Right Reason

Economic's Cosmopolitan Scope

 

All too frequently, economics is demonized of as a discipline that legitimates greed and other nefarious aspects of human nature. Not too long ago Evonomics published an article that claimed that the salient feature of studying economists is that it makes its students greedy. One needn't search to hard on the internet to see similar opinions. 

Whatever may be the truth of the claim, there is another salient feature of economics: It takes everybody into consideration. Economics generally doesn't care if one is rich or poor, American or Chinese, gay or straight. The opportunity costs of a policy or action remain constant. Economics therefore teaches its students to think in a cosmopolitan manner, to take into account costs and benefits for all, rather than to a privileged sect.

Currently, political discussions of trade revolve around the benefit of a privileged sect: Americans. The student of economics can utter the defense of trade that no one else will mutter: That trade leads to overwhelming benefits to all, not just within America, but across the globe. Jordan Weissman makes such a case in "Bernie Sanders is the developing world's worst nightmare":

It is one thing to argue that we should not do business with nations that actively manage or manipulate their currencies, as Sanders sometimes does, since exchange rates are supposed to be the market's main mechanism for balancing trade. It's also entirely reasonable to support workers' rights to unionize abroad or push for stricter environmental protections. Indentured servitude and slavery, which are more widespread than many realize, need to be wiped off the face of the earth. Those are all issues that trade pacts should absolutely address.

But a blanket rule against trade with low-wage nations is different. The entire point of trade is that countries have to play to their strengths, which makes the entire global economy more efficient. If you happen to have a highly educated population, thriving capital markets, and lots of high-tech expertise—like the United States or Germany—you're going to export high-end services like banking and advanced manufactured goods like cars and airlines to the rest of the world. On the other hand, if your only advantage is an abundant pool of relatively unskilled labor willing to work 65 cents an hour, then you can probably carve out a niche in textiles and electronics assembly, then gradually build know-how and work up to something more lucrative. But if the United States comes along and says, "Sorry, Vietnam, we're not going to buy another T-shirt unless your people start earning $5 or $7 an hour," factory workers in Hanoi aren't suddenly going to get a raise. Factories are going to close, and businesses will move their operations to a country where employees are productive enough to justify developed-world wages—which typically means the developed world. The U.S. will have just undercut Vietnam's only relative strength.

If Bernie Sanders were to single out, say, American gays and lesbians as a class that could justly be burdened with the costs of a policy, he would be branded as a bigot. But because he claims that dreadfully poor non-American workers can suffer the overwhelming costs of American trade policy, he is a hero of the working class. 

When Removing Government Requires Government

 

Whatever you think of them, reform happens at the margins of politics.

 

Free trade has always been a tenet of libertarianism. After all, the unimpeded movement of goods across borders may be a paradigmatic example of the libertarian maxim of ‘Anything peaceful.’ It is then with trepidation that many libertarians have looked on at the debate surrounding free trade today. For them, the Trans-Pacific Partnership doesn’t look anything like free trade. Instead, it looks like just another arrangement between governments bestowing benefits upon their favored cronies at the expense of the rest of society. Yet, for whatever its controversy, if it is passed, the Trans-Pacific Partnership would be America’s largest trade agreement in effect and would thereby represent a marginal liberalization of trade across the region.

 

The Trans-Pacific Partnership, then, is an example for a central irony to libertarianism: Although libertarianism advocates anything peaceful, it is often in need for politicians to advance its agenda. Very frequently the very act of de-governmentalization itself requires government. What a government erects can very often only be demolished by a government. Although, many new technologies have and will emerge that can disrupt regulations and thereby increase the overall liberty of society by creating a space that has yet to be interpreted with, such disruption isn’t always possible. In the case of trade, new technologies may make certain tariffs and quotas irrelevant to the lives of consumers, many more will remain and, in some way, harm consumers.

 

No Uber-like company will emerge that can allow American consumers to find a way around the United States’ protection of domestic sugar producers. Doing that would require government. However iron-clad the arguments for free trade may be, to actually get free trade requires a government eliminating its own obstructions, just as the peaceful enjoyment of alcohol required it to repeal the Eighteenth Amendment. Bargaining, interviews, negotiations and speeches are all necessary parts of the process. Without political acumen, trade reform would go nowhere. Free trade needs crafty politicians who are aware of when the political stars align and who can seize the initiative to advance liberty-enhancing reforms at the margins.

 

Libertarians worry about whether the Trans-Pacific Partnership would advance crony capitalism, not free markets. Cronies have certainly taken an interest in the treaty. That much is indisputable. As The Guardian reports, for ever ‘yea’ vote tallied in the Senate to give the White House fast-track authority, the US Business Coalition for TPP gave an average of $17,676.48 to it. That negotiations of the Trans-Pacific Partnership is being kept secret, contrary to standard operating protocol, only compounds those suspicions.

