzle has dominated economic commentary…. Since 2008, the share of adults between the ages of 25 and 54 who are employed (or the ‘prime-age EPOP’) has predicted wage growth better than the unemployment rate. But even the prime-age EPOP has done a poor job at predicting wage growth since 2008 compared with both its own predictive power pre-2008 and the predictive power of the unemployment rate in earlier periods…

  11. Gareth Campbell, Richard S. Grossman and John Turner: Before the Cult of Equity: New Monthly Indices of the British Share Market, 1829-1929: “We splice our blue-chip capital gains index with the Financial Times 30 (FT30) index to create a new blue-chip index that covers nearly two centuries, 1829 to 2018. By 1940, our blue-chip index is below its 1829 level, but during the next six decades it experiences an almost 80-fold increase…. There have been at least seven sharp contractions in the stock market over nearly 200 years and that most of these have been associated with major economic downturns…. During our sample period, investors earned an average nominal return of about five per cent per year, which suggests the existence of a modest equity risk premium by modern standards. This indicates that the emerging phase of UK stock market development was not associated with particularly high returns. Almost all of the gains experienced by investors arose from dividends, suggesting that profitable nineteenth century firms returned their gains to shareholders via dividends, in contrast to modern firms, which are more likely to return to shareholders through capital gains while smoothing dividends…

  12. Economist: What to Do If The Usual Weapons Fail: “If the usual weapons fail, there are plenty of new policy responses for governments to turn to. From the robots that help care for an ageing population to holographic pop stars, the future always arrives early in Japan. Economic policy is no exception. When the massive Japanese financial bubble of the 1980s imploded, the Bank of Japan (BOJ)… tested many of the policies, such as QE, that would enter the toolkit of other central banks during the financial crisis. Yet Japan was seen as an example of central-bank incompetence, until smug Western central banks discovered after 2008 that getting an economy to perk up when interest rates were near zero was harder than it looked…

  13. In England, at least, if “middle class” as defined as not-rich who can nevertheless expect some support from their parents and pass a nest egg down to their grandchildren, there was no real, lsubstnail, and numerous “middle class” in the twentieth century: Neil Cummins: The Missing English Middle Class: Evidence From 60 Million Death And Probate Records: “Using a combination of old-fashioned archival research, mass scripted downloading, optical character recognition, text parsing, and sets of algorithmic programming tools, I have digitised every individual entry, 18 million records with estate values, from the Principal Probate Calendar from 1892 to 1992. To this I have added all 60 million adult English deaths…. This simple finding is quite stark: despite the great equalisation of wealth over the 20th century, most English have no significant wealth at death…

  14. In a time of bubble, raising interest rates and restricting the lending of regulated institutions may be counterproductive if there are unregulated institutions as well. This is an old lesson. We forgot it, and relearned it yet again in the 2000s: Itamar Drechsler, Alexi Savov, and Philipp Schnabl: How Monetary Policy Shaped the Housing Boom: “Between 2003 and 2006, the Federal Reserve raised rates by 4.25%. Yet it was precisely during this period that the housing boom accelerated, fueled by rapid growth in mortgage lending. There is deep disagreement about how, or even if, monetary policy impacted the boom. Using heterogeneity in banks’ exposures to the deposits channel of monetary policy, we show that Fed tightening induced a large reduction in banks’ deposit funding, leading them to contract new on-balance-sheet lending for home purchases by 26%. However, an unprecedented expansion in privately-securitized loans, led by nonbanks, largely offset this contraction. Since privately-securitized loans are neither GSE-insured nor deposit-funded, they are run-prone, which made the mortgage market fragile. Consistent with our theory, the re-emergence of privately-securitized mortgages has closely tracked the recent increase in rates…

  15. I would not say that new technologies were “geared toward maintaining the role of human labor in value creation”. I would say that new technologies required microcontrollers—and the human brain was the only available microcontroller—and software ‘bots to manage materials and information flows—and the human brain provided the only available ‘bot hardware. Now neither of these are the case: Daron Acemoglu and Pascual Restrepo: The Revolution Need Not Be Automated: “For centuries after the Industrial Revolution, automation did not hinder wage and employment growth, because it was accompanied by new technologies geared toward maintaining the role of human labor in value creation. But in the era of artificial intelligence, it will be up to policymakers to ensure that the pattern continues…

  16. Paul Krugman: Don’t Blame Robots for Low Wages: “Participants just assumed that robots are a big part of the problem—that machines are taking away the good jobs, or even jobs in general. For the most part this wasn’t even presented as a hypothesis, just as part of what everyone knows…. So it seems like a good idea to point out that in this case what everyone knows isn’t true…. We do have a big problem—but it has very little to do with technology, and a lot to do with politics and power…. Technological disruption… isn’t a new phenomenon. Still, is it accelerating? Not according to the data. If robots really were replacing workers en masse, we’d expect to see the amount of stuff produced by each remaining worker—labor productivity—soaring…. Technological change is an old story. What’s new is the failure of workers to share in the fruits of that technological change…

  17. Made me want to very much read a book I had not gotten to. Now I have. It’s excellent. I endorse Noah’s review: Noah Smith: Book Review: The Revolt of the Public, by Martin Gurri: “Social media, Gurri asserts, has both empowered and emboldened the public, freeing it from the control of centralized, hierarchical push-media…. The public’s goal is negation-denunciation of respected leaders, derailment of political programs, overthrow of parties or governments, discrediting of institutions, etc…. The usefulness of this book is in drawing parallels between a bunch of things that might seem unrelated…. If Gurri is right, these things are fundamentally about a technology-social media-and the way it changes power relations between the public and elites, then we can expect today’s explosions of anger to be followed by others tomorrow, and then others the day after tomorrow, and on and on and on. Gurri may not convince you-in fact, if he does, you’re probably not enough of a skeptic-but he will give you a new framework with which to usefully think about the political chaos of the modern world…

  18. Another old piece, but more true than ever. On the left, the talking heads the media puts on the TV as economists are economists. On the right, they are grifters who play economists on TV. My recent encounter with Steve Moore at the San Francisco Commonwealth Club has erased any doubts I might have had: Paul Krugman (2015): On Econoheroes: “I gather that some readers didn’t get what I was driving at in declaring that Joe Stiglitz and yours truly are the left’s ‘econoheroes’, but the likes of Stephen Moore and Art Laffer play that role on the right…. What I meant—I thought this was obvious—is that Joe and I do tend to get quoted, invoked, etc. on a frequent basis in liberal media and by liberals in general, usually with (excessive) approbation. And the thing is that while there are people playing a comparable role in right-wing discussion, they tend not to be highly cited or even competent…

  19. It is not at all clear to me that quantum computers will ever be practical devices for anything other than simulating quantum-mechanical systems, at which I agree they will have an enormous edge over classical devices. Although “simulating” is perhaps the wrong word: “mirroring” or “modeling” would be better. As Scott Aaronson rightly says, they will be useful for broader purposes only to the extent that the interference properties can be harnessed for our use, as in Childs et al.: Scott Aaronson: Quantum Computing, Capabilities and Limits: “Every quantum algorithm is… trying to choreograph things in such a way that for each wrong answer to your computational problem… the paths… cancel each other out, whereas the paths leading to the right answer should all be ‘in phase’ with each other…. If you can mostly arrange for that to happen, then when you measure the state of your quantum computer, then you will see the right answer with a large probability…. So nature… gives you a very bizarre ‘hammer’….People always want to… [say] the quantum computer just tries all of the possible answers at once. Bt the truth is that if you want to see an advantage, you have to exploit… interference…

  20. Scott Alexander: Who By Very Slow Decay: “After a while of this, your doctors will call a meeting with your family and very gingerly raise the possibility of going to ‘comfort care only’, which means they disconnect the machines and stop the treatments and put you on painkillers so that you die peacefully. Your family will start yelling at the doctors, asking how the hell these quacks were ever allowed to practice when for God’s sake they’re trying to kill off Grandma just so they can avoid doing a tiny bit of work. They will demand the doctors find some kind of complicated surgery that will fix all your problems, add on new pills to the thirteen you’re already being force-fed every day, call in the most expensive consultants from Europe, figure out some extraordinary effort that can keep you living another few days…

  21. Against Raj Chetty et al.‘s belief that school quality—rather than the fabric of society—is a key mechanism creating and blocking possibilities for upward mobility: Jesse Rothstein (2017): Inequality of Educational Opportunity? Schools as Mediators of the Intergenerational Transmission of Income: “Commuting zones (CZs) with stronger intergenerational income transmission tend to have stronger transmission of parental income…

  22. Irwin Collier: Chicago. Monopoly Course Proposal by Abram Harris with George Stigler’s (Dis)approval, 1961: “[TO:] Al Rees, Chairman [DEPARTMENT:] Economics [FROM:] George J. Stigle [IN RE:] propose 200 level course in the College by Abram L. Harris. Dear Al: This new course of Abe Harris arouses no enthusiasm on my part. It sounds like a protracted bull session, in which large ideas are neither carefully analysed nor empirically tested. Even if this is a correct prediction, it leaves open the question of our listing it. Abe is a nice guy, only about 3 years from retirement, and it serves no good purpose to hurt his feelings. My own inclination would be (1) to list it, with explicit proviso that it is only for as long as he teaches it, and (2) advise our majors to forget it…

  23. Abram L. Harris (1961): Countervailing Power, Monopoly, and Public Polic: “Combine theoretical analysis in a survey of the ideas of some leading economists who have dealt with the problem of market imperfections and monopoly along with discussions of the early trust movement…. A technical mastery of theoretical economics is not a prerequisite. One main purpose of the course is to stimulate undergraduate interest in theoretical economics, the history of economic ideas, and the relation of these ideas to current economic policy issues. The course should be open to beginning majors in economics, students who are undecided about a major in the social sciences, and to those who are just curious…. The Concept of “Countervailing Power”: Old wine in new bottles? Chamberlain… Adam Smith, John Stuart Mill, and Alfred Marshall…. John Bates Clarke and his student, Thorstein Veblen…. The Standard Oil and U. S. Steel cases and federal anti-trust legislation. Recent anti-trust cases: administrative interpretation and application of federal legislation. Marx’s thesis concerning industrial concentration…. The extent and measurement of industrial concentration…. A term essay will be required of all students who take the course for credit. The essay may take the form of a review, e.g., Berle’s Twentieth Century Capitalist Revolution, Mason’s The Corporation in Modern Society, Chamberlain’s Labor Union Monopoly or may deal with some topic… selected by the student in consultation…. P.S. The content of the course may appear be heavy and, probably, cannot be entirely covered in a single quarter. The layout will have, no doubt, to be tailored as we proceed to give the course for the first time…

  24. :I. W. Gabriel Selassie: Abram Lincoln Harris Jr. (1899-1963): “Abram Lincoln Harris, Jr., the grandson of slaves, was the first nationally recognized black economist… a Marxist…. The Black Worker was recognized as the foundation for future economic histories and assessments of the black condition. The Negro as Capitalist argued that non-racial economic reforms were the key to solving black fiscal woes. He also argued that capitalism was morally bankrupt and that employing race consciousness as a strategic way to enlighten a public was self-defeating.  W.E.B. DuBois described Harris as one of the ‘Young Turks’ who challenged the then existing historical theories about blacks in a capitalist society while insisting upon using modern social scientific methods to further his analyses of African American life…

  1. The Free Dictionary: Idioms: Outside My Wheelhouse

  2. Wikipedia: The Negro Family: The Case For National Action

  3. Josh Marshall: Josh’s Epic List of Books

  4. David Dyer-Bennet: “Federal Service” in Robert A. Heinlein’s Starship Troopers | James Gifford: The Nature of “Federal Service” in Robert A. Heinlein’s Starship Troopers

  5. Charlie Stross: CMAP #16: Book Title Blues: “Here are the rules for book titles these days: Make it memorable and pronouncable… unique…. Have a series title waiting in the wings…. While your snappy, unique title is the lede, feel free to add a colon or semi-colon separated list of potential series titles and cover blurbs, so that folks searching Amazon for Regency-setting dragon shifter hentai romance with talking starships will still be able to find your novel…

#noted #weblogs 

The ε-Stigler and the Other Components of Stigler: On George Stigler’s 1962 Denunciation of the “Insolence” of Demonstrating Negroes, and Other Topics

School of Athens

Twitter Thread: Daniel Kuehn wrote: “We say something intelligent and on-point about Buchanan or Friedman or Tullock or Stigler and then we try to extrapolate a history of conservatism from it. Generally we’re not equipped to do that (I’m certainly not), and should be wary of it. Wary doesn’t mean don’t cross-pollinate. I think the interaction between the two communities is great. Just something to be aware of…”

Let’s take the George Stigler vector and project it onto a complete intellectual basis made up of the unit vectors ε, σ, π, β, γ:

Along the economics basis vector, the ε-Stigler has a set of powerful arguments about the thumb-fingered capabilities of government, about the vulnerability of state action to rent-seeking, about the willingness of the market economy to provide a substantial reward to productive investment, about how historically antitrust policy has created as many and as large gaps between price and marginal cost as it has suppressed, and about how the best strategy when confronted with problems is to exit, diligently build up your productive capacities, find an alternative competitive market someplace else to trade on, and outlive the bastards. This ε-Stigler’s arguments are sometimes right, sometimes wrong, but they always need to be confronted. The sub-Turing ε-Stigler instantiation I currently have running on my wetware is a very powerful piece of my personal intellectual capital. I use it every week, to my great benefit.

Along the sociology basis vector, the σ-Stigler has a rather amateurish set of arguments about African-American family structure and culture. The standard white expression of them is found in Daniel Patrick Moynihan (1965): The Negro Family: The Case for Natural Action, that he as DoL ASPPR and his Johnson-administration staff wrote. Two things about Moynihan and this Moynihan Report: (1) It is in part a personal psychological exercise for Moynihan: the fatherless youth running in gangs through the urban streets committing petty crimes and violence are Moynihan’s memories of his and his friends’ childhoods. (2) It is Moynihan’s bid for a substantial piece of the Great Society to be explicitly devoted to racial reparations: to make the Great Society not just an expansion of the societal well-being safety net, but to include lots of special money to get resources to African-American single mothers and positive male role models to African-American boys and teens. This line of argument, however, is much better set out by the likes of William Julius Wilson, Glenn Loury, and company than by Moynihan (and Moynihan’s sets them out much much much much much much better than Stigler): the fact that Moynihan’s document is political-bureaucratic (a bid for funds) and personal-psychological and white makes it… not terribly good as sociology. And when I run into these issues, I look around for a competent sociologist to give me the lowdown, as they are outside my wheelhouse.

Along the political science basis vector, the π-Stigler fears that African-American action to get the federal government to act on its side will (i) induce a white backlash, (ii) induce a federalism-small government backlash, (iii) lead to a wealth-destructive quota régime of economic regulation, and (iv) distract the African-American community from the more important and more effective task of building social and human capital, both because African-American leaders want to get on TV rather than serve their communities, and because African-American youth will learn that they shouldn’t study and work but instead burn things down because whitey is to blame. This π-Stigler seems to me to be highly engaged in unprofessional motivated reasoning. It takes a certain kind of strange mind to view working for (a) equal rights, (b) appropriate reparations, and (c) community uplift as exclusive options only one of which can be chosen.

