lecture 3 - economic history

Some arguments from early American history are still being argued - this class is about them

ADAM SMITH is often used as a “trademark” for “Laissez Faire” minimal government (negative freedom). This is like a religious mantra for “Government is the problem” segments of the American political spectrum

Hayek – road to serfdom – “any government interference in economy will make us political slaves

of expansive government power” Reagan and Thatcher love him. But now the “laissez faires” want huge expansion exec power

nanny state control of intimate personal decisions(abortion, rhgt to spy, right to torture, etc)

compared - US corporate control of politics but hio-tax Sweden transparent & all citizens control – not just rich high voter participation

Smith much more like Abe Lincoln progressive than “Laissez Faire”

Smith – looks for natural laws or patterns behind economic life around the world. The industrial revolution was starting in England – “factory” perfected - average worker was getting better off . Smith liked this focus on making decent life possible for all – book -Wealth of Nations – 1776

Saw labor as primary – “labor theory of value” – wealth flows from production

taxing labor counterproductive stupid

producers, not nature (French – farming country Physiocrats love farmers and land – Jefferson Francophile - Suspicious of capital – concentrated wealth – elites – (with Christ, Marx, Muhammed, Lincoln in that order) Jefferson combines both views and makes a theory of democracy

Making workers comfortable? Attacked by elites – workers will get lazy and work less if they live too well.

They don’t – lots of consumer goods cheaply produced – they love them

Smith searched for explanations with all the single mindedness of Newton – who was also reputed to have wandered over 10 miles in a fit of abstraction. accused of believing in “natural religion” - wanted to dispense with prayers at beginning of class.

“Theory of Moral Sentiments” claimed that even though selfish humans behave morally occasionally because they imagine seeing themselves from POV of a neutral observer – Do Unto others, etc

Man is naturally inclined to trade – and trading led to specialization & division of labor – lots of inexpensive stuff

“Division of labor / specialization limited by extent of market” - Adam Smith saw much of the stuff I presented in lecture 1 200 years ago – I'd never read – most quoted least read

This key phrase explains much of economic history The market in the interior of areas w/o rivers or railroads would be very small – hence the technology tend to be much less advanced. Africa New Guines

Mercantilism - Duties on imported items – help domestic producers - we make all we can and sell to them and discourage our citizens from buying – we end up with all the gold

Smith attacks this dominant economic theory – tariffs hurt workers and poor – help rich influential

Tariffs leads to corruption and favoritism – producers bribe govt to set rates

Smith loved free markets – pointed out that interference was often the fruit of businessmen seeking advantage thru protective tarrifs

English Corn laws – help lords hurt peasants – also manufacturers protection makes economy less efficient

Ag subsidies now hurt the poor here and in Caribbean – also everglades – sugar prices

Better to use capital markets to decide what industry gets invested in – each bit of capital looks for most profitable use – invisible hand better than government subsidy to rich influenced by lobbyists

MARKETS are, when they work, as democratic as democracy. Often when government makes decisions it's a one-size-fits-all decision - or influenced by a rich businessman

Market requires transparency :recent study S&P 500 – most transparent corps 8% more profitable than least transparent - desperately need good SEC – and good press

Smith not a “starve-the-government-conservative” rightist

Size and functions of state would grow with development of commercial society – benefits of commerce require state institutions. As society is more civilized needs more government. Laboring poor- boring limited jobs – must necessarily fall into corruption & ignorance – unless state take som epains to prevent with an extensive and expensive new expenditure - universal public education - for benefit of state – so less prone to “the delusions of enthusiasm”

More advanced economies generate higher inequality unless government intervenes.

Smith considers taxing labor height of immorality and folly

exactly what tarrifs and consumption taxes do – US in late 1800's and now

Taxes on labor – government by cabal of businessmen (worst possible sez Smith)

subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. (V2 25)

Taxes on labor are “Absurd and destructive” (V2 135)

richest 1% ½ wealth – buy legislatures just like now (ENRON)

we're getting to same levels of inequality with our taxes very heavily on labor

After revolution – we are growing like crazy – all of English culture's neat inventions – it is the early crest of the industrial revolution – but we ignore sources of wealth – huge resources, great rivers, easy defense – and attribute our good fortune to our politrical institutions & cartoon version of Smith – Laissez Faire

Jefferson said , all people are capable of participating in social / political decisions.