 

Although President Obama has said that there is nothing to worry about with the secret negotiations, certainly the president is not unaware of how ironic it is for him to assert that while still keeping the supposedly innocuous records out of the public eye. The old quip, quis custodiet ipsos custodes, looms large. Combined with the amount of money that businesses have spent, the secrecy surrounding the Trans-Pacific Partnership is bound to pique the suspicion of many libertarians. Those opponents of the Trans-Pacific Partnership are, then, right enough since there certainly is plenty of crony capitalism in the Trans-Pacific Partnership.

 

Nevertheless, a sober assessment of the treaty and particularly its impact at the political margins of liberty should inform us that these are acceptable costs to a policy that will lead to an improvement of the overall liberty of all involved. It’s true that the Trans-Pacific Partnership wouldn’t lead to a system of perfectly free trade and, in doing so, would plenty of room for each nation’s particular cronies to prosper. But we don’t live in a world where such a system of perfectly free trade is attainable. We live in a world where the treaty is on;y an improvement at the margins and where those improvements are going to have to be made in a way that placates each nation’s many cronies. The Trans-Pacific Partnership promises just that: marginally freer trade, with all the benefits that marginally freer trade would have. The Brookings Institute estimates that the global gains that marginally freer trade would be in the vicinity of at around $295 billion each year.

 

By being self-aware that any liberalization of trade would require government action, libertarians can be very open about the costs of the treaty while at the same time confident that it will have a beneficial overall effect. To remove the barriers to trade that exist across the Pacific requires an act of government. That alone would introduce some cronyism to the reform. Worse, it requires an act of many governments, all with their own particular faults. Nevertheless, that any progress towards liberalization in trade is possible is itself a miracle. A miracle that is only possible because of crafty politicians in government today. It’s not everyday that their actions would have a liberty-enhancing outcome and so the opportunity shouldn’t be squandered by comparing our imperfect world to a libertarian utopia.

 

Overall, the Trans-Pacific Partnership reveals an irony in any hope of libertarian reform today: However much libertarians may properly distrust politicians, free-trade reform will only happen if the politicians in power are able to negotiate the restraints away. On this issue, the cause of liberty, therefore, is in the precarious and inextricable position of relying on government to remove government. Maybe they shouldn’t stop worrying, but libertarians should start to give the Trans-Pacific Partnership the modest love it deserves.

Amour-Propre: Free to Choose?

 

The good man is an Athlete who delights in fighting naked: He despises all those vile ornaments which would hinder his use of his strength, and most of which were invited only to conceal some deformity.

-Jean-Jacques Rousseau, Discourse on the Arts and Sciences

 

 

Despite his influence on the generations that followed him, Jean-Jacques Rousseau had little interest in battling his contemporaries who disagreed with his ideas. Whether it was the Frenchman Voltaire or the Scotsman David Hume, few contemporary readers sympathized with Rousseau’s ideas. Immanuel Kant, whose sole painting in his spartan home was one of Rousseau, was almost unique in that regard. Rousseau, though, didn’t much care for that lack of appreciation. 

“The majority of my Readers,” he wrote in The Preface of a Second Letter to Bordes “must often have found my discourses poorly structured and almost entirely disjointed, for want of perceiving the trunk of which I showed them only the branches” (OC III: 106). Unlike the vast majority of writers who decry commentators not getting the main thrust of their words, Rousseau has a point. A brilliant rhetorician, Rousseau is, all too often able to rouse the sentiments towards whatever end he wants—it was the singular compliment paid to him by Adam Smith in the pages of the Edinburgh Review—yet the end result of such elocution is all too often the precise line of the argument getting away from Rousseau. But the arguments are certainly there and, for those who care about Rousseau’s influence, worth piecing together.  

 

One of the main trunks of Rousseau’s thought that is manifest from the very beginning, in The Discourse on the Sciences, is the notion that society does genuine damage to our human nature by fettering our free will. That man is free is close to a tautology for Rousseau. Insofar, as someone is not free to choose, Rousseau would argue, he is less of a human being. 

