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April 14, 2011

Comments

Paul Sagar

Adam Smith and the chess board. A passage so often so lovingly quoted by the loony libertarians/"classical liberals", who always fail to see that they are very much implicated too.

The reason we don't have, and never will have, a "classical liberal" state is that such a state does not sufficiently meet the interests and demands of ordinary working people - who correspondingly agitate for something more, and which they are promptly supplied with by politicians in a democratic society.

Now there's an argument to be had as to whether people ought "really" to not so agitate and instead see that classical liberalism is in their "best" interests. But that seems to me a pretty stupid argument not worth having. And anyway, the classical liberal really ought not to want to have it in their own best interests - after all, their's is a political ideology constantly claiming that the untrammeled autonomy of the individual is paramount and that only a tyranny proposes to tell individuals what they really want. Thus, classical liberalism tears itself apart, as all crude political ideologies - and ideologues - do.

Luis Enrique

This insight, that people can put up with stuff because they are bewitched by ideology, surely applies more generally than to capitalism. Many people in communist societies put with things for the sake of their ideology. I'm sure similar things could be said about all forms of economic organization, all societies.

exploitation in the sense that the value of a worker's product exceeds the wage is a feature of any form of economic organization in which workers are not also 100% equity investors in production, that require inputs the worker did not provide. In a communist society, workers have to give up a surplus to pay for the bureaucratic machinery of the state and to fund new enterprises. Does anybody know whether the gap between "value of product" and the wage (i.e. degree of exploitation, in that sense) was greater or less in communist versus capitalist societies? There is also, of course, the matter not of relative exploitation (wage relative to product) but the level of productivity. Perhaps in socialist societies workers might be less "exploited" but experience lower levels of productivity, endure lower real wages and one could equally say they do so because of ideology.

gastro george

I suspect that Tim's "classically liberal market society" might also include state subsidy for the moneyed in the form of limited liability and trust law.

Tim Worstall

"Tim’s answer would be that the world is full of fools who are just too stupid to see things as he does."

Only sometimes. At others I would say "and thus are prevented because vested interests have captured the state." Vide the screams from all around as the rate of increase of state spending, as now, is slowed down.

"First, he had a theory as to why people fail to see the injustice of present arrangements."

Daft? Again only sometimes. Ill informed perhaps: for example, what percentage of the population really think that the incidence of corporation tax is upon corporations? 95%? 98%? We've just had 1,000 economists signing a letter and failing to consider what they should know, the incidence of a transactions tax.

"We could set Tim a challenge: what are the analogous mechanisms which cause people to be biased against classical liberalism? "

Strangely, I don't think most people are biased against classical liberalism. In fact I think the vast majority of people are entirely in favour of classical liberalism for themselves. It's the extending of those liberties to everyone else that seems to be the sticking point.

"Again, this raises a question for classical liberals. Who are your agents of change? Who has the power and interest to take us to a more fully market society?"

Well, leaving aside St. Maggie who actually did nudge us a little that way, I tend to think that the real agent of change is technological change. Along comes some new way of doing things and people charge off and employ it as they wish. It takes those who would tell people what to do some time to work out what's happening and how to stop it. We see it with just about every new technology. I think in a static economy technology wise we'd be much further from classical liberalism than we are, in this one that changes as quickly as it does.

Finally, going off topic a bit, I'd argue that classical liberalsim, or at least my version of it, isn't actually a philosophic position at all. (Although I'm entirely sure that my beliefs about the State and bureaucrats etc are heavily influenced by my personal foibles. For example, I have an active hatred of form filling and near erupt in rage when I'm told that I must do so for this or that reason. I'm sure it influences my views.) Rather, it just seems to be the best way of getting what people purport to want. You want the poor to get rich? Classical liberalism. You want better health care? For that we need innovation: which means markets...classical liberalism again (no, not that CL tells us that this is the solution, rather that objective evidence shows us that CL is the answer to the question "how do we get innovation?"). And so on.

It's a utilitarian concept of it by and large. It gets us to where we want to go: a better, richer, cleaner, world for all.

Tinged, I admit, by my own personal hatred of being told what I may or may not do.

