dotCommonweal

A blog by the magazine's editors and contributors

.

Labor's Victims

Economic law cannot possibly be contradicted by moral law. The moral law tells us what we ought to do. Economic law, on the other hand, is purely descriptive and necessarily amoral, having nothing to do with morality one way or another.Thomas E Woods Jr. The Church and the Market A Catholic Defense of the Free Economy pp 29-30

If you skim through this book and read Woods arguments (for example) about why child labor laws are bad, why there is no such thing as price gauging, and why there should be no workplace safety laws you may be tempted to put it down, perhaps violently. But there is a solid argument in this book in support of neoconservative economics. When Woods says that Catholic Social teaching is incorrect and that all popes since Leo XIII have been wrong about how the market works and mistaken in their idea that there exists something called a living wage, Woods statements (wrong or not) are rational. And being rational, they will appear to many intelligent people as reasonable. Lets look at how he arrives at the conclusion that the minimum wage in particular and unionism in general are bad for workers and massively destructive to the economy.

To Woods, there is no living wage in the sense used in Catholic social thought. Wages are what they are and whatever wage the market sets is a fair wage, whether it can support the worker or not. If some outside entity like the government or a union artificially raises the fair market wage, they reduce the amount of money that capitalists have to spend on wages and therefore capitalists will not be able to hire as many people as they otherwise would. Wages are therefore a zero sum game where people who demand wage increases outside of what the free market will bear are taking the bread out of the mouth of other workers.In fact, wage increases are not really necessary. It is not wage increases that increase the standard of living. Its improvements in productivity (produced exclusively by capitalists either through capital expenditure or their management skills). When productivity is improved, prices fall. It follows that the workers (static) wages buy more and from that the workers standard of living rises.Paying workers beyond what the free market dictates (and the market is an amoral dictator) decreases the available capital that capitalist can use to increase productivity. Fewer workers also means less productivity. So unions and the minimum wage, by lowering the productivity of a country, lower its overall wealth, which affects everyone. Lowering wages, on the other hand, unleashes productivity and makes things better for everyone. If Pius XIs encyclical Quadragessimo Anno, which says

...that all men must be paid a wage sufficient to support their families in reasonable comfort, and that where this is not possible social justice demands that changes be introduced as soon as possible whereby such a wage will be assured to every adult workingman pg 67

is correct, it follows to Woods that

...we should remove as many obstacles to investment as possible, and eliminate taxes on capital, excess profits, and the like.

He points out that this is the opposite of what Catholic social theorists usually address and in fact the entire book is a contradiction of Catholic Social Teaching.However, he argues that his position is entirely consistent with Catholicism as such because of the objective nature of economic analysis. Objects have use values (utility) and exchange values. Use values are idiosyncratic and subjective. Exchange values, convertible to money, are universal and objective. The free market, which Woods sees as stemming from Natural Law, both promotes social wealth and social welfare in part because it is part of Gods order of things. The world of use values (utility), on the other hand, is the world of moral rules, since things have morally appropriate and inappropriate uses. According to Woods, the popes can be forgiven for not understanding the (radical) difference between the two. In a perfect world, they would stick to the moral order where they have expertise and authority and leave the economic world to the (neo-conservative) economists.From Woods argument we can see all of the assumptions of Republican economic theory. Supply side economics says that the stimulator of the economy is capital. Lower taxes on capital and the One Percent is the way to promote growth. Taxes take away from the national pool of capital and therefore are bad for the economy. In fact, if the goal is for people to accumulate more exchange values in order to have more utility (and thereby increase their standard of living), taxes take away part of peoples (potential) utility and therefore taxes and government intervention become a problem for liberty itself, since more wealth means more potential utility which in turn means more liberty. If wages are a zero sum game, then it truly follows that it is people who receive special outside support, like people receiving government welfare or union benefits, who are actually responsible for the other people being out of work. Because capital is the author of all value, it become entirely consistent to demand the privatization if not the abolition of things like Social Security, unemployment benefits, Medicare and Medicaid, welfare, etc. (since these things reduce the supply of capital) and yet to still be able to say that one is a good Catholic, respectful of Catholic moral teaching.Lets give Woods the last word:

Pius (XI) concludes (that) it was (Leo XIIIs) Rerum Novarum to which great credit must be given for whatever improvement has been achieved in the workers condition.To the casual observer this statement is innocuous enough. But there is a hidden assumption here, which is central to the rest of the document as well as to nearly all of late-nineteenth and early twentieth-century Catholic criticism of the market order, and upon which practically the entire edifice of recent Catholic social thought is built. Thus if this assumption, rarely if ever stated implicitly, should turn out to be erroneous, the entire structure on which it rests must be considered a legitimate matter for honest debate among Catholics of good will. pg 55
86 comments
Close

86 comments

Commenting Guidelines

  • All

"In fact, if the goal is for people to accumulate more exchange values in order to have more utility (and thereby increase their standard of living), taxes take away part of peoples (potential) utility."So if people accumulate more exchange value (amoral) somehow they get more utility (moral value). You are therefore moving from one realm into another, just as you/Wood accuse the Popes of doing:"Exchange values, convertible to money, are universal and objective. The free market, which Woods sees as stemming from Natural Law, both promotes social wealth and social welfare in part because it is part of Gods order of things. The world of use values (utility), on the other hand, is the world of moral rules...the popes can be forgiven for not understanding the (radical) difference between the two."Labor as it now exists is both a use value and an exchange value. It is also the basis of all market value, in contrast to Wood's belief that "... capital is the author of all value, [so] it become entirely consistent to demand the privatization if not the abolition of things like Social Security..." Labor necessarily precedes money and thus all (including wage labor) that can be converted to money. God bid us to produce bread by the sweat of our brow, and labor and its treatment are fitting subjects for Papal teaching.

So if people accumulate more exchange value (amoral) somehow they get more utility (moral value). You are therefore moving from one realm into another, just as you/Wood accuse the Popes of doing:

Please don't think that I agree with anything Woods says. The title of the article is meant to be ironic. Regarding exchange value (amoral) producing more utility (moral value), I think that even Woods would say that utility is the realm of moral value, not that more utility equals more morality. (Although to hear neo-cons talk, you would think that this is what they believe).

Labor as it now exists is both a use value and an exchange value. It is also the basis of all market value, in contrast to Woods belief that capital is the author of all value, [so] it become entirely consistent to demand the privatization if not the abolition of things like Social Security Labor necessarily precedes money and thus all (including wage labor) that can be converted to money. God bid us to produce bread by the sweat of our brow, and labor and its treatment are fitting subjects for Papal teaching.

This is how the "labor theory of value" has it (Marx and earlier, Smith). The problem is that one cannot easily get from labor to price. That is, according to Marx, the value of a thing depended entirely upon the labor that was embodied into it (which I think you are also saying). However, when labor is converted into an exchange value and all the inputs are priced, we don't necessarily get to the market price of the object. And for a free marketeer, the market price is the true price whatever labor is embodied in the commodity.

