Kenneth J. Arrow A Cautious Case for Socialism
The discussion of any important social question must involve an inextricable mixture of fact and value.
No. It must involve social facts i.e. intersubjective observables arising out of social processes. Those processes can be 'factorized' in terms of values, preferences, expectations, perceptions, Tardean and other mimetic effects, coordination and discoordination problems and so forth.
Saying, 'it is a fact that one inch is equal to 2.54 cm and what I'd really value is a dick which wasn't just 2 point fucking 54 centi-fucking-meters long' is not the answer of any important social question though it may explain why my marriage failed.
The fundamental impulse to change and especially to great change is a perception of present wrong and a vision of potential right.
Nonsense! The impulse is to defend what you have or to grab what appears within reach. We may pretend otherwise but that's because we have no fucking shame.
The initial impulse must still be checked for feasibility;
Evolution has already done that for us. Some will check for feasibility though they die or go bankrupt in the attempt. The fact is, all species, at the macro level, have a Hannan consistent strategy- i.e. there is some discovery and there is some hedging and redundancy.
we live in a world of limits, and what we desire may not be attainable or it may be attainable only at the expense of other high values.
It's called 'opportunity cost' dude. Second rate mathematicians should not be allowed to become Economists because they don't know Econ and don't understand that not anything you call a set is a set nor is everything you call a function actually a function.
There is an ancient warning, "Be careful what you dream of when young; your dreams may come true!"
Be careful of what you spend money or time on. Dreams don't cost anything.
With the painter Braque, then, I can say, "I like the rule that corrects the emotion."
What Braque liked was money. If he had to pretend he was a great artist to get it, so fucking what?
But that presupposes a strong emotion to begin with;
Nope. A guy trying to flog his paintings or his poems isn't going to say he did it for the money and that he had one eye on the TV all the time. He's going to pretend to have deep emotions or spiritual insights or some such shite.
and it is there I would like to begin. Values and emotions are best apprehended personally,
Or not. We pay good money to go to a Horror movie or Pop Concert. Indeed, a lot of people give substantial sums to their Church.
and I will speak of my own attitudes and their development. This does not mean that my values are all that matter, even to me. I hold that others are free and autonomous human beings,
but they form expectations on the basis of what most other people's expect. This is not autonomy it is interdependence or impredicatitivity.
each capable of developing his or her own value system of equal worth and respect to my own.
Not with respect to something important to you but not to her.
But by that very token, the values of others must always retain an element of mystery.
We can guess at what they really are easily enough. Sadly, there are people who can make better guesses about what it is we really value than we can ourselves. When I was young, I thought I liked drinking beer. I didn't really, I just wanted to fit in with the other blokes. The truth is, I like girlie drinks
The equal but different emotionally based axiological drives of others can never be fully communicated.
Who the fuck would want to listen?
This is not to say that they. cannot be partly understood; historical study, sociological inquiry, intellectual debate, and the many dimensions of the political process are all ways in which we do communicate values. But my own values are the starting point, though not the terminus. In the oftquoted words of the sage Hillel,
who was a Rabbi. He got paid to do job and did it well.
"If I am not for myself, then who is for me?" to which he immediately added, "and if I am not for others, then who am I?"
Not a Rabbi. You will have to find some other way to make a living. Alternatively, just lie about how much you care for others and for God and so forth.
This methodological preface is by way of apology for the extent to which this paper is an intellectual autobiography. Notice the adjective, "intellectual." Anyone who knows me will not be surprised; I have always preferred the contemplative to the active life.
Contemplatively, I've just had sex with ten million super models all of whom were touchingly grateful. Actively- not so much. There's a good reason why many prefer the contemplative life.
I prefer the freedom to see matters from several viewpoints,
e.g. the viewpoint of the millions of super-models I am bringing to orgasm
to appreciate ironies, and indeed to change my opinion as I learn something new. To be politically active means to surrender this freedom.
Nonsense! Politicians do U-turns all the time. What Arrow means is 'activism'- i.e. gesture politics and virtue signalling. But, they may as well make miaow miaow noises for any good they are doing.
I say nothing against activism for others. It is only through the committed that necessary changes come.
It is never through them.
But each to his own path. The great issues of socialism and capitalism became alive to me, as to so many others, in the Great Depression.
There was no great issue. Countries which doubled down more on doing stupid shit suffered more than those which didn't. Those which didn't, didn't.
...Surely, a rationally organized, centrally coordinated economic system could avoid the instability of the capitalist economy
as could a capitalist economy. What matters is expectations. If people think they are going to be well rewarded, they are optimistic and active. But if the contagion of pessimism spreads then there is a Great, fucking, Depression. Socialism can work fine if the Dictator is doing sensible things and people expect that they will be shot in the head if they aren't joyously working their asses off. But this is also true of dudes who work for Al Capone.
and the terrible human and material costs of unemployment.
as opposed to getting a lot of over-time at the Gulag.
Further, there was such an economy. The Soviet Union was building and expanding, there was no unemployment, at a time when the advanced capitalist economies were spiraling downward or at best stagnating. The New York Times was the source of this favorable information, much more to be believed than the Communist party pamphlets passed out on the streets. To be sure, the Hearst newspapers were telling us about famine and repression in the Ukraine; but who would believe them? My family was hardly radical; indeed, they changed from Republicans
who cracked down on Ashkenazi immigration with the Johnson-Reed Act of 1924.
to New Deal Democrats only under the influence of poverty.
