The Starvation Brink, Victorian England, and the Santa Claus Principle
This post is one in a series entitled Posthumous Refutations. Previously in this series: Absolving with Faint Criticism: A Media and Real Estate Mogul Defends the Fed.
The Independent is propagating the "findings" of a two-year study conducted by two British socialist outfits, the Fabian Society, and the Webb Memorial Trust. Its article's headline reads "Britain faces return to Victorian levels of poverty", but the lead paragraph refers not to poverty but "Victorian levels of inequality".
This conflation of absolute with relative poverty reminds me of an encounter I had with Robert Reich in 2005. This was my reflection written back then:
I just attended a speech by Robert Reich, a very prominent pundit and Secretary of Labor under President Clinton. He opened by asking the audience to suppose he was a genie. As a genie, he could snap his fingers and automatically create a new world order in which there is more inequality of wealth, but everyone, even at the lowest level, is more wealthy than they otherwise would have been. He asked the audience if they would want the genie to bring that about. Being an audience in Berkeley, a very small minority (including myself) raised hands. This scenario, he argued, would be dangerous because people generally care more about their wealth in comparison with others than about their absolute level of wealth. So resentment over inequality would fester, and eventually would burst.
After his speech I went up to the stage to talk to him. I asked him to consider his genie scenario on a global scale. In the third world there are millions of people on the brink of starvation. For them, a change in their absolute level of wealth could be a matter of life and death. I asked him, "Isn't actual starvation in the third world more important than resentment over inequality in the first?" He responded that there are real ways that inequality can harm a person. Before he could continue, I asked, "Are they worse than starving?" Mr. Reich was uncharacteristically speechless, momentarily. Then, my friend who, unbeknownst to me had come up to the stage too, blurted out, "Well, yes, in some cases." Then some others in the crowd said some things, and instead of answering my question, Robert Reich said, "I'll let you guys argue it out," and moved on to other audience members.
I was extremely frustrated. Robert Reich is one of the most influential economic thinkers on the left. He's on National Public Radio every week, and he's regularly featured in the New York Times, the Wall Street Journal, and innumerable other publications. If economic policy drastically lurches to the left, it will largely be because of him and other thought-leaders, like NY Times columnist Paul Krugman. So, for him it's not necessarily an academic question. If he convinces enough people from his media pulpit, he could actually bring about a huge change. And the change he wants is to reduce absolute wealth for the sake of greater equality. Since absolute, not relative, poverty is a matter of life and death to millions of people, such a change would push a great many people off the starvation brink. Given the stakes involved, and given his position, Robert Reich should have had a ready answer to my question.
Of course, it is par for the course for British socialists to associate the Victorian era, one of the greatest floruits of man, and the Industrial Revolution that spawned it, with grinding poverty. Mises wrote of this tendency in Human Action, chapter 21, section 7.
It is generally asserted that the history of modern industrialism and especially the history of the British "Industrial Revolution" provide an empirical verification of the "realistic" or "institutional" doctrine and utterly explode the "abstract" dogmatism of the economists.
The economists flatly deny that labor unions and government prolabor legislation can and did lastingly benefit the whole class of wage earners and raise their standard of living. But the facts, say the anti-economists, have refuted these fallacies. The statesmen and legislators who enacted the factory acts displayed a better insight into reality than the economists. While laissez-faire philosophy, without pity and compassion, taught that the sufferings of the toiling masses are unavoidable, the common sense of laymen succeeded in quelling the worst excesses of profit-seeking business. The improvement in the conditions of the workers is entirely an achievement of governments and labor unions.
Such are the ideas permeating most of the historical studies dealing with the evolution of modern industrialism. The authors begin by sketching an idyllic image of conditions as they prevailed on the eve of the "Industrial Revolution." At that time, they tell us, things were, by and large, satisfactory. The peasants were happy. So also were the industrial workers under the domestic system. They worked in their own cottages and enjoyed a certain economic independence since they owned a garden plot and their tools. But then "the Industrial Revolution fell like a war or a plague" on these people. The factory system reduced the free worker to virtual slavery; it lowered his standard of living to the level of bare subsistence; in cramming women and children into the mills it destroyed family life and sapped the very foundations of society, morality, and public health. A small minority of ruthless exploiters had cleverly succeeded in imposing their yoke upon the immense majority.
Of course Mises goes on to obliterate this myth:
The truth is that economic conditions were highly unsatisfactory on the eve of the Industrial Revolution. The traditional social system was not elastic enough to provide for the needs of a rapidly increasing population. Neither farming nor the guilds had any use for the additional hands. Business was imbued with the inherited spirit of privilege and exclusive monopoly; its institutional foundations were licenses and the grant of a patent of monopoly; its philosophy was restriction and the prohibition of competition both domestic and foreign. The number of people for whom there was no room left in the rigid system of paternalism and government tutelage of business grew rapidly. They were virtually outcasts. The apathetic majority of these wretched people lived from the crumbs that fell from the tables of the established castes. In the harvest season they earned a trifle by occasional help on farms; for the rest they depended upon private charity and communal poor relief. (...)