The natural state of man was suited to  “that original freedom for which he seems to be born” (OC III: 7), but such a state cannot last long with the cultivation of society and the demands of social existence:

Need raised up Thrones; the Sciences and Arts have made them strong. Earthly powers, love talents and protect those who cultivate them! Civilized peoples, cultivate them: Happy slaves, you owe them the delicate and refined taste on which you pride yourselves; the sweet character and urbane morals which make for such engaging and easy relations among you; in a word, the appearances of all the virtues without having a single one. (Ibid)

 Once civilized, Rousseau argued, man cannot be entirely who he really is; rather, he shall always be a puppet to forces beyond his will, be they market forces or monarchical edicts. In a natural state, “men found their security in how easily they saw through one another” (OC III: 8), but that is not so in a refined society. Virtue is therefore foreign to civilized man because he never lives his life by his own free will. Civilized man will always have to appear to be different things to different people. It wouldn’t be until The Social Contract that Rousseau would proclaim that man was born free, but everywhere in chains; nevertheless, the idea that civilized society puts man in such a state of serviitude is clearly present to his thought as early as The Discourse on the Arts and Sciences.

 

In that discourse, Rousseau tackles the question: “Has the restoration of the Sciences and Arts contributed to the purification of Morals, or to their corruption?” (OC III: 5). For Rousseau, that there has been a decay in the virtue of the human race is obvious and he sees the cause as being in the advancement of the arts and sciences: “Where there is no effect, no cause need be sought: but here the effect is certain, the depravation real, and our souls have become corrupted in proportion as our Sciences and our Arts have advanced toward perfection” (OC III: 9). Amour-propre, that part of our esteem which depends on the approval of others, is principally to blame for the corruption of human souls. “Every Artist wants to be applauded. His contemporaries’ praise is the most precious portion of his reward” (OC III: 21). 

With the refinement of society, people are ever more vulnerable to the arousal of their amour-propre. Life becomes ever less about our own self-love—our amour de soi as Rousseau calls it—as it becomes about people appeasing their vain appetite for praise. No longer do people look to themselves and their own virtue and for their meaning. Now they look to the approval of their fellow herd:

Before Art had fashioned our manners and taught our passions to speak in ready-made terms, our morals were rustic but natural; and differences in conduct conveyed differences of character at first glance. Human nature was, at bottom, no better; but men found their security in how easily they saw through one another, and this advantage, to the value of which we are no longer sensible spared them a good many vices. (OC III: 8)

When we consider that this theme will motivate Rousseau’s writing through The Discourse on Inequality to The Social Contract, just how well-developed the theme that civilization dehumanizes its constituents by supplying them with ready-made roles, whether those roles be as senators, fathers, farmers, merchants, men, priests, women et cetera, is so early in the The Discourse on the Arts and Sciences is shocking. 

Once society, along with the arts and sciences, has advanced, that civilized man has to deal with the demands put on him by social existence. “One no longer dares to appear what one is; and under this perpetual constraint, the men who make up the hard that is called society will, when placed in similar circumstances, all act in similar ways unless more powerful motives incline them differently” (OC III: 8). In a very real way, then, amour-proper binds us to society and to becoming one with the herd. If it weren’t for the society around us, then we would free to pursue virtue and would be free to fully be ourselves. 

Rousseau therefore argues that, outside of man’s natural state, people are not free to choose. Amour-propre enslaves us. Rousseau makes a none too subtle reference to the arts and sciences as the fetters of men in the first part of The Discourse on the Arts and Sciences: “While the Government and the Laws see to the safety and the well-being of men assembled, the Sciences, Letters, and Arts, less despotic and perhaps more powerful, spread garlands of flowers over the iron chains with which they are laden…” (OC III: 6-7; italics added). Here we see the corruption of the notion of corruption that has affected modern academia, but I get ahead of myself here. 

 

Society corrupts the human soul because it reduces its scope of free will. In the context of society, people are free to be themselves; rather, they have to be what they need to be to get by. They become cogs in a greater machine; rather than seeing Jacques the free agent, we see Jacques the accountant. To the eyes of someone else in a refined society Jacques is less an end in and of himself as he is a means towards their own ends. The demands of social cooperation can therefore be seen in the light of The Discourse on the Arts and Sciences as dehumanizing. As Rousseau laments: “The ancient politicians forever spoke of morals and of virtue; ours speak only of commerce and of money” (OC III: 19)

Rousseau’s celebration of natural man makes sense in the context of his views on amour-propre. Natural man knows little of amour-propre. He knows not the applause of the a greater society; instead, only knows of himself as the sole spectator to his behavior. He is mainly motivated by self-love, by amour de soi, which inclines him towards both to self-preservation and, when augmented by reason, to virtue. For natural man, since each man follows the beat of his own drum, “differences in conduct conveyed differences of character at first glance” (OC III: 8). 

