Introduction to the “Post-1870 Political Economy” Unit of Econ 135: The History of Economic Growth; & BRIEFLY NOTED: For 2023-04-07 Fr
Where utopia?; primacy of the economic; Friedrich Engels as our guide; successive modes-of-production; the Muskland dumpster fire; Mui, Wang, Graham, Castañeda, Tett...
FOCUS: Introduction to the “Post-1870 Political Economy” Unit of Econ 135: The History of Economic Growth:
Since Dylan John Riley has said that my Slouching Towards Utopia book <bit.ly/3pP3Krk> is the .last work of orthodox Second International Marxism, let me lean into that conceit very heavily:
Where Moon? Where Utopia? Where Lambo?:
We have finished our survey of economic growth. We have covered the process of increasing production per head and per worker proceeded from the invention of agriculture up to the present.
We thus move on to the natural next question: Why, with our enormous productive capabilities have we failed to make a more utopian world? The bulk of our predecessors thought that the big problem was that humanity could not bake a sufficiently large economic pie for everyone to potentially have _enough_. They thought that was the really hard problem. We have solved it—or, rather, we have partially solved it, and can see our way clear to completely solving it.
Moreover, they thought that a second problem, another cause of much of what went wrong with human society, was overlain on top of that scarcity and poverty and would vanish if scarcity and poverty were to vanish. That second problem was that you if you had any social power at all, in a world of scarcity and poverty would join a gang. You would be under enormous pressures to do so: to turn governance and politics into a system of domination by force and fraud, so that you at least could get enough for yourself.
The pressures for that force-and-fraud gang domination-and-exploitation machine should have died away with the coming of a world sufficiently prosperous for everyone to potentially have _enough_. Force-and-fraud, domination-and-exploitation—those are rather difficult and dangerous things to undertake. Why undertake them if there is no great need, if there is enough? Why not, if everyone has their own vine and fig tree, simply take your ease beneath them, and lead a good life?
And yet, needless to say, that is not the world we have. Right now we have killer robots stalking the skies above Syria and Ukraine. We have extraordinary, extraordinarily unequal income distribution around the world. We have a great many countries and a great many people who are not taking anything like full advantage of our magnificent productive technologies. And we have lots of people very angry because they see others getting more than is "fair".
Moreover, we are failing to face worldwide challenges, of which global warming is perhaps foremost for the next fifty years. The monsoon was three hundred miles off of where it was supposed to be last year because of global warming. Pakistan has $40 billion dollars of flood damage. Who is going to pay that bill, and the other bills that come due?
The purpose of this political economy unit is to figure out why it is that, in spite of our extraordinary success in developing modern science and applying it via technology to production to bake a sufficiently large economic pie, we have failed to properly slice and taste the pie. Why is so much of the world still so poor? Why have we done such a lousy job at utilizing our wealth wisely and well. Why is a civilization as wealthy as ours one in which people do not feel safe and secure, and are not healthy and happy?
The Primacy of the Economic:
One good way to think about our political economy problems: The world has been on a wild ride tsince 1870 as the bulk of history at even a generational scale becomes economic. In all previous ages history at the generational or even the century scale was not economic, for not much changed in the economy over such a time period. Yes, history had an economic background behind it. But history was of changing culture, religion, architecture, polities, and dynasties. Only if you stepped back and took a millennial perspective could economic change and its downstream ramifications make a claim to be the most important part of history.
Yet when studying history after 1870 at even a generational scale, economic changes and their implications are crucial, are everywhere. And it is not just local economic changes—globalization means that you cannot write the history of one region without considering how economic changes on other continents created and closed off opportunities and possibilities. And you cannot write any history without looking upstream at changing technology: the impact of science, engineering, industrial research labs, and the build-out of technologies undertaken by large corporations and then diffused elsewhere in the economy.
It is not the case that all of post-1870 history is bright. Governments often mismanaged what ought, in some sense, to be a progressive and prosperous social system. Tyrannies intensified. Technology, after all, could be used for evil rather than good, for control and domination rather than production and cooperation, and it was so used.
