John Quiggin — Bastiat anticipates climate science denialism

… on Googling Bastiat + pollution, I came across a remarkable package in which Bastiat anticipates the climate change debate and takes the denialist side in advance.…

What’s striking, though, is [Bastiat's] a priori faith that everything will be OK because of Divine Providence [compare with "spontaneous natural order"], which ensures that human activity tends towards harmony. If that fails, and a laissez-faire economy does in fact produce unsustainable pollution, his whole case collapses.

Of course, it’s possible to salvage a version of laissez-faire in the way suggested by Coase, using newly created property rights. But this requires the admission that property rights are a socially constructed set of rules, enforced by coercion, rather than a category inherent in the natural relationship between people and things. It’s precisely this admission that propertarians have been unwilling/unable to make, and why they still rely on magical thinking like that displayed by Bastiat.

John Quiggin's Blog
Bastiat anticipates climate science denialism
John Quiggin | Professor and an Australian Research Council Laureate Fellow at the University of Queensland, and a member of the Board of the Climate Change Authority of the Australian Government

Blake Smith — Slavery as free trade

For nearly four centuries, the Atlantic slave trade brought millions of people into bondage. Scholars estimate that around 1.5 million people perished in the brutal middle passage across the Atlantic. The slave trade linked Africa, Europe and the Americas in a horrific enterprise of death and torture and profit. Yet, in the middle of the 18th century, as the slave trade boomed like never before, some notable European observers saw it as a model of free enterprise and indeed of ‘liberty’ itself. They were not slave traders or slave-ship captains but economic thinkers, and very influential ones. They were a pioneering group of economic thinkers committed to the principle of laissez-faire: a term they themselves coined. United around the French official Vincent de Gournay (1712-1759), they were among the first European intellectuals to argue for limitations on government intervention in the economy. They organised campaigns for the deregulation of domestic and international trade, and they made the slave trade a key piece of evidence in their arguments.

For a generation, the relationship between slavery and capitalism has preoccupied historians. The publication of several major pieces of scholarship on the matter has won attention from the media. Scholars demonstrate that the Industrial Revolution, centred on the mass production of cotton textiles in the factories of England and New England, depended on raw cotton grown by slaves on plantations in the American South.

Capitalists often touted the superiority of the industrial economies and their supposedly ‘free labour’. ‘Free labour’ means the system in which workers are not enslaved but free to contract with any manufacturer they chose, free to sell their labour. It means that there is a labour market, not a slave market.

But because ‘free labour’ was working with and dependent on raw materials produced by slaves, the simple distinction between an industrial economy of free labour on the one hand and a slave-based plantation system on the other falls apart. So too does the boundary between the southern ‘slave states’ and northern ‘free states’ in America.

While the South grew rich from plantation agriculture that depended on slave labour, New England also grew rich off the slave trade, investing in the shipping and maritime insurance that made the transport of slaves from Africa to the United States possible and profitable. The sale of enslaved Africans brought together agriculture and industry, north and south, forming a global commercial network from which the modern world emerged.

It is only in the past few decades that scholars have come to grips with how slavery and capitalism intertwined. But for the 18th-century French thinkers who laid the foundations of laissez-faire capitalism, it made perfect sense to associate the slave trade with free enterprise. Their writings, which inspired the Scottish philosopher Adam Smith’s Wealth of Nations (1776), aimed to convince the French monarchy to deregulate key businesses such as the sale of grain and trade with Asia. Only a few specialists read them today. Yet these pamphlets, letters and manuscripts clearly proclaim a powerful message: the birth of modern capitalism depended not only on the labour of enslaved people and the profits of the slave trade, but also on the example of slavery as a deregulated global enterprise.…

Powerful article.
AEON
Slavery as free trade
Blake Smith | PhD candidate in history at Northwestern University in Illinois and the School for Advanced Studies in the Social Sciences in Paris

Gavin Kennedy — Jeffrey Madrick's Quite Wrong Account Of Adam Smith

Oh, and incidently, Adam Smith never mentioned ‘laissez-faire” in his entire writings.