Then there is the bigot basis vector: The β-Stigler denounces the “much greater disservice… of the leaders of Negro opinion… direct[ing the discontent at the white population”; condemns the “demonstrations, growing in… insolence’; sneers at “the political, intellectual, and religious leaders of the nation” for “approv[ing] or at least tolerat[ing] these demonstrations; sneers again at “a semi-literate Negro teenager in a slum”; sneers again at “Negro youth” who lack “the love of knowledge and the willingness to work hard and achieve it; and condemns the “Negro leaders should be helping the emergence of this cultural tradition” but are “instead… diverting Negro energies to better school buildings”. The β-Stigler then goes on to note that the average Negro “lacks a desire to improve himself, and lacks a willingness to discipline himself”; is “inferior… as a worker… lacking a willingness to work hard”; condemns Negro leaders for “not fostering the ancient virtues of diligence and honesty and loyalty” because “it is so much easier to seek quotas for Negroes”; expresses sympathy for the white man’s repulsion and avoidance of the average “Negro family… a loose, morally lax, group” bringing “a rapid rise in crime and vandalism” and lacking “the liking and respect that sober virtues commend”; and again condemn the “leaders of Negro thought” for falsely pretending that “individual responsibility could be bought” if only Negro incomes were higher by “a thousand dollars a year”. The β-Stigler then goes on to approve of the Jews, and how “they are in the rapid process of losing their identity”. And the The β-Stigler sneers again at “The leaders of Negro opinion”: “How much easier to march on the mayor than to teach industry to a boy!” “How much simpler to keep the children home to coerce the school board than to instill in them a love of art and literature and science! The task does not allot a large role to the prominent leaders”. And the β-Stigler closes by adding those pushing for decolonization to his list of villains: “Africans are poor and ignorant? Out with colonialism! The American Negro is a lesser citizen? To the barricades!” Enough said.

Last, there is the greedy basis vector: The γ-Stigler takes pains to remind his readers over and over again that he should not be taxed because money spent would do not good: “the past is not for us to relive”, “no amount of restitution for past injustice by the white man could solve the basic problem”, “the real task… is not to provide good schools and good teachers”.

We economists in our daily work and in our studies of the internal intellectual history of our discipline aimed at honing our present-day intellectual panoply focus rightly on the ε-Stigler: it is right and proper that we should do so.

But we economists are also a human community. As Numa Denis Fustel de Coulanges writer in his The Ancient City, human communities (at least patriarchal human communities) forge their identity by constructing largely-fictitious kin ties based on notional genetic, intellectual, or adoptive descent from common ancestors, who assume the role of heroes whose example we must live up to, and whose memory we respect. George Stigler is one of economists’ common ancestors. But the Stigler who is our hero is only the ε-Stigler component, not any of the others. And if we are going to have a, say, Stigler Centers, it needs to prominently divorce itself from the other components—definitely not sweep them under the rug, and definitely not endorse any of the them. Praising Stigler’s valid insights does not entail or require that we either praise or ignore those of parts of him where he was ignorant, stupid, or evil. And reckoning with those parts of Stigler that were ignorant, stupid, and evil does not mean that we should avoid proper acknowledgement that his are (some of) the giant shoulders on which we stand.

And acknowledging the intellectual force of the arguments of the ε-Stigler does not mean that we need to transfer the same respect we give that component to others who thought like Stigler. As the very wise John Holbo recently wrote:

The fact that someone can come up with an ingenious philosophical defense of a view that most people, who hold something like that view, hold for plain old bigoted reasons, is not a good reason to treat those who are, actually, bigoted, as if they are, instead, ingenious philosophers…

Even the good arguments developed by the ε-Stigler can (and often are) deployed in bad faith by bad people for bad ends. And sometimes they were so deployed by George-Stigler-the-man, who is always both more and less than the ε-Stigler, himself.

#twitterthread #highlighted #politicaleconomy #race #racism #orangehairedbaboons #economicsgonewrong @cterbeek @heerjeet @D_Kuehn @TommSciortino @economeager 

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Adam Tooze: Democracy and Its Discontents: Weekend Reading

Il Quarto Stato

Weekend Reading: Adam Tooze is correct when he writes that “across the American political spectrum, if there is agreement on anything, it is on the need for a firmer line against China”. The bombs-and-bullets people, the geopolitics people, and the blame-somebody-else people are all agreed. The U.S. needs to do something to strengthen its relative position, and that means it needs to start doing something to China.

But that would be going about it the wrong way. Thinking that the right way to do something is to do something to China is a very bad way to think. The U.S. could still forge a 21st century condominium with China. But all those necessary and needed pieces of action require that the U.S. look and act inwardly, not outwardly:

Adam Tooze: Democracy and Its Discontents: Runciman: “Rather than raging against the dying of the light, Runciman[‘s How Democracy Ends], like Spengler and Kojève, invites us to adopt a stance of disillusioned realism. If we can see the decline of democratic polities all around us and can diagnose the multiple causes of their eventual demise, that does not excuse us from the responsibility to make them work until the bitter end…

…Democracy has long been the benchmark of Westernization. Talk of a crisis in democracy has relevance precisely because the rise of the Chinese economy under Communist Party leadership puts that benchmark in question…. The most pressing questio…. Assuming current trends continue, will America accept its relative decline with equanimity?…

The concern must surely be that Runciman’s vision of a passive America is in fact overly optimistic. In a perspicacious Op-Ed, Larry Summers recently asked, “Can the US imagine a global system in 2050 in which its economy is half the size of the world’s largest? Even if we can imagine it, could a political leader acknowledge that reality in a way that permits negotiation over what such a world would look like?” Trump has responded to that question in his characteristic belligerent and petulant manner, launching an ill-conceived trade war. But… across the American political spectrum, if there is agreement on anything, it is on the need for a firmer line against China.

Rather than the stoical acceptance of a new reality suggested by Runciman’s scenario, is not the more likely outcome a reconfiguration of American democracy like the one that occurred in the 1930s and 1940s, when the executive branch was given unprecedented power to confront external foes? The risks in a confrontation with Nazi Germany and the Soviet Union were enormous. By comparison, our troubles with Putin’s Russia are trivial. The perils of a new cold war with China will not be…

#weekendreading #fascism #orangehairedbaboons #politicaleconomy #politics 

May 17, 2019: Weekly Forecasting Update

Industrial Production Index FRED St Louis FedManufacturers New Orders Nondefense Capital Goods Excluding Aircraft FRED St Louis Fed

The right response to almost all economic data releases is: Nothing has changed—your view of the economic forecast today is different from what it was last week, last month, or three months ago in only minor ways.

Federal Reserve Bank of New York: Nowcasting Report: May 17, 2019: “The New York Fed Staff Nowcast stands at 1.8% for 2019:Q2. News from this week’s data releases decreased the nowcast for 2019:Q2 by 0.4 percentage point. Negative surprises from industrial production and capacity utilization data largely offset positive surprises from housing and regional survey data…

Key Points:

Specifically, it is still the case that:

  • The Trump-McConnell-Ryan tax cut:
    • To the extent that it was supposed to boost the American economy by boosting the supply side through increased investment in America, has been a complete failure.
      • To the extent that it was supposed to make America more unequal, has succeeded.
      • Delivered a substantial short-term demand-side fiscal stimulus to growth that has now ebbed.
        • (A 3.2%/year rate of growth of final sales to domestic purchasers over the seven quarters starting in January 2017,
        • pushing the level of Gross National Income up from 2.0%/yera from this demand-side stimulus.)
  • U.S. potential economic growth continues to be around 2%/year.
  • There are still no signs the U.S. has entered that phase of the recovery in which inflation is accelerating.
  • There are still no signs of interest rate normalization: secular stagnation continues to reign.
  • There are still no signs the the U.S. is at “overfull employment” in any meaningful sense.

  • A change from 3 months ago: The Federal Reserve’s abandonment of its focus on policies that are likely to keep PCE chain inflation at 2%/year or lower does not mean that it is preparing to do anything to avoid or moderate the next recession.

  • Changes from 1 month ago: The U.S. grew at 3.2%/year in the first quarter of 2019—1.6%-points higher than had been nowcast—but the growth number you want to put in your head in assessing the strength of the economy is the 1.6%/year number that had been nowcast. The falling-apart of Trump’s trade negotiating strategy with China will harm Americans and may disrupt value chains, but the effects are unlikely to be clearly visible in the data flow.

  • A change from 1 week ago: “Industrial production fell 0.5 percent in April, and the rates of change for previous months were revised down on net. Output is now reported to have declined 1.9 percent at an annual rate in the first quarter”.

  • Over the past 20 years: United States manufacturers are ordering no more in the way of trhe nominal value of capital goods than they order two decades ago. Deflators here are very hazardous, but I believe that translates to a zero increase in real orders as well. This is unprecedented for the U.S. economy: nothing like it has happened before:

#macro #forecasting #highlighted 

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.

And, for any economist who believes in the greatest good of the greatest number and does not shut her eyes to the gross fact of the declining marginal utility of wealth, the elementary moral philosophical conclusion is that this wealth should be distributed on a strongly egalitarian basis.

What about the other half, or more likely third, or even quarter, of our wealth? It should presumably be distributed according to societal utility, with deviations from an egalitarian baseline to the extent that they prove useful in providing incentives and aligning interests. Perhaps we can even extend and allow some role for inheritance to further motivate accumulation.

Excuse me, what are you saying? “Desert” you say? That some people “deserve it more because of the luck making them who they are”?

A principle that ultimately reduces itself to choosing the right parents, or simply happening to be in the right place at the right time, does not seem to me to have any force. Indeed, the overwhelming majority of those who have thought about it and who have not been bought and paid for agree: that is why the past century and a half of increasingly desperate attempts to link it to unconvincing and exploded social Darwinism.

#equitablegrowth #moralphilosophy #highlighted 

Joseph Schumpeter (1927): The Explanation of the Business Cycle: Weekend Reading

Il Quarto Stato

Joseph Schumpeter (1927): The Explanation of the Business Cycle: “§1. The childhood of every science is characterised by the prevalence of “schools,” of bodies of men, that is, who swear by bodies of doctrine, which differ toto caelo from each other as to philosophic background and fundamentals of methods, and aim at preaching different “systems” and, if possible, different results in every particular—each claiming to be in exclusive possession of Truth and to fight for absolute light against absolute darkness. But when a science has “gained man’s estate,” these things, whilst never ceasing to exist, tend to lose importance: the common ground expands, merits and ranges of “standpoints” and “methods ” become matter of communis opinio doctorum, fundamental differences shade off into each other; and what differences remain are confined within clear-cut questions of fact and of analytic machinery, and capable of being settled by exact proof…

…Our science is past its childhood, but has not reached its manhood yet. On the one hand, our patience is still being tried by the phraseology of “schools ” and “-isms,” and there is still plenty of scope and shelter for the products of bad workmanship passing themselves off as new departures; but, on the other hand, the really living part of our science shows hopeful signs of, if I may say so, that convergence of effort, which is the necessary and sufficient condition of serious achievement. Those economists who really count do not differ so much as most people believe; they start from much the same premises; problems present themselves to them in much the same light; they attack them with much the same tools; and, although some of them have a way of laying more stress on points of difference than of points of agreement, their results mostly point towards common goals. This is not only true of fundamentals of fact and machinery, but also of what is going on within the precincts of every one of our time-honoured problems.

The problem of the business cycle is a case in point. It presented itself to the economists of the classic period and their immediate successors in the aspect of the striking fact of recurring “crises.” Two first results were speedily established. The one, negative only but of the greatest diagnostic” importance, was that there can be no such thing as a general glut. The other, that crises are-I really ought to say that it is extremely probable that crises are-an essential element of the capitalistic process and not merely occasional breakdowns to be individually explained by accidents different in each case-just breakdowns which happen if anything of sufficient importance goes wrong. But barring these two points, discussion went to pieces on fundamental differences in the views about the capitalistic process, each author drawing different conclusions from different fundamentals; and finally languished in an atmosphere of theoretic hopelessness. Then came the great impulse due to the genius of Clement Juglar. He, first, by showing that crises are only elements of a much wider and deeper cyclical movement, unearthed the real problem; he, second, succeeded in describing empirically this cyclical movement; and, third, he contributed substantially towards its explanation. Few only were his immediate successors, such as Des Essars. But later on set in the great torrent of descriptive studies of the cycle which is one of the characteristic features of modern economics and which-not perhaps consciously inspired by Juglar, but still flowing from his source, by virtue of the logic of the scientific situation-permits us to see, where our predecessors had to guess. This torrent does not, by itself, supply us with a solution of the problem. Part of its waters are, besides, more useful in helping us to understand the peculiar features of individual cycles than in answering the great question: Why there are such things as cycles at all. But it gives endless opportunities to the analyst—whose own tools have been much improved meantime-for finding explanations and verifying them. And so we have reached a stage, perhaps for the first time, where facts and problems are before all of us in a clear and in the same light, and where analysis and description can co-operate in something like the spirit of physical science.

§2. As a matter of fact, this is the line along which we are now moving. It stands out clearly in all the best work done, for instance, in the important theory of Spiethoff. But, hopeful as the situation is, it calls for aptitudes not often found together. And as few men unite, as Professor Pigou does, consummate mastery of statistical facts and of the art of handling them to unrivalled command of the analytic engine, it is but natural for us to approach his recent work on the subject, with the very highest expectations. These expectations have been amply ful filled. The book is an admirable achievement. It is impossible to give, within the limits of an article, an adequate impression of all its fruitful and original contributions. We shall, in the main, confine ourselves to Part I-“Causation”—and refrain from entering, except incidentally, upon a discussion of the vast and complex issues dealt with in Part II-“Remedies “.

There are really-subject to a qualification to be introduced later-four groups of problems which come under the head of “Industrial Fluctuations”: the seasonal fluctuations, the “cycle,” the “long waves,” and the secular trend. Professor Pigou’s analysis is limited to the second, and we shall follow his example, although we confess to a feeling that it is the two last-named which will before long absorb the attention of the workers in this field, and that the problems of the cycle cannot be dealt with quite satisfactorily without reference to them. Now a distinction occurs at the outset, the triviality of which does not deduct anything from its importance. By “theory of the business cycle” we may mean, first, an analysis of any single one of the cycles which history records, or, arising out of such analysis of many or all recorded cycles, a reasoned history of the phenomenon. The most eminent instance of this type is Professor Mitchell’s book. Second, we may mean by that expression a general theory, as exhaustive as may be, of all the elements contributing, or likely to contribute, to the phenomena we observe and of their interaction. Third, we may mean something different again, viz., a theory of what we conceive to be the fundamental cause. Neglect of this distinction has repeatedly led to misunderstanding. So, for instance, Pareto held that there is no sense in asking the question, what “the” cause of interest is-interest being evidently the result of all elements of the economic system. But although it is, of course, true that the rate of interest, at any given moment, is a function of all other economic quantities existing at that moment, it does not follow that that question is futile, and saying so only serves to confuse issues. Nowhere is the fallacy alluded to more specious and dangerous than in the particular case of the theory of cycles. For nowhere is it more difficult to disentangle the fundamental from the accidental, or more easy to cover the shortcomings of an explanation by a wealth of secondary considerations, and insufficiency of analysis by an appeal either to the complex mass of detail, always so convincing to the “practical-minded,” or to the great principle of economic interdependence, which occasionally covers a multitude of analytic sins.

