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Saturday, September 12, 2015

Shutting down the party

The study of history is constrained by the need to focus on a limited series of events.  The ability to interpret those events is further constrained by what else the historian knows about subjects relevant to those events.  Economic, political, sociological and other areas of knowledge can all be helpful.  Awareness of similar patterns of occurrence in different places or at different times brings further help in interpreting events.  Such an example is presented in an F.A. Hayek book,  The Fatal Conceit
   (full pdf, review)


Governments strong enough to protect individuals against the violence of their fellows make possible the evolution of an increasingly complex order of spontaneous and voluntary cooperation. Sooner or later, however, they tend to abuse that power and to suppress the freedom they had earlier secured in order to enforce their own presumedly greater wisdom and not to allow `social institutions to develop in a haphazard manner' (to take a characteristic expression that is found under the heading `social engineering' in the Fontana/Harper Dictionary of Modern Thought (1977)).
 
If the Roman decline did not permanently terminate the processes of evolution even in Europe, similar beginnings in Asia (and later independently in Meso-America) were stopped by powerful governments which (similar to but exceeding in power mediaeval feudal systems in Europe) also effectively suppressed private initiative. In the most remarkable of these, imperial China, great advances towards civilisation and towards sophisticated industrial technology took place during recurrent `times of trouble' when government control was temporarily weakened. But these rebellions or aberrances were regularly smothered by the might of a state preoccupied with the literal preservation of traditional order (J. Needham, 1954).
This is also well illustrated in Egypt, where we have quite good information about the role that private property played in the initial rise of this great civilisation. In his study of Egyptian institutions and private law, Jacques Pirenne describes the essentially individualistic character of the law at the end of the third dynasty, when property was `individual and inviolable, depending wholly on the proprietor' (Pirenne, 1934:I1, 338-9), but records the beginning of its decay already during the fifth dynasty. This led to the state socialism of the eighteenth dynasty described in another French work of the same date (Dairaines, 1934), which prevailed for the next two thousand years and largely explains the stagnant character of Egyptian civilisation during that period.
 Similarly, of the revival of European civilisation during the later Middle Ages it could be said that the expansion of capitalism - and European civilisation - owes its origins and raison d'etre to political anarchy (Baechler, 1975:77). It was not under the more powerful governments, but in the towns of the Italian Renaissance, of South Germany and of the Low Countries, and finally in lightly-governed England, i.e., under the rule of the bourgeoisie rather than of warriors, that modern industrialism grew. Protection of several property, not the direction of its use by government, laid the foundations for the growth of the dense network of exchange of services that shaped the extended order.
 Nothing is more misleading, then, than the conventional formulae of historians who represent the achievement of a powerful state as the culmination of cultural evolution: it as often marked its end. In this respect students of early history were overly impressed and greatly misled by monuments and documents left by the holders of political power, whereas the true builders of the extended order, who as often as not created the wealth that made the monuments possible, left less tangible and ostentatious testimonies to their achievement.

Another example of drawing upon several elements of knowledge in order to interpret history is provided in the Rodney Stark book,  How the West Won: The Neglected Story of the Triumph of Modernity:
Command economies began with the earliest empires and have lasted in many parts of the modern world – they still attract ardent advocates.  But command economies neglect the most basic economic fact of life: All wealth derives from production.  It must be grown, dug up, cut down, hunted, herded, fabricated, or otherwise created.  The amount of wealth produced within any society depends not only on the number involved in production but also on their motivation and the effectiveness of their productive technology.  When wealth is subject to devastating taxes and the constant threat of usurpation, the challenge is to keep one’s wealth, not to make it productive.  This principle applies not merely to the wealthy but with even greater force to those with very little – which accounts for the substantial underproduction of command economies.
The author goes on to give a specific example from China where a strong government brings a period of meaningful growth and development to a close: 
Late in the tenth century an iron industry began to develop in parts of northern China.  By 1018 the smelters were producing an estimated 35,000 tons a year, an incredible achievement for the time, and sixty years later they may have been producing more than 100,000 tons.  This was not a government operation.  Private individuals had seized the opportunity presented by a strong demand for iron and the supplies of easily mined ore and coal. 
Soon these new Chinese iron industrialists were reaping huge profits and reinvesting heavily in the expansion of their smelters and foundries.  The availability of large supplies of iron led to the introduction of iron agricultural tools, which in turn began to increase food production.  In short, China began to enter an “industrial revolution.”