Adam Smith's Lost Legacy
JEFFREY MADRICK'S QUITE WRONG ACCOUNT OF ADAM SMITH
Gavin Kennedy | Professor Emeritus, Heriot Watt University

Sandwichman — Ownership,Trade and Equilibrium: Locke, Graunt and Gracian

"It is impossible that the primary law of nature is such that its violation is unavoidable. Yet, if the private interest of each person is the basis of that law, the law will inevitably be broken..." — John Locke, Essays on the Law of Nature

Baltasar Gracian's Oráculo manual y arte de prudencia (1647), John Graunt's Natural and Political Observations made upon the Bills of Mortality (1662) and John Locke's Essays on the Law of Nature (1664) all appeared within the span of 17 years in the middle of the 17th century. Gracian bequeathed to economic discourse the philosophical concept of laissez faire, Graunt laid the foundations for quantitative social science, Locke unambiguously defined the natural law constraint that he later alluded to in the famous fifth chapter of his Second Treatise on Government, "Of Property."…

Philosophy and economics. We are still struggling with these issues.

Ownership is thus opposed to abundance that escapes its grasp. Perhaps Locke was on to something after all when he observed that "it is impossible for anyone to grow rich except at the expense of someone else." But it is not a physical amount that the grasping individual steals "from another man's heap." It is instead a capability and productive potential that the wealthy monopolize and hoard. One of the ways the owners impose on everyone else is by propagating myths about the sanctity of private property, the self-adjusting character of the price system and the fallacy and futility of any attempt by anyone other than owners to regulate or restrict production on behalf of the wider community of non-owners. 

Econospeak
Ownership,Trade and Equilibrium: Locke, Graunt and Gracian
Sandwichman

Nick Johnson — The philosophy of economic policy-making: Keynes on ‘The End of Laissez-Faire’

Keeper Keynes quote.

The Political Economy of Development
The philosophy of economic policy-making: Keynes on ‘The End of Laissez-Faire’
Nick Johnson

David Colander and Roland Kupers — I Pencil Revisited. Beyond Market Fundamentalism

The proper role of government from a complexity science perspective.

People who believe in the free market are generally much closer to a complexity frame than are those who primarily put their faith in governmental planning and control. In fact complexity may well often be loosely equated with pure laissez-faire, but complexity includes government, seeing it not as planner or controller, but as a natural partner with existing institutions in a search for useful parameters of action. We have called this joint search an “activist laissez-faire” policy. While, the terms, activist laissez faire and laissez-faire, may look similar in the standard policy frame, they are quite different in terms of how one envisions the role of government. Hence we need to distinguish our complexity frame from the free market frame as espoused by supporters of unadulterated laissez-faire policy.

Ignores the effects of class structure and class interests and asymmetry of power and ability to influence outcomes relative to interests.

Evonomics
I Pencil Revisited. Beyond Market Fundamentalism
David Colander. professor of economics at Middlebury College. and Roland Kupers, associate fellow in the Smith School of Enterprise and the Environment at the University of Oxford

John Komlos — 15 Curses of Unregulated Markets

Markets don’t work the way economics textbooks say they do. While I do believe in the power of markets to cultivate social good, they have many natural limitations that any credible scientific approach must recognize for public policies to be effective. Listed here are fifteen curses—yes, I call them curses—that markets must deal with to work as the textbooks say they do.

