How the 'Conomist Got His Lump

THE 'Conomists' lump is a hideous hump
    They pedantically teach at the U.;
But uglier yet is the slump we all get
    When we swallow this muck that they spew.

Rudyard Kipling's "How the Camel Got His Hump" is a Just-So story. It is Just-So 'scrutiating cutesy, patronizing, colonialist and moralistic. Idleness is condemned and loyal obedience to one's master is extolled.

When the diligent dog, horse and ox complain to their master, man, about the slothful camel's shirking, man tells them they three "must work double-time to make up for it." You see, there was only so much work to go 'round (with the world so new-and-all) and if some of it couldn't be spread thin onto the camel, then that part had to be humped up on the other three. 

Dorning Rasbotham's confident assertion that "a cheap market will always be full of customers" is another Just-So story. Unlike Kipling's fable about the camel, Rasbotham's tale has become a staple of economic dogma. 

No evolutionary biologist would sneer at the general public for their lack of erudition regarding the fact that the camel's hump was "brought upon [his] very own self by not working." Yet that is precisely the refrain that economists repeat ad nauseum. Even economists who claim to reject the "unemployment is always voluntary" placebo are loath to repudiate the seductive cheap-market-full-of-customers creation myth and article of faith.

UPDATE: I have been informed in a comment that "a cheap market will always be full of customers" is "obviously and strictly true." Well, tell THAT to Squire Rasbotham, Mr. blissex. Dorning Rasbotham apparently didn't think it was so "obviously and strictly true" because he chewed up 18 pages of his pamphlet before getting to this supposedly obvious and strict truth.

Of course the Sandwichman suffers from the obvious and strict rhetorical disadvantage of actually having read the text in question. It is always much easier to assert things and claim they are facts than it is to present evidence and show how that evidence supports a hypothesis. (That is why we are doomed, DOOMED!)

For the edification of those who suppose they knows everything they needs to knows about Rasbotham's Theorem from its conclusion (without reading his pamphlet or knowing what his premises were) here is a brief recap of the argument:

1. The interests of the poor should have the highest priority (after all, what would become of the rich if there were no poor people to till their grounds, and pay their rent?);
2. There is not so great a difference between the real interests of the rich and the poor;
3. Trade is a large and difficult subject that requires deep thought, long study, extensive reading and large experience to form a true judgment;
4. Machines distinguish men in society from men in a savage state. There are many examples showing how machines invariably benefit people;
5. All improvements at first produce some difficulty but many receive the benefit while only a few suffer, probably not much and hopefully not for long (they should be grateful for the opportunity to make a sacrifice for their fellow man);
6. Trade will find its own level. Those thrown out of their old employments will find or learn new ones. Those who get a disproportionate gain will soon find many rivals and lose their temporary advantage; (take that, Bill Gates!)
7. There is a disposition among people to be unduly alarmed by new discoveries;
8. Even if machines (or globalization or the hypertrophy of the finance sector) are evils they are necessary evils. We might as well make the best of them;
9. This would be a prosperous time for the poor, if only they weren't so inclined to carry their money to the alehouse;
10. Anyone who disagrees with the above truths is a irreligious, conscienceless scoundrel; and (drumroll),
11. That "there is only a certain quantity of labour to be performed" is a false principle.
12. Because -- ta-da! -- a cheap market will always be full of customers!  

"Jobs, automation, Engels’ pause and the limits of history"

Cardiff Garcia at FT Alphaville, Jobs, automation, Engels’ pause and the limits of history:

The lazy but common retort to the idea that technological advancement would massively displace workers has long been to accuse the fear-monger of having perpetuated the lump of labour fallacy. 

Luddites!, the response goes, technology constantly takes jobs from workers, but the gains in efficiency lead to a surplus for the owners of companies (via higher profits) and for the consumers of their products (via lower costs). Those surpluses are then spent on other investments and consumer products, some of which we haven’t yet imagined but nonetheless will lead to more jobs in other sectors. 

Buy a cheaper car, and you have more money to spend on lavish restaurants, which leads to more jobs for chefs and waiters and sommeliers, and so on. 

... 

Optimists also like to cite the teachings of history in addition to the Luddite mistake, as the two are obviously related. So many times have we worried about the destabilising potential of technology, they say, and every time the economy has adapted, creating new jobs to replace the lost. 

An appeal to history isn't inherently misguided. Our understanding of the world is unavoidably shaped by the historical behaviour of the variables that we can identify as useful for our assessment. What else can we do? 

Yet the more aggressively we scavenge history for useful lessons, the more confusing are the clues we dig up. And that’s to say nothing of the clues that we fail to dig up. 

