UPDATE: Elevated from comments:
1. One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
The dislike of government spending policy as such is overcome under fascism by the fact that the state machinery is under the direct control of a partnership of big business with fascism. The necessity for the myth of 'sound finance', which served to prevent the government from offsetting a confidence crisis by spending, is removed. In a democracy, one does not know what the next government will be like. Under fascism there is no next government.
The dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
Economics, as I say often, is not a morality play. As far as creating aggregate demand is concerned, spending is spending – public spending is as good as but also no better than private spending, spending on bombs is as good as spending on public parks.Economics is not a morality play but spending on bombs is NOT "as good as" spending on parks. This is not a trivial side issue but the core of the problem. Spending on the wrong things ultimately defeats the purpose of Keynesian stimulus. Keynes knew this. It's a shame Krugman doesn't know his Keynes.
The boxes, if I may make free with the metaphor, are not in my view properly to be loaded upon the same cab. It is almost as though one were a hat-box, and the other a monstrous compound of a box at the opera and a [flower?] box growing alongside a garden path."The problem of unemployment" is a phrase that has two meanings. One of those meanings has to do with an understanding of what unemployment is. The other has to do with the dislocations caused by unemployment and the search for a solution. You're not likely to find a good solution to unemployment if you don't understand what it is. And modern thought seems committed to avoiding such an understanding.
We strongly objected to this heresy. Milton Friedman did most of the talking, as usual. He also did much of the thinking, as usual. In the course of two hours of argument the vote went from twenty against and one for Coase [with Coase voting for the affirmative] to twenty-one for Coase. What an exhilarating event! I lamented afterward that we had not had the clairvoyance to tape it.There's just one little problem with "the problem of social cost." The word "unemployment" doesn't appear in Coase's article. Nor does the word "labor." The word "employment" does appear but it refers to employment of factors of production, not to jobs. That's what Sandwichman's paper, "The Problem with The Problem of Social Cost" (which will soon be edited into two complementary papers) is all about.
"The most helpful applications of mathematics to economics are those which are short and simple, which employ few symbols; and which aim at throwing a bright light on some small part of the great economic movement rather than at representing its endless complexities.
"Thus, then, dynamical solutions, in the physical sense, of economic problems are unattainable." -- Alfred Marshall
The beauty and simplicity of such a theory are so great that it is easy to forget that it follows not from the actual facts, but from an incomplete hypothesis introduced for the sake of simplicity. Apart from other objections to be mentioned later, the conclusion that individuals acting independently for their own advantage will produce the greatest aggregate of wealth, depends on a variety of unreal assumptions to the effect that the process of production and consumption are in no way organic, that there exists a sufficient foreknowledge of conditions and requirements, and that there are adequate opportunities of obtaining this foreknowledge. For economists generally reserve for a later stage of their argument the complications which arise – (1) when the efficient units of production are large relatively to the units of consumption, (2) when overhead costs or joint costs are present, (3) when internal economies tend to the aggregation of production, (4) when the time required for adjustment is long, (5) when ignorance prevails over knowledge, and (6) when monopolies and combinations interfere with equality in bargaining – they reserve, that is to say, for a later stage their analysis of the actual facts. Moreover, many of those who recognise that the simplified hypothesis does not accurately correspond to fact conclude nevertheless that it does represent what is 'natural' and therefore ideal. They regard the simplified hypothesis as health, and the further complications as disease.
Let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded. It is not true that individuals possess a prescriptive 'natural liberty' in their economic activities. There is no 'compact' conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interest always coincide. It is not so managed here below that in practice they coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest. Nor is it true that self-interest generally is enlightened; more often individuals acting separately to promote their own ends are too ignorant or too weak to attain even these. Experience does not show that individuals, when they make up a social unit, are always less clear-sighted than when they act separately.
