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It’s the Thought that Counts: A Review of Stephen Davies’ The Wealth Explosion, Part Two– The Davies Difference: Elite Buy-in

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Click here to read Part 1 of this review.

 

The Davies Difference: Elite Buy-in 

The first part of this review ended with the observation that what Deirdre McCloskey sees as vital for the kind of “wealth explosion” that she and Davies discuss is the reorientation of  human perception away from an earlier focus upon limits and constraints to one of potentialities and opportunities.

Both McCloskey and Davies recognize that one can almost see just such a shift occurring in other places like Song China. Both the experience of material betterment as well as certain philosophical orientations to various conceptions of improvement might well have afforded similar processes of advancement. But they were eventually thwarted (85-98). Why? For Davies, it is not sufficient that the ruling classes were unable to squelch the ideas of betterment circulating in the West. That is too passive an understanding of history. “There has to be,” Davies contends, “another agent that accounts for the impact of ideas” (50). For Davies, the key factor is not the ideas nor the specific value of betterment alone, but who buys into those beliefs. 

Certainly it is necessary that the value of personal betterment permeate society as a whole, but it matters more, at least initially according to Davies, that certain groups get there early in the historical process. If those with the power to compel and kill do not also buy into those ideas, then the growth and potential for improvement remain only precarious at best. Thus, according to Davies, when the emperor of China and his vast retinue of military and bureaucratic retainers shifted the focus away from commerce and the seas after the end of the Song Dynasty and compelled their commercial classes to divert attention away from invention and entrepreneurship, they essentially damned up the streams of betterment for everyone else.  

This, then, is the explanation for why the wealth explosion occurred where it did. For Davies we must first explain why those who wielded power did not squelch or suppress the value of self-improvement, but actively came to embrace and encourage it (65). Interestingly, this story is one that can cut two ways depending on how one conceptualizes the human condition. It is either the story of competition and anti-monopoly or it is one of improved administration and state capacity. From my vantage point as a historian, I favor the first, and have argued this with Johnson and Koyama before. Davies sharpens the historian’s perception of why that explanation must be so.

Competition has a powerful role in preventing monopoly in both economics and politics. As any good economist accepts, the ability to constrain others from entering a market can have serious deleterious consequences both for the betterment of consumers but also for innovation and adaptation. There are, of course, anecdotal examples that seem to go counter to that tendency, but everywhere these are temporary and unstable. Such is the case with the great German industrial cartels. Where productivity and even production are enhanced by such state fostered conglomerations, there eventually arise strong counter currents of path dependency leading to ossification and the reduction of opportunities for adaptation. But is it enough simply to prevent monopoly from taking hold to ensure the spread of the value of betterment?

If you are born to the purple, you are already “better.” What necessity is there to become better still? Even more problematic, why would you want to increase the well-being of those beneath you? It could very likely lead to the possibility of others displacing your particular place in the great chain of being. Davies contends that there must be a further hook to get those in power to buy into the betterment movement. Dreaming of the glories of Rome, and the potential for empires in the future, the ruling elites of Europe had an incentive to think differently than their Chinese counterparts who were already well ensconced within a coherent and still functioning imperial system. 

To the initial condition of decentralized and fractured politics in Europe, Davies adds the active, even desperate, searching for new channels of power among the aristocrats of late medieval times. What this means is that the elites were ready and waiting for any indication that would signal the chance to overcome a rival neighboring power, and this fostered a search both for innovative ways to raise money and develop new military techniques (115-119). 

From here Davies can establish the primacy of ideas in the processes of institutional context for a very specific kind of phenomenon. The lords soon recognized that one way to deal with the limits of their rural lives was to hitch a ride on the carts of merchant wealth, because only this could serve as a source for the constant flow of income necessary to sustain permanent military establishments: “Above all it required a much larger tax base and a more efficient means of raising funds through either taxes or loans” (114). 

Ideas and Competition 

Davies sets out an extensive bibliographic trail at the end of each chapter that leads the reader to see that many different modes of tapping the wealth of commerce were tried ranging from predatory to parasitic to symbiotic. The context of Europe’s divisions ensured a long interval for many experiments and the result was a variety of more or less parasitic/symbiotic hybrids. One tributary would lead to the modern nation-state. But here I believe Davies could have emphasized, far more than he does, a very particular kind of institutional development that went hand in hand with the fractured, decentralized politics of the European peninsula.  

