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Adam Smith ♥ High Wages

23 Nov

The Wealth of Nations:

The liberal reward of labour, therefore, as it is the effect of increasing wealth, so it is the cause of increasing population. To complain of it, is to lament over the necessary effect and cause of the greatest public prosperity.

The liberal reward of labour, as it encourages the propagation, so it increases the industry of the common people. The wages of labour are the encouragement of industry, which, like every other human quality, improves in proportion to the encouragement it receives….Where wages are high, accordingly, we shall always find the workmen more active, diligent, and expeditious, than where they are low.”

When Richard Nixon Met Karl Polanyi

30 Oct

In 1969, while he was working on Richard Nixon’s Family Assistance Plan, which would have guaranteed an income of $1600 plus $800 in food stamps to every family of four, Daniel Patrick Moynihan was deputized by Nixon to investigate the historical accuracy of one of Karl Polanyi’s claims in The Great Transformation.

Polanyi had argued that Britain’s Speenhamland system—like Nixon’s plan, it would have guaranteed an annual income to poor families, regardless of whether they worked or not—had the perverse effect of making the poor poorer. Reiterating claims made by Marx and Engels, Polanyi wrote that Speenhamland allowed, even encouraged, employers to hire workers at below-subsistence wages (the poor were guaranteed an income regardless of whether they worked). Because workers would start losing their income  supports once they earned more than a subsistence wage, and because employers were more than happy to have local parishes supplement or subsidize wages, Speenhamland effectively put a cap on wages. Productivity went down, and with it, poor rates and income supports.  The long-term result, said Polanyi, was increased immiseration among the poor.

Few people have attended to Polanyi’s caveat that had the working poor not been prohibited by the Anti-Combination Laws of 1799-1800 from organizing themselves they might have been able to reverse these effects. (Admittedly, that point only gets a passing mention in Polanyi’s chapters on Speenhamland.) Instead, his argument has been taken as Exhibit A of Albert Hirschman’s perversity thesis: policies designed to achieve positive ends, particularly when those ends relate to the poor, often produce the opposite of their aims. (Hirschman himself made a nod to these linkages.)

When Nixon began mooting his version of Speenhamland in the early part of 1969, talk of perversity (in all senses) was very much in the air. In mid-April, the economist Martin Anderson—then a White House staffer, but previously a devotee of Ayn Rand; Anderson has also been credited with bringing Alan Greenspan, another Randian, into government—prepared a report on the history of poor assistance, which was essentially little more than a series of extracts about Speenhamland from The Great Transformation.

So troubled was Nixon by this history that he had Moynihan personally undertake an assessment of Polanyi’s findings. Moynihan set his staff right to it, resulting in a team of bureaucrats surveying all the most up-to-date historical literature on Speenhamland.

As Fred Block and Margaret Somers—from whose wonderfully informative 2003 article in Politics & SocietyIn the Shadow of Speenhamland: Social Policy and the Old Poor Law” I have cribbed this story—concluded:

The Family Assistance Plan was ultimately defeated in the U.S. Senate but only after Richard Nixon had a conversation about the work of Karl Polanyi.

Update (12:30 pm)

There’s an ungated version of Block’s and Somers’ article here.

Mark Zuckerberg, Meet George Pullman

3 Oct

The Wall Street Journal:

Facebook Inc.’s sprawling campus in Menlo Park, Calif., is so full of cushy perks that some employees may never want to go home. Soon, they’ll have that option.

The social network said this week it is working with a local developer to build a $120 million, 394-unit housing community within walking distance of its offices. Called Anton Menlo, the 630,000 square-foot rental property will include everything from a sports bar to a doggy day care.

One of Facebook’s corporate goals is to take care of as many aspects of its employees lives as possible. They don’t have to worry about transportation—there’s a bus for that. Laundry and dry cleaning? Check. Hairstylists, woodworking classes, bike maintenance. Check.