"Please dont think that I agree with anything Woods says."Nothing?A problem with making it an extremes-versus-extremes world is that our thinking becomes oversimplified and distorted. Beliefs, convictions determine our knee-jerk reactions but we owe it to ourselves - and, if we're teaching, to our listeners - to be carefully critical of them. I thought you intended that here, but then you say, above, that you reject *everything* Woods writes. Well, no, you didn't exactly say that. What you said was that Ms Lepak shouldn't assume anything about your thoughts - a plea, I guess, for her not to walk away from you because you'd not condemned Woods outright, as you were afraid she might be inclined to do. Sigh. Dialogue is fraught at almost every step with the likelihood of misunderstanding.Happy Sunday.

Why do you say that Woods supports neoconservative economic thought? in fact he takes great pains to distinguish himself from neo-cons and establishment republicans. A better description of Woods would be paleo-con or libertarian or Ron Paulite.

Lower taxes on capital and the One Percent is the way to promote growth. Why promote growth? The US is a very rich country, in the aggregate. Growth is the wrong goal: there is plenty of wealth for everyone. The US do not need more growth.

What does Woods mean by capital being "the author of all value"? "Author" is a metaphor, poetry. Whenever materialists start using poetry you can be sure that their system has broken down.When I say he is a materialist I mean that his object -- economic systems -- are said to be a machines, but machines in the old cogs-and-wheels paradigm sense of "machine". Their parts, cogs and wheels, remain constant and therefore totally predictable. But economic systems are not totally predictable for the simple reason that some of its parts -- people -- are notoriously unpredictable. All you have to do is look at the enormous growth within economics itself of the use of mathematical probabilities to see that economics is not about machines.

Why do you say that Woods supports neoconservative economic thought? in fact he takes great pains to distinguish himself from neo-cons and establishment republicans. A better description of Woods would be paleo-con or libertarian or Ron Paulite.

It depends on definitions.Take this case for example:A woman in Utah sold advertising space on her forehead which was bought by a casino. They paid her something like $10K and she tattooed their web address on her forehead. A certain kind of libertarian can say that this was an immoral transaction since using one's forehead for advertising space is an illicit use of it. But another kind of libertarian would say that the woman was compensated as she wished and that in any case it was a private transaction. I would peg Woods as the first kind of libertarian. I would tend to peg Ron Paul as the second kind.Woods doesn't use the word ne-conservative, at least in this book. But his support of individualism (actually, not so much his support as his belief in it) as well as his support of the market makes him look like a neo-con to me. But if you are talking about the neo-con propensity, for example, to make wars, Woods says nothing about that and you may well be right.

"Exchange values, convertible to money, are universal and objective. . .'Huh? Exchange values are objective? Like Libor??? It's time to include the lies of unscrupulous businessmen in our economic paradigm.

Speaking of the lies of businessmen, advertising has for at least several generations now been the great lying machine of the economic system. No, it doesn't usually *say* lies, it just produces false judgments in buyers by psychological manipulations of various sorts. *Looking* useful or just satisfying has replaced *being* useful and truly satisfying.

Why promote growth? The US is a very rich country, in the aggregate. Growth is the wrong goal: there is plenty of wealth for everyone. The US do not need more growth.

They would disagree. With our high unemployment rate (not to mention the poverty in the world) they would say that we need a lot more growth. And if one believes that capital is the engine of growth, where to get it but from those who have most of it?

What does Woods mean by capital being the author of all value? Author is a metaphor, poetry. Whenever materialists start using poetry you can be sure that their system has broken down.

I'm afraid that author is my term. What I meant is that while the plot and characters in a novel are essential for the novel, it is the author who gets the credit for producing it.

One simply has to love the prudential nature of conservative cafeteria "Catholicism."Or, as these men put it:The modern conservative is engaged in one of man's oldest exercises in moral philosophy: that is the search for a superior moral justification for selfishness." (John Kenneth Galbraith)"Conservatives are not necessarily stupid, but most stupid people are conservative." (John Stuart Mill)

Thanks, u. I must apologize to Mr. Woods, and ask him: how does capital cause value? This is, of course, about the ontological status of money -- just exactly what is it, what does it do, and how does it do it? Except for gold and maybe a few other things with intrinsic value, the reality of money is symbolic. But of what? And why does it work? I don't think the answer is to be found in some sort of machine.

I agree that Woods, as summarized here, comes across as libertarian.I don't see that union-negotiated wages constitute "outside support". Union-negotiated wages, istm, are an example of the labor market at work - an instance, though, in which the supply of labor (the workers) is able to assume relatively more market power, through organization, than the demand for labor (the employer) would prefer. Certainly, some of the practices that come about in real life in union contracts - artificial floors and ceilings on wages, and especially the "closed shop" - result in an inefficient market. But as we've seen over the last 50 years, the macro labor market imposes its own market remedies on those inefficiencies, i.e. cars get assembled in Tennessee, Olympic uniforms are stitched in China, and so on.I do agree with the assertion at the beginning of of the post, that economics is essentially amoral. But the people who buy and sell in the markets, and the social and economic structures, like corporations and exchanges, that we've devised to assist in building wealth, are moral entities. And the government entities charged with regulating the marketplace are moral. There is ample room for morality (or immorality) to operate in the marketplace. Let's just make sure we locate it in the right places.

I dont see that union-negotiated wages constitute outside support. Union-negotiated wages, istm, are an example of the labor market at work an instance, though, in which the supply of labor (the workers) is able to assume relatively more market power, through organization, than the demand for labor (the employer) would prefer.

Woods not only sees unions as operating outside of the labor market, but they are a prime example of an outside force protected by the government, which is also an outside force.

One thing that concerns me about the economic uses of language is that the word "demand" is a large part of the economists vocabulary. But what is a "demand"? I tend to think of it as extortion. But I have to admit that there seem to be such things as moral demands (e.g., do good, avoid evil) and aesthetic ones (e.g., a harmonic progression demands a resolution). Even in the latter cases, however, there are consequences for not doing what is demanded (immorality and ugliness).

Ann - you're right that the word "demand" has multiple definitions, and the economics meaning is a technical meaning. The Wikipedia article on demand is not a bad primer. http://en.wikipedia.org/wiki/Demand_(economics)When I enter the marketplace as a consumer, I bear both economic demands (I need to buy a dozen eggs to feed my family) and moral demands (I only buy eggs from uncaged hens). As an individual consumer, I synthesize both sets of requirements in making my purchasing decision. The supermarket where I shop carries three or four different brands of cage-free eggs, and my brand decision is pure economics - I buy whichever is cheapest that week.

"Woods not only sees unions as operating outside of the labor market, but they are a prime example of an outside force protected by the government, which is also an outside force."All I can say is, to suppose that unions operate outside of the labor market doesn't seem to make much sense; operating in the labor market is the core of what they do. I like my version better: the wages that they negotiate (in the labor market) for their workers are often at the cost of some market efficiency. I would add that inefficiency isn't nothing; inefficiencies are problems, and conceivably they could become very serious. But we frequently need to sacrifice some market efficiency for the sake of something else. Inspecting beef makes the beef supply market less efficient, but I'd prefer it continue for the sake of my health.

All I can say is, to suppose that unions operate outside of the labor market doesnt seem to make much sense; operating in the labor market is the core of what they do.

You've revealed one of the many false assumptions about libertarianism. Everyone has to approach the market as an individual. That capital does this no more than labor does (and in fact, capital is more organized than labor as we can see from our election cycle) doesn't get mentioned.