I would have stressed the crucial role of cities and especially the leagues of cities like the Hansa, which eventually fed into the rise of the great merchant republic of the Dutch. The seedbed of thought for these developments was already well fertilized before the modern nation-state had come into being. Davies mentions Jane Jacobs and Hendrik Spruyt  among other authors, but I think the phenomenon gets lost in his rush to make the competitive argument. Cites were cultural centers as well as the quintessential expression of Europe’s decentralized state of affairs (4, 40, 42, 68-69).

The importance of cities as the seed bed for most of the ideas of betterment has of course been long known, and McCloskey has also given them a powerful place in her narrative. If we enter in closely to understand them we find that they were not modern states, nor were they the completely free products of spontaneous action. They were something far more interesting and heterogeneous in nature, reflecting their origins within the interstices of more traditional territorial powers.

Writers in camps favoring either endogenous ideational or exogenous environmental processes have long pinpointed the fact that the cities developed between landed, predominantly rural, fiefdoms. One finds this both in Harold Berman and Randal Collins, for example, and in Douglas North and E. L. Jones. Such cities were meeting places of merchants, and while they might have a charter from one lord, they were never adverse to switching allegiance to another. 

As was true among most of the earliest examples of chartered corporations, cities possessed a strong element of private voluntary association about them. Their relations with particular lords partook of the quasi-private and public relations that permeated all medieval social ties. Lords were themselves as much proprietors of the soil as they were the overlords of their vassals. 

But like the lords on their manors, the cities also made and enforced their own laws. They made their own wars. And they formed their various alliances both with landed elites and with other cities.  Rather than proto-modern states, as Hendrik Spruyt has pointed out (a book that ought to be in Davies’s otherwise extensive surveys) , they were an early and viable alternative form of defensible order. They attracted the attention of all the great lords and soon-to-be greater kings. Along with the attraction of their wealth there was the explicit culture of betterment already on display. 

As it is though, Davies’s essential point comes through loud and clear. All of the various polities of whatever form in Europe became increasingly better at fielding armies and fostering innovations in the arts of war. More importantly though, they preserved enough parity with one another that none succeeded in monopolizing power over the whole of the continent. 

Charles V and Phillip II provide Davies with his major illustration of the failure to establish a European wide hegemon or monopoly of imperial control. Exhausted, Charles retired and broke up large chunks of his empire among his heirs, and Phillip overreached after his initial victories in Holland, resulting in the resurgence of the low countries in 1587 and the rise of the English and French as countervailing forces (144-152). All of this meant that the elite would continue to compete, and betterment would continue to permeate the cultural landscape.

 

Conclusion: State Capacities or Limited States?

So how should this story be characterized? 

Certainly more efficient political units are one result of competitive processes, and that might tempt some to privilege the role of state capacity in the creation of the subsequent boom that was the wealth explosion. At best, however, such a conception puts the cart before the horse. This can be garnered from Koyama and Johnson’s own work: “State capacity” they argue, “need not promote economic growth.” In fact, even “States with high capacity can pursue destructive economic policies.” Rather, it is only when we get states who are “constrained by law” that we get the desired boom. But what will do this? 

As Davies’s summation of the literature shows, the boom was entirely the product of the competition that decentralization enforced. It is not a foregone conclusion that the only political form that has capacity is the nation state (see again, Spruyt’s The Nation State and Its Competitors). Various types of states can be held more or less in check by the processes of competition, and in these arrangements cities and leagues formed the most salient spaces for the early development of the ideas of equal protection of the laws and individual moral equality. 

To focus on capacity, then, merely begs the question of capacity for what end? Betterment for the sake of destroying your enemy is not quite the same as betterment for betterment’s sake. To privilege the political tempts us to take our eyes off the needful limits that must always be imposed on coercive power. Davie’s history places our attention right where it needs to be: anti-monopoly and competition. While he has not addressed the state capacity writers directly, he has in fact provided a powerful response to their position, one that is more consonant with what we know of ourselves, past and present. When it comes to human action, it’s the thought that counts.

