1. Benjamin Mitra-Kahn 20-May-07 at 10:45 am

    The next chapter will open with the conclusion that Adam Smith’s notion of the market has been laid to rest with the discussion of the ‘invisible hand’, but whose hand is that?

    Adam Smith used the term ‘invisible hand’ three times (in total!), once in each of his books, and the reference was not necessarily to the functioning of markets. Rather he spoke of the way that a deity would maintain the total happiness in the world, and maintain society in its current state… It was in many ways a defence of the status quo class system, where those at the bottom who were unhappy or poor should not complain or better their lot, but rather appreciate that the ‘great author’ had given them these trials and tribulations, to be enjoyed in the afterlife.

    Yes, markets have their own ways of functioning, and are probably better at moving goods and services (and innovation) along faster than other systems to date – but towards what ends?

    Efficiency is an odd final destination, particularly when said efficiency is the very specific ‘Pareto’ efficiency. Arguing that markets work well because of this, or by extension (as is inevitable) that a society in free trade is at the optimum ‘happiness’ place and should not be re-arranged no matter the distributive nature of said society is indeed very Smithian, but is it really sound economics?

  2. Deirdre McCloskey 20-May-07 at 7:17 pm

    Dear Mr. Mitra-Kahn:

    You’re right that Smith put little weight on the phrase “the invisible hand.” It appeared once only in each of his two published books, and not in the same sense in each (I attack in The Bourgeois Virtues [2006], pp. 456-460] the trickle-down sense he used it in the Theory of Moral Sentiments [1756, 1790]). But I think you are still letting the gross overemphasis on the phrase in later reports on Smith influence your view of what he said. Smith was at most a deist, and did not admire the orthodox Christian doctrine you describe (“the ‘great author’ had given them these trials and tribulations, to be enjoyed in the afterlife”). Smith is in fact highly egalitarian (for this see Samuel Fleischacker’s brilliant work on Smith) and this-worldian. He can be claimed for the left (and Fleischacker is not the only person to do so: see the late Robert Heilbroner’s writings on Smith).
    So it not—I repeat, not—”Smithian” to run through the Pareto optimality conditions and call it quits, as modern and especially Samuelsonian economists do (Pareto himself, by the way, would find it obnoxious, too).
    Our book is more Smithian than Samuelsonian.
    And realize: in this Chapter 3 we are giving the Samuelsonian view its due. Later we modify it—though McCloskey wants to modify it much less than Klamer or Ziliak do!

    Sincerely,

    Deirdre McCloskey

  3. John Gelles 21-May-07 at 4:15 pm

    In this chapter’s concluding summary, item 3, we read:
    “3. Every market has a demand side and a supply side. A market requires a means of payment – usually money – and the exchange of commodities at a particular price.”

    Focusing on the requirement for a means of payment, i.e., MONEY, we go to the heart of the matter of reform aimed to bring political democracy closer to “economic democracy”.

    FDR on January 11, 1944, defined economic democracy–everyone has a good job at a fair wage or a business of their own that makes a decent living. FDR demands this to avoid the economic swamps that breed political dictatorship and the war that will surely come where dictatorships clash with each other or with democracies.

    FDR did not specify where the MONEY demand in free markets (or in a mixed economy) would be found to keep them working in the interest freedom (from war, crime and fear and want) 24 hours a day, seven days a week.

    In practice, we insist on finding MONEY for (1) private income — from employment and ownership of capital assets and for (2)government income — from TAXES on sales, income and trade, from lenders, and from miscellaneous other sources in lesser amounts.

    I have emphasized MONEY and TAXES because I velieve they are at the the heart of the heart of matter.

    If taxes are required only to prevent hyperinflation, an opening is found for government to SPEND money it does not need to match by taxation, borrowing or any other source.

    Such SPENDING can be a special form of government investment of unlimited MONEY–until concern for hyperinflation stops the SPENDING and may even call for taxes to dry up excessive demand for essentials in short supply. (Other tools, like rationing and subsidies will have been used to prevent hyperinflation by increased supply and inflation protected savings to discourage consumer demand).

    Today’s money fails to support producers and consumers who would elect to pursue the public interest if they could.

    Nature arranges scarcity. MONEY motivates work which overcomes scarcity. Money itself must never be to scarce for it to maximize the public interest.

    MONEY can be an IOU. But int can also be a gold coin. It can also be MOTIVATIONAL MONEY that government can spend into circulation for as long as people want more than they have and will work to earn it.

  4. Deirdre McCloskey 21-May-07 at 5:44 pm

    Dear Mr. Gelles:

    I think perhaps there is a problem with the accounting here. Private income does not come from taxes: rather the reverse. Hyperinflation is not caused by taxing and spending imbalances but by (often associated) printing of currency.

    In any event there’s nothing very msyterious about money–or MONEY. Means of payment, nothing more fancy.