Federalists “only rich white men”

(Jacksonian democracy vs “corrupt” English – aristocratic – royal institutions aversion to Court preferences & corruption –> fear of powerful centralized State -

In subsistence economy with good cheap land on frontier each person prospers in proportion to labor and ingenuity – easy to oppress and bully Indians decimated by disease and driven off with racist justifications) lots of available land = real opportunity

(text notes this changes in west later –speculators - corporate farming for market – corporate miners – corporate cowboys )

These early stories of opportunity – of independence on the frontier – of cynicism about government action - become the American fundamentalist bible in the back of almost every mind

even poor tend blame self - not conditions like govt tax policy

scarce labor – even indentured servants off soon – high demand means hi wages esp early before waves of immigrants

Great pressure for labor-saving devices vs China with surplus population – rapid accumulation capital

“INDIVIDUALISM” - Individual effort will be rewarded – poverty = lazy, stupid-

Jackson era – Working-men's parties of 1830’s strong egalitarian emphasis – no interest in socialism, collective ownership or equality of result – wished to open opportunity for all and reduce advantages of those born to privilege - premature Social Darwinists

Why “socialism” remains a swear word – opposite of “individualism”:

No feudal past to get people in habit of thinking of a dominating aristocracy (which we develop)

Instead of peasants forced off the land to be poor industrial workers in Europe – the wage earner of today is tomorrow an independent artisan or small farmer.

Racial division and large-scale immigration splits working class into factions easily played off against each other

Reconstruction’s ending disenfranchised blacks and many poor whites – reducing the power of working class voters

Divided religiously – many denominations – many of which were more capitalist than charity friendly

America defines itself as an ideology (Americanism = anti-statism, laissez faire, individualism, populism and egalitarianism) not a unified community

Political economy is the autocrat of the age – laissez faire the “inexorable law of god”

FUTURE Environment? Child labor?

“Socialized medicine” – used to kill health care reform – so we spend 16% vs 9 or 10% advanced countries - shorter lives - C-Span hearings – drug plan – kindergarten version of “Free to choose” negotiate lower drug prices illegal – pay 3X more VA or Canada

Markets must be transparent – multitude of languages makes impossible – websites make assumptions

Clinton Plan – market power, universality – we spend 15% administration costs trying to exclude unhealthy people –

Like the Wobblies and New Left – individualism and antistatism – help Reagan story

Similar tactics New Left – distrust government confrontation and civil disobedience

Irving Howe: American exceptionalism has often taken the form of a querulous anti-statism – an American version of anarchism suspicion of all laws and forms –

Thoreau I heartily accept the motto, “That government is best which governs least”; and I should like to see it acted up to more rapidly and more systematically. Carried out, it finally amounts to this, which also I believe, “That government is best which governs not at all.”

easily morph in our time to Don’t trust the “mainstream media” or Judges are the biggest threat to America or Scientists are snobbish elites attacking our values

– and even tho they didn’t go “all the way” we give them credit for moving

Language of individual will vs environment

Steve Forbes and Paris Hilton – Social-Darwinism – tax policy “DEATH TAX”

The fear of concentrated wealth – well founded – focuses on national bank – which is actually a great idea to keep finances honest – instead we have comic-book-laissez faire – multiple banks little regulation – panics and depressions every 20 years – helps speculators and crooks – hurts common man (even Adams, federalist – hated banks

BANKS – Begin with goldsmiths with good reputations – make loans based on gold at shop – issue receipts for loans instead of actual gold – great reputation lets them make more receipts than gold – so create (empire of wealth114-115) money by issuing banknotes worth more than capital – Adams: “every $ issued beyond gold or silver represents nothing and therefore is a cheat on someone” – but if the reputation stands it works to “magically” increase wealth – much of which goes to the banker – who is going to hell if Jesus and plain folk are right But if the banker gets over enthusiastic – temptation is always strong - greedy – wants to create extrea $ and collect interest on it – crash – contagious panic – Jimmy Stewart

EXTERNALITIES – tax policy

OIL – subsisies for dirty energy and depletion allowances “let's use it all up as fast as possible

let the public pay costs to environment

Depletion allowance vs Gore carbon and energy tax

Superfund financing

Education funding - Federalist local based (regressive Tennessee) vs revenue sharing state and

TV waste processing tax

political externalities – dead soldiers and 10's of thousands of Muslims who for some

weird reason are offended by pictures of grusome torture and degradation

EDUCATION – INVESTMENT IN FUTURE – other advanced societies make free

• increasingly in America education opportunity class based –

• Davids Brooks book “Paradise Drive”

Markets fail when they're not transparent – when there are asymmetries of information or power – or when they create negative externalities or community effects.

