Some More Thoughts on Historical Inevitability

A long time ago I posted some writings on historical inevitability (Part 1, 2). Recently I reviewed Bruce Riedel's book, What We Won: America's Secret War in Afghanistan, in which he made the case that (a) the US government successfully brought down the Communist regimes of Central and Eastern Europe by aiding the Afghan rebels, and (b) this effort did not bring about the rise of the Taliban or al-Qaeda. My criticisms of his book made the argument that he had gotten it backwards: Western support for the Afghan rebels did not cause the collapse of the USSR, but it did lead to the rise of deadly sectarianism.

However, Mr. Riedel makes an argument that I think is valid, even if it's wrong in the case where he applies it. In other words, he objects to historical reasoning backwards from an event, to where one assumes planners and actors either knew, or ought to have known, the ultimate consequences of their actions. My criticism was that he was applying this to a case where the Central Intelligence Agency clearly ought to have known the consequences, and making claims about causality that are clearly false. The USSR's fall was almost certainly not hastened by its failed war in Afghanistan; there was little reason to expect funnelling money to the insurgents there would accelerate this. A more likely outcome was the occurance of a major war in Central Europe, or deadly attacks on US government employees. That neither of these occurred is good luck, not skill or prudence on the part of the US deep state.

I've already addressed my views about CIA support for ISI and the mujaheddin in my review. Riedel's claim that the CIA was not to blame for the fact that its material aid went to taqfiri zealots, on account of the Saudi General Intelligence Presidency (GIP) actually managing access to the mujaheddin, is not an excuse—it's not even a bad excuse. But in other cases, it is a fallacy to reason backwards like this.

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Digression on the Theory of Value

This post began as a series of footnotes to my fourth post on reading Sraffa. It seemed obvious that I was going to need to explain a lot of points that simply don't fit into a footnote.

Steve Keen is interested in Piero Sraffa' Production of Commodities by Means of Commodities because he believes that it explodes theories of value and price. Having read and re-read a lot of related material, I am increasingly skeptical of Keen's attempts to enlist Sraffa. But in order to explain why, I need to explain some things about rival theories of value.

NATURAL PRICES

In the past, the concept of a "just price" and its close cousin, the "natural price," stimulated debates about the fairness of capitalism itself. One provocation of debate—and much pre-19th century regulation—was the sudden increase of prices for goods in times of scarcity. Another was the frequently inverse proportion between the wealth of some people and the amount of productive work they did. Most food, for instance, was produced by people who were themselves desperately poor and subject to continual toil.

One approach for jurists was to reason from the principle of a "just price" for goods, which supposed to be derived from what that particular culture regarded as fair (or decent, moral) business practices. Another approach was to reason from what goods ought to cost. Adam Smith, for instance, reasoned that goods had a "natural price":

When the price of any commodity is neither more nor less than what is sufficient to pay the rent of the land, the wages of the labour, and the profits of the stock employed in raising, preparing, and bringing it to market, according to their natural rates, the commodity is then sold for what may be called its natural price.
Wealth of Nations, I.vii-§4."Of the Real and Nominal Price of Commodities"

The natural price of any item could be divided into the share paid to land, labor, and capital. Of these, capital and rent could be divided into accumulated past labor required to make them available to the general economy. So, for example, money borrowed at interest to pay the rental fees for the table saw and electric router used could be instead represented as labor performed in the past to create those items. Likewise, the wood, varnish, and glue (or nails).


The value of those inputs was all determined by what what required to make them forthcoming in the desired amounts. If the value placed on labor was too low, then of course humans would avoid commercial occupations and stick to traditional subsistence occupations; or, that denied them (as was the case in 18th century Britain), they would likely starve and have few children, leading to a dearth of labor. If the interest on borrowed money (capital) was too low, then too little would be saved and banking would be strangled by insufficient loanable funds, etc.

Shortly after Smith published The Wealth of Nations, David Ricardo decisively demonstrated that the concept of the "natural price" was actually a fallacy, and like the Farallon Plate, it is now completely subducted under Ricardo's labor theory of value (LTV).

LABOR VERSUS UTILITY...

Deciding what the true price of things ought to be required some objective principle that united all things of value. One point of view was that there was a unique attribute of all goods that could be quantified for purposes of comparison, and this attribute was labor. While the production of most goods require other goods (like machines and raw materials) in addition to labor, those other goods—in turn—can be reduced to earlier labor inputs, and so on backward in time.

This was mentioned by Adam Smith several times:

The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations.
Wealth of Nations, I.i-§1. "Introduction and Plan of the Work"

leading to his distinction between value in exchange and use-value.

The word VALUE, it is to be observed, has two different meanings, and sometimes expresses the utility of some particular object, and sometimes the power of purchasing other goods which the possession of that object conveys. The one may be called 'value in use ;' the other, 'value in exchange.' The things which have the greatest value in use have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange have frequently little or no value in use. Nothing is more useful than water: but it will purchase scarce any thing; scarce any thing can be had in exchange for it. A diamond, on the contrary, has scarce any value in use; but a very great quantity of other goods may frequently be had in exchange for it.
Wealth of Nations, I.iv-§13. "Of the Origin and Use of Money"

The value of any commodity, therefore, to the person who possesses it, and who means not to use or consume it himself, but to exchange it for other commodities, is equal to the quantity of labour which it enables him to purchase or command. Labour, therefore, is the real measure of the exchangeable value of all commodities.
Ibid, I.v-§1 "Of the Real and Nominal Price of Commodities" (emphasis added)

Historically (according to Smith) this would imply that capital accumulation (and hence, interest on capital), rent on land, and ultimately, profit were diversions of (exchange) value away from the actual producer, labor.¹

Smith was not happy about this, but he accepted it as having an important payoff for society. The accumulation of capital led to the division of labor, massively increasing its productive powers. This included developments people usually associate with machinery as such: things like metallurgy allowed workers to contribute to food production from activities as far afield as coal mining and steel production. Because of this, economists who came after Smith were content to regard this diversion of revenue away from labor as morally acceptable, since it greatly enhanced the absolute benefits available to laborers.

After 1870, the situation changed.William Stanley Jevons, Leon Walras, and Carl Menger each published books that had a major impact on the field of economics—all of which attacked the labor theory of value.²

Instead of accepting economic growth as a sort of loan from the worker (in exchange for which the worker was paid "interest" in the form of rising real wages), the marginalists argued that the value of objects arose from its use value. One of Menger's followers, Eugen Böhm-Bawerk (The Positive Theory of Capital, III.iii.) argues that value in use is augmented by value in exchange: claiming that the above-mentioned diamond-water paradox had stumped economists from Adam Smith onward, the Austrians made it a paradox without a satisfactory solution, but then came up with the casuistry that the use-value of a diamond was really big because its exchange value was.³

Therefore, the value of economic inputs was determined by their contribution to the overall utility of goods they were used to produce. According to marginalists, profit was actually an inherent cost of production, and reflected the income "advanced" to workers before the production process was complete (according to marginalists, labor was unique among the factor of production in so far as it was not entitled to payment prior to the completion of the production process, whereas all other inputs were.)⁴

....VERSUS THE MARKET

A fundamental doctrine of economics is that markets are totally spontaneous relations that always occur between free actors.

Now, as a historical fact it has be made absolutely clear that markets are things that have to be made by conscious effort; stock markets, for example, consist of very specialized experts called "market makers." This is a really basic fact well known to anthropologists and actual historians of economics. Spontaneous markets usually are confined to exotic situations where commerce has long been established and is suddenly disrupted by a disaster.

But let us suppose that, once markets are set up for many different goods, they perform the unique miracle of price discovery, by establishing an equilibrium between supply and demand.

The problem with declaring that this is what value really is, was obvious even to the Austrian school of economics: even Carl Menger or Eugen Böhm-Bawerk, to say nothing of William Stanley Jevons or Alfred Marshall, were going to claim that that was what value actually was. Value may have been "discovered" (i.e., revealed) by the process of commerce equalizing effective supply and effective demand, but in order for it to be revealed, value had to exist.

DIFFERENT SENSES OF WHAT "VALUE" IS

This is a tricky topic and what I need to say has already been said in this passage, so I'm merely going to quote at length:

[There is a very important] distinction between use value, the subjective valuation an individual gives to a commodity, which is contingent and arbitrary, and exchange value, which is the long-run ratio of exchange between a commodity and another, including commodity money. [...] Marx point[ed] out that the greatest classical economist, David Ricardo, assumed that a commodity produced would have greater exchange value than the total value of the wages paid to the workforce making that commodity (the value of the wages itself also expressed in commodities). As Marx noted, Ricardo did not explain how this came to be, i.e. where the difference came from. Marx then argued that the difference, "surplus value," arose from labor and labor alone in the process of capitalist production: it resulted from the use value of labor power, which is the labor of people as sold as a commodity in a competitive labor market, being that it had the ability to produce surplus value.
Krul (2012) (emphasis added)

As I've already mentioned above, Smith's distinction between use and exchange value absolves him or anyone else from having to plumb the metaphysical questions of who deserves to possess the "utility" of the social product. This is not, after all, a preoccupation of Smith, nor is it of Ricardo, nor even of Karl Marx.