    Regards,

    Deirdre McCloskey

  5. John Gelles 22-May-07 at 2:11 am

    Dear Ms. McCloskey,

    I tried to say government income came from taxes. (Private income came from work and ownership of capital assets.)

    The great mystery concerns government’s means of payment not private player’s means of payment.

    The mystery is why government does not spend money until all its needs are met — or until the threat of hyperinflation suggests that government keep its spending within bounds set by the supply of things that money must buy.

    This would motivate government to keep output higher and higher so that it could spend enough to create economic democracy and defend the same from all enemies, including those who prefer autocracy or worse.

  6. John Gelles 22-May-07 at 2:44 am

    The Achilles heel of the “Invisible Hand” is “means of payment”.

    Real means of payment in a barter economy is “production”.

    When Adam Smith generalized the free market he forgot that either gold or debt were substituted for production. Neither gold nor debt reflects production.

    A modern version of any successful economics, beyond the type that suffers from the contradictions in our current systems, requires, something like a cash subsidy or government expenditure to make sure that there will always be adequate demand to create the business to pay for full employment.

    Less than full employment is traditionally justified by the common sense knowledge that hard work and the motivation to do it are behind the good life we want for everyone.

    The common sense is correct. But there are better ways to motivate work and high outpur than fear of unemployment.

    One of the best ways is with money and the idea that we can, as individuals, never have to much luck or too much money.

  7. John Gelles 22-May-07 at 3:04 am

    This conversation is copied to http://www.ustaxreform.us/5227.htm and may be continued there via its reply tag.

  8. Benjamin Mitra-Kahn 22-May-07 at 8:17 am

    Dear Deirdre (if I may)

    In reference to my first comment, I agree with your assessment that Smith put little weight on the term ‘invisible hand’, (which he also used once in his third book, a history of astronomy – post posthumously published).

    I am not claiming that Smith ‘Admired’ the orthodox Christian doctrines, but I maintain that his work (like all his contemporaries) are based on the notions of ‘natural laws’ and that there is one deity who is maximising the happinness in this the best of all worlds. Schabas’ (1998) book on De-naturalisation of Economics or Denis’ (2005) article on Adam Smith are both good accounts of this side of Adam Smith and the period which is often left out.

    As for Heilbrohner and Fleischacker’s claims for Smith’s left-leanings, I seem to recall one professor telling me: ‘quote Smith, you will always find something that backs up your argument’ – and I am sure he has also been claimed for the right (and centre even).

    My note on Pareto (and I agree with your assesment) was to compare Smith’s ‘black box’ with that of the Samuelsonians.

    My point was to say that if you claim to have covered “Smith’s notion of the market” you should at least include a short box on what his complete (deistic) system did represent – and there was not much egalitarianism – and how the ‘invisible hand’ metaphor was originally introduced. (should not be more than a few hundred words)

    —-

    In regards to John (again taking liberties on the name front) argument, there is quite a lot of work in the Post Keynesian tradition on the fact that government expenditure in the modern real world is not funded by tax receipts.

    Rather as the sole supplier of liquidity, the government uses the taxes and expenditure as a way to restrict or supply liquidity to the economy. The line of argument is interesting and can be pursued in Nell’s Transformational Growth literature.

    All the best
    -Benjamin

    Schabas, M., 2005, The Natural Origins of Economics, University of Chicago Press

    Denis, A., 2005, “The Invisible Hand of God in Adam Smith” Research in the History of Economic Thought and Methodology 23-A: 1-32.

    Nell, E., 2005, The General Theory of Transformational Growth: Keynes After Sraffa, Cambridge Uni. Press

  9. Michel Bauwens 23-May-07 at 2:37 am

    Hi,

    Are you making anywhere the distinction between markets and capitalism. Though there is obviously a strongly linkage, the latter tends towards monopoly, and also, because it uses interest-based money, has an obligation to grow. But how do grow infinitely between a finite material system? This seems an issue that is unsolvable within capitalism itself.

    Hence it would seem important to see how in the future, markets can survive, even if the system in which it is embedded, almost certainly will not.

    A number of people have proposed solutions that all aim at disembedding markets from the infinite growth context. Though they still use the moniker capitalism, growth in these reformed systems would only be possible if the same amount of resources is ‘given back’ to the natural system in which the economy is embedded.

    1) Natural Capitalism,
    http://www.p2pfoundation.net/Natural_Capitalism
    (Paul Hawken, David Korten, Peter Barnes, Hazel Henderson, Herman Daly)

    2) Markets without Capitalism, http://www.p2pfoundation.net/Non-capitalist_Markets

    and http://www.p2pfoundation.net/Markets_without_Capitalism

    3) Capitalism 3.0 (book by Peter Barnes), at
    http://www.p2pfoundation.net/Capitalism_3.0

    A general problem with the current format for markets, is that the play of supply and demand is embedded in relations of power, which creates weakened producters and captive consumers.