But we frequently need to sacrifice some market efficiency for the sake of something else. Inspecting beef makes the beef supply market less efficient, but Id prefer it continue for the sake of my health.

Here Woods would say that the market should "inspect the beef" and that people selling unsafe beef will either be forced out of the market or will find people who don't mind the risk.

For those who want to read Woods in his own words but do not want to buy the book under discussion, his website has many articles available, including many on economics and Catholic social teaching. I believe he is an interesting and multi-faceted thinker. It would be a shame to ignore the problems he addresses simply because of his adherence to the Mises school ofeconomics.http://www.tomwoods.com/articles/One of his continuing themes is that prelates frequently assume that their proposals (higher minimum wages, labor union support, etc.) have no adverse consequences. It would be one thing if prelates were to argue that despite negative consequences such as increased unemployment justice demands that we have a higher minimum wage. But no ecclesiastical document contemplates such a tradeoff. It is simply assumed that higher minimum wages will help some, perhaps many, perhaps all, and hurt no one. It is too easily assumed that the policy is, in technical terms, Pareto efficient. In non-technical terms discussion of consequences in these documents is nothing more than "happy talk."But if there are adverse consequences of the proposals for some of the disadvantaged, no help is given in making difficult choices. When these tradeoffs are ignored the facile assumption is that the only obstacles to better outcomes are selfish interests or a lack of political will.Or perhaps he is mistaken and experts in Catholic Social Teaching can point to documents where difficult tradeoffs like the ones I've mentioned are acknowledged and confronted head on.

But if there are adverse consequences of the proposals for some of the disadvantaged, no help is given in making difficult choices. When these tradeoffs are ignored the facile assumption is that the only obstacles to better outcomes are selfish interests or a lack of political will.Or perhaps he is mistaken and experts in Catholic Social Teaching can point to documents where difficult tradeoffs like the ones Ive mentioned are acknowledged and confronted head on.

Or he could be mistaken and the trade-offs (as he sees them) don't really exist. Maybe business doesn't approach wages as some fixed expense that they will always spend completely on labor whether the labor is high cost or low cost (and will therefore hire more people if labor is lower in cost). Maybe they will actually keep the difference produced by depressed wages as profits. Maybe increased wages means an increased market and increased demand; maybe demand actually plays a role in economic activity and supply side economics is imply wrong. Maybe technical innovation and capital improvements themselves are stimulated by the pressure of wages and capital's desire to eliminate them as much as possible (as has been pointed out by economists for about 150 years). Maybe there is something to the labor theory of value. Maybe there is something to class struggle. So maybe the facile assumptions belong to the libertarians.

"Supply side economics says that the stimulator of the economy is capital."What is the alternative stimulator in a private economy? I think this is a statement almost all economists agree with, supply side or not."From Woods argument we can see all of the assumptions of Republican economic theory."I disagree; you might see the assumptions of the now-ascendant libertarian economic theory, but there has always been another theory, one more associated with "Chamber of Commerce" Republicanism, or what might be termed now moderate Republicans. I think this view is represented by David Brooks, and certain younger GOP wonks like Ross Douthat, Reihan Salam, Josh Barro, and Luigi Zingales at Chicago.I think this quote from Salam summarizes this view:"So when Elizabeth Warren allows the owner of a factory to keep a big hunk of what she earned, what exactly does she intend to do with the hunk that she has taken as part of the social contract? Will she spend it wisely? Id submit that this actually isnt an irrelevant question. We can accept the premise that there is such a thing as a social contract and that we should all do our part for the cooperative venture that is a civilized society. Yet should we then suspend judgment about what is done with Elizabeth Warrens hunk, or can we take the view that the state is also a party to this social contract and that the state hasnt been doing its part and that a great deal of evidence suggests that simply giving the state a bigger hunk of whatever we happen to earn in the course of freely and voluntarily cooperating with each other isnt actually the best or the smartest way to get the state to do its work well? "In short, rather than seeing taxes and regulations as the anti-thesis of capital, a "zero-sum" game, as libertarians are won't to do, they are wont to see taxes as an alternative form of capital. The relevant questions for them are: (1) are taxes the most efficient means of allocating capital in certain instances, and (2) if the answer to (1) is yes, is this particular form of tax allocation the most efficient means of allocating that capital? In this view, it is entirely possible to be answer "yes" to (1) - and therefore support a robust social safety net - but also believe that the ansewr to (2) is "no", and therefore certain social programs should be reformed. But I think it's incorrect to state that those who hold that view believe in the "privatization" or "abolishment" of those programs. Nor do I think it entirely accurate to describe this position as necessary "conservative." As I've said before, the notion of making Medicare into a "premium-support" system has its roots in the Democratic Party.A final point: this "moderate" view is actually closer to "neo-conservative" thought, as the original neo-cons were all reformed Democrats who supported bigger government programs than supplier-siders like Bruce Bartlett et. al.

Ann Olivier 07/15/2012 - 4:48 pm SUBSCRIBERSpeaking of the lies of businessmen, advertising has for at least several generations now been the great lying machine of the economic system. No, it doesnt usually *say* lies, it just produces false judgments in buyers by psychological manipulations of various sorts. *Looking* useful or just satisfying has replaced *being* useful and truly satisfying.

Anyone who tries to convince everyone of anything ends up a liar, Ann.

I have no intention to read Woods' book, but let me object to the claim that "use value is idiosyncratic and subjective." Some use values are objective, inasmuch as a person needs to have them satisfied to function as an adult in his or her society. Some of these are true needs for all persons. For example, one needs sufficient nutritious food. Some are true needs for all people in a particular culture, even though people inhabiting another culture might not need them. For example, a medieval serf might not have needed to be literate to function well, but a 21st century citizen of an industrialized state does need to be literateThere is considerable merit in the old Stoic distinction among (a) natural and necessary desires, (b) simply natural desires, and (c) vain desires. Vain desires are defined as desires that are simply unrealistic. Even if they are no physically impossible to satisfy, there is no good reason to believe that they can be satisfied. Simply natural desires are fulfillable, but it doesn't make much sense to claim that one is entitled to have any, much less all of them, satisfied. But if you can satisfy some of them without too much trouble, then that's fine. But natural and necessary desires are those that one is entitled to have fulfilled, either by his or her own efforts or, if necessary, with the help of others who can do so without leaving any of their own natural and necessary desires unfulfilled.As Ann has said more than once, a little attention to some of the philosophical heritage of the West rarely hurts.

I disagree; you might see the assumptions of the now-ascendant libertarian economic theory, but there has always been another theory, one more associated with Chamber of Commerce Republicanism, or what might be termed now moderate Republicans. I think this view is represented by David Brooks, and certain younger GOP wonks like Ross Douthat, Reihan Salam, Josh Barro, and Luigi Zingales at Chicago.

You have to admit that these people don't represent the current thrust of the Party.

What is the alternative stimulator in a private economy? I think this is a statement almost all economists agree with, supply side or not.

What do you suppose Keynes would say to this?

In short, rather than seeing taxes and regulations as the anti-thesis of capital, a zero-sum game, as libertarians are wont to do, they are wont to see taxes as an alternative form of capital.