Southern Democrats, like Breckinridge Long, were even more anti-Semitic.
But the Hearst newspapers were not respectable; my unwillingness to trust them as against the Times had perfectly respectable middle-class justification. I have spoken so far as if efficiency were the main value. Indeed, it was true that the apparent sheer irrationality of the workings of capitalism was a basic condemnation.
Expectations, in a deeply divided Democracy, where some powerful people care more about maintaining relative privilege or waging class war than the absolute standard of living, are bound to be pessimistic. This is a country which is likely to do stupid shit. In Econ, expectations create reality. In Politics, perceptions are reality.
But as I observed, read, and reflected, the capitalist drive for profits seemed to become a major source of evil.
The evil of immigration? I suppose so. Europeans would never have immigrated to America if its capitalist drive for profits hadn't killed off the indigenous people.
Clearly, the individualistic profit drive had something to do with the uncoordinated inefficiency of capitalism.
Markets coordinate activate. So do Cartels. Sadly, Hoover and Roosevelt supported Cartelization. Nobody gave a shit about allocative efficiency.
But, more, the drive for profits had other manifestations. The Nye committee,
Nye blamed immigrant Jews for 'war mongering'. He was an America Firster. He found no evidence of a conspiracy of Capitalists to take America into the Great War.
a congressional investigating committee, was engaged in a major investigation of the munitions industry; its influence over governments in creating the fears that improved its sales seemed to be well documented.
Only seemed. There was no evidence. Nye's mistake was to attack Woodrow Wilson. That led to a backlash.
The economic explanations of imperialism were virtually standard.
Because Imperialism was dead and thus people could pretend it was actually an undead Vampire. Nobody dissed Count Dracula while he was alive because he was kicking Turkish ass. Incidentally, King Charles is related to Vlad the Impaler. I hope he bites Sir Keir Starmer.
Charles Beard and other historians had accustomed us all through their books to seeking an economic explanation of all political actions. The Constitution represented a certain set of economic interests, the Civil War a conflict, sometimes called "irrepressible," of different profit-seeking groups. Most serious of all, World War I, a tragic living memory, was clearly caused, at least in great measure, by competition among the capitalist interests of the different powers.
The Kaiser and the Tzar and the Caliph were actually Merchant Bankers. The Hapsburg Emperor, on the other hand, was the head of the Pork Belly Cartel. The King Emperor owned the biggest chain of Department Stores. Incidentally, he was a cousin of the Kaiser. Their common grandmother had started off selling flowers in Covent Garden. Her name was Eliza Doolittle. She made her fortune speculating in traded options.
It was in this area of political-economic interactions that Marxist doctrine was most appealing.
appalling, more like.
I was never a Marxist in any literal sense,
Nobody was. Marx literally was not a Marxist.
unlike a great many of my fellow 473 students at the City College, in New York. Irving Kristol has written an evocative article on the intensity of intellectual life among the anti-Stalinist Marxists who foregathered in Alcove One and listed the many eminent social scientists and literary critics who emerged from this training. It would appear a Marxist background is an essential prerequisite for the development of a neoconservative thinker.
Nonsense! Being a cunt is qualification enough.
I could not follow Marxist doctrine very literally for a number of reasons. The labor theory of value was a stumbling block even before I studied economics with any seriousness;
Values arise on coordination and discoordination games. One can value one thing in one way as part of a pooling equilibrium, while thinking it shit as part of a separating equilibrium. Knightian Uncertainty is the reason we live in a 'superimposed' state. Arrow ignored Knightian Uncertainty to write nonsense.
there were too many obvious phenomena that it ignored. Nevertheless, the insight Marxist theory gave into history and particularly as to political events was striking: the state as the executive committee of the bourgeoisie,
rather than a bunch of megalomaniacal gangsters
the class interpretation of political and social conflicts, and the interpretation of war and imperialism as the conflict of competing national capitalist interests were illuminating and powerful.
They were fucking obvious. Imperialists kept saying 'we need to grab those resources or markets'. The problem was that it was seldom profitable to do so. The trick was to get the costs to fall on the tax-payer, wile the profits were monopolized by a bunch of cronies.
It appeared more profound than the alternative versions of the economic interpretation of history; they seemed to be mere muckraking, the behavior of venal individuals.
People can decide certain markets are repugnant- e.g. prostitution, 'sweated labour', slum landlordism- and laws can be passed to curb such activities.
Marxism put the system rather than the individual into the foreground.
The problem was that individuals- e.g. Stalin or Trostsky- would be in charge of changing the system. They might decide to kill you because you were a 'right deviationist' or a 'left adventurist' or might turn into some such thing one fine morning.
What I drew from this thinking was an argument for system change.
Systems, like individuals, change over time. I suppose, if one group of people achieves absolute power by killing all its enemies, then it can impose any system it likes.
The basic criterion for change was moral and ethical. I did not accept ideas of historical inevitability. What the Marxist analysis did say to me, at least then, was that the system of production according to profit established vested interests in destructive activity,
Pigouvian taxes or outright bans would take care of this problem.
most especially war and imperialism,
During the inter-war years, it did seem that gun-salesmen like Sir Basil Zaharoff were trying to start wars.
but also oppression of workers and destruction of freedom. I do not believe I ever accepted the theory that racial discrimination was the result of capitalist endeavors to divide the working class,
Dark skin is a costly to disguise signal and can be used for wage, price and service provision discrimination. The same is true of gender.
but I certainly accepted the general belief that the capitalist class would overthrow democracy rather than lose its power, as it had done in Italy and Germany
the capitalist class lost power to the Il Duce & the Fuhrer. So did everybody else.
and was then striving to do in Spain.