Reading the writings of neoclassical economists, it is clear that they are usually mindful that their readers are evaluating various radical views about the existing social order. A major preoccupation was "debunking Marx," an activity that almost all popular writers on economics feel compelled to do. As we have seen, the most dogged and vociferous were members of the Austrian school of neoclassical economics (Menger, Böhm-Bawerk, Ludwig von Mises, Friedrich von Hayek, and Murray Rothbard, and the mostly-sympathetic Joseph A Schumpeter.) While the Austrian school is subject to differences of opinion like all the others, one common feature was this tendency to attribute to Marx, et al. the view that intrinsic worth of commodities was the thing being alienated, and therefore Marx was just an obnoxious simpleton.⁵

MARXISM AND THE LABOR THEORY OF VALUE

When talking about the labor theory of value, it sounds very simple: value in exchange will represent the sum of all past labor inputs into the creation of this final commodity. One might acknowledge that "in exchange" assumes a few points: one is that "exchange" involves a mostly fixed bundle of commodities (nominal values of money being held in low esteem); and that while the "value in exchange" of, say, 1000 yards of muslin, is subject to fluctuation depending on things like access to your primary markets, prevailing tastes in textiles, etc., it is stable enough to make long-term plans.

Another assumption is that labor-power may be treated as a homogenous, interchangeable input. This is no different that ordinary Taylorist methods for planning a new production process. Again, since the Marxist LTV is describing capitalist production, it follows that we can prima facie assume management policies optimizing worker output and even uniformity. Willfully substituting inefficient methods of production, for purposes of argument, is in bad faith.

Marxism is especially significant because it actually represents a crucial endpoint in the system of economic analysis. Logically, it is a more logically robust than neoclassical economics because it is compatible with a huge range of realistic market failures and neoclassical theory is not; it acknowledges (where neoclassical economics emphatically denies) the concept of sectional interests in society winning control of "the market," which apparently Sraffan economics implies must happen.

HOW MARXISTS USE "COMMODITY"

Marxist theory uses the term "commodity" in a specialized sense.  While I strongly recommend Robert Vienneau's FAQ page on the LTV, the entry for "commodity" says very little.  When writers like Matthijs Krul say that "The 'residue' exists because capitalism has not always existed, that is to say, that there has been non-commodity production before commodity production," readers understandably will wonder how this could possibly be true.⁶

Krul includes an extended quote from Marx's Capital that explains what he meant by "commodity," but I did not really think this was helpful: "A commodity is, in the first place, an object outside us, a thing that by its properties satisfies human wants of some sort or another"; this is a necessary condition of being a commodity, but it cannot possibly be sufficient, because all human societies have produced that sort of thing (and what about services?).  I wanted a succinct explanation of what it was about "commodities" that distinguished them from the goods and services that pre-capitalist economies presumably produced.  

The most important thing to realize about the concept of human capital is the direct meaning of the term itself: human capital. Conceiving of skills and education as an aspect of labor in fact reinforces the understanding of labor itself as a commodity, which happens to reside in human beings individually. This has two important effects. First, the individual human’s labor has under neoclassical theory already been assumed to be a commodity, a mere instrument for the production of capital. Now, even the aspects of the carrier of labor, the human individual, which were hitherto considered to be given and outside the sphere of neoclassical capital theory are now subsumed within it. All skills, all education, in fact any number of intangibles relating to character, outlook and so forth can now be subsumed into the theory as means of production.
Krul (2010) (emphasis added)

I am pretty sure that Krul has nailed it right here.  The essence of capitalism is that it seeks to accumulate capital, which is to say, it uses a combination of technology and social control to build up continuously growing pool of stuff required for the production of more stuff.

...[L]abor takes a specific form under capitalist production, because it is now a commodity (labor-power) which in the process of generalized competition is made into homogeneous, abstract labor. It is not, therefore, just like any other commodity, but it is one which, as essential prerequisite for the process of capitalist reproduction, becomes the very yardstick of its own accumulation: value, which is nothing else than socially necessary labor time needed for the reproduction of any commodity.
Krul (2012)

The "stuff" could be inventories, buildings and fixtures, machinery, or "human capital"; probably anything one could name has been used as capital at some time or another (including the state, whether of the USSR or the government of Lake County, Florida).  Idealistically, one could equally imagine nearly all of those things not used as capital: an Indian tribe whose cement factory provides employment and public revenue, or a research facility whose findings are public domain, and so on. At that point they would cease to be commodities, since commerce in them would not be driven by the process of accumulating social power for some capitalist.

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NOTES

1. Smith, Wealth of Nations, I.vi-§5. Smith goes a little further in his Lectures on Jurisprudence:

   Of 10,000 families which are supported by each other, 100 perhaps labour not at all and do nothing to the common support. The others have them to maintain beside themselves, and besides [those] who labour have a far less share of ease, convenience, and abundance than those who work not at all. The rich and opulent merchant who does nothing but give a few directions, lives in far greater state and luxury and ease and plenty of all the conveniences and delicacies of life than his clerks, who do all the business. They too, excepting their confinement, are in a state of ease and plenty far superior to that of the artizan by whose labour these commodities were furnished... Thus he who as it were supports the whole frame of society and furnishes the means of the convenience and ease of all the rest is himself possessed of a very small share and is buried in obscurity. He bears on his shoulders the whole of mankind, and unable to sustain the load is buried by the weight of it and thrust down into the lowest parts of the earth, from whence he supports the rest.
   Lectures, 29 March 1763, p.341

   Page number is taken from the Glasgow Edition of the Works and Correspondence of Adam Smith, Vol. 5, Liberty Fund (1982).


2. William Stanley Jevons, The Theory of Political Economy, London: Macmillan and Co. (1871); Leon Walras (translated William Jaffe), Elements of Pure Economics, London: Allen and Unwin (1954/1870); and Carl Menger (translated by J. Dingwall and B. F. Hoselitz), Principles of Economics, New York University Press, (1981/1871).


3. It seems to be an article of faith among Austrian economists that they alone can explain why a diamond (which has little practical benefit) is expensive, but water is cheap. For a long time, economists explained that diamonds were extremely scarce, arising from the immense amount of labor required for "production"; whereas water could be captured and exploited with little labor. If social relations made water consumption more urgent than it is, then the value of water would rise relative to that of diamonds.
   
   This was not at all a puzzle for economists until the utility theory came along. The distinction between use-value and exchange value was used for explaining the mechanism by which the "natural price" was aligned with the "market price" of the good, and was not relevant to the question of what the intrinsic value of water or diamonds was. Relevant passage in Eugen Böhm-Bawerk is The Positive Theory of Capital, III.iii-§2, where he accuses [classical] economists of confusing usefulness and use value.


4. According to Eugen Böhm-Bawerk, when an entrepreneur paid the workers, he did so long before their labor resulted in business revenue; therefore, their wages constituted a loan. Oddly, this was somehow an anomaly for labor, but not for things he bought from other entrepreneurs like inventory, raw materials, fixtures, machinery, and so on. See Böhm-Bawerk, The Positive Theory of Capital, VI.iv-§3, It would appear to me this explains the politically conservative view that contractual obligations to workers are frivolities that do not warrant respect, whereas less-than-contractual obligations to rich parties (like bondholders and shareholders) are sacrosanct.


5. From Karl Marx, Critique of the Gotha Programme, I.:

   Labor is not the source of all wealth. Nature is just as much the source of use values [...] as labor, which itself is only the manifestation of a force of nature, human labor power. the above phrase is to be found in all children's primers and is correct insofar as it is implied that labor is performed with the appurtenant subjects and instruments. [...] And insofar as man from the beginning behaves toward nature [...] as an owner, treats her as belonging to him, his labor becomes the source of use values, therefore also of wealth.

   This leaves a lot of room for interpretation (and I am not the best interpreter!) but clearly Marx's "LTV" applies only to a society predominantly under a capitalist mode of production.


6. Krul (2012)

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SOURCES 🙵 ADDITIONAL READING

Piero Sraffa, Production of Commodities by Means of Commodities, Cambridge University Press (1960): link goes to complete text online.

Matthijs Krul, "Steve Keen’s Critique of Marx’s Theory of Value: A Rejoinder," Notes 🙵 Commentaries blog (4 July 2012)

 Matthijs Krul, "A Critique of ‘Human Capital’ theory," Notes 🙵 Commentaries blog (11 October 2010)

Adam Smith, Wealth of Nations (5th Edition), London: Methuen 🙵 Co., Ltd.(1904/1776)

Robert Vienneau, "Frequently Asked Questions about The Labor Theory of Value" version 1.2.4 (Last modified April 2004)

What is art?

The following is an email I wrote in response to a question, "What is art?" 

What is art?

I actually spent a lot of time pondering this question while waiting for an opportunity to write back. Part of the problem is that "art" is an unusual English word: it has a lot of definitions, which are relatively close together in meaning.It's sort of like the word "pride," which is used as a synonym for self-esteem, but was traditionally used in theology to refer to the worst of the seven mortal sins. So when you ask the question, "What is art?" you might well specify "as opposed to..."

I think you mean, "... as opposed to an artifact that lacks artistic content." Every day millions of people shoot photos of items to sell on Craig's List. And in all seriousness, you can't really call it art (unless the person is a compulsive artist).Decoration may require some taste, but it's not usually art. And in any event, if I'm a bad decorator, would one describe my reading chair, set about with ancient copies of The New Yorker or Kino and occulted BLT andwiches* as "art"?