    It seems therefore necessary to counterbalance this play of power, with techniques for ensuring equity. This could be called submitting the play of the market to peer arbitrage:

    http://www.p2pfoundation.net/Peer_Arbitrage_in_Markets

  10. John Gelles 23-May-07 at 3:31 pm

    Telling a story as part of a dialog is supposed to open the economic arts and sciences to real problems that mathematical models do not reach — at least that is what the writers above may maintain.

    Today Nicholas Negroponte of MIT is also founder and chairman of the One Laptop per Child (OLPC) non-profit association. His hope for a $100 computer (currently costing more), to be produced and distributed to every needy child, finds himself competing with Intel and other producers for huge contracts with nations ready to help their needy get a good start in life because computers can or will be able to capture kids’ minds with nearly the ease of playmates their same age.

    Intel’s position is that both producers (and others today and more tomorrow) are in a “market”. Negroponte claims that Intel is selling its laptop below cost to drive OLPC out of the market.

    Negroponte sees his dream as more than a commercial one — he wants what he produces to be part of a total package that actually changes children from dependent poor to middle class producers, themselves, who can take democracy to the next level — economic democracy.

    Now the issues raised by all of us are addressed by this story:
    (a) the Christian thing to do is to encourage all producers to support Negroponte’s dream;
    (b) the government subsidized economic democratic thing to do (based on endless growth theory) is to encourage governments to invest in Negroponte’s dream via managed money systems to make sure that aggregate demand for needy kids laptops keeeps up with need — as defined by a prize jury of experts not only as defined by taxes and charitable contributions;
    (c) the finite growth potential theory thing to do is make to sure the resources going into the laptop dream are not going to dry up and kill the dream;
    (d) the anti-monopoly thing to do is to prevent Intel from driving competitors out of business — in my view this should be done by subsidizing competitors, as necessary, as well as taxing Intel’s sales to prevent predatory below cost marketing.

    Obviously, the socialist command economies did not come up with low cost laptops. Obviously, capitalism and its markets as we know them have not prevented hundreds of millions of kids from being needy.

    Obviously, microeconomics does not address the needy kids — it addresses the future profits to be earned as laptops and education join to raise the skills of the needy poor to commercially viable levels.

    Obviously, Keynesian unlimited growth, aided by both technology (that will grow laptops as though they were weeds), and politics which can legislate better money to invest in education, points to optimistic outcomes for this short story.

    http://www.ustaxreform.us/5227.htm

  11. John Gelles 25-May-07 at 6:53 pm

    I have tried to prove the vulnerability of item 3 in the summary of Chapter 3, to wit: “a market requires a means of payment”.

    If markets require a means of payment no less efficient than barter, then we have not got the markets we need.

    I suggested that markets must have some form of Keynesian money, defined as money enough for full employment.

    I suggested further that Keynesian money, as further defined by Abba Lerner, is money that cannot be taxed except to prevent hyperinflation.

    These two changes to “means of payment” would add enough money to the demand side of market activity to make them as remarkable as they were in the days of barter before they were ruined by unfair debt and imperfect money.

    Now I would like to return to Ben Mitra-Kahn’s idea that “Efficiency is an odd final destination [for markets], particularly when said efficiency is the very specific ‘Pareto’ efficiency.

    “Arguing that markets work well because of this, or by extension (as is inevitable) that a society in free trade is at the optimum ‘happiness’ place and should not be re-arranged no matter the distributive nature of said society is indeed very Smithian, but is it really sound economics?”

    Ben’s question is another way at getting at the same vulnerability of markets and money that I have been driving at.

    The “destination” of economics, especially non-dogmatic economics, must be the survival of the human race not the short term nominal profit of the firm.

    It may be that the scope of “The Economic Conversation” takes us to this point many times — but beyond Chapter 3 and an introduction to microeconomics.

    Is it fair to ask Deirdre McCloskey to point me (or us if there is an us) to another place in the book where the nature of heterodox economics points us to escapes from the dogmas of misinterpretations of Adam Smith to the genius of Keynes and Lerner (or anyone or no-one else) so that we may address the current potential of global technology and science to triumph over man-made legal error and dogmatic rigid economic modeling to create an economics of clean air, full production, full employment, and satisfied customers (all of whom work for a living if they can — and none of whom suffer avoidable economic anxiety.)

    John

  12. John Gelles 25-May-07 at 7:18 pm

    In re-reading the conversation at http://www.ustaxreform.us/5227c.htm I see I left out a very important point.

    The means of payment change that all markets deserve would not be sufficient for economics to lead to the destinations it must — protecting the human race from unanticipated threats.

    Money reform is only a beginning. Rudolph Carbap once remarked “the logical syntax of language is science”.

    By this he meant that English and other natural languages are required to model reality.

    Economics, too, must address reality. In real life the threats to individuals, nations and worlds are always changing — and they are infinite in number.

    So economics, science, technology, language and law must work harmoniously to prevent not only deflation, hyperinflation, want and fear, but bird flu, toxic waste, and the rest of such major hazards, but they must also minimize corruption, ignorance and all of the seven deadly sins.

