There’s a sort of built-in progressivism to the division of labor that, although it benefits all and almost always will benefit specialists by an absolutely greater amount, provides a greater proportional benefit to those who are relatively unskilled or weak. This notion, writes Susan Hogarth, is so profoundly the opposite of the accepted economic tales of “robber barons” and Dickensian factory owners that it is startling.
The idea of the division of labor isn’t so much about the skilled and the wealthy exploiting the labor of the unskilled and the poor as it is about the benefits of cooperation to everyone. That those who bring better skills or more experience to the cooperation do absolutely better is no surprise, but the fact that those who bring relatively less in the way of skills and experience to the market gain a proportionately greater amount is big and exciting news to a world steeped in the weak tea of socialist labor theory. FULL ARTICLE
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PM’s main problem with the industrial revolution is that it didn’t conform to a socialist’s idea of what it should have been. But when reasonable people compare reality with reality, that is, compare the state of the poor and working classes in England with that of the poor and working classes anywhere else in the world, or with the state of the poor and working classes before the industrial revolution, honest people can’t help but conclude that it benefited those classes enormously.
“Socialist theory works fine on paper”
I’m surprised you’d say this as an Austrian. Their theory is perhaps their weakest point.
having read the long and reisman critiques of carson in the jls, i’ll take a look at carson’s reply (same journal). the link: http://mises.org/journals/jls/20_1/20_1_7.pdf
to pm lawrence:
do you know whether the ned ludd essay is freely available online?
inquisitor: “Their theory is perhaps their weakest point.”
You’re right. I was looking at if from a socialist’s perspective. In their minds, it works on papers, as in all of the books written by socialists. But so far they haven’t been able to instantiate a version that works.
Newson, sorry, I don’t think John Barnes’s “Two Cheers for Ned Ludd” is available online (I googled for it a while back). But you should be able to find it fairly easily as hard copy, in his collection “Apostrophes and Apocalypses”.
Readers, observe this from Fundamentalist:-
“No, I was not cherry picking. I was comparing the Dutch Republic with nations. No nation has ever had perfect equality.” This moves the goal posts considerably, backing down on his original claim that “No, the Dutch essentially created capitalism by giving their people equal protection under the law and real protection for property for the first time in Europe, excepting possibly Venice” – in fact it is consistent with my rebuttal of that, “there was nothing equal about the Dutch republic; it had privileges for certain groups, monopolies like the Dutch East India Company, and hegemony of certain regions over others”.
- “You like to choose the exceptions and portray them as the norm, which is the real definition of cherry picking” – but I didn’t and don’t do that. Where I use exceptions, it is only as counter-examples to overly broad generalisations; that is a valid use. However, many of what I put up are illustrations of quite widespread behaviour; it is only filtering them through preconceptions that can make them look like exceptions to a norm.
- “You also prefer to compare reality to perfect theory, but theory will always trump reality” – but, readers, I have done the opposite. For instance, starting with the observed and reported facts of food constraints in a crucial period, I drew on that – but only for the period where it applied. I then examined what went on at the time, and did not find counter-examples despite keeping my eyes open for them (e.g, I did find reports of people suffering). Theory is valuable, but you don’t start from there, you build it up as a tool to get you farther; you start from observation, direct or indirect.
- “Socialist theory works fine on paper, but even after killing 100 million people trying to implement it during the 20th century, it still failed” – notice, he is again trying to associate what I described with socialism, despite none of this having anything to with that.
- “PM’s main problem with the industrial revolution is that it didn’t conform to a socialist’s idea of what it should have been” – and here he is again trying to associate me with socialism, more ad hominem (yes, it’s ad hominem even if it isn’t something shameful; he is trying to mark me, not what I describe, in a way that would discourage the easily deceived from actually looking at what I describe).