Professor Pigou’s theory is of the second type. I do not mean to imply that he fails to offer a ” fundamental explanation ” of the phenomenon. But he aims at more than that, and it is precisely this comprehensiveness of survey which makes the book so valu- able-not only to the student but also to the business man, whose needs are but little served by a mere ” pure ” theory of the cause or causes of the cycle-and assures it of a high place in the first rank of the contributions to its subjects. To discuss only the fundamental explanation of the cycle which it offers, and to neglect that it clears up many problems of industrial movement in general as its argument unfolds itself, is to do much less than justice to it. This is, however, what limits of space in some measure compel us to do. We can only mention in passing that the author deals with important subjects, relevant to industrial movement of any sort besides the cyclical one, with a mastery all his own, for instance, with the “autonomous monetary causes of industrial fluctuations” (Ch. VIII)-which he quite rightly distinguishes from those monetary causes which belong in a special sense to the mechanism of the cycle and will come in for discussion in the second part of this paper-or with the part played by rigidity in wage-rates or by the imperfect mobility of labour (Chaps. XIX and XX), subjects, to be sure, without which there is no understanding of all that happens in the cycle and which, therefore, form part of its “causation” in Professor Pigou’s sense, but subjects too, I submit, which do not form part of its “causation” in the sense which we mean here and which will be made clearer presently. The writer begs leave to avail himself of the Editor’s invitation to start, in discussing Professor Pigou’s theory, from his own views, arrived at in 1909, first published in 19I2 and capable of being compressed into a very few propositions:

§3. (i) The first of these is that there would be no cycles under “static” conditions. This seems self-evident, because we are still in the habit of mixing up “static” and “stationary” conditions, a habit, by the way, responsible for much that is unsatisfactory in our apparatus of analysis. What I want to say is: Those elements of the economic process, the description of the interaction of which makes up the theory of economic equilibrium, do not contain anything out of which a tendency towards cyclical movement could automatically arise. This is not self-evident, but still need not be proved to readers familiar with Marshallian analysis.

(2) “Static conditions are compatible with continuous “growth” (or decline) such as would be the consequence of the mere fact of an increase (or decrease) of population and capital. For it is no part of the system of assumptions of “static” theory that there should be no shifting of the centre of gravitation of the economic cosmos. All that is required is that the economic process should adapt itself to such shifting simply by trying to find the new equilibrium by small alterations of quantities. We may, then, speak either of an equilibrium of growth or-as we prefer-of an equilibrium which, though continually disturbed by growth, continually tends to be re-established. There is nothing in this which, by itself, could produce the business cycle. Professor Pigou lends the weight of his authority to this proposition, by word as well as tacendo. And indeed theories looking for an explanation of the cycle in the increase either of population or of capital seem to me hardly worth discussing.

(3) I always thought, and still think, that in order to find out whether or not cycles are a phenomenon sui generis, clearly standing out as such from the rest of industrial fluctuations and arising from within the economic system, we ought, in the first instance, to assume the absence of outside disturbances-non-economic ones, or economic ones which cannot be produced or avoided by economic action, both of which we are going to call “casual”-acting on the system. We shall, then, see either that the economic system never (and not only not under “static” conditions) evolves that particular kind of fluctuations of itself, in which case outside disturbances must be looked upon as responsible for them; or else that the economic system would of itself display “cyclical” movement, in which case we should have to recognise the presence of a problem of a “normal cycle”; we should, moreover, have to conclude that the whole of purely economic phenomena cannot be exhausted by means of the “static” apparatus; and we should, finally, have to look upon the influence of outside disturbances as a fifth set of problems within the genus of industrial fluctuations, which would, indeed, also form part of any comprehensive survey of all that happens in cycles (because outside disturbances of some kind never fail to arise and always must react upon the cyclical movement), but which would have to be kept aloof in a theory of causation, in a sense which I hope is now quite clear.

Professor Pigou, after having rather severely reproved those who uncritically look for “causes” of industrial fluctuations, proceeds to draw a distinction similar to and still fundamentally different from ours. He distinguishes the problem of “initiating impulses” from what I may term the mechanism of the cycle. His “initiating impulses” being substantially what I mean by outside disturbances, such as exceptional harvests, wars, social unrest and so on, he merges what are our second and fifth sets of problems into one; and his views seem to us to come to holding that there are no causes within the system sufficient to produce the cycle and that its theory can only consist in describing the mechanism through which initiating impulses act2 as they arise, some of them sporadically, others periodically. This does not, indeed, diminish the value of Professor Pigou’s contributions to our knowledge of that mechanism-which proves to be applicable to even a much wider range of facts beyond the cycle-but it does interfere with his doing justice to the fundamental problem, and puts a gulf between him and what seems to us the line of advance chalked out by the best work done so far: and in fact, we grieve to say, he does not so much as mention Juglar, and even the name of Spiethoff is absent from his pages.

We only need, however, look at the way in which any disturbing element acts in order to be confronted with a distinction, both natural and important, which points in our direction. If, say, a war breaks out and upsets existing equilibrium, people can try to adapt themselves to altered conditions by infinitesimal steps, reducing, for instance, their consumption or, in their business, accepting the higher takings they get and paying their higher expenses, adjusting the quantity of their product accordingly. They may not be able to so adapt themselves and perish. They will, in so adapting themselves, be of course subject to all sorts of error. Still, we have here a well-defined type of behaviour admirably fitting in with “static” theory; and a type of behaviour, too, which we have before our eyes in real life, for this is the only way in which the majority of people do act and are capable of acting. But however high we may put the explanatory value of error and friction, this is emphatically not the way in which booms arise, and not the kind of events of which booms fundamentally consist, as will be seen as we go on.

There evidently is another way of reacting, clearly distinguishable from this, although shading off into this on the border. People can also drop their attitude of passive adaptation, they can react by doing new things or things in a new way, incompatible with the fundamental arrangements that exist. The clerk, instead of reducing consumption, can go into business for himself; the manufacturer can change his cotton-mill into an ammunition factory. Some people-never all nor ever more than a minority-do that. This is a different kind of behaviour and not within reach of marginal variations; and it is productive of different consequences.

Now, on the one hand, although, if distinguishable, these two kinds of reaction are both of them invariably set into motion by any ” initiating impulse,” it is only the first of them which can be said to follow automatically from the outside impulse by virtue of a causal connection exhaustively described-and determined-by theory. The second kind of reactions is not gripped by our analytic machine—although of course their consequences are-unless we “put a new arm” to it, which is precisely what I have been trying to do since 1912; and they cannot, with any certainty, be relied on to happen, or be predicted to happen, in any definite way in practice: they could fail to show up, in which case there would be no boom; whilst if they show up, it is never the mere occurrence of the disturbance which produces them, but a certain attitude of certain people.

Again this attitude, on the other hand, exists and shows itself quite independently of the presence of any disturbance. To avoid misunderstanding-of course, the type of behaviour we are glancing at now always has to do with a given environment, and environment always includes some sort of disturbance. But if there were not the one disturbance there would be another. And if there be none, the “impulse” would be created by our type. There is always scope for this. Industrial and commercial methods are never perfect in any sense except relatively to the average light and energy of the business community. Knowledge-scientific and other-is always far in advance of actual practice, not only in things which it could not, or not yet, pay to carry out, but also in things which it would. Results of invention-not only, again, impracticable ones-are always offering themselves, but may lie unused indefinitely. Why ? Because doing what has not yet stood the test of experience is no mere act of ordinary business practice, such as we primarily think of when applying our theoretic apparatus, and such as the average man of business can be relied on to do promptly, but something else which wants an attitude and an aptitude, different indeed from what is required for the ac invention, but equally rare-an attitude and aptitude more of character-” power,” ” leadership “-than of intellect. Hence there are always great prizes to be won by those who have them, the business community does not, and cannot, proceed to new methods, as it were, in line: some rush ahead, others lag behind; and the latter are forced onwards or ruined by competition setting in from those who lead. Nor are these things mere frictions such as theory can afford to neglect; fundamental phenomena of modern industrial life depend on them for explanation-the business cycle among them, for the explanation of the nature of which this set of facts-which lies outside the domain of static theory but still within the economic system itself-is both necessary and sufficient, as I hope to show. Meanwhile, we only want to point out that willingness and capacity to do new things will always and necessarily find, or be able to create, the opportunity on which to act, being, in fact, itself the one fundamental ” initial impulse” of industrial and commercial change.

In this sense, therefore, I claim ” independence ” of the cycle and of those booms and depressions which form the normal cycle of impulses from without : in the face of the facts, first, that such events do also lead to booms and depressions displaying a very similar mechanism and very similar features; second, that every one of the ” normal cycles ” is, as a matter of fact, powerfully influenced and coloured by some disturbances from without-any given situation being subject to such disturbances, which may help on, or rein in, any given upward or downward movement, and offer, as it were, part of the material of which the fabric of every boom consists, but which, if absent, would be supplemented by other material always at hand.

I also submit that this distinction of phenomena, which in reality always go on together and react upon one another, is no matter of theoretic nicety. For to the distinction in theory corresponds a distinction in reality. If we are furnished with sufficient details of a case, we are always able to tell whether it belongs to the static or non-static sphere-a movement of the rate of interest, for instance. Nor is this all. It is of very considerable practical importance to distinguish between booms of different nature, and it makes a great difference both to diagnosis and to remedial policy, whether we have to do, say, with a crisis of deflation or with the depression of a normal cycle. Neglect of this distinction vitiates, I think, part of what I otherwise consider most valuable results of recent research.

(4) Our fourth proposition is the one due to Juglar: “La cause unique de la depression c’est la prosperite.” That is to say, that the phenomena which we have got in the habit of calling ” depression ” are no irregular heap of disturbances, but can be understood as the reaction of business life to the situation created by the boom or, more precisely, as the movement of business life towards a new state of equilibrium conforming to the data created by the boom-such being what I may term ” normal ” depression as distinguished from ” abnormal ” havoc, incidentally wrought by panic, and productive of consequences of its own. It is important to note that by reaction I do not mean a psychological one, although this, too, must always play an important, though secondary, part, a part, that is, which is secondary not only in importance but also as to its position in the chain of causation. The new data, created by the boom and upsetting all the bases of industrial and commercial calculation, are an ” objective ” fact. As such they enforce ” objective ” adjustments. And these and the losses they entail would account for what happens in the period of depression, even if nobody lost his head or turned, by zoological miracle, into a ” bear.”

It may not be superfluous to ask the reader to bear in mind two more points: we should not, of course, be justified in applying the same sort of reasoning to the boom. There are authorities who barely escape this sort of perpetuum mobile reasoning, according to which there would be booms because there are depressions, and depressions because there are booms. This reasoning derives some support from the fact that depression, by lowering prices of materials, machines, labour and ” going concerns,” affords the opportunity of buying cheaply. I need not stay to show why this support is insufficient. But I want to emphasise that we are doing nothing of the sort.

As will be readily seen, moreover, all theories of the cycle- including those of, say, Marx, Hawtrey, Pigou-are at liberty to accept this proposition. Whatever their explanations may be, they all consider what happens in depression to be the consequence of something which happened in the boom, or, anyhow, before the crisis or depression itself.

(5) We shall, therefore, have explained the cycle when we have explained those booms which are so clearly before our eyes ever since (at least) the Napoleonic wars, which we can so well distinguish from other fluctuations, and in which we can, I think, equally well distinguish what they owe to their own and to extraneous impulses. Those booms consist in the carrying out of innovations in the industrial and commercial organism. By innovations I understand such changes of the combinations of the factors of production as cannot be effected by infinitesimal steps or variations on the margin. They consist primarily in changes in methods of production and transportation, or in changes in industrial organisation, or in the production of a new article, or in the opening up of new markets or of new sources of material. The recurring periods of prosperity of the cyclical movement are the form progress takes in capitalistic society.

By saying this we mean to state a fact requiring both proof and explanation. Whilst we hope to be able to contribute, by our two last propositions, something towards the latter, it is impossible here to satisfy the reader as to the former. But the fact is becoming recognised more and more, and it is, for instance, clearly hinted at by Mr. Robertson-with that amiable diffidence of his-on p. ii of his important little book, to which we shall return in the second part of this paper. The reader needs only to make the experiment. If he cares to survey industrial history from, say, I760 onwards, he will discover two things; he will find, first, that very many booms are unmistakably characterised by revolutionary changes in some branch of industry which, in consequence, leads the boom-railways for instance in the ‘forties, or steel in the ‘eighties, or electricity in the ‘nineties-and that, if he will take a bird’s-eye view of our industrial organism, he will be able to follow up every one of its leading features to a source originating in a boom. And he will find, secondly, that all the booms which he may find himself unable so to characterise can be shown, by other and independent reasons, to be casual phenomena outside the cyclical movement and distinguishable from it, such as the booms ending in the collapses of 1793, 1799, 1810, and 1922, which, to my mind, lead to the most palpable mistakes both of analysis and policy if mixed up with the cyclical ones. It is equally important-and possible-to distinguish cyclical depressions from mere ” breaks ” such as the crises of I866 and I9OI-even as a doctor must distinguish between the going down of the temperature of his patient owing to his progress towards health, and the breaks the curve of temperature may occasionally display for all sorts of reasons.

Further corroboration is afforded our proposition by the fact, brought out beyond doubt by statistical investigation and quite universally admitted, of the prominence of the constructional trades, both as to priority in time and as to amplitude of fluctuation, within the events of the cycle. I do not know one modern writer who would deny it. But if the fact be undeniable, it evidently fits in admirably with our thesis: it could not indeed prove it, for there is no such thing as statistical proof. But it is eminently apt to serve as verification; for it derives a very natural explanation by our thesis, which alone, in fact, gives it its proper significance and sheds on it its true light.

It is instructive to look at Professor Pigou’s treatment of these points from this angle. He overlooks none of them. The question of instrumental industries he deals with in § 9 of his second, and again in his ninth chapter, and ” inventions ” come up for discussion in §§ 1I-13 of Chapter IV. But he arrives at results substantially negative in much less space than he devotes to what seem to me secondary points. I submit, with due deference, that this would have been impossible, if he had:

First, used the Spiethoff index, which brings out the salient features much more clearly than Professor Pigou’s figures do, or those of the authorities he quotes on page 2o; then he would hardly have called the evidence ” less clear ” than that which establishes other characteristics of the cycle.