Neil

Chris,

A couple of observations:

1) You and Tim are in danger of talking at cross-purposes as people so often do across the left/right divide: I'm sure he would argue that in a liberal world workers *are* equally "free" to sack bosses, as he defines freedom as the absence of constraint by the actions of others; just because I can't afford to buy a Ferrari doesn't mean I'm not free to do so. Whereas under our present system, bosses are not free to sack workers because of the limitations applied by goverment employment legislation.

2) I'm sure any liberal would agree with you that state capture by big business is appalling; liberals are constantly perplexed that the left's solution to this problem appears to be to give more power to the state.

3) I had thought that the marginal revolution had completely blown out of the water Marx's use of the labour theory of value, which in turn undermines his false consciousness argument (at least as it's stated in your post). Is that not the case?

4) Analogous mechanisms? You yourself have talked about the natural organisational bias of media institutions (in the context of pro-police bias in reporting of demos, if I recall). State solutions get attention that distributed solutions do not. And I'm sure a thoughful person like you must have read Bastiat, so you'll know all about the problem of obvious benefits vs hidden costs that tends to lead people to favour statism. There's also the natural human tendency towards "do-somethingism", that demands visible action in response to any problem, which if course goes very much against the principle of laissez-faire. So that's three mechanisms; I'm sure there are others that a few minutes of thought will bring to mind...

Torquil Macneil

"And anyway, the classical liberal really ought not to want to have it in their own best interests - after all, their's is a political ideology constantly claiming that the untrammeled autonomy of the individual is paramount and that only a tyranny proposes to tell individuals what they really want. "

Do classical liberals believe in the untrammeled autonomy of the individual? I haven't come across any, although they all prefer fewer trammels to more to varying degrees and we all agree (I hope) that only tyrannies propose to tell individuals what they want (the idea is implicit in Marx's daft theory of ideology, of course).

Luis Enrique

"You want better health care? For that we need innovation: which means markets...classical liberalism again"

bizarre claim. the last couple of centuries have seen health care getting better, predominately with heavy state intervention. Health care is more like an exemplar of when markets don't work terribly well.

dive in, Tim:

http://www.sciencedirect.com/science/handbooks/15740064

Anna

Interesting post.

Adam Bell

A fascinating post; but it's worth pointing out that Marx's analysis of ideology is not, in fact, a threat to classical liberalism. Let's unpack it a little to demonstrate what I mean.

Your brief account of Marx indicates that his claim is that the market can undervalue the labour of a given individual, and that ideology can convince that individual to accept that undervaluation. Unless you want to go for a full-throated labour theory of value (and if you do, my next question is how you expect it to work), I'm assuming that the undervaluation is the difference between what an employer is willing to pay and what an employer is able to pay; the latter being the case in a mutualised workplace. However, it's clear that the former can shift in the event of labour becoming organised; all of a sudden, the market price for labour changes as a result of a shift from multiple sellers to a single seller. Indeed, it can shift to the point that what an employer becomes willing to pay is greater than that which he is able to pay; see the American car industry.

Classical liberalism does not exclude the organisation of labour, but the very existence of organised labour rather gives the lie to the notion that people are necessarily ideologically enmeshed and thus irrational. Coincidentally I recently wrote about this very thing: http://declineofthelogos.wordpress.com/2011/04/12/the-enmeshed-self/

@Tim: You might enjoy the post I linked too; you might, in fact, find that you do have a philosophical basis to your economic position.

Marcela

Interesting analysis.

Tim Worstall

"Does anybody know whether the gap between "value of product" and the wage (i.e. degree of exploitation, in that sense) was greater or less in communist versus capitalist societies?"

One of the great ironies that. Marx did point out that it was competition between capitalists to employ labour that drove the workers' wages up when productivity improved. Which is why he ranted so against "monopoly capitalism", where this competition disappeared and thus the workers could be truly exploited.

Then along comes Stalin, in a state where the State is the monopsonist employer. And he deliberately held wages down, to improve the return to the State invested capital, so as to finance the industrial expansion.

So it was a (nominally, admittedly) Marxist State which did the very thing which Marx warned against: exploited the workers through a monopsony on labour.

"bizarre claim. the last couple of centuries have seen health care getting better, predominately with heavy state intervention. Health care is more like an exemplar of when markets don't work terribly well. "

No, not a bizarre claim at all. It's evident from the work of William Baumol. He of the Cost Disease. Damn hard to increase the productivity of services. And the only way we can is through innovation. And as the other half of Baumol's work goes on to show, it's market, not planned, systems which encourage innovation.