Evonomics
15 Curses of Unregulated Markets
John Komlos | Professor Emeritus of Economics and of Economic History at the University of Munich 

Everything You Need to Know about Laissez-Faire Economics — David Sloan Wilson interviews Alan Kirman

David Sloan Wilson interviews Alan Kirman, professor emeritus of Economics at the University of Aix-Marseille III and at the Ecole des Hautes Etudes en Sciences Sociales and is a member of the Institut Universitaire de France

Evonomics
Everything You Need to Know about Laissez-Faire Economics
David S. Wilson is SUNY Distinguished Professor of Biology and Anthropology at Binghamton University and Arne Næss Chair in Global Justice and the Environment at the University of Oslo

ht Mark Thoma at Economist's View

James Fallows — How the World Works

Weekend reading

Americans persist in thinking that Adam Smith's rules for free trade are the only legitimate ones. But today's fastest-growing economies are using a very different set of rules.

Friedrich List, Alexander Hamilton, and the American system.

Today's Anglo-American world view rests on the shoulders of three men. One is Isaac Newton, the father of modern science. One is Jean-Jacques Rousseau, the father of liberal political theory. (If we want to keep this purely Anglo-American, John Locke can serve in his place.) And one is Adam Smith, the father of laissez-faire economics. From these founding titans come the principles by which advanced society, in the Anglo-American view, is supposed to work. A society is supposed to understand the laws of nature as Newton outlined them. It is supposed to recognize the paramount dignity of the individual, thanks to Rousseau, Locke, and their followers. And it is supposed to recognize that the most prosperous future for the greatest number of people comes from the free workings of the market. So Adam Smith taught, with axioms that were enriched by David Ricardo, Alfred Marshall, and the other giants of neoclassical economics.

The most important thing about this summary is the moral equivalence of the various principles. Isaac Newton worked in the realm of fundamental science. Without saying so explicitly, today's British and American economists act as if the economic principles they follow had a similar hard, provable, undebatable basis. If you don't believe in the laws of physics—actions create reactions, the universe tends toward greater entropy—you are by definition irrational. And so with economics. If you don't accept the views derived from Adam Smith—that free competition is ultimately best for all participants, that protection and interference are inherently wrong—then you are a flat-earther.

Outside the United States and Britain the matter looks quite different. About science there is no dispute. "Western" physics is the physics of the world. About politics there is more debate: with the rise of Asian economies some Asian political leaders, notably Lee Kuan Yew, of Singapore, and several cautious figures in Japan, have in effect been saying that Rousseau's political philosophy is not necessarily the world's philosophy. Societies may work best, Lee and others have said, if they pay less attention to the individual and more to the welfare of the group.

The Atlantic (1993)
How the World Works

James Fallows | national correspondent for The Atlantic Monthly

Matias Vernengo — Beyond Laissez-faire? Seriously?

The world is still operating within the laissez-faire framework of classical liberalism, that is, in contextual terms of the 18th and 19th century, modified as 20th century neoliberalism. Time to catch up. Old Keynesianism, Post Keynesianism and Marxian economics still ruled out of the mainstream.

Naked Keynesianism
Beyond Laissez-faire? Seriously?
Matias Vernengo | Associate Professor of Economics, Bucknell University

Matt Bruenig — Should the State Steal from the Poor?

Ya gotta love Matt.

There is a funny group of people out there who became laissez-faire propertarians for secular reasons but then later had to backfill ways to reconcile it with their Catholic religion. One of the things these people often do is concede that, as Locke famously wrote, the poor have a right to the surplus of the rich, but then insist that the state has no role in actualizing that right. 

People who say this seem to imagine that the state can somehow stay out of the matter: the rich will either give it over to the people it belongs to (the poor) or they won’t, and the state will keep out of it. But this can never be the case. 

On this view, the surplus of the rich literally belongs to the poor. It is theirs. Yet, under laissez-faire propertarianism, when the poor go to collect what is theirs (e.g. grab up food and supplies and whatever from the houses of local rich people), the state does not stay out of it. Instead, the state comes out and violently attacks the poor, throwing them in jail even. 

If you believe, as these conservative Catholics claim to, that the surplus truly does belong to the poor, then state enforcement of property law in scenarios like this is literally stealing from the poor. The state is using its force to keep the poor away fromtheir own belongings. Should the state’s force be mobilized in this way? To steal from the poor and give to the rich?