The factory owners did not have the power to compel anybody to take a factory job. They could only hire people who were ready to work for the wages offered to them. Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation. (...)
The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses. The wage earners are no longer people toiling merely for other people's well-being. They themselves are the main consumers of the products the factories turn out. Big business depends upon mass consumption. There is, in present-day America, not a single branch of big business that would not cater to the needs of the masses. The very principle of capitalist entrepreneurship is to provide for the common man. In his capacity as consumer the common man is the sovereign whose buying or abstention from buying decides the fate of entrepreneurial activities. There is in the market economy no other means of acquiring and preserving wealth than by supplying the masses in the best and cheapest way with all the goods they ask for.
Blinded by their prejudices, many historians and writers have entirely failed to recognize this fundamental fact. As they see it, wage earners toil for the benefit of other people. They never raise the question who these "other" people are.
Historian Ralph Raico, in lecture 5 of his wonderful lecture series History: The Struggle for Liberty reveals just how the prevailing myths about the Industrial Revolution and the Victorian Era came about. I have transcribed the most relevant part:
"The earlier view had largely been based on the blue books collected by the House of Commons' commissions into the conditions of working people in the mid-19th century, and after that. These are called "blue books", and what was behind these commissions is of interest and importance. If you take England following the Napoleonic War of 1815: parliament is unreformed, there are heavy tariffs to the advantage of the land-owning nobility (they control all public offices), the Church of England bases its income largely on tithes extorted from non-believers (from Presbyterians and Baptists and Quakers and other; in other words you have a parasitic established church. Many other elements of the conservative control and domination of English society. (...)
There's a powerful liberal movement in England that threatens this domination. They threaten also, for instance, the slaves, owned by the absentee plantation owners, mainly English noblemen--the slaves in Jamaica and other places. They want to do away with slavery. They want a general reform of British society, and they're making a lot of noise. They're agitating public opinion.
And now the Tories, and the defenders of the establishment and the status quo come back with a counter-attack. They say, "You liberals, you great lovers of the oppressed. Don't you have your own oppressed? Aren't you yourself slave owners in a sense? What about the workers in your factories? Why don't we go in and investigate what's happening there?"
Parliamentary commissions were set up with the political aim of exposing the factory system at the base of the economic power of these liberals and these reformers. (...) Well, these parliamentary commissions in England issued their findings, and they are compendiums of horror stories, one after another about people working 16, 17, 18 hours, women working, children working as well. And it was on the basis (...) of these collections of these supposed data that the first interpretation of supposed histories of the Industrial Revolution were composed. Friedrich Engels, who of course was Marx's collaborator, wrote a book The Condition of the English Working Class in 1844. And the book is based on these parliamentary commissions. Other people who began lecturing and writing about the Industrial Revolution took the same tack. (...)
In the early 20th Century, better, more detailed, more comprehensive data begins to be collected, on wages, on availability of foodstuffs, on longevity (length of life) and so on, things begin to change. People don't have to depend on contaminated data. They can go to the sort of data historians can debate: more objective facts. And, moreover, new probing questions were asked, the sort of things that didn't occur to other writers, opening novel perspectives.
So you had a different and contrasting interpretation of the Industrial Revolution, beginning with J.H. Clapham, an older historian of the 20s and 30s, but especially in the 40s and 50s with T.S. Ashton, who's represented in Hayek's lecture Capitalism and the Historians, and more recently Max, as he's known, or R.M. Hartwell, of, well he's retired now, but of the University of Chicago and Oxford. Fundamentally what came out of this newer research is this: in fact, for most of the working people in Britain, the standard of living did not deteriorate, let alone collapse, but improved, slowly from around 1780 to 1850, and more rapidly thereafter.
But what is more pernicious than the study's wretched grasp on history is its policy prescription:
the report calls for sweeping reform of the tax and welfare systems under which higher earners would finance more generous, universal benefits. The £43,888-a-year ceiling on national insurance contributions (NICs) would be abolished, so people earning more would pay NICs at 11 per cent on all their income above that level, instead of the current 1 per cent.
Obviously, these people are not taking to heart Daniel Hannan's warning to Prime Minister Gordon Brown that "you cannot carry on for ever squeezing the productive bit of the economy in order to fund an unprecedented engorgement of the unproductive bit."
In Human Action, chapter 36, section 2, Mises referred to this unsustainable and ultimately suicidal approach to the economy as "the Santa Claus Principle".