 

The theme that amour de soi is identified with natural man and with the development of virtue will be made more apparent in Rousseau’s later, more political, works, yet it’s still manifest in The Discourse on the Arts and Sciences. Natural man in his natural society, people get their just deserts. But in a refined society, “Rewards are lavished upon wits, and virtue remains without honors” (OC III: 25), which leads to Rousseau becoming one of the leading critics of the refined society. Back to nature! Exorcise amour-propre and return to rustic virtue, which doesn’t rely on the approbation of those around us.   

In the end, amour-propre is one of the main trunks of Jean-Jacques Rousseau’s thought that unites his entire corpus into an intelligible whole. Once human beings started to congregate in society, amour-propre fettered people to predetermined roles and thereby alienated people from their humanity, “that original freedom for which they seemed born” (OC III: 7). Insofar as the sciences provided opportunities for amour-proper to be our primary motivation, the sciences corrupt our humanity for that man is a free agent is pretty much a tautology for Rousseau. Amour-propre chains us to the opinions of others. It puts us in positions where we are not free to choose. 

Turning to contemporary politics, a lot of radical left’s curious positions, especially among college radicals, about society can be understood as them taking the view that amour-propre is coercive. Insofar as we don’t give somebody the respect they think they deserve, whether they’re a member of the LGBT community or a Muslim, then we are coercing them to follow another path in life. It doesn’t take much of an intellectual lead to go from here to the talk of micro-aggressions polluting campuses today. The pursuit of virtue in Rousseau’s thought can be identified as the pursuit of self-expression mindlessly praised in college campuses across the nation. 

The idea that amour-propre drives us to abandon our own self-expression and to adopt a false courtesy to others is a trunk of Rousseau’s thought that deserves attention, if only for the damage it has done to a proper understanding of coercion. In The Fatal Conceit, Friedrich Hayek targeted Rousseau in particular for corrupting the notion of coercion:

It was Rousseau who—declaring in the opening statement of The Social Contract that `man was born free, and he is everywhere in chains', and wanting to free men from all `artificial' restraints—made what had been called the savage the virtual hero of progressive intellectuals, urged people to shake off the very restraints to which they owed their productivity and numbers, and produced a conception of liberty that became the greatest obstacle to its attainment.

When a lefty shrill decries the patriarchy’s coercion, she is apart of an illiberal tradition with roots in Rousseau’s Discourse on the Sciences in identifying the demands of living socially with coercion. Rousseau isn’t an advocate of a free and open society where one can do as one pleases within the rule of law; rather, he is an advocate of a society where one can never be exactly free to make one’s own identity. 

The Commercial Society Contradicts Our Instincts

 

In "The trouble is that free trade is just feels wrong", Daniel Hannan discusses how human beings are biased against free trade. However sound the free-trade argument may be, the cause of protectionism is still alive and well over a hundred years after The Wealth of Nations. Mr. Hannan correctly identifies our social instincts as one of the main culprits behind that tragedy of policy which continues to impoverish the world:

(Free trade is) a missed opportunity from the United Kingdom’s point of view. Outside the EU, we’d have negotiated a properly open bilateral deal with the United States years ago. As members, we’re obliged to uphold a relatively protectionist EU commercial policy for the sake of French film-makers, Italian textile manufacturers, Bavarian smallholders and so on.

Still, we are where we are. A key task for Conservative MEPs over the next six months will be to try to convince others that free trade benefits all participants. For once, the word “convince” may be apt. Politicians rarely change their minds (as opposed to changing their policies, which they do frequently). Trade, unusually, is an example of an issue where intelligent people, shown the evidence, often do shift their view.

The reason is that free trade is literally counterintuitive. It seems to violate so many ideas that feel right. How can it be better to fly stuff half way around the world than to produce it locally? How can it be right to rely on one sector instead of encouraging the growth of a balanced economy? Doesn’t it make sense to shield infant industries from competition until they’re strong enough to go it alone? Shouldn’t we aim to be self-sufficient in basics, such as food?

All these ideas appeal to minds evolved on the savannahs of Pleistocene Africa. Our brains are designed to make short-cuts, to go with hunches. But the hunches that served well enough for hunter-gatherers programmed to hoard against famine are often irrational. (I try to address the food security issue, for example, in this blog).

Just as we can understand that an optical illusion isn’t what it seems, so we see through false intuitions (of which, indeed, optical illusions are a sub-category). A good example is the question of comparative advantage, perhaps the single most counter-intuitive notion in the whole of economics. If Country A is more efficient than Country B in every respect, we can see why Country A stands to gain from free commerce between the two. But surely, we assume, Country A’s gain will be Country B’s loss? Country B’s industries will be overwhelmed by cheaper competition, its workers thrown onto the streets. Won’t they?