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Economy

Campos: The Trump Delusion—Noted

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Paul Campos: The Trump Delusion https://www.lawyersgunsmoneyblog.com/2020/06/the-trump-delusion: ‘How is it that, despite everything, 40% of America continues to support Donald Trump? I’ve suggested that Trump’s supporters can be sorted into a few broad categories, with many of those supporters belonging to more than one of these groups: White nationalists…. Alienated burn it all down anti-establishment types…. Upper class Republicans who want big tax cut…. Religious conservatives, overwhelmingly white evangelicals…. Low information voters who always vote Republican out of tribal habit. These people have the most fantastical ideas about Trump, such as for example that he’s a “successful businessman,” rather than a “politician,” which is why he manages to “get things done.” This last group in particular includes a lot of overlap with the more cultish strain of religious conservatives…. Relatively few people are capable of maintaining a genuine lesser of two evils attitude toward the leader of an essentially charismatic—to use Weber’s typology—political movement. Almost everyone in the movement must eventually embrace the delusion that the leader is actually a good person, despite all evidence to the contrary. For example, the following message has gone viral on social media over the last few days. The text is headed by the photo at the top of this post:

Anonymous: 'Let’s look at this man for one damn second!!!! A 74-year-old man is coming back home from work at 2 AM while most men his age are retired in their vacation homes. He comes back after a long day that probably started before the sun rose and gets back home exhausted with his tie open and hat in his hand, feeling that an accomplished day is finally over…

…This amazing man is in the age range of many people’s grandfathers, great grandfathers, or my grandfather when he passed away, but this man just came back home from work, for me, for you. This man left his massive gold-covered mansion where he could retire happily and play golf all day long. But this man put his wealth aside and went to work for free, for $1 a year, for me, for you, for us, for AMERICA.

While other presidents became rich from the presidency, this man LOST over 2 billion dollars of his wealth during this short 4 years of his life. He put aside his amazing retirement lifestyle for getting ambushed every single day by the media and the Radical Left Democrats that trash this man who works for them until 1 AM for free!

No, he doesn’t do it for money or power, he already had it. He is doing it so their houses will be safe, so their schools will get better, so they will be able to find jobs or start a new business easier, so they will be able to keep few dollars in their pockets at the end of the month.

Look at this picture again, that man is at the age of your fathers, grandfathers or maybe YOU! Where is your respect? Honor? Appreciation? Are you THAT BLIND? THAT BLIND to not see a thing this man is doing for you and for your family? THAT BLIND that after all his work for minority groups in America you keep calling him a racist? I am the son of an Auschwitz Survivor and someone who lost 99% of my family to the camps and ovens of Nazi Germany. And I’m no fool! DONALD TRUMP IS NO RACIST OR ANTI-SEMITE!

Are you THAT BLIND to not see how much this country developed in last 4 years? President Donald J. Trump, I want to thank you with all my heart. I am so sorry for blind hatred you have been made to endure. You are a good and generous man. I KNOW THIS.

What I don’t know and think about often is what kind of people is it who can be so hateful in their hearts to spew such hate and evilness, not just at you but at your family too? Or people mocking and making jokes of you because you’re not a professional politician groomed in speech making and straight faced lying. Or how about them attacking your wife and young son? How awful that must make you feel.

People are sure they have not been manipulated. People believe their hatred is their own. But for why, they can’t articulate. What kind of people are these? WHAT KIND OF PEOPLE ARE THESE?? People not realizing they have been manipulated and brainwashed by such a deep-rooted EVILNESS MOTIVATED BY AN EVIL MEDIA AND DEMOCRAT PARTY. The American People are in a bad place right now….in their hearts and souls. God help us…Trump is not the problem.

This level of frankly delusional thinking is, I believe, far more common than either an enthusiastic embrace of anyone resembling the actual Donald Trump, or the sort of arms-length transactional support of people who recognize him for what he is, but have concluded that Paris is worth a mass.

Which is a fancy way of saying that a lot of his supporters are, at this point, basically insane.

…Meanwhile:

Aaron Rupar: 'This morning, Trump retweeted a QAnon account, thanked supporters of his who were filmed yelling “white power,” and issued a misleading non-denial of a story about him turning a blind eye while Russia offered bounties for US troops. All before 9 am…

.#noted #2020-07-10



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Economy

Dorothy Theresa Sawchak Mankiw

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Above is a picture of my mother as a young woman. I would like to tell you about her.

My mother was born on July 18, 1927, the second child of Nicholas and Catherine Sawchak.