The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.
In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets. In the field of industrial relations shortening the hours of work, raising wages, and a thousand other measures are recommended under the assumption that they favor the employee and burden the employer. Every issue of government and community affairs is dealt with exclusively from the point of view of this principle.
An illustrative example is provided by the methods applied in the operation of nationalized and municipalized enterprises. These enterprises very often result in financial failure; their accounts regularly show losses burdening the state or the city treasury. It is of no use to investigate whether the deficits are due to the notorious inefficiency of the public conduct of business enterprises or, at least partly, to the inadequacy of the prices at which the commodities or services are sold to the customers. What matters is the fact that the taxpayers must cover these deficits. The interventionists fully approve of this arrangement. (...)
It is not necessary to argue with the advocates of this deficit policy. It is obvious that recourse to this ability-to-pay principle depends on the existence of such incomes and fortunes as can still be taxed away. It can no longer be resorted to once these extra funds have been exhausted by taxes and other interventionist measures. (...)
The interventionist in advocating additional public expenditure is not aware of the fact that the funds available are limited. He does not realize that increasing expenditure in one department enjoins restricting it in other departments. In his opinion there is plenty of money available. The income and wealth of the rich can be freely tapped. (...)
From day to day it becomes more obvious that large-scale additions to the amount of public expenditure cannot be financed by "soaking the rich," but that the burden must be carried by the masses. The traditional tax policy of the age of interventionism, its glorified devices of progressive taxation and lavish spending have been carried to a point at which their absurdity can no longer be concealed. The notorious principle that, whereas private expenditures depend on the size of income available, public revenues must be regulated according to expenditures, refutes itself. Henceforth, governments will have to realize that one dollar cannot be spent twice, and that the various items of government expenditure are in conflict with one another. Every penny of additional government spending will have to be collected from precisely those people who hitherto have been intent upon shifting the main burden to other groups. Those anxious to get subsidies will themselves have to foot the bill. (...)
An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole system of interventionism collapses when this fountain is drained off: The Santa Claus principle liquidates itself.
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Comments (22)
Comments (22)
htran
Reich writes for HuffPost all the time. From reading his current stuff, you draw the conclusion that he still wouldn't be able to answer your question.
Published: November 30, 2009 9:24 PM
Savannah Liston
My question is, why was the population of Europe rapidly increasing? It seems to be a question of order, "what came first, the chicken or the egg?" Did the Industrial Revolution start, and because of the technology, people had more children, but then what would have been the problem with the status quo before the Industrial Revolution, if the population was not increasing yet? How is it explained and worked out? I am glad I read this article though, as that is one main argument people bring up, "look at the terrible working conditions caused by capitalism in the Industrial Revolution" and this piece has cleared up some misunderstandings that I had.
Published: November 30, 2009 10:41 PM
newson
i'm not at all convinced that socialism narrows the gulf between rich and poor at all; just that it impoverishes generally. the informal sector grows, idem for non-quantifiable benefits, but i don't think it delivers on equality. i think this premise is highly questionable, but commonplace.
castro is in the forbes rich list. and how poor is the poorest cuban? what's the ratio? and how could statistics be trusted from a totalitarian regime?
maybe the pictures should do the talking:
http://bit.ly/KB4cR
Published: November 30, 2009 10:53 PM
newson
my comment refers to reich's genie-thought-experiment.
Published: November 30, 2009 11:06 PM
Fallon
Lilburne,
You get serious cred for transcribing Raico. Nice job.
Published: November 30, 2009 11:27 PM
Arthur
Lilburne
Thanks for the article. Prof. Reich is ... (My mother told me not to say anything about someone if you can't say something good.) ... good at doublespeaking.
Savannah
Wikipedia has a great overview of the Industrial Revolution. There were many reasons for increasing population. Among them, lower infant mortality, increasing energy production, increasing food production, greater political stability, and a relatively rapid increase in gdp. But check the link. Oh, and as to your comment about " one main argument people bring up, "look at the terrible working conditions caused by capitalism during the industrial revolution", it is exactly the type of baseless inuendo use by reich and other enemies of truth and common sense. It highlights the need for us to become more informed and, thankfully, Mises.org is of great help.
http://en.wikipedia.org/wiki/Industrial_Revolution
Published: December 1, 2009 1:11 AM
Rafe Champion
Bill Hutt wrote a brilliant exposure of the lies that the historians told about the industrial revolution and especially the factories. The root of the evil was a report compiled by the notorious Sadler committee of 1832.