Secondly, taken hold of the link obviously existing between what he calls ” invention- ” or, rather, the putting into practice of it and the constructional industries or, to use Spiethoff’s’ term, goods of reproductive consumption; for although it would still have been logically possible to dismiss, as he does in Chapter IX, the significance of the fluctuations of these industries on the ground that these fluctuations being larger does not prove that the cycle originates there, that significance, by being connected with new improvements, would have more strongly impressed itself. Whatever the nature of the innovation actually being carried out, there will be always the necessity of providing new buildings, machines and so on, which means that innovation or reorganisation must always, in the first instance, show itself in an increase in the consumption of iron and steel.

Thirdly, not focussed his attention so strongly on the element of “invention,” which it is, indeed, easy to dismiss by pointing out that it is not invention that matters, but its adoption and actual working (p. 44). This very fact points in our direction. And so does his saying that we are not justified in inferring from the fact that without Stephenson’s invention there could have been no rail- way mania, that there would have been no boom in I845-7; for railway development may have been merely a channel into which industrial activity, caused in some quite different way and due to come into play, found it convenient to flow. Quite so. But does not this apply to any initiating impulse ? If no, why then to this one ? If yes, is it not imperative to develop for the purposes of fundamental explanation an analysis independent of the occurrence of impulses from without-an analysis of the way in which new things come to be done in industrial life, and old methods come to be eliminated, together with those firms who cannot rise above them ?

(6) But innovations would be powerless to produce booms, if they went on continuously in time. By this we mean, that if it were possible to choose units of time such that to each of them would correspond one new thing done-it need of course be no ” invention” carried out-then the disturbances which would still be caused would be small as compared with the whole of the industrial life of a nation, so that they would be capable of being continuously absorbed-just as simple ” growth ” is-without producing consequences important enough to show. There would be no cycles, though still, of course, irregular disturbances owing to wars, earthquakes, and the like.

Therefore, the problem of causation of the cycles reduces itself to the question (the answer to which contains what we shall call in a sense not now admitting any more of ambiguity, the only ” cause ” of cycles): Why is it that industrial and commercial change is not continuously distributed in time, but proceeds by leaps which, it is easy- to under- stand, must fundamentally alter the bases of calculation and upset the existing equilibrium beyond the possibility of all people adapting themselves successfully by marginal variations ?

(7) It is simply because as soon as any step in a new direction has been successfully made, it at once and thereby becomes easy to follow. Business life, like any other, consists mainly of routine work based on well-tried experience, partly ancestral; only within the boundaries of routine do it is only to routine work that received theory applies; outside routine most people find it difficult-and are often unable to act; those who can are rare and therefore not subject to competitive conditions, whence the phenomenon of profit; but whenever in a given situation (which theory has the right and the duty to assume to be in the first instance ” static “) new things have been successfully done by some, others can, on the one hand, copy their behaviour in the same line-whence prominence of one industry at the time-and on the other hand, get the courage to do similar things in other lines, the spell being broken and many details of the behaviour of the first leaders being applicable outside their own field of action. And therefore the first success draws other people in its wake and finally crowds of them,’ which is what the boom consists in.

§4. I beg leave to ask the reader not to be deterred by what must necessarily look like a highly abstract if not one-sided view of the thing. Of course this is no theory of the cycle, if we understand by this a complete explanation of all that happens. This can only be found in a reasoned history of industrial life. It is only the backbone of it. But I submit that Professor Pigou’s analysis of detail, or Professor Mitchell’s, or, indeed, Professor Clapham’s facts, do fit in exactly with the view explained-in some points much better than with the fundamental views of those eminent authors themselves. I also submit that our propositions, whilst strikingly verified by experience, are hardly open to objections on theoretical grounds. Propositions (i), (2), (4), (6) I do not even see a possibility of denying. Proposition (3) does no more than introduce a distinction, which might be useless, but could not possibly be false. For Proposition (5) I can point both to statistical evidence and to what we have before our eyes in real life. It is true, as has often been pointed out, and as Professor Pigou points out again, that there seems to be more ” brain ” in business during depression. But this does not prove anything against our theory, for it is but natural that competition setting in from the side of innovators should force the ” crowd” to try their best to save themselves by improving their methods. Proposition (7) seems to me to be a very natural way of explaining what remains to be explained when once we accept the six others.

I may also say that, as far as I can claim having had any practical insight at all, it seems to me but to formulate what I think I have seen. A sort of verification is finally afforded by two facts, which I am sorry not to be able to go into more thoroughly.

There is, first, the fact of booms as well as depressions becoming milder-the last real ” crash” in Europe having taken place in 1873. Now there are many ways of accounting for this, all of them compatible with our theory. But there is one which we can, I think, directly derive from it, viz., the steadying influence of great units, especially of trusts. As the industrial units tend to grow, the management tends more and more to be divorced from ownership. Therefore, whereas the rising men had, in the times of our fathers, typically to found new businesses and to get their things done by under-selling the old ones, the rising men of a later period are not confined to this method, but can and do conquer leading positions in the new big units now existing, and impose on them their plans. It is evident that, as far as this is being done and as far as, consequently, the new things tend more and more to grow out of the units already existing, the simple change of the managers does what formerly had to be done by a struggle in the markets, conducive to bankruptcies and other well-known features of depressions; and this of course tends to mitigate them and to prevent many losses.

There is, second, the rhythm. Evidently if our explanation be true, we should be justified in seeing more in periodicity than Professor Pigou naturally sees in it in Chapter XXII. Similarly, the period of gestation of instruments, already adverted to by Marx and Mr. Robertson and discussed by Professor Pigou, would then acquire an additional and deeper significance. And inasmuch as there are probably only few people to agree with Mr Hull’s saying, that there is literally nothing in periodicity, we may perhaps point to the fact that the phenomenon of periodicity would be without difficulty explained by our theory, as not irrelevant.

The features of depression explain themselves not wholly by equilibrium being upset by new enterprise pouring forth new products at prices with which all firms cannot complete, and driving up prices of means of production beyond what they can afford to pay, nor even by the secondary waves, which it would be easy to insert in our picture. We ought to take account of all sorts of frictional elements in order to put the necessary flesh on the bare bones of our argument-in fact, we ought to superimpose on it the whole of Professor Pigou’s mighty structure. This we cannot do and, indeed, we need not, feeling that the best we can do for the reader is to ask him to follow into all the com- plications of the subject an analyst so much our superior. We want to draw his attention especially to Chapters VI and VII, where Professor Pigou deals with the element of error-which acquires from our standpoint added importance by the fact that action outside of routine, and action in a situation disturbed by action outside of routine, evidently is exposed to error in a way amounting, as compared to error within routine, to a difference in kind. This particular importance of error can hardly stand out as it ought to without account being taken of the facts covered by our argument; for without them the explanatory value of error is much reduced by observing that, what looks like error after depression has set in, need not have been error at all before so that of all the errors we think we see, a large part does not range with causes but with consequences.

But although we must discard whatever we possibly can, we yet must enter into some discussion of the part played by the machinery of credit, for what we consider the fundamental cause acts through it, and is in acting so much bound up with it, that quite essential things would be either missing altogether or going on differently if that machinery did not function as it does; and that without going into it, we could not claim completeness for our argument even in the limited sense we wish to.

§5. If the members of a community which has so far known no methods of payments other than the physical handing over of gold coins suddenly elect to deposit their holdings in a ” bank,” and to effect henceforth payments to one another by means of cheques, the managers of the bank will find that a great part of the coins in the tills will show a habit of staying with them for good-all in fact, except what may be required for shipment to other communities and, perhaps, for small payments which may still be effected by the old method. If managers feel sure of the confidence of depositors they will, therefore, be able to lend out a considerable part of the deposits and if borrowers, again, leave the sums borrowed with them and behave, as they probably would under the circumstances, exactly like the other depositors, a similar proportion of the loans granted will again be available for further lending and so on, as S. Newcombe pointed out long ago. The same thing could be shown by means of any other form of bank money, money, uncovered bank notes for insta by banks and so on.

Now everyone knows that what I have said is but a way of describing what actually happens. The point to get hold of is not, of course, the mere fact of what has been called the “manufacture” by banks of means of payment, but the fact that they can and do, not by way of mistake or aberration from sound principles, but systematically and ” significantly” create ” credits ” exceeding on the one hand the sum of savings existing and entrusted to them and, on the other, the value of commodities existing at the moment. A short footnote is all we can contribute here towards sheltering this statement from the misunderstandings to which it is exposed. In fighting the fact and the important inferences flowing from it, economists seem to have felt themselves to be under a well-nigh moral obligation since the time of A. Smith. They were right in many respects. But they went much too far and now they block the very road they themselves have opened up.

There are, of course, limits to this creation of additional purchasing power: to this purchasing power, that is, which is additional to the sum of legal tender, to the sum of saving and to the sum of purchasing power represented by the value of existing commodities. They are obvious in our case of a perfect gold standard and equally present, if less obvious, in the case of any other standard. But within these limits, credit or money can be and is being ” manufactured,” to use Mr. Hartley Withers’ or Sir J. Stamp’s expression. The reason why this is possible in the sphere of money whilst it is impossible in the sphere of goods does not concern us here. I always explain it to my students by saying that whilst you cannot ride on the claim to a horse you can pay with a claim to money.’ It is for this reason too that I do not think it advisable to speak of money as a commodity or to apply the ordinary apparatus of supply and demand to it. 2

Now whenever purchasing power is created in such a way, there being no additional commodities and no reductions of money-expenditure by savers to correspond to it, prices must rise, first the prices of the commodities on which that new purchasing power is expended, later on all or nearly all of them. Parallelism between the flow of money and the flow of goods being destroyed, we have inflation, the features of which can be in the first instance best explained by the example of inflation by Government paper money. But it is a peculiar sort of inflation. Whilst Government paper inflation produces a state of things which lasts indefinitely unless remedied by a distinct and painful operation, inflation by banking credit normally rectifies itself automatically-ending normally in a process of ” self-deflation.” Business men apply for credit to banks, they spend it on the markets of the ” factors of production”; as far as the sums so spent have been newly created ad hoc, the existing money demand increases, therefore the prices of labour and so on rise, and incomes of workmen, owners of natural agents or of ” capital-goods” will increase in consequence ; and prices on the markets of articles of consumption will rise too, the process going on until enough means of production have been, by the rise of prices, wrung from those firms which had been in the habit of buying them to satisfy the additional demand of the newcomers at thse new prices. Now there would be no sense for newcomers (including people already in the market but desirous of extending their business) to borrow in order to buy means of production in markets rising against them, if they only intended to produce what is already being produced by the same methods. For if we start, as for clearness sake we must, from a state of perfect equilibrium, it will be readily seen that they could, by doing so, never earn the interest they have to pay: they could indeed earn the capital sums borrowed, if prices of products rose in proportion, but under competitive conditions, in the absence of friction, and production having already been everywhere carried up to the margin, never more than that. But if they happen to be those innovators we met with in the first part of this paper, then things are different. By means of ” new combinations,” the same flow of quantities of factors of production which had been regularly bought and used before by other people may now be used to greater advantage and may produce what will not only fetch a sum equal to capital and interest but normally also-as long as competition has not caught them up-profits. Sooner or later, therefore, if things go right, they will be able to pay back what they borrowed with interest, which is synonymous with saying that the ” created ” purchasing power will automatically eliminate itself. This we mean by ” self-deflation,” which then comes about, first, by the new products appearing after a time on the markets of articles of consumption-the nature of the thing is best seen if we imagine the improvements to consist of new methods by which more of a product already produced before can be got out of the same quantity of labour and natural agents-and, secondly, by the repayment of loans, thereby re-establishing the parallelism previously destroyed by the ” creation of credit.” There will be, in fact, more than compensation of the previous inflation, as I perhaps need not stay to show. And this is indeed the true explanation of the secular downward trend of prices during the period of Capitalism, only partially and occasionally offset by the vagaries of the production of gold.

§6. I have now to submit two theorems which have been since 1912 and are still the objects of many attacks in my country: First, in a perfectly static state, there would not be this scope, barring Government inflation, for the creation by banks or other agencies of such purchasing power. There would not be even the possibility of it for, as shown above, there would be no demand. The process of production could and would be financed by previous takings and only small and relatively unimportant discrepancies, properly included among ” frictions,” would occasionally have to be smoothed over by banks. It is only the fact that society is not ” static,” that the industrial and commercial process is always being reorganised and revolutionised, that accounts for the phenomenon of a sort of money which is indeed still a ” ticket “- in J. Stuart Mill’s sense-admitting holders to the ” national heap” of goods, but not or not yet also a ” certificate” repre- senting productive service rendered. Although the device once evolved will then serve many purposes, it would never have been evolved without the innovators’, the entrepreneurs’ demand for mobile resources, which always remains its raison d’etre.

Second, just as in strict theory there is no other demand for the creation ad hoc of purchasing power but that of the entre- preneur, there would in strict theory be no other sources from which to satisfy it but such creation. It is not so in practice because that constant revolution of industrial and commercial methods is constantly yielding profits, the first, most natural and most important source of ” mobile resources ” or of ” savings,” which however would not exist in a static state, from which we have to start in order to avoid explaining things by what are their consequences; nor would there be in a static state nearly as much motive to save out of other resources besides profits as there actually is. The analytic value of this proposition does not depend on what important or unimportant role ” creation of credit ” may play in a given country at a given time. Situations are possible of great wealth and little activity in which this role would be nil. To point to such, or nearly such, situations would be easy but irrelevant.

But as the innovators’ or entrepreneurs’ demand for credit could not, in the highly abstract case we are considering, be met by other resources, so it always could be met by this. That is to say, saving, though still of primary importance, turns out to be a shade less important than one would think. ” Mobile resources ” are not necessarily the result of previous saving, just as economic progress is not primarily the result of an increase in factors of production, but the result of applying the quantities of them already existing to ever new ends and by ever changing methods. As we have seen, this is done by withdrawing them from the uses they are serving and the persons who manage them, in order to hand them over to those who will use them better, by means of purchasing power created in favour of the latter and of a conse- quent rise in prices which cuts down the demand of the former. It remains true, as Ricardo knew, and as we do not deny, that no wealth can be created by ” banking operations.” It even remains true, although in a sense not quite natural, that productive forces must be saved before there can be new production. But those ” banking operations ” are an important device for bringing about a better arrangement of productive forces; and if saving there be it is not the usual sort of saving, but what we may term ” forced saving” (erzwungenes Sparen).

§7. It is not possible here to unfold all the applications by which this analysis lights up many points of the theory of money, credit, interest and other matters, which cannot, I submit, be dealt with satisfactorily without it. I only wish to show or rather hint at how it links up with the theory of the cycle.

The periods of prosperity or booms being the periods in which “innovations” in, or reorganisations of, the productive process are mainly taken in hand, they consequently are the periods of creation of new purchasing power as, in fact, is shown by statistics. This, and not simply fluctuation of the ” K” in the Marshall- Pigou-Keynes formula, accounts for the rise of prices in every boom, which could hardly be explained otherwise. There may be a lag because of the presence of accumulated stock, and a rise in articles of consumption before a rise in the rate of wages, because of the presence, at the beginning, of unemployment. This is why the Spiethoff index is so much better than some others, but this does not alter any fundamentals.