    We must forget about magic models like invisible hands — and we must admit that no magic dogmatic slogan is going to have the reach to address tomorrows problems with today’s limited knowledge.

  13. Deirdre McCloskey 26-May-07 at 4:05 pm

    Dear Mr. Bauwens:

    You say, “But how do grow infinitely between a finite material system? This seems an issue that is unsolvable within capitalism itself.” I’d reply: no, on the contrary, ONLY capitalism can “solve” it. If resources are priced (and I imagine we agree that they should be) they rise in price as they get more scarce relative to other goods, and induce people to find substitutes. Look at what happened to the environment under eastern European communism.

  14. Deirdre McCloskey 26-May-07 at 4:10 pm

    Dear Mr. Gelles:

    I worry that you are putting too much emphasis on tricks with the means of payment.

    Your underlying worry—the worry I see of many of the people here—is about sustainability. As I said to Mr. Bauwens, consider the possibility that invisible hands (nothing like “magic,” understand, but plain old human dealing) can work for sustainability as well as against it. We need to arrange matters so that the market induces people to look for clean fuels, say, or ecologically balanced oceans.

  15. John Gelles 26-May-07 at 11:48 pm

    Dear Deirdre,

    Thanks for your comments above.

    As to capitalism (your reply to Bouwens) and “price” — it is OK for less than high priority programs.

    “Cost”, as in cost accounting systems, is the better approach for extremely high government spending programs intended not to return a short term profit but to change the global economy for the better.

    I agree, however, socialism and communism did not perform well — except at an unholy cost in blood to defeat fascism.

    Economic democracy is the answer. It would resemble the mixed economies that finance R&D in the billions and can change the world to the hydrogen economy we need — at a cost in trillions.
    .

    As to your reply to me — plain old human dealing (barter or money crippled by plain old taxes) won’t hack it.

    The trick of money — yes it is a magic trick — is that people will work and wait to spend it more readily than they will work for nearly anything else.

    But what of people who have no work?

    They may be less desirable to employ — but they have the needs of better candidates just the same.

    The deficiency in output occasioned by hiring (or subsidizing self-employment for) the person in need of a job can more than be overcome by output from the productive effort of robots and automated systems.

    So if its a common sense system of production and consumption that we need, we must recognize that “means of payment” can no longer point only to wages.

    It must point to government payments, similar to rents and royalties, that can create a healthy society and give peace a chance to be as successful at creating jobs as war.

    John

  16. Michel Bauwens 27-May-07 at 12:31 am

    Hi Deirdre,

    I hear your argument, but I think indeed that you mean markets here, since you talk about pricing and supply and demand. In capitalism, it is not equivalents that are exchanged (except in theory perhaps), but it is based on power relations. Because of the use of interest-bearing money, there is also an obligation to grow, this making a static, steady-state economy impossible. Or not? Once you start internalizing externalities (natural capitalism, cradle to cradle etc…), eventually imposing this as a hard limit (which may be necessary to ‘save’ the ecosystem, if our crisis really gets acute), then can it still grow? This is the key question I’d like an answer to. I’m well aware of the even more, or at least as serious, limitations of a command and control economy, but that is not the issue here.

  17. John Gelles 27-May-07 at 5:41 pm

    Dear Michel, Ben and Deirdre,

    The obligation to grow output forever and ever is faulted by many people who see output as black and red — not green.

    Output, in the form of art, information, entertainment, recyclables, and all but black (dirty) and red (bloody) output, should be encouraged. No?

    Today’s poor or middle class person who desires to own a collection of recyclable copies of ancient pottery that is equal (in all but authenticity) to the best in the British Museum is the type of stuff of which dreams of growth are made.

    The ocean has room for a billion boats if they are made of earth friendly material and designed to keep the water pure their locations uncrowded.

    There is no end to the material toys and joys that people may want.

    Of course, if people want to personally know how to cure their own cancer or common cold, then knowledge too is economic output.

    We sell it today to the caring professions — tomorrow we’ll sell it to everyone who wants it.

    The point is to grow infinitely so that all the poor become rich. Rich is good. Poor is bad. Insatiable greed is bad. Everlasting curiosity and the active pursuit of what we need for all to enjoy the blessings of liberty is good.

    If we would all agree on these points, we could then ask — why allow poverty to persist? This is a better question than — how much economic growth can the planet stand?

    Poverty persists in the current era — of robotics, automation, green revolution (food), materials revolution (nanotech developed designer molecules), information revolution (virtually everything), and biotech revolution (medicine and body parts and more) — because the economic, legal and political conversations are stalled. They do not catch the enthusiasm of Ray Kurzweil and optimists like him.

    It’s Deirdre’s job and the job of the Post Autistic Economics journal (where I found her) to un-stall that conversation.

    Let them see first of all that money must reflect requisite (a) purchasing power and (b) supply side courage, smarts and hard work, in order to put us on the path to Nell’s vision — the vision that Ben introduced us to a while back.