So how are we to understand our radical disjunction between our success at baking a sufficiently large economic pie and our inability to properly slice and taste said pie? How is it that the problems of equitable distribution and wise and well utilization continue to flummox us?
Friedrich Engels as Our Guide:
Let me start by appealing not to Karl Marx but his partner Friedrich Engels. Karl Marx thought that he had to be a British classical economist, and so he focused on trying to build analytical models of the market economy, private property, investment, and productivity—and, I think, went down many rabbit holes, and did not come back up. Engels, by contrast, focused on changing _technology_—and its influence on modes of production, distribution, consumption, communication, and domination.
Consider the late Agrarian Age—Western Europe's Feudal Society around the year 1000, for example. How people lived and worked taught everyone that society was relatively static, hierarchical, and characterized by exploitation and domination. Technological progress was slow. People's roles in society were largely determined by where in the society they were slotted by their birth.
However, technology moved on. Feudal society was not the end of history.
By 1650 or so we were in the Imperial-Commercial Age. Advancements in printing, transportation, gunpowder, and other technologies, plus biotechnology from the Americas had had powerful implications. For one thing, technological progress was no longer glacial. People had a sense that history was moving forward. People no longer saw themselves as limited to the roles of their ancestors. Society was becoming mobile and contractual.
People were increasingly finding—or, rather, making—their own place within a web of market and contractual relationships. A king-controlled legal system provided structure and protection for individuals. The king's judges were more or less honest, or at least bribeable according to established principles. That offered a much better framework than the feudal one in which the local landlord was the local warrior was the local policeman was the local judge, and the distant king could not have done anything about that even had he wanted to.
In 1650, as in year 1000, there probably still was a Lord of Dean. But he was not the landowner-policeman-judge, and could not defy the king because the king had trained mercenaries with gunpowder weapons The ca-1000 Lord of Dean a knight on horseback with a long lance takes five years. However, it only takes three months to teach someone to be proficient with a musket or a pike. The ability to assemble warriors, provide them with weapons, produce gunpowder , and feed them as they march across the country is crucial to military power. This is in contrast to the skills of a Sir Lancelot, who has essentially been a well-trainedprofessional athlete, only instead of knowing how to throw and catch a football he knows how to kill people with a spear.
This shift in the mode of domination makes the world less reliant on violence and protection and more reliant on the law. Society begins to be viewed as a series of contracts, with the social contract being the greatest of them all. This political system is based on the idea that everyone should voluntarily agree to it and benefit from it, as opposed to being assigned a specific role in society because God decided it should be that way from the beginning.
The feudal survivals were seen as obstacles to prosperity. The Lord does not protect; he simply collects money. The monopolist does not produce, he simply gave money to the king when he needed it for war, and in return got the exclusive right to sell salt in the province. These undeserved methods of obtaining wealth are unproductive. Note the striking contrast to the feudal system back in earlier days, back when free peasants would willingly become serfs to knights who would protect them from bandits and barbarians, and willingly pay tithes in order to get spiritual guidance from those who knew the prayers.
Thus, Friedrich Engels argued, the transition from agrarian feudal society to imperial commercial society fundamentally changed how people viewed social organization. Kings and aristocracies that claimed to protect people from invaders like Vikings had no purpose when no marauding Vikings had been seen in 500 years. And so figures like Thomas Jefferson argued that people have inherent rights and should decide the course of their own lives. The purpose of society, Jefferson said, is to protect these rights to life, liberty, and either property or the pursuit of happiness, depending on the level of abstraction. It was not a smooth transition from feudal to imperial-commercial society: recall the Dutch, British, American, and French revolutions. None of them was a walk in the park. And one of the consequences of the invention of printing in Western Europe was almost two centuries of near-genocidal religious war, after all. But it happened: a different mode of production at the base required a different kind of society built on top of it, the “last instance” came. Society adjusted to technology. And things seemed to fit. The social theorists of commercial-imperial society—the Adam Smiths, John Lockes, and Barons de la Brède et de Montesquieu were a pretty optimistic bunch.
Successive Later Modes of Production:
Imperial-commercial society, however, was not the end of history. Technology moved on. The next stop was the society of steampower and machinery.