The periods of depression, being typically the periods in which the changes in the productive organism, especially those embodied in new industrial plants which now have got into working order– the theoretical turning-point-begin to make themselves felt and to exert their pressure on the rest of the community, are consequently periods of deflation. This explains the downward move- ment of prices we observe. It is, first, deflation of the sort we have been describing as self-deflation. But it is, naturally, aggravated by what I may term autonomous deflation by frightened banks, who not only see and expect difficulties arising with their debtors but also anticipate difficulties with depositors and sources of re-discount. Here, too, there may be lags through producers trying to keep prices up and through frozen credits defying the endeavours to contract them, but here, too, this does not affect the basic argument, although it very much does affect the situation.

No more need be said about the function which this movement of general prices-the upward one as well as the downward one actually fulfils. It is clear enough. Nor need we stay to explain how far and why we are unable to accept Mr. Hawtrey’s dictum by which he so gallantly exposed himself to attack, viz., that the cycle is a ” purely monetary phenomenon,” which most undoubtedly it is not. We rather think it our duty to explain how far we do agree with him.

We agree with him, first, in recognising that the fundamental cause, whilst in its nature independent of the machinery of money and credit, could not without it produce the particular kind of effects it does. Booms and consequently depressions are not the work of banks: their ” cause ” is a non-monetary one and entrepreneurs’ demand is the initiating cause even of so much of the cycle as can be said to be added by the act of banks. But booms and depressions would not without banks be what they are, and it remains utterly misleading to say, as has been said ever since Fullarton, that banks are only following the lead of demand and unable ” to force their money on people”; for it lies with them to satisfy this and to create additional demand in a sense quite different from the sense in which it would be true of sellers of a commodity: the latter acting under the pressure of cost which is absent, within limits, in the case of the former. ‘ So there is for banks a range of freedom of action to which nothing corresponds in other branches of business: this range would exist even without national or international understandings which, however, powerfully extend it.

It follows-which is indeed a second point of agreement-that banks can and do, even without knowing it, exert influence on the pace of prosperity and depression, although, for the reason given in a footnote, more on the former than on the latter; and they do more than this. They not only finance innovators’ or entrepreneurs’ demand, but also the demand of other people, who simply want more credit because they see prices rise. They are even specially willing to give in to those people, for they are their old customers. Hence, they help the coming up of a secondary wave of the boom to which, although it also increases forced savings, it is impossible to attribute the function of the ” primary wave.” Other waves may and often do follow, and among them the great wave of mere speculative punting, all of which makes prices rise still more.2 It is these things wbich make up the physiognomy of both boom and depression, and which we have looked to when warning the reader not to judge our theory merely from what we said in the first part of this paper. They are, in fact, the bridge which leads from what we consider the keystone to the complexities of the ” real ” phenomenon. Now I believe that it is these things, too, that Mr. Hawtrey-and Mr. Bellerby still more- has had primarily in mind. And as to them we, within wide limits, agree with him, just as we think that we could get him to agree in some measure with our view of the initiating impulse, if indeed he were so unfortunate as to fall into our hands.

Third, we also agree as to the practical possibility of stopping any normal boom by a proper management of credit. It may be difficult, and discount policy may be insufficient to effect it except in quiet times. Into this we cannot enter; but it is surely possible. This does not imply indeed that it is in any sense desirable. But inasmuch as I am strongly under the impression that these discussions and the theoretic views of the parties to them are influenced by views held as to policy, and that such views are suspected to be at the bottom of every theory propounded, I am most anxious to say that I do not wish to advocate or fight any policy whatever. And although I feel debarred from entering upon questions of desirability of measures by the purely scientific character of my argument-the mixing up of which with practical policy I should indeed look upon as a misdemeanour-I still wish, in order to appease suspicions, to say that if I think that the cycle cannot be successfully held to be merely an ” evil,” serving no social interests whatever, I do not mean thereby to imply that it is to be complimented on the way it fulfils what we have seen to be its ” function.” It may well be argued that it does its work at very great costs, that these costs might be saved or reduced by proper arrangements and that a policy of keeping the level of prices stable might do but little harm to improvement, while greatly reining-in secondary phenomena which are uni- versally (or nearly so) felt to be evils and are the main source of error, losses, unemployment, and so on. Some slackening down of improvement might even be held to be no more than a reasonable price to pay for benefits such as these. Without receding from our protest against using post-war phenomena when discussing points of general theory, we may still point to the instance of recent American experience as a proof that booming activity is quite possible without booming prices. This is no problem for us, nor any instantia contraria against us. Having said this much, we can venture to say, without danger of being misunderstood, that Mr. Bellerby seems to us to have injured an admirable argument by over-statement and by failing to distinguish sufficiently ” normal” and post-War phenomena. But in our argument there is nothing to get on the nerves of our money-reform friends.

§8. Nor is there anything in it to get on other nerves, viz., on the sound-money nerves of those to whom the very word of ” credit-creation” is abomination, savouring as it does to them of old popular fallacies on the one hand and of advocating infla- tion on the other. We respect all theoretical, political and moral views implied. We do not stand for John Law. We do not advo- cate anything, but least of all inflation, although we do draw a distinction between inflation which does, and inflation which does not, automaticall ” deflate ” just as, without advocating the use of morphine, we draw a distinction between the use of morphine for mitigating pain and the use of morphine for the pleasure of it. We admit that the term ” credit-creation” is open to objection.’ Any term is. But we are doing nothing but analyse patent and undeniable facts. And as they seem to us important, we should now try to convince an authority so very highly respected by us as is Professor Cannan of the fact that what seems startling in an over-simplified and at the same time highly abstract argument like this may still be perfectly compatible with sound (theoretical) conservatism, which we value very much ourselves.

But we need not do it, for Professor Pigou has undertaken the task (Chaps XII, XIII, XIV). It is a very great pleasure to us to be able to state that we find ourselves in perfect accord with him on important points of this important subject. I have explained as best I could, and it was indeed but ill, part of what I wrote in 1912. But I should probably have served my purpose better if I had started from Professor Pigou’s chapters or from Mr. Robertson’s powerful argument in his book on Banking Policy and the Price Level. And I think that by these chapters the new theory of credit has come to stay-not the facts, from which it starts, for they were always known and made use of in the limited sphere of money and banking, but the tlheory of them as a necessary part of the general theory of the economic process.

There is, first, the recognition of the importance of credit- creation and of the theoretic issues raised by it. It is seen to be a ” levy ” by Professor Pigou and as producing forced savings, or, as Mr. Robertson says, ” imposed lacking.” Many consequences, explaining much of what has been hitherto looked at as inexplicable deviations of real life from theory, are immediately drawn. Both authors, but Professor Pigou especially, go on, secondly, to explain points of detail not only of technique but also of theory, and, in so doing, already leave the present writer far behind, who never so much as attempted to touch some of them,’ such as the question of how large a real levy banks will achieve-the first of the three problems distinguished by Professor Pigou in his paper quoted in our footnote.

But there is more than that. In propounding the thesis, in §§4-6 of Chapter XIII, that any year’s addition to bank deposit, is, subject to qualifications, a rough index of the quantity of bank credit for ” industrialists,” Professor Pigou comes near to one essential element of our argument. And Mr. Robertson in his book, and Professor Pigou in his article dealing with it (Sub- problem the third) hold that, ” sudden additions to the supply of circulating capital can, in fact, only be obtained through the creation of new money by the banks.” This is, to be sure, only meant as a result of analysis interesting in itself and practically important as it stands, and must not, of course, impute to those eminent authors any tenets of mine. But the connection between statements such as these and my theory of the cycle is obvious- it is even obvious that creation of new money must have something to do with new transactions, and these with ” innovation.” And esseta mar organ, the positions so taken up will shade off into those I have been trying to sketch out. If this should happen there will be, I think, reason to expect some repercussion on the theory of interest;’ and other points may then be found to need readjustment, if we are to have, one day, a really satisfactory analysis of the capitalist process. But I do not now want to add to what, as it is, seems to me a stroke of temerity.

#weekendreading #macro 

PREVIEW: Economic Growth in Historical Perspective: U.C. Berkeley: Spring 2020

After hearing Ellora Derenoncourt rave about being a TA for Melissa Dell and her Econ 142: The History of Economic Growth, I have decided to go full parasite and stand up my own version of the course for the spring of 2020 here at U.C. Berkeley. Tell me what you think! Here are my notes so far:

Course to be at: Teaching Economics: https://delong.typepad.com/teaching_economics/econ-135.html

Econ 135: Economic Growth in Historical Perspective

This course examines the idea and reality of economic growth in historical perspective, beginning with the divergence between human ancestors and other primates and continuing through with forecasts for the 21st century and beyond. Topics covered include human speciation, language, and sociability; the discovery of agriculture and the domestication of animals; the origins and maintenance of gross inequality; Malthusian economies; the commercial and industrial revolutions; modern economic growth; international prosperity differentials; OECD convergence and East Asian miracles; the political economy of growth and stagnation; and the stubborn persistence of poverty.

Assessment: Students are graded on the basis of five two-page triweekly response papers about the readings (20 points; 4 each), five triweekly problem sets (20 points; 4 each), two midterms (40 points; 20 each), in-class exercises (20 points, 1 point per class up to a maximum of 20), section exercises (1 point each), and section and lecture participation (10 points).

Jan 14: Introduction: Economic Growth in Historical Perspective, Human Beings and Their Economies

Jan 21: The Broad Sweep: Herding and Agriculture, Long Run Economic Growth and Stagnation, Growth Theory Basic Building Blocks, The Beginning of Modern Economic Growth, Modern Economic Growth and U.S. Economic Ascendency, Late Nineteenth Century Globalization/Retreat, Convergence and Its Absence, Why Did Sustained Growth Spread to Some Places and Not Others?, The Concentration of Wealth, The Flap of the Butterfly Wing

Feb 25: Midterm 1

Feb 27: A Tour of the Continents: Europe, The Americas, Long Run Economic Development in Asia and Africa, Behind the Iron Curtain, East Asian Miracles

Mar 17 Scattered Issues: Geography and Economic Growth, Growth and Fluctuations, Global Warming and Poverty, Trade and Development, Foreign Military Intervention, Foreign Aid, Kleptocracy and Organized Crime

Apr 16: Midterm 2

Apr 21: What We Know: The Pace of Economic Growth, The Meaning and Measurement of Economic Growth

Apr 28: The Future:

Apr. 30: Review Q&A

  1. OVERVIEW: Malthusian Eras and After: Gregory Clark (2005): The Condition of the Working Class in England, 1209-2003; Ian Morris (2010): Why the West Rules–For Now, Chapter 3 “Taking the Measure of the Past”. An overview of economic growth across time. How did people live in the past? For how long were the bulk of people living on about 2 dollars a day? When did this stop? How much economic growth has there been, and when did it take place?

  2. The International Context Since the Industrial Revolution: Lant Pritchett (1997): Divergence, Big Time. An overview of post-1800 economic growth across space. How differently do people live depending on where they happen to live today? Where did these absurd differentials come from? When did these absurd differentials emerge?

  3. The Uncertain Pace of Growth: William Nordhaus: Do Real-Output and Real-Wage Measures Capture Reality? What do we mean by saying that economic growth has been 2% per year for the past century and a half? What errors do we make when we try to squash a multidimensional process down into one single number?

  4. THE EAST AFRICAN PLAINS APE: Gift-Exchange and Human Sociability: Paul Seabright: In the Company of Strangers; Joseph Henrich (2016): The Secret of Our Successes: How Culture is Driving Human Evolution, Domesticating Our Species, and Making us Smarter. Chapters 1-5. You cannot have a society with more than one silverback gorilla, or more than ten male chimpanzees. Yet we have a largely-peaceful cooperative division of labor across the globe that puts pretty much everybody within, well, six degrees of economic exchange separation. Why do we do this? How do we do this? What does this tell us about economic growth?

  5. Market Economies and the Division of Labor: Avinash Dixit: Economics: A Very Short Introduction; Adam Smith (1776): An Inquiry into the Nature and Causes of the Wealth of Nations. How much of our current wealth depends on our societal division of labor? How do we keep our current division fo labor going? How do we keep adjusting it—and how successful are we at doing so?

  6. THE BROAD SWEEP: Malthusian Eras: Herding and Agriculture: Jared Diamond (1997): The Worst Mistake in the History of the Human Race; Jared Diamond (1997): Guns, Germs and Steel, chapter 4 pp. 85-92. What caused the transition to farming and herding and what were its consequences? In what sense was it, as Jared Diamond maintains, a huge mistake? For whom was it a huge mistake?

  7. Patriarchy and the Upper Class: Daron Acemoglu and James Robinson (2012): Why Nations Fail, chapter 5 “Growth under Extractive Institutions” sections 1-3; The Man Who Saw All Things (Gilgamesh). Once we have herds and farms, we get gross inequality. How? And how does this maintain itself? Gilgamesh puts his pants on one leg ago a time like the rest of us, doesn’t he?

  8. Basic Growth Theory: David Weil (2005): Economic Growth, chapters 1 and 2. Basic theoretical building blocks: The Solow growth model. The poverty trap model. The role of resource scarcity. Determinants of the rate of inventive activity. Positive- and negative-sum entrpreneurship

  9. High Civilization without a Technological Focus: The Maya: Daron Acemoglu and James Robinson (2012): Why Nations Fail, chapter 5 “Growth under Extractive Institutions” Section 4; Simon Martin and Nikolai Grube (2000): Chronicle of the Maya Kings and Queens: Deciphering the Dynasties of the Ancient Maya, Introduction pp. 6-23, Tikal pp. 24-53, Palenque pp. 154-175, Copan, pp. 190-213; David L. Webster (2002): The Fall of the Ancient Maya, chapters 7 and 10. Why was economic growth not sustained at a faster pace for thousands of years after the Neolithic Revolution? People were smart, no, and there was low-hanging fruit, no? Why did a world of more than 2 dollars a day have to wait until post-1800? Looking at one western hemisphere case study

  10. High Civilization without a Technological Focus: The Ancient Central Mediterranean: Karl Polanyi: Aristotle Discovers the Economy; Moses Finley: The Ancient Economy; Aelius Aristides: The Roman Oration; Willem M. Jongman (2007): Gibbon was Right: The Decline and Fall of the Roman Economy https://delong.typepad.com/jongman-gibbon-was-right.pdf; Ian Morris (2004): Economic Growth in Ancient Greece; Peter Temin: The Roman Market Economy. Why was economic growth not sustained at a faster pace for thousands of years after the Neolithic Revolution? People were smart, no, and there was low-hanging fruit, no? Why did a world of more than 2 dollars a day have to wait until post-1800? Looking at one eastern hemisphere case study

  11. THE BROAD SWEEP: Post-Malthusian: Beginnings of Modern Economic Growth: Western Europe: David Landes (2006): Why Europe and the West? Why Not China?; Joel Mokyr (1990): The Lever of Riches, chapter 5 “The Years of Miracles”. Why did sustained economic growth begin when it did? There are many theories about why the remarkable economic growth that has characterized the past 200 years began when and where it did.