In Hutt's words "The report of this committee gives us a dreary picture of cruelty, misery, disease and deformity among the factory children, and this picture is generally accepted as authentic. The Hammonds refer to the report as “A classical document”. They continue: “It is one of the man sources of our knowledge of the conditions of factory life at the time. Its pages bring before the reader in the vivid form of dialogue the kind of life that was led by the victims of the new system." Hutchins and Harrison regard it as "one of the most valuable collections of evidence on industrial conditions that we possess." What do we know of this committee? Sadler was making desperate efforts to get his "Ten Hours' Bill" through Parliament. When it came up for second reading, the House decided that a committee should be set up to investigate the story of gross brutalities in the factories, which he had described at great length and with much eloquence. Sadler himself presided, and it was agreed, for reasons of economy and convenience, that he should call his witnesses first, after which the opponents of the bill should put their case. He exercised the greatest energy to get his case complete by the end of the session, and then, ignoring the demands of justice, he immediately published the evidence "and gave to the world such a mass of ex-parte statements, and of gross falsehoods and calumnies…as probably never before found their way into any public document." The question had, in fact, become a party question, and a balanced discussion was impossible.
See this link fpr Hutt's full account (or my url)
http://www.the-rathouse.com/Revivalist4/RC_FactorySystem.html
Published: December 1, 2009 4:22 AM
Kakugo
Excellent reading, thank you very much.
Published: December 1, 2009 5:39 AM
Marc Sheffner
"in Europe the Agricultural Revolution began before the Industrial Revolution. Because of this, Europe was able to increase its output of food and thus the supply of labor necessary for industrialization... In Europe the Agricultural Revolution which served to increase the supply of food began at least fifty years before the beginnings of the revolution in sanitation and medical services which decreased the number of deaths and thus increased the number of the population... When the population reached a point where Europe itself could no longer feed its own people (say about 1850), the outlying areas of the European and non-European worlds were so eager to be industrialized (or to obtain railroads) that Europe was able to obtain non-European food in exchange for European industrial products. This sequence of events was a very happy combination for Europe. But the sequence of events in the non-European world was quite different and much less happy. Not only did the non-European world get industrialization before it got the revolution in food production; it also got the revolution in sanitation and medical services before it got a sufficient increase in food to take care of the resulting increase in population." ("Tragedy and Hope", Quigley, Ch. 1).
Published: December 1, 2009 6:42 AM
P.M.Lawrence
"...the change he wants is to reduce absolute wealth for the sake of greater equality. Since absolute, not relative, poverty is a matter of life and death to millions of people, such a change would push a great many people off the starvation brink."
There is a bait and switch here. The first reference to absolute wealth is to the aggregate for everybody, and the second reference to absolute poverty is to the poverty level of individuals. Depending on the sizes of the changes, it would be quite possible to reduce absolute wealth for everybody in total by a small amount, but also to reduce inequality somewhat more in such a way that absolute poverty would be relieved for those near the edge at others' expense - it would only increase for those not near the edge, and not so much that they went over the edge. Rather than "push[ing] a great many people off the starvation brink", it would pull some back while moving others nearer but not over it. Of course, there are other things that are even better and more just - but the logic in that description is unsound.
Mises was setting up a straw man. Anybody who had studied it had indeed found that "...things were, by and large, satisfactory. The peasants were happy. So also were the industrial workers under the domestic system. They worked in their own cottages and enjoyed a certain economic independence since they owned a garden plot and their tools." - but those were not '...conditions as they prevailed on the eve of the "Industrial Revolution."', they were the conditions just before that, before 18th century developments in areas quite other than industrialisation. The real record, and the genuine students of that record, never did point to the Industrial Revolution as the cause - so, when Mises makes out that they did, that's a straw man.
But it gets worse. In knocking it down, he perversely fails to look into just what did make things deteriorate and instead comes up with a lot of nonsense that simply doesn't trace the causes. "The traditional social system was not elastic enough to provide for the needs of a rapidly increasing population. Neither farming nor the guilds had any use for the additional hands." and so on is like blaming a broken plate on "nobody was holding it, so it fell" - the actual cause is the dropping it that produced the "nobody was holding it".
In the same way, it is nonsense to think that "Low as these wage rates were, they were nonetheless much more than these paupers could earn in any other field open to them. It is a distortion of facts to say that the factories carried off the housewives from the nurseries and the kitchens and the children from their play. These women had nothing to cook with and to feed their children. These children were destitute and starving. Their only refuge was the factory. It saved them, in the strict sense of the term, from death by starvation."