Raping nuns was a bad idea. There was bound to be a reaction.
Thus, beside the efficiency value, the values of freedom and the avoidance of war were vital in my attitude toward socialism.
The problem was that avoiding war may mean appeasement and then war occurs anyway.
The two were and are intimately linked in my mind. Being killed is, after all, a rather extreme form of deprivation of freedom, and in a typical modern war, the killer is subject to as much compulsion as the killed. I tended therefore to a rather pacifist position. This position, to be sure, began increasingly to separate me from a revolutionary socialist position. On the value of freedom, I don't think I ever thought it through; it was just a value that was taken for granted.
It was costly to maintain a system of checks and balances.
Obviously, an American education inculcates such a value strongly. However, I was naive or conscientious enough to take it very seriously and to be shocked at examples of its denial. Discrimination against blacks—denial of their political rights, segregation in housing and employment—was the most blatant case domestically; remember that lynching still existed. Imperial control of the United States, as in the Philippines, and, much more extensively, by Great Britain in India and Africa, served to demonstrate that political freedom had narrow limits under capitalism.
Imperialism isn't capitalism.
The freedom of workers seemed to me much restricted. Strike-breaking by fairly direct and brutal methods, as well as more subtle forms of economic pressure, was a common event. Even apart from overt conflict, the regular operation of the factory appeared as a form of regimentation and a denial of individual freedom an implication then widely accepted, expressed in such movies as Chaplin's Modern Times and Rene Clair's A Nous La Liberte' and, more subtly and profoundly, in Lewis Mumford's Technics and Civilisation, then very famous and still worthy of rereading.
Ford had raised his workers' wages to a level where they could themselves buy the cars they produced. Hoover was keen on cartelization so as to remove the incentive for 'sweating labour'. FDR went further in that direction. The problem was Expectations. Recovery from the Depression was weak and could be reversed. It wasn't till re-armament on a massive scale that the US came out of the Depression. Was this some sort of trick? That was the question.
A broader and less direct form of control flowed from the concentration of control in American industry, indeed capitalist industry everywhere. The importance of relatively few large industrial and financial corporations did not need much documentation, and numerous investigations documented their scandals. But massive support for the more scholarly minded came from Berle and Means's The Modern Corporation and Private Property, which established not merely the concentration of the productive sector into large firms but also the concentration of control within those firms. Even the capitalist stockholders were deprived of power, if not wealth.
There was a divorce between ownership and control. Perhaps, this meant that Socialism could be established by the back door. The Executive could deal directly with a cartelized industry. This was like the Corporatism seen in Fascist countries.
The absorption of the economy by a small elite implied that the formal democracy and freedom was increasingly a sham; the major decisions on which human welfare depended were being made by a few, in their own interests.
The Government could pressurize them to become its lackeys.
The same process had another implication, as Marx had argued long before; production was in effect already being carried on in socialized enterprises, so that the shift to a completely socialist economy would be that much easier.
This is the germ of the 'convergence hypothesis'. Capitalism and Socialism would become indistinguishable. There would be 'administered pricing'. The economy would feature 'fix-price' rather than 'flex-price' such that markets did not clear. There would be either unemployment or 'repressed inflation' (i.e. shortages).
As some of my examples indicate, I did not find any sharp line to draw between the values of freedom and of equality. The typical example of lack of freedom was a great inequality of power. Much is made these days of the alleged opposition of freedom and equality; but I would have regarded the two as close to identical in many contexts. As for inequality of income, I took it for granted that it would be reduced under socialism by the abolition of the income category of profits.
In other words, the entrepreneur would be replaced by a salaried manager. The problem was that the managerial class might award itself perks while doing less and less work. The same problem arose with a 'nomenklatura' in a Socialist state.
Finally, there was a strong antipathy to an economic and social system based on selfish and competing motivations. I eagerly sought confirmation in the works of contemporary anthropology, such as Margaret Mead's Sex and Temperament in Three Primitive Societies, for the proposition that cooperation was at least as natural as competition.
Sadly, peaceful cooperation may mean your society gets conquered by those who went in for military competition.
My pacifist views coincided in a natural way with these broader motivational assumptions. Like many others of the time, I was strongly attracted by Gandhi's nonviolent campaigns against British rule.
Which failed.
The underlying assumption was the common humanity of ruler and ruled; the appeals to cooperative and altruistic motives seemed to have at least some success as against the simple selfish exercise of power.
Westminster didn't want to waste its time passing laws for India. They had already made their settler colonies self-administering and self-garrisoning. Could India be turned into a Federation like Australia or Canada? No. The country would be divided on the basis of Religion as Ireland was divided.
To sum up, the basic values that motivated my preference for socialism over capitalism were (1) efficiency in making sure that all resources were used,
How? The Socialist government may accept that there must be a minimum wage. But it may not be able to employ everybody at that pay-rate. There would be 'disguised unemployment'.
(2) the avoidance of war and other political corruptions of the pursuit of profits,
It is not profitable to start a war you are bound to lose.
(3) the achievement of freedom from control by a small elite,
A large elite isn't an elite. Either the thing is small or it does not exist.