  12. Beginnings of Modern Economic Growth: Britain: Daron Acemoglu and James Robinson (2012): Why Nations Fail, chapter 7 “The Turning Point”; Robert Allen: The British Industrial Revolution in Comparative Perspective. Why did sustained economic growth begin in England and not elsewhere? What processes were arithmetically and algebraically necessary to break out of the Malthusian poverty trap? There are many theories about why the remarkable economic growth that has characterized the past 200 years began when and where it did. Which ones are live? Which ones are worth betting on at low odds?

  13. What-If?: Without the Industrial Revolution: What would a Gunpowder-Empire Present Look Like?

  14. 1870 as the Inflection Point: The further more than fourfold acceleration of economic growth that took place around 1870. How? Why? What difference did it make for human societies?

  15. What-If?: Without the Acceleration to Modern Economi Growth: What would a Steampunk Present Look Like?

  16. America Takes the Lead: Claudia Goldin and Lawrence Katz: The Race Between Education and Technology; David Donaldson and Richard Hornbeck: Railroads and American Economic Growth: A Market Access Approach. The world’s leading growth pole jumps the Atlantic in the years after 1870. Why did the U.S. industrialize rapidly starting in the nineteenth century? Why did some parts of the U.S. industrialize earlier than others?

  17. Characterizing Modern Economic Growth: The algebra of leading sectors

  18. American Slavery: Fred Bateman and Thomas Weiss (1981): A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy. Why did some parts of the U.S. industrialize earlier than others? What role did slavery and its legacy play in U.S. economic growth?

  19. 1850-1914 Globalization and Prosperity Advance: W. Arthur Lewis (1978): Evolution of the International Economic Order; Guillaume Daudin et al.: Globalization 1870-1914; Barry Eichengreen (2008): Globalizing Capital: A History of the International Monetary System; Karl Marx and Friedrich Engels (1848): The Communist Manifesto; Norman Angell (1909): Europe’s Optical Illusion. For the first time, economies find their standards of living determined by things happening far away. How do people and societies cope with the first globalized economy?

  20. The Development of Underdevelopment Outside the North Atlantic: A number of what-if scenarios

  21. 1900-1935 Globalization and Prosperity Retreat: Vladimir Lenin (1902): What Is to Be Done?; John Maynard Keynes (1919): The Economic Consequences of the Peace; John Maynard Keynes (1924): The End of Laissez Faire; Karl Polanyi (1944): The Great Transformation; George Orwell (1936): The Road to Wigan Pier; Ernest Gellner (1973): Scale and Nation. The global market economy fails to deliver the Polanyian rights to community stability, “fair” incomes, and consistent employment that people think they have. And so society strikes back—profoundly stupidly—against the globalized classical liberal order.

  22. The Absence of Convergence: J. Bradford DeLong (1986): Productivity Growth, Convergence, and Welfare; Lant Pritchett (1997): Divergence, Big Time. Post-1870—hell, post-1800—there were no longer major physical impediments to the rapid flow of ideas, machines, and people across the globe. So geographical differences in prosperity levels were rapidly ironed out, right? WRONG!!

  23. Growth Breakthroughs: Robert Allen: Global Economic History: A Very Short Introduction. What had to go right for countries to gain or maintain a place among global prosperity leaders?

  24. Poverty Traps: Aart Kraay and David McKenzie (2014): Do Poverty Traps Exist? Assessing the Evidence. Could countries that were not among global prosperity leaders escape their relative poverty? If yes, why did so few do so? If no, how did the few that managed do it?

  25. Geography: Jeffrey D. Sachs (2003): Institutions Don’t Rule: Direct Effects of Geography on Per Capita Income; Jared Diamond (1997): Guns, Germs and Steel, chapter 4 pp. 85-92; Melissa Dell et al. (2009): Temperature and Income: Reconciling New Cross-Sectional and Panel Estimates. How much was and is your prosperity predetermined by your geography?

  26. Institutions: Daron Acemoglu, Simon Johnson, and James Robinson (2006): Institutions as a Fundamental Cause of Long-Run Growth. Nearly all today agree that it is easier to move people to where the good economic-growth institutions are than to move good institutions to where the people are. But what are these “good institutions”, exactly? And how can they be hard to move in a world of lightning-speed high-bandwidth communication?

  27. Culture: Nathan Nunn (2012): Culture and the Historical Process. What do we mean when we say thinks like “culture has a profound influence on prosperity?

  28. Plutocracy: Industrial-Society Birth Pangs: Karl Marx and Friedrich Engels (1848): The Communist Manifesto; Karl Marx (1849): Wage-Labor and Capital. Why and how did inequality rise wherever industrial civilization took hold?

  29. Plutocracy: Broad Patterns: Thomas Piketty: Capitalism in the Twenty-First Century. We have seen one and a half enormous waves of within-nation inequality since the start of the Industrial Revolution: within-nation inequality advances, retreats, and advances again. How did this happen?

  30. Plutocracy: The Second Gilded Age: Paul Krugman (2014): Why We’re in a New Gilded Age. Drilling down into the post-1980 return of Gilded Age-class inequality in the North Atlantic.

  31. Path Dependence in the Small and the Large: Paul David (1985): Clio and the Economics of QWERTY; Melissa Dell (2015): Path Dependence in Development: Evidence from the Mexican Revolution; Hoyt Bleakley and J. Lin (2012): Portage and Path Dependence. The Flap of the Butterfly Wing: Path dependence and economic development: Many of the studies considered thus far examine how major ways in which societies were organized historically can have important long-run consequences for economic growth. To what extent do smaller, typically inconsequential events have important long-run impacts? How much should our view of the world be one in which the influence of history can be very non-linear and highly persistent?

  32. A Tour of the Continents: Reversal of Fortune?: Daron Acemoglu etc al., (2002): Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution. _Hangzhou, Delhi, Baghdad, Cairo, perhaps Tenochtitlan—if you had had to bet in 1300 where the economic capital of the world would be in the late-20th century, you would have bet on one of these, not New York. It did not happen. Why not?

  33. Europe: Britain: Joel Mokyr: The Lever of Riches, chapter 10 “The Industrial Revolution: Britain and Europe”. Looking back in much more detail at the boom in the supply of labor-saving coal-using technologies in Britain, and what followed from that

  34. Europe: France: Daron Acemoglu et al. (2009): The Consequences of Radical Reform: The French Revolution. Feedback from the fall of France’s Ancien régime to economic development.

  35. Europe: the Rest of the Continent: Daron Acemoglu and James Robinson (2006): Economic Backwardness in Political Perspective. Once the trail to industrialization is blazed, how does the fact that followers can see where to go but are not there help or hinder?

  36. The Americas: Bad Institutional Luck?: Melissa Dell (2010): The Persistent Effects of Peru’s Mining Mita. Why is the U.S. much richer than Latin America? Why are some places in Latin America so much poorer than others? Does inequality play a role in explaining these income differences? What about other differences in historical institutions?

  37. The Americas: Bad Factor Endowment Luck?: Stanley Engerman and Kenneth Sokoloff (2002): Factor Endowments, Inequality, and Paths of Development Among New World Economics. How and when and how much can a prosperous past be a burden? How general a phenomenon is the “resource curse”?

  38. The Americas: Toward a Synthesis: John Coatsworth (2008): Inequality, Institutions and Economic Growth in Latin America; John Coatsworth (2005): Structures, Endowments, and Institutions in the Economic History of Latin America. What are the prospects for Latin American convergence in get net fifty years?

  39. Africa: Slavery: Daron Acemoglu and James Robinson (2010): Why is Africa Poor?; Nathan Nunn: The Long Term Effects of Africa’s Slave Trades; Nathan Nunn and Leonard Wantchekon (2011): The Slave Trade and the Origins of Mistrust in Africa. Africa is the world’s biggest economic development emergency. It is tempting to blame slavers and slavery. But African retardation relative to the other non-North Atlantic economies is a post-1950 phenomenon. How do we make sense of this?

  40. Africa: Geography: Nathan Nunn, and D. Puga (2012): Ruggedness: The Blessing Of Bad Geography in Africa. Does geography still matter for Africa?

  41. Africa: Colonialism: S. Michalopoulos and E. Papaioannou (2014): National Institutions and Subnational Development in Africa. Colonial boundaries and African retardation

  42. Southeast Asia: Melissa Dell et al. (2015): State Capacity, Local Governance, and Economic Development in Vietnam; Anthony Reid (1993): Southeast Asia in the Age of Commerce, 1450-1680, chapter 1 “The Age of Commerce, 1400-1650”, chapter 4 “Problems of the Absolutist State”, chapter 5 “Origins of Southeast Asian Poverty”. The burden and the blessing of a noble-bureaucratic past

  43. The Middle East: Sevket Pamuk (2014): Institutional Change and Economic Development in the Middle East, 700-1800. State, society, and economy in the Islamic world

  44. Behind the Iron Curtain: Really Existing Socialism?: Karl Marx and Friedrich Engels (1848): The Communist Manifesto; Vladimir Lenin (1902): What Is to Be Done?; Rosa Luxemburg (1918): The Russian Revolution; Richard Ericson: The Classical Soviet-Type Economy: Nature of the System and Implications for Reform. Why was Lenin so sure central planning was the way to go? Why did it work so badly? Lots of highly productive corporations are centrally-planned economies, after all

  45. Is Russia a North Atlantic Economy?: Robert Allen (2011): The Rise and Decline of the Soviet Economy. Is Russia a North Atlantic economy that has done badly or a non-North Atlantic economy that has done well?

  46. World War II and the Value of Magnitogorsk:

  47. After the Fall: Simeon Djankov (2015): Russia’s Economy under Putin: From Crony Capitalism to State Capitalism. If you could drive to Frankfurt and back in a day, you did well after 1991. Elsewhere, not. Why?

  48. East Asian Miracles: Background and Foundations: Peter Evans (1995): Embedded Autonomy: States and Industrial Transformation, chapter 1; Dwight Perkins (2013): East Asian Development: Foundations and Strategies, chapter 3 “Government Interventions versus Laissez-Faire in Northeast Asia.

  49. Japan:

  50. Taiwan and Korea: Dani Rodrik: Getting Interventions Right: How South Korea and Taiwan Grew Rich

  51. The Central Country: Yingyi Qian; Xiaodong Zhu (2012): Understanding China’s Growth: Past, Present and Future.

  52. When Will the Asian Century Begin?:

  53. SCATTERED ISSUES: Secure Property Rights and Growth:

  54. Mafiyas: Charles Tilly (1974): Forward to A. Blok: The Mafia of a Sicilian Village, 1860-1960: A Study of Violent Peasant Entrepreneurs; Melissa Dell (2015): Trafficking Networks and the Mexican Drug War; D. Gambetta (1996): The Sicilian Mafia: The Business Of Private Protection, chapter 1.

  55. The Past and Future of Manufacturing Export-Led Growth:

  56. Growth and Fluctuations: The Great Depression and World War II: John Maynard Keynes (1926): The Economic Consequences of Mr. Churchill; Christina D. Romer (2013): Lessons from the Great Depression for Policy Today; John Maynard Keynes (1931): Unemployment as a World Problem; Taylor Jaworski and Price Fishback (2014): World War II

  57. Growth and Fluctuations: The Asian Crisis of 1998 and the Great Recession of 2009: Andrew Berg: The Asian Crisis; Philip Lane: The European Sovereign Debt Crisis; Lawrence Summers: Reflections on the ‘New Secular Stagnation Hypothesis

  58. Global Warming: Melissa Dell et al. (2012): Temperature Shocks and Economic Growth: Evidence from the Last Half Century. How is global warming impacting economic growth?

  59. Global Warming and Global Poverty: Melissa Dell et al. (2014): What Do We Learn from the Weather? The New Climate-Economy, sections 1 and 3. Does it differentially impact poorer countries? Will it increase conflict?

  60. Soft-Power Pressure, Neo-Imperialism, and Growth: Melissa Dell and Pablo Querubin (2016): Nation Building in Vietnam; C. Appy (2015: The Vietnam War and Our National Identity; A. Dube et al. (2011): Coups, Corporations, and Classified Information. What are the impacts of foreign military intervention on governance, civic society, and economic development? Can a state be built in a weakly institutionalized society through military intervention, or is such an approach likely to backfire? How does politics in the intervening country impact how foreign interventions are conducted? We examine these questions in the context of one of the largest foreign nation-building interventions of the past century: the Vietnam War.

  61. Foreign Aid: Nathan Nunn and Nancy Qian (2014): U.S. Food Aid and Civil Conflict; Alberto Alesina and David Dollar (2000): Who Gives Foreign Aid to Whom and Why? Can foreign aid be an effective means of promoting economic growth? This lecture will consider a range of evidence, from the Marshall Plan and economic aid to East Asia in the 1950s to food aid today.

  62. Technical Assistance: J.A. Yage (1988): Transforming Agriculture in Taiwan: The Experience of the Joint Commission on Rural Reconstruction, chapter 1.

  63. Trade and Geopolitics: D. Berger era al. (2013): Commercial Imperialism? Political Influence and Trade During the Cold War.

  64. Investment and Development: H.W. Singer (1950): The Distribution of Gains Between Investing and Borrowing Countries.

  65. Trade and Development:

  66. Value Chains and Development: D. Atkin (2014): Endogenous Skill Acquisition and Export Manufacturing in Mexico

  67. Value Chains and Growth

  68. The Information Age:

  69. WHAT WE KNOW: The Pace of Economic Growth:

  70. The Meaning and Measurement of Economic Growth:

  71. The Twentieth Century: Andrea Boltho and Gianni Toniolo: The Assessment: The Twentieth Century.

  72. The Near-Term Future of Economic Growth: The North Atlantic: Robert Gordon: The Turtle’s Progress

  73. The Near-Term Future of Economic Growth: The World: Dani Rodrik (2013): The Past, Present and Future of Economic Growth.

  74. The Near-Term Future of Economic Growth: Economic SuperPower Succession

  75. The Singularity

80 Minute Lecture Skeleton:

Warm-Up (10 minutes):

  • 1 qualitative review question
  • 1 BIG IDEA question
  • 1 calculation question
  • 2 minutes: what did we learn last time?
  • 5 minute discussion


3 Core Modules:

  • (17 minutes): Lecture/Document/Tools/Tools Application/Open-Ended Question Discussion
  • (3 minutes): Structured Review Questions
  • (3 minutes): Pick 2 or 3 from 5 questions: calculation, main point takeaway, why aren’t answers 25-25-25-25?, why this is important, what didn’t I say?