Far from being a distortion of facts, all these actions suffered from the exact same flaw as sending foreign aid as money to poor countries in such a way that their own production is not raised - it just moves food from mouth to mouth (remember, with a few exceptions like sugar, food imports weren't available then). Every single person who was "saved" in this way bid up the price of food and made it that much less available, so creating one more who couldn't make ends meet. Industrialisation only helped overall in Britain after the 1846 Repeal of the Corn Laws, and even that only shifted the burden onto the poor on the continent of Europe for a generation or so until the wave of trade flowed through to food surplus countries in eastern Europe and North America. So there is absolutely no contradiction between the Industrial Revolution not helping the poor and "in fact, for most of the working people in Britain, the standard of living did not deteriorate, let alone collapse, but improved, slowly from around 1780 to 1850, and more rapidly thereafter" - that only describes the unrelated recovery from past damage, the gains to those to whose mouths the food was being moved (omitting the effects on those who lost the access to food), and the results of the later opening up of food imports (a free trade change which was carefully omitted, as though industrialisation itself had caused that improvement rather than trade).
Likewise "The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses" is absolute nonsense; it did no such thing. Certainly, that did eventually happen - but decades or even generations afterwards. The former no more opened the latter than (say) increased literacy did. Both were prerequisites that had to happen first and had already come about.
"...the absentee plantation owners, mainly English noblemen..." is also codswallop. They were mainly the descendants of aspirational members of the lower classes, and even though some of the wealthier ones had bought their way into the aristocracy, the aristocracy still despised them as upstarts. Read up about William Beckford sometime (yes, I know there was a scandal about him - but they despised his father too).
Savannah Liston asked 'My question is, why was the population of Europe rapidly increasing? It seems to be a question of order, "what came first, the chicken or the egg?"'
Actually, Mises was wrong about that, too. It was not rapidly increasing, compared to earlier rates of increase; however, it had reached new highs, highs that weren't sustainable once agricultural resources were transferred away from peasants without compensation (the first two thirds or so of the eighteenth century was a period in which the aristocracy aggrandised itself all over Europe, sometimes supporting and sometimes undermining the central government but always impoverishing the independent peasantry and artisans).
"Did the Industrial Revolution start, and because of the technology, people had more children, but then what would have been the problem with the status quo before the Industrial Revolution, if the population was not increasing yet? How is it explained and worked out?"
There was an earlier round of agricultural improvement, largely over by the last third of the eighteenth century, and sugar imports had made living cheaper in the towns (there's no such thing as empty calories when you are low on them - glucose tablets were the miracle drug rescued concentration camp survivors were given). The material Marc Sheffner cited covers part of the area, and also brings out some issues relevant to modern developing countries.
'I am glad I read this article though, as that is one main argument people bring up, "look at the terrible working conditions caused by capitalism in the Industrial Revolution" and this piece has cleared up some misunderstandings that I had'.
Unfortunately, you now have new misunderstandings. You shouldn't take my word for the truth of the matter either, but go and check the material and work through the reasoning for yourself. One near-contemporary piece you can look at is Benjamin Disraeli's novel Sybil; yes, it is fiction, but he had to make the background accurate as he wanted to send a message to readers about current conditions, and many could and would check for themselves (for instance, he shows that child miners were used, but only for light work that had to be done before heavier work could be, opening and closing the ventilation ducts).
Published: December 1, 2009 7:32 AM
Joshua
P.M.Lawrence: "Likewise "The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses" is absolute nonsense; it did no such thing."
So, who was buying the mass of finished goods the Industrial Revolution was mass producing if not the masses?
Published: December 1, 2009 8:59 AM
P.M.Lawrence
Joshua asks "So, who was buying the mass of finished goods the Industrial Revolution was mass producing if not the masses?"
One, the Industrial Revolution did not start by producing a mass of finished goods. For instance, mechanised spinning produced intermediate goods, yarn that was bought by the hand loom weavers (their business boomed for a generation, until they too were displaced by mechanised weaving). Similarly, steam engines were at first used for pumping mines, and so on. It was only quite late that industrialisation was cheap enough, and markets formed by individual consumers profitable enough, that its effects covered the whole length of the value chain.
Two, just as the author of this article used "absolute" wealth/poverty in two different senses (there, in aggregate and individually), that comment is using "mass" in several senses. A lot of the production was exported, e.g. sending cloth to India; different "masses" were producing and consuming.
It may be worth tracing the chain of exchange as it worked for getting food, before food imports were significant. Factory workers and miners were displaced peasants and/or their descendants; what they were mostly buying was not each others' production but food and accommodation (via rent). That money worked its way back to landlords, who got it by selling them food and/or lodging; it was mostly that money in landlords' hands that had to circulate back to the workers to close the cycle. That means, industrial products - final ones, not intermediate ones - mostly had to go to the wealthy rentiers and the wage earning servant classes dependent on them to close the loop. (Of course, the situation never quite settled into a steady state like that, and a lot went via saving and new investment into further development that eventually changed the whole pattern.)
