political economy Archives - The Pursuit of Happiness

Political economics is not for the faint of heart, as Deirdre McCloskey has learned from experience. The distinguished professor of economics, history, English, and communication at the University of Illinois at Chicago, not only has studied Karl Marx, but has looked at the phenomenon of why people study Karl Marx, even revere him in some cases, when they know he’s wrong.

In her most recent essay on Marx, McCloskey admits that Marx is a fascinating subject, even though saying so has caused her much consternation over the years.

I enrage my friends on the right by stating the obvious, that Marx was the greatest social scientist of the 19th century, without compare. But then I enrage my friends on the left by adding, which is my point here, that he was nonetheless mistaken on almost every point of economics and of history. Which is why I haven’t got any friends.

Marx’s legacy has endured to this day despite the error of his theories and overall wrongness of pretty much every facet of his arguments. Nonetheless, McCloskey describes how his lasting impact may be due to the tendency of Marxists — or “Marxians” or “Marxoids” as McCloskey describes their evolution over the decades — to romanticize that which sounds ideal, even if completely irredeemable in practice. Another part of it is the tendency to demonize everything anti-Marx as motivated purely by “evil,” in other words, by an expectation of profit. Still another part is a tendency of otherwise cordial Marxists to refuse to challenge one another, even when in general agreement with others’ conversation points.

McCloskey cites from her own experience.

Some years ago I mildly remarked to a gathering of my beloved Department of English at the University of Illinois at Chicago that the speaker who had just concluded his presentation, a fashionable Marxian imported from New York, just might not have got the economic history exactly right. The speaker responded in a sentence, “Oh, I see that you are a neoliberal” and sat down. That was it, and none of my colleagues, mostly themselves Marxians or Marxoids or cautious fellow travelers, would speak up to insist that he respond more fully to someone who after all had some claim to knowing a little about economics and history. I was startled by his exhibition of proud ignorance and saddened by the implicit agreement in the room that one is not to “listen, really listen, to one’s friends’ questions and objections” and certainly not to those of one’s party enemies. The result of a century of name-calling-as-argument, from “Bernsteinian revisionism” and “economism” to “bourgeois” and “neoliberal,” and not listening, really listening, has had the scientific result one might expect.

Part of its endurance may be that Marxism as a philosophy is “fairly easy to master, but sufficiently mysterious to attract young people,” McCloskey notes. It is like atheism in its “macho positivism” — it is “courageously tough,” hence its appeal in particular to males; and it is built on traditional, even biblical, narrative styles of storytelling — the underdog facing a stronger and more powerful challenger who has the ability, and perhaps even the inclination, to ruin those who get in his way. The capitalist Goliath vs. the David guildsman.

But, therein lies the starkest and most obvious problem with Marxism, McCloskey explains: the left’s “professionalization of history” is built upon an ahistorical foundation. The vernacular used by Marx has been completely repurposed, if not fully recast, to categorize individuals and groups as falling into one of two roles, despite all parts of the capitalist equation applying to all participants in all exchanges.

(Marx’s) foundational labor theory of value was wrong, as every serious student of the matter has agreed for the past century and a half. … (V)alue is determined by how much people want things, considering the income available, not by how much effort the seller put into the things, and that the wage is determined not by bargaining strength but by the market value of what the last worker produces, considering that free labor is a little mobile. …

Everyone buying labor, for example, is a “capitalist” by a consistent use of the word, and therefore “exploiting.” … (A)sk the inhabitants of the Indus valley civilization or those who traded with them in the third millennium BCE from the Horn of Africa or indirectly from Sumer if the trade was “exploitative.”

“Equal trade,” a phrase that floats in the background of many Marxian discussions of exchange, sounds generously wise. It is not. We trade precisely because we differ — if you wish because of a species of “inequality”— not because we pointlessly trade your frog for my identical frog of equal value to us both.

