My Dinner with Maynard II: Keynes on Isaac Newton, Alchemy and Linear Regression

In 1936, Sotheby's auctioned off the Portsmouth Papers of Issac Newton. Keynes missed the auction but subsequently set out to acquire the Newton manuscripts from the buyers, concentrating on the papers having to do with alchemy. At his death, Keynes bequeathed his collection to King's College, Cambridge. The Newton-related papers of John Maynard Keynes are now accessible online at The Newton Project.

From "Newton, the Man," a lecture prepared by John Maynard Keynes and delivered by his brother, Geoffrey, in July 1946:

The Elixir of Commerce

McCulloch, J. R. (John Ramsay). Outlines of political economy : being a republication of the article upon that subject contained in the Edinburgh Supplement to the Encyclopedia Britannica : together with notes explanatory and critical, and a summary of the science / by John M'Vickar. New-York, 1825. The Making Of The Modern World. Web. 15 Nov. 2011.

Rasbotham, Dorning. Thoughts on the Use of Machines in the Cotton Manufacture. Addressed to the working people in that manufacture, and to the poor in general. Manchester. 1780. The Making Of The Modern World. Web. 15 Nov. 2011.

Wennerlind, Carl. "Credit-Money as the Philosopher's Stone: Alchemy and the Coinage Problem in Seventeenth-Century England." History of Political Economy, Volume 35, Annual Supplement, 2003, pp. 234-261.

Dorning Rasbotham's pamphlet evoked the image of alchemical transmutation. That was the inspiration for the working title for this serial posting, The Moral Philosophers' Stone. That notion of alchemy has led me to two additional sources ; a footnote by the American editor of M'Culloch's Outlines of Political Economy, John M'Vickar and the article by Wennerlind. M'Vickar's footnote shares Rasbotham's unrestrained enthusiasm for commerce but makes explicit the allusion to alchemy:

The Moral Philosophers' Stone: A Compleat History of 'A Certain Quantity of Labour to be Performed'

Two weeks ago a hunch about Charles Dickens and Edward Carleton Tufnell led me to the discovery of what I surmised might be the prototype of the idea that has come to be known to economists as "the lump of labor." To my surprise, it was a subtle and articulate defense by a fairly prominent early 19th century political economist of the proposition that "...there is a certain quantity of work to be done; and this quantity, generally speaking, does not admit of being much extended, merely on the temptation of labour being offered at a cheaper rate..."

The author was the Scottish church leader, Thomas Chalmers, whose neglected 1808 treatise on "the Extent and Stability of Natural Resources" has been described by A. M. C. Waterman as a "missing link" between T. R. Malthus and David Ricardo. Chalmers's later article appeared in the May 1820 issue of the Edinburgh Review, the flagship journal of Whig political economy.

Alas, my Eureka moment was destined to be short-lived, however, because one week later, while searching the Goldsmiths'-Kress archives for a quote from James Phillips Kay's The Moral and Physical Condition of the Working Classes Employed in the Cotton Manufacture in Manchester, I discovered an even more venerable specimen in a pamphlet signed "A Friend of the Poor" but attributed to a gentleman with the picturesque handle of Dorning Rasbotham, Esq. The 1780 pamphlet, "Thoughts on the Use of Machines in the Cotton Manufacture," was written in response to disturbances occasioned by the introduction of Richard Arkwright's spinning jenny. The following passage contains the tell-tale phrase, "a certain quantity of labour to be performed" and pronounces the alleged principle false:

There is, say they, a certain quantity of labour to be performed. This used to be performed by hands, without machines, or with very little help from them. But if now machines perform a larger share than before, suppose one fourth part, so many hands as are necessary to work that fourth part, will be thrown out of work, or suffer in their wages. The principle itself is false. There is not a precise limited quantity of labour, beyond which there is no demand. Trade is not hemmed in by great walls, beyond which it cannot go. By bringing our goods cheaper and better to market, we open new markets, we get new customers, we encrease the quantity of labour necessary to supply these, and thus we are encouraged to push on, in hope of still new advantages. A cheap market will always be full of customers.

Now, "a certain quantity of work to be done" was part of the the dictionary definition of the verb, to task, that is, to assign a person to perform a certain amount (and kind) of work within a particular time and place. It is useful to keep this definition in mind because the difference between Rasbotham's "certain quantity of labour" and Chalmers's "certain quantity of work" commences in a not-so-subtle shift from an indefinite abstract possibility to a finite empirical fact. But the latter fact is not some crude, static "assumption" -- it is a theoretically-refined empirical prediction, which takes into account both the abstract indefiniteness and the practical constraints upon realizing that theoretical potential.

In terms of both chronology and demonstrated familiarity with the "founding fathers" of classical political economy, Chalmers must be presumed to have an edge over Rasbotham. This is not to say that he is necessarily right, only that it would be presumptuous to dismiss his claim peremptorily -- to "view [it] with contempt," as Paul Krugman put it.

In modern terms, the second part of Chambers's sentence -- "...this quantity, generally speaking, does not admit of being much extended, merely on the temptation of labour being offered at a cheaper rate..." -- expresses the concept of the price elasticity of demand. In fact, Chambers uses the term, "elasticity," to describe the phenomenon. By contrast, Rasbotham's pamphlet deals optimistically in stark dichotomies of good versus bad effects, with the preponderance of expected benefits rendering "some little difficulty, in particular cases... a sacrifice we ought to make chearfully for the common good."

