Tuesday, July 24, 2012

A Cheap Market Will Always Be Full of Customers

Arthur David [Schloss] Waley
The Way that can be told of is not an Unvarying Way;

The names that can be named are not unvarying names.

It was from the Nameless that Heaven and Earth sprang;

The named is but the mother that rears the ten thousand creatures, each after its kind.

Truly, “Only he that rids himself forever of desire can see the Secret Essences”;

He that has never rid himself of desire can see only the Outcomes.

These two things issued from the same mould, but nevertheless are different in name.

This “same mould” we can but call the Mystery,

Or rather the “Darker than any Mystery,”

The Doorway whence issued all Secret Essences.
-- Tao Te Ching, Chapter One, translated by Arthur Waley
Arthur Waley -- who was Arthur Schloss until the outbreak of World War I led him to adopt his maternal grandfather's "non-alien" surname -- was the son of David F. Schloss, author of Methods of Industrial Remuneration, who, in 1891 coined the whimsical expression, the "Theory of the Lump of Labour."

Waley was a prolific translator of classical and historical Chinese and Japanese texts, including the Tao Te Ching and The Analects of Confucius. He translated the third saying of Book II of the Analects as:
Govern the people by regulations, keep order among them by chastisements, and they will flee from you, and lose all self-respect. Govern them by moral force, keep order by ritual and they will keep their self-respect and come to you of their own accord.
As Peter K. Yu explained, "Under the Confucian tradition, the Chinese lived by the concept of li (rites), rather than the concept of fa (law). While li covered a whole range of political, social, and familial relationships that encompassed a harmonious Confucian society, fa represented penal laws that were associated with punishment and the maintenance of public order." Waling discussed the meaning and role of ritual at length in his introduction to the Analects, observing:
Anthropologists are or were in the habit of trying to discover the 'real reasons' why particular injunctions or prohibitions were imposed among primitives. If the reason given by the people themselves seemed to them trivial or unintelligible they set it down as a rationalization or, alternatively, attributed it to secretiveness regarding the "real reason."

The truth, however, is that there is no 'real reason' for ritual acts. In any community where the performance of such acts is linked to a general system of thought, they will be explained in terms of that system. If the system changes, as frequently happen, without disturbing the ritual acts, they will be reinterpreted in terms of the new system.
I like that. No 'real reason' for ritual acts. They are just something that people keep doing. There is no doubt some intrinsic pleasure, satisfaction or relief that comes from the ritual acts' tautological appropriateness. One feels one has done the "right" thing when one has done the rite thing!

Waling's paraphrase of the first chapter of the Tao indicates a similar concern to Confucius with the inability of codified law -- accompanied by appropriate rewards and punishments assigned to deeds beneficial or harmful to the State -- to fully grasp the essences of things. "The Realist," he explained, "...sees only the 'ultimate results'... never the essences themselves."

In his 1891 article, "Why Working Men Dislike Piece Work," Arthur Waling's father, David F. Schloss, reported a conversation with a laborer making washers on piece work. "I know I am doing wrong," Schloss quotes him. "I am taking away the work of another man. But I have permission from the Society." It was to those italicized passages that Schloss assigned the name, "the Theory of the Lump of Labour."

But recall the Tao Te Ching admonition about "names that can be named are not unvarying names." The remarkable thing about the laborer referred to by Schloss is that he was working in violation of, not in conformity to, the dictates of his supposed theory and, furthermore, he had permission from his union to do so. This unnamed washer-boring workman has the distinction of being one of the very few individuals whose spoken words (whether authentic or apocryphal) have been cited in evidence of a belief in the alleged lump-of-labour theory. By contrast, Tom Mann, a prominent agitator for the eight-hour day, "looked for the absorption of the unemployed by the distribution of work; while disclaiming the fallacy that there is only a fixed amount of work to be done."

In fact, disclaiming the alleged fallacy had been honed to a fine edge decades before Schloss coined the quaint 'lump-of-labour' sobriquet. The transactions of a miners' conference held at Leeds in 1863 contained an introductory report that astutely mocked the hypocrisy of political economists and employers who, on the one hand, decried the "ignorance and folly" of those who would attempt to regulate grievously long hours, which were supposedly the "infallible and inevitable result of demand and supply" while "constantly telling the men that wages must be reduced in consequence of over-supply [of labor]." Meanwhile, the coal-owners themselves maintained restrictions on the production of coal -- known as "the limitation of the vend" -- from 1771 to 1845.