But then it all stopped as suddenly as it had begun.  By the end of the eleventh century, only tiny amounts of iron were produced, and soon after that the smelters and foundries were abandoned ruins.  What had happened?

Eventually, Mandarins at the imperial court had noticed that some commoners were getting rich by manufacturing and were hiring peasant laborers at high wages.  They deemed such activities to be threats to Confucian values and social tranquility.  Commoners must know their place; only the elite should be wealthy.  So they declared a state monopoly on iron and seized everything.  And that was that.  As the nineteenth-century historian Winwood Reade summed up, the reason for China’s many centuries of economic and social stagnation is plain: “Property is insecure.  In this one phrase the whole history of Asia is contained.”
When government maintains law and order without smothering commerce and innovation, people can greatly improve their circumstances.  That balance has rarely been sustained.

34 comments:

Harry Eagar said...

'As the nineteenth-century historian Winwood Reade summed up, the reason for China’s many centuries of economic and social stagnation is plain: “Property is insecure. In this one phrase the whole history of Asia is contained.” '

Really? The whole history of Asia? Including the time when it was, by far, the richest part of the world?

Howard said...

The whole history of Asia? Including the time when it was, by far, the richest part of the world?

They were relatively rich(but nothing like modern prosperity) and fell back several times as the governing class clamped down and withdrew from the rest of the world.

As Instapundit likes to quote from Heinlein:

Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

This is known as “bad luck.”

OK, "bad luck" was the problem, not insecure property. You got me.

erp said...

Heinlein's quote was right on target.

The reason potentates, emperors, czars and our very own president take actions to keep innovators in check and keep their people in poverty is the same -- free prosperous people are much harder to enslave.

"Bad luck" is a euphemism for any outside force which can be blamed for bad news. In my lifetime, we had acid rain, then the new ice age, then massive starvation due to over-population, none of which cooperated to end the world, so we moved on global warming. That's petering out too, so enter robots taking over with second place going to the sun cooling.

Hey Skipper said...

From the OP: But command economies neglect the most basic economic fact of life: All wealth derives from production.

I think there is an even more basic fact of economic life: information -- every element of an economy affects every other element in the economy.

This fact is fatal to command economies, because the number of interactions increases as a factorial of the number of elements. Take a very simple economy, one with only 100 elements. Heck, that is so simple it scarcely models an average sized family.

Change one of those 100 elements. How many affects are there?

9.33^155

By my rough calculations, that amounts to ~6^133 years to figure out the consequences of commanding a change in just one element of even an impossibly simple economy.

It's amazing that there are people so analytically challenged that they can't take that glaring fact on board. Command economies will never work, because they can't possibly work.

Harry Eagar said...

I am amused to see Howard adopting the 'Big Idea' view of history as explained by Karl Wittfogel (that commie) in his preface to 'Oriental Despotism.'

The history of Venice, a history of which I am extraordinarily fond, contradicts just about everything in this post. A good many things went into making Venice the economic wonder of a millenium, but light regulation of private property was not one of them.

Howard said...

I am amused to see Howard adopting the 'Big Idea' view of history as explained by Karl Wittfogel (that commie) in his preface to 'Oriental Despotism.'

You're confusing my thoughts with those of Winwood Reade, but confusion should be a familiar state for you.

The history of Venice, a history of which I am extraordinarily fond...

If your knowledge of the history of Venice is anything like your knowledge of economics, basic political science or any one of several other subjects, than it is full of holes.

Harry Eagar said...

I am also fond of the history of Florence, which in the 13th-15th centuries was the richest city in Europe and, per capita, probably the richest in the world. Private property was hardly secure there, though, as readers of RtO wpuld know:

http://www.mauinews.com/page/blogs.detail/display/4859/Book-Review-310-April-Blood.html

Howard said...