Published: December 1, 2009 9:33 AM
J. Grayson Lilburne
Mr. Lawrence,
Regarding:
There is no bait and switch. I was talking about the absolute wealth of individuals from the beginning, not statistical averages. Remember that in Reich's genie scenario:
"everyONE", as in every individual.
(Emphasis added above) No True Scotsman fallacy.
If it is a regular occurrence in present times, that people generally catch the plate before it strikes the ground, and it happened to be that in the past people were not catching the plate, there is nothing wrong with noting the difference, and analyzing the difference.
I'll get to the rest of your comment when I have time later today or tonight.
Published: December 1, 2009 9:57 AM
fundamentalist
PM, My reading of the same history from other sources says that Mises was right and you are way off base. But that only highlights the danger of trying to prove anything from history. History is such a vast pool of data that anyone can find evidence for any crackpot theory in the pool. Therefore, as Hayek and Mises understood, the only way to make sense of history is to approach it with a sound theory of economics.
Published: December 1, 2009 9:57 AM
bob
Usually I think leftists are brainwashed to believe the completely baseless fallacy that "the rich get richer while the poor get poorer under capitalism".
Apparently, the more fundamental problem for the left is that the rich get richer, independent of what happens to anyone else. This just reaffirms Hazlitt's summation of Marxism.
Published: December 1, 2009 2:12 PM
J. Grayson Lilburne
Mr. Lawrence,
Regarding:
Your analysis is fundamentally flawed. Let's consider your contention with process analysis. Let's say one peasant has two fields open to him. He could either continue farming, or he could work in a factory. Let's say he decides to work in the factory. He wouldn't have done so, unless he deemed the proceeds from factory work as greater than the proceeds from farming. Men that close to bare subsistence as a rule value greater access to foodstuffs over almost every other consideration, so such a man would not have taken the factory job, unless the factory job enabled him to feed himself and his family better. Now does his family's increased consumption of foodstuffs contribute toward the bidding up of food prices? Sure. But does the "bidding up" effect of a single family completely negate the increased food-purchasing power that does the bidding up? No, that would be ridiculous. If that were true, then no increases in individual wealth would ever do any good.
Now let's say a second peasant is making the same basic decision as the first peasant. The nominal wages of the factory job for the second peasant are the exact same. But the real wages are perhaps a tiny, tiny bit different, because they have reduced purchasing power, due to the tiny, tiny bidding up of food prices by the first peasant. But then the removal of the first peasant from the farming sector also has its effects. The miniscule decrease in domestic food production would itself have its own miniscule increase in food prices. And the factors of production involved in farming would be a tiny, tiny bit cheaper. Both of these effects would make the move from farming to industry a little less attractive for the second peasant than for the first. But, if the situation is analogous at all to the situation in industrial Britain, the real wages of the factory job would still be higher than that of farm work, so the second peasant would still take the job. His own increased consumption of foodstuffs might also contribute a tiny, tiny bit toward the bidding up of food prices, but again NOT to the extent as it completely negates his increase in real wages.
Then a third peasant makes the same basic choice, and then a fourth, and then a fifth. This process might continue until the price of food is bid up high enough, and the factors of production for farming reduced enough, that a limit would be reached, and no more peasants would make the change. But the former peasants who are now working in a factory STILL have higher wages than they would have in farming, or else they would shift back to farming.
Plus we must remember that increased demand stimulates increased supply. Even under the corn laws (and even ignoring smuggling), an increase in the price of food will stimulate more domestic food production.
And we must consider the products of these new industries. The bounty of mass-produced articles that flowed out of the factories were by and large things that people needed anyway, but could now be had in exchange for the expenditure of fewer resources. These saved resources could then be allocated to other previously unfulfilled ends. Thus society truly is enriched.
Published: December 1, 2009 2:13 PM
Jardinero1
I have a problem with Reich's statement: "people generally care more about their wealth in comparison with others than about their absolute level of wealth. So resentment over inequality would fester, and eventually would burst."
While it might be correct that some people compare themselves to others; it is wholly incorrect to think that individuals have any real way of knowing what their relative wealth was. Just because my neighbor has a larger house than me doesn't mean he has more wealth than me. When a Rolls Royce passes me in my Honda, I have no idea whether the driver is 10 times or 100 times wealthier than I. There is no way to know, short of comparing balance sheets. Most people, even if they are poor, don't think they are poor. Most people, even if they are rich, don't think they are rich. The only way for resentment to build would be if some third party stoked it resentment.
Published: December 1, 2009 5:42 PM
newson
pm lawrence says:
"Likewise "The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses" is absolute nonsense; it did no such thing. Certainly, that did eventually happen - but decades or even generations afterwards."
well, if it eventually did happen, then why should it not be said that the industrial revolution opened [ushered in, started] a new age? what happened to the "absolute nonsense" between the "opening" and the "eventually"?