- “But when reasonable people compare reality with reality, that is, compare the state of the poor and working classes in England with that of the poor and working classes anywhere else in the world, or with the state of the poor and working classes before the industrial revolution, honest people can’t help but conclude that it benefited those classes enormously” – readers, notice he isn’t actually doing any of that comparing, he is reporting an unsubstantiated conclusion. Me, I actually did look – and he is wrong, unless you do one of two things: look outside the crucial period; or, don’t count the casualties (for instance, obviously those in work were better off than those not in work, at any given time).
i found carson’s spirited rebuttal of long and reisman’s criticisms more convincing than i’d bargained on; so i’m going to reserve judgement.
i daresay dumping carson in the marxist camp was a gross tactical error by reisman. on the contrary, he deserves far closer attention than the garden-variety marxist. forensic criticism, maybe.
to pm lawrence:
carson mentions a number of technological “innovations” that he maintains would not have prevailed at the time of their introduction had they not been given a “helping hand” by the powers that be. here, i wonder whether this isn’t the case of the qwerty vs dvorak keyboard dialectic? competing technical claims, conflict of interests, and probably a bit of critical market mass make it very difficult to judge “superior” technologies, especially after the event.
in any case, i view the market process, arguably even with statist distortions, as the best of a bad lot.
“…i’m going to reserve judgement”. Newson, that’s precisely how I described you in a comment linking here in a recent thread at Kevin Carson’s site that also brought up Reisman and the JLS.
I don’t have a thorough list of the sort of improvements that were helped on, but I do know (a) it often happened and (b) it was not usually a deliberate statist/corporatist policy but a side effect of other state actions – notably, of war.
A while back I went into the economic history of British transport in a
guest post at John Quiggin’s site. One interesting thing was, steam traction developed past a tipping point because of a horse shortage during the Napoleonic Wars. That ended with the wars, but it was a damned close thing that steam had passed that tipping point, i.e. that it was more competitive than horses; a horse contraption did quite well in the steam trials that shot Stephenson’s “Rocket” to fame.
There’s more to the comparison. Some writers report Marc Isambard Brunel’s success with mechanising the production of pulley blocks for the Royal Navy. But they get too selective and leave out the part where all his contracts were cancelled at the end of the wars as hand – literally manu – manufacture became competitive again. He went broke. Similarly, World War I boosted aviation developments, but Tommy Sopwith of Sopwith Camel fame went broke in 1918 in the same way (he learned his lesson about not trusting government contracts and structured things differently for World War II; see also Nevil Shute’s autobiography for comments on government contracts). World War I also produced a pool of trained drivers, so road transport became a viable alternative to rail in Britain – and that got pushed past a tipping point by the General Strike of 1926.
Anyhow, there were lots of helping hand examples, but the way support was just as often cut back too fast for viability shows how it was incidental and not statist/corporatist policy. About the only conscious British policy along those lines I know of is, subsidising the Merchant Marine to behave in ways that paid back by maintaining a Naval Reserve.
By the way, at first glance some of this economic history appears to support the “infant industry” argument for protectionism, but all the cases I have seen passed tipping points that related to positive network externalities or economies of scale external to the firm, nothing to do with the maturity of the industry at all (well, maybe with steam traction, just a bit – but there were positive network externalities involved there too). So it’s not a sound policy unless you know where these are; if governments have to pick the winners they are likely to fail, but they can realistically get it right when they are going for effects that have turned up elsewhere already.
(Oh, the “internal improvements” that seemed to come from the Erie Canal were illusory; that was very good for the USA though, because it diverted existing Great Lakes trade that had already reached a critical mass away from Montreal and Quebec to New York.)
I hate the way the preview isn’t WYSIWYG and doesn’t show me missing end tags.
PM: “…readers, notice he isn’t actually doing any of that comparing, he is reporting an unsubstantiated conclusion.”
In this case, I don’t need to. The history and data are readily available, and anyone can see that the poor and working classes were far wealthier at the end of the 19th century than at the beginning thanks to the industrialization of England. Even Marx grudingly praised the amazing productive capacity of capitalism. Were there setbacks? Of course. But they usually ocurred because of governmental intervention, not capitalism or industrialization.
You seem fixated on the fact that agriculture didn’t progress as fast as industrialization, and therefore prices might have risen on occasion. While that may be true, what does it have to do with the benefits of industrialization? Industrialization did not cause stagnation in agriculture. The only logical effect industrialization could have on agriculture at the time would be to increase the demand for produce and increase the profitability of farming and the wages of farm hands. If imports didn’t fill the gap, that would have been because of government intervention resulting from mercantilist policies.
An important point to keep in mind is the difference in methodology between Austrian econ and most other sciences. Austrians tend to derive truths from axioms; other sciences try to amass emperical evidence for their side. But Austrians aren’t fooled by emperical evidence that appears to counter a priori reasoning. For example, if some empericist discovers that people are buying more of a product even though the price has increased, that doesn’t invalidate the principle that the demand curve slopes downward. It means that something besides price is affecting their decisions.