 

The unavoidable conclusion is that human nature has a bias against the liberal civilization. Friedrich Hayek addressed this idea, which I think deserves a lot more attention than it has hitherto recieved, in The Fatal Conceit: 

(M)an's insticts, which were fully developed long before Aristotle's time, were not made for the kinds of surroundings, and for the numbers, in which he now lives. They were adapted to life in the small roving bands or troops in which the human race and its immediate ancestors evolved during the few milion years while the biological constitution of homo sapiens was still being formed. These genetically inherited instincts served to steer the cooperation of the members of the troop, a cooperation that was, necessarily, a narrowly circumscribed interaction of fellows known to and trusted by one another. These primitive people were guided by concrete, commonly perceived aims, and by a similar perception of the dangers and opporunities - chiefly sources of food and shelter - of their environment (Hayek 1988, 11-12).

Part of our present difficult is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilization), as our sentiments and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once (Ibid, 18). 

The Democracy of the Market

 

 

The capitalistic market economy is a democracy in which every penny constitutes a vote. The wealth of the successful businessman is a result of a consumer plebiscite. Wealth, once acquired, can be preserved only by those who keep on earning it anew by satisfying the wishes of consumers.

-Ludwig von Mises, The Causes of the Economic Crisis

John Maynard Keynes: Advocate of Crony Capitalism?

 

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed.

- Dwight D. Eisenhower, "A Chance for Peace"

 

As the clouds grew darker over Europe following Germany's invasion of Czechloslovakia in March of 1939, John Maynard Keynes took to the radio to argue that the return of tensions between Germany and Britain brought with it a silver lining: Expenditures on arms would contribute to aggregate demand which might alleviate problems of unemployment in Britain:

It is not an exaggeration to say that the end of abnormal unemployment is in sight. And it isn’t only the unemployed who will feel the difference. A great number besides will be taking home better money each week. And with the demand for efficient labor outrunning the supply, how much more comfortable and secure everyone will feel in his job. The Grand Experiment has begun. If it works–if expenditure on armaments really does cure unemployment–I predict that we shall never go back all the way to the old state of affairs. Good may come out of evil. We may learn a trick or two, which will come in useful when the day of peace comes.

A recording of Keynes' speech can be found here. The outcome of that experiment, though, wasn't governments figuring out new means to rationalize their economies and to manage aggregate demand to maintain full employment. There were many outcomes to that experiment, including  helping the development of the Postwar Consensus, but the most important one wasn't felt in Britain, but in her ally, the United States. That outcome was the gestation of the military-industrial complex. 

 

Dwight D. Eisenhower was right. Good did not come of evil; instead the evil persisted and become stronger in peacetime. The squandor of the United States' resources in useless armaments programs became a part of America's own postwar consensus that the United States had to become an active participant in world politics lest the Soviet Union triumph. Eisenhower criticized this development of a perrenial aramement industry in his 1961 Farewell Address:

A vital element in keeping the peace is our military establishment. Our arms must be mighty, ready for instant action, so that no potential aggressor may be tempted to risk his own destruction.

Our military organization today bears little resemblance to that known by any of my predecessors in peacetime, or indeed by the fighting men of World War II or Korea.

Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment. We annually spend on military security more than the net income of all United States corporations.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society.

Rather than aramaments providing the knowledge of how to manage an economy, araments became its own interest, and ensured the development of a new pattern of crony capitalism in America. War shall ever be the friend of the crony capitalists, and workers will always suffer the costs of a little bit less butter on their tables to satisfy the appetities of the gun producers. War simply shall never be for the health of the commercial society. Those who argue otherwise don't understand its essence as a system of cooperation rather than as a system of production. 

 

The Economic Cake: A Tired Metaphor

 

As it is by treaty, by barter, and by purchase, that we obtain from one another the greater part of those mutual good offices which we stand in need of…

- Adam Smith, The Wealth of Nations

 

From The Economic Consequences of the Peace by John Maynard Keynes:

Thus this remarkable system depended for its growth on a double bluff or deception. On the one hand, the laboring classes accepted from ignorance or powerlessness, or were compelled, persuaded, or cajoled by custom, convention, authority, and the well-established order of Society into accepting, a situation in which they could call their own very little of the cake that they and Nature and the capitalists were co-operating to produce. And on the other hand the capitalist classes were allowed to call the best part of the cake theirs and were theoretically free to consume it, on the tacit underlying condition that they consumed very little of it in practice.

The notion of a single economic cake, or pie for that matter, hides the underlying heterogeneity within the market. Whether it is a red velvet or a hummingbird, cakes are homogenous. Negligible roughness in texture aside, one slice of cake is very much just like any other. Yes, there may be layers or a different distribution of solid ingredients across the cake, but those are, as said, negligible. All that the baker need to do to get a cake is to get the recipe right. It’s mostly just chemistry. The grand market order, though, has no such recipe; instead, the cake metaphor, still all too widely used even by those who should know better, only serves to confuse and obfuscate talk about the real market order.  