William Bouguereau Click for larger view

Click for larger view

In my opinion, people can intuitively recognize the difference between something lacking any artistic content and something possessing it, even if they cannot explain why.Distinguishing between good art and bad art, in my view, is much harder.I'll explain why in a moment.

An artifact becomes art by virtue of two possible attributes:

1. the artist responds to an expectation, or sets up an expectation, that is reversed (or surprised) by the artifact.
2. the artist uses any of a number of aesthetics to consciously make the item beautiful.

These seem like aggressively broad-brush generalizations, and many exceptions come to mind. Here are some paintings by William Bouguereau. You might feel that his work makes him a typical product of the 19th century Weltanschauung; in art history textbooks I have known, he is disparaged as being sentimental and vapid, if he's mentioned at all (since the 1970's he's made an impressive comeback). Part of this has to do with a prolonged co-option of the normal historic functions of art by commerce: people may sense that an advertising poster is in fact art, but they recognize that it's bad (dishonest) art.

But for people who were living in the 19th century, Bouguereau's art was amazing; it was so popular that it would become a cliché, but the sheer vividness and temerity with which he represented biblical/classical topics was stunning. The reversal came from the sight of an idea that was familiar to them only from words of the parish priest, or perhaps books, woodcuts, what-have-you. Later, new ideologies would promote suspicion of beauty per se, as exploitative or a mark of false consciousness. I don't want to disparage these ideologies entirely, because they were in response to a very real vapidity of 19th century attitudes.
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Historical Inevitability-Part 2

(Part 1)

In the previous segment I talked about the philosophical dilemmas associated with free will. Now it is necessary to extend this discussion from that to the matter of historical inevitability. As I mentioned in part 1, one of the major controversies in historiography has to do with the question of determinism.

Inevitability in Conflict with Free Will

Isaiah Berlin is the famous apostle of free will as an ethical necessity.¹ His defense of the idea of free will is based on the objection to determinism, that it is impossible to think coherently about human actions without an assumption that actors can chose between good acts and bad ones. The argument seems at first like an appeal to consequences: we must believe something because bad things will occur if we don't (people will feel that they are under no moral compulsion to resist temptation). But Berlin's argument is actually somewhat different. He is aware of what Kant wrote about the issue (RNL🙵A), so he has no noble lie to propagate; rather, he believes the concept of action degenerates to nonsense unless we assume the actor has some degree of choice over it. The state of being conscious requires a belief in one's ability to control one's own actions, even if this belief is erroneous.

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Historical Inevitability-Part 1

...When we speak freely, it is not the liberty of voice, or pronunciation, but of the man, whom no law hath obliged to speak otherwise than he did. Lastly, from the use of the words 'free will,' no liberty can be inferred of the will, desire, or inclination, but [only of] the liberty of the man; which consisteth in this, that he finds no stop in doing what he has the will, desire, or inclination to do.
Thomas Hobbes, The Leviathan, XIX

In recent months I've been startled by the tendency for recent books on history to allude to the "non-inevitability" of certain historical events. One that stands in my memory is Richard J. Evans, The Coming of the Third Reich, Penguin (2004).

Developments that seem inevitable in retrospect were by no means so at the time, and in writing this book I have tried to remind the reader repeatedly that things could easily have turned out very differently to the way they did at a number of points in the history of Germany in the second half of the nineteenth century and the first half of the twentieth. People make their own history, as Karl Marx once memorably observed, but not under conditions of their own choosing. Those conditions included not only the historical context in which they lived, but also the way in which they thought, the assumptions they acted upon, and the principles and beliefs that informed their behaviour... For all these reasons, it seems to me inappropriate for a work of history to indulge in the luxury of moral judgment. For one thing, it is unhistorical; for another, it is arrogant and presumptuous. I cannot know how I would have behaved if I had lived under the Third Reich, if only because, if I had lived then, I would have been a different person from the one I am now.
Evans, The Coming of the Third Reich, p.XX

A quick search turns up two places where Evans did remind the reader of the "non-inevitability" of history; on p.43 ("...the German past was a burdensome one in many respects. But it did not make the rise and triumph of Nazism inevitable. The shadows cast by Bismarck might eventually have been dispelled...") and p.444 ("Nor was everything that subsequently happened in the history of the Third Reich made inevitable by Hitler's appointment as Chancellor. Chance and contingency were to play their part here, too, as they had before.").¹


This question of inevitability in history is actually fairly problematic, and in what follows I am going to confine myself to outlining the basic problem.

Free Will

An ancient philosophical problem is that of free will. In some religions, there is a major quandary over the power of mortals to "earn" salvation. In Roman Catholicism, for example, humans possess ultimate control (and therefore, praise or blame) over their actions. Hence, damnation is "fair" because those damned to hell could have chosen to be righteous, but did not. In Calvinism, humans do not possess any control over their actions; damnation is not "fair," since humans lack the ability to chose the righteous path anyway. Since the 19th century, the Calvinist perspective has been somewhat revived by behaviorists, who argue that doctrines of freedom and dignity are illusions, and that all human behavior (including thought) is determined by conditioning.² Subsequently, neurologists, inter alia, have claimed that mental processes are a random natural event, analogous to meteorological processes.


In fact, Immanuel Kant had addressed this problem in the Critique of Pure Reason (1781/1787), II.ii.2, under the rubric of the "Third Antinomy of Pure Reason. " Kant proposed two alternative conclusions, between which there was no middle ground, and which were equally impossible:

1. The free will of sentient beings constitutes one of many forces in the universe;
2. All events are determined by prior causes, including the mental events that we mistakenly characterize as our "free will."

Kant "proves" each of the two propositions by refuting the converse. To paraphrase, (1) is impossible because the transcendental notion of freedom presupposes an initial state of mind capable of selecting a subsequent state of mind.³ Each state of mind is dependent on the state immediately before it, since one's desires and principles cannot change without some rational cause (viz., some sense-event, such as witnessing something surprising). Likewise, the consequence of one's mental state on, say, Tuesday, is one's mental state on Wednesday. This precludes a free choice of mental state on Wednesday.


Conversely, (2) is impossible because it requires an infinite regression of explanatory events. In other words, we insist on describing the conditions that led someone to have a certain mental state in terms of some other physical events, including the mental state an instant earlier (say, a peculiar configuration of the molecules in one's brain). This prior state has come to be after a moment earlier, when it was not. This is a paradox.⁴ Kant seems to me to be arguing in his follow-up that the power of reason on mental states has to be understood as the essence of "freedom," in so far as it stands apart from strictly phenomenal influences on mental state and physical events. This is not really satisfactory, because "reason" is simply a catch-all for mental processes which undoubtedly conform to some mechanism.


A close reading of Kant is exceptionally difficult, but his predecessor, Thomas Hobbes, made the point that "free will" had no meaning beyond "acting without hindrance." Thinking this through, it seems as though free will can be defined relative to one's consciousness. I am aware of sitting here typing this sentence. I am conscious of a subsequent idea that needs to be expressed in sequence. I elect to type this subsequent idea using the words that you are presently reading. Indeed, I am not aware of any force stopping me from doing so, or forcing me to suddenly start typing about puppy biscuits. True, my sensation of having wanted to type this article may be a delusion caused by some mechanism, but insisting on the absence of any form of mechanism imposes a logically (and transcendentally) impossible demand on the meaning of the phrase, "free will." It means that there is no universe possible in which "free will" means anything. If I want to type an article about free will, and instead my body types words about puppy biscuits, then I am without free will. While I have, at rare moments of my life, suffered involuntary muscle spasms or tics, I have never had the experience of consciously willing my body to do one thing, and it doing something else.

(to be continued)
_____________________________________
NOTES:

1. Richard J. Evans also wrote In Defense of History, W.W. Norton (1999); chapter 5 addresses causation. I have not read this book, although I have skimmed chapter 5.



2. "Freedom" refers, obviously, to an individual's power to choose an act; "dignity" refers, here, to the honor of having chosen well (or being trusted to choose well). Frequently, when Usonians use the word "freedom" as an abstract concept of liberty, they really mean "dignity": the principle that they are entitled to have their choice honored, on the grounds that their choice has a higher moral worth than choices made for them by others. The principle of dignity as a foundation of political ethics is attacked by B.F. Skinner in Beyond Freedom and Dignity, Hacket (1971). When I said behaviorists had "revived" Calvinism, I was being facetious; this essay withholds my opinion of Skinner and his prescriptions.



3. Transcendental: in metaphysics, the relationship among entirely abstract propositions. Metaphysics is the branch of philosophy linking abstract propositions to physical ones. State of mind: to put the matter another way, suppose we wish to make a judgment of somebody for being racist. We all agree that racism is bad. Strom Thurmond is an egregious example of a racist person. His contemporary admirers might argue that his racism was merely an unfortunate byproduct of his times, although Thurmond was an exceptionally virulent racist, even for one born in North Carolina in 1902. Suppose we disregard the explanation that his racism was entirely a random byproduct of the peculiar neurochemistry of his brain. We therefore assert that his choice of racism at any given instant reflects the state of his mind in the preceding instant. By the assumption of free will, we are compelled to expect him to evaluate any sense-event using his prior mental state. But his prior mental state is a "slave" to the mental state he had immediately before that. His racism on Thursday is mainly the result of his racism on Wednesday, which is mainly the result of his racism on Tuesday.
   