    I’m trying to put this conversation on more than one website e.g., — http://www.ustaxreform.us/5227.htm

    Its pages all have email links to facilitate the conversation.

    John

  18. Deirdre McCloskey 27-May-07 at 7:28 pm

    Dear Mr. Bauwens,

    Hmm. Well I think the “limitations of a command and control economy” is half of the issue, since it is the opportunity cost. My attitude is that capitalism is “pretty good,” in the sense Garrison Kiellor means in speaking of “Ralph’s Pretty Good Grocery” in Prairies Home Companion. If that cultural reference mystifies I will understand! It’s a radio show in the USA. Think “The Law of Jante” in Scandinavia; or modesty in ambitions for social change, as in the Scottish Enlightenment. John Mueller has a very good book called just that: Capitalism Democracy, and Ralph’s Pretty Good Grocery.

    I think it’s bbeen the characteristic horror of the 20th century to make a theoretical best the enemy of an actual Pretty Good.

  19. Deirdre McCloskey 27-May-07 at 7:32 pm

    Whoops—sent without proofing! (“Praire”: singular.]

    I’d just add: I don’t think one can make, as you seem to be making, a theoretical, blackboard criticism of capitalism. Or rather, one can make it, sure. But I at least won’t believe it until we get in touch with history and ask, “Has it worked. . . pretty well?” I’m writing four (count ‘em!) volumes answering “Yes.” The first one is called Bourgeois Virtues: Ethics for an Age of Commerce. You’ll like it. Well, maybe not: but it’ll be good for you!

    Regards,

    Deirdre

  20. John Gelles 30-May-07 at 7:15 am

    The American economy employs the American people and keeps them in the money. We once had a song, “We’re In The Money”— in 1933 it meant we were making money— not out of work in hard times.

    After America was attacked in the fall of 2001, there was fear across the nation that people might fly less and buy less— that our economy might suffer a loss of business revenue (and tax revenue) that would be far more destructive than the jihadist attack itself.

    Looking back to the day of the attack, and all that has transpired since, does it really seem that a lot less flying by the American public and a lot more money saved would have really hurt?

    Suppose, instead of private sector shopping, we had launched a great deal of public sector arms procurement? Suppose we had bought thousands of drone aircraft and road-side mine destroyers?

    Suppose we had put the Iraqi’s to work— right after we liberated them from Saddam — after we won the tank war and entered the city of Baghdad? Suppose there had been no unemployment in Iraq— and none here in America— as we fought a war on terrorism all around the world? Suppose we had done all that? And suppose Americans were saving money and soon be out of debt?

    Is filling airline seats and shopping at the mall the way to win a war?

  21. Michel Bauwens 30-May-07 at 9:21 am

    Hi Deirde,

    You make me think of Leibniz after the Portuguese earthquake, “we live in the best possible worlds …”

    I’m beginning to understand why economics is called the dismal science

    A system that is the only way to solve the environmental problems, yes has a record of unprecedented destruction? that created two world wars? and current leads to ever growing inequality, leaving five billion people out in the cold of misery …

    sorry, but however, you turn it, pretty good is not the good term …

    churchill had a better formula, “the worst, except all the others”

    the difference being that when the worst is destroying the biosphere, it cannot last

    I recommend this excellent summary of the state of the world, and where it is currently heading, at

    http://www.bestfutures.org/media/documents/Collapse_and_Transformation_Article.pdf

    “The world as we know it is about to be transformed. Why? Because our economic system is based on continuous growth, and unlimited material growth cannot be sustained on a planet with finite resources.

    There are only two possible outcomes; either increasing resource shortages and collapsing ecosystems will end advanced civilizations on earth, or a sustainable planetary system will emerge.Over the next few decades the collapse of major ecosystems will accelerate, negatively affecting the human economies that depend on them. If the industrial system with its expansionist consumer culture continues to degrade the environment, growing economic and social crises will inevitably destroy civilization as we know it.”

    However, positive outcomes are also possible. Sustainable values, theories, technologies and social organizations are emerging. These are networking together and beginning to develop post-industrial societal structures and economic processes.

  22. John Gelles 31-May-07 at 12:30 am

    ‘Post industrial structures and processes’ like ‘post modern’ is one sort of description of the revolutions all around us. It suggests an end more than a beginning.

    I prefer to describe today and tomorrow in terms of the information revolution — something that has started just in the nick of time.

    Science is replacing rules of thumb at an ever increasing rate of change.

    So much has to be learned and so little can really be cast aside and forgotten that human beings need intellectual partners in the form of artificial intelligence systems.

    One of these systems will replace market financing with purposeful financing.

    Another will get a handle on the need (and how to satisfy it) to employ every pair of hands and every human mind — not just the very best and brightest.

    The whole idea of limits based on scarcity will give way to unlimited human inventiveness and attention to the cure of disease and prevention of disaster, etc.

    Those active and creative intellectuals who sometimes waste their time finding worst case scenarios will come on board the optimistic express.