(4) equality of income and power,
in which case there is no incentive to shift to more efficient methods. Also, why be a plumber when you can be a party hack? Plumbing is a messy business. Attending committee meetings is a pleasant enough way to pass the time.
and (5) encouragement of cooperative as opposed to competitive motives in the operation of society.
I encourage people to cooperate with me by doing my washing up. Also, some light hoovering.
From the perspective of greater education and experience and with 40 years of history, my understanding of the relation between these values and the desirability of socialism has altered. Many countervailing considerations have been raised by further analysis and knowledge of the facts. One problem that I did not face was highlighted by history almost immediately. If capitalism was to be reprehended for its concentration of control and consequent inequality of power and lack of freedom for the average man, what would happen under socialism? Did not state ownership imply or at least permit overwhelming concentration of power in the hands of a political elite? Soviet Communism pushed these questions into our consciousness. For me, the Moscow trials of 1935-36 were a dramatic, even traumatic turning point.
I suppose there were board room coups of a similar type. The difference was that nobody got shot.
It was clear that the old Bolsheviks were unjustly convicted, and their confessions only increased the horror, since it spoke of barbaric pressures.
The Soviets had created famines and slave labour camps. Barbarism is too kind a word.
I reflected, too, that in the improbable event that the charges of treason were true, the Stalin regime was equally condemned; for what could induce those who had risked all under the Czars to create this new world to turn against it save a deep sense of its evil? However the facts were interpreted, they were not compatible with the idea that the Soviet Union was a democracy or was even moving in that direction. Differences of opinion, even among socialists, were not being tolerated. I had not believed that the Soviet Union was a genuine democracy at any time, but its political backwardness could easily be explained by history and the ring of quite genuine enemies it had.
Stalin rid the Kremlin once and for all of an uprising of Cossacks and agricultural labourers. He had escaped from Siberia many times. Under his rule, the whole country was a prison camp. There was nowhere you could escape to within the country.
But now it appeared that as the generation raised under socialism came to adulthood and as the Soviet Union grew stronger vis-a-vis its enemies, the repression grew greater, not less. The true enormity of the Soviet tyranny was revealed only in time. But from my point of view, the challenge to socialism was already reasonably clear. At a minimum, the socialist economy did not guarantee democracy and individual freedom.
Or food. There had been big famines under Stalin.
I had the naive idea that in the absence of a profit-making class, there would be no class interested in achieving power over others. It became clear that this view was hardly adequate. The worse problem was the possibility that socialism, by concentrating control of the economy in the state apparatus, facilitated authoritarianism or even made it inevitable.
Either you have incentives- e.g. more money for working harder- or you have penalties- getting shot for not overfulfilling your work quota. To be fair, the Soviets did believe in 'work measurement' and would reward 'Stakhonovites'.
I return to this vital challenge below. I became seriously interested in the study of economics only after beginning graduate study around 1940.
Arrow was witnessing the creation of a massive military-industrial complex. Suddenly, the US had 'price czars' like John Kenneth Galbraith who was only 13 years older than Arrow.
Needless to say, learning something of the workings of the economic system and of the logic of neoclassical economics had a considerable effect on my attitude toward socialism. George Stigler remarked once that the study of economics is a highly conservatizing force.
What is even more conservatizing is having to make a budget and stick to it. That's why Mummy is so strict.
To some extent this is true, but only to the extent that any increase in knowledge may lead to greater realization of limitations. The inner coherence of the economy, the way markets and the pursuit of self-interest could in principle achieve a major degree of coordination without any explicit exchange of information—in short, the valid elements in Adam Smith's doctrine of the invisible hand—became important possibilities that qualified a simple view of the inefficiency of markets.
The price mechanism is only one of many coordinating mechanisms. The existence of hedging and income effects will cause allocative efficiency or render the general equilibrium 'anything goes'. The wider problem is Knightian Uncertainty which dictates a regret minimizing, rather than expected utility maximization, approach.
Similarly, the facts of long-term economic growth in spite of the contemporary economic debacles had to register—though, to be sure, one could scarcely ask for a greater testimonial to the creative power of capitalism than was already contained in the Communist Manifesto. My immediate reaction was to interpret neoclassical economic theory and particularly the then new and rapidly developing discipline of welfare economics
which is merely the handmaiden of Public Finance. First figure out how much tax revenue you can raise and then decide how to spend it so as to create a virtuous circle such that Income and hence tax revenue rises more than proportionally.
as pointing to an ideal efficient economy rather than the actual one, marked both by massive unemployment and by monopolistic distortion. Socialism was the way in which the ideal market was to be achieved. This doctrine was held by many, including especially the professor here at Columbia to whom I owe so much, both intellectually and personally, Harold Hotelling.
Hotelling had a great interest in Henry George's ideas- as did Vickrey. Stiglitz and others developed the 'Henry George theorem'. The European Left was suspicious of it.
Graduate education in economics at Columbia at that time, just before our entrance into World War II, seemed curiously designed to emphasize the ideal nature of neoclassical theory. The dominating voices, Wesley Mitchell, J. M. Clark, and Arthur F. Burns, held that neoclassical theory had little descriptive value. Though Clark and Burns, at least, certainly had no support for socialism, their views, when taken into conjunction with the theorems of welfare economics, resonated with my convictions that socialism could yield a more efficient economy.
What would the incentive be for a Socialist planner to focus on efficiency rather than something more crowd-pleasing?