In the same way, finding historical evidence that some people didn’t benefit from the industrial revolution doesn’t destroy the principle that industrialization is good for the poor and working classes because it raises real wages. In fact, only Marxists would argue against that principle. Finding counter examples only means that other forces, such as government intervention, are at work.
As for you being a socialist, I have never called you that. As I wrote before, your ideas originated with socialist writers whether you recognize it or not. Besides, if you’re an admirer of Carlson, who is a devout Marxist, why would you be ashamed to be called a socialist?
Newson, see Callahan’s Economics for Real People on Qwerty vs Dvorak. The argument does hold some merit though. MS, for instance, profits immensely from the government’s use of its software, and obviously the State does skewer the market’s structure.
Economic theory is indeed axiomatic-deductive in its nature, and cannot be refuted empirically (only logically.) However, whether the Industrial Revolution was on the whole beneficial is a matter of empirical investigation (especially because markets were not the only force at work here.) It’s best not to get into a debate over methodology where it isn’t wholly relevant. I need to do my own studies to reach a conclusion on the Industrial Revolution regarding food production. So whether the IR was good or bad is an empirical matter; why it was so is for praxeology to answer, at least where it applies.
One other thing – I realize Carson makes significant use of Marxian political theory (and to an extent, economic theory), but he is still heavily influenced by the Austrians, and is essentially a market anarchist of sorts. It isn’t entirely fair to brand him a socialist, especially given that he is sympathetic to Austrianism.
inquisitor: “So whether the IR was good or bad is an empirical matter;”
The IR was the industrialization of England. What we call industrialization is nothing more than the “roundabout” processes of Austrian economics. The core of Austrian econ is the principle that more roundabout processes, or as Hayek writes, more capitalistic processes, reduce costs, improve quality, increase wages, and generally increase the wealth of a nation. So if it’s true that the industrialization of England did not benefit the English, then either Austrian econ is wrong, or some factor besides industrialization overpowered the beneficial effects of industrialization. A good culprit for that would be government intervention.
The former USSR is a good example. The nation industrialized heavily before and after WWII, but the people did not benefit from it. Their standards of living continually fell. So would you blame industrialization?
As for Carson, I’m not an expert on him but what little I’ve read indicates that he supports anarchy, not Austrian econ. His econ appears to directly oppose Austrian econ, especially with his emphasis on the labor theory of value, small enterprises and his opposition to the division of labor. I would say he is friendly to Austrians who are also anarchists, but not to Austrian econ.
That is my point. We’re treating the IR as a free market phenomenon, when it might not be. I’m not suggesting Austrian econ is wrong on this, far from it – just that there was an extra-market institution in existence at the time, that may have had similar albeit far less dramatic results as the USSR.
On Carson, I know that his theory of value is not overly different from Dr Reisman’s, and that both lead back to the STV and MUTV anyway. I’ve not seen him try to discredit Austrians at all, and he typically uses Austrian analysis in his work, especially on politics. But like you I am not overly familiar with his work.
Readers, note Fundamentalist’s bait and switch in “…anyone can see that the poor and working classes were far wealthier at the end of the 19th century than at the beginning thanks to the industrialization of England”. These “the poor and working classes” are not the same people, opening it up to survivor bias, and “the end of the 19th century” is after the period during which the problems happened and been cleared up. As I pointed out, “he is wrong, unless you do one of two things: look outside the crucial period; or, don’t count the casualties” – and that is just precisely what he is doing here.
As for “You seem fixated on the fact that agriculture didn’t progress as fast as industrialization, and therefore prices might have risen on occasion” – nonsense! Prices don’t come into it, accessibility does, i.e. the real wage in cash and in kind, not as an average but as available at the lower bound.
“The only logical effect industrialization could have on agriculture at the time would be to increase the demand for produce and increase the profitability of farming and the wages of farm hands” is limited, since it is not the effect on agriculture that counts, it is the flow on effect on food acessibility. And, of course, “the wages of farm hands” (and other rural workers) did rise – but there were fewer of them, and the retrenched didn’t get that (survivor bias again).
“…finding historical evidence that some people didn’t benefit from the industrial revolution doesn’t destroy the principle that industrialization is good for the poor and working classes because it raises real wages” – of course not, but finding historical evidence that it did not affect real wages per head across the board, plus evidence that some people gained this way, implies the necessary existence of losers (things not seen, again). Then he proceeds to dogma and repeating ad hominems.