    They will find that when they’re so smart
    there is need for their positive contribution. Forget “if you’re so smart, why ain’t you rich.” Remember “if you’re so smart, why don’t you help.”

  23. Deirdre McCloskey 31-May-07 at 10:35 am

    Dear Mr. Bauwens,

    I know you are indignant. But I implore you, for your own good, to look more seriously into the issues.

    I do not say that there’s nothing to be done for the environment. I do say that we have done a good deal under the very capitalism you attack. I mentioned Lake Erie. For another example of dozens that a sober look into the matter would find, do you realize that the air of cities has dramatically improved over the past 50 years in every thoroughly capitalist country? I remember smogs in London in 1959 in which you literally could not see your own feet. Look how quickly the ozone-destroying chemicals were banished, within a capitalist system. And on and on. You are right that if we are heedless we will regret it. But you are wrong that the way forward is to give up the capitalist engine that has made possible solar energy and smoke scrubbers.

    I realize it is more satisfying to blame The System and to call for its overthrow. I myself was once a Marxist, for example, and can understand the attractions of such talk.

    But I’ve since learned that, say, Lenin was quite wrong to blame the Great War (and its aftermath, which might be called The Great European Civil War, 1914-1989) on capitalism. More like the anti-capitalism of nationalism and socialism. No serious historian thinks Lenin was right.

    And I’ve learned that far from being an engine of inequality, or leaving 5 billion people out in the cold, capitalism has for 200 years been raising the poor: your ancestors and mine, for an early example; the 2.5 billion or so people of China and India, for a recent example. No serious economist denies the record of capitalism in raising up the poor.

    Serious economists might claim that the future under capitalism is dark, or that souls have been corrupted by it, or that the environment is endangered—I have friends who say such things. But not a one can deny that since 1800, and with a notable acceleration since 1990, world income per head has increased by a factor of over 8, and by 3 even in unhappy Africa. This is the face of a rise in population of a factor of 6. Human lives are better, and now can pay for the betterment of the environment, if we (as you and I agree we should) so choose.

    Maybe the past is irrelevant, as we should turn ourselves over to “the untried theories of untried men,” as Joseph Schumpter put it in 1942. The English historian Tomas Macaulay wrote in 1830, “We cannot absolutely prove that those are in error who tell us that society has reached a turning point, that we have seen out best days. But so said all who came before us, and with just as much apparent reason.”

    Read and consider. Don’t suppose that everything you read in the newspaper is correct!

    Regards,

    Deirdre McCloskey

  24. John Gelles 31-May-07 at 1:44 pm

    Paul Wolfowitz, soon to leave as head of the World Bank, told Charlie Rose, the TV host, “America refuses to allow many underdeveloped nations to export their cotton, sugar and ethanol to the American market. This is unfair and disruptive of world trade.”

    We protect our agricultural producers. Is such protection OK? Or must we allow our producers to make room for producers from undeveloped nations; and if making room means we must find other work for our own producers, is that what capitalism calls for?

    We have made room for Asian producers of cars and electronics — now our own auto industry and electronic industries have had to move production outside the USA to such a degree that American cities have been devastated and American families ruined.

    Is there no rational answer to the problem of low wages driving down all wages?

    Who has blessed the system of short term nominal profit potentials as sacred, and long term social health as expendable?

    If the profits missing from the national incomes of nations Paul Wolfowitz wants to help were supplied — not by ruining American production — but by financing the capital growth of poor nations by direct loans from America with the intention to keep on lending them money until they developed a consuming middle class of their own.

    This would work — and, after it did, we could repeat the monetary essence of the cure for capital need until the poorest person in the poorest nation had a good job and consumed all his nation produced.

  25. Anonymous 01-Jun-07 at 12:06 am

    Dear Mr. Gelles,

    I think you’re getting it all mixed up. But I would say that!

    I’m assuming you actually want to think these matters through.
    The argument for free trade is not something one can get straight by unassisted ratiocination and listening to Lew Dobbs every night. I suggest you read our chapters on trade and then get hold of a copy of Russell Robert’s first fiction book (it’s got trade in the title, I think; google him for the exact title; he’s at George Mason University).

    I think your view will change.

    Briefly, trade is good for most people in both economies that do it. And it forces businesses to modernize, which enriches practically everyone. Some people get hurt. I’m in favor of helping them. But not by impoverishing everyone else, which is what the anti-trade people—without intending to—are proposing.

    My suggestion? Stop blogging and start reading, yes? Test your prejudices—we all start with them—against the FULL argument, not the sound bites that one can provide in a blog.

    Regards,

    Deirdre

  26. Michel Bauwens 01-Jun-07 at 9:48 am

    Hi Deirdre,

    Yes, I’m well aware of the betterment of important aspects of our living environment in the last 50 years. But this was not done by the invisible hand of the market, it was done through social pressure, which influenced public policies, which forced the companies to change their behaviour. The trick is that public policies have to create a level playing field of equal costs for every business, if not, they will nature seek to externalize cost, as it is one of the key ways of competing.