Finally, the development of Keynesian economics and, after the war, its gradually increasing application changed the nature of the efficiency discussion. In true Hegelian fashion, capitalist instability and the socialist counterattack seemed to be synthesized: it seemed possible to have an economy that retained much of capitalist drive and initiative and yet gave room for the government to intervene to avoid at least the worst inefficiencies of unemployment and the idling of other resources.
Governments can certainly act in the public interest to restore business confidence and create a 'virtuous circle' whereby Income, and hence tax revenue, rises.
I accepted provisionally what seemed to be a widespread consensus in the euphoria of postwar economic growth. The state had an active role to play in maintaining effective demand and in dealing with the many imperfections of the market system revealed by theoretical welfare economics— the overcoming of market failures and monopoly and the realization of economies of scale. These interventions should take the form of relatively impersonal measures, taxes and expenditures, rather than detailed controls and direct regulation.
More particularly because of the problem of 'Agency capture'. The industry under regulation might gain control over its supposed regulators.
The higher taxes meant that the government was automatically engaged in redistributing, and some of us felt that it should go much further.
The problem was 'disutility'- i.e. opportunity cost or transfer earnings. This rises for employed people if unemployed people have a good enough standard of living. Welfare Econ never really came to grips with this problem.
I have spoken of a provisional acceptance. I still felt it important to explore more deeply the possibility that socialism was a superior possibility. I was more aware of the complexities of operation of a socialist system and sought to develop more deeply the theory of such a system.
The USSR didn't really have a theory. It just had a pragmatic 'material balances' approach. The problem was quality control. On paper, you have exceeded your quota of widgets. But half the widgets are not fit for purpose.
I also sought to explore more fully the criteria for a democratic social organization.
This is done by electing representatives, not by aggregating preferences.
These matters could be thought of as matters for slow reflection and long-term analysis, so long as the economy seemed to be performing so well and the political process seemed to be responding, however slowly, to demands for improvements in efficiency, redistribution, and the overcoming of market defects. The apparent pause in economic growth, the crisis in stabilization policy occasioned by the current inflationary threats and realities, and the loss of purpose in redistributional measures all combine to raise anew the question of alternatives to capitalism.
What was sought was an alternative to the Bretton Woods' strait-jacket so that former colonies or protectorates could get a better deal for selling their petroleum. Finally, the Soviets realized that they too could have higher standards of living if they sold their petrol at world prices rather than subsidising their allies.
In many of our sister democracies, the issue is much more closely on the agenda than it is here. Beyond that there is the large fraction of the world where socialism and authoritarianism coexist in varying degrees of comfort. And then, since, to twist a phrase of Marx's, every historical phenomenon appears as both tragedy and farce, we have the widespread solemn use of the word "socialism" to cover some of the most absurd travesties of that term.
North Korea had adopted the hereditary principle such that the Dictatorship of the Proletariat meant the ruler would be the son, grandson, or great grandson of the 'Beloved Leader'.
Let me spend the remaining time in reexamining briefly the case for socialism from the viewpoint of the five values mentioned earlier: efficiency,
minimizing 'disutility' or 'opportunity cost'. Older people thought disutility was directly linked to the job whereas it is linked to the best alternative to the job. Suppose I get paid one million dollars a month to make love to super-models. I feel very happy. Then I hear you get paid two million for doing the same job. Suddenly, I feel very sad and hard done by.
separating political decisions from selfish economic interests,
I unselfishly decide that your salary should be cut. You quit work. My political decision harms the economy.
freedom,
costs money to maintain. It doesn't come for free as the Ukrainians can testify.
equality of income and power,
everybody starving together
and the stress on cooperative as against individualistic motives.
We have an individualistic motive to cooperate.
These are not balanced remarks; only the favorable side will be presented. Perhaps on another occasion I will present the contrary case. The case for socialism from each value viewpoint is much more refined and complex than I originally thought, and there are many qualifications that must be made. But I still consider that the argument can be made. For reasons of time, I will deal only briefly with the last two points. With regard to equality of income, let me first remark that I am taking it to be a good, other things being equal.
Why not take equality of height and weight to be a good thing, ceteris paribus? Some people may want more income. Some may want more leisure. At different times in our life, our preferences in this respect change.
It can be objected that the drive for equality may dull incentives, and the net result will be a reduction in everyone's real income. This is a legitimate instrumental objection but not an objection to the value presumption in favor of equality as such.
It is both. Values are instrumental. People with good values tend to do well. Equally, values which cause you to do badly are considered bad. At a time of peace and prosperity we may say that people who devote themselves to prayer have good values. Then the country is invaded. Those who merely pray are useless. Those who fight back can save the country.
Many current thinkers object to distributive equality on principle, on the grounds that it contradicts freedom of property.
One may go further and speak of property ownership as an 'uncorrelated asymmetry' which dictates an eusocial 'bourgeois strategy'.
This is a large subject; I simply state my conviction that property is itself a social contrivance
It may be. It may not. Animals behave in a territorial manner. That's a bourgeois strategy.
and cannot be taken as an ultimate value, indeed, that institutions that lead to gross inequalities are affronts to the equal dignity of humans
which is a 'social contrivance'. I suppose, in law, there is some such notion. But does it exist in society? Is a homeless lunatic really of equal dignity to the President of the Republic?
and can only be accepted as necessary evils.
Gravity is a necessary evil. I hope President Trump will ban it.
It certainly seems as obvious as can be that a socialist economy can achieve much closer income equality than a capitalist economy.
So can a hunter-gatherer society. Let us ban agriculture and industry.