  • 1 free-form lecture response question (response emailed)

In-class exercises: 1/3 of a point for answering more than 2/3 of iClicker questions; 1/3 of a point for getting at least 1/3 of iClicker questions right; 1/3 of a point for post-lecture response…

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Raymond Aron (1955): Nations and Ideologies: Weekend Reading

This is the best expression of the end-of-ideology “managerialism” theses of the Great Post-WWII Keynesian Boom—Les Trente Glorieuses. It is remarkably early: 1955. And it is 100% correct that those who tried to apply a pre-WWI socialist or a Leninist frame to the state of the world after World War II were hopelessly wrong, and would up naked on the moon. And that is if they were lucky. Aron, of course, took the defeat of fascism as the Red Army turned Hitler’s Berlin into rubble in 1945 as permanent. And Aron mistook the Eisenhower wing of the Republican Party for the beast. And maybe he would have been right if not for Goldwater:

Il Quarto Stato

Raymond Aron (1955): Nations and Ideologies: “WE are becoming ever more aware that the political categories of the last century—Left and Right, liberal and socialist, traditionalist and revolutionary-have lost their relevance. They imply the existence of conflicts which experience has since reconciled, and they lump together ideas and men whom the course of history has drawn into opposing camps. How can one describe as “extreme Left” the Soviet regime which identifies society with the state? Is it possible to see it as a continuation of the struggle against arbitrary rule, or as favouring individual freedom and the control of government by the governed? Or again, when a parliament of “Pashas” is dissolved by a group of army officers sincerely concerned for national independence and economic progress, who then establish a military dictatorship, what is the correct word to describe their regime?…

…Is it accurate to describe as “liberal” Dr. Erhard’s policy in Western Germany, or as “socialist” the policy of Mr. Gaitskell under the late Labour Government? And from which doctrine should the present practice of Mr. Butler be derived?

I do not believe it is impossible to bring order into this ideological chaos, but it is essential first to recognise how controversies change their significance from one country to another. The same words are used, but the realities to which they refer are different.


1. The Debate in Britain

TWO facts dominate the British situation: first, the prevailing democratic institutions are unchallenged, and second, socialism (which in Britain has never been doctrinaire or Marxist) represents the present rather than the future, is a fact rather than a programme. Party conflicts and intellectual differences neither are, nor even appear to be, of truly vital concern to any section of the community. Whatever view the nation may finally adopt, no one will have to sacrifice any value he deems essential. Agreement upon the general lines of foreign policy and upon the community’s fundamental “way of life” is almost unanimous. If and when the British are in error, they err resolutely and all, or nearly all, together.

The limitations and drawbacks of the experiment once known by the name of socialism were gradually revealed by experience. Socialists were disappointed, and their opponents were relieved, when their dream (or their nightmare) came true; and passion on both sides died away. “So that’s all it amounts to,” they said with a sigh—in the one case of regret, in the other of relief.

The economic potential left untapped by the former regime was not such that full employment could suddenly release a flood of unparalleled wealth. But neither Conservatives nor Socialists would tolerate a return to the stagnation and unemployment of the years between the wars. Moreover, they know, or think they know, how to control the trade cycle—atleast sufficiently to avoid the ravages of a major depression. The techniques of economic stability and expansion are no longer the patent of one party or one doctrine; they have quite lost their ideological colouring.

Nationalisation of the means of production has been followed neither by miraculous benefits nor by disaster. In itself, it has had little effect upon the workers’ conditions or upon industrial relations. It is not free from certain of the disadvantages of private trusts and monopolies; and while it dearly abolishes the political influence formerly available to the magnates of industry, it still allows the directors of public enterprises the chance to obtain certain privileges for themselves or, more especially, for their undertakings.

REDISTRIBUTION of wealth in Britain has succeeded in reducing the highest incomes and eliminating cases of extreme poverty. But in the long run a family of modest means loses as much or more through crushing taxation as it gains in free social benefits. The victims of Labour’s revolution have been, above all, the salaried middle class and its intellectuals, upon whom cultural continuity and scientific progress depend.

People do not argue any longer for or against state interference in economic affairs, but only about the most effective form of such interference and how to adapt administrative decisions to the mechanism of the markets. Practical experience of planning has induced a good many economists to moderate the hopes they placed in it, has taught the all-out supporters of full employment the difficulty of combining this with stable prices, and has led many Keynesians to prefer indirect financial and budgetary controls to direct methods. These controversies evoke no heat, even among specialists. But there are intellectuals who seek to raise the temperature. Death duties amounting to confiscation are called for in the name of equality; and a few voices are raised for further nationalisation—either to facilitate planning or to give the workers a greater interest in the control of industry. But these specifics, which are to be found in the New Fabian Essays, have little appeal for the people, or even for political leaders. It is more or less confusedly realised by leaders and people alike that the real historical problem is a different one: namely, how can society combine a fair distribution of income and security for the individual with the incentives which are necessary if wealth is to be increased? The problems raised in England by the Labour experiment are related philosophically and historically to the antinomy between contented security and adventure for gain, between equalitarian justice and the justice of rewards—an antinomy whose resolution calls for a reasonable compromise and not a clear-cut choice.

For the time being, a non-millennial socialism and a non-reactionary conservatism offer England a peaceful government and a peaceful opposition. When Sir Winston used a version (somewhat simplified) of the argument of Hayek’s book, The Road to Serfdom, as ammunition in the 1945 election, his allusions to Mr. Attlee’s “Gestapo” merely provoked laughter. Theorists may insist that Labour will end, however unintentionally, by creating a totalitarian state, but the British are not inclined to worry about the day after tomorrow; and today Mr. Bevan is a pillar of parliamentarianism. No “leftist” sees any merit in Communism as far as Britain is concerned. The Bevanites, more insular than anybody, believe that the Labour Party should be the model for the whole world, though they concede that Communism may be “progressive” for Asia, for Africa, and even perhaps—who knows?—for France.

Controversy in Britain does become heated when it touches upon the United States and the U.S.S.IR. and the case for or against a capitalist or Soviet regime. Left-wing intellectuals in Britain are as ready as those on the Continen tto denounce American “materialism,” “ineptitude,” or “bellicosity.” Like their Parisian friends of Les Temps Modernes and l’Observateur, they play down the military threat of Communism and emphasise the danger of its political influence; they pin all their hopes to an unlimited application of Point Four and are indulgent to the cruelties of Russia while implacably condemning any error or folly or infraction of liberty in the United States. Their No. 1 target is McCarthy and not the MVD, and their tears are for Alger Hiss and not the victims in concentration camps. Yet these intellectuals remain firmly fixed, in practice if not in theory, within the framework of British society. In France, the popular front, in China, Stalinism, maybe the way of salvation—but for Britain, Queen and Parliament suffice. In all countries, nationalism works strange paradoxeis in the soul of the intellectual.


2. The Debate in France

FOR twenty-five years, a vast literature has been accumulating around the political, economic, and social aspects of the Third and Fourth Republics. The voting habits of the different regions, the constitution of the political parties, and the workings of parliament have all been studied. Demographers have analysed the causes and effects of a reduced birth rate and economists have done the same for a retarded economic development. Much still remains to be known, but the general outline of France’s contemporary problem has been clearly established: weakness of the executive, insufficient economic dynamic, extreme diversity of agriculture from region to region, fiscal and customs legislation favouring the survival of too many small-scale businesses, excessive growth of the tertiary sector of the economy, an unrationalised distributive system, and so on. Foreign criticisms of France rely for all their ideas, facts, and statistics upon French books, including official publications. Never has a nation known so well what was wrong with it.

According to Marx, the concentration of capital would proceed to its extreme limit—but we find French socialists and trade unionists lamenting an insufficient concentration of French capital. It require sa lot of dialectical imagination as well as considerable ignorance to attribute the survival of a decentralised productive system to the machinations of “the Trusts.” The anomaly to be explained might be called “the retarded economic progress of a Western society” or “the tendency of a petit-bourgeois society to stagnate.”

Thisproblem is recognised by sociologists and economists, and not completely ignored by men of letters. But the latter are generally more concerned to replace the specific national problem by what appears to be a universal one, and they achieve this by transposing the real data of the situation into Marxist terms. You may find side by side, in the same work, an empirical study of the French working class and a quasi-metaphysical speculation upon the historical mission of the Proletariat. The former will be prosaic and accurate, the latter inspirational and, in most cases, meaningless.

Consider the periodicals in which the Existentialists, “progressives,” and left-Chririans write. They are full of para-Marxist notions like the revolution, the recognition of Man by Man,and the Meaning of History. Just as the intellectuals of Germany around 1930 wereelaborating the millennial Marxist themes with variations from Kant and Hegel and Heidegger, our French intellectuals today are re-vamping them in the Sartrian or the Christian mode.

IS FRANCE going through a crisis comparable to that of Germany in the years before Hitler came to power? There are certainly some analogies, but there are also fundamental differences. French intellectuals feel humiliated, deep down, by their country’s fall; and their reaction to this unacknowledged shame is to rebel against the world around them, assisted by escapist ideologies with universal and millenial pretensions. But the social situation in France today is quite different from that in Germany in 1930. There are no millions of unemployed nor uprooted masses ready to follow any adventurer. Discontent is widespread and endemic, but does not exclude an unexpressed wish to safeguard a familiar way of life. It does not imply a desire for change at all costs.

It is true that a great many French workers, perhaps the majority, vote for the Communist Party; but the Communist infiltration into the working-class industrial and political movement is of more help to conservatism than to radicalism. It is easy to rally the moderates in all classes against a party directed from abroad. The adherence of a large part of the French working-class to Communism presents left-wing intellectuals with an agonising choice. As anti-Communists, are they not the enemies of the Proletariat? (Sartre dixit: “To oppose the Proletariat is to become the enemy of mankind and of oneself.”) As Communists, will they not have retroactively to ratify the Hitler-Stalin pact as a step towards the liberation of humanity, denounce Beria as a capitalist agent, and accept dialectical materialism as the final achievement of philosophy? At odds with their country, which they believe is sinking into mediocrity, allied to the Proletariat whose historic mission they acknowledge, recalcitrant to Communist discipline, they give vent to their frustrations by vituperating the United State and the Atlantic Pact.

The controversies of French intellectuals gain in resonance as they move further from reality. It is the French who provide the left intelligentsia all over the world with the arguments and ideas that throw a cloak of philosophic respectability over le double refus. The means for speeding up France’s economic progress interest only the specialists; the intellectuals are interested in the debate on “Revolt” and “Revolution.” So vague are its concepts and so noble the words that clothe them, so ill-defined is the subject of debate, that even the Japanese, oblivious of crude reality, have seen in them the reflection of their own preoccupations.

The subject of the debate in Britain is technical; in France it is ideological. In the first case, all are agreed about fundamentals and the discussion is about questions of degree and the efficaciousness of methods; in the second, the facts are forgotten and an attempt is made to force into a framework, derived from Marxism, a historical situation which could easily be understood, on the simple condition of not approaching it with out-of-date concepts.

In politics, action is more likely to succeed when thought corresponds to fact; and in France the two are out of step. Yet, in the intellectual sphere, the effort and the reward are less disproportionate. The discussion is sterile when it concerns ill-defined notions (for example: Is the Soviet Union the embodiment of the revolutionary cause?) or false ones (the absurd belief that a property system, as such, can be responsible for a nation’s wealth or poverty). poverty). But, if the French debate often loses itself in abstractions and anachronisms, it sometimes touches the essential. A radical questioning of industrial civilisation or of working-class reformism goes deeper than a reasonable discussion of the Welfare State or of economic incentives—though these latter considerations certainly have more bearing upon the prosperity of nations.


3. The United States and Germany

BRITAIN and France, respectively, represent the extremes of relevanceand irrelevance between a nation’s real situation and its social-economic ideologies. Most of the European nations can easily be identified with one or other of these types: the Scandinavian nations and Holland with the British, Italy with the French. Belgium, although so much exposed to French influence, shows in politics an increasing resemblance to the British type: its Communist party has continuously declined ever since the first elections after the war, and the leftism of its “progressives” appears more and more as a fashion imported from Paris.

It is possible to adumbrate a sociological or historical explanation of these two contrasted types. Countries of the first type have a relatively high standard of living and have experienced no recent revolutionary upheavals. In all of them (except Belgium) the Protestant reformation won the day; they belong to the sea-faring and merchant-city zone of European civilisation; and they have developed moderate socialist movements which by-pass the dilemma of status quo vs. revolution. France and Italy, on the other hand, are Catholic countries in which the permanent the Church inevitably assumes a political complexion. In both countries, economic progress and higher living standards for the workers have been retarded through the survival of under-developed areas. And both have, by virtue of their large Communist movements, suffered a seccessio plebis.

Germany and the United States will not fit into either of these categories. If we accepted the current language of social-economic controversy, we should be in danger of seeing Germany, less than ten years after Hitler’s death, as the fatherland of “social liberalism” (soziale Marktwirtschaft), while the United States would seem to have been saved in the nick of time, by the Republican victory of 1952, from a socialist invasion led by the Democrats. But once again the facts are quite different.

As regards Western Germany, the decisive fact appears to be the complete collapse of the two German ideologies—Marxism and Nazism—which aimed at the conquest of the world. The Germans have lived the nationalist frenzy through to its bitter end, and their experience of the Soviet regime is incomparably more direct than that of any other West European people. For the present, they are immune to certain arguments and certain illusions. An orator, even if he were a French philosopher, who tried to explain to German workmen that the prohibition of strikes and the suppression of free unions is legitimate in Russia because the workers are in power there, would not be allowed to finish his speech. Unlike the French philosophers, the German workers know what life under the Communist Party is like. The majority of them continue to vote socialist, but all the evidence shows that they no longer subscribe to Marxist ideas. They refuse to listen to the once-classic themes of Class Struggle and Revolution. They have become as reasonable and empirical as the British workers, though with this difference—that they have lived through the messianic temptation, while the British ignored it. Purged by catastrophe—for the time being, at least—Germany prides itself on reviving the pure liberal doctrine.

It is a pious claim which cannot be said to be completely fulfilled. The entrepreneurs or managers in the Ruhr still possess exorbitant power, and the structure’ and functioning of the economy are far from conforming to the classic liberal model. It is true that Chancellor Adenauer’s government allows freer markets than are to be found in other countries. But the foundation of Western Germany’s spectacular recovery has been hard work,the volume of investment and construction, and the moderation and discipline of the workers—all of which have perhaps been encouraged, but certainly not created, by Dr. Erhard’s policies. The Federal Republic’s climate is conservative, bourgeois, and nationalist in the style of Kaiser Wilhelm’s bourgeoisie, but worlds away from that of the Nazi desperadoes.The overriding preoccupation is economic and not ideological. Communism and Russia are identified, and equally hated; American productivity is admired; and there is no remaining trace of that blend of philosophy with politics which characterised the Weimar period and is today so attractive to the French intelligentsia.

In the United States there appears to be a passionate political and ideological controversy all the time. The violence of the language suggests that fundamental issues are involved; but in reality little more is at stake than in Britain. The polemical vehemence of the daily and weekly press is a part of the country’s political style; but it is also a result of the incongruity between the party ideologies and the changing realities of the last twenty-five years.