    What I’m suggesting is that this process needs to be radicalized, up to the point that we have a cradle to cradle business process, or a steady state economy. The obligation must be that growth is only possible is an equal amount of natural resources is put back. But as the other participant suggest, growth can shift to the immaterial sphere, where there are no such constraints.

    The key question is: is a natural capitalism, or a capitalism 3.0 as peter barnes suggests, with such a different operating system of steady-state really then still a capitalism economy, driven by the eternal need for growth because of its monetary protocol, or is it then a non-capitalist marketplace, because of the new constraints it is operating under.

    Of course, naming it is a matter of semantics, and I will not loose sleep over it.

    there is another important question.

    granted that we move to a steady+state economy and to the growth of the immaterial sphere ..

    evidence suggests, that larger and larger parts of the immaterial sphere are not driven by markets at all, as markets, and hierarchical or democratic resource allocation, only make sense in conditions of scarcity …

    so we have a growing post+capitalist sphere of abundance, which again will pose serious problems as it can only be very partially monetized

  27. John Gelles 01-Jun-07 at 4:02 pm

    Dear Deirdre,

    The argument in favor of free trade that fails to protect its victims and fails to protect resistance against a race to the bottom (in which low wage nations bring down global wages) is not God’s argument. It is Deirdre’s.

    You must admit that all the good we have done for China and India is not one whit more than could have been done by lending the capital they needed to develop their internal production AND consumption.

    In a few years we will be faced with China and Russia as potential trade partners who are also potential rivals for military supremacy (Russia, of course, is already there!).

    If we are smart enough, all of us, not to make war, we will also be smart enough to fully employ all our people and fully consume all we produce.

    Your faith in free markets — perhaps also in laissez faire — is no more than faith. Reading arguments in favor of either idea will not make them sensible in the new world order — where mathematics will rule and mathematics ought to be practiced everywhere — with no property interest claimed for any advance. And, in case you do not know it, software is all mathematics!

    You cannot rationally defend the transfer to Asia of American domestic skills that has left us dependent on Asians for the industrial might we have lost.

    Our desire to sell financial services will come a cropper. These tricks of the financial trade are like your reading of Adam Smith: interesting — but not fundamental to the preservation of liberty, democracy and intellectual honesty.

    We evidently both read Post Autistic Economics. Before your article appeared there, there was a piece on Keynesian money. Did you read it?

    I have it on my blog and send you the link here:

    http://www.ustaxreform.us/1016.htm

    The Author is Ron Morrison — maybe you know him — and maybe you will comment here on his views (which are identical with mine. I never watched Lou Dobbs in my life!)

    John

  28. John Gelles 01-Jun-07 at 5:01 pm

    The failure of writers like Deirdre, and celebrated brains like Paul Wolfowitz, and politicians like Al Gore,— that failure to see what Ron Morrison and I plainly see, and what Maynard Keynes and Abba Lerner (and Ben Franklin and Abe Lincoln) taught anyone willing to learn, for more than two centuries, — namely — that money is not a neutral exchange device — but money is a motivator of endless work, as gold was when paper money was rare — makes me angry enough to spit fire.

    Markets that are supposed to motivate full employment and full production of all needs possible to be met, fall on their face for LACK OF A MEANS OF PAYMENT geared to output and NOT TO DEBT!

    Deirdre calmly says a Means of Payment is just that — something simple — pay the man what you promised!

    Deirdre dear, the payor cannot pay for needs because money is geared to debt NOT need — to debt NOT production based on need!

    Now Franklin, Lincoln, Roosevelt, Keynes, Lerner and Morrison all have taught us money must not be made scarcer than it needs to be — to reflect all the good results business, (and lately, automation and robotics) have made possible.

    Gelles agrees — but adds supply side counsel. Money is never enough.

    Technology and business together must deliver the goods. Russian communists had no shortage of money. They had a shortage of supply.

    Now Deirdre’s whole argument is that in peacetime we cannot supply our needs unless we have unemployment and hard times as a whip to get the lazy bastards out of bed and off to the factory.

    She is completely wrong. Motivation will always be a problem. But it is a problem we solve all the time at play and in ordinary competition as on this website.

    Deirdre may be selling books. But the rest of here are competing with her — just for the satisfaction of using our mind.

    The day is coming when a nation larger than the Channel Islands (under the Queen of England), will copy the system they use in Jersey and Guernsey.

    There they do in peace what everyone does in war —they pay with money that payees don’t spend until the price (at some future date) is right!

    We need the hydrogen economy NOW! We could build it in a year. The money spent to turn sunlight into hydrogen from the ocean, and to turn hydrogen into electric power everywhere, will be in the trillions of dollars, euros and yen. The money must be saved not spent as it is earned.

    In a few years the savings can be spent on food and fun — especially by the world’s poor who suffer most — from the ancient bad economic beliefs Morrison and I challenge here and now.