"Unvarying" is the supposed quantity of labor to be performed, allegedly assumed by the typically anonymous offender against the fallacy taboo.
At the bottom of these contrivances for artificially increasing the amount of employment, there seems to lurk the fallacy of supposing that the labour required to be done in any department of trade, or in the country generally, is a fixed quantity; therefore, in order to secure an aliquot portion of it to the greatest number, the labour must be spread out thin. The teaching of sound Political Economy is directly the reverse of this.
wrote the author of an article on Trades Unions in the Edinburgh Review of 1867.
The League is only an offshoot of the Unions... Their theory is that the amount of work to be done is a fixed quantity, and that in the interest of the operatives, it is necessary to spread it thin in order to make it go far.
wrote the London correspondent to the New York Times in 1871.
The root of the mania which has had such a disastrous effect on the material prosperity of the country, and, above all, of the working classes, is the idea that the amount of work to be done is a fixed quantity, quite independent of any efforts which may be made to encourage and stimulate demand, and that, therefore, the best course is to spread it thin in order to make it go as far as possible.
is how the author of an article in The Saturday Review of Politics, Literature, Science and Art put it in 1876.

"These people think that the amount of work to be done is a fixed quantity." "If we are to proceed on the assumption that the amount of work to be done is a fixed quantity..." "The theory of the Lump of Labour will be seen to rest upon the utterly untenable supposition that a fixed amount of work exists." "But there is not, as this argument assumes, a fixed Work-Fund, a certain amount of work which has to be done, whatever the price of labour." "The Leaders of the Federation said that there was a certain amount of work to be done in Atlantis..." "The notion is that there is exactly so much labor predetermined to be done; therefore, if machines are introduced, there is that much less for men to do..." "This means, roughly speaking, that there is a certain total number of hours of work to be done each week." "This view -- that the amount of work to be done is fixed -- is called the lump-of-labor fallacy." "Very similar to the general overproduction fallacy is the erroneous belief that there is only a certain amount of work in the community to be done..."

"At the bottom of these contrivances..."

"We have touched the fallacy which lies at the bottom of this whole system..."

"The real question which lies at the bottom of the dispute..."

"The root of the mania..."

Getting to the bottom of the fallacy claim took 15 years of patient, persistent inquiry. The economists who pedantically recite the fallacy claim and insist upon its authority know nothing of its origins (or, for that matter, its subsequent career)! The lump-of-labour label was a late Victorian addendum that alluded impishly to the colloquial term for a kind of labor sub-contracting, "lump work," which explicitly specified the amount of work to be done as a fixed quantity. Henry Mayhew chronicled the practice in his mid-century reportage on "London Labour and the London Poor":
It is this contract or lump work which constitutes the great evil of the carpenter's, as well as of many other trades; and as in those crafts, so in this, we find that the lower the wages are reduced the greater becomes the number of trading operatives or middlemen...