Nicholas and Catherine were immigrants from Ukraine. They came to the United States as teenagers, arriving separately, neither with more than a fourth-grade education. Catherine was from a farming area in western Ukraine. She left because her family wanted her to marry an older man rather than her younger boyfriend, who had been conscripted into the army. Her first job here was as a maid. Nicholas was from Kiev, where he had been trained to be a furrier. In the United States, he worked as a potter, making sinks and toilettes. When Nicholas and Catherine came to the United States, they thought they might return home to Ukraine eventually. But World War I and the Russian Revolution intervened, causing a change of plans. Catherine’s boyfriend died in the war. Nicholas and Catherine met each other, married, and settled in a small row house in Trenton, New Jersey, where they lived the rest of their lives.

Catherine and Nicholas had two children, my uncle Walter and my mother Dorothy. When my mother was born, her parents chose to name her “Dorothy Theresa Sawchak.” But because Catherine spoke with a heavy accent, the clerk preparing the birth certificate did not understand her. So officially, my mother’s middle name was “Tessie” rather than “Theresa.” She never bothered to change it.

Nicholas and Catherine were hardworking and frugal. They saved enough to send Walter to college and medical school. He served as a physician in the army during the Korean war. Once I asked him if he worked at a MASH unit, like in the TV show. He said no, he worked closer to the front. He patched up the wounded soldiers the best he could and then sent them to a MASH unit to recover and receive more treatment. After the war, he became a pathologist in a Trenton-area hospital. He married and had two daughters, my cousins.

My mother attended Trenton High School (the same high school, I learned years later, attended by the economist Robert Solow at about the same time). She danced ballet. She water-skied on the Delaware River. She loved to read and go to the movies.

In part because of limited resources and in part because of the gender bias of the time, my mother was not given the chance to go to college. Years later, her parents would say that not giving her that opportunity was one of their great regrets. Instead, my mother learned to be a hairdresser. She was also pressured to marry the son of some family friends.

The marriage did not work. With my mother pregnant, her new husband started “running around,” my mother’s euphemism for infidelity. They divorced, and she kicked him out of her life. But the marriage did leave her with one blessing—my sister Peg.

My mother continued life as a single mother. Some years later, she met my father, also named Nicholas, through social functions run by local Ukrainian churches. They both loved to dance. He wanted to marry her, but having been burned once, she was reluctant at first. Only when she realized that he had become her best friend did she finally accept.

In 1958, nine months after I was born, Mom, Dad, Peg, and I left Trenton for a newly built split-level house in Cranford, New Jersey. My father was working for Western Electric, an arm of AT&T, first as a draftsman and then as an electrical engineer. He worked there until his retirement. One of his specialties was battery design. When I was growing up, I thought it sounded incredibly boring. Now I realize how important it is.

My mother then stopped working as a hairdresser to become a full-time mom. But she kept all the hairdresser equipment from her shop—chair, mirrors, scissors, razors, and so on—in our basement. She would cut the hair of her friends on a part-time basis. When I was a small boy, she cut my hair as well.

I attended the Brookside School, the public grade school which was a short walk from our house. When I was in the second or third grade, my mother was called in to see the teacher. The class had been given some standardized aptitude test. “Greg did well,” the teacher said. “We were very surprised.”

At that moment, my mother decided the school was not working out for me. I was talkative and inquisitive at home but shy and lackluster at school. I needed a change.

She started looking around for the best school she could find for me. She decided it was The Pingry School, an independent day school about a dozen miles from our house. She had me apply, and I was accepted.

The question then became, how to pay for it? Pingry was expensive, and we did not have a lot of extra money. My mother decided that she needed to return to work.

She started looking for a job, and an extraordinary opportunity presented itself. Union County, where we lived, was opening a public vocational school, and they were looking for teachers. She applied to be the cosmetology teacher and was hired.

There was, however, a glitch. The teachers, even though teaching trades like hairdressing, needed teacher certification. That required a certain number of college courses, and my mother had not taken any. So she got a temporary reprieve from the requirement. While teaching at the vocational school during the day, she started taking college courses at night to earn her certification, all while raising two children.

My mother taught at the vocational school until her retirement. During that time, she also co-authored a couple of books, called Beauty Culture I and II, which were teacher’s guides. From the summary of the first volume: “The syllabus is divided into six sections and includes the following areas of instruction: shop, school, and the cosmetologist; sterilization practices in the beauty salon; scalp and hair applications and shampooing; hair styling; manicuring; and hairpressing and iron curling.” I suppose one might view this project as a harbinger of my career as a textbook author.