“…So if it’s true that the industrialization of England did not benefit the English, then either Austrian econ is wrong, or some factor besides industrialization overpowered the beneficial effects of industrialization…” – Fundamentalist hasn’t listed the entire range of possibilities, in this case the generational time lag before general improvements flowed through.
to inquisitor:
yes, i did read callahan’s book, though quite a while ago. i could have used the beta/vhs argument just as well. many technical people vouched for the superiority of beta, and cited vhs’ success as evidence of “market failure”, when a more considered view would have shown the smaller physical size and longer playing time were the winning points for the consumer. (can’t recall whether this was in callahan, but the example is not novel).
to pm lawrence: i’ve really got to bone up on carson. in his defence against reisman, particularly, i could see nothing of the crude marxist adherence to the labour theory of value. maybe reisman is well acquainted with carson’s full body of work, but for me he didn’t convince (and i’ve got a soft spot for him). i couldn’t find anything that was inimical to the austrians, at least in the jls article.
as regards small/large business units, i’m completely ambivalent. in italy, the wool/cashmere industry is centred around biella (piemonte). like virtually all industries in italy, the wool processing industry is a small company domain. thousands of small family-owned businesses in a complex network of interconnecting contacts and procedures.
that the companies are small doesn’t mean they are not state-of-the-art. the smallness comes partly from italy’s byzantine legal system (lengthy delays and cost mean litigation is often fruitless, so you have more reliance on personal trust than in anglosaxon nations), partly from crippling taxes and regulations (ie stay under the radar), and finally the militant unionization of larger industries.
the fragmentation (read nimbleness) of the industry means that even small fabric runs can be profitable, and so the chinese haven’t been able to attack the luxury fabric market, like they have for the large-run budget fabrics. viva la differenza!
Let’s not forget that an important fact in the industrialization of England was the process of private and legislative theft in the form of the “enclosure” of commons and the elimination of commond property rights. This directly eliminated many villages and the basis of support of much of the countryside, who then provided a workforce for growing industrialization.
Fundamentalist and newsom,
I’m not getting into the whole IR thing because PM Lawrence is doing a better job of it than I can anyway.
But I would like to add something on the specific issue of roundabout production methods and capital accumulation. First of all, it’s not some Austrian dogma written in stone that increased roundaboutness or capital intensiveness increases productivity. Bohm-Bawerk stated it as a general empirical rule, but not as something self-evident.
Second, it’s true only to a limited extent in any case. There is an ideal level of capital-intensiveness in any industry beyond which unit costs begin to rise. And the ideal level of capital-intensiveness tends to rise with market area, so anything that makes distribution artificially cheap will also make more capital-intensity and a higher degree of division of labor artificially profitable compared to the alternative. For example, the larger the market area, the more specialization of machinery will be profitable. In small market areas, on the other hand, general-purpose machinery and the substitution of capital for labor may be more profitable. It is a mistake to argue that roundaboutness as such, outside of any situational context, is directly related to productivity. A Rube Goldberg machine is the most roundabout form of production imaginable.
Money inflation will also make artificially profitable a greater degree of roundaboutness or capital-intensiveness than would prevail in a free market. The Austrians call it malinvestment, but it’s essentially the same as what neo-Marxists call overaccumulation.
BTW it’s odd how much parallelism there is between some Austrians’ views on roundaboutness, and the views of technocratic liberals like Schumpeter, Galbraith, Chandler, etc., on unlimited economies of scale.
On the question of my ideological orientation, my basic framework is the individualist anarchism of Benjamin Tucker and William Greene. I make use of Austrian ideas in pretty much the same way that I make use of Marxist ideas: I adopt what can be usefully integrated into my own framework and leave the rest. Like Tucker, who was also on the fringes of both the classical liberal and libertarian socialist movements, I tend to view both state socialists and vulgar libertarians as erring brethren.
What’s really interesting is the parallelism between some radical interpretations of Austrianism and some 20th century neo-Marxist thought. For example Joesph Stromberg, in “State Monopoly Capitalism and Empire” (I recommend Googling it) pretty much recapitulates neo-Marxist theories of overproduction, overaccumulation and empire based on Misesian/Rothbardian theories of malinvestment and regulatory cartelization. And the Misesian theory of the “crackup boom” bears a remarkable resemblance in some particulars to the neo-Marxist theories on the crises of late capitalism.