Simon Newcomb got it right in his  Principles of Political Economy when he talked about the market order as a grand ecosystem (though he himself used the metaphor of an organism) spreading across the work: 

We readily perceive that the system by which the body of farmers on the prairies of the West exchange goods with various countries in Europe, Asia, and South America is exceedingly intricate in its detail. Its successful operation depends upon the proper co-ordination of the efforts of manufacturers, merchants, ship-owners, and managers of railways. There being little real concert of action among these widely separated individuals, the co-ordination of their work is matter of slowly growing habit.

Rather than a monolithic cake, what a great demigod spectator beholding the entire economic order would see is a massive system of social cooperation in which people synchronize their actions so as to be adapted to actions beyond their spheres of knowledge and perception.  

Newcomb’s description of the global economic order is reminiscent of Charles Darwin’s final words when he contemplated how his theory of descent with modification made manifest the grand order of a tangled bank:

It is interesting to contemplate a tangled bank, clothed with many plants of many kinds, with birds singing on the bushes, with various insects flitting about, and with worms crawling through the damp earth, and to reflect that there elaborately constructed forms, so different from each other, and dependent upon each other in so complex a manner, have all been produced by the laws acting around us.

Both are constituted by separate orders, nested within the grander ecosystem, adapting to one another. Just as robins flourish by consuming the worms of the damp earth, so do the workers in a Bangladeshi garment manufactory earn their daily bread thanks to the fashion tastes of consumers across the world.  Unlike the monolithic order of the cake, the market’s order is ecological, and comparing it to a cake, or a pie for that matter, is therefore erroneous.

 

More important, I suspect, is the moral issue. Importantly, the economic-cake narrative lacks dramatis personae. The market is actually made up of named entrepreneurs who are providing the  Things would be different if it weren’t for people like Alfred Krupp or Richard Branson. Whether it is Virgin Records or Krupp steel, the economy is made up of the ideas which actual people, rather than dismembered production functions, have brought to life.  

Yet, in the description of capitalism which Keynes elucidated there is only an unfeeling production function, an unseen baker mixing this and that to cook together the economy. That the cake view of the economy necessarily has a moral dimension is revealed in Keynes’ article, “The Social Consequences of Changes in the Value of Money,” when he writes about how the moral justification of capitalism is that everyone gets their just deserts:

The economic doctrine of normal profits, vaguely apprehended by every one, is a necessary condition for the justification of capitalism. The business man is only tolerable so long as his gains can be held to bear some relation to what, roughly and in some sense, his activities have contributed to Society.

 As long as someone receives in proportion to what he contributes to society, capitalism is just the doctrine goes. Yet, it implies that all that entrepreneurs do is to contribute to social well being as if they were unthinking inputs into a hegemonic production function. That is wrong, though, entrepreneurs are the dramatis personae of economic change, and economic change is brought about by what they do. To morally speak about the commercial society, we musn't speak about entrepeneurs as if they were machines, but rather human beings who are able to see potential in the world, and who make that potential actuality in their own particular cirumstances.

 

The “you didn’t build that” hoopla from 2008 well encapsulates the moral issues with the economy-as-cake point of view. The dramatis personae are very real human beings whose aspirations and accomplishments matter.  After all, the economic cake does not just exist. Instead, it is the product of an almost uncountable of human beings all seeking to improve their position in life. It’s easy to simplify that instinct for improvement as a money motivation, and more often than not useful to do so; nevertheless, the exact way that people end up improving their lives is depend on the particular circumstances each person finds himself in.

With “you didn’t build that,” we find the basic theme of the market order which the characterization of it as a cake so brusquely rolls over: The drama of the market order, and there certainly is drama, is found is the particular circumstances within the order.  Whether it is Branson signing the controversial Sex Pistols or Krupp’s belief in the superiority of breech-loading cannons, the economy is being created over again and again as the plans of different entrepreneurs fructify. 

“You didn’t build that” caused such an outcry because many Americans, especially small-business entrepreneurs, saw President Obama as ignoring their own particular drama which resulted in their own business, however small, itself fructifying. Like protagonists out of Atlas Shrugged, they saw themselves as building something which hadn’t existed before and then told that they didn’t create what they saw before them by a force which then proceeds to take credit. Whether the hoopla was deserved - it partially was, but like all good political scandals, President Obama’s words were blown out of proportions - is besides the point, what matters is that someone actually built those businesses. There are actually real entrepreneurs who put their plans into action, and they are very much the efficient cause of the economic order we see before our eyes.