Matt Bruenig
Should the State Steal from the Poor?

My comment there:

Where does the surplus come from? Gains that don't come from work, which is why the workers have a right to it. The surplus is extracted from their productive contribution. 

In economic terms, the surplus is the result of economic rent and rent-seeking behavior.
According to economist Michael Hudson, for example, economic needs to be taxed away both to restore distributive balance after imbalance created by imperfect markets and also to create a disincentive for rent-seeking. 

The surplus that is taxed away should then returned to the economy productively through spending on public purpose, or reducing taxation on workers. 

The formula is don't tax work, tax economic rents — land rent (different from rent on real estate), monopoly rent, and financial rent.

Peter Cooper — There Would Be No Capitalism Without the State

Why capitalism is necessarily state capitalism to one degree or another. Capitalism is dependent on a state or a comparable institution. Individuals acting independently are not self-organizing or self-regulating. Institutions are required and they are provided by governance. Of course, there are many ways to organize governance. Governance under capitalism has been, is and will continue to be oligarchical until governance of the people, by the people, and for the people is established and that his ultimately up to the people. Since history has demonstrated a liberal bias, one can hope that this is the direction of progression socially, politically and economically. But it is not going to just happen. People have to take the reins and in order to do so effectively, they must be prepared to do so. It is in the interest of the oligarchy to see to it that this never happens.

heteconomist
There Would Be No Capitalism Without the State
Peter Cooper

Matt Bruenig — Capitalism does not reward risk

Noah Smith had a reaction to my series of posts on this at his blog. The Humean that he is, I gather that Smith agrees with my basic point: none of these frameworks actually motivate those who incorrectly try to use them to justify laissez-faire capitalism. Nonetheless, he raises some specific substantive points that are worth addressing.

Capitalism does not reward risk

Matt Bruenig

Lars P. Syll — Solow on Good Hayek and Bad Hayek

Robert Solow:

The Good Hayek also knew that unrestricted laissez-faire is unworkable. It has serious defects: successful actors reach for monopoly power, and some of them succeed in grasping it; better-informed actors can exploit the relatively ignorant, creating an inefficiency in the process; the resulting distribution of income may be grossly unequal and widely perceived as intolerably unfair; industrial market economies have been vulnerable to excessively long episodes of unemployment and underutilized capacity, not accidentally but intrinsically; environmental damage is encouraged as a way of reducing private costs—the list is long.… 

The Bad Hayek emerged when he aimed to convert a wider public. Then, as often happens, he tended to overreach, and to suggest more than he had legitimately argued. The Road to Serfdom was a popular success but was not a good book.…

Lars P. Syll’s Blog
Solow on Good Hayek and Bad Hayek
Lars P. Syll | Professor, Malmo University

Brad DeLong picks it up.
Lunchtime Must-Read: Robert Solow (2012): Hayek, Friedman, and the Illusions of Conservative Economics

The source of their alarm was not the danger from Soviet communism or Nazi Germany, but rather the rash of interventionist economic policies everywhere, the New Deal here and the Labor Party there, designed to ameliorate and to reverse the ravages of falling incomes and rising unemployment…. Lionel Robbins… Friedrich von Hayek… Frank Knight… Jacob Viner… Henry Simons… [all] wanted both to propagate ideas and to change the world. (It is worth mentioning that both Knight and Viner were later privately critical of The Road to Serfdom.) What seems off-key (at least now, at least to me) is that they all felt themselves to be in a struggle between free markets and collectivism (or socialism) with no possible intermediate stopping point. That is the meaning of ‘the road to serfdom’….