A few points are useful to keep in mind when thinking through history’s lessons for the issue of jobs and automation. [continued]

 The Sandwichman is very pleased.

A 'Make-Work Bias' By Any Other Name...

What is it with all the aliases, anyway? The lump-of-labor fallacy, the lump-of-work fallacy, fixed Work-fund fallacy, Luddite fallacy, make-work fallacy, make-work bias...

MaxSpeak calls attention to a lecture by a George Mason University professor, Garrett Jones, which advocates less democracy. Ten percent less democracy, to be precise.

The cornerstone of Jones's argument is Bryan Caplan's "four democratic biases" outlined in his 2006 book, The Myth of the Rational Voter. One of those supposed democratic biases is our old friend. the lump-of-labor fallacy make-work bias. Bryan Caplan is clearly a suppository of received wisdom.

So here is the basic idea: "Nineteenth-century economists believed they had diagnosed enduring economic confusions, not intellectual fads, and they were right." So, according to Caplan and Jones we should disenfranchise voters because of what "nineteenth-century economists" thought and hand over policy-making power to folks who think those nineteenth century economists were right. Sounds logical.

I have a better suggestion. In an earlier post I cited George Bernard Shaw's "strong opinion that every University on the face of the earth should be levelled to the ground and its foundations sowed with salt."

Let's start with George Mason University.

Worth a Try...

"I have a very strong opinion that every University on the face of the earth should be levelled to the ground and its foundations sowed with salt." -- George Bernard Shaw

Gobs O' Jobs!

At PBS Newshour's MAKING SEN$E, John Komlos claims "America can be a full-employment economy once again":

Currently, adjustments to the decline in demand for labor occur by reducing the number employed so that their labor time falls abruptly from 40 hours to zero. Employees work 40 hours, 20 hours or not at all. Would anyone “behind a veil of ignorance” design such a rigid system from scratch, a system with so much uncertainty and volatility–with working times ranging from zero to 70 hours per week even in normal times? 

It would be much more palatable to have the adjustment occur in the number of hours worked so that instead of dismissing workers, the available work would be divided among those wanting to work BECAUSE THERE IS A FIXED AMOUNT OF WORK TO BE DONE! Hence, an institution that distributes work more evenly would be a reasonable solution to this quandary.

I have, of course, added emphasis to the words "because there is a fixed amount of work to be done." I also added the words themselves because they were inadvertently omitted from the original. This is standard economic science procedure. Economists have been making this mind-reading correction for decades. Nobody objects. If you can't beat them, join them.

The Abstinence Theory of Value

"Exactly a year before Nassau W. Senior discovered at Manchester, that the profit (including interest) of capital is the product of the last hour of the twelve, he had announced to the world another discovery. 'I substitute,' he proudly says, 'for the word capital, considered as an instrument of production, the word abstinence.' It has never occurred to the vulgar economist to make the simple reflexion, [Marx continued n a footnote:] that every human action may be viewed, as 'abstinence' from its opposite. Eating is abstinence from fasting, walking, abstinence from standing still, working, abstinence from idling, idling, abstinence from working, &c."

Some hundred and twenty years later, in The Anti-Capitalist Mentality, Ludwig von Mises was still beating that hollow "abstinence" drum, crediting what he termed "the three progressive classes" of savers, inventors and entrepreneurs with sole responsibility for driving social evolution from savage cave dwellers to modern industry. 

In what von Mises described as a monumental work, the wily Eugen von Böhm-Bawerk, concocter of the supposed "transformation problem," dispatched Senior's abstinence theory in 1884, albeit with abundant regard toward its supposed excellence and deep insight. I suppose some double counting is cleverer than others. After exposing the fallacy of Senior's abstinence theory, von Böhm-Bawerk risked being more than a little tedious in substituting an even neater sophism in which "pain cost" and "opportunity cost" perform a rather unlikely pas de deux:

If I lay out a sum of money, say £30, for any one useful end, my sacrifice is calculated simply by the gratification which I might have got by spending the £30 in other ways, and which I must now do without.

It is otherwise with the sacrifice of labour. Labour presents two sides to economical consideration. On the one hand it is, in the experience of most men, an effort connected with an amount of positive pain, and on the other, it is a mean to the attainment of many kinds of enjoyment. Therefore the man who expends labour for a definite useful end makes on the one hand the positive sacrifice of pain, and on the other, the negative sacrifice of the other kinds of enjoyment that might have been obtained as results of the same labour. The question now is, Which is the correct way, in this case, of calculating the sacrifice made for the concrete useful end?