Published: December 1, 2009 5:48 PM
newson
socialism doesn't alleviate envy. it foments it.
jardinero still could go from the honda to the rolls through honest endeavours.
going from a lada to a zil in the workers' paradise meant getting some serious blood on the hands.
Published: December 1, 2009 6:19 PM
newson
to rafe champion:
thanks for the essay.
Published: December 1, 2009 6:21 PM
newson
for more of rafe's good work on hutt:
http://bit.ly/8v19u1
Published: December 1, 2009 8:12 PM
P.M.Lawrence
Lilburne wrote 'Regarding: "There is a bait and switch here. The first reference to absolute wealth is to the aggregate for everybody, and the second reference to absolute poverty is to the poverty level of individuals." There is no bait and switch. I was talking about the absolute wealth of individuals from the beginning, not statistical averages... "everyone, even at the lowest level, is more wealthy than they otherwise would have been."... "everyONE", as in every individual.'
That may well have been the intent; I should perhaps have written "a no doubt inadvertent bait and switch". For the fact remains that "...the change he [Reich] wants is to reduce absolute wealth for the sake of greater equality" is not a description of the absolute wealth of each individual; this may well have been an omission, but an omission it was. In context, it only makes sense as a description of the aggregate - precisely because making each person worse off is no necessary part of increasing equality, which was Reich's stated aim, and to read that into him is to go beyond what is justified by the material - a straw man.
Lilburne quotes me, "The real record, and the GENUINE STUDENTS of that record, never did point to the Industrial Revolution as the cause - so, when Mises makes out that they did, that's a straw man", and adds "(Emphasis added above) No True Scotsman fallacy".
I can see how you might jump to that conclusion, from interpolating something I did not put. I did not assert that people who did point to the Industrial Revolution as the cause (of the hardships) were therefore not genuine students of that record. I asserted that, if you (separately) found genuine students of that record you would notice that they do not identify the Industrial Revolution as the cause of the hardships and the ending of the earlier, better conditions, e.g. those who contributed to that wikipedia article wrote "The Enclosure movement and the British Agricultural Revolution made food production more efficient and less labour-intensive, forcing the surplus population who could no longer find employment in agriculture into cottage industry, for example weaving, and in the longer term into the cities and the newly developed factories" - notice which they identify as the cause and which the effect. So, in simply claiming that unspecified "authors" of "most of the historical studies dealing with the evolution of modern industrialism" claim that, Mises was indeed setting up a straw man; in pointing to the genuine record and its genuine students, I merely wished to pre-empt anyone turning up some crank as a specific example, a crank that I would have to show up individually and who might be followed with yet another, and so on. But I did not and do not suggest that you can ever identify the sound data by seeing if it fits the conclusion.
In response to my '...like blaming a broken plate on "nobody was holding it, so it fell" - the actual cause is the dropping it that produced the "nobody was holding it"', he writes "If it is a regular occurrence in present times, that people generally catch the plate before it strikes the ground, and it happened to be that in the past people were not catching the plate, there is nothing wrong with noting the difference, and analyzing the difference".
But this is a complete digression and inversion. I was pointing out that Mises did not conduct any deeper analysis, merely noting "The traditional social system was not elastic enough to provide for the needs of a rapidly increasing population. Neither farming nor the guilds had any use for the additional hands." as though it was not only all there was to be said on the matter but also completely accurate (it isn't, in some points of detail which may or may not be material, some of which - like "rapidly increasing" - I have already addressed). In particular, it is an open question whether it might have been sufficiently elastic on a generational time scale after all, i.e. that it might have proved self limiting with declining evictions of subsistence farmers, if cash rents for cash crop growers had fallen off for want of food purchasers. It's an open question because we do not have sufficiently good natural experiments providing comparisons with other times and places to decide the point either way.
Fundamentalist wrote "My reading of the same history from other sources says that Mises was right and you are way off base. But that only highlights the danger of trying to prove anything from history. History is such a vast pool of data that anyone can find evidence for any crackpot theory in the pool. Therefore, as Hayek and Mises understood, the only way to make sense of history is to approach it with a sound theory of economics."
On the one hand, feel free to share this - in particular, with such sites as the wikipedia article I just mentioned as well as here. On the other, with that suggested approach you run the risk of falling into just such a selectivity as Lilburne suspected me of, with that "no true Scotsman" crack. Actually, you should filter out the crackpots separately, and try more than one theory out on the data to see which fit best (I only presented the results there, not all the underlying background and discussion).