Newson, I can make two observations on the Labour Theory of Value that start rather nearer empirical evidence (though the second does have a layer of inference on top of it).
The first is that there actually were some special cases where it was implemented in setting up a cash economy. Fiat currencies were introduced in African colonies, backed by taxes. In some colonies, poll taxes were used. This was equivalent to backing the fiat currency with the opportunity cost of individual taxpayers’ time during each tax period, particularly if the tax could be paid off by working on government projects like road building (having this fallback meant a rough de facto sliding scale, with taxpayers having one cash payment option and one work payment option). It would have worked even better if people who couldn’t pay in cash actually got small cash wages for their work rather than garnisheeing all their notional pay as tax, since that would have trickled cash into the new cash economy, but I don’t know if that was done. An analogy that helped me was, providing reactive volt amps so that induction motors can do regenerative braking, but if you don’t know electrical engineering that will just be one more thing to understand first. But poll taxes work unevenly because people’s opportunity cost of time (a proxy for the “value” of their labour) varies; that’s why poll taxes worked better with sliding scales, and why hut taxes were often used instead.
That brings us to the second observation. For this I was helped when I finally understood why – not how – a certain feature of car automatic transmissions worked. Gear changes are chosen according to how much power is being delivered, among other things. But this can’t easily be measured directly, or even inferred easily. Instead, the transmission uses the inlet manifold pressure as a proxy for the power. For a long time I couldn’t see the connection, because I could see how that could easily be a poor proxy in some circumstances. However, I eventually realised that the inlet manifold pressure is a good proxy for the oxygen supply, which is a good proxy for the power from combustion, and the power developed is a nearly fixed proportion of that; the last two are true when the engine is working optimally or close to it (because at first efficiency doesn’t drop off much as you move away from the optimal), which the automatic transmission arranges. In other words, when you are near optimal, the inlet manifold pressure is a good proxy, and feedback stops you drifting too far from optimal, but it’s not an absolute law sort of thing, it’s the result of the feedback. My initial concerns were sound, it was just that matters were arranged to keep them from coming true.
What has this to do with associating labour with value? Value does not derive from labour as such, but when an economy is working properly, actual value will end up properly correlated with labour inputs (after allowing for different sorts of labour having different value, a sliding scale again), because it always will end up properly allocated. Somebody who distorts things, say by paying people to dig holes and fill them in again, doesn’t thereby make that valuable, but if there were a value there, say for archaeological research, then it would pay someone to hire workers to do it, and their labour would be an observable indicator of that value. This only works out because of the near optimality of the properly working economy, because that means the workers have to be drawn away from other productive uses, and their pay has to be too.
Result: although labour content does not confer value, in a reasonably sound economy and subject to a sliding scale it indicates it, which is for many purposes the same thing – unless you go and distort the economy, say by making policy assuming the former, which is like expecting a car to go faster if you bend the speedometer needle.
Carson:”There is an ideal level of capital-intensiveness in any industry beyond which unit costs begin to rise.”
That’s not what Austrians mean by “roundaboutness”. Check out Hayek’s comments in the article from earlier this week, “Hayek on the Paradox of Saving.” In that article, Foster and Catchings made a similar mistake. Roundaboutness is not just an increase in capital intensity whereby new capital simply increases the number of the same processes using the same technology. An increase in roundaboutness uses greater amounts of capital but it does so by moving work from labor intensive to capital intesive processes, or employing new, more efficient processes. As Hayek points out, roundaboutness must produce more goods with less labor, otherwise the labor supply will limit the output unless there is surplus labor to go with the new capital investment. So the Austrian understanding of roundaboutness does not have a limit.
Carson: “And the ideal level of capital-intensiveness tends to rise with market area, so anything that makes distribution artificially cheap will also make more capital-intensity and a higher degree of division of labor artificially profitable compared to the alternative.”
I don’t understand the reason for the insertion of “artificiality.” What does that have to do with anything? Nevertheless, more capitalistic means of production always reduce the per unit cost of ouput compared to more labor intensive methods, all other factors being equal. That’s why producers have migrated to more capitalistic methods for the past 600 years or more. The size of the market is important to a business person, but cost is a major determinant of market size. As Henry Ford demonstrated, more capitalistic methods of production can dramatically reduce costs and increase the size of the market for a product.