I read the book a few months ago at your recommendation. The author who is a serious historian usually writing for other scholars, wrote April Blood for a popular audience. His prose are very good, however, in reaching for popular appeal an un-modulated titillation and intrigue borders on the tedious. That perspective aside, in your own review:

Martines paints a Florence in relative decline, no longer the financial center of Europe, but still small and amazingly rich. (emphasis mine)

They were in a late degenerate phase, headed for some "bad luck." Before that decline, how did they become so rich?

Here's a little help:

In early days, participation in Venetian politics was limited to various elites, but as time passed, and especially as Venice became a major manufacturing center as well as a trading port, the franchise was extended. The principal mechanism by which this was accomplished was by the organization of guilds—associations of persons engaged in a specific craft or trade.
...
Although capitalism developed in the great monastic estates, it soon found a receptive setting in the newly democratic Italian city-states. In the tenth century these city-states emerged as the banking and trading centers of Europe. Subsequently they industrialized and began producing a large volume of manufactured goods for export across the Mediterranean and to northern Europe and the British Isles. For example, eyeglasses (for nearsightedness as well as farsightedness) were mass-produced by plants in both Florence and Venice, and tens of thousands of pairs were exported annually. Perhaps the most striking aspect of Italian capitalism was the rapid perfection of banking. The Italian bankers quickly developed and adopted double-entry bookkeeping. To facilitate trade, they invented bills of exchange, making it possible to transfer funds on paper rather than transporting coins or precious metal over long distances, which was both difficult and dangerous. Italian bankers also initiated insurance to guard against loss of long-distance shipments by land or sea. Perhaps the most important of all the Italian banking innovations was the perfection of modern arithmetic, based on the adoption of Hindu-Arabic numerals and the concept of zero.

The proximate cause of the rise of Italian capitalism was freedom from the rapacious rulers who repressed and consumed economic progress in most of the world, including most of Europe. Although their political life often was turbulent, these city-states were true republics able to sustain the freedom capitalism requires. Second, centuries of technological progress had laid the necessary foundations for the rise of capitalism, especially the agricultural surpluses needed to sustain cities and to permit specialization. In addition, Christian theology encouraged the idea of progress, which justified long-term investment strategies, and provided moral justifications for the business practices fundamental to capitalism.


So you correctly understood the story to be about a period of decline but with no other context derived by asking appropriate questions. Congratulations, you've shown yourself impervious to learning from not only other peoples observations and insights but even your own!

Howard said...

Meant to include this as well:

And as time passed, the “people” became an increasingly inclusive group. Meanwhile, the power of the doge was gradually reduced as elected councils took greater authority, leading to what came to be known as the commune—made up of the body of citizens with voting rights and the executives and legislators elected by them.

Harry Eagar said...

Bizarre. The relative decline can be attributed to a number of non-economic factors, like maybe Florence was being attacked by most of the states of Italy (to the extent that her magistrate went to Naples for half a year to beg the king there to stop), and the triumph of the Ottomans in the East and the withdrawal of Italian trading privileges and more.

However, the point was the claim that security of private property was the main factor in economic success, which sounds nice but which was not true in either Venice or Florence, the two richest places in Europe.

Harry Eagar said...

Let's consider security of property further. It is easy to see why a capitalist -- especially a free market capitalist who does not recognize property other than portable capital -- would think that security of portable capital is the only important factor. But there are lots of other kinds of property.

Up until 1945, Jews in Europe enjoyed no security of property of any kind. It is also true the Jews were, in the mass, poor. But numbers succeeded in the economic realm nevertheless.

They innovated. Not necessarily in ways that expanded the economy, but in ways that worked for them. By secreting their gold in jars of cucumbers pickled in aquaregia, for example.

Skipper says capitalism (as he defines it) originated in Scotland in the mid-18th century. Not true, but the point is, crofters enjoyed no security of property.

An important non-capital form of property is security of tenure of labor. Some individuals don't bother too much about it; in my observation these are largely in the most and least privileged sectors of American society, but most Americans make large economic decisions based on expectations of security of tenure in labor: most Americans have so little capital it makes no sense for them to calculate on security of portable capital.