Many Republicans still hate Roosevelt as they hate their country’s enemies—Roosevelt who brought socialism to America, Roosevelt who created the Leviathan State. The old American society, as the typical Republican imagines it, was a model of liberalism. Its prosperity grew from individual initiative; it prevented the growth of the federal budget and federal taxation; it tolerated no meddling in the nation’s economy by government officials; it eschewed wholesale social services. An individualistic society like this probably never existed except in theory, and in any case could not now be revived. When the Republicans returned to power after twenty years, they laboured to reduce taxation by a few billions, dismissed some tens of thousands of officials, and tightened the control of credit, but they left the essential work of the Democrats untouched. Social services will continue to expand, agricultural prices will be maintained, and national prosperity will still be the Government’s responsibility. In case of economic crisis, or the threat of crisis, the Republican method of intervention will perhaps be slightly different from the Democratic. Republicans prefer tax relief and Democrats public spending; the former are more afraid of inflation, the latter of deflation. Their differences are at bottom much the same as those between Conservatives and socialistsin Britain.

The Republicans try to make their audience’s flesh creep by the same methods as Sir Winston Churchill in the 1945 election. TVA, they howl, is the thin end of the Gestapo’s wedge. Socialised medicine and a low interest-rate are denounced in the United States as though they must inevitably lead to the MVD. It would be a mistake to regard such accusations as a mere electoral ruse. They are, on the whole, sincere; and, although those who make them may not have read Hayek and Mises, they have instinctively developed the same mentality. They attribute a sort of absolute value to free markets and regard any manipulation of prices by the government as a profanation. Private initiative is regarded as intrinsically good and the development of governmental activity as intrinsically bad. And in the end these reasonable preferences become fanatical. In a sense, the fanaticism of leftist doctrinaires is really less unreasonable, because the champions of socialism think they possess the secret of salvation. But liberals, who put their faith in men’s natural instincts, ought not to be surprised if the individual fails to see a competitive economy as the supreme goal. They should remember that although “May the best man win” is a popular slogan in sport, there are not so many people who accept it as a rule for life.

The superficial violence of dispute by no means precludes a proud sense of American uniqueness when compared with Europe, and enlightened opinion is implicitly or even explicitly unanimous upon a fundamental point, “The American Way of Life.” No one judges the European (and especially the French) industrialist more severely than his American counterpart. When the members of the National Association of Manufacturers denounce the “feudalism” and the greed for high profits from small transactions of their European counterparts, they are indulging a repressed desire to see themselves as “progressives.”But is it a true description to say that the American economy is alertly competitive, and that the European ones are stagnating under cartels and controls? What appears to me incontestable is that any “competitiveness” in the American economy is not due to its structure but to the spirit that animates it. The structure cannot be called liberal in contradistinction to a socialist structure in France or Britain, for it is exposed to much the same sort of “socialist” intervention as European economies are accused of. Such competition as there is can often be described as “oligopolistic” rather than classically liberal. Geography, history, and social climate changes as you cross the Atlantic, as they do between Germany and Britain; and these national contrasts have not much connection with what are called ideological differences.

Opinion in the United States almost unanimously accepts the present system. No alternative is apparent either to the intellectual or to the man in the street, and, in effect, there is none. Should a crisis comparable to that of 1929 occur—which I do not think likely—it would be met by some form of planning (which would nevertheless be claimed as liberalism). The present regime has created immense wealth and distributed it among the people. Inequality has diminished proportionately with the rising standard of life. The approach of the United States to these objectives—which were and are also those of the European Left has been empirical. What motive is there for resisting the process? For the sake of what could a revolution be made?

But there is still much to criticise, and especially the tendency to conformism which results from the loss of messianic hope. Even the war of the American Left against the trusts and the concentration of economic power is losing its point. American thinkingis in need of “dissidents,” but there is a danger that dissent will adopt out-of-date ideologies instead of pin-pointing the problems and injustices which official optimism tends to gloss over.

At the moment the two great current controversies are those about McCarthyism and about the correct policy towards Communism in Asia and Europe. McCarthyism raises the question of civil liberties and of what measures a free society is justified in taking against conspiracy and infiltration. Unfortunately, the debate remains confused because both sides resort to “amalgams”; both “McCarthyism” and “Communism”become in the minds of their adversaries a sort of huge morass with no firm outline. As regards Communism, American scholarly literature seems to me the best available in the Western world. On the other hand, current controversy confuses two questions which a realistic approach would separate: namely, what should our opinion be about this or that aspect of Communism in China, Poland, etc., and what should or can be our action in regard to Soviet power in Europe and Asia? Condemnation of Communism too often becomes a sort of refusal to look at the unclean thing or even to admit its existence.

Once again, as in Britain though in a different way, the ideological dispute is concerned less with the country’s internal affairs than with foreign affairs. In the long run, there is really no controversy in America except about Communism, which nevertheless all are touchingly unanimous in condemning.


4. Outside the Western World

France and Italy have large Communist parties, and the other Western countries have small ones which are centres for espionage and conspiracy rather than proper political organisations. In both cases, Communism is a serious problem of internal or foreign policy, but in neither is it a serious intellectual problem.

Roughly speaking, there are two ways of adhering to Communism. The militant Communist accepts the world-view and the changing interpretations of history imposed upon him by authority ; the intellectual, on the other hand, takes the official doctrine with a grain of salt but accepts Communism as the best regime for industrialising under-developed countries, as the “inevitable” outcome of Europe’s decline, and so on. If an important number of intellectuals accepted the orthodox doctrine, Communism would be an essential element of Western intellectual life. But such is not the case.

Orthodox Communism consists in forcing events totally unlike those foreseen by Marx into the millenary Marxist scheme. For it, the capture of power in Russia by the Bolshevik party was the first stage of the historic mission attributed by Marx to the Proletariat. Having baptised the Party as “vanguard of the Proletariat,” it equates all its victories with Proletarian victories. Wherever Stalin or Malenkov reign, the Proletariat is mystically liberated. It follows that the old familiar practices of despotism, furbished with modern techniques, become the embodiment of “socialism.” Every revolution engineered by the Red Army in Europe and every revolution organised by the Communist Party in Asia, controlled by intellectuals who manipulate the peasant masses, will be called socialist and will claim the author of Das Kapital as its founder.

This is a paranoiac interpretation of history. WhatMarx hoped was that the victory of the working class would lead to a universal distribution of the profits from highly developed productive forces, profits which—so he thought—would be restricted under capitalism to the few and would produce increasing poverty for the masses. But the Communist revolutions are imposed before the productive forces have been developed, while the Western countries are distributing ever more widely the profits accruing from technical progress. Soviet regimes certainly develop the means of production, but they sacrifice very much more to what Marx called “accumulation” than capitalist society ever did.

I am not here concerned to discuss the merits or demerits of the Soviet regime, either in Russia or China. It is unnecessary to make it the incarnation of Evil or a unique event in the annals of crime. There are enough facts accepted by critics and supporters alike to enable us to place the regime in history, as one among others. If liberty and equality are the test of socialism, no regime could be less socialist than that of the U.S.S.R. It has restored a rigid hierarchy, with a new ruling class; factory discipline is stricter than in capitalist countries; poweris in the hands of a small group which took possession of the state by violence, and is kept in power by police and propaganda. Admittedly, it has built up an immense heavy industry and given the country an unprecedented war potential. Let us pay tribute to the organising power which carried through this vast industrialisation.

But why should we do what has never before been done in history—why should we regard the builders of empires or pyramids or marble underground stations as benefactors of humanity? To what extent is the Soviet type of overall planning an efficient one? There is no answer to this question that would be accepted by all economists. But no serious economist would maintain that an industrial society must inevitably resort in the end to planning of the Soviet type; nor is there one who believes that the American or British economic systems must lead to poverty for the masses and economic stagnation. Most economists, even those who sympathise with Communism, consider the present Soviet regime a prelude to the Western type of economy rather than a postscript to it. Or again they may expect a gradual rapprochement of the two worlds, through liberalisation in Russia and intensified planning in the West.

Marx’s philosophy and theory provide no firmer ground than does his economic analysis for the Communist interpretation of contemporary history. There is no Western philosopher who takes dialectical materialism for anything more than an ideology of a state or a secular theology; and even socialist- minded economists reject the Labour theory of value. Someone may detect in Das Kapital a foreshadowing of Keynesian ideas; but a serious intellectual who calls himself a Marxist accepts neither Stalin’s philosophy nor the theories of Das Kapital. It is not impossible that the Soviet Union, fortified by the revolutions in Asia, and possessor by conquest of Eastern Europe, may succeed a few years or a few decades from now, in destroying Western society; but this does not mean that Communism is a serious intellectual movement. A few hundred divisions and an ideology for the use of semi-intellectuals are enough to create a menace.

Those who join the Party without accepting the official doctrine are numerous, and it is easy to explain their actions. It is necessary and sufficient in each case to discover why the peasant, worker, or intellectual feels himself aggrieved and alienated from his own country, why he expects nothing from reform and places all his hopes in the Fatherland of the Revolution. Nevertheless, the fact that the Soviet Union, which is in reality so Russian, attracts the rebels of the whole world through an ideology borrowed from the West, has important political consequences.

COMMUNISM’S attractive power is strongest where it can justify itself realistically (speeding-up of industrialisation) and ideologically (the Party as “vanguard of the Proletariat” with its historic mission). In a sense, this is the case in France, whose polytechniciens are irritated by her tardy economic progress. It is even more so in the under-developed countries where the scope and significance of ideologies from Europe and America are distorted by the historical background.

In Europe, a political and economic ideology is concerned with the no-man’s-land which is at stake in party struggles. It ignores the family and everyday life, and all the ideas and habits inherited from pre-industrial times. The controversy between conservatism and progress is fruitful because tradition is not seen as an obstacle to economic progress, which is itself a development from the traditional past which it is desired to conserve or extend. In the Far East, on the other hand, the controversy is between the West on the one hand and Chinese, or Japanese, or Indian cultures on the other; and on the social-economic plane this controversy is bound to end in favour of the West, for all nations aspire to the wealth and power derived from machines and technical prowess.

The East has had to create what was “given” for the West. In the 19th century, there were discussions in the West about the source of legitimate power and the forms of authority; but economic progress was equally compatible, in bourgeois France for example, with constitutional or with absolute monarchy, with caesarism or with a republic. In China, however, the first condition of economic progress may well have been a modification of the family structure and the creation of a Western type of bureaucracy. European political ideologies take on a new colour when it is a question of bringing into existence new familial and state institutions which the Western doctrines do not mention because they take them for granted.

Since progress in the social-economic sphere is almost unanimously accepted as an imperative (the ruling class and the intellectuals in Asia and Africa are now practically without a trace of Gandhi’s hostility to the machine), the real choice is between reforms and revolution; and this is easily translated into European terms as Socialism or Communism. But the terms thus translated disguise the enormous difference between the Indian and the British situations, or between the Russian and the Chinese.

India may provide a minimum wage, guarantees against arbitrary dismissal, and social regulations in industry; but these measures do nothing to eliminate the causes of extreme poverty. All they do is give an additional advantage to those lucky enough to have jobs in factories over the countless unemployed in town and country alike. To give priority to fair shares and individual security is really impracticable in conditions of famine when the first essential is to produce as much as possible.

Indian intellectuals, like those of Oxford and Cambridge, believe in parliamentary methods; they are generally “pinks” of the same shade as the New Statesman. The difference is that, instead of governing 50 million Britons who respect their Queen and Parliament and have enough to eat, they have to govern 365 million Indians, 85 per cent of them illiterate, who have been accustomed for centuries to obey their masters and to have no say either in affairs of State or in their own. Can the place of an emperor, whether Mogul or British, be taken by a political class playing the parliamentary game?

As for China, she is beginning her Soviet experiment with even scantier resources in technicians and machinery than the Russia of 1913; but in spite of this, her imitation of the Russian model is less awkward than India’s attempt to copy Britain. A tyranny can effect changes more easily than a democracy, and Russia’s technique of forced saving under the control of Party and police is an easy one to export.

In Japan, the old ruling class of pre-industrial times was able by itself to Westernise the state and property institutions, the industrial and educational systems, while maintaining the country’s independence. Today, after the imperialist adventure and defeat, the intelectuals are suffering from this national humiliation and are contemplating the drab future which opens before themselves and their countrymen. Japan is the most highly industrialised country of Asia, with the highest living standards; but its intellectuals, like those of France, feel alienated because they have lost their old gods and are intensely aware of the discrepancy between their wishful dreams and the reality they have to face. One finds among the Left in Japan the same frustration and nostalgias as in France, and the same camouflage of authentic experience and conflict under a more or less vulgarised Marxism.

In China, a Communist party of the Soviet type which breaks up the traditional structure of the family, purges the classic culture, and constructs a planningState; in Japan, intellectuals who feel half-estranged from their stricken country and borrow their anti-Americanism and their Leftism from the French intelligentsia; in India, intellectuals with democratic values acquired from Britain but governing in a totally different situation…

The Soviet Union, France, and Britain provide the models, but what are such models worth in Asia?Is not the true issue, hidden behind social-economic controversies, the clash between the West and the national cultures of the East?


5. Conclusion

In most Western societies, ideological controversy is dying down because experience has shown that divergent demands can be reconciled, and has refuted the exaggerated hopes placed in Revolution. There is no incompatibility between political liberty and wealth, or between free markets and a higher standard of life. Indeed, the highest living standards have been attained in democratic countries with a relatively free economy.

As industrial civilisation develops, tensions arise between the concern for equality and individual security and the concern for increased production. With full employment and the danger of inflation, there is a struggle to maintain freedom of wage agreements. The limits of possible redistribution of income are revealed, and also the effects of excessive taxation upon savings and upon the financing of capital goods. There is no final solution to these dilemmas, but the reasonable anxieties they evoke do not give rise to any fundamental conflict. Indeed, it is precisely over degrees and methods of compromise that the political parties carry on their debate.

The apparent ideological chaos is due to a misinterpretation of the interaction of disparate events; the crises taking place in some Western societies, the African and Asian revolt against the West, and the attraction of the Soviet Union (which is derived less from what it is than from what it claims to be). In reality, the alienation of the intellectuals and the grievances of the workers in France are due to the specific conditions of French society; similarly, the action of the Communist party machine, and its organisation of the peasant masses, can also be specifically explained, but not in terms of capitalism or socialism.

I am not here concerned to discuss how the Asian and African independence movements can be weaned from totalitarian methods, or how countries that have achieved independence, but are still weak, can be protected from sovietisation. But one thing is certain: the West should begin by getting rid of its inferiority complex before the idea of “Revolution”. Some revolutions have been sterile, and others fruitful. Some have replaced the old elite by a more efficient one, swept away petrified institutions, and opened the way for new initiatives. But the revolutions of the 20th century have settled down into long-term despotism, prolonging for decadesthe phenomena of terrorism which used to be characteristic of the first revolutionary frenzy. The Soviet phenomena, therefore, need neither perplex nor fascinate Western intellectuals, provided only they consent to open their eyes and refrain from seeking an impossible perfection in human society.

Moreover, revolutionary ardour has cooled down in the last twenty-five years. Yesterday, the French intellectual who symbolised revolution was Malraux—a fighter in China and Spain, author of La Condition Humaine and L’Espoir. Today, the revolutionary activity of Sartre fizzles out in interminable essays about the Proletariat. As Marx said, we live twice through the same events, first tragically and then comically.

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