In an 1827 essay on the progress and prospects of the British cotton industry, John Ramsay M'Culloch judged Rasbotham's opinion as having been proven sound by the results, employment rising from less than 30,000 in 1767 to nearly a million fifty years later, concluding "There is, in fact, no idea so groundless and absurd, as that which supposes that an increased facility of production can under any circumstances be injurious to the labourers" [emphasis added]. Not under any circumstances?

continued: see The Elixir of Commerce

"Whilst the CITATION Engine Runs..."

"Whilst the engine runs the people must work men, women, and children are yoked together with iron and steam. The animal machine breakable in the best case, subject to a thousand sources of suffering is chained fast to the iron machine, which knows no suffering and no weariness." -- mistakenly attributed to James Phillips Kay, The Moral and Physical Condition of the Working Classes in the Cotton Manufacture, "page 24"

The origin of the above error was apparently A History of Factory Legislation by B. L. Hutchins and A. Harrison, published in 1903. Subsequent authors have cited Kay as the source, often without acknowledging where they actually read the quote. The two quotes below were presented consecutively in The History of the Cotton Manufacture in Great Britain by Edward Baines, 1835.

While the engine works, the people must work. Men, women, and children, are thus yokefellows with iron and steam; the animal machine – fragile at best, subject to a thousand sources of suffering, and doomed by nature, in its best state to a short-lived existence, changing every moment, and hastening to decay – is matched with an iron machine insensible to suffering and fatigue; all this moreover, in an atmosphere of flax-dust, for 12 or 13 hours a day, and for six days in a week. -- Charles Turner Thackrah, The effects of arts, trades and professions and of civic states and habits of living on health and longevity : with suggestions for the removal of many of the agents which produce disease and shorten the duration of life- 2d ed., 1832.

The operatives are congregated in rooms and workshops during twelve hours in the day, in an enervating, heated atmosphere, which is frequently loaded with dust or filaments of cotton, or impure from constant respiration, or from other causes. They are engaged in an employment which absorbs their attention, and unremittingly employs their physical energies. They are drudges who watch the movements, and assist the operations, of a mighty material force, which toils with an energy ever unconscious of fatigue. The persevering labour of the operative must rival the mathematical precision, in incessant motion, and the exhaustless power of the machine. -- James Phillips Kay, The Moral and Physical Condition of the Working Classes in the Cotton Manufacture, 2d ed., 1832

My Dinner with Maynard: “On this point you are more Keynesian than I.”

Keynes to J. M. Clark, July 26, 1941:

As you will have gathered the other evening, I agree with what you say about the danger of a 'school,' even when it is one's own. There is great danger in quantitative forecasts which are based exclusively on statistics relating to conditions by no means parallel. I have tried to persuade Gilbert and Humphrey and Salant that they should be more cautious. I have also tried to persuade them that they have tended to neglect certain theoretical considerations which are important, in the interests of simplifying their statistical task.

From "Recollections of a Dinner for John Maynard Keynes," F. Taylor Ostrander, (2002) Research in the History of Economic Thought and Methodology, Volume 20-A, pages 43–50.

Leon Henderson arranged and was host of the dinner for Keynes. It was held on Tuesday June 10, 1941 in a private dining room at the National Press Club. Present were Keynes, Henderson and his two deputies Ken Galbraith and Joe Wiener and his guests: Sumner Pike, a member of the Securities and Exchange Commission; Isador Lubin, one of the six assistants to the President; Professor Jacob Viner, economic consultant to Secretary Morgenthau; and John Cassels.

Also present were two senior advisors to Henderson, Columbia Professor J. M. Clark and Duke Professor Calvin B. Hoover.

...

Everyone present knew Keynes’ famous brochure published in early 1940, How to Pay for the War, in which he advocated very strong fiscal restraint on civilian consumption including “compulsory saving.” Most were also aware of the National Income White Paper issued at the time of the Budget speech in March 1941, just three months before the dinner, in which its authors, James Meade and Richard Stone, working in collaboration with Keynes, had buttressed his view of the need for strong anti-inflationary wartime fiscal policy in Britain. Predictably, in his after-dinner talk Keynes repeated those views he had set out before and applied them to the American scene. Although the U.S. was not yet at war, Keynes urged increased fiscal restraint in the U.S. in order to be better prepared to prevent inflation resulting from our defense build-up and Allied purchases of war materials.

A general discussion followed Keynes’ long and detailed talk. Walter Salant and Don Humphrey, who sat opposite Keynes at the inside of the U-shaped table, argued strongly that increased fiscal restraint was not then needed in America as it would inhibit further progress in reducing unemployment. Challenging Keynes, they argued that Keynesian principles required that all resources be fully employed before applying fiscal restraint.

Keynes responded to their argument, gently but without giving any ground. The two young American economists continued to argue with the famous man until some of us felt it almost embarrassing to watch. Finally Keynes, obviously somewhat displeased, pushed his chair back from the table and brought the debate to an end as he said, rather sharply, “On this point you are more Keynesian than I.” It was an electrifying moment, never to be forgotten!