I've never heard this before. "Alternative form of capital." And yet taxes must always come from the private sector (to libertarians government produces nothing and can hardly be expected to tax itself) and when they are assessed on capital they are an expense that takes away from capital. You might be trying to say that certain things are better organized by government rather than private capital and that therefore taxation is a form of allocation of a capital expense. But I don't think you would be seeing Woods say much of this. On the other hand, he clearly thinks that the free market is the best possible means of providing a social safety net and that government attempts to do so misallocate capital (as a principle) and cause the opposite of what they want to do.

Anyone who tries to convince everyone of anything ends up a liar, Ann.

Utter nonsense, David.

There is considerable merit in the old Stoic distinction among (a) natural and necessary desires, (b) simply natural desires, and (c) vain desires...

True as this may be, for libertarians it is irrelevant. To them there is no distinction to be made between desires. Or to put it another way, there may be moral distinctions to be made between kinds of desires, but there is no economic distinction between them. To the libertarian, that is the beauty of the theory. Since utility is always ideosyncratic, one can think whatever one wants to about it, but as the opening quotation says, "Economic law, on the other hand, is purely descriptive and necessarily amoral, having nothing to do with morality one way or another."The point is, like a shark his theory can contain your theory and digest it without any ill affects.

"But I dont think you would be seeing Woods say much of this. On the other hand, he clearly thinks that the free market is the best possible means of providing a social safety net and that government attempts to do so misallocate capital (as a principle) and cause the opposite of what they want to do."Yes, which is why I said this view is an alternative to Woods within the the conservative universe you have not accounted for. Again, while dominant, I don't think Woods/libertarianism exhausts what you described as "Republican economic theory.""What do you suppose Keynes would say to this?"Bruce Bartlett seems to think Keynes would agree:"Keynes completely understood the central role of profit in the capitalist system. This is one reason why he was so strongly opposed to deflation and why, at the end of the day, his cure for unemployment was to restore profits to employers. He also appreciated the importance of entrepreneurship: "If the animal spirits are dimmed and the spontaneous optimism falters enterprise will fade and die." And he knew that the general business environment was critical for growth; hence business confidence was an important economic factor. As Keynes acknowledged, "Economic prosperity is dependent on a political and social atmosphere which is congenial to the average businessman.""http://www.forbes.com/2009/08/13/john-maynard-keynes-conservative-opinio...

"Anyone who tries to convince everyone of anything ends up a liar, Ann."David S. --Are you trying to convince everyone of this?

Jeff --I'm starting to think that the very word "capital" is a bit of a problem. I used to think it meant money that may be used for investment. From what you are saying, the money government spends can also be thought of as money for investment in the total economic system. It seems that its meaning is moving towards being synonymous with "money". And why not? It seems to me (and this is only a suspicion) that super-conservatives give the capital of the investors some sort of magical/holy power to move the economy that other uses of money do not have. But the money we buyers of products spend stimulates the economy just as much as the investment money of the capitalists. This might be the big difference between the capitalist 1% and the Democrats -- the 1% think they are the only real stimulators, while the Democrats think both the buying public and the government can stimulate economic activity.

Jeff --Thanks for the Bruce Bartlett quote. As I see it, the prejudice against Keynes as being a rotten socialist communist is one of the problems with our current political scene. When the Democrats make a proposal that's labelled as "Keynesian', the prejudiced conservatives automatically oppose it regardless of its capitalist chops. But Keynes was a capitalist through and through. Academic though he was, he even made a handsome fortune by reading the morning financial pages and investing in -- guess what -- money. Ron Paul should be so lucky.

Ann Olivier 07/16/2012 - 2:23 am SUBSCRIBERAnyone who tries to convince everyone of anything ends up a liar, Ann.David S. Are you trying to convince everyone of this?

No, not even you, Ann. It's not an argument - just a simple truth.

Yes, which is why I said this view is an alternative to Woods within the the conservative universe you have not accounted for. Again, while dominant, I dont think Woods/libertarianism exhausts what you described as Republican economic theory.

There may be a wide universe of Republican economic theories, but here on planet earth, when I look at what they are legislating and promoting, I don't see a lot of variation.Now, you asked

What is the alternative stimulator in a private economy? I think this is a statement almost all economists agree with, supply side or not.

to my statement Supply side economics says that the stimulator of the economy is capital. Yes, Keynesian demand stimulation will then eventually stimulate capital formation and investment, but Keynesian methods don't work on capital, they work on demand.

Im starting to think that the very word capital is a bit of a problem. I used to think it meant money that may be used for investment. From what you are saying, the money government spends can also be thought of as money for investment in the total economic system. It seems that its meaning is moving towards being synonymous with money. And why not?

Because when everything becomes "capital" the relationships between capitalists and everyone else disappears. The "private sector" disappears. The massive corporation and the street beggar both start accumulating "capital". There is a form of political obfuscation that will say that everyone is potentially (and equally) a capitalist and that therefore if someone doesn't like the system, let them start their own business. Woods says something like this in his book. In this meme, everyone can be a capitalist and those that don't simply don't want to, but no one has any reason to complain. It's a subset of the amoral market theory.

Amy said: "Labor as it now exists is both a use value and an exchange value."This is worth looking into a bit more.What happens when exchange value comes to be seen as a use value? We see this sometimes mirrored in consumption when people buy and use things specifically because they are expensive outside of any other utility. But I think that this may also be the hidden heart of capitalism; the accumulation of (and belief in) value in the abstract. A private equity firm takes over a corporation that has a lot of cash locked up in reserves, either for (conservative) business reasons, say or to fund a pension plan. The private equity firm empties out this cash and moves it to its own balance sheet. Now it looks like the private equity firm has created "value". But has it?

"let me object to the claim that use value is idiosyncratic and subjective. Some use values are objective, inasmuch as a person needs to have them satisfied to function as an adult in his or her society. Some of these are true needs for all persons. For example, one needs sufficient nutritious food. "Bernard, you're right that some goods like nutritious food are *universally* valued, but nevertheless, the *value* that each of us assigns to nutritious food varies from person to person and can spring from a variety of motivations. A person with ciliac disease may place an immensely high personal value on gluten-free food, such that she will sacrifice many pleasurable items and even, in extreme cases, other necessities, in order to be able to obtain the gluten-free products. Most of the rest of us care very little for gluten-free food; it would rank very low on our personal scale of "gotta-have-its". Broccoli is alleged to be a "Super Food", but it ranks pretty low in desirability in our household. We resign ourselves to doing without the many healthful benefits of broccoli, and/or resign ourselves to having to obtain them in other ways.Other rankings can spring from motives that may strike us as trivial. A collector of civil war muskets may spend his vacation savings in order to obtain a rare speciman. His children, unless they share his enthusiasm, would probably think that the money could be better spent at Disney World.

"When the Democrats make a proposal thats labelled as Keynesian, the prejudiced conservatives automatically oppose it regardless of its capitalist chops. "At least some of those bad proposals would be better labelled "Galbraithian".