What was it that Marshall found objectionable about the use of mathematics, at any rate, when used extensively? He thought we lacked the data to support any but relatively simple constructions. He feared that factors that could not easily be dealt with in mathematical form would be neglected. But above all, he thought that we would be tempted to engage in what he termed "mathematical diversions" or, as Pigou put it, we would be led to pursue "intellectual toys, imaginary problems not conforming to the conditions of real life." Marshall thought it would tend to divert our atten-tion from the real world in which poverty causes degradation and to the study of which he thought we should devote our whole energies.
In these days, when the mathematical method rides triumphant in economics, one may ask whether Marshall's fears were well-founded. Have we been tempted to embark on "long chains of reasoning" without adequate supporting data? Do we neglect factors difficult to put into mathematical form? Do we concern ourselves not with the puzzles presented by the real economic world but with the puzzles presented by other economists' analysis?... I very much doubt that what has happened in recent years would have led him to change his mind.
The doctrine that the real cost of anything is the forgone utility of other things perversely rules out all human considerations related to the supply side of exchange, by substituting an indirect and strictly irrelevant test for a direct and relevant one. It reminds one of the famous definition of sugar as “the stuff which makes tea nasty when you don’t put any in.” -- J. A. Hobson
"The later stage in the development of the neurotic's estrangement from his parents... might be described as ‘the neurotic's family romance’. It is seldom remembered consciously but can almost always be revealed by psycho-analysis." -- S. Freud
"Marshall's proof that laissez faire breaks down in certain conditions theoretically, and not merely practically, regarded as a principle of maximum social advantage, was of great philosophical importance. But Marshall does not carry this particular argument very far and the further exploration of that field has been left to Marshall's favourite pupil and successor, Professor Pigou." -- J. M. KeynesIt is Sandwichman's contention that Professor Pigou was the heir and successor to Alfred Marshall's legacy in name only. In Marshall's own view, Pigou placed too great a reliance on the statical (or equilibrium) method that simply did not apply to the economic facts to be analyzed.
I accepted that [Marshall's idea] and thought that I understood it, but it was not until I had immersed myself in the Lancashire Cotton Industry and traced its growth that I really began to see the economic world as a system of systems, each of which was in part a separate whole and in part a dependent portion of a larger whole. This, as it shaped itself in my mind, was a biological idea, and not merely a mechanical one, when the facts of growth were allowed for.Although there is a kind of equilibrium that can be observed in biological processes it is not the same kind of equilibrium as that exemplified by physical forces at rest or in motion.
The brilliant work of Edgeworth and Pigou has special claims on English readers. But their route is not followed here: for mathematical analysis cannot easily be applied to conditional monopoly: it is almost constrained to start with the hypothesis of pure monopoly, and gradually to introduce successive limitations, corresponding to the various limitations and restrictions…There was a didactic purpose to Mark Twain's tale of The Prince and the Pauper. Twain sought to call attention to the harshness and inequity of the law in 16th century England by portraying a prince being subjected to the hardships ordinarily endured by commoners. Similarly, there is an analytical purpose in reexamining this episode in the history of economic thought. It is to uncover old objections and qualifications raised at the very foundation of neo-classical economics that have been glossed over, evaded and shunted aside in the name of an analytical rigor whose usefulness and validity is itself called into question by those very same objections and qualifications.
There’s a theme developing in the tax debate that a flat tax, like Herman Cain’s 9-9-9 or another version that Gov Perry’s now talking about, is simpler than a system of progressively higher, or graduated rates.Flat is the new stupid. Does it dawn on these conservative tax savants that the principle they are espousing is equality?
Not so. Both can be as simple or complicated as you like...
I remember particularly well two courses by Professor Foxwell, one on Currency and Banking, and one on early English Socialistic writers, several of whom he had rescued from oblivion. Both courses had grown and grown as Foxwell added to his information and new facts had to be incorporated. It is much to be regretted that he did not publish a book on each subject. The only survival of any size that I know of is a lengthy introduction about early English socialistic writers contributed to a volume by another writer. But he had his excuse. He was kept continuously busy making his collection of early economic books and pamphlets, and his bibliography in connection with it, his great achievement. But for this many a print rare by then would have been lost by now to all intents and purposes.