In truth, after all, “surplus value” is “extracted” every time you exchange anything for something else — or else you wouldn’t do it, would you, now? You are a “capitalist” when you buy a cup of coffee served by an “exploited” owner of a coffee shop. She gets the profit of a price higher than the lowest she would accept, and you get a cup of coffee for lower than the highest price you would accept—which is why exchange happens, earning a profit for both sides.

A member of the “working class,” such as you or I, gets profit likewise from our employments. The working class in any case is not peculiar to modern times. It has existed anciently … Under the Marxist definition of workers a CEO hired at $20,000,000 a year to drive Home Depot into the ditch is a worker, too, because he was hired. The “relations of production” therefore do not have the explanatory force that Marxists attribute to them. So the Marxist word “capitalist” and its derivative dating from (Werner) Sombart, “capitalism,” which are supposed to have historically unique relations of production, but don’t, serve to mislead people into thinking that there is something especially modern about banking and finance and profits (which is mistaken … ).

“Unequal bargaining power” and “unequal trade” can only mean market outcomes that we wish were different, wishing that the hungry farmer’s cotton sold for 15 cents rather than 10 cents a pound, that the Indian worker got $10 an hour instead of pennies. No one bargains when they have options, and markets, as against literal enslavements, bring options, however nasty.

No, market outcomes aren’t always equal, but over time, the overall outcome has been to lift incomes as well as human dignity by measurable and immeasurable sums.

Just as recently as 40 years ago, the world faced a bottom 4 billion out of a total human population of merely 5 billion, with no prospects. Now the abysmally poor are a bottom billion out of 7 billion, which is bad, but much, much better than in 1976, and historically unique.

Since 1976, that is, most of the poorest people in the world have been getting better off almost every year. From 1981 to 2008 the share of the world’s population living at the level of Afghanistan, a horrible $2 a day (expressed, if roughly, in present-day US prices allowing for the cost of living; US income now is $130 a day), fell from 70 percent to 42 percent. The share of the world’s population living on an appalling $1.25 a day, as in Liberia (the experiment in sending African Americans with longer American lineages than most European-origin Americans “back to Africa”), fell from 53 percent to 22 percent. It fell, in other words, by more than half. From 2005 to 2008 even sub-Saharan Africa, for the first time since its independence from the colonial powers half a century earlier, shared on average in the betterment.

As for earning a fair wage, state interference, if anything, has distorted real wages, but efforts to keep raising the minimum prove that mandated minimums don’t “work as advertised.” If that were the case, Venezuela, for instance, wouldn’t be suffering from empty grocery shelves or creating a new era of boat people in search of more hospitable shores.

Finally, Marxism encourages the romantic notions of the left because his own words have been misquoted, McCloskey states. Morality arguments claiming that capitalism is the equivalent of “greed” rarely appear in the arguments Marx made to describe man’s pursuit of gain.

More so, the sins of capitalism ascribed to it by the Marxian left have not, in fact, come to pass.

Left feminists have supposed that trade-tested betterment damages women, when it has in fact liberated and enriched them. … The left has said in sequence, 1848 to the present, that capitalism results in impoverishment (it has not), in alienation (not), exploitation of the Third World (not), spiritual corruption (not), inequality (not), and, recently, environmental decay (correctible, socialism having done much worse).”

But in this late day and age, an admission of misplaced romanticism has been superseded by the quest for political supremacy.

In keeping with the simplicities of the early-life formation of political opinions, the left now supposes that rightists are simply bad people, who do not care about the poor, and are therefore not to be listened to. By contrast, the right is more likely to believe that the leftists are simply misled — not entirely bad people, though shamefully ignorant — and therefore that they might be open to patient factual and logical correction.

McCloskey closes with a plea to her “friends on the left (and less hopefully with my enemies there),” that they take a look at how liberalism and socialism compare over the centuries and reach the conclusion “that Smith’s liberalism, not Marx’s socialism or its shadows in regulation, has achieved since 1800 a pretty good approximation to human flourishing.”

Read McCloskey’s entire essay here.