All my working life I was an at-will employee, but in a sector where as a practical matter property in labor had some stability. In the second half of my career, although I was an at-will employee, there was a contract that provided a certain amount of process to protect against the arbitrary stupidity of American managers.

(My low opinion of management is empirical; I lived it.)

I doubt I would have taken out all those mortgages without some expectation of stability; and I doubt the lenders would have written them either.

My understanding of libertarian and/or Misesean ideology is that security of property in labor tenure is not only downgraded, it is regarded as a positive evil. Which is why libertarianism will always be limited to a fringe element of privileged people. (I was watching an episode of "Jeeves and Wooster" last night which sent up the libertarians delightfully in the person of Uncle Tom Travers railing against the Inland Revenue. Like many of the greatest artists, Wodehouse was an acute critic; consider te character Spode.)



Howard said...

So many assumptions smuggled into that comment and I'm busy getting ready for travel.

lawabidingcitizen said...

(My low opinion of management is empirical; I lived it.)

Gee, I have the exact same reason for my low opinion of unions. Management may be corrupt or stupid, but it isn't by design. Same thing can't be said for the union thuggery.

Harry Eagar said...

Union thuggery? Where have I heard that before?

Oh yeah, from people who never ever complain about boss thuggery. Bad day to sign up for that crew with Don Blankenship going on trial for killing 29 of his workers.

Hey Skipper said...

[Harry:] It is easy to see why a capitalist -- especially a free market capitalist who does not recognize property other than portable capital …

You just put a strawman to the torch.

Skipper says capitalism (as he defines it) originated in Scotland in the mid-18th century. Not true, but the point is, crofters enjoyed no security of property.

I'm pretty certain I didn't say that; rather, my intent was to say that Smith was the first and best to provide an explanatory basis for free markets.

But never mind.

You are making an invidious comparison, and in the process confirming my suspicion that being a progressive requires a great deal of sloppy thinking.

Let's say everything you say is completely true. From that you derive the conclusion that private property is unimportant, because various people acquired wealth despite not having, to a greater or lesser extent, private property rights.

Therefore, according to you, the security of private property is irrelevant: the point was the claim that security of private property was the main factor in economic success, which sounds nice but which was not true in either Venice or Florence, the two richest places in Europe.

On the basis of precisely no evidence whatsoever, you have completely excluded the potential outcome had, instead of being relatively insecure, private property was instead completely secure.

I'm not sure which logical fallacy that is; perhaps it is so fallacious that no one has come up with a name for it.

An important non-capital form of property is security of tenure of labor.

The provision of labor is a form of property, no doubt. But but what about "security of tenure"? In order to invoke that as a form of personal property means that time belongs uniquely to labor, but nothing else.

I think that needs a great deal of explanation you aren't providing.

As does this: … but most Americans make large economic decisions based on expectations of security of tenure in labor … Undoubtedly, taking on significant financial obligations is dependent upon an expectation of future income. That doesn't necessarily require tenure in a specific job; rather, it requires an expectation of continued employment at that salary level. You also neglect that countries with strong labor tenure protection tend to have high levels of unemployment, because you have ignored the relative willingness of firms to hire, depending on how easy it is to fire.

When I, thanks to that death cult known as Islam, got laid off from Northwest Airlines, I was able to find a contract job as an IT analyst at Ford Motor. I got hired because I could get fired — my expectation of ongoing income was greatly enhanced by the complete lack of labor tenure.

Your complete failure to account for the positive effects of employment flexibility (NB: the leading recommendation for European countries to improve their economies is to free up their labor markets) is why you are unable to see how labor tenure can be a very bad thing.

Hey Skipper said...

erp:

My opinion of management is illuminated by having first hand experience: it is far harder than people like Harry seem to understand. Also, through first hand experience comes my low opinion of unions.

++++++

[Harry:] Union thuggery? Where have I heard that before?