Jim, let me clarify what I am trying to say about natural and necessary desires. Let me substitute the term 'value' for the term 'desire.' This is consistent with the overall point of the Stoic distinction.To make the claim, as I do, that nutritious food is a "universal value" (and I admit that this is awkward talk, perhaps better stated in terms of a "universal good that each person needs" ) is to make a claim about the way the world is. To talk about the particular motives that I have when I pursue any particular good, whether a universal good or a particular good is to say something about me, not about the way the world is. This distinction is crucial to any serious moral doctrine. Unagidon reminds me that libertarians reject any distinction among desires, or I suppose among goods. So much the worse for them. That position does not differ in structure from the discredited doctrine of egoism. One form of the supposedly moral doctrine of egoism, known as psychological egoism, holds that i want whatever I happen to want because I am so built that that is all that I can really want. The other version is that whatever I want is the right or the morally acceptable thing for me to want, simply because it is what I want. Perhaps as many as forty years ago, Joel Feinberg wrote a classic article refuting egoism. Regrettably, i can't provide a reference to it, but it effectively put the kabosh on such talk in American philosophical circles.

"From what you are saying, the money government spends can also be thought of as money for investment in the total economic system. "Any money that is spent on capital investments is capital. If the Chinese government subsidizes Ford's purchase of auto assembly equipment in order to induce Ford to build an auto assembly plant in China, then the Chinese government has, in effect, made a capital investment in Ford.The majority of petroleum pumped from the bowels of planet earth is produced by organizations that are government-owned or joint government-corporate ownership (think Gazprom). The oil rigs and pipelines that those entities create to pump and transport the petroleum are government capital investments.But in the US, most federal government expenditures are not capital expenditures; they are transactional ($5,000,000 for a fighter jet) or transfer payments ($1.500 for a monthly social security check).I'm sure the US government has spent many billions of dollars in Iraq and Afghanistan on what would be considered capital expenditures if they were spent domestically, building roads, bridges, schools and so on. But the US government will not realize any tax revenue from those investments, so they are really just gigantic transfer payments.

Bernard, your exposition of the Stoics' taxonomy of desires is quite interesting. The question for this thread, it seems to me, is how it intersects with economic behavior. A perfectly rational person, I presume, would allocate her finite budget such that she is able to satisfy as many of her necessary and natural desires as possible. If she has satisfied all of those desires and still has some disposable income, she then might satisfy as many of her natural desires as she wishes. If she is quite rational, she wouldn't pursue any vain desires.Inasmuch as most of us are at various stages of attaining a high level of rationality, we are apt to make incorrect decisions - e.g. we might spend so much on natural but unnecessary desires that we fail to save enough for necessary natural desires. This can become an acute problem among the poor, because they may lack the savings and the support network to help them get over the hump in a tough month. We see this among some of the people we help in our outreach ministry. A seemingly innocuous expense earlier in the month (taking the children to see the "Avengers" movie) may mean that they're not able to meet a necessary expense (e.g. paying the monthly water bill) later in the month. These sorts of trade-offs - see a movie or pay the water bill - are the sorts of trade-offs that virtually all of us face every month as consumers. They are not specific to libertarianism or any other -ism. They are simply the stuff of of economic consumer behavior. There may well be a moral dimension to the decision: it would be immoral of me to take my children to a film if I foresee that doing so would make it impossible to pay the water bill. And how the town or the water company reacts to my plight - shut off my water or give me another month to pay the bill - also has a moral dimension (and one that is not always straightforward). But Woods would hold - and I agree - that the moral considerations are inputs to the economic behavior, but don't constitute the actual economic behavior. Economics describes the economic dimension of what happened - "Jim spent $50 to take his family to see a movie". The rational conclusion from economic analysis would be, "Jim values seeing a film more than having fresh running water for his family."

"There may be a wide universe of Republican economic theories, but here on planet earth, when I look at what they are legislating and promoting, I dont see a lot of variation."Then I would submit you should look a bit harder. I've pointed to four prominent conservative opinion-shapers. That you should choose to define the universe of "Republican economic theory" as narrowly as you do is your prerogative (and I understand the facility of it as a rhetorical technique), but that doesn't change the fact that your definition doesn't, in fact, capture "all of the assumptions of Republican economic theory".

"Maybe technical innovation and capital improvements themselves are stimulated by the pressure of wages and capitals desire to eliminate them as much as possible (as has been pointed out by economists for about 150 years). Maybe there is something to the labor theory of value. Maybe there is something to class struggle. So maybe the facile assumptions belong to the libertarians."Maybe you're right. Your point about technical innovation in particular resonates: this continues unabated despite the fact that wages for the average low income American have fallen and continue to fall. Capital desires to eliminate wage pressure no matter how low wages go. That is why governments and labor organizations are needed to balance capital. The idea that capital itself, and the "free" market, would not be manipulated internally without outside pressure is (cite your private equity example), perhaps, one of those "facile assumptions" belonging to libertarians.

"Because when everything becomes capital the relationships between capitalists and everyone else disappears. The private sector disappears. The massive corporation and the street beggar both start accumulating capital"If this is meant to be a criticism of the description of some tax expenditures as an alternative form of capital, then I think it is mistaken. Neither is it a left-right issue. After all, it is the President who is going around talking about the need to make "investments" in things like clean energy, etc. If that is not an understanding of tax expenditures as "capital" I don't know what is.

The basic problem with Woods' theoretical construct is just that: it is fine theory, but that's not how things work in real life, once people are involved and the system becomes influenced by individual action. (Communism was a fine theory...so how did that seem to work out?) As one small example, for the theory to work, there needs to be efficient investment of capital (profits) into increased productivity. But we know that is not the case. Profits are siphoned off in the form of expenses (for example excessive salaries) and dividends that are NOT then EFFICIENTLY reinvested in improving productivity. Corporations are motivated by profit, not necessarily by passing productivity gains along in the form of lower prices. So, while Woods provides a nice academic argument, it would require laboratory conditions that do not exist in the real world. Whether it is consistent with Catholic theology is pretty irrelevant.

Just my two cents:This morning NM paper on the front page talked about how in the 60's a young woman had paid off her student loan in three years and got a mnotgage on her own home while working as a nurse.Years later today, her son with 3 digit debt and hisMA is living at home trying to find work.Made me think of Friday night's News Hour as Shields and Gerson batted economics around and Gerson talked of today's "harsh" capitalism which he said had real problems for people but was "better than any other system."Th world of politics/economics has indeed evolved over the past 50 years in my experience as has a whole mindset and apologtices such as Woods and also many neocons hold.

"Maybe youre right. Your point about technical innovation in particular resonates: this continues unabated despite the fact that wages for the average low income American have fallen and continue to fall. Capital desires to eliminate wage pressure no matter how low wages go. That is why governments and labor organizations are needed to balance capital."You would need to explain how, under the same economic system, and with capital's same motivation to lower wages, real wages rose for many decades? And how real wages in thriving industries have not stagnated - they have risen by healthy amounts?Here is a hint: capital is not obsessed with labor. It is obsessed with profitability and productivity. And is is possible for labor to thrive with a focus on profitability and productivity.The notion that governments and labor organizations are needed to balance capital is the heart of Galbraithian nonsense. Sts. Milton Friedman and Margaret Thatcher, pray for us.

