Occasionally, I happen upon people who claim that they base their economic justice views on the idea of Pareto Improvements. On this view, economic justice requires that all moves to make individuals better off must not make other individuals worse off. Those who promote this view often seem to have roughly laissez-faire capitalist preferences. In this post, I outline just a few of the problems with this view, especially as applied to reach laissez-faire capitalist conclusions.…
This Pareto Improvement rationale for laissez-faire capitalism is a joke, and the above is only a short sample of why.Right. Under Pareto optimality, we would still have slavery in the US since freeing the slaves would make the slave owners worse off and the nation, too, by destroying capital. This was a central issue in the period from the drafting of the US Constitution to emancipation.
Another sounds good principle based on false logic.
Matt Bruenig
Pareto Fail
13 comments:
"Under Pareto optimality, we would still have slavery in the US since freeing the slaves would make the slave owners worse off and the nation, too, by destroying capital."
OC, freeing the slaves would make the slave owners worse off, but how would doing so destroy capital? If anything, the human capital of the slaves might be increased, right?
The time the largest sector of the US capital base was the slaves, by far and away. Emancipation was a huge economic event.
Government could have fairly compensated the slave owners at the market price, I.e., bought the slaves and freed them, and required the planation owner to hire them if they wanted to use them as labor.
But just freeing them, along with all the capital destruction resulting from the war, put the South back severely and thereby affected the entire nation's productivity and economic output for some time.
This was addressed at the time through technological innovation, which was in full gear in the Industrial Age. Actually one of the most important results of industrialization globally has been the increase in productivity and decreased reliance on labor.
Outlawing slavery and serfdom forced adoption of technology that increases productivity faster than would otherwise happen, so institutionally everyone benefits. But many are made worse off through technological disruption, too, and they don't recover personally from the shift.
Well, of course, freeing the slaves via war involved destruction of capital. But wouldn't simply freeing them transfer their human capital from their owners to them?
First, after emancipation, human capital became illegal. The slave entered the labor market as unskilled labor. They were deprived of education, so they were relatively useless without a job offer commensurate with their abilities, which at the time were minimal. Moreover, the plantation economy of the South was destroyed.
The US still has not be able to absorb this addition to the labor force that occurred at the time of emancipation. It's one of the principal failures of American society, policy and capitalism, and it's a huge drag on the nation in addition to being a huge drag on the people involved.
Tom,
I never thought of this in the terms you are describing and it makes perfect sense. Can you recommend a book where I can read about this? Thx.
I wasn't thinking of a specific source but drawing in knowledge of US history.
The go-to guy for a progressive perspective on US history is Howard Zinn. Do a search on Zinn, slavery in the US, and emancipation. There's quite a bit that comes up.
Of course I know of Zinn, but obviously never read him. ;-) Thanks.
After a coffee, I realized it was your interpretation of this wasn't it. Not Zinn's because if it were, it would show an in-depth understanding of macroeconomics.
Yes, my interpretation,
Tom, such ideas of "capital" - a famously indefinable concept - presuppose at the very least, a host of state actions.
You are speaking in a quasineoclassical manner as if "market prices" could exist without the state. Money and therefore markets are a creature of the state. In any reasonable or useful sense of "capital", the capital destruction was caused by the war and nothing else. The slave owners were compensated at a perfectly fair market price. Zero, which was the market price for white slaves - which didn't exist - before 1865. The slave owners could have been fined, even.
Bill's point on transfer of "capital" to the slaves themselves is valid too.
The US still has not be able to absorb this addition to the labor force that occurred at the time of emancipation.
That is a human decision, a moral and political failing - not an incapacity. The US society has collectively decided to "not absorb" - that is to act in an illogical, contradictory way towards "minorities". If not for white psychosis, white ignorance, the absorption could have easily occurred in 1870. "Minimal capacity" of the slaves is nonsense. They were violently repressed after & even during Reconstruction. There was no ginormous difference between them and the poor whites. They participated in their own liberation - see Eric Foner.
White & black capital - for knowledge is the truest and really the only form of capital (Cf. Joan Robinson, Veblen & Socrates) - was immeasurably increased by emancipation, by the knowledge that slavery is a no-no. See Lincoln's Second Inaugural Address. Or Conan Doyle's The Engineer's Thumb.
Calgacus, I agree with your economically and linguistically. This is the way that the term "capital" has come to be used. but not philosophically. There is a reason I argue this way, and I am not alone in it. Daniel Ellerman is a spokesperson for the following rationale, too.
The chief meaning of "capital" is ownership of mean of production. These means of production are called "capital" in a production factor model and they appear as assets on someone's balance sheet. Legally, they are property.
A central Libertarian assumption is that individual humans own them selves in the same way as other property as a natural right. Therefore individuals can do with themselves as they freely choose, including sell themselves into slavery.
Many people disagree with this assumption on moral grounds. The arguments are numerous and philosophical (normative) rather than scientific (positive). This was affirmed in the Declaration of Independence in the assertion that life and liberty are inalienable rights. But then the Constitution went on to ignore this assertion.
Slaves were property and property rights are alienable legally. Slaves were traded and bred for trade when importation was ended. Ironically, The the author of the Declaration was a slave breeder and commented on how profitable it was for him economically during the plantation economy of the South.
The position I am stating is that ownership of humans as property (chattel) is immoral and in a good society is also illegal.
That is also the position of much of the developed world, although slavery still exists informally in the background, and it is not illegal in some undeveloped countries, even through most civilized people today regard it as a moral abomination.
Therefore, I strongly recommend not applying the concept of capital to human beings under any circumstances even metaphorical or analogously. Especially in economics, let's stick to using capital as one of the factors of production along with labor and land.
It is also important to separate land from capital instead of treating themas one because like labor, there is a moral aspect of land (nature). Failure to recognize and acknowledge this has resulted in ecological disaster that is resulting in the extinction of entire species at an alarming rate and a general fouling of the nest that threatens everyone's well-being.
Economic liberalism based on property rights that include everything treats everything that can be monetized as "capital" to be employed efficiently. This is a pernicious doctrine (dogma) that is leading to societal breakdown and systemic dysfunction on a massive scale, including species extinction and ecological disaster. It not only violates moral sense, but also reason. And it is ultimately uneconomically owing to the fallacy of composition based on historical evidence.
Using "capital" in their sense supports and reinforces their frame. It is self-sabotage.
Oops. I should have written "David Ellerman" instead of "Daniel". Sorry for the slip up.
I just recalled that much of the history to which I refer above was gleaned from a reviewof The Half Has Never Been Told: Slavery and the Making of American Capitalism by Edward E. Baptist.
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