 

The moral justification for capitalism - if I may speak as if such a justification were necessary - is not to be found in how the economic cake is doled out. When it comes to the market order, we needn’t compare it to either a five-year old’s birthday in the back lawn or to the casino floors in Macau’s Casino Lisboa. Such descriptions only serve to divert out attention from what matters: That the market system is a system of cooperation in which riches are available to those who make other people well off. What matters isn’t that one contributes to Society, as if it were some cake available to all. One man’s wants become another’s road to riches. What matters is that one assist other people in their own positions in life. Capitalism’s fruits aren’t a homogenous cake, but rather a diverse set of goods all of which satisfy particular needs in particular circumstances.   

What justifies capitalism is not that’s fair, that some wise baker in the sky gives everyone their just deserts. What justifies capitalism that it puts people’s efforts into serving one another.  Profit is not ordained by a social planner nor need to meet the economists’ notion of normal profits; rather, it is earned by someone else being willing to depart with his cash for something the seller is offering.  Francis D’Anconia got it right when he pontificated:

Money demands that you sell, not your weakness to men's stupidity, but your talent to their reason; it demands that you buy, not the shoddiest they offer, but the best that your money can find. And when men live by trade--with reason, not force, as their final arbiter--it is the best product that wins, the best performance, the man of best judgment and highest ability--and the degree of a man's productiveness is the degree of his reward. This is the code of existence whose tool and symbol is money.

"The Ship-Breakers" and Dirty Jobs

 

In the current issue of National Geographic, Peter Gwin, assisted by Mike Hettwer's photography, wrote the article "The Ship-Breakers," which describes the ship-breaking industry which has popped up in places like India and Bangladesh. The ship-breaking industry displays just how any source of profit in the world will be exploited to its fullest. The global economy is unbelievably creative. Once a ship is no longer profitable to sail the open ocean, then it often becomes profitable to tear it to pieces in places like the ship-breaking yards in Bangladesh:

Oceangoing vessels are not meant to be taken apart. They’re designed to withstand extreme forces in some of the planet’s most difficult environments, and they’re often constructed with toxic materials, such as asbestos and lead. When ships are scrapped in the developed world, the process is more strictly regulated and expensive, so the bulk of the world’s ship breaking is done in Bangladesh, India, and Pakistan, where labor is cheap and oversight is minimal.

...

Whatever the actual profits, they are realized by doggedly recycling more than 90 percent of each ship. The process begins after a ship-breaker acquires a vessel from an international broker who deals in outdated ships. A captain who specializes in beaching large craft is hired to deliver it to the breaker’s yard, generally a sliver of beach barely a hundred yards wide.

In those yards, massive ships which have reached the point of obsolescence are hauled in and, piece by piece, rivet by rivet, torn apart for scrap. Hettwer's photography emphasizes the sheer enormity of this task with human beings climbing on those ship like leaf-cutter ants on a tree to tear apart and carry off what they can:

 

Photograph by Mike Hettwer

 

"The Ship-Breakers" also shows the necessity of dirty, hard work for human survival, even when it is dangerous. Like the miserable summer job many of us have worked in our youth to start off, poor nations often have to specialize in industries most of us in the bourgeois world would prefer to avoid before they can develop the white-collar positions most of us associate with economic development.

Even in the rich world, that preference towards while-collar jobs is often simply prejudice. Wealth is created in so many ways, and all of the ways they are created deserve applause. Those of us who don't want to work as dishwashers, linemen, welders, or even ship breakers should be thankful for those who, so often by necessity, fill those roles for the rest of us. The truth is is that those people walking around in overalls, in their triffling stations in life, contribute, on average, more to other people's well being that most people walking around academic departments across the world.

 

Liberty and the Anglosphere: Reflections on Hannan's _Inventing Liberty_

 

 

The nations, not so blest as thee,

Must, in their turns, to tyrants fall;

While thou shalt flourish great and free,

The dread and envy of them all.

 

In his recent book, Inventing Liberty: How the English-Speaking Peoples Made the Modern World, MEP Daniel Hannan discusses how the ideas of a liberal society emerged within the British isles over a course of hundreds of years, and how their proliferation across the world happened within a distinctly English-speaking context. Hannan argues that it has been the ascendency of the Anglosphere in the past three hundred years, including nations like the United States, Canada, and Australia, which has made possible the similar ascendency of liberal values over that same time period. Hannan argues that it was the culture of common law, of Magna Carta, and of representative government, not intellectual arguments, which made the free and open society possible. As intellectuals discussed (and eventually en masse rejected) the values which cultivated such a society, they were transported to and flowered in British colonies the world over,  even amongst the prisoners shipped to Australia.  