    John

  29. Deirdre McCloskey 04-Jun-07 at 1:23 pm

    Dear Mr. Gelles:

    May I suggest that you’ll catch more flies with honey than vinegar?! We all hold our beliefs dear. I want to help the poor as much as you do—perhaps more, certainly more summed over a long life.

    Unless you doubt yourself, believe me you will not develop intellectually or politically. Try it.

    Sincerely,

    Deirdre

  30. John Gelles 05-Jun-07 at 3:03 am

    Dear Deirdre,

    Thanks for your advice.

    The Ron Morrison piece on Keynes without debt that Post Autistic Economics Review (PAER) published a short time before I read the item on The Economic Conversation is copied to http://www.ustaxreform.us/1016.htm

    If you would comment on Morrison’s ideas on Keynes without debt, the issues between us would be easier to grasp.

    No doubt, self-doubt leads to re-examination of ideas and may advance our understanding of payment systems.

    I am sure you will agree that the nations of the world need to pay astronomical amounts of money in the very near future to do what is necessary to protect society from threats we read of every day.

    I believe we both want to these payments made in time to prevent avoidable suffering. I am not focusing on the poor. It is the suffering of everyone that is on my mind.

    John

  31. John Gelles 07-Jun-07 at 2:35 pm

    The essence of my concern over markets — when nations are reluctant to go around them — to win the peace (the way they win wars) and build water, health care, energy, education, housing and employment systems, etc., that fundamentally drive global and national economies, is nicely illustrated by the current international effort to reduce carbon dioxide in the atmosphere as insurance against possible global warming.

    Every nation is convinced that lowest cost energy and export strategies, that will allow them to compete on the shelves of Walmart’s outlets, and otherwise cater to market principles of trade, payment, profit and loss accounting, and buyers’ decisions — remote from conscious thought of earth, society, democracy or any value whatsoever to be defend ed before parliament — is better than the planning approach that wins wars and can land a man on the moon and bring him safely back to earth.

    Deirdre counsels modest assessment of my prejudice in favor of planning.

    She emphasizes that I could be wrong. She defends markets and does not see that a world condemned to live on taxes from sales and profits related to individual consumption, is destined to die from explosions in war or asphyxiation in peace.

    They will either learn to spend money into circulation — and prevent inflation by savings and other means (including intelligent taxation as necessary) — or perish with poverty in tact and chaos all around them.

    Should they learn the lessons of history and do the right thing, markets will be of limited use — and planning methods will assume their obvious function, helped enormously by the revolutions in information technology that will soon develop price and payment systems on the basis of output not debt.

  32. Deirdre McCloskey 21-Jun-07 at 10:30 am

    Dear John Gelles,

    Are we going to get to a point where our ideas can influence each other a bit? I suspect not.

    You respond to my market suggestions by railing contemptuously against markets tout court. Well, what about cap and trade? That’s got a non-market, political element (the cap) and a practical, market-harnessing element (trade). What’s your problem with it? Let’s get down to serious economic talk, yes?
    I know it’s more fun to gesture widely, as you do. But we are in an economic conversation, not making speeches at Hyde Park Corner, yes?

    Regards,

    Deirdre

  33. Benjamin Mitra-Kahn 23-Jun-07 at 2:33 pm

    Dear All

    I just want to return to the text in the left hand column, and make some comments:

    Saying that you ‘understand why Adam Smith spoke of an Invisible Hand’ by reading this chapter is –in my opinion, and I think some of the authors’– a gross over-statement.

    I think the language should be re-phrased, maybe to say that this is how modern economics chooses to (not) read Smith, and maybe a box on Smith and his actual use of ‘invisible hand’ would be a good start to educating otherwise impressionable undergrads.

    Some points on the summary (by numbers):

    2. The typical market which students will meet later, in the general equilibrium shape, has little to do with the Chicago board of trade, where prices are arrived at through actual bidding and trading to drive prices up and down, and the ‘price’ of each exchange is announced post-facto to the market itself.
    This has nothing to do with the ‘Walrasian’ Auctioneer and Arrow-Debreu, but it would be a good opportunity to mention to students that Walras’ own original ideal market is exactly this type of stock market, although he wanted to look at the less ideal situations too (1926 ‘Pure Economics’ – see ch. 12).

    4. I think what some of the other posts have been about is the fact that the market is theoretically a way of refereeing ‘who gets what’, but reality is not always like that… Maybe some time could be spent on real examples (with data and history etc) in explaining how for example the WTO referees who can get what in the international markets.

    7. ‘Adjustments in price’ does not seem be what we are looking at in the demand-supply schedule… what we are seeing is a representative agents preferences for a good and when that ‘intersects’ the pre-set market price the choice of how much to buy is decided… How does this explain market movements?

    I am not sure we can really talk about an ‘adjustment’ anywhere along those curves, but we could mention a ‘skip’ as some exogenous factor changes each persons world…

    All the best
    -Benjamin

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