   
4. The paradox is not exactly clear to me, except that Kant regards infinite regress as unacceptable. Things have to begin somewhere. Another point, though, is that each event (say, my state of mind on Wednesday) has a large set of consequences, of which my state of mind Thursday is only one; and it is the manifold (resulting configuration) of many causes, of which my state of mind Tuesday is only one. Eventually we are obligated to consider the mental state as some form of actor.

_____________________________________
SOURCES & ADDITIONAL READING:

Joshua Cherniss & Henry Hardy, "Isaiah Berlin: Free Will & Determinism", The Stanford Encyclopedia of Philosophy (2008)

James R. MacLean, "Technology and History," Reshaping Narrow Law & Art (Nov 2005); "Change in the Weather," Ibid. (Dec 2005); " On the word 'Tend'," Ibid. (April 2007)

Dr. Alun Munslow, Review of '87 edition of E.H. Carr's What is History? —Institute of Historical Research

Competition and Homologization

"Homologization" is a term I have coined to refer to a fairly common trend in technological change. The term is derived from "homology," a term in logic in which a person argues that two things are not merely analogous—i.e., sharing similar patterns—but share a common identity or root. So, for example, someone might draw an analogy between the Internet and the system of roads; but everyone understands the two things are so dissimilar that the analogy only illustrates a peculiar pattern common to both. On the other hand, the same person might go much further in comparing the Industrial Revolution and the Internet Revolution, arguing that the two were essentially the same phenomenon occurring twice (that someone would not be me).

The homologization of two or more businesses consists of them becoming essentially the same business, albeit through somewhat different media.

Finance, Insurance, & Real Estate (FIRE)
The most famous example is the Usonian financial services sector, which had been split into several separate businesses after the financial crash of 1929. Even before the Crash, the banking sector had been partitioned geographically, which of course divided capital markets from local savings banks. Between 1933 and 1999, commercial banking, stock brokerage, investment banking, insurance, and real estate were barred from mixing into each other. A commercial bank like Citibank was barred from selling insurance or underwriting issues of new equities, nor could it offer brokerage services to customers. In the years between 1996 and 2003 there was a frenzy of M&A activity as the entire financial sector effectively merged into a few financial supermarkets.

Homologization of the US FIRE sector posed an interesting paradox: each company within that sector was now free to enter other businesses heretofore closed off to it. Commercial banks could now sell insurance; investment bankers could offer underwriting services to a wholly different clientèle. Looking at this from another angle, this reflected increased competition: in theory, each bank was now facing competition from all insurance companies, all brokerages, and vice versa. This posed a rather interesting paradox: virtually all firms in the FIRE sector were in favor of changing the regulations to allow homologization. It was the brass ring of pro-business legislation. All of the financial press praised the repeal of the Glass-Steagall Act as if it were the sine qua non of happiness. Yet the same businesses and the same business press argued, at the exact same time, that the new competition created by homologization imposed extraordinary new burdens on that same victorious FIRE sector. That meant that still more regulatory tweaking was required.

Financial services in the USA and other industrial nations tend to share certain state-like powers and benefits that make them utterly different from non-bank firms. For one thing, commercial banks have the power to create money. Investment banks have the unique power to underwrite capital issues under limited liability laws. Brokerages have exclusive access to capital markets, which are—in turn—made possible by limited liability laws. Financial services, perhaps most importantly of all, are governed by accounting laws that are the rest of us; they are allowed to bear far greater leverage against capitalization than non-financial firms. The last feature, common to the whole sector, reflects its role as a premier state surrogate: it can borrow so much money because it guarantees the greater part of the nation's sovereign debt.

I point this out because I want to make the point that the financial sector already is a part of the national polity; with the events of 1999, it was absolved from two layers of social responsibility. It was liberated from prudential restrictions on what businesses it could undertake, and it was absolved of [most] community banking regulations.

The increased-competition side of financial homologization has been, in my view, an obvious bust. The banks tended to merge with each other, and bought insurance companies, brokers, and investment banks. They did not "invade" each others' business with enhanced services. Mostly, they did increase convenience through internet automation or ATM's. However, savings/commercial banks withdrew from the auto loan markets in favor of home equity loans. In other words, the actual bundle of services offered to customers was shuffled about between banks and 3rd parties (like auto dealers). A branch bank does offer services unavailable in the early 1990's; mostly they are not services a consumer ought to use. It has abandoned useful services as well, creating new monopolies.

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Telephony, PCS, ISP, Cable, & Network Broadcasting
The Internet Revolution has led inevitably to the homologization of media. Like the banking sector under the McFadden Act, the old media was regionally segmented; modern media is internationally homogeneous. However, another curious development was the short history of the ISP. In the early 1990's, the number of genuinely autonomous internet service providers (ISP's) was immense, because running an ISP required particular capital and skills that could be delivered anywhere. Telephone companies still regarded their business as telephony, and were concerned mainly with the booming personal cellular service (PCS) industry. By 2000 or so, telephony and PCS were mostly united in odd international cartels, with occasionally-overlapping service areas. The vast majority of people used their telephone company as their ISP, although a few specialized firms like Earthlink continued to survive as autonomous ISP's.

Cable television remained divided from the telephony/PCS/ISP part of communications, as did network broadcasting from both. This changed somewhat as cable companies were snapped up by computer companies like Microsoft, and as laws on cross-holdings or market consolidation in media were abolished. Fox News has enjoyed favorable treatment by Congress, and Clear Channel Communications has transformed the media delivery system in this country. Today these two companies have merged cable, radio, and television "content" production, while MSN* has merged software, ISP, and other media categories.

The same paradox has arisen here: all of the media firms involved insist they are experiencing greater competition. Telephony faces competition from VoIP; DSL faces competition from cable; cable faces competition from YouTube, network television faces competition from content-producing cable conglomerates; and so on. Yet market concentration by single firms has exploded in all markets concurrently. All participants insist, and the FTC insists on their behalf, that competition is much greater and there is no longer any reason for public interest regulation.

In the case of the media industry, it's fair to point out that the process of homologization was driven by technology. It's harder to make this claim in the FIRE businesses, where no technological breakthrough comparable to the Internet has occurred. In FIRE, there has been far less acrimony among the industry members; rather, the abolition of Glass-Steagall has permitted polyamory in the sector. In the new media industry, there is clearly a struggle between rival commercial interests, with each purporting to defend the public interest.

A final note: homologization is occurring in other industries and has in still others. It leads to an interesting aftermath, where the entire mix of products available is changed. Initially, the customer suffers through deception: even very well-informed customers are vulnerable deception by gigantic institutions interested in getting them to make sucker bets. Whether the situation improves depends in large measure on if the customer remembers that she is also a citizen.

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*MSN is now known as Windows Live.

The Curmudgeon's Fallacy

The belief that any preventive measure used to minimize risk of a catastrophe will be offset by increased human fecklessness. Put another way, the curmudgeon's fallacy maintains that items such as safety equipment or regulations will have almost no net impact on safety or health, since people will simply become more feckless. The curmudgeon's fallacy actually may be applied more broadly; it is not restricted to measures intended to improve safety and health. Essentially, the curmudgeon's fallacy applies to any social goal whatever.

WEAK FORM
The weak form of the curmudgeon's fallacy is (being the weak form) less of a fallacy. It holds that constraints and safety measures imposed externally (such as traffic safety laws) will have little or no net impact on safety, since people will merely assume they are protected. Similarly, people with health insurance will be more careless with their health, people with airbags will drive more carelessly, people with legal protections against fraud or false advertising will be more easily duped.

In this sense, the assumption is not so much a fallacy when it is understood as a critique of policy measures. It is valid to say that people might respond to a protective measure by being less cautious about that particular risk. In some cases, such as unwanted pregnancies, it's probably true that massively relaxed social sanctions against extramarital pregnancies have indeed increased their frequency. However, this involves a confusion of changing consequences with changing motivations. Today, few people believe extramarital pregnancies are so awful that it would be sensible to execute unwed mothers. More on that, below.


STRONG FORM
In its strong form, the curmudgeon fallacy believes measures taken by oneself to prevent a catastrophe are as futile as those imposed from outside. For example, when I was younger I used to find healthy-living enthusiasts utterly tiresome and silly, and (privately) ridiculed the fact that they were usually sickly, joyless people. After decades of living and observing, I understand that people usually take up such lifestyles, as I did, in response to specific problems: changing metabolisms, risks of heart disease, incipient obesity, and so forth. Usually, people with congenital health problems run into this concern immediately. I would wait until I looked in the mirror and gagged at what I saw.

The strong-form curmudgeon's fallacy is more related to a contempt for the illusion of effective action. Eating greasy hamburgers with a mountain of fries and a milkshake is actually a very pleasant activity; it's natural to resent the voice that tells one to switch to rice crackers and steamed asparagus. It's natural to sneer that we're all going to die anyway. However, this is another fallacy: that a result is inconsequential if it doesn't last forever. Murder merely hastens the inevitable, but we still regard it as a horrible crime. Democratic institutions are going to disintegrate into despotic ones, some day, but that doesn't mean they're worthless while they last.