Carson: “Money inflation will also make artificially profitable a greater degree of roundaboutness or capital-intensiveness than would prevail in a free market. The Austrians call it malinvestment, but it’s essentially the same as what neo-Marxists call overaccumulation.”
Money inflation causes more capitalistic production only in the short run. Austrian econ shows why that is the case and why it causes huge fluctuations in capital intensive industries, which is the business cycle. But the same money inflation that launched a thousand ships eventually sinks all of those ships, too. So in the long run, i.e., over the full business cycle, money inflation washes out and causes no net increase in production.
PM: “…although labour content does not confer value, in a reasonably sound economy and subject to a sliding scale it indicates it…”
I don’t completely understand what you wrote, but in general I agree. However, what you wrote is not the labor theory of value. It’s more like the idea that labor determines prices to a large degree. The labor theory of value tries to create an objective standard for determining the real value of a product. Classics like Smith thought that there should be an objective way of determining value, and he used labor. As a result, the market price of an object could differ significantly from its real, intrinsic value, which is supposed to be determined by the labor that went into producing it. Karl Marx latched onto that idea and ran with it, adding the idea of surplus value, which is the difference between the market price of the product and the price of labor. In Marx’s view, if the value of a thing is the labor that went into it, then labor should get all of the market price. Since labor didn’t get the full price, those who got the “surplus value” were thieves stealing from labor.
to tokyo tom:
if you follow the posts from where the thread morphs from ricardian comparative advantage in the stables, to the broader debate on the industrial revolution, you’ll see your point has been covered from differing angles.
to carson:
i don’t have any problem with there being an optimal level of capital-intensiveness at a given time. here’s a bit i grabbed from gerry jackson at brookesnews.com which illustrates why new (and better) technologies don’t always get implemented, or only over time:
“there always exists a range of new techniques and inventions which are more productive then the currently employed ones. What should be asked is why these techniques are neglected’.
The answer would be obvious to any businessman. In order to invest in these techniques and inventions businesses would have to scrap their present capital combinations in which a great deal has already been invested. Scrapping this investment in favour of new investments would impose losses on businesses The Bessemer process is a good example of what I mean. This revolutionary steel making process was invented in 1854 in Britain and within a short time massive investments were made in the process.
However, in 1864 Frederick Siemens invented the open-hearth method which was superior to the Bessemer process. By about 1901 steel production from the Siemens method exceeded production from the Bessemer process. So why did steel makers who had invested in the Bessemer process still stick with it after the after the Siemens method had long proved itself the superior technique?
(I still remember a couple of my university lecturers arguing that the Bessemer case was an example of the refusal of nineteenth century British businessmen to take risks. How these businessmen were supposed to predict the advent of Siemens’ invention is something these lecturers never revealed to us students).
It is very simple, really. The Siemens method wasn’t sufficiently economically superior enough to warrant the immediate scrapping of Bessemer investments. Those who lament this situation do not realise that businesses have to make decisions according to current and expected costs and revenues. The rate of return from investing in the Siemens method would have had to exceed the return from the Bessemer process by such a margin that the difference between their costs of production per unit of steel times the yield would have had to be big enough to make expenditure on the open hearth method worthwhile.
Put it another way. Old investments will be scrapped when the superiority of the alternative investment is great enough to compensate for the expenditure it requires. The Siemens method did not fit this bill. This made it preferable to operate with the obsolete Bessemer process until it was time to replace it or until the alternative method fell far enough in price to justify investing in it. The same really holds for any investment.”
as this snippet makes clear, using antiquated modes of production until the profitability gap between the old and the new becomes so wide as to justify the change makes perfect economic sense. i see no clash with austrian economics whatsoever, here.
read the stromberg article; in relation to the “crack-up” boom marxian parallels, which part of marx are you alluding to?
to pm lawrence:
engineering is not my forte, so your analogies weren’t immediately clear to me. i’ll have to mull over them.
on a more banal level, the african example of the ltv makes sense. the more primitive an economy, the greater the value of sweat, and so the labour component would necessarily be the weightiest part of value. but even in a primitive setting, there are lacuna in the ltv – just one that comes to mind is the witch-doctor, who can demand “market rates”. not strictly a sweat.
mozart obviously had to practice his scales, and picasso likewise had to learn rudimentary brush-work; only in developed economies does the fork between labour (as sweat) and inspiration/intellect or otherwise rare personal attribute really widen dramatically.