Here's a ranking of 1300 top economists. As far as I can see Woods is not among them but maybe others can spot his name here. If one wants to argue against more prominent Republican economists I suggest that one focus on Mankiw, Becker, Feldstein, Barro, Boskin and some of the others mentioned in the comments above.Woods is an interesting thinker but he's clearly on the outer periphery of the economics profession and definitely not part of the Republican establishment.http://ideas.repec.org/top/top.person.all.html

Woods is an interesting thinker but hes clearly on the outer periphery of the economics profession and definitely not part of the Republican establishment.

He's really not an economist as much as an historian. I think he is interesting in this context because 1) he is doing an explicitly Catholic defense of free market theory and 2) he's doing a rather complete summary of the Austrian School (Von Mises et al) which truly is fashionable in Republican circles these days.

Jim, let me grant, for the present context, your concluding remark about the "rational conclusion from economic analysis." I would add, though, that this is more than sufficient reason to recognize why economic analysis alone is inadequate for the formation of responsible political policy and practice, much less for determining any matter of justice, whether individual or social.

I would certainly be one to throw Woods' book down violently. The idea that markets function like physics is simply contradicts by much of economics, much less by theological analyses. At least Woods acknowledges that if you agree with the Austrians, then that means that the whole Catholic social encyclical tradition is somehow corrupt and needs correction.But I'd like to add one reason why Woods-like argument get so much traction: Catholics have not developed a robust (in social-scientific terms) alternative account of wages and prices. The minimum wage (although I would say it is better than nothing) is far from a living wage, and a genuine argument for a living wage would also have to include an account of how to develop a price system that would allow for living wage. Being outraged at Wal-Mart isn't enough. The closest alternative analysis I've seen is John Medaille, working out of the distributist tradition (see his excellent The Vocation of Business) - but even here, Medaille recognizes that much more work needs to be done.

"I would add, though, that this is more than sufficient reason to recognize why economic analysis alone is inadequate for the formation of responsible political policy and practice, much less for determining any matter of justice, whether individual or social."Bernard - I agree entirely. I would say that economics is necessary, but not sufficient. At the same time, the economic conclusion, "Jim values seeing a film more than having fresh running water for his family" contains within it a moral indictment of that fellow Jim that is so straightforward that it scarcely needs to be explicated.* There are certain things that a government can do to help people like Jim: decree that municipal water bills be lower, or make a transfer payment to him so he has more income to pay his bills. Without commenting on the advisability of either of those policies, I would note that Christian churches and families have an important role to play in helping people like Jim be responsible parents and heads of household. It's important to teach virtues like sacrifice, savings and financial solvency. * Even that observation presupposes a moral consensus between you and me. I suppose that if we were both egoists, neither of us would see it as a moral indictment.

"At least Woods acknowledges that if you agree with the Austrians, then that means that the whole Catholic social encyclical tradition is somehow corrupt and needs correction."David C - I don't see Woods saying precisely that. I believe his view is that Catholic social encyclicals are 100% correct within the bishops' competence; but bishops have no special competency in economic policy-making, and in fact some of their policy recommendations not only wouldn't accomplish what they hope, they would result in the opposite of what they hope. Thus, raising the minimum wage seems like a compassionate thing to do, but to the extent that it forces more people onto unemployment rolls, it's counterproductive.

Jim I agree with your characterization of Woods relative to the bishops. however he is also saying that labor and government are also not competent to judge economic issues objectively. Only the Austrians can (he doesn't think a whole lot about the Chicago school either).

"I think he (Woods) is interesting in this context because 1) he is doing an explicitly Catholic defense of free market theory and 2) hes doing a rather complete summary of the Austrian School (Von Mises et al) which truly is fashionable in Republican circles these days."Do you think he is "Fr" Robert Sirico in mufti? Or at least a student of the good holy father?

Jim P. --Are you saying that "capital expenditures" are monies that are spent for the sake of profit (more money/capital)??If that is all that capital is, that is, if it is only for the sake of more money, then it is by definition non-productive, and such a system by definition would be bound to fail. Such a notion of capital would justify the whole derivatives project whereby other people's money was used to produce more money for the bankers. Yes, it is like casino gambling in that there is no product except the good feelings of those who win the bets (when they win the bits == ultimately they are bound to fail).I say stop all talk of "capital" and realize that all money that is spent on products (other than such things as the good feelings of the casino winners) is in fact part of a whole system of exchanges of money for the sake of buying and producing. The movement of money in any direction is then "profitable" for the health of the whole system. In some cases the buyers in the system are intermediate ones, as is the case with suppliers of an industry (e.g., parts makers in the car industry). But still, the wages and profits of the parts makers are part of the flow of money around the whole system. Granted, government "investing" on bridges doesn't result in something that is sold, but bridges certainly have economic utility in the ordinary sense of the term "utility".In other words, making a profit should not be what defines a sound economic system. A flow of money around the production, selling and buying of products should be the defining characteristic, with all money units (e.g., dollars) being of equal economic value.

While we are talking about the demon capitalists who seek only profit, I think we should mention that not all capitalists are interested exclusively in profits. The paradigm of a capitalist with broader ambition was the late Steve Jobs who was obviously motivated by profits, but his passion was to produce the best products imaginable. Significantly, the market rewarded him handsomely for it.Socialism is not the inevitable alternative to the broken down 19th century economic behemoth the Republicans keep trying to entrench here. The problem is how to inspire more decent people to get into the system and how to regulate the demons. The former is a cultural problem, the latter a political one.

unagidon --You say Woods belongs to the von MIes' Austrian school. I know very little about the Austrians, but though they are all obviously "conservative", from what I've read I'd say that there is a lot of disagreement among them about what an economic system is, ranging from pure mechanists like Woods to more humane thinkers such as Hayek who had a distinct moral dimension.I think it's important not to demonize all of the conservatives the way the conservatives demonized Keynes. As a matter of fact, keynes and Hayek had much respect for each other. Polarization has got to go. The extremism recommended by St. Barry Goldwater has got to go. And so has the heartless Thatcher.

"Are you saying that capital expenditures are monies that are spent for the sake of profit (more money/capital)?? If that is all that capital is, that is, if it is only for the sake of more money, then it is by definition non-productive, and such a system by definition would be bound to fail. Such a notion of capital would justify the whole derivatives project whereby other peoples money was used to produce more money for the bankers. Yes, it is like casino gambling in that there is no product except the good feelings of those who win the bets (when they win the bits == ultimately they are bound to fail)."Ann, you're quite right; I fear that the examples I gave of capital investment - auto assembly equipment, and oil rigs and pipelines - are far more along the lines of traditional capital expenditures than the abstruse derivatives instruments that constitute modern-day notions of "investment". Not that all derivatives are useless, but at least my auto and oil-company examples actually lead to the creation of blue-collar jobs with (in the US, at least) living wages. I don't know that cooking up arbitrage opportunities by finagling with the Libor rate accomplishes any such social good.For tax purposes, though, letting a few billion fly for a couple of minutes in mortgage-backed securities is treated as the same sort of investing activity as building a paper mill or a cell-phone assembly plant. I've argued in the past, and continue to believe, that they are not the same thing at all, because the latter creates jobs, careers and wealth for workers, and the former does little or none of that. I would be in favor of taxing income generated by the latter as investment income, and income generated by the former as something else, at a higher rate. Let's use tax policy to induce investors to invest in projects that create jobs.