I should, I think, stress that he [Chapman] was always a rather shy and reticent man. He was obsessed with the idea that someone might write a "Life" or "Study" of him or his period or his friends or connections, and he made it a point of principle to destroy ruthlessly all correspondence as soon as he and my mother had read it.
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|Listening (Brian Roche photo)|
Why is it, then, that Sir Laming holds such very odd opinions? It is like asking me why he wears a top hat. He is a Conservative. The reasons are wrapped in the mists of history. But, roughly, I think I know them. He half understands an ancient theory, the premises of which he has forgotten.
This theory assumes that all the productive resources -- savings, labour and the gifts of nature -- which are at any time in existence are normally employed because, so the argument assumes, whenever they are unemployed they are ready to accept a lower rate of remuneration, and employment will always be forthcoming at a sufficiently low rate of wages. That is to say, the theory starts off by assuming the non-existence of the very phenomenon which is under investigation. -- J.M. Keynes, A Cure for Unemployment, April 19, 1929
Economica (2011) 78, 133–158
Work-sharing During the Great Depression: Did the‘President’s Reemployment Agreement’ Promote Reemployment?
By JASON E. TAYLOR
The only appearance of economic historians in literature are the hero in Amis' Lucky Jim and the anti-hero Tesman in Ibsen's "Hedda Gabler":Substitute Sandwichman for Tesman, Lancashire for Brabant and Nineteenth Century for the Middle Ages and we've got the proverbial Trifecta here! Nevertheless, the Sandwichman will persevere because, amusing traveling companion be damned, he thinks the problem with the problem of social cost strikes at the heart of what is wrong with political economy today and offers pointers to a way forward.
Hedda: Tesman is a specialist, my dear Judge.
Hedda: And specialists are not amusing traveling companions - Not for long, at any rate.... Just you try it! Nothing but the history of civilization morning, noon, and night.
Hedda: And then all this business about the domestic industries of Brabant during the Middle Ages. That's the most maddening part of it all.
If the costs of low wages are passed on to society, who represents it at the bargaining table? If Coase had applied social costs to labour, rather than a theory of the firm, he might have developed a theory of the union as a vehicle for minimising the transaction costs of negotiating wages sufficient to cover social costs.Admittedly, Stabile diluted the force of his critique of Coase by not announcing it in his abstract or his opening paragraph and by indulging in somewhat of a digression on Pigou's "Victorian attitude toward women" and the social costs of women participating in the paid workforce. Although the relationship between social reproduction and workforce participation is indeed an important one, a much simpler case can be made regarding Pigou's observations on the direct effects of low wages, unemployment and excessive hours of work.
Clark's Overhead Costs, just as much as Coase's Nature of the Firm, broke the business firm apart and explored its inner decision making. For both, the premise was that managers set out to maximize the firm's value. In that sense Clark's Overhead Costs was firmly marginalist just as if was firmly institutionalist. While Coase's Nature of the Firm is given considerable credit for producing nonmonopolistic explanations for business decisions, Clark's Overhead Costs did the same thing — pointing out, for example, that pricing above short run cost and price discrimination are not unique attributes of monopoly, but can exist in any market with fixed costs.
The Manchester Committee of the National Association for the Protection of Labour put forward a general short-time bill of its own, but at the same time gave active support to Sadler's bill, if for no other reason because it was in effect a short-time bill for all working in the textile industries; and the eight hours day was made one of the chief objects of the Society for National Regeneration.