It's legitimate to claim that we've actually got our interventions entirely ass backwards. Education and health are the two most State, most planned, parts of our general economy. But they are services....where it's hardest to drive up productivity and thus the two areas where we most need markets. Manufactures (computers, cars, whatever) are easier to improve in this sense and so suffer less from State intervention. We've actually got the State running the wrong half of the economy.....

chris

Thanks for those comments, chaps.
Just two points:
1. I'm not saying at all that the cognitive biases research programme is a danger to classical liberalism at all. It's entirely possible that libertarians can use it to explain the lack of support for their position; Bryan Caplan, I believe, has done something like this.
2. The claim that workers are exploited is entirely separate from the labour theory of value. John Roemer defined capitalist exploitation as a state of affairs in which workers would be better off if they could "leave" taking with then their labour power and per capita share of capital assets. Such a definition is consistent with workers not realizing their exploitation because, say, the status quo bias stops them thinkig of viable alternatives to capitalism.

Mr Art

"Whereas bosses are free to experiment with sacking workers, workers are less free to experiment with sacking bosses"

What?! Every time I move jobs, I sack my boss and there's nothing he/she can do to stop me. I've never been sacked.

Jimmy Hill

Why should Marx be privaleged with seeing the truth of exploitation? Or generally seeing the world 'as it really is'?

If ideologies are a way of simplifying a world that is beyond our comprehension then it seems that everyone must view the world through the lens of ideology. Marx and his idea of manifest truth can only account for people failing to see what is manifestly true by suggesting that they are being mislead somehow. Perhaps they are just looking through a different lens?

I think this quote from Walter Lippman is illuminating:

"[The opponent] presents himself as the man who says, evil be thou my good. He is an annoyance who does not fit into the scheme of things. Nevertheless he interferes. And since that scheme is based in our minds on incontrovertible fact fortified by irresistible logic, some place has to be found for him in the scheme. Rarely in politics . . . is a place made for him by the simple admission that he has looked upon the same reality and seen another aspect of it."

McGazz

Off topic slightly, but:

Tim talks above about tax incidence (as does Chris in other posts). Tim seems to imply that it's always a bad idea to tax corporations because they will pass the costs on to their customers.

Does this mean we should never tax businesses? Couldn't one, say, argue instead for lower taxes on the individual to offset the cost of higher corporate taxes? Or does it work on the principle that corporations can 'sack their country' and go elsewhere more easily than Joe Public can?

chris

@McGazz. Good question. I suspect me and Tim differ here. I don't think it does rule out taxing businesses, if only because I suspect workers would rather be taxed in disguised ways than overtly. But as you say, this is subject to the constraint that firms might sack their country.

Torquil Macneil

" if only because I suspect workers would rather be taxed in disguised ways than overtly."

Isn't that just another way of saying 'people object less to taxation they can't see'? And that leads to less progressive taxation.

Tom R

> "We could set Tim a challenge: what are the analogous mechanisms which cause people to be biased against classical liberalism?"

I'm not a libertarian/ classical liberal, but surely Hayek and the Mises acolytes (also Bryan Caplan, as noted in comments) have a lot to say about the cognitive and psychological reasons why people fall for the "fallacy" that collective (state/ societal) decisions make, and can unmake, social institutions.

Tim Worstall

"Good question. I suspect me and Tim differ here. I don't think it does rule out taxing businesses, if only because I suspect workers would rather be taxed in disguised ways than overtly. But as you say, this is subject to the constraint that firms might sack their country."

I take a double pronged approach here.

1) Different taxes have different deadweight costs. that is, they've got different effects upon future growth for the revenue that we get from them. Capital and corporation taxes have higher such deadweight effects than income and consumption taxes. Thus, for the sake of the children, we should, in order to get the revenue we need, tax not capital and corporations, but incomes and consumption (and of course property taxes are even better).

So a pure efficiency argument.

2) A political argument. Precisely by hiding the taxation from the average bloke those who desire higher levels of state spending (or, for the more cynical, wish to increase the amount of money they get to spend as those running said State) are able to hoodwink said average bloke into supporting their plans. The reaction to a tax being imposed is different when it's "we'd like your money" and "we'd like their money to spend on you".

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