Engels saw—or thought he saw—that this new era would teach yet different lessons about social organization. Steam-powered factories required people to work together in large groups, highlighting the collective nature of productivity. In this context, individuals could not be seen as especially productive or particularly important adandn thus deserving of a larger share of the wealth produced. It was the human organization that mattered collectively, not any one person’s contribution that mattered individually. Hence, Engels thought, steampower and machinery society would teach people the desirability of, and bring about, egalitarian socialism. As of Engels’s day, there had not been nearly enough time for the "last instance" in which society adjusts fully to technology to appear: it had been 600 years from late-agrarian to imperial-commercial society, but as of 1870 only 200 years from imperial-commercial to steampower-and-machinery society.
But steampower and machinery society were not the end of history either.
Technological progress continued, with society transitioning, successively, into the applied-science age, the mass-production age, the global value-chain age, and now into the info biotech age. Each of these eras taught different lessons about social organization.
In the applied-science age, people were definitely not interchangeable: the technical and practical knowledge needed to do a job well was often painfully acquired. Moreover, politics determined which economic sectors grew and prospered—it was not labor vs. capital, but import-competing vs. other industries as a key political fault line. Mass production taught that high wages for blue-collar workers required unions as well as industrial expansion to realize large economies of scale. An so on. The simple egalitarian lessons that Engels had thought would be taught everyone obviously by the way they worked dropped away. New and more complicated lessons were taught.
And after 1870 there was the pace of change: not 650 or even 250 years before one mode-of-produciton is replaced by another, but only 40 years. Let us adopt a metaphor: You need to rewrite the software code of society to run on new technological hardware. You need to cobble together something that will be running code so that society does not crash. You have to do it in 40 years. And before you have finished, the mode-of-production is changing and shifting underneath your feet once again.
Thus we have our big post-1870 political economy questions…
ONE IMAGE: Muskland Is a Dumpster Fire!
Elon Musk remains all-in on crypto grifting:
Very Briefly Noted:
BLS: Employment Situation Summary: ‘Total nonfarm payroll employment rose by 236,000 in March, and the unemployment rate changed little at 3.5 percent…. Employment continued to trend up in leisure and hospitality, government, professional and business services, and health care…
Adam Ozimek: ‘It’s easy to get confused, but at this point here is what we want: good news is strong jobs growth, weak wage growth. Yes we want strong real wage growth once inflation comes down. We want sustainable, strong real wage growth for the long-run!…
Jason Kottke: How to Counter the Gish Gallop: ‘I was keen to read that the debating method practiced by Trump, Putin, anti-vaxxers, and climate deniers of flooding the zone with a firehose of incorrect information has a name: the Gish Gallop…
Sarah Quincy and Chenzi Xu: Branch Banking and Capital Misallocation: ‘A new database of bank and branch level balance sheets to contrast how branch networks and unit banks participate in capital markets from a period of substantial branch expansion, the 1930s…
Dan Davies: Taleb as Miseducator: ‘There’s something psychologically intolerable about Taleb’s work to a lot of people, which is why so many of them want to simultaneously say it’s banal and exaggerated, that he’s way out of the mainstream but only saying things that everyone knows. (He also attracts a lot of the kind of people who could have been present at the Creation and would have still said that light was nothing new)…
Jason Zweig: The Seven Virtues of Great Investors: ‘The seven virtues of great investors are: Curiosity…. Skepticism…. Independence…. Humility. …. Discipline…. Patience…. Finally, courage…
Samuel Hammond: The adverse selection of political "moderates": ‘On the lemons among our leadership…. A more credible signal of commitment is now sorely needed; something that separates the reformist wheat from the establishment chaff…
Noah Andre Trudeau: Bloody Roads South: The Wilderness to Cold Harbor, May-June 1864…
Bret C. Devereaux: Colleges Should Be More Than Just Vocational Schools…
¶s:
Preston Mui: ‘Rumors of dead labor supply's death have been greatly exaggerated, as they say…. My replication of White House CEA's Core Non-Housing Services Wages -- bumpy way down but clearly slowing down, yoy in orange, 3m/3mma in blue…. 0.8% pp prime-age LFPR increase in 3 months is pretty great right? It's the fastest 3-month increase in almost 25 years. Here are our Shimer flows. Interestingly, the layoffs aren't showing up here as EU flows. Also, labor force entry is still coming from N->E rather than N->U. Problem for the Fed if it's staring too hard at the unemployment rate! Labor supply can show up as high employment…