Newson, the following may or may not help you get started. Consider a process with a parameter that yields according to this table:-
Output: 21 26 29 30 29 26 21
Parameter: 5 10 15 25 30 35 40
(I hope this is WYSIWYG enough that the table comes out properly.) The optimum comes with parameter 25, and output drops off to either side – but not linearly, rather it drops off ever faster as things get farther from optimal. Conversely, small variances aren’t very important. Now, that table was made up for purposes of illustration, but it’s fairly typical behaviour for most performance curves because it would take weird underlying structure to behave any other way (it’s a mathematical/physical thing).
The African poll tax examples didn’t relate to their underlying economics, rather the cash economies were constructed in a way that reflected labour content in the fiat currency. If the USA were occupied by a conqueror that chose to issue a fiat currency in that way, the same would apply there – but it would be a wasteful use of resources. Which might be the point, if the conqueror wanted to run US military-industrial capacity down using its own resources to do it. The African cases were starting at the other end, aiming to transition from unsophisticated subsistence economies to ones more useful from a colonial policy point of view (e.g. better markets for the home country, less of a drain on the home treasury for administering and garrisoning, and more resources coming out for home industry more cheaply – but colonies were almost always cost centres even after improvements).
Interestingly, I recently read an article in the Australian Financial Review that claimed that the Soviet command economy didn’t suffer so much from the “calculation problem” as from a reluctance to replace plant as it became obsolescent if it was still working, which was in turn a consequence of state industries being monopolies.
By the way, the original Bessemer process didn’t work. Bessemer just got lucky in the ore he used, that had a blend that was capable of being processed. When he released the technology (licensed? sold? I’m not sure), his customers couldn’t make it work. It took a lot more development and research to find the problem and how to blend ores and add cleansing materials to fix it. If he hadn’t got lucky with his first go, there would have been a long struggle with no money coming in and no certainty of ultimate success; the Bessemer process might never have gone into production. One of the advantages of the open-hearth method was that it was less sensitive to materials that way – if you used a lot of scrap steel as input. It too would have had trouble getting going if it had been the first entrant, for want of scrap steel.
to pm lawrence:
when you say -
“poll taxes work unevenly because people’s opportunity cost of time (a proxy for the “value” of their labour) varies; that’s why poll taxes worked better with sliding scales, and why hut taxes were often used instead.”
- i think you’re conferming the austrian view of value, ie subjective, regardless of whether it’s measured in man-hours or currency. if it were a genuine money, then it is just a personal tax story, with only those not able to pony up the cash obliged to render service in lieu.
i’d be interested to see that afr article – do you recall the date? i cannot see how any decision to implement new technology could be performed in the absence of rate of return calculations. as the bessemer/siemans snippet showed, mere technical obsolescence is not enough to justify plant/process replacement, it has to be seen in relation to payoffs.
i think mises’ calculation argument is still the last word on why socialism (perhaps best illustrated in the early part of the ussr under the bolsheviks) is unfeasible.
The calculation problem only comes into full effect in a world devoid of market prices, so although it applies to the USSR, it probably wasn’t the main deficiency exhibited by the Soviet economy.
though from memory the 1919-21 period under the bolsheviks was an experiment to run things without the guide of prices. unless i’m dreaming, this plunged the country into total caos, and from ’21 onwards, the price mechanism remained, albeit in a highly constrained form. just prolonged the agony.
To my knowledge that’s correct. The USSR apparently drew on prices from abroad when it implemented its pseudo-price system, so that at this stage the calculation problem would most likely fade somewhat in its importance. The calculation problem essentially is in reference to a socialist commonwealth, a world without prices – that is when it becomes worst, and that is when Mises intended for his argument to apply in full, as far as I know.
Newson, I don’t recall the precise date or even author of the AFR piece, but it was within the last week or possibly two.
Lenin slackened off the full Bolshevik system in face of problems, bringing in his New Ecomic Policy in the early ’20s that allowed private market activity, but this was purely tactical; it was tightened up again after that. I have somewhere heard a remark attributed to Kruschev that once they won they would have to allow some small country like Switzerland to keep going in the old ways to provide them with price references.
However, all through the USSR’s life people kept carrying out private non-market activity to keep body and soul together, e.g. maintaining personal vegetable plots and feeding their own pigs on cheap (heavily subsidised) bread – it paid better to feed them processed food than to use genuinely more economical feeds. It was the presence of this genuine pool of private resources in the ’90s that stopped the spurious “market” but really non-market shock treatment reforms from completely devastating the Russian people.