 

The main question, at least for me, which Inventing Liberty brings up is the question of how culture has made liberalism possible. A constant problem facing any order at the level of society at large is: How do people participate within them? As every angsty teenager has recognized, sometimes society can be an impersonal machine in which people can be but cogs, used as means rather than as ends in and of themselves. As Shakespeare wrote: All the world's a stage/ And all the men and women merely players. What guides those players, and forms their collective patterns of behavior into what we know as as society are the institutions and norms of the societies which people find themselves surrounded by. The way that people participate in the social orders they live in is thus often merely a product of the culture they are surrounded by. 

Of course, we all know (and for the most part appreciate) that institutions matter. But there is something quite different between the argument which Hannan is making, and the arguments which many institution-matter theorists make is that Hannan argues, implicitly though, that we cannot simply replicate the institutions of the Anglosphere to non-Anglosphere countries. The necessary jump between Hannan’s main point in Inventing Liberty and an institutions-matter theorist like James Buchanan’s throughout his corpus is that Hannan’s vision is very much historically fatalistic whereas Buchahan looks at the problem from the point of view of social contract theory. For Buchahan, the question what can be done is a very real one, though in Hannan, what can be done is largely just a matter of preserving what is already there. In Hannan's history, institutions are determined by culture, and if a nation does not have the culture to support good institutions, then it is by and large doomed to go without them.

The British character of liberalism and of the commercial society it animates is corroborated by common language. When people are speaking about the core tenet of a liberal market, competition, people, especially in Continental Europe, often speak of “Anglo-Saxon capitalism.” The view that it is that British variety which encourages “dog-eat-dog” competition whereas their more “cooperative” approach cultivated more moral outcomes. The use of such language is so wide that it has gotten its own page of Wikipedia: “The Anglo-Saxon Model.” The culturally English-speaking nature of the modern commercial society is thereby displayed by its identification with a certain cultural group, that of Great Britiain.

 

The question which I am naturally lead to is then: Why Britain? Why did the English-speaking population become the cradle of liberal ideas rather than, say the populations of Holland or Italy? The Dutch certainly went a long way towards the development of liberal ideas, and during the Dutch Golden Age, Amsterdam was a shining light in the world. There, the first modern stock market was established there by the Dutch East India Company in 1602. Levels of religious toleration were high compared to the rest of Europe, especially towards the Jews (though the Catholics suffered due to perceived political loyalties to the Habsburg empire that the Dutch Republic had succeeded from). Daniel Hannan even celebrates Dutch society in “I realised why I like the Dutch so much,” and claims that what he loves about Dutch society is found in the bourgeois values that the Dutch and British both share: “Only recently, though, was I able to put my finger on what I liked so much. It’s this: for centuries, the Dutch made the honest pursuit of self-betterment a supreme virtue.” The bourgeois virtues which Deirdre McCloskey celebrates in her aptly named book, The Bourgeois Virtues, were quickly coming to fruition within Amsterdam, and the Dutch Republic could therefore have seemed to be a viable candidate to be the cradle of liberalism for the Western world. 

That was not to be, though. One of the main reasons was that the Dutch Republic did not have Great Britain’s fortunate geography. Unlike Great Britain, which is an island separated from the Continent, the Netherlands is a low-lying plain, much of it reclaimed from the sea, close to the center of Europe. As such, the influenced of the bourgeois virtues in the Netherlands was vulnerable of being snuffed out by conquest, and that is one of the events which happened following the Dutch Golden Age. Whereas the British were able to survive and compete against the Continental powers by outdoing them on the seas, the Dutch Republic never had such an option, and like the Polish-Lithuanian Commonwealth was unable to assert its independence forever against the encroachments of illberal states very adept at waging war. Unlike those two, Great Britain was in the fateful position of being separated by the sea from the many wars which were waged on the Continent in the early modern period, and was thereby separated from the need of winning those wars, at the cost of its liberal values, in order to ensure its survival.

 

In the end, liberalism wasn’t discovered by the great powers of human reason; rather, it was cultivated in culture until finally being recognized by the mind. It is not a necessary outcome of progress. Rather, it is a historical accident. The ascendency of liberalism is thus not a matter, as it often is depicted to be, of the triumph of human reason over bigotry and superstition. Instead, the ascendency of liberalism is a matter of a historically contingent sequence of unique events in unique places; of infectous habits rather than explicit ideas. The lesson to be appreciated from Daniel Hannan’s Inventing Liberty is that the free and open society is a consequence not of human ideas, but of human history.