Saturday, March 19, 2016

Bias and ill-will: the poverty of today’s historians

Living in a post-modern city like New York has many advantages but some disadvantages too. Among the latter is the absence of bookstores. (Practically, the only bookstore that I go to in the midtown Manhattan is owned by Kinokuniya, a Japanese company, and it carries some 90% of Japanese books whether in Japanese or in English by Japanese authors. So it is hardly representative of what people in New York read.)

At first, it does not seem to matter much because you can order many more books on Amazon. But the disadvantage is that you have no idea what is the Zeitgeist. Sure, you can consult the New York Times bestseller list. But this is not an intellectual Zeitgeist: it is the Zeitgeist of soap-opera readers. Or alternatively,  you can check the Amazon sales author-by-author, book-by-book. But then who has the time to do this, or who can remember all the authors to check and compare against each other?

I was thus happy to discover that London has (yet) not dispensed with having bookstores. They still carry lots of books, of various genres and at least on this Saturday, the bookstores were full of people checking them out and buying them.

As I more closely looked at the books displayed, I noticed a peculiarity. Almost all books (I would rather say “all” but prefer to be cautious) on the French, Russian and Chinese revolutions were not only critical of the revolutions, focused on the destruction they wreaked, but were exposés of their leaders, of their murderous natures and sexual perversions. Robespierre is a green-spectacled misanthrope who never had sex; Lenin hated people and loved only his mistress; Stalin was not only a mass murdered but also a serial Georgian (thus, swarthy, dark and hairy) sexual predator; Mao was an obsessive, maniacal murderer who enjoyed  deflowering young girls.

It was a weird feeling. The writers who seemed to belong  to the tabloid school of journalism rather than to be historians, reacted, I suppose, to the deification of these leaders by their followers, by trying to do the reverse. For the same reason that when one wants to disparage Christianity, Buddhism or Islam, one brings up some unsavory details from Jesus’s, Buddha’s, or Mohamed’s lives, these writers felt the need to do the same with revolutionary leaders. Paradoxically, they were thus doing nothing better than their antagonists who deified the founders of the secular religions. One group represented them as superhuman, another group wanted to bring them down, not only to the earth, but into the mud. Neither paid much attention whether such one-sided, and, in one case, hagiographic, and  in the other case, ill-willed, picture was true. Or whether it was complete.

But what I thought these tabloid historians (many of whom teach at the most prestigious universities) miss out is that it is impossible to explain a movement, whether it is “good” or “bad”, by the personal virtues  or vices of their leaders, or by whether they were born rich or poor, in a small or big family. I was told that Germany was recently transfixed by several months of debates about Hitler’s testicles (whether there is a plural or singular there). Does this tell us anything about the Nazi ideology, movement, its rise and fall?  Similarly, do sexual habits of Lenin, Stalin, Mao, or to take also Roosevelt and JFK tell us anything about why people supported and followed them? Or about the policies and choices they made?

I think it is an unfortunate development which is destructive of serious scholarship and reflects the predominantly tabloid culture of today: all actions ought to be explained or reduced to  sex and money; and, among those who “suffer”, explained by fear. No room is left for economic interests of the classes, ideology and beliefs, emulation or self-abnegation.

It could be that these “histories” are not really histories of the past but rather histories of the time when they are written, that is of today. At the time where there are no beliefs and everything is individualized and commercialized, all history needs to be explained as having been the product of crass self-interest of few individuals. In the past these few individuals used to be Jews or Masons; nowadays, they are fanatical and sexually perverted revolutionaries.

How these individuals managed to convince millions to follow them, or how, more accurately, the millions found them to make them their champions and leaders, is ignored and left unexplained. Moreover, the explanation is consider superfluous.  We go back to a view of history where there are no social forces, no classes, but only individuals: leaders and those being led, the lions and the sheep in Pareto’s  terminology.

So perhaps that after all we really do have the historians we deserve.