From reality, perhaps? But wait, there's more:

Video gallery of union thuggery in Michigan

By Michelle Malkin • December 11, 2012 02:38 PM
New tone, same as the old tone, part 999,999,999.
1. Watch as an individual in a hard hat throws an object at Michigan State Police Troopers trying to retrieve a supporter of the Freedom to Work legislation from the hostile crowd.
2. Union thug cursing and threatening just before they rushed & tore down the tent. Thug shouts: “FREEDOM OF SPEECH THIS YOU F’N FASCIST A**HOLE!”.
3. Brutality & Violence from Union Protestors, AFP Activists Trampled On
4. Union thug: “Leave us alone or we’re coming for you.”
5. Watchdog Wire Michigan: Raw footage, shot on the steps of the Michigan State Capitol by a member of our Citizen Watchdog team, shows brutish labor leaders engaging in the tired practices that have marked union protests for decades. Chants. Bullhorns. Public intimidation of any person without union credentials. Wait, is that Jimmy Hoffa in frame 6?
6. Lee Stranahan via TwitchyTeam: “Violent Mob Destroys AFP Tent in Lansing, Michigan Protest.”
7. Steven Crowder punched, threatened, mobbed while trying to protect AFP tent and activists
8. From Thomas LaDuke via Nice Deb, more scary video at the AFP tent


Current events can be very instructive, Harry . You really should try to keep up more.

Clovis e Adri said...

Skipper,

---
When I, thanks to that death cult known as Islam, got laid off from Northwest Airlines,
---

Now you've got me curious. What one thing has to do with the other??

erp said...

Skipper, my low opinion of unions comes from first hand experience as well, not personally, but family and friends and empirical evidence, i.e., I was there when NYC municipal workers unionized and was able to observe the changes for the worst in workers' attitudes and the quality of their work. Then not too many years later, how the public schools went into death spiral when the teachers' unions grabbed control.

My three kids had very different educations. The oldest started kindergarten in Queens, a borough of NYC, in 1962 and had an excellent experience. We moved to the Connecticut suburbs in 1963 when she started first grade; elder son started kindergarten two years later, followed by younger son in 1970. The two older kids had basically the same excellent education as I did 20 years earlier, grammar, punctuation, basic arithmetic, history, etc. The youngest wasn't as lucky and to this day is deficient in lots of the basics although, and I know this as a fact, their IQ's are all within points of each other.

Skipper, BTW for the past some weeks, I haven't been receiving emails of comments, but your last three comments did arrive in my INBOX. I wonder if you could shed some light on this?

erp said...

Update on email problem. I noticed that the box marked email to ... wasn't checked, so I left it unchecked and my email arrived in my INBOX.

?????

Harry Eagar said...

'it requires an expectation of continued employment at that salary level.'

Bingo. Now reflect on the experience of American workers over the past 35 years.

'you have completely excluded the potential outcome had, instead of being relatively insecure, private property was instead completely secure.'

Who knows? They were already doing better than anybody else. you are the one arguing the necessity of private property. I agree it has some benefits -- and some very dangerous aspects -- but my examples prove it is not necessary.

I am taking a video course on Mesoamerica and just learned -- something I was not aware of -- that the most economically and militarily successful state in Mesoamerica in 1500, the Tarascans, had no private property at all.

Hey Skipper said...

[HS:] When I, thanks to that death cult known as Islam, got laid off from Northwest Airlines,
---

[Clovis:] Now you've got me curious. What one thing has to do with the other??


9/11.

[Harry:] Bingo. Now reflect on the experience of American workers over the past 35 years.

No, how about you provide some sort of reference to back up your implication?

Because, last I heard, US wages -- inflation adjusted* -- have been stagnant for the last 35 or so years.

*Using the CPI, which overstates the rate of inflation.

... the most economically and militarily successful state in Mesoamerica in 1500, the Tarascans, had no private property at all.

The who?

Hey Skipper said...

[erp:] Skipper, my low opinion of unions comes from first hand experience as well ...

Just yesterday, my union voted to approve the Tentative Agreement with the company. Negotiations have been going on for more than four years.

The vote was 57% in favor.

The big sticking point was that the union insisted on raising the salary cap used to calculate the defined pension benefit. There were a great many problems with that notion: federal tax law; the inescapable fact that, if it came to pass, that those nearing retirement would be getting a huge increase in their pension that they didn't pay for along the way; and, that everyone's pay rate would have to be less in order to fund the increased pension obligation.