Michael Walzer, Spheres of Justice:

Pullman, Illinois, was built on a little over four thousand acres of land along Lake Calumet just south of Chicago…The town was founded in 1880 and substantially completed, according to a single unified design, within two years. [George] Pullman…didn’t just put up factories and dormitories, as had been done in Lowell, Massachusetts, some fifty years earlier. He built private homes, row houses, and tenements for some seven to eight thousand people, shops and offices (in an elaborate arcade) schools, stables, playgrounds, a market, a hotel, a library , a theater, even a church: in short, a model town, a planned community.

And every bit of it belonged to him.

Back to the future.

Adam Smith on the Mobility of Labor v. Capital

3 Oct

Adam Smith, The Wealth of Nations, Book I, Chapter 10, Part II:

Corporation laws, however, give less obstruction to the free circulation of stock from one place to another than to that of labour. It is everywhere much easier for a wealthy merchant to obtain the privilege of trading in a town corporate, than for a poor artificer to obtain that of working in it.

Same as it ever was.

Adam Smith Was Never an Adjunct

2 Oct

Every single one of the explanations that Adam Smith offers—in Book 1, Chapter 10, Part 1, of The Wealth of Nationsfor the difference in wage rates between various kinds of labor is discomfirmed by the example of adjuncts in the academy.*

Turns out: work that is harder, more disagreeable, more precarious, riskier as a long-term career opportunity, of lower social standing, and that requires more time and training to enter into and more trust from society to perform, does not in fact pay better.

*These explanations have to do with what Smith calls “inequalities arising from the nature of the employments themselves.” These explanations are to be distinguished from those having to do with government policies or the forces of supply and demand.

Classical Liberalism ≠ Libertarianism

25 Sep

Adam Smith, The Wealth of Nations:

Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable; but it is sometimes otherwise when in favour of the masters. Thus the law which obliges the masters in several different trades to pay their workmen in money and not in goods, is quite just and equitable.

Adam Smith, Lectures on Jurisprudence:

The rich and opulent merchant who does nothing but give a few directions, lives in far greater state and luxury and ease and plenty of all the conveniencies and delicacies of life than his clerks, who do all the business. They too, excepting their confinement, are in a state of ease and plenty far superior to that of the artizan by whose labour these commodities were furnished. The labour of this man too is pretty tollerable; he works under cover protected from the inclemency in the weather, and has his livelyhood in no uncomfortable way if we compare him with the poor labourer. He has all the inconveniencies of the soil and the season to struggle with, is continually exposed to the inclemency of the weather and the most severe labour at the same time. Thus he who as it were supports the whole frame of society and furnishes the means of the convenience and ease of all the rest is himself possessed of a very small share and is buried in obscurity. He bears on his shoulders the whole of mankind, and unable to sustain the load is buried by the weight of it and thrust down into the lowest parts of the earth, from whence he supports all the rest. (emphasis added)

Adam Smith: The Real Spirit of Capitalism?

13 Sep

How can “the man of inferior rank…hope to distinguish himself,” muses Adam Smith in The Theory of Moral Sentiments. Unlike the man of high rank, the non-noble cannot affect the bearing of nobility; his comportment will go unnoticed. “Why should the man, whom nobody thinks it worth while to look at, be very anxious about the manner in which he holds up his head, or disposes of his arms while he walks through a room?” The man of middling or inferior rank is expected to act modestly and plainly, so he must. He must thus pursue a different path, says Smith.

If ever he hopes to distinguish himself, it must be by more important virtues. He must acquire dependants to balance the dependants of the great, and he has no other fund to pay them from, but the labour of his body, and the activity of his mind.


If you’re getting lessons in democracy from Margaret Thatcher, you’re doing it wrong

16 Jul

Here’s a photo of a letter Margaret Thatcher sent to Friedrich von Hayek on February 17, 1982, in which she draws a comparison between Britain and Pinochet’s Chile.  I wrote about the letter in chapter 2 of The Reactionary Mind.

It now turns out, according to Hayek scholar Bruce Caldwell, that there is no No one has yet to discover—not in the Hayek or the Thatcher archives—a preceding letter from Hayek to Thatcher, even though, as many of us have wondered about this letter before.assumed. So we don’t know what exactly it was that Hayek said that elicited this response from Thatcher. Hayek scholar Bruce Caldwell speculates, in an email to John Quiggin that I was copied on, that Thatcher may have been remarking here upon comments that Hayek might have made—about the need for Thatcher to abolish the “special privileges” of trade unions in Britain (as Pinochet had done in Chile)—at a dinner on February 2. But the Thatcher letter does refer to a February 5 letter from Hayek, so it’s difficult to say for sure.