Edmund Burke is one of the most famous philosophers in the Western world. A member of the British Parliament from Ireland in the 18th century, Burke, a gifted orator and author, was not an economist, but had a major impact on the field of “political economy.”

Author Yuval Levin, in one of a new volume of essays on the great philosophers and their impact on economic liberty and human flourishing, notes that Burke’s thinking centered on the complexity of society, and with it, the inherent inability to regulate all manner of it without a moral consensus.

For him, economic life was best understood from the bottom up. He suggested that the power of markets, in our modern parlance, was that they enabled decisions to be made close to the ground and so aggregated society’s knowledge in much the same way that our other core social institutions do.

Note the emphasis on “social” institutions. Burke was fully aware that many people were not exposed to opportunity to improve their lives, and he wasn’t a huge believer that a high tide would lift all boats. But he was hugely skeptical of the ability of some so-called equalizing central force to intervene and correct course. In other words, he opposed government intervention in economic exchange.

At the same time, Burke did not believe in the principle of “rugged individualism” as a means by which society should manage itself because people whose limits come only from self-imposed guidelines are subject to injury from their own whims and foolish ways. In short, he questioned whether liberty could survive if each person is going to be left to his own devices.

Levin quotes Burke directly to elucidate the point.

Men are qualified for civil liberty in exact proportion to their disposition to put moral chains upon their own appetites. In proportion as their love to justice is above their rapacity, in proportion as their soundness and sobriety of understanding is above their vanity and presumption, in proportion as they are more disposed to listen to the counsels of the wise and good, in preference to the flattery of knaves. Society cannot exist, unless a controlling power upon will and appetite be placed somewhere; and the less of it there is within, the more there must be without. It is ordained in the eternal constitution of things, that men of intemperate minds cannot be free. Their passions forge their fetters.

Levin then uses a principle of physics to sum up Burke’s position on why society is the force by which to constrain man: something can’t come from nothing.

Each human being arrives in the world as a new member of an old order, and far from a constraint upon our freedom that must be overcome, this fact is what makes our freedom possible. The primary reason for that, Burke argues, is that human beings have to be formed for freedom and are not born with that form. It is a social achievement. Social theories that begin with the free and rational individual alone seemed to him to beg a question they can never answer: where does this free person come from? Every person, after all, comes from a family—which is not a liberal institution—and enters the world both unable to exercise freedom and encumbered by all kinds of social relations that operate as restraints. To get from that beginning to the exercise of liberty, let alone to a society of free people exercising their liberty, requires much more than the absence of restraint.

Nonetheless, Burke believed that society would reach agreement and cooperation through a gradual evolution of its own morés, not the controlling external power of a technocratic central authority.

Through continuous, incremental change at the margins rather than sharp breaks and jostles, societies come to express in their institutions, charters, traditions, and habits a kind of simulacrum of the standard of justice. Society as it exists after such long experience comes to offer an approximation of society as it should exist.

In practical terms, Burke opposed what is now well-known as minimum wage, and he argued that employer and employee would be able to negotiate terms favorable to their own self-interests. He rejected what would come to be known as a central principle of Marxism, the effort to create “compulsory equalizations.” He said it would pull down the top toward the bottom rather than raise the bottom to what the top could achieve. Burke himself warns what comes from that effort to make all things equal:

A perfect equality will indeed be produced; that is to say, equal want, equal wretchedness, equal beggary, and on the part of the partitioners, a woeful, helpless, and desperate disappointment.

While Burke is quoted at length by Levin to describe the debate of farmer or laborer and employer over wages, Levin points out that Burke lived in a pre-industrial era, and that the market economy would end up disrupting pretty much every social arrangement — whether it be family, housing, congregation, or small business — as Burke knew them and from which he built his theory of political economy.

How Burke would have dealt with these new arrangements can only be guessed, though it’s safe to presume he would have come at them from a point of humility and humanism.

Read more about Edmund Burke and the political economy.

Romantic Notions: Why People Revere Karl Marx When They Know He’s Wrong

Edmund Burke: The Link Between Economic Liberty and Human Flourishing