If one party to a trade knows the car’s transmission is broke and can conceal it from the other the other party ….

Or if one party has a gun or huge disparity of power that party has an unfair advantage. (Opium war)

When the parties do something that hurts third parties – externalities – the rules of the market must try to deal with these in the least intrusive and disruptive possible way.

If burning up all our energy resources as quickly as possible has huge influences on

PROHIBITION – when you ignore the market punishment – Friedman Schultz - legalization

LINCOLN – “Labor is prior to and independent of capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves muc the higher consideration”

positive freedom – wolf and sheep - new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal ….. -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth. get off dependence on the regressive tariff and INCOME TAX and inheritance tax – also banks, tobacco

RICH were buying out of war and spending more on one article of clothing than cost to get out fight

activist judges overturn taxes and civil rights – after war rich take over govt again - unconstitutional

Same thing happens after disillusion after WWI – taxes from progressive to regressive

• inequality way up

• 
  

ALITO FEDERALISTS – turn back the regulations of the New Deal and the civil rights revolution

environment – common law – activist judges – lawyers for corps – overturn in 1820's

Racism – he sez he loved “national review” – civil rights protestors responsible for violence

church bombing etc – in South

Italians discriminated “just like blacks” – there are fewer Italians Ivy Leagues

Italians do skilled crafts – plumbers electricians unions

compared – Scotch Irish – poor but many teachers and preachers & ivy leaguers

Explicit program – Karl Rove - “Constitution in exile” turn clock back to McKinley era

Grover Norquist – progressive taxation – Muhjammed and Jesus are Nazis

Constitutional fundamentalists Originalists Scalia -

Cannot let international law pollute American law – US Constitution eternal - uniquely holy wise

Why science? Source of America's power – first anti-science administration -

Frontline – poor southern boys teacher “Jesus was not a monkey”

SCIENCE The principles of markets - Transparency, diffused decision making as in capital mkts, and the bigger market for ideas – as along the silk road ...

It turns out to also be a principle applicable to science, democracy– many minds - are better – SCIENCE requires perfect democratic openness or transparency. Experiments are described in such a careful and exact way that anyone anywhere can repeat the experiment. The results are in the open for anyone to examine.

Externalities – claims of special knowledge – bible or elsewhere – not allowed

grad student can challenge Nobel winner public argument

The more experimenters and the more examiners the more reliable the result.

The division of labor is as important in science as in the market.

You don't consult a group of physicists about snail morphology.

The more imaginations applied – either entrepeneurship or in science.

Sometimes a goofy eimaginaton like Einstein sees the experiment of others and finds an entirely different story. Rutherford’s experiments on the constant speed of light – and some goofy German mathematicians mapping curved space led Einstein to claim that space in general was curved by matter.

Luckily he said this a year or so before a total eclipse of the sun would occur where the light from a prominent stars would pass close to the sun so any bending could be observed. WWI ended just in tome for the required instruments could be got into position in some obscure location. Sure enuf – light bends.

Multiplicities of stories and imaginations – like broad markets - are key. The Newtonian explosion in science relied heavily on discoveries and ways of thinking from China and the east which blended with Western ways of thinking

Pragmatism – Science - Post Civil War – pragmatism – fear of enthusiasm - ends and means not separate - beware of ENTHUSIASM – John Brown?- was good cause of abolition worth 600,000 dead no strong

How do you know things – “specialization (local / multi thematic –

statistical reality – not one story – complementarity – overdetermined –

not all will or all circumstances – excluded middle – poor because ...?

- “special knowledge claims

Science – Pragmatism – Chinese – statistical reality vs geometry and atomism

Populist theological – tidy simple binaries – life vs death – health spending end of life

TEXT CHAP 17

West of the imagination – cowboy – miner – homesteader – stories fit “land of opportunity”

REALITY? – Jefferson's Yeoman farmer has to buy from speculators, must be able to compete with highly capitalized agribusiness - i

Dawes Act – split up indian lands into individual plots – steal a lot – some supporters well-meaning – cannot empathize with different culture not based on PRIVATE property

Southern Agric – must compete with other cotton growing regions – colonial relation to North

PROSPECTORS AND COWBOYS Mining becomes industrial and corporate – huge environmental degradation – especially hydraulic

cattle ranching – Eastern investors own and run

CITY – explosion from around world –

racial and ethnic splits hurt organizing on basis of Class or Socialism

BUT we did do education and libraries well