Saturday, August 17, 2013

New Hopes for a Changing World, Chapter Fourteen

“Economic Co-operation and Competition,” pages 126-135

The theoretical musings of economists have obscured the central ideas of their discipline. Further, the dependence of economics on law has been relatively neglected by economics writers – and Russell tells us (page 126) he will start by similarly ignoring this dependence.

A male resident in a primitive community who wants to grow food must play a state-like role by providing physical protection of his land, and a capitalist-like role by requiring that his wife help him farm. The state role deals with competition, and the capitalist role with cooperation. In simple village life, households are largely self-sufficient, so more extensive cooperation or competition rarely enters the picture.

The competitive markets of classical economics require a legal structure that already is protective of property possession and offers protection for exchange, too. As economies develop, a currency that offers some stability becomes necessary. Competition is kept within tight bounds – physical force against a competing producer is not a permissible approach, unless you are a state.

Free competition, so the argument went, would produce wonders including low prices for consumers and the proliferation of the best production methods. The cotton trade of 1800 demonstrated the logic, and the results were wondrous – except for the slaves and the other workers (“but they did not write the economic textbooks [p. 128]”).

Somehow the free trade utopia led to combinations among producers and eventually, following great struggle, among workers. Marx’s view that competition would result in monopoly was borne out in railroads and oil. Anti-trust actions were initiated in response, but the sole “victory” was in securing the imprisonment of Eugene Debs.

Intra-national competition marks an early, transient stage of capitalism. Eventually, the state takes over the major corporations, or vice versa. State control, the usual outcome, then involves competition between nations, not between individual producers. So the extent to which the British can sell automobiles in America is determined not by the forces of free competition, but by government decisions in the US and the UK.

Technological advance means cooperation is much more important than competition – indeed, most economic relations are not of the zero-sum sort. Nations and industries are economically interdependent. Exchange is about cooperation, as is melding together the various elements of the production chain. Counties need other countries to be prosperous to maintain their own economy, but it is hard to think of foreign nations outside the lens of economic competition. [Here is Adam Smith in the Theory of Moral Sentiments (VI.II.28): “France and England may each of them have some reason to dread the increase of the naval and military power of the other; but for either of them to envy the internal happiness and prosperity of the other, the cultivation of its lands, the advancement of its manufactures, the increase of its commerce, the security and number of its ports and harbours, its proficiency in all the liberal arts and sciences, is surely beneath the dignity of two such great nations. These are all real improvements of the world we live in. Mankind are benefited, human nature is ennobled by them. In such improvements each nation ought, not only to endeavour itself to excel, but from the love of mankind, to promote, instead of obstructing the excellence of its neighbours. These are all proper objects of national emulation, not of national prejudice or envy.”]

High fixed costs of good-specific capital (which cannot easily be redeployed) imply that a change in the economic climate can lead to large losses, which cascade throughout the system, as in the Depression. Private interests (to cut back on spending, to call in loans) undermine the social interest, as when a panic causes death by trampling. Classical econ was powerless to deal with the depression. “Roosevelt saved the situation by bold and heretical action [pages 132-133].” Of course, the businessmen he saved showed no gratitude, devoted as they were to outdated economics.

The Roosevelt approach, spending to stimulate the economy, now is needed internationally. The Marshall plan is good for the US economy as well as for the European economies. A broader implementation of Marshall-like aid would not be amiss.

Unused machines are bad, but unused labor is worse, in that the laborers themselves suffer. (Further, the negative effects are felt far afield, too, in other countries – page 135.) Keynes seems to have found the key to preventing large-scale unemployment and ending the trade cycle, and governments should avail themselves of his policies.

Economic interdependence means that the prosperity of your own nation is tied to the prosperity of other nations. International organizations understand this, even if the US Congress is not fully on board. “I have no doubt that the world would now be richer if people were actuated in their economic relations with other nations by altruism and a disinterested desire to avert suffering [page 135].” Cooperation is the path recommended by enlightened self-interest. The popularity of hatred, despite its high costs, seems to attest to how much people enjoy hate, alas.