This is the source of Margaret Thatcher's TINA — "there is no alternative" [to neoliberalism]. This involves the informal fallacy of the excluded middle, aka "false dilemma, black-and-white thinking, bifurcation, denying a conjunct, the either-or fallacy, false dichotomy, fallacy of exhaustive hypotheses, the fallacy of false choice, the fallacy of the false alternative" [Wikipedia]. A lot of otherwise smart people fell into this trap of illogic, known since ancient times. Ideological blinders, or class-serving motive?

Matt Bruenig — Capitalism Whack-A-Mole

There is no general framework of morality or justice that supports laissez-faire capitalism. This is a problem of course for those who wish to argue on behalf of it. When you talk to such people, a familiar argumentative pattern emerges that I have come to call Capitalism Whack-A-Mole.

Someone playing Capitalism Whack-A-Mole moves seamlessly between three different — and mutually incompatible — frameworks of justification. Those frameworks are desert (each person should get what they produce with their labor), voluntarism (each person should get whatever they come about through voluntary, non-coercive means), and utility (the economic system should be created to maximize well-being). This Capitalism Whack-A-Mole does not need a starting point, but, in my experience, either desert or voluntarism comes first, with utility the back up when the argument turns really bad.

Here is a simulation of one such argument.

MattBruenig | Politics

Capitalism Whack-A-Mole
Matt Bruenig

Dan Kervick — Laissez-faire’s Piketty Problem

Excellent analysis comparing Piketty's Capital and Tyler Cowen's Average is Over, explaining in some detail Piketty's argument based on rent accrual. Dan lets Piketty sum up his own argument:

The problem posed by this use of the word “rent” is very simple: the fact that capital yields income, which in accordance with the original meaning of the word we refer to as “annual rent produced by capital,” has nothing to do with the problem of imperfect competition or monopoly. If capital plays a useful role in the process of production, it is natural that it should be paid. When growth is slow, it is almost inevitable that this return on capital is significantly higher than the growth rate, which automatically bestows outsized importance on inequalities of wealth accumulated in the past. This logical contradiction cannot be resolved by a dose of additional competition. Rent is not an imperfection of the market: it is rather a consequence of a “pure and perfect” market for capital, as economists understand it: a market in which each owner of capital, including the least capable of heirs, can obtain the highest possible yield on the most diversified portfolio that can be assembled in the national or global economy. (p. 423)

I suspect that Piketty and Cowen have complementary points.

Piketty claims that the fundamental architecture of capitalism results in a tendency toward rent accrual by owners of capital. Since capital tends to concentrate, this results in a privileged class. This seems to be true.


Cowen argues that technology has reached the point that labor is becoming increasing obsolete. The tendency is toward the need for and high compensation of only the highly knowledgeable and highly skilled, a small portion of the population. Therefore, employee compensation will concentrate that the top end, with technological innovation rendering lower skilled workers redundant. This seems to be true also.

The labor problem here is also that workers at the upper end of the pay scale, where compensation includes not only salary but also other forms of compensation, are not paid based on their marginal productivity. Owing to competition among firms for the best of the best, top level employees can command a residual over MP as a form of rent. They can capitalize their "labor assets." Those lower on the pay scale where labor is abundant are either paid at their MP or even less when government subsidies to the working poor allow for this, since they own no labor assets that they can capitalize as rent.

This is a pincers movement that is putting not only the poor and less educated in jeopardy, but also  the broad middle class, as jobs migrate to the top end, to what we now call the upper middle class and lower level rich. The bulk of capital gets increasingly concentrated in the future at the level of the super-rich.


If these analyses are correct, the developed nations first and then the entire world faces bleak social prospects unless political steps are taken to overhaul the institutional arrangements that are producing this kind of result.

Rugged Egalitarianism
Laissez-faire’s Piketty Problem
Dan Kervick

Matthew Stoller — When You Say “It’s the Economy” You Are Buying Into Deregulation

Liberals don’t remotely understand their own history, they are intentionally misled by their leaders so they misplace blame for bad governing decisions. Take financial deregulation, a central tenet of modern governance. The main point of financial deregulation, which happened from the late 1960s to the early 1980s, wasn’t to shift wealth upwards, though that was a consequence that later became central. It was to get the public to stop believing that the government could do anything about the economy....