More directly, the strong-form curmudgeon's fallacy maintains that self-imposed safety restraints are really a failure to accept the weak-form version of the fallacy. To illustrate this point, suppose somebody reads an article that says that using sunscreen greatly reduces the risk of skin cancer. So she starts wearing the proper SPF sunscreen whenever she's outdoors. In effect, she's acting as if there was some law that required her to do this, even though no such law exists and would be extremely difficult to enforce anyway. She's internalized the expert advice. We assume here that she will abandon alternative precautions, like avoiding exposure to direct sunshine altogether. The strong form appears to reflect a global assumption that new precautions, such as use of sunscreen or cars with airbags, does not reflect caution by the adopter, but displaces caution--even when the person taking the precaution is doing so precisely because she is cautious.

MATHEMATICAL FORM
The curmudgeon's fallacy can be expressed in the language of mathematics. Let P_d be the probability of a disaster (e.g., a fatal auto accident). P_c is the probability of a crisis occurring, such as a car accident (which may or may not be fatal); P_l is the probability of that crisis being lethal. P_d = P_c x P_l; P_d >> 1
In order to suffer a fatal car accident (P_d), one has to have been in an accident (P_c) that is lethal (P_l). Now, suppose we install airbags in cars, reducing P_l. If P_c remains the same as before, P_d will go down. According to the curmudgeon fallacy, that is absolutely out of the question. Indeed,meaning that the unintended consequence (ΔP_c/P_c) is necessarily greater than the thing affected by human will, and
it is necessarily of opposite sign.

According to the curmudgeon's fallacy, it makes no difference if it is P_c or P_l that is consciously altered; if a legal measure were contrived to reduce P_c instead, causing accidents to be less likely, then accidents would become more lethal. Public policy will invariably increase P_d. At the very least, if by some miracle, the number of fatalities per passenger is demonstrably reduced, then some other awful thing must have happened.

In some cases, it is true that unintended consequences do indeed have the opposite sign and sometimes they do exceed the intended effect. Moreover, as the curmudgeon is the first to point out, there are orthogonal consequences as well. Too many regulations will interfere with each other or suppress productive activity. Safety regulations often do have perverse incentives on behavior or personal health choices. This has led to the introduction of game theory to the analysis of public policy. However, it is most rash to insist that it's always the case. This is why the expectation of large countervailing consequences is a good critique but a poor ideology.

INCIDENCE OF THE FALLACY
Typically, when conservative older men congregate, examples of the curmudgeon's fallacy tend to receive a cordial hearing. The common myth is that airbags tended to make drivers so much more careless that they offset the increment in safety (example). Of course, the authors use the example of the seatbelt:

This surprising result has triggered a number of studies, most of which have come to similar conclusions. In fact, no jurisdiction that has passed a seat belt law has shown evidence of a reduction in road accident deaths. To explore this odd but highly robust finding, experimenters asked volunteers to drive five horsepower go-karts with and without seat belts. They found that those wearing seat belts drove their karts faster. While this does not prove that car drivers do the same, it points in that direction.

A similar study was done with real drivers on public roads. When subjects who normally did not wear seat belts were asked to do so, they were observed to drive faster, followed more closely, and braked later. Statistics from the United States indicate that as more and more states required seat belt use, the percentage of drivers and passengers killed in their seat belts increased.

The cliche that seat belts save lives is true in the lab and on paper, and it's true if driver behavior does not change. But behavior does change.

Of course, if the share of motorists wearing seatbelts increases sharply, the share of motorists killed in accidents wearing seatbelts will also increase, simply because there will always be accidents that would have killed the motorist anyway. Likewise, the author cites a test that shows that motorists responded to wearing seatbelts by driving faster, braking later, and following other vehicles more closely. The author cites no actual study, which leads me to suspect the auto industry commissioned these studies (since the auto industry has long opposed any form of health or safety regulation of its products).

A careful reading of the literature reveals that the author is assuming his readers have a poor understanding of statistical inference. In order to test something like homeostatic responses to safety regulations, one has to use regression analysis with hypothesis testing to confirm or deny the null hypothesis (viz., that seatbelts have no effect on driving behavior). The study involved can then use a Wald Test on that particular null hypothesis, which means they can confirm that while safety equipment has a low predictive value on behavior, it may be part of a battery of predictive factors that do.

Yet, elsewhere, where the author cites a study (?) that fails to prove that seatbelts had a year-on-year reduction of traffic fatalities, the null hypothesis would be that seatbelt laws had no detectable effect on traffic fatalities. Since a law usually has a slow impact on behavior, this is an inevitable result. Over a period of four years, the p-value (i.e., the robustness of the coefficient) for seatbelt laws on traffic fatalities would necessarily be quite small.

However, law enforcement officials, private sector insurance carriers, and medical personnel at hospitals reliably warn motorists to wear seatbelts. From year to year, there is a distinct downward trend in traffic fatalities per passenger mile; this is slightly surprising given increases in road congestion, especially at hours late into the night. Cars have undergone numerous waves of safety-enhancing technology modifications besides seatbelts; these modifications have been adopted in many countries, reflecting agreement across ideological regimes. Additionally, there are long-term changes in attitudes about pedestrians that have nothing to do with increased motorist protection and everything to do with suburbanization of the population.

In other words, the author of the article inserted very different standards for testing behavioral homeostasis and for testing regulatory effectiveness; the standard for homeostasis could be set very low, perhaps by allowing a Wald Test; whereas, for regulatory effectiveness, the standard of rigor was markedly lower—the p-value of laws had to be less than 0.05, a nearly impossible standard in public policy research. Laws have a lagged effect on behavior, and auto safety is very complex; since any hypothesis testing may have included autocorrelation effects, dummy variables for many other explanatory variables (like jurisdictions), and a counting parameter for the passage of time, it's almost inevitable that the coefficient on seatbelt laws could be reduced to something quite small.

Finally, the essay leaves open the question, was the unintended consequence greater than the intended effect? Since the tendency has been for traffic fatalities to go down, and since private sector initiatives as well as governmental ones work the same way, it seems clear that the curmudgeon's premise has failed. Traffic regulations may have made drivers more dangerous, but the increased recklessness of modern drivers combined with greater congestion, has not sufficed to offset the aggregate effect of safety equipment and traffic regulations. Even the essay cited had to insert the weasel words, "fatality rates do not decrease as expected." They decreased, but he has some straw man out there of what was "expected" by activists.

Environmental regulations often come under attack as well; for example, using the flimsiest empirical foundations of all (the case of one [1] listed species), one of the posts at Freakonomics claims that the Endangered Species Act incentivizes property owners to destroy all of the listed specimens on their property lest development on their property be restricted. Of course, that's about all there is to Freakanomics: arguments that any public choice will have countervailing effects, QED, public choice is always bad and must be dismissed in all times and all places.

CONCLUSION: A PHILOSOPHICAL ASIDE

I never dared to be radical when young for fear it would make me conservative when old.—"Precaution," Robert Frost 1936

The curmudgeon's fallacy is that paradox of paradoxes: a precaution against precaution. A man I know well and much respect was addicted to the fallacy and used it reliably, since he was so well-endowed with natural caution and a singularly robust constitution. Once I mentioned how scandalized I was, reading Adam Smith's Wealth of Nations, about the stupendous infant mortality of 18th century Europe. He replied that he was not so sure infant mortality was such a bad thing, and insisted that I explain why I thought it was. It was a curious quirk of his character that his ideology had no part in his behavior, and he was of all men one of the most tender and generous, even though such brutal ideas flourished in his head.

At the back of the curmudgeon's fallacy is a sense that the lifelong struggle to preserve life has been a fool's errand; and in the waning years, as excellence seems to fade, there's a regret that no distinction was made between fit life and unworthy life. The curmudgeon usually lacks the will and barbarism to follow this through; but he also develops an imbalanced preference for his own "gut" prejudices over the research and formal testing of experts. At the back of this mistrust is a sense that the professional pursuit of safety, peace, and prosperity has merely spawned weakness and dependency, and that what the world really needs is a good, long epidemic to weed out the weak. As for me—I am not Lycurgus, nor was meant to be.

Economic Development versus Economic Growth

There's actually a substantial body of literature on "sustainable development," although occasionally it's noted that the phrase is redundant: expansion that isn't sustainable isn't development, it's merely growth. Careful readers will notice the objection is not valid: a country can indeed be developed in an unsustainable way, if that development requires an unmanageably large ecological footprint.

Economic growth is easy to observe and measure: usually it involves measures of the total output of goods, at market prices. If a country produces mostly oil for export, and imports nearly everything it consumes, then economic growth is almost wholly the result of changes in relative prices. Efficiency or capital accumulation has nothing whatever to do with growth. And it's not unlikely that our imaginary country is not developing at all; or it may at any rate remain underdeveloped decades after the oil boom began.

Development requires economic growth, of course, since something has to pay for the increased stock of capital (fixed and human). Other inputs, like solar panels and wind farms—instead of fossil-fuel electric generation—could enhance the stream of permanent energy, or even replace metal used copiously in autos with metal used sparingly in mass transit systems. However, development is slower, and requires a steady build-up of local inputs. If the inputs are dependent on a local oil field, mineral seam, or real estate boom, then that might be recorded as development. But the depletion of the field, seam, or view is inevitable, and will of course undo any "development" that occurred.