Woods" view is what we used to laugh at as "Christian materialism: you CAN serve God and mammon."Unfortunately, i tappears to be what's preached and believed -especiall by thoase doing OK.

Jim P. =-According to your conservative economic lights, what is the *economic* difference between a government giving a poor person money to buy food and a private person giving the poor man the same amount of money? Don't they have the same consequences -- feeding the poor and taking money out of the aggregate investment pot???

"As a matter of fact, keynes and Hayek had much respect for each other. Polarization has got to go. The extremism recommended by St. Barry Goldwater has got to go. And so has the heartless Thatcher."So I take it you're proposing to get rid of "polarization" by getting rid of, well, conservatives? It's certainly a very neat solution."According to your conservative economic lights, what is the *economic* difference between a government giving a poor person money to buy food and a private person giving the poor man the same amount of money?"I don't think it's particularly "conservative", but of course there are various costs associated with the two methods of distribution you describe: costs of collection and then distribution by the government, and lost opportunity costs (and benefits, too) as well.

By the way, Goldwater supported abortion rights and same sex marriage (on libertarian grounds). Some extremist.

Jim P. ==I brought up derivatives only as an example of what the mechanists consider to be the essence of their ecconomic system. My point is that if you define "the" economic system as essentially no different from a high stakes poker game (using money t o make money), then the probabilities are that such a system must eventully fail. Any hope that such a system will be self-correcting has to be nonsensical.I think it follows that to have a "self-correcting system" you would have to admit that there are many selves who are parts of the system, and their interests/values must be served if any self-correction is to come from within the system. History shows that the capitalist class attracts a disproportionate number of people who will try to make money by hook or crook (because business is where the money is). For the system to be self-correcting the other selves must be able to organize if necessary to counter the crookedness of the demon businessmen. I am thinking here not just of unions, but of organizations of small businessmen and of consumers, such as the Consumers Reports organization. Their organizations are just as necessary as the organizations of the investors of various sorts, especially the demon capitalists.In other words, human nature being what it is, regulation and organizations of human sectors must be parts of a sound economic system. Unfortunately, I think this has already resulted in the formation of "interest groups" which vie for governmental control, money, and other privileges. Yes, that is a problem that has yet to be solved -- or even addressed.

Jeff --You read things into what people say. I have never ever said we should get rid of conservativism. I have even admitted more than once that there is a part of me that is conservative. And I have said tht last election for representive to the U. S. House I voted for Joseph Cao because I think we need a conservative party, and the GOP is in such terrible shape I wanted to strengthen it by voting for a man with priciples. Please learn how to read only what is there. You might have something worth listening to, but it is really off-putting to be so blatantly misinterpreted.

"You read things into what people say."Of course my response was largely tongue-in-cheek. But - and I mean this with respect - I'm not quite sure how I'm misreading what you actually wrote. You decried polarization, and the only two examples of that polarization you give are two of the most recognizable and influential voices in modern conservatism (one of whom you labelled an extremist despite the fact that he held positions most readers here consider to be no-brainers). So it doesn't seem that irrational to conclude that you believe the source of this polarization resides on one side.And for the record, I do not think you literally meant that Baroness Thatcher lacks a physical heart.

Jeff ==One of the things Barry Goldwater is most famous for is having said, "Extremism in the defense of liberty is no vice". No doubt he thought that applied to economic freedom, as he saw it. So, yes, if anyone defended extremism, it was Goldwater.AS to my saying that some conservatives were extremists, well, of itself that mplies nothing about what I think of the rest of the conservatives nor of the liberals. You can't reason from some to all nor from only some to none. What is particularly dangerous about labeling is that labels rarely match all the people they supposedly describe -- in fact, they are usually true only about some of a kind or at best most of them, not all of them. It is quite useful in most circumstances to talk in approximations only, but sometimes we do need to be careful about the some/all differences, and political discussion are some of those times.Even worse than over-generalizing but related to them is adding to a meaning what is only associated with a meaning. For instance, when a politician is for a single payer, his opponents someetimes add to "single payer" the socialist notion of "socialized medicine" with all that implies, and they call the politician a socialist. Bad thinking. Bad language usage. Bad politics. Bad for the country.So I'm appealing for stricter interpretations of opponents' statements and stricter logic. Both are necessary for political communication.

"According to your conservative economic lights, what is the *economic* difference between a government giving a poor person money to buy food and a private person giving the poor man the same amount of money? Dont they have the same consequences feeding the poor and taking money out of the aggregate investment pot???"Ann, I'm not sure I understand your question. If the private person is engaging in alsmsgiving - rather than compensating a worker in return for labor - then I suppose the economic result is pretty much the same to the person receiving it. As Bernard and I have been discussing, economics doesn't tell the whole story of what happens in the marketplace, and I happen to believe there are compelling reasons to favor private charities when they are able fill the need, and that government entities are usually well-advised to subcontract transfer payments of this sort to non-profits, including religiously motivated non-profits, with good track records of running effective programs. Both the government entity and the private person would engage in some sort of trade-off in order to make the donation: either entity would value helping the poor person more than some other use of the money, whether that other use would be an investment or some other use (paying a bill, spending it on something frivolous, saving it, etc.). I strongly believe that it is better for the giver to voluntarily give away his money to the poor than to merely comply with the law by paying his taxes. Because of the tax code, there is probably an economic benefit to the giver as well (which I think is good; it means our tax policies incentivize virtuous behavior). But absent the tax write-off, that trade-off doesn't look much different to the giver, either.If you're suggesting, as I think you did in another comment, that any transfer of money from one party to another, of any nature, constitutes investment in the economy, I'd disagree. Not every expenditure is an investment. Investment is a particular type of expenditure with particular characteristics and for particular purposes. Buying a pack of chewing gum, or even a space shuttle, wouldn't qualify as an investment. (As it happens, though, both of those expenditures, because they are for final goods and services, would add to GDP, and so would contribute to the measurable growth in the economy.)

"I brought up derivatives only as an example of what the mechanists consider to be the essence of their ecconomic system. My point is that if you define the economic system as essentially no different from a high stakes poker game (using money t o make money), then the probabilities are that such a system must eventully fail."The economic system is much more than investment (which I assume is what you're referring to as a "high stakes poker game"). Investment is only a portion of economic activity, and most people don't partake in it in our working lives. I make money for my family, not by investing, but by working, and that is true for most Americans of working age.As I've said elsewhere, I'd like to see policies that tie investment more closely to actual productivity. Building factories and expanding businesses create jobs, including jobs for people whose highest educational attainment is a high school diploma (or less). I just think that would be the most effective way to help the poor. Putting money in exotic instruments may not be that much different than playing poker, or spinning the roulette wheel. Jobs do get created in the financial industry, and those jobs count, too, but I'm not certain that those jobs are as likely to help the people to whom we should be showing a preferential option.I am not sure what you mean when you say that it is probable that such a system will fail.