Dan Wang: China’s Hidden Tech Revolution: ‘Along with its dominance of renewable power equipment, China is now at the forefront of emerging technologies such as artificial intelligence and quantum computing. These successes challenge the notion that scientific leadership inevitably translates into industrial leadership. Despite relatively modest contributions to pathbreaking research and scientific innovation, China has leveraged its process knowledge—the capacity to scale up whole new industries—to outcompete the United States in a widening array of strategic technologies…. China has grounded its technology sector not in glamorous research and advanced science but in the less flashy task of improving manufacturing capabilities. If Washington is serious about competing with Beijing on technology, it will need to focus on far more than trailblazing science. It must also learn to harness its workforce the way China has, in order to bring innovations to scale and build products better and more efficiently. For the United States to regain its lead in emerging technologies, it will have to treat manufacturing as an integral part of technological advancement, not a mere sideshow to the more thrilling acts of invention and R & D…
Benjamin Graham: The Active Management Delusion: Respect the Wisdom of the Crowd: ‘My basic point here is that neither the Financial Analysts as a whole nor the investment funds as a whole can expect to ‘beat the market,’ because in a significant sense they (or you) are the marke…. The greater the overall influence of Financial Analysts on investment and speculative decisions the less becomes the mathematical possibility of the overall results being better than the market’s”…
Jorge G. Castañeda: Reversing Latin America’s Democratic Decay: ‘Major segments of the region’s population – not least the middle class – are fed up with successive governments’ failure to tackle social and economic problems, including high crime rates, soaring inflation, low salaries, inadequate education and health services, scant pensions, and precarious and overcrowded transportation. Authoritarian populists thrive in such a context, as they promote simple solutions that are often popular in the short term…. We at Alternativa Latinoamericana… are convinced that Latin America must… build… strong welfare states. But this is a medium- to long-term project…. It is also imperative to devise “fast democratic deliverables”…. Bolsa Família… Luiz Inácio Lula da Silva’s previous term in office… benefits to households in exchange for actions supporting their ability to escape poverty…. But it is in the realm of security and law enforcement that progress is most urgently needed. In countries across Central and South America, the middle classes and leading economic sectors are clamoring for a reduction in violent crime and delinquency. Devising short-term solutions that uphold human and constitutional rights will be no easy feat. But without progress on this front, threats to the region’s democracies will continue to grow…
Gilian Tett: Why moderate Republicans still won’t confront the Trump bandwagon: ‘For Trump, agreeing with the lie that the 2020 election was “stolen” has become a litmus test for entry into his political tribe…. The McCormick episode shows the problems that centrist conservatives face when confronted with the Trump bandwagon. On paper, McCormick has the credentials for a Senate run: he trained at an elite military academy, served in Iraq, worked in the Treasury department under Hank Paulson during the 2008 financial crisis and spent 13 years at Bridgewater. So he has experience of how to run things and staying calm under stress. But this pedigree does not count with Trump…. Trump sees loyalty in black-and-white terms; and, with the judicial stakes rising, increasingly so…. “It’s shocking,” observes Frank Luntz, the Republican pollster. “In private they tell me they can’t wait for him to go, but in public they say nothing—they know he will crush them.”… In the meantime, moderate Republicans are watching — and waiting…
I see the past 2 quarters (Q4, Q1) of average weekly earnings increases are at levels that would have been considered normal pre-Covid. Yes, Retail employees wages are rising fast, but not Leisure and Hospitality.
Core PCE service inflation is high for restaurants, motels, recreation, airfare, and car rentals (isn't this the echo of Covid?). But not for healthcare, education, and finance. Can't anyone play the game of picking which line items they will and won't count in inflation?
"Why not, if everyone has their own vine and fig tree, simply take your ease beneath them, and lead a good life?" I could point out that Original Sin took place in a regimen of more than "enough." Maybe in many dimensions resource scarcity was the binding constraint, but not all.