Most of those who voted against the new contract are over 55, and must vote Democratic, because no one else would have that inflated sense of entitlement to someone else's money.

A friend of mine is a union rep for the Cologne pilot base. When the union leadership voted to present the TA to the membership for ratification, she, along with other reps, wrote her favorable opinion of the TA (about 40% of the reps were against it).

She subsequently got some very threatening emails.

Yep, look for that union label.

Clovis e Adri said...

Skipper,

---
[Clovis:] Now you've got me curious. What one thing has to do with the other??

9/11.
---

Are you trying to outdo Harry on lack of information and links?

I went for the trouble of reading about Northwest Airlines and did not find a single thing about massive dumping of employees due to 9/11, so I can't really divine what is your point here...

erp said...

Skipper, my daughter works for one of the ivies and reports that as they head into the next round of union negotiations, they are already facing additional payouts of $0.67 for every $1.00 in salary for bargaining unit workers. This is on top of the usual padding of positions, sick time ... Also frustrating is while students complain about the dining halls and other services, they agitate (as do their parents) at any mention that unions are to blame for costs and poor service.

I predict more outsources at every level including the public sector and the public schools. It's the only way to stop the strangle hold unions continue to have in our lives. Apparently McDonald's in going down. Funny our kids were tots when it opened and one their biggest treats was to go McDonald's for hamburgers and fries. It's up for grabs whether Walmart's will survive. The local store where we live might as well be in third world country slum with all the Section 8 housing -- the amount of stealing and regular robberies have increased exponentially. If I must go there, it is at 7:30 on Sunday morning and then only with a companion waiting outside the door with the motor of the car running.

Howard said...

...the most economically and militarily successful state in Mesoamerica in 1500, the Tarascans, had no private property at all.

A much lower bar than you realize.

The role of property was of a distant secondary importance in this post. But if we're going to examine the role of property seriously Instead of following Harry down the rabbit hole, see these bits about property or better yet, read the whole chapter 2 from The Fatal Conceit (pp 29-37, nine short pages - same pdf from original post).

erp said...

Howard, what an interesting supplement. I had no idea of its existence and I look forward to reading it all.

I had to smile on seeing the post about George McGovern, possibly the most clue-less politician of our time. I actually voted for him because he was so naive and childlike, I thought he couldn't do too much harm and Nixon who shared much of his "philosophy" was just the opposite. Like most of those for whom I cast my ballot, he lost anyway.

Also, we lived in Stratford CT for many years (our kids grew up there) only a stone's throw from the Stratford Inn, a thriving concern before McGovern took over -- stories of his management style kept the town amused for years.

Getting back to the 1500's and Mesoamerica, I did perfunctory search for information on the Tarascans and as far as I could determine, their numbers were small and scattered, so property rights as we understand them wouldn't have been as issue.

Harry Eagar said...

'The role of property was of a distant secondary importance in this post.'

Coulda fooled me. What, then, was the point of the story about Chinese iron? (And,


I wondered at the time, where is the story about Indian steel?)

Howard said...

As usual, you deflect...you deflect...you deflect (a start on reworking the lyrics)

Of course your doctrine is that of state infallibility.

erp said...

Howard this must be the only blog on the planet that refers to Tom Lehrer and has readers who get it before clicking on the hint!

Harry Eagar said...

'your doctrine is that of state infallibility.'

No, but yours is clearly that of private property infallibility. I did not defend the state policy, you'll remember; I just listed a whole bunch of examples that bring into question the role of private property in prosperity.

And I haven't even gotten to England after the repeal of the Corn Laws.

Howard said...

Harry,

Read the chapter...

Bret said...

erp wrote: "I had no idea of [great guys supplement blog's] existence and I look forward to reading it all."

Er, uh, that's just totally unpolished stuff that (mostly) Howard and I wanted to park somewhere. You're welcome to peruse it, of course, but it's pretty random.

erp said...

Random and unpolished – sounds like a nice contrast to the orderly slick stuff the media pushes.

erp said...
This comment has been removed by the author.