Here’s the text of the letter:

My dear Professor Hayek,

Thank you for your letter of 5 February. I was very glad that you were able to attend the dinner so thoughtfully organised by Walter Salomon. It was not only a great pleasure for me, it was, as always, instructive and rewarding to hear your views on the great issues of our time.

I was aware of the remarkable success of the Chilean economy in reducing the share of Government expenditure substantially over the decade of the 70s. The progression from Allende’s Socialism to the free enterprise capitalist economy of the 1980s is a striking example of economic reform from which we can learn many lessons.

However, I am sure you will agree that, in Britain with our democratic institutions and the need for a high degree of consent, some of the measures adopted in Chile are quite unacceptable. Our reform must be in line with our traditions and our Constitution. At times the process may seem painfully slow. But I am certain we shall achieve our reforms in our own way and in our own time. Then they will endure.

Best wishes.

Yours sincerely,

Margaret Thatcher

Update (10:40 am)

Brad DeLong raises a good question in the comments (as did my mom in an email to me). This is also a question I’ve had myself.  I’ve made some inquiries; will report back on what if anything I find out.

Update (5:25 pm)

In the comments (and in an email to me), John Quiggin explains that he checked back with Caldwell about that February 5 letter. Caldwell, who’s the editor of Hayek’s collected works, doesn’t have a copy of it, and others who’ve looked in the Hayek archive at the Hoover Institute have not found it. John did a quick check of the Thatcher archives and didn’t find a copy of it there either.

Talking about Nietzsche and the Austrians

2 Jul

On Bloggingheads, Mike Konczal and I talk about Nietzsche, the Austrians, and neoliberalism. I explain the weird ways in which Hayek’s view of judging mirrors America’s belated feudalism, how my thinking about the Austrians has changed, why academic theorists and leftists wrongly elevate Strauss and Schmitt above Hayek and Mises, and how we might think about neoliberalism differently. Unfortunately I can’t seem to embed the video here, so you’ll have to click on the link and watch it over at the BH site.

If Reagan Were Pinochet…Sigh

26 Jun

While I have your attention, I want to highlight two dimensions of that 1981 Mont Pelerin Society (MPS) meeting in Pinochet’s Chile that Hayek helped organize. You can read about the whole affair here: I encourage you to do so; the devil, ahem, really is in the details.

But two points stand out for me. The first is how hard the meeting’s organizers worked to transmit the notion that the ideas of Hayek and Milton Friedman had found a home in Pinochet’s Chile. One of the ways they did so was by seamlessly interweaving the distinctive vocabulary of Hayek and Friedman into their accounts of Pinochet. Pedro Ibáñez, one of the original organizers, told the attendees that with the election of Allende

we were no longer free to choose: after forty years of socialist recklessness [Allende had been a government minister as early as 1939] only one road remained open to us—“Friedmanism”—always provided that we had a government strong and courageous enough to establish it.

Chile has regained her liberal traditions and therefore come closer to the spirit of Mont Pelerin.

The second point is the frequent comparisons members of Hayek’s circle made between Pinochet’s Chile and other countries. In a lot of the debate I’ve seen around this issue, the defenders of Hayek von Pinochet tend to invoke Stalin, Pol Pot, or Mao. What’s interesting about that move is that a previous generation of defenders felt no need to go there at all. They actually thought Pinochet’s Chile compared favorably with…Reagan’s America.

But even David Stockman, in his most ambitious budget cutting dreams, could not envision what is politically possible in the land of Augusto Pinochet. The Fortune article claims that in Chile, “the market’s invisible hand is an iron fist.”…

But what is politically possible in authoritarian Chile, may not be possible in a republic with a congress filled with “gypsy moths” for whom political expediency often takes precedence over economic realities, especially in an election year.

That was Eric Brodin, part of the Mont Pelerin inner circle, writing in the MPS newsletter about the meeting in Chile.


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