The category of profits is absent.
i.e. you can't sell any turnips you happen to grow.
While we now understand that most inequality in income is due to inequality of so-called labor incomes, it is certainly true that the ability to acquire profits increases inequality.
It also enables retired people to have a decent standard of living. Getting rid of profits means your pension fund gets no dividend income and thus can't pay your pension.
Further, the higher end of the income of professionals and executives is largely a rent in the economic sense and would be unnecessary in a socialist society.
Because the nomenklatura don't wear clothes or require expensive apartments and limousines.
One needn't ask for utopian dreams of virtually complete equality of income.
One can be grateful that the 'Beloved Leader' is building himself another Palace.
In a world of any complexity, there must necessarily be both antagonistic and cooperative elements. The model laissez-faire world of total self-interest would not survive for ten minutes; its actual working depends upon an intricate network of reciprocal obligations, even among competing firms and individuals. But the capitalist system is structured so as to minimize cooperative endeavor.
Coase's theory of the firm suggests it exists to internalize externalities. There is a lot of cooperation within it.
The worker is a factor of production, a purchased item, not a part of a team.
No. He is a part of a team and his emoluments may reflect his seniority or his loyalty and cooperative spirit.
The attempts to handle externalities in recent years have led to interesting resistances; antipollution regulations are perceived as a threat to profits, not a social gain.
They move pollution to poorer areas. The affluent gain better air quality. The poor choke.
Again, socialism is far from a magic cure. Each suborganization, for example industrial plants, will have its own proximate goals, which will not mesh completely with those of others. But the system should permit a greater internalization of broader goals. It should be easier for a plant to regard product safety as one of its socially valued outputs.
The leading cause of fires in Moscow, at around that time, was exploding TV sets. Socialism may not bother with product safety. A private company whose products keep exploding will soon go bankrupt.
The comparative economic efficiency of capitalism and socialism remains one of the most controversial areas. The classical socialist argument is that the anarchy of production under capitalism leads to great wastage.
In which case a new manager can boost profit by cutting down on waste.
An appeal to the virtues of the price system is, in fact, only a partial answer to this critique. The central argument, which implies the efficiency of a competitive economic system, presupposes that all relevant goods are available at prices that are the same for all participants and that supplies and demands of all goods balance. Now virtually all economic decisions have implications for supplies and demands on future markets. The concept of capital, the very root of the term "capitalism," refers to the setting-aside of resources for use in future production and sale. Hence, goods to be produced in the future are effectively economic commodities today. For efficient resource allocation, the prices of future goods should be known today. But they are not.
Which is why some arbitrageurs will specialize in making better predictions of what they will be. These 'market makers' should smooth out prices and reduce the burden of uncertainty on other agents.
Markets for current goods exist and enable a certain coherence between supply and demand there. But very few such markets exist for delivery of goods in the future.
This is true of any economic system.
Hence, plans made by different agents may be based on inconsistent assumptions about the future.
This is true of any kind of plan. People get married thinking that their spouse shares the same plan for the future. Then it turns out the spouse's plans is to fuck anything that moves while spending money like a drunken sailor.
Investment plans may be excessive or inadequate to meet future demands or to employ the future labor force.
This is also true of a family of shepherds. They may not have enough sheep to remain in that employment. Sooner or later some of the sons have to get jobs in a factory or a coal mine or join the army.
The nonexistence of future markets is no doubt linked to uncertainty about the future.
There is no 'market maker' for it because it is not profitable. Still, contracts of this type can be made even if there is no 'clearing price'.
But this points to an even more severe shortcoming of the actual capitalist system compared with an ideally efficient economic system.
Actual things have shortcomings relative to ideal things.
The uncertainties themselves are relevant commodities and should be priced in such an economy. Only a handful of insurance policies and, to a limited extent, the stock market serve to meet the need for an efficient allocation of risk-bearing.
It is efficient only if ex ante expectations match ex post outcomes. But this is true of any type of activity. I am pressing buttons on my TV remote. Nothing is happening. Why? Oh. I have to replace the batteries. I was behaving inefficiently by shouting at the TV and cursing the remote control.
In the ideal theory of the competitive economy, market-clearing prices serve as the communication links that bring into coherence the widely dispersed knowledge about the needs and production possibilities of the members of the economy.
Some 'open markets' do clear well enough. Sometimes 'market-makers' with expert knowledge can improve outcomes. Sometimes irrational speculation can worsen matters.
In the absence of suitable markets, other coordinating and communicating mechanisms are needed for efficiency.
Why not scold the economy till it becomes sweet and nice?
These come close to defining the socialist economy, although admittedly wide variations in the meaning of that expression are possible. As I have already suggested, the existence of idle resources is a prime example of coordination failure.
A more striking example is vast numbers of people starving to death. Being idle is better than being dead.
The experience of the Communist countries bears on this point.
They had big 'man made' famines. The result was that the regime no longer had to fear an uprising of the peasants.
With all their difficulties and inefficiencies, and they are not few, recurrent or prolonged unemployment is not one. A graph of economic activity in the United States is, under the best of circumstances, jagged and spasmodic, that of the Soviet Union much smoother.
If you make up the figures, your graphs will be smoother.
Fluctuations there are, as there must be in any complex dynamic system.
Life is an example of such a system. We can't remain babies forever.
But the planning, however inept, serves to keep the basic resources and their uses in line.
So does slavery. The problem with both Communism and Slavery is that workers keep running away.