Friday, March 11, 2016

The Ricardian windfall: David Ricardo and the absence of the equity-efficiency trade-off

David Ricardo is rightly famous (among other things) for being the father of functional income distribution (distribution between the three factors of production: land, labor and capital). For it is in The Principles that the definition of each factor of production with its distinct source of income is most sharply made: to the landlords, the rent; to the capitalist, the profit; to the workers, the wage. But Ricardo, like other classical writers and later marginalists too, never cared to develop, or even look  at, personal income distribution. To Ricardo, like to Marx, what happens to personal income distribution was self-evident, even  redundant to explain because individuals were basically defined by their class incomes.  Workers' income was always at subsistence and landlords' income was determined by the cost of production of corn at the worst parcel of land such that it allowed “reasonable” profit of (say) 5% to the capitalist tenant.

As is well-known, the entire Ricardian apparatus was created to show the irrationality of the Corn Laws. With the Corn Laws and an increase in population, less and less fertile land will have to be cultivated to provide food for workers. The price of food will increase and since the real wage (in our usual terminology) is fixed, it would imply that capitalists will have to pay more of their net income to workers (so that the capital-to-labor income will move against capital; which in Ricardo’s terminology is called the increase in the real wage). Thus, capitalists’ profits will go down (say to 3%), workers’ wage will remain fixed, and landlords’ income will go up.

As Ricardo quite emphatically writes (Chapter XXI): “..however abundant capital may become, there is no other adequate reason for a fall in profits but a rise of wages, and further…the only adequate and permanent cause for a rise of wages [compared to profit] is the increasing difficulty of providing food and necessities for the increasing number of workers”.  (Note that Ricardo does not believe in diminishing returns to capital with capital deepening.)

If we now translate this “class-based” outcome in terms of personal income distribution where all workers are at the bottom of the pyramid, capitalists in the middle, and landlords at the top, we can derive a growth incidence curve (which charts the increase of real income against one’s initial position in income distribution). To make the figure more realistic  we can use the approximate incomes and population shares  of the three groups. From Colquhoun social tables for England and Wales (done for the period between 1798 and 1801) and recently systematized by Bob Allen in his forthcoming book The Industrial Revolution: A Very Short Introduction, we know that the average income of the landlords was about 54 times greater than subsistence, bourgeoisie (which we assimilate to capitalists) had an income 37 times greater than subsistence, and workers 4 times (that is, they were not at the physiological subsistence minimum as Ricardo tended, without data of course, to assume). Their respective population shares were 1.3%, 3.2% and 61% (I omit the other intermediary classes).

Take now that over the medium- to long-term, landlords move to have an income 64 times the subsistence, capitalists to 27 times and workers stay where they are. The growth incidence curve will look approximately as in Figure 1, and the share of the top 1% (that is, of the landlords) will increase from 16% to 20%, while the mean income declines. 

Thus, with the continuation of the Corn Laws, will not only functional income distribution move in favor of the rich landlords, but the personal income distribution would get worse too.

What was, as is also well known, Ricardo’s counter-proposal? Eliminate the Corn Law and let the foreign corn (from Russia, US) flow freely into England. Now, the reverse happens: landlords lose (as the production on their land becomes too expensive to compete with foreign corn), workers real wage stays the same, but to capitalists workers become “cheaper” since for the same quantity of food they have to pay them less out of their net income. The growth incidence curve now changes: the top loses, the middle gains, the bottom is unchanged. Income concentration becomes less. (I do not draw it here; it can be easily done.)

Moreover as Ricardo argued, if you do not follow his advice, the food produced in England will ultimately become so expensive that the entire capitalists’ income will be swallowed by wages, the net (after-wage) rate of profit will tend toward zero, capitalists will invest less and less, and the economy will go back to its historical stationarity. Thus higher inequality will be associated with slower growth, and ultimately with zero growth.

If the Corn Laws  are repealed however, capitalists’ profit will increase, they will save and invest more and the economy will grow. Therefore lower inter-personal inequality will be associated with faster growth.

Pace Okun, there is no trade-off between equity and efficiency for David Ricardo. In effect, just the very opposite: lower inter-personal inequality leads to faster economic growth. It took thirty years after The Principles… for the Corn Laws in England to be rescinded, but one can easily see how attractive was the sketch of development that Ricardo presented to his readers: he promised to deliver both faster growth and to reduce inequality. Shall we term it the “Ricardian windfall”?