That line of thinking among the natural opponents of deregulation is basically the victory of the bad guys right there. The people who run our financialized state want you to think the economy is a thing with agency, a thing beyond human or political control. They want you to believe that in the face of this God, the President is essentially powerless. But that’s false. It’s all a choice. The government is intimately involved in all aspects of markets and economics, it is inherent. Who to prosecute, who to subsidize, who to meet with, which rules to pursue, what to sell, etc. It’s all statecraft. Deregulatory statecraft is just about making the natural constituencies of social justice believe that there’s nothing to be done, except on the margins.

Which is crazy....

Observations on Credit and Surveillance
When You Say “It’s the Economy” You Are Buying Into Deregulation
Matthew Stoller

Ramanan — The Writings Of Joan Robinson

A couple of memorable quotes about laissez-faire aka neoliberalism. The assumption that so-called freedom (liberalism) naturalistically leads to the greatest good (utility) for the greatest number (utilitarianism) is a hypothesis about the world that is not borne out in experience. 

An objection is that disequilibrium shows that all impediments to freedom have therefore not yet been removed. There are two difficulties with this assertion. 

First, it makes the hypothesis unfalsifiable. If some rationale can always be invoked in defense of a hypothesis, it is not testable against experience. It's claim to truth is a priori, hence, empty of content.

Secondly, this objection ignores the cultural and institutional nature of society. If it be objected that there is no such thing as society, let it be answered that "society" is defined by institutions of custom and law. If the claim is that all institutions must be removed for true liberalism, then the counter-objection is that a lawless aggregate of individuals results. That's called a jungle.

Laissez-faire is either unattainable, or else leads to the law of the jungle — the rule of the stronger aka social Darwinism.

The Case For Concerted Action
The Writings Of Joan Robinson
Ramanan

Richard D Wolff — "Pure" Capitalism Is Pure Fantasy

By celebrating pure capitalism, such arguments can criticize the economic crisis without sounding anticapitalist. They reaffirm their loyalty to capitalism in the abstract even as they attack its concrete here and now. The trick is to identify the present system and its enduring, deep crisis as anything but capitalist.

This is fantasy. Impure capitalism is the only kind we have ever had....

Truthout | Op-Ed
"Pure" Capitalism Is Pure Fantasy
Richard D Wolff | Professor of Economics Emeritus, University of Massachusetts, Amherst and currently Visiting Professor in the Graduate Program in International Affairs of the New School University, New York City. He also teaches classes regularly at the Brecht Forum in Manhattan.

Daniel Little — Institutional designs for progressive reform

One place where Jon Elster's philosophical thinking intersects with empirical social science is in the field of institutional design. This involves an important question: What features of institutional design can be identified as having beneficent features of operation when exercised by normal groups of individuals?

This topic has cropped up several times in Elster's career. One important instance is the work he highlighted about alternatives to market society in Alternatives to Capitalism (Jon Elster and Karl Ove Moene, eds., 1989)....

This is a very interesting volume, for several reasons. The individual essays are very good, by experts like G. A. Cohen, Alec Nove, and John Roemer as well as Elster and Moene. But even more interesting is the shock value of its topic in the neo-liberal environment in which we have found ourselves for the past twenty years or so. To have serious scholars making careful, rigorous efforts to explore and evaluate "alternatives to capitalism" is very surprising in today's environment; and yet the essays were written as recently as the late 1980s. Plainly there was practical and political interest in the topic of alternatives to capitalism in those years that has largely disappeared in today's discourse. This suggests that somehow serious progressive thought has been muffled for the past twenty years. It is time to resurrect it. 

Understanding Society

Institutional designs for progressive reform

Daniel Little | Chancellor, University of Michigan at Dearborn