When my parents both retired, they were still the best of friends. They traveled together, exploring the world in ways that were impossible when they were younger and poorer. During my third year as an economics professor, I was visiting the LSE for about a month. I encouraged my parents to come over to London for a week or so. They had a grand time. I believe it was the first time they had ever visited Europe. When I was growing up, vacations were usually at the Jersey shore.

My father died a few years later. My mother spent the next three decades living alone. She was then living full-time at the Jersey shore in Brant Beach on Long Beach Island. The house was close to the ocean and large enough to encourage her growing family to come for extended visits. Two children, five grandchildren, four great-grandchildren. The more, the merrier. Nothing made her happier than being surrounded by family.

My mother loved to cook, especially the Ukrainian dishes she learned in her childhood. Holubtsi (stuffed cabbage) was a specialty. Another was kapusta (cabbage) soup. One time, the local newspaper offered to publish her kapusta soup recipe. They did so, but with an error. Every seasoning that was supposed to be measured in teaspoons was printed as tablespoons. The paper later ran a correction but probably to no avail. I am not sure if anyone ever tried the misprinted recipe and, if so, to what end.

During her free time in her later years, my mother read extensively, played FreeCell on her computer, and watched TV. A few years ago, when she was about 90 years old, I was visiting her, and I happened to mention the show “Breaking Bad.” She had not heard of it. She suggested we watch the first episode. And then another. And another. After I left, she binge-watched all five seasons.

As she aged, living alone became harder. When she had trouble going up and down the stairs, an elevator was added to her house. But slowly her balance faltered, and she fell several times. She started having small strokes, and then a more significant one. She moved into a nursing home. Whenever I visited, I brought her new books to read. Her love of reading never diminished.

This is, I am afraid, where the story ends. Last week, Dorothy Theresa Sawchak Mankiw tested positive for Covid-19. Yesterday, she died. I will miss her.



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Economy

Quotation of the Day…

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… is from page 373 of Matt Ridley’s marvelous new (2020) book, How Innovation Works: And Why It Flourishes in Freedom; it’s the first line of the book’s final paragraph:

Innovation is the child of freedom and the parent of prosperity.

DBx: Innovation cannot be planned. Further, innovation necessarily disrupts plans.

If existing plans are many and competing, adjusted to each other with market prices reflecting resource scarcities and consumer preferences, innovation in one part of the economy ripples through causing changes in prices. The feasibility of some plans is enhanced while other plans must be significantly altered or even abandoned. But because there is no overall plan for the economy, there is no need for an overhaul of one giant plan.

Importantly, no one in a free market has the right to prevent innovation simply because some particular innovation will disrupt his or her plan.

To the extent that government imposes a plan on the economy or any significant sector of it, government’s tendency will be to stifle innovation. Government officials, after all, are no more able to foresee the details of the future than are we ordinary mortals. And so innovation will disrupt their plan.

An advocate of government planning can easily say that government would respond to innovation just as do entrepreneurs and consumers in the private market – namely, by changing its plan. But unlike private-market actors, government officials have the power to coercively prevent innovation or to suppress its introduction. In this way, government officials categorically differ from private-market actors, who have no such power (except when government acts on their behalf).

If government officials respond to innovation in much the same way as do private-market actors, the government’s plan doesn’t serve the purpose that it is meant to serve. The whole idea of industrial policy is to use government power to override market forces in the determination of patterns of production and consumption.

Advocates of planning can continue saying things – saying that government officials will accommodate innovations that further the purpose of the plan and will reject only those innovations that are likely to obstruct fulfillment the plan’s purposes. Saying such things is easy for word peddlers who imagine and write eloquently about what god-like creatures might do with other people’s money and property.

But an economy in which innovation plays a role is by nature open-ended. Its future cannot be foreseen in any detail. There is simply no way for government officials to know that innovation X will disrupt the government’s plan and that innovation Y will not. Remember: industrial-policy advocates regard as a feature, not a bug, of such government planning that it ultimately can and will override the information conveyed by market prices.

Able to spend other people’s money, government officials are simply too likely to reject innovations that threaten to disrupt their plans. Government officials are not entrepreneurs skilled at satisfying voluntarily expressed demands; they are politicians and commissars skilled at, in the case of politicians, winning elections, and in the case of bureaucrats, following orders. And in both cases these officials are in the habit of telling other people what to do rather than, as is the habit of entrepreneurs, asking other people what they want.

The post Quotation of the Day… appeared first on Cafe Hayek.



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