At this point, we reach the controversial nexus of "sustainable development" with the economist's notion of "development." Economists have toiled mightily to paper this controversy over: the World Bank, IMF, and other advocates for the money power have spared little effort to propagate the notion that there's a harmony between their desires and the well-being of the rest of the human race.

Fiscal Dimensions of Sustainable Development (IMF, 2002): Fiscal policy is central to the work of the IMF. The IMF’s mandate is to promote international monetary cooperation, the balanced growth of international trade, foreign exchange rate stability, and orderly foreign exchange arrangements among countries. Fulfilling this mandate is the IMF’s primary contribution to sustainable development. Within this general setting, fiscal policy plays a key role in all three main aspects of the IMF’s work: IMF-supported programs, surveillance, and technical assistance. In IMF-supported programs in countries facing balance of payments crises, the IMF often finds that reestablishing the credibility of the government’s fiscal position is key to restoring sustainable growth.

Economists usually try to suppress the notion that there's any difference at all between "socially sustainable development," ecologically sustainable development, and economically orthodox notions of development. This is pure public relations.

• Socially sustainable development: development in which resources are channeled into future economic production in a way that distributes benefits meritoriously. "Meritoriously" implies that free market systems of distribution still prevail, and there is not a class-based or regionally-based favoritism. Please not that, defined this way, "socially sustainable development" is not the same thing as socialized control of resources. A market economy, for example, can manage socially sustainable development provided development does not lead to insuperable barriers of class. Frequently, the elites are able to "buy" a friendly, and interventionist, political system that expropriates wealth from other classes. SSD seeks to avoid this.
  
• Ecologically sustainable development: development which does not exhaust resources faster than they can be replaced, preferably locally. Desirable because modes of development favor substitution of labor or prior output (capital) for non-renewable resources.
  
• Economically orthodox notions of development: development driven by the market; defined purely on the basis of whether or not annual rates of capital depreciation is heteroskedastic. If depreciation is heteroskedastic, i.e., the pool of capital stock experiences annual rates of depreciation with variances that change over time, then accumulation is not leading to development; expenditures on capital stock are actually not being consumed at stable rates, and could conceivably become useless en masse.
  

Assuming readers are adamant about the superior virtues of a market economy, SSD requires the concept "meritorious" in its definition. "Fair" could mean anything, but "meritorious" means that, given social norms of ownership, a person can achieve more wealth by market-favored behavior. Capital accumulation can occur, and hence, disparities in income; but the son-in-law of the dictator ought not to inherit ownership of the coastline (when it previously was part of the national commons).

Economists pay lip service to ESD because of growing political pressures to do so, but privately are hostile to the notion that massive global trafficking in industrial resources or wastes should cease. Usually, they claim that such trafficking is an immutable part of "free" trade, but suppress the fact that it requires massive violations of the principle of SSD: corporations, after all, are surrogates of state power and constitute a political class. It's false to assume that whatever corporations do is consistent with the ideals of free enterprise. It's false to assume that a government controlled by its industrialists, landlords, and bankers is always (or even sometimes) going to make laws that are consistent with free market principles. This is a point almost uniformly ignored in modern discussions of public policy. Of course, when it ends badly, the former cheerleaders of "free enterprise" will always remember this; but never before.

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NOTES:
Goods: usually economists refer to "goods and services." In this case, the term really is redundant: services are an economic good. However, the national income and products account (NIPA) treats the two separately.

On the word "Tend"

Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men.
Lord Action, letter to Mandell Creighton (1887)

When concepts of economics are explained, the use of the word "tend" or "tendency" often causes confusion. An important example is distinguishing between the known tendencies of economic actors, and better-known exceptions to those tendencies. It's important not to confuse the two.

Few would deny that private sector firms make mistakes, including very glaring and stupid ones; likewise, no one claims that all consumers are privately rational in any sense, let alone expectations. In the first case, the fact that private-sector firms make mistakes in planning or pricing is mitigated by the fact that it is very unlikely for all firms to make the same mistake for long. The tendency is for at least someone to identify the mistake and profit from it, thereby drawing attention to it. In the second case, judgments about the future rate of inflation, interest rates, and so forth are not likely to be consistently wrong (biased) UNLESS there is some reason for everyone to make the same mistake, like a sudden change in government policy (see REH).

The point of a tendency is that it is often overridden by random events; for example, it is possible for people to make huge errors about the demand for 3G cell phone service five years out But it is unlikely that those errors will be all in the same direction, since the point of a true error is that it is random. Even if such an event should occur, as perhaps the result of a hugely popular fad, there will be some force in place that tends to compel a correction. Again, if a firm makes a really huge error about the demand for 3G cell phone service, this will quickly be felt through losses, firings of executives, and so on.

When we say a certain thing tends to happen, it is usually a milder form of saying that it will happen. Lord Acton's quote is truthful, but there are notable cases where the person who held such power transcended it and was not corrupted; and there are cases where people appear to have acquired power for explicitly bad ends; in the latter case, it's difficult to say that the person was made corrupt, i.e., susceptible to wickedness, by the acquisition of power. Acton wants us to know that great men are almost always bad men, but not always bad men. The virtuous outlier may exist; and power may not so much corrupt, as enable evil.

However, Acton was not merely acknowledging the existence of exceptions. He was probably trying to point out that the various attributes of political power (in this example) have a dynamic that overcomes good will gradually, but decisively. This is a subtle distinction. Things being hosed down with water don't tend to become wet, they become wet. The sense of "spraying water all over a thing" is almost identical to the sense "that thing becoming wet." The two concepts amount to almost the same thing: wetness means recent contact with liquid. On the other hand, a tendency to become wet implies some intermediate cause. Acton meant (I think) that power, as extraordinary agency, is not in and of itself evil; his argument for liberty comes from the fact that the way power is concentrated into the hands of a ruler, is likely to transgress ethics, and leads to a generalized lassitude towards ethics on the part of the ruler. In other words, the conditions that caused absolute power also to create a moral wilderness for the ruler, leading to a thwarting of moral impulses and a desperate resort to immoral ones.

I am reminded of the concept of Maxwell's Daemon, a wonderful imaginary invention that consists of two chambers connected by a tiny sliding door; anytime a particle moving inside chamber A approaches the door, the daemon observes its velocity and opens the door if that velocity is higher than the average in chamber B. If not, the door remains closed. Conversely, anytime a particle in chamber B approaches the door that is moving more slowly than the average in B, the door opens to let it through. Such door would consume infinitesimally small amounts of energy itself, yet defeat the 2nd Law of Thermodynamics; heat transfer would be from cooler A to hotter B. While the molecules in B might be immensely hot, and those in A bitterly cold, and this would mean the average velocity of particles in A is lower than that in B, nevertheless, outliers in either direction would make it through the door often enough for the transfer to continue.

Now suppose the daemon finally broke down. It opens randomly, although as frequently as before. Being random, it will sometimes do what it was supposed to do, and there will still be gas molecules in B that are much slower than the average in A, which make it through the door. But the vast majority of molecules will be moving faster than that, and in the great majority of cases it will be the fast particles in B or the slow particles in A that get through. This will be a true example of a tendency. The temperature in A will be observed to rise, and that in B will noticeably fall, because temperature reflects the motion of many moles of particles. And the tendency to spell it "Maxwell's Demon" will tend to triumph.
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ADDITIONAL READING: In searching for the Lord Acton quote, I noticed this excellent essay on the meaning and context of it. Special thanks to Brian Martin; here's a link to the rest of his online book, Information Liberation.

The Expert's Dilemma

A common problem faced by experts on a particular subject is hostility for ideological reasons. I've paid a lot of attention to this problem, and I think it's especially severe in economics. Economics, after all, professes to explain the whole of the social sciences using ideas that are basically pure deduction. The only other field of study I can think of that does this is theology. Economics requires a set of basic premises that are assumed to be immutably true, and while these premises are few in number, a vast body of assumptions is derived from them. These include the proposition that for-profit, privately-owned enterprises tend to allocate resources correctly, that consumers tend to make rational and free choices about how many hours they work per year, or how much they will spend on their home, or if they will take public transit to work, or any other consumption decision.

Economics, because of the deductive foundation of its judgment, is of all the branches of study the most ideological. Computer science is another field of study that tends to be very ideologically bound, since critiques of its decisions suffer the same problems as in economics: the web of human motives and abilities is so complex that it relies mainly on deduction from basic principles. A common defense is, "In technology, something either works or it doesn't"; because of this, IT is supposed to be liberated from dependence on induction. In my experience, there is almost no non-trivial technical decision that is so bad that it cannot be made to "work" to some decision-maker's satisfaction.

Of course I do not want to imply that this proves economics or computer science are bad disciplines, or that their practitioners are lying quacks. I am just pointing out a difficulty that confronts both fields. I think it is important for practitioners to acknowledge this (which is why when I was writing about Unix I was so impressed by Eric Raymond's books and essays.) In fact, ideology is a common tool that allows people to form orderly and structured judgments. It is very frequently used as a substitute for thinking, but it is so useful to public thinking and problem-solving that it is useful nonetheless. Therefore, I cannot bemoan the presence of ideology, either. Even if I thought it was an unmitigated bad, I should still have to concede that it is a part of life and shall remain so.