Lilburne wrote of my 'Every single person who was "saved" in this way bid up the price of food and made it that much less available, so creating one more who couldn't make ends meet', 'Your analysis is fundamentally flawed. Let's consider your contention with process analysis. Let's say one peasant has two fields open to him. He could either continue farming, or he could work in a factory. Let's say he decides to work in the factory. He wouldn't have done so, unless he deemed the proceeds from factory work as greater than the proceeds from farming. Men that close to bare subsistence as a rule value greater access to foodstuffs over almost every other consideration, so such a man would not have taken the factory job, unless the factory job enabled him to feed himself and his family better. Now does his family's increased consumption of foodstuffs contribute toward the bidding up of food prices? Sure. But does the "bidding up" effect of a single family completely negate the increased food-purchasing power that does the bidding up? No, that would be ridiculous. If that were true, then no increases in individual wealth would ever do any good.'
There are many flawed assumptions in this, that mean it does not match typical historical cases (from pre-industrial 18th century England and a bit later). For one thing, that farmer did not have any such choice before him at all. First he had his separate subsistence resources withdrawn by enclosures, so he had to earn all his living from leased land (he wasn't the owner). Then, the landlord evicted every other tenant (or so), consolidating the holdings and raising the farm income (net after living costs) available for rent.
Now consider the displaced farmer. He is not "enabled... to feed himself and his family better", and there is no "increased consumption of foodstuffs", but even if there were, in the circumstances of that time and place there really was no (short and medium term) effect on food availability, because imports were not possible and the available land productivity gains had already been made just before (which is why Malthus's scenario seemed so plausibly imminent to his contemporaries). Longer term, of course, imports and then artificial fertilisers changed that; but we were not discussing that time and place. So your inference of a reductio ad absurdum does not apply - though it would if I had foolishly tried to draw a general conclusion of universal applicability, one that would from its generality have to cover your inapposite thought experiment to be valid.
"Now let's say a second peasant is making the same basic decision as the first peasant. The nominal wages of the factory job for the second peasant are the exact same. But the real wages are perhaps a tiny, tiny bit different, because they have reduced purchasing power, due to the tiny, tiny bidding up of food prices by the first peasant. But then the removal of the first peasant from the farming sector also has its effects. The miniscule [sic] decrease in domestic food production would itself have its own miniscule [sic] increase in food prices. And the factors of production involved in farming would be a tiny, tiny bit cheaper. Both of these effects would make the move from farming to industry a little less attractive for the second peasant than for the first. But, if the situation is analogous at all to the situation in industrial Britain, the real wages of the factory job would still be higher than that of farm work, so the second peasant would still take the job. His own increased consumption of foodstuffs might also contribute a tiny, tiny bit toward the bidding up of food prices, but again NOT to the extent as it completely negates his increase in real wages."
Again, this simply does not fit what actually happened - enclosures and evictions.
"...But the former peasants who are now working in a factory STILL have higher wages than they would have in farming, or else they would shift back to farming".
Beep. No, and this for two reasons: in the time and place we were covering, this was not open to them; and, for a later generation, not only had things improved enough to be somewhat more like what you describe but also that later generation no longer had the skill set to transfer back readily (though, in fact, some did, what with land reforms and emigration opportunities).
You seem to be assuming a free market, which was not in fact the case.
"Plus we must remember that increased demand stimulates increased supply. Even under the corn laws (and even ignoring smuggling), an increase in the price of food will stimulate more domestic food production."
That happens not to be the case, when you are up against the physical limits - as they were, with immaterial exceptions.
"And we must consider the products of these new industries. The bounty of mass-produced articles that flowed out of the factories were by and large things that people needed anyway, but could now be had in exchange for the expenditure of fewer resources. These saved resources could then be allocated to other previously unfulfilled ends. Thus society truly is enriched."
Oh, tosh. One, I already pointed out just what flowed out and who got it - and it mostly wasn't those people (although, as Disraeli's Sybil shows, the younger generation who followed them did indeed get some). Two, think Maslow's hierarchy of needs. Being able to have a shiny new waistcoat didn't put food on the table - and that is no mere figure of speech, because before the Truck Acts stopped it that sort of thing was often offered as pay to people who needed food or the wherewithal to buy it far more. That isn't even "let them eat cake".
Newson asked of my 'Likewise "The outstanding fact about the Industrial Revolution is that it opened an age of mass production for the needs of the masses" is absolute nonsense; it did no such thing. Certainly, that did eventually happen - but decades or even generations afterwards.", 'well, if it eventually did happen, then why should it not be said that the industrial revolution opened [ushered in, started] a new age? what happened to the "absolute nonsense" between the "opening" and the "eventually"?'
It did open a new age; only, not an age of mass production for the needs of the masses. That came later. Since it actually achieved a different new age - one in which the masses did not share in that way, even though it was one of many necessary prior steps for that - it is nonsense to make out that it did.
Published: December 4, 2009 7:01 AM