One hybrid economy works quite well, from certain points of view: a “palace economy”, which has a large pool of subsistence activity carrying a relatively small command economy. The USSR succeeded better to the extent it did this – and so did the spurious reforms.
I’ve found a description of a specific case of colonialists introducing a Poll Tax to mobilise local resources. It’s only atypical in that the colony had a partly developed economy already, particularly around the capital, and that there had been widespread slavery which the colonialists abolished, leaving a gap in the workforce.
The following is drawn from Sonia E. Howe’s The Drama of Madagascar, pp 331-2, and describes measures in the late 1890s soon after the French took over:-
“There was the introduction of equitable taxation, so vital from the financial point of view; but also of such great political, moral and economic importance. It was the tangible proof of French authority having come to stay; it was the stimulus required to make an inherently lazy people work. Once they had learned to earn they would begin to spend, whereby commerce and industry would develop.
“The corvée in its old form could not be continued, yet workmen were required both by the colonists, and by the Government for its vast schemes of public works. The General [Gallieni] therefore passed a temporary law, in which taxation and labour were combined, to be modified according to country, the people, and their mentality. Thus, for instance, every male among the Hovas [the dominant tribe of the earlier independent kingdom], from the age of sixteen to sixty, had either to pay twenty-five francs a year, or give fifty days of labour of nine hours a day, for which he was to be paid twenty centimes [presumably per day], a sum sufficient to feed him. Exempted from taxation and labour were soldiers, militia, Government clerks, and any Hova who knew French [many knew English, from missionary activity], also all who had entered into a contract of labour with a colonist. Unfortunately, this latter clause lent itself to tremendous abuses. By paying a small sum to some European, who nominally engaged them, thousands bought their freedom from work and taxation by these fictitious contracts, to be free to continue their lazy, unprofitable existence. To this abuse an end had to be made.
“The urgency of a sound fiscal system was of tremendous importance to carry out all the schemes for the welfare and development of the island, and this demanded a local budget. The goal to be kept in view was to make the colony, as soon as possible, self-supporting. This end the Governor-General succeeded in achieving within afew years.
“Meanwhile the readiness with which taxes were paid was the best proof of their being fair and just [some inconsistency with the 'abuse' here, surely? plus, being a tax enforcer would have been a plum job for any comprador]. What decidedly encouraged the new tax-payers was the fact that their money was being spent locally, and for their own benefit.
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“… the Governor-General, assisted by his staff, let these public works be put in hand, ‘in order to enable France to get some gain out of her new possession’ [shows what the locals knew about 'for their own benefit' - 'what have the Romans ever done for us? I mean, apart from building all those roads and aqueducts' - it's like expecting the Scottish Highlanders to be grateful to Marshal Wade for building all those bridges that helped control them, and he used his own troops for that].”
Wow, talk about arrogant. Does the author actually believe everything they wrote or were they just conveying the mentality of the time?
If “they” means who the writer is reporting in indirect speech, then certainly they believed all that. But if “they” is an ungrammatical Americanism for “she”, then she believed it at one level – the level in which it accurately describes the objective facts of native reluctance to work, etc. – but context from other parts I didn’t quote shows that she was well aware of the French agenda for territorial gain that hadn’t been shared by the British, for Madagascar at any rate. For instance, the French were puzzled by how their advances weren’t as well received, and she points out that the French were blind to the fact that the natives saw those as a stalking horse for taking over but didn’t see that from the British. She also points out that Gallieni was guilty of a “diplomatic inaccuracy” when he made an announcement that the Queen had retired “at her own request”.
The thing is, the French not only believed those things that the author reports, they never questioned or examined their own assumption that the changes they were bringing, the “mission civilisatrice”, were (a) good as an absolute and for both the French and the natives, and (b) justified the taking over (other changes included abolishing slavery, for instance). The author, as a creature of her times (writing in the late 1930s) probably agreed with (a) but reserved judgment on (b). That is what gives the pejorative tone to the language, which was probably simply copied from French sources and then edited. And, of course, regardless of the tone, it does describe how most subjugated peoples behaved, along with their attitudes. There was no work ethic, particularly since hard work was associated with slaves and hegemonised tribes, but there wouldn’t have been anyway without valuable returns from work. The French just never saw that as a natural and proper response to conditions, but rather something calling for change to values they saw as absolutes.
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