At the same time, however, we often see occasions when an expert discovers facts that challenge the foundational beliefs of an ideology. The expert is a loyal supporter of the ideology, but he cannot deny the evidence. The example that comes to mind is Eric Raymond's essay, "The Cathedral and the Bazaar" (CatB; discussed here). I read the essay, then several responses that Mr. Raymond had graciously linked to at his essay page. One response to CatB provoked this aggravated rebuttal from Raymond:

Nikolai Bezroukov's article in First Monday [critiquing CatB], unfortunately, adds almost nothing useful to the debate. Instead, Mr. Bezroukov has constructed a straw man he calls vulgar Raymondism which bears so little resemblance to the actual content of my writings and talks that I have to question whether he has actually studied the work he is attacking. If vulgar Raymondism existed, I would be its harshest critic.

I wanted to like this paper. I wanted to learn from it. But I began to realize this was unlikely when, three paragraphs in, I tripped over the following: he promoted an overoptimistic and simplistic view of open source, as a variant of socialist (or, to be more exact, vulgar Marxist) interpretation of software development.

There are many sins of which I can reasonably be accused, but the imputation of vulgar Marxism won't stand up to even a casual reading of my papers. In CatB, I analogize open-source development to a free market in Adam Smith's sense and use the terminology of classical (capitalist) economics to describe it. In HtN I advance an argument for the biological groundedness of property rights and cite Ayn Rand approvingly on the dangers of altruism.

The first point I want to make here is that I would think long and hard before I made a facial challenge of anything Mr. Raymond said about computer software development. He has qualifications that are hard to match, let alone exceed. His knowledge of computer science is huge, he's devoted a lot of time to pondering the organizational or cultural implications of it, and he has a fair understanding of many other fields besides that one. Also, as it happens, he's right—even a casual reading of his work doesn't allow anyone to imagine that he's a socialist.

So I would say he's an expert, and also that he's ideologically compatible with the prevailing economic system and its ideological proclivities. If a capitalist party membership book existed, his would be in good order. And yet, his observations might be carelessly construed to negate the ideal intellectual property regime:

Nikolai Bezroukov: In a really Marxist fashion, Eric Raymond wrote in Homesteading the Noosphere "ultimately, the industrial-capitalist mode of software production was doomed to be out competed from the moment capitalism began to create enough of a wealth surplus for many programmers to live in a post-scarcity gift culture." I used to live in one society that claimed to "outcompete" capitalism long enough to be skeptical.

I have familiarity with the practice of Marxist party congress criticisms, having read much of E.H. Carr's history of the Bolshevik Revolution; and I have to say that Bezroukov's article really does sound like he imagines he's criticizing Raymond for taking the "line" of (say) "undisciplined Preobrazhenskyism" or something. The fact that Raymond actually has a huge volume of objective, reliable experience with the matter he's writing about, means nothing to Bezroukov: Raymond's somehow gone pink.

Bezroukov is not a dummy, and he has his own considerable credentials. My own suspicion was that he needed to "prove" his own ideological reliability by attacking someone who had been insufficiently guarded in his corporation-unfriendly observations. As a minor functionary in the actual institutional apparatus of the capitalist state-corporation nexus, he had to attack an attacker of Microsoft—and make him menacing. (Raymond never wrote anything like "Microsoft must be destroyed.") That attended to, he could discuss open source software as a sociological phenomenon. But by attacking Raymond as an ideologically unsafe line wobble, he illustrated that absolutely no one is safe. One must toe the official line, regardless of what one has seen, or face the consequences.

This is the Expert's Dilemma.

UPDATE (17 September 2011): Oddly enough, I stumbled across Dr. Bezroukov's reviews on Amazon and of course had no recollection of this critical post I had written five years ago. I feel I own him an apology. It turns out we have very similar attitudes about market fundamentalism, and I had completely misunderstood him. His approach was to criticize Raymond from the position of Raymond's own obsessive anti-Communism, an approach I usually attempt to imitate and ought to have recognized.

It's been five years and I suspect absolutely no one has ever read this webpage. I liked so many of Dr. Bezroukov's book reviews (e.g., this one and this one) I paid his website a visit, where I noticed a lot of material critical of Eric Raymond. Something in the murky depths of my memory stirred and then I remembered this essay.

Nevertheless, the point still stands, despite an imperfect example.

Subtopia

One of the purposes of this blog is to explore the way technology and the built environment have molded our lives. That's a very broad subject, and I've been torn between focusing on writing about technology on which I need to be conversant for work, and the sociology of material culture. One of the blogs I've noticed, but feared was a bit too far afield to link to on the sidebar (at least, for now) is Subtopia, a blog devoted to the militarization of the urban landscape.


Click for larger image

When I first became aware of the subject, I was astonished at the degree of specialization. Surely there's not much to say about this subject? On the other hand, I know I have a lot of hobbyhorses that would appear to be exhausted in no time. And after a few minutes of utterly fascinating exploration, I discovered that Subtopia has an endless reservoir of material. First, with the phenomena known collectively (and wrongly) as "globalization," the world in which we live has become criss-crossed with defensive boundaries. The most famous are probably the Israeli "security fence" and the Mexico-US border. Other famous examples include the border between the Koreas, the Spanish (Ceuta)-Moroccan border, and neighborhood barriers enforcing segregation. This enforcement of borders, though, is by no means confined to windswept, austere border regions. The mania for prisons and gated communities reflects the deep divisions imposed by the soaring disparities in income or privilege; surveillance cameras and electronic sensors are used to regulate and control movement, even when that movement is sanctioned.

Now, I want to make some clarifications here for my readers. I'm not opposed to walls or controls or regulations. To be honest, looking at photos of the barrier between the US and Mexico fills me with great shame and sorrow, but I understand the demand for them. The industrial system per se seems to require hard boundaries as a form of heat engine, rather the way the invention of the steam engine required the ability to machine tool steel containers for high-pressures. Still, I believe people need to know the artificiality and occasional barbarism of these barriers. Perhaps then they might realize how arbitrary and random their station in life is.

Keynesianism

Some updates and corrections have been made to this essay since posting (16 Aug 2013).

Keynesianism is the casual term used to refer to some economic theories and policy methods that were widely used between 1946 and 1980. These theories are named for John Maynard Keynes (1883-1946), although Keynes was actually the manager of the research group that developed Keynesianism.

Keynes had already won considerable fame for his work, A Treatise on Money, and had strong ties to intellectual luminaries of the day. Schumpeter's History of Economic Analysis (1954; p.1171) strongly implies that Keynes had already, in a sense, written the General Theory within the covers of the Treatise. I would argue that the General Theory was a milestone in the acceptance of market imperfections, such as sticky prices and corner solutions in factors markets, that had been growing for some time. The crucial departure of Keynesianism can be summarized as "imperfect markets," which meant,

• prices may "never" adjust to reflect the intersection of supply & demand;
• money is not neutral (i.e., disinflation or deflation has a serious impact on economic conditions; the available money supply, accompanied by a distinct market for cash balances, has an impact on real output);
• factor markets, such as for labor, land, and capital, may sometimes not clear;
• state intervention may sometimes cause more good than harm.

The last proposition is a bit difficult for some people to understand. Keynes had sought to establish a macroeconomic role for the state precisely so it could avoid a microeconomic (i.e., socialistic) one, and he attempted to establish clear, immutable boundaries for the state under conditions of economic emergency. These borders were not crossed by Keynes; for example, the Royal Commission on the Poor Laws (UK-1905-1909) examined mainly employers and economists, before setting up a system of compulsory unemployment insurance.¹

However, there are essentially two key features of Keynesian economic policy that were widely adopted everywhere for many years: fiscal policy and monetary policy. Fiscal policy was based on a crucial term of art coined by Keynes, the "theory of effective demand," which acknowledged that supply did not create its own demand, and on occasion it was necessary for the national treasury to step into the breach with deficit spending. This could be achieved with public works spending of various kinds, or it could be accomplished by slashing taxes. Monetary policy consisted of influencing liquidity preferences, or the demand for cash, through shrewd manipulation of interest rates. In later years, it was understood that major national governments had significant, but limited, power to influence interest rates; and the tools for influencing them tended to be fairly blunt.

The other major introduction of Keynes, which was never really reversed, was the idea that the entire economy operated under peculiar rules. Keynes' core idea was that aggregate demand was a linear function of output, but contrary to Say's Law, this relationship is not 1:1. Rather, the marginal propensity to consume (out of production) is somewhat less than 1. Hence, as productive capacity rises, demand for output rises at a somewhat lower pace (Keynes, 1936).

This analysis supplies us with an explanation of the paradox of poverty in the midst of plenty. For the mere existence of an insufficiency of effective demand may, and often will, bring the increase of employment to a standstill before a level of full employ-[p.31]ment has been reached. The insufficiency of effective demand will inhibit the process of production in spite of the fact that the marginal product of labour still exceeds in value the marginal disutility of employment.