Herr von Böhm-Bawerk solved his own transformation problem adeptly with an example in which the pain cost of work was 10, the opportunity cost of the fish that might have been caught was 15, but the opportunity cost of shooting three hares was only 12  And voila! Here is the rabbit (or hare? or fish?) that nimble Eugen pulled out of his sportsman's cap:

What our fish really cost us now is not the positive labour-pain expressed by the number 10—for this we should have undergone at any rate—but the negative loss of an enjoyment which we might have had, indicated by the number 12.

Ten units of what?, you may wonder. Don't ask. All one needs to keep in mind is the non-equivalence between the pain cost of the labour and the opportunity cost of the enjoyment of the results of the labour and therein lies the secret and source of the potentially infinite expansion over time of the opportunity cost of postponing consumption.

No double counting here! "But of course we must never calculate the want of enjoyment and the pain of labour cumulatively..." But of course! Who needs to double count if we can count labour in units of pain and the results of labour in a different number of different units?

I'll give you a million for that.

A million what?

Never mind what, a million is a big number.

What In Hell Is Capital?

Dante condemned the merchant bankers of Florence to the seventh circle of Hell. Marx was more lenient -- attributing to monetary accumulation through usury only part of the responsibility for the dissolution of the old feudal relations of production.

"The idea of some socialists," observed Marx in his notebooks on Pre-Capitalist Economic Formations, "that we need capital but not capitalists, is completely false."

"The concept of capital implies the capitalist."

Let us consider the relationship of capital and wage labor not as something which has already reached decisive importance, and encroaches on production as a whole but as something which is still in the process of historical formation. We consider the original transformation of money into capital, the process of exchange between capital existing only potentially on one hand, and the free laborers existing potentially on the other. We then find ourselves naturally making the simple observation, with which the economists make great play — namely, that the side which appears as capital must possess raw materials, tools, and food enough to enable the worker to live before production is completed. Moreover, it would appear that accumulation — an accumulation prior to labor and not arising from labor — must have taken place on the part of the capitalist, which enables him to set the laborer to work and to maintain him in activity, as living labor power.

... 

Urban labor itself had created the means of production, for which the gilds became as great an embarrassment as were the old relations of landed property in an improved agriculture, which was in turn partly the consequence of the greater sale of agricultural products to the cities, etc.

Other circumstances assisted the dissolution of the old relations of production, accelerated the separation of the laborer or the non-laborer capable of work, from the objective conditions of his reproduction, and thus advanced the transformation of money into capital. Such were, e.g., the factors which in the 16th century increased the mass of commodities in circulation, the mass of currency in circulation, creating new needs and consequently raising the exchange value of native products, raising prices, etc. 

Nothing can therefore be more foolish than to conceive the original formation of capital as if it meant the accumulation and creation of the objective conditions of production — food, raw materials, instruments — which were then offered to the dispossessed workers. What happened was rather that monetary wealth partly helped to detach the labor power of the individuals capable of work from these conditions. The rest of this process of separation proceeded without the intervention of monetary wealth. Once the original formation of capital had reached a certain level, monetary wealth could insert itself as an intermediary between the objective conditions of life, now “liberated” and the equally liberated, but now also unfettered and footloose, living labor powers, buying the one with the other. As to the formation of monetary wealth itself, before its transformation into capital: this belongs to the prehistory of the bourgeois economy. Usury, trade, the cities and government finance which arise with them, play the chief parts in it.

In other words, capital is not money nor is it the "objective conditions of production -- food, raw materials, instruments." It is a relationship between the capitalist -- as proprietor of money and the objective conditions of production -- and the propertyless worker, both of whom have arrived at their present condition as a result of historical processes that were not (or not primarily) the effects of capitalist relations of production. Capital did not "pull itself up by its own bootstraps."

The original formations of capital does not, as is often supposed, proceed by the accumulation of food, tools, raw materials or in short, of the objective conditions of labor detached from the soil and already fused with human labor -- not by means of capital creating the objective conditions of labor. Its original formation occurs simply because the historic process of the dissolution of an old mode of production allows value, existing in the form of monetary wealth, to buy the objective conditions of labor on one hand, to exchange the living labor of the now free workers for money, on the other. All these elements are already in existence. What separates them out is a historical process, a process of dissolution, and it is this which enables money to turn into capital. Insofar as money itself plays a part here, it is only to the extent that it is itself an extremely powerful agent of dissolution which intervenes in the process, and hence contributes to the creation of the plucked, objectiveless, free laborers. 

Does the concept of "human capital" imply the human capitalist? From the perspective of Marx's analysis, such a concept would be a Bizzaro-world oxymoron:

The concept of capital implies that the objective conditions of labor — and these are its own product — acquire a personality as against labor, or what amounts to the same thing, that they are established as the property of a personality other than the worker’s.