The sophisticated antisocialist reply to this argument is not to deny it but to emphasize that a socialist system is not an ideal resource-allocating mechanism either.
The difference is that you can directly change preferences by shooting people.
Much is made of the obvious inefficiencies of the Communist countries, though the Soviet growth rate and technical development has on occasion caused fear and trembling and overall still averages above the United States rate.
Which is why so many Americans were running away to the USSR. It wasn't the case that the Berlin Wall was designed to prevent people fleeing to the Capitalist West.
As all too frequently happens in the social sciences, no clear-cut dominance pattern of efficiency can be found either way.
But you could look to see what was happening at the margin. Did people run away from the USSR to the USA or vice versa?
All that can be said is that socialism is clearly a viable economic system, contrary to what many would have asserted in the not-too-distant past, and it does not release energies and productivity far beyond the capitalist norm.
There were periods when Communist countries seemed more energetic. There were some remarkable Soviet mathematical economists. The big question was whether Kantorovich's vision could be realized using networked computers. In the early Seventies some believed this was possible.
I have referred rather vaguely to the corruption of the political system by narrow economic interests as one of the evils of capitalism that might be avoided under socialism.
Where you could have just plain and simple corruption. Brezhnev's daughter was supposed to be very corrupt. Still, I suppose it was the post-Yeltsin plutocrat who made much bigger fortunes.
More explicitly, a democratic polity is supposed to be based on egalitarian distribution of political power. In a system where virtually all resources are available for a price, economic power can be translated into political power by channels too obvious for mention.
But plutocrats may compete with each other for that political power. Some will seek to ally with organized Labour so as to score over their rival.
In a capitalist society, economic power is very unequally distributed,
whereas, under Socialism, babies are just as productive as skilled engineers.
and hence democratic government is inevitably something of a sham.
Why are there so few babies in the Senate? It is because Democracy is a sham.
In a sense, the maintained ideal of democracy makes matters worse, for it adds the tensions of hypocrisy to the inequality of power. My early assumption that only capitalists would have an incentive to influence democratic decisions was too simple. Everyone in an economy has an economic interest. It is also true that individuals have interests and attitudes that do not derive from their economic improvement and may even oppose it. But it is today a widespread doctrine, held by conservatives as well as socialists, that concentrated economic interests are more than proportionally powerful in the political process.
The problem is that they may overplay their hand
George Stigler and his colleagues have maintained with great vigor that regulation of industries is usually carried out in the interests of the regulated and is not infrequently originated by them.
There was also the problem of the Government stockpiling and sitting on patents. People in the Tech industry felt that innovation was being held back by a bureaucratic cabal.
The reasons offered are perfectly in accordance with ordinary economic principles; there are economies of scale in the political process, so that a small economic interest for each of a large number of individuals is less likely to get represented than a large interest by a small number.
The emergence of tax-exempt Political Action Committees could bypass the established political parties by backing those who would promote their agenda regardless of party affiliation.
So long as the state power can be democratically run, much of this distortion of the democratic process should be minimized under socialism.
Socialists have their own 'sacred cows' and want more to be spent on wasteful schemes which signal their commitment.
Income inequalities should be greatly reduced.
In which case, why become a plumber rather than try to make it big as a pop star?
Economic power deriving from managerial control rather than income should be less easily translatable into political power than under a regime of legally and practically autonomous corporations.
The Medieval Church had a lot of 'managerial control' because it owned vast estates and monopolized higher education and the higher ranks of the bureaucracy. This meant it had great political power. It could even excommunicate the King.
We come then, finally, to what is probably the most serious of all the concerns about socialism. Is it in fact compatible with freedom and democracy? It is the fear that socialism may bring tyranny that has inhibited so many of us from being more active advocates.
Communism had brought tyranny. The British Labour Party had not done so.
It is noteworthy that when Joseph Schumpeter wrote on Capitalism, Socialism, and Democracy, he affirmed that socialism, which he thoroughly disliked, was fully compatible with political democracy.
This was obvious to the English. Working class Members of Parliament did not want to replace Capitalist tyranny with the tyranny of Cambridge educated Commissars.
It is only perhaps with Friedrich von Hayek's The Road to Serfdom that the association of capitalism and democracy became a staple of the procapitalist argument. The association itself, however, was not new; it was one of the standard Marxist views, though not held by all. The hypothesis was that the resistance of capitalists to the coming of socialism will lead to the subversion of democracy by them. At least the transition will require the "dictatorship of the proletariat," a phrase whose ambiguities have been only too well clarified by history.
Trotsky did create a Red Army which was able to defeat the Whites and extract surpluses from the peasants.
This Marxist view indeed gives credit to capitalism for the origins of democracy; it is an appropriate political form, a parallel to the ideas of free contract. So long as the "contradictions" of the system are not too sharp, the nominal equalization of political power offers no threat because economic power is so preponderant. But democracy will decline with the failure of capitalism.
If there are no profits, what is the incentive for investment? The fixed capital of the country will depreciate and become useless. Standards of living will fall.
The experience of Chile, to cite only a recent example, certainly gives some credence to this theory.
There was a CIA backed coup. Chile was unusual in many respects. It has been suggested that Allende hadn't won convincingly and thus didn't have a mandate for implementing quite a radical program. I suppose, the truth is Chile was badly affected by the fall in the price of copper. It is said that the US supplied funds to strikers with the aim of paralysing the regime. The Soviet bloc and China did give some assistance but they may have been sceptical as to whether Allende had the stomach for the sort of tough action needed to stay in power.