Moreover the richer the community, the wider will tend to be the gap between its actual and its potential production; and therefore the more obvious and outrageous the defects of the economic system. For a poor community will be prone to consume by far the greater part of its output, so that a very modest measure of investment will be sufficient to provide full employment; whereas a wealthy community will have to discover much ampler opportunities for investment if the saving propensities of its wealthier members are to be compatible with the employment of its poorer members. If in a potentially wealthy community the inducement to invest is weak, then, in spite of its potential wealth, the working of the principle of effective demand will compel it to reduce its actual output, until, in spite of its potential wealth, it has become so poor that its surplus over its consumption is sufficiently diminished to correspond to the weakness of the inducement to invest.

But worse still. Not only is the marginal propensity to consume [1] weaker in a wealthy community, but, owing to its accumulation of capital being already larger, the opportunities for further investment are less attractive unless the rate of interest falls at a sufficiently rapid rate; which 'brings us to the theory of the rate of interest and to the reasons why it does not automatically fall to the appropriate level, which will occupy Book IV.

Prior to Keynes, it was assumed that interest rates were the mechanism that brought saving, and hence, consumption, in line with production. Prior to Keynes, it was believed that, if consumption were to have risen more slowly than productive output, then interest rates would fall, reducing the propensity to save. That would, in turn, push consumption up to what it ought to be. In Chapter 15, Keynes explained that (a) interest rates play a fairly minor role in the decision to save, and in Chapter 17 (b) the connection between the rate of interest and the rate of saving is not real.

Keynes' contribution was therefore the aggregate supply-aggregate demand model of the economy. Almost immediately, his associates, Hicks and Hansen (see below) introduced the IS-LM model, which offered an elegant (if flawed) comprehensive model linking all all of the various states of the economy to interest rates and output.

One minor rebuke of the Keynesian system arises from its reliance on the IS-LM curve. This is more of a pedagogical criticism, since it is not really fundamental to the Keynesian analysis of the economy. The IS-LM has an unfortunate confusion over time; the derivation of the curves themselves don't specify a time horizon, but if the time horizon is long (say, a decade), then the implication is that markets OTHER THAN money and goods are totally passive; and if the time horizon is short (say, a quarter) then there's no role for inflation. On a personal note, I was advised to combine IS-LM and AS-AD, as I did in this 2002 class paper. This article does the same.

Vulgar Keynesianism
In retrospect, Usonian economists and writers on the same have tended to equate Keynesianism with socialism or even outright Communism (examples). It is fairly unusual to find this outside of the United States; for example, his [admiring] biographer, Baron Robert Skidelsky, is not only a Tory member of the House of Lords, he's also associated with many conservative thinktanks in the UK.

There's a long convoluted reason why this is so, which I cannot discuss here and now. But an obvious result has been casual abuse of both the term "Keynesian" and the concepts associated with it. Typically such abuse has been called "Vulgar Keynesianism." The most familiar example of this was the idea of using military spending as a form of economic stimulus. An extremely rare (almost unique, actually) example of a logically consistent anarcho-capitalist, David Stockman, bitterly objected to the idea of military spending to stimulate the economy; he referred to the (mostly military-oriented) space program as "orbiting socialism," and elsewhere in his book, The Triumph of Politics, castigated the Reagan Administration for its "socialistic" invoking of economic stimulus as justification for wasteful, overkill military spending. I will repeat that, with the exception of a tiny number of men, all in the political wilderness, the "free market" conservatives associated with the Reagan Administration were uniformly zealots in favor of military expansion, corporate giveaways, and deficit stimulus of the economy (to achieve irreversible political power).

This is not actually Keynesianism since (a) it loudly repudiated any connection with the intellectual underpinnings of Keynes' General Theory, and (b) consequently ignored the orderly system of analysis, such as the IS-LM curves or the Mundel-Fleming Model of international trade and capital flows, that allow such policies. Obviously, when a political leader runs a deficit while in office, and pleas for fiscal restraint when in opposition, he's just being a politician. "Military Keynesianism" is a defamation of Keynes since it equates utter lack of responsibility with a school of economic thought.

This pattern has continued long after Keynesianism itself was "discredited." Hence, in the 2004 presidential debates, the incumbent declared that he believed "if you raise taxes"—i.e., don't cut them—"in a recession, you'll get a depression." This is an example of a vulgar Keynesian position, since it focuses on the role of effective demand in the business cycle. Otherwise, the allegation that Keynesianism is "socialistic" because it acknowledged a role for the elected authorities in managing business cycles, is silly. Subsequent schools of economics have occasionally availed themselves of this rebuke for polemical reasons, but otherwise offer competing views for how the state ought to manage the economy.

Valid Criticisms of Keynesianism
While much criticism of Keynesianism was silly, some criticism was not. The Achilles Heel of the theory, so to speak, was the difficult transitional phase of the world financial system caused by the collapse of the Bretton Woods System. Some readers will object to this remark, on the grounds that it is excessively sympathetic to a school they consider well and truly "debunked." I advise them to read the essay by Robert E. Lucas & Thomas J. Sargent, "After Keynesian Macroeconomics" (PDF); Lucas & Sargent are, so to speak, the James & John of the Rational Expectations "Revolution."

Lucas & Sargent: There are, therefore, a number of theoretical reasons for believing that the parameters identified as structural by current [viz., "Keynesian"—JRM] macroeconomic methods are not in fact structural. That is, we see no reason to believe that these models have isolated structures which will remain invariant across the class of interventions that figure in contemporary discussions of public policy. Yet the question of whether a particular model is structural is an empirical, not a theoretical, one. If the macroeconomic models had compiled a record of parameter stability, particularly in the face of breaks in the stochastic behavior of the exogenous variables and disturbances, one would be skeptical as to the importance of the prior theoretical objection of the sort we have raised.

[...]

Macroeconomic models were subjected to a decisive test in the 1970's. A key element in all Keynesian models is a trade-off between inflation and real output: the higher the inflation rate, the higher is output (or, equivalently, the lower is the rate of unemployment).

In other words, Keynesianism was reasonable enough until a massive change in the international monetary system occurred, and an historically unprecedented negative technology shock arrived hard on its heels. Even then, it bears noting, the courtly Lucas and Sargent employ weasel words to jab Keynes: A key element in all Keynesian models, not Keynesian theory. In other words, the Phillips Curve trade-off between unemployment and inflation was a theoretical cul-de-sac stimulated by the times, not Keynes. Heavily modified, as all economic theories are in praxis, Keynesian theory itself could easily have incorporated some form of inflationary expectations.

Certainly the erratic "fits and starts" character of actual U.S. policy in the 1970's cannot be attributed to recommendations based on Keynesian models, but the inflationary bias on average should, according to these models, have produced the lowest average unemployment for any decade since the 1940's.

Again, this is accusing the implementation rather than the actual theory. The "models" to which Lucas refers were developed under conditions prevailing in the 1950's and 1960's, not the peculiar influence of Keynes. They reflected the tendency of professional planners and managers in all circumstances to assume conditions would persist as they had in the past.

A more apt criticism of Keynes lies not in his failure to carry the Neoclassicals' water for them, or to predict the sort of economic Hiroshima caused by the events of 1971-1979. No, the real problem was that Keynes relied too heavily on approximation by rules of thumb. Another problem was that the General Theory offered policy prescriptions that were valid only in conditions where economies were too large and isolated to be affected by international conditions. The Mundell-Fleming Model, mentioned above, resolved this shortcoming, but relied on highly stylized treatment of capital flows.

A final remark to be made is that there is a grievous pitfall in trying to treat the economy as if it were a natural science, like thermodynamics or mechanics. Subsequent theorists have actually attempted to re-direct the field of economics away from its use of equations simulating elastic collisions and other mechanical analogies, to equations that mimic irreversible events in nature, like heat transfer. This idea is just as doomed; as economic activities have their corresponding physical reality (I physically walk to the corner store and physically hand the clerk my money for her carton of milk), there will always be some truth to a physics analogy, but the truth will tend to be trivial.

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NOTES:
Research group: Other important researchers included John R. Hicks & Alvin Hansen (co-developers of the IS-LM model), Roy Harrod (developer of the theory of the Keynesian business cycle and growth theories, inter alia), Joan Robinson, Nicholas Kaldor, and Richard Kahn (developer of the crucial concept of the multiplier).

Arguably, the most important single insights were Kahn's multiplier and the Hicks-Harrod IS-LM model.

A Treatise on Money: In 1930, Keynes was still attempting to reconcile the chronic depression in Britain with his [mostly] Neoclassical outlook. Those interested in the evolution of his views can see Giuseppe Fontana's "Keynes on the 'Nature of Economic Thinking': The Principle of Non-Neutrality of Choice and the Principle of Non-Neutrality of Money," American Journal of Economics & Sociology (2001). The book ishttp://www.blogger.com/img/blank.gif two volumes long and opened the door to a lot of future Keynesian notions about money non-neutrality.

1: Timothy T. Hellwig, "," Social Science History Spring 2005 29(1): 107-136. This footnote updated 19 July 2012; the article requires access to Project MUSE, but did not when I wrote this post in early 2007.

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ADDITIONAL SOURCES & READING: Alan S. Blinder "Keynesian Economics" Library of Economics & Liberty

BOOKS: Lawrence R. Klein, The Keynesian Revolution, Palgrave Macmillan (1967); Schumpeter, A History of Economic Analysis, Oxford (1954); John M. Keynes, General Theory of Employment, Interest and Money (complete text) Oxford (1936)