"Lump" work, "piece" work, work by "the job," are all portions of the contract system. The principle is the same. "Here is this work to be done, what will you undertake to do it for?"
So, if lump work was by definition "a fixed amount of work to be done" from whence does the "fallacy" arise? The lump-of-labour and its antecedent, lump work, turn out to be blind alleys. The origin of the fallacy claim had to do with the introduction of machinery rather than with piece-work or working time (not to mention immigration or early retirement). Dorning Rasbotham, a magistrate in the county of Lancashire, England, published a pamphlet, "Thoughts on the Use of Machines in the Cotton Manufacture," in 1780 in response to rioting that had occurred the previous year near Blackburn. In it, on page 18, occurs what appears to be the seminal instance of the fallacy claim, expressed in words unmistakably paraphrased by the now standard "fixed amount of work to be done":
Dorning Rasbotham, Esq.
"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. Men will cross land and sea to go thither."
Although virtually forgotten today, Rasbotham's pamphlet was well-enough known in the early 19th century for his views to have been cited with admiration by John R. M'Culloch in an 1827 Edinburgh Review article on the cotton industry:
Dorning Rasbotham, Esq., a magistrate near Bolton, printed some time about the period referred to, a sensible address to the weavers and spinners, in which he endeavoured to convince them that it was for their interest to encourage inventions for abridging labour. The result has shown the soundness of Mr Rasbotham's opinion.... 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.
Unlike David Schloss's account, more than a century later, of a conversation with a workman who subscribed to the Theory of the Lump of Labour, Rasbotham's pamphlet presented no indication of who "they" were who allegedly said there was "a certain quantity of labour to be performed." But it would be rash to judge his argument solely on this singular lack of evidence. Indeed, a careful reading of the pamphlet reveals this supposedly "sensible address to the weavers and spinners" to be a smug, patronizing exercise in diminishing the actual grievances of the working population while extolling the abstract virtues of trade and technology detached from the circumstances of their employment by the rich. The author who on the first page styles himself "from the bottom of my heart, a Friend to the Poor," concludes his peroration berating his erstwhile "friends" for their improvidence and their propensity to "carry their money to the Alehouse" rather than seize the burgeoning opportunities for self improvement. The real core of Squire Rasbotham's argument, though, occurs in the fourth of seven enumerated principles:
It is the use of Machines, which chiefly distinguishes men in society from men in a savage state. Some have thought it no bad description of a human being, that he is a tool-making, or a machine-making animal. What are the most common instruments or furniture of our houses, but machines to shorten labour? What is an ax, a hammer, a saw, a pair of bellows, but machines for this end? [...] If we must go upon the principle of having no machines, we must pull them all down, and bruise our corn in Mortars. -- What do I say? The Mortar and Pestle are machines for shortening labour. We mull crush our corn between two stones, or beat out the flour with sticks.
It is just such a disquisition as this Marx had in mind in the section in volume one of Capital titled, "The Theory of Compensation as Regards the Workpeople Displaced by Machinery," where he presented his parody of Bill Sikes, the villain from Oliver Twist, addressing the jury:
Gentlemen of the jury, no doubt the throat of this commercial traveler has been cut. But that is not my fault; it is the fault of the knife! Must we, for such a temporary inconvenience, abolish the use of the knife? Only consider! Where would agriculture and trade be without the knife? Is it not as beneficial in surgery as it is in anatomy? And in addition a willing help at the festive table? If you abolish the knife — you hurl us back into the depths of barbarism.
Marx's point, of course, was that it was not the machines that threw people out of work, any more than it was the knife that cut the throat of the traveling salesman. It was how the machines were used by those who owned them that threw people out of work. Similarly, the argument advanced by M'Culloch, James Mill, Robert Torrens, Nassau Senior and John Stuart Mill -- that "all machinery that displaces workmen, simultaneously and necessarily sets free an amount of capital adequate to employ the same identical workmen" -- was groundless. Instead,
The labourers that are thrown out of work in any branch of industry, can no doubt seek for employment in some other branch. If they find it, and thus renew the bond between them and the means of subsistence, this takes place only by the intermediary of a new and additional capital that is seeking investment; not at all by the intermediary of the capital that formerly employed them and was afterwards converted into machinery.
Note that Marx's specification of the necessity of "new and additional capital" is not at all the same thing as assuming that there is a fixed amount of work to be done. There is more work to be done; but whether or not it is done depends on additional investment. As Keynes phrased it some 60 years later, the economic system is not "self-adjusting" as assumed by "almost the whole body of organized economic thinking and doctrine of the last hundred years."

This self-adjusting, automatically-compensating for displacement doctrine made a notable appearance in William Stanley Jevons's speculations regarding The Coal Question and thus has implications for contemporary debates about energy consumption, conservation and climate change. Jevons maintained that, "It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth [emphasis in original]." He went on to explain:
William Stanley Jevons
As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.
If we are to subscribe to Marx's and Keynes's refutation of the self-adjusting, compensation principle, the 'good news' is that increasing energy efficiency doesn't necessarily lead to increased consumption, as the Jevons Paradox or 'rebound effect' implies. The bad news, though, is that it also doesn't apply to employment and whatever we might do to expand overall employment may increase the consumption of energy. This new dilemma may seem thornier than the Jevons Paradox itself unless we realize that it only applies to a conventionally codified conception of employment.

Friday, July 6, 2012

'Kick-starting the Recovery': An Open Letter to Jonathan Portes, Part II

Below is my response to Jonathan Portes's reply to my open letter of June 23. Jonathan Portes's reply to my first letter is reproduced with permission.