Ironically, the current conservative model explaining the supposed association of capitalism and democracy relates to the Marxist as a photographic negative to a positive. It too suggests that the political "superstructure" is determined by the "relations of production."
Graciella Chichinlisky, from Argentina, suggests that Democracy is problematic if there is too great preference and endowment diversity.
The conservative model contrasts the dispersion of power under capitalist democracy with its concentration under socialism.
Dornbusch spoke of Allende's 'macroeconomic populism'. The problem was that he could not control the supply side. Maybe if copper prices had been booming, he'd have remained in power as a beloved benefactor to the Chilean masses.
Political opposition requires resources. The multiplicity of capitalists implies that any dissenting voice can find some support. Under socialism, the argument goes, the controlling political faction can deny its opponents all resources and dismiss them from their employment. This theoretical argument presupposes a monolithic state. It is something of a chicken-and-egg proposition.
If Socialism means social control of the means of production, then the ruling party would have a monopoly. But, there would still have to be production. If production is falling while the State raises wages and freezes prices, you get 'repressed inflation'- in other words goods disappear from the market.
If the democratic legal tradition is strong, there are many sources of power in a modern state. Adding economic control functions may only increase the diversity of interests within the state and therefore alternative sources of power. It is notoriously harder for the government to regulate its own agencies than private firms.
Surely, that's the clinching argument against Socialism?
Socialism may easily offer as much pluralism as capitalism. The overpowering force in all these arguments is the empirical evidence of the Soviet Union and the other Communist countries, and it is strong.
Gulags are very plural.
But the contrary proposition, that capitalism is a positive safeguard for democracy, is hardly a reasonable inference from experience.
A democracy may decide that the only way it can survive is to grab land and resources from its neighbours.
The example of Nazi Germany shows that no amount of private enterprise prevents the rise of totalitarianism.
The Weimar Constitution permitted the President to rule by decree.
Indeed, it is hard to see that capitalism formed a significant impediment.
Capitalists had read Keynes's 'Economic consequences of the Peace'. Keynes said the US was becoming a net food importer. Britain and France and Holland and Belgium would be fed by their colonies. The Germans would starve unless the grabbed land from their Eastern neighbours. Hitler was brought into politics by the German Army. He only became Fuhrer because Ludendorff was barking mad.
Nor is Nazi Germany unique; Fascist Italy, Franco's Spain, and the recurrent Latin American dictatorships are illustrative counterexamples to the proposition that capitalism implies democracy.
Anglo Saxon polities are democratic. Latins aren't. An 'enlightened despot' may sponsor Capitalism. Dubai is Capitalist. Democracy might destroy its prosperity.
Further evidence can be drawn from the increasing role of the state in guiding economic activity. The United States, the United Kindom, and Sweden, though not socialist as that term is properly used, have certainly greatly increased their intervention in the economy.
They began to scale this back as 'stagflation' took root.
Yet democracy and political and personal freedom have never been stronger in these countries.
Bertrand Russell would disagree. When he was young he could travel anywhere and buy and sell virtually anything he liked. In old age, he was subject to Exchange Control. Americans were in a worse position. They couldn't even own gold.
Indeed, Samuel Huntington has argued that an excess of democracy makes it difficult to meet the current problems of the United States.
Nobody could understand America's 'twin track' energy policy. Many other government schemes were equally opaque. It was discovered that candidate Reagan did not understand agricultural parity prices. People were ready to laugh at him. Then they ruefully realized that nobody understood the thing.
The evidence, it seems to me, points to the view that the viability of freedom and democracy may be quite independent of the economic system.
During the War, Arrow had seen the US transformed into a Command Economy. Then it reverted, at least partially, to a Capitalist system. Nixon was the first and last avowed Keynesian. What would come next? Few thought it would be Reagan.
There can be no complete conviction on this score until we can observe a viable democratic socialist society.
Maybe one with 1.8 trillion in its National Wealth fund- like Norway. The problem is that entrepreneurs may run away.
But we certainly need not fear that gradual moves toward increasing government intervention or other forms of social experimentation will lead to an irreversible slide to "serfdom."
The Tzar had to get rid of 'serfdom'. It was uneconomic. Ultimately, countries have to compete with each other. If the US has nukes, the Soviets have to get nukes. If the Soviets have Sputnik, the Americans have to get Apollo. The reality was that Arrow had been paying taxes so as to ensure that an American President could press a button and blow up the world. This was not the irenic, idealistic, world of the inter-war period. It was foolish to talk of Capitalism and Socialism and Democracy when these political systems ultimately depended on a nuclear button and 'mutually assured destruction.'
It would be a pleasure to end this lecture with a rousing affirmation one way or the other. But as T. S. Eliot told us, that is not "how the world will end."
If the world ended, it would be because of nuclear war. Dr. Strangelove would be the only winner.
Experiment is perilous, but it is not given to us to refrain from the attempt.
Is Democracy compatible with a 'National Security State'? Sure, if your President can blow up the world. This was not the earlier view. Democracy required some collective method of preventing war. On the other hand, Total War had led to a fundamental change in the nature of the State and the distribution of 'control rights' within it. In a sense, the affluent society with its increasing range of liberties was the reward for having at its disposal the possibility of mutually assured destruction. But this meant that the luxuries enjoyed on one side of the iron curtain, was mirrored in the privations experienced on the other side as the weaker economy strove to catch up in terms of nuclear bombs and delivery systems.
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