Sound as were the fundamental ideas for the realization of which the Society for National Regeneration had been instituted, its propaganda were frequently vitiated by appeals drawn from the doctrine of the labour fund, as the "lump of labour" fallacy might be called [S.: Marshall referred to "the fallacy that there is a fixed Work-Fund"]. Thus we read in its organ: "Reduce your numbers," says Parson Malthus, "by ceasing to beget children, and then there will be work enough for you all." Never mind your numbers," says the Regeneration Society, "but reduce your hours of working, and then those of you who have too much work can spare a little to those who have none, and still there will be enough for you all." The week previously the same paper, in an address to the hand-loom weavers of Bolton, had laid it down as a "law of Nature" that doubling a man's work halved his wages (i.e., piece rates), and that, therefore, all regulation of wages by statute must be futile. This doctrine was constantly advanced.* "Is there a trade in the country which does not see that the most certain and easy mode of preventing reductions of wages, and even of obtaining advances, is to limit the quantity produced?" it was written in the Poor Man's Advocate for February 25th, 1832. Three weeks later this advice was proffered to the operatives: "Let them endeavour, then, to lessen their labour that they may enjoy the more. Let them cease to 'produce' so much, that the 'demand' for their labour may increase." John Fielden put forward the doubtful view that "if the change" (the reduction of hours) "were general the lesser quantity produced would command as much money as the greater quantity now does," and argued from this that time-wages would not be affected by a reduction of hours. He omitted to consider the competition of other classes of labour, and he was also silent as to the effect on real wages as a whole of a rise in the price of cotton goods. It was commonly believed by the Lancashire operatives that their long hours of labour prevented many others from getting any work at all, and caused markets to be glutted, so that goods had to be sent abroad at a great depreciation in their value. We must notice, however, that those who advocated shorter hours, both in this period and later, found also many sound reasons for their action in the expected effect on the health and comfort of the operatives. They perceived that high wages were of little value to those who had little time to spend them. Moreover, the mistakes made by the operatives lay not so much in their fundamental opinions as in some of the reasons given by them for holding these opinions.
* The author of Character, Object and Effects of Trade Unions tells us that these views were thoroughly accepted among the spinners. "The union calculated," he said,that had the Ten-hour Bill passed, and all the present factories worked one-sixth less time, one-sixth more mills would have been built to supply the deficient production. The effect of this', as they fancied, would have been to cause a fresh demand for workmen, and hence those out of employ would have been prevented from draining the pockets of those now in work, which would render their wages really as well as nominally high. Here we have the secret source of nine-tenths of the clamour for the Ten-hour Factory Bill.
The prescription for what ails the global economy follows directly from the diagnosis: strong government expenditures, aimed at facilitating restructuring, promoting energy conservation, and reducing inequality, and a reform of the global financial system that creates an alternative to the buildup of reserves.
The argument here is that this transition occurred via a two-stage process, in which John Stuart Mill and Henry Sidgwick were central players. The first step involved the elaboration of a greatly expanded theory of the failure of the system of natural liberty – akin to what we today call "market failure" – as against the classical success story. Mill was instrumental in this expansion, and it continued at the hands of Sidgwick. The second stage involved a move to a more markedly positive assessment of the possibilities of corrective policy actions undertaken by the state than we find in the classical tradition, and it was here that Sidgwick took center stage.In the second edition of his Principles of Political Economy, Sidgwick undertook a critical analysis of "The System of Natural Liberty Considered in Relation to Production." Sections four and five of that chapter dealt with "combinations", in both their injurious and supporting manifestations. Section four began with the observation that "private enterprise may sometimes be socially uneconomical because the undertaker is able to appropriate not less but more than the whole net gain of his enterprise to the community; for he may be able to appropriate the main part of the gain of a change causing both gain and loss, while the concomitant loss falls entirely upon others." After a brief consideration of the effects of monopoly, Sidgwick turned to "Combination" as an instance where the practical importance of the conflict between social and private interest is "much increased." The example Sidgwick gave is "where some combination of labourers exists" that can enable the labourer to "extend uneconomically the amount of labour required, or to give as little work as he can in the time (supposing that harder work would be more irksome)."