Jim --My problem was that some seem to think that if the government helps the poor it is somehow a wrench thrown into the economic system, but if private charities do, it's not. But I can't see any difference in the effects, and neither apparently can you.As to "investment", that too is a problematic term to some extent. Yes, in a context of economic theory it means money spent on new companies or company improvement, etc. It means money speent to improve things, not to continue as is or to correct things. In this sense of "investment" to buy shares in old companies is NOT to invest in them. All tht does is change the owenerships.But even in the economic sphere capital is used synonymously with "investment" money, however, it does not in fact always mean money that *IS BEING* invested. Capitalists can sit on their money until it hatches and still be called "capitalists", but in fact when they do not invest the money, they are not being capitalists. While the capitalists are sitting on their money waiting to be offered better investments, the poor people lwill spend every cent they get, whether on food, clothing or medicine. Yes, some will spend it on the horses in hopes of winning some cash.Now I ask you: what is the difference between a capitalist actually investing in a new company and a poor person buying food from say, Beatrice Foods? Doesn't Beatrice retain a profit, pay the profits to owners who then either spend it or invest it in other companies?In other words, I don't see how direct investing in a new company causes more economic activity than a poor person buying medicine. It all makes the economic world go round. So why privilege the investing of the rich over the spending-for-necessities of the poor? Why is the former better than the latter? If people don't buy the food and medicine, then the farmers and druggists go out of business or at least their business suffers and they lay orff people, as is happening now. (Not to mention the fact that some start=ups don't work, and that is money-ill spent.)

My main point is that I don't see why supply side economics is superior to demand economic -- both can stimulate an economy, and when the captitalists are too greedy to risk their money, as is largely happening now, then it's time to stimulate the economy with help to the poor and by government investment in infrastructure.

Jim --When I spoke of "high stake poker game" I was thinking only of the financial market with its derivatives, the betting of other peoples money to win more for themselves.I think that an economic system that is predominantly a system of making money by using only to make it will, like a poker game, probably lead to one winner with the whole pot, which is a cessation of the game/the system. When you're talking about an economic system such a "slow-down" would be failure.

You say Woods belongs to the von Mises Austrian school. I know very little about the Austrians, but though they are all obviously conservative, from what Ive read Id say that there is a lot of disagreement among them about what an economic system is, ranging from pure mechanists like Woods to more humane thinkers such as Hayek who had a distinct moral dimension.I think its important not to demonize all of the conservatives the way the conservatives demonized Keynes. As a matter of fact, keynes and Hayek had much respect for each other. Polarization has got to go. The extremism recommended by St. Barry Goldwater has got to go. And so has the heartless Thatcher.

When I wrote the article above, I didn't criticize Woods' position nor did I review his book. I tried to record his argument and show, in about 1,000 words, how it was cohesive. (It's cohesiveness is part of its great strength).Woods in particular and Republicans in general are part of a supply side school and have been since the days of Reagan. There are different branches of this school. And given the structure of the argument, there's room for lots of variation within it. (I have already pointed out in the case of the woman who rented out her forehead that a certain kind of libertarian would be morally fine with that and another would not, but both could share the identical economic theory.)What all supply side theories share is this:1. Most importantly, there is a realm of amoral economic activity that is approachable quantitatively and discoverable by (a form of) science. That is, there is a separation between the economic order and the moral order.2. The economic order is supported by a "free market". When the moral order tries to impinge on the free market, problems occur.3. The free market is capitalist. It is energized by capital. It is capital that creates greater productivity and it is capital that should (at least primarily) reap the benefits of greater productivity in the form of keeping profits, because it is capital that creates wealth.4. The way to support the free market is to support capital. Market stimulants therefore include no taxation of capital, low taxation of the capitalist, low regulation, "small government", and no labor unions.5. Taxes take capital (or wealth) out of the system of production. Low taxes keep wealth in the system of production and make it available for the creation of additional wealth. The creation of overall wealth is what makes capitalism effective as an economic system.6. Because the free market is amoral, things like class struggle are illusions. Except when there is outside intervention, the market distributes resources amorally, which is to say, fairly.7. The measurement of the success of the system is in the overall creation of social wealth. Outsourcing, the elimination of jobs, "creative destruction" etc. are part of the price that the locals have to pay for the success of the system as a whole. These things are part of the economic order and are unavoidable.8. Value is defined as the accumulation of capital. We can look at it in terms of use value and exchange value. In capitalism, exchange value becomes a use value. The more exchange value is accumulated the more utility is possible. Therefore, the accumulation of value becomes the driving force in capitalism. The sources of this value are not important in the sense that if value is created where it didn't exist before, the capitalist has done his job.9. Because it is the market and the market alone that defines wages, workers fighting for wage increases play a zero sum game. What is given to one is take from another. This is especially why unions are a problem. And if the unions are in the public sector, since their wages are paid through taxation, they are taking from every tax payer.10. It is in the general interest of workers to support the general increase in the creation of value.

One of the "conservative" economists I mentioned previously is Luigi Zingales of Chicago. Coincidentally he has a column on Bloomberg today on the issue of economics and ethics (albeit not from a strictly "Catholic" POV). Suffice it to say, I don't think he would subscribe to the proposition that "When the moral order tries to impinge on the free market, problems occur." Nor would, as he points out, Milton Friedman.http://www.bloomberg.com/news/2012-07-16/do-business-schools-incubate-cr...

From the article:

Experimental evidence suggests that the teaching of economics does have an effect on students behavior: It makes them more selfish and less concerned about the common good. This is not intentional. Most teachers are not aware of what they are doing.

I think you are missing the point, Jeff. It is the belief that economics is amoral that breeds amorality. That the free market is amoral is a libertarian belief. People can be more or less moral actors in the free market, but the market itself is driven by the laws of economics according to these people. A supply curve is a supply curve.

"It is the belief that economics is amoral that breeds amorality. That the free market is amoral is a libertarian belief."I think Zingales explicitly states (and critiques) this.

"the belief that economics is amoral that breeds amorality."Breeds amorality ... where? Who or what is the vessel of this amorality?Zingales correctly* notes that the notion of "corporate ethics" can obfuscate an accurate understanding of ethics, which is that the agent of morality is the individual. Piling up all the pious platitudes one can think of into a "Statement of Corporate Ethics" means nothing whatever if the firm's individual members, and especially its leaders, act unethically and foster an environment in which unethical behavior in the office and in the marketplace is rewarded rather than punished.Those students who draw amoral or immoral conclusions after being exposed to economic theory aren't being corrupted by the teaching of economics; they're applying their already-corrupted natures to the material being given them. Similarly, an engineering student could (and many have) take his theoretical foundation and build a nuclear weapon. Does that mean that teaching physics corrupts students, that the field of engineering breeds more crooks and scoundrels than other fields? Certainly, noting this doesn't relieve b-schools of their responsibility to teach ethics more effectively than they do now. (Although my own b-school graduate ethics course, which was taught at a public university, did a good deal more than simply present us with ethical dilemmas and then leave us on our own to ponder them; we were expected to engage them in groups, which, given the varied background of the students, was challenging).* A fuller account of this would note that social structures like corporations, legal frameworks and, yes, marketplaces can become structures of sin that enable and perpetuate unethical behavior, even when the individual players change. It can become extremely difficult to tear down these structures once they have been erected and insinuated into the web of relationships and processes that runs modern life. I don't know if Zingales would agree with the notion of structures of sin, or if he has even thought about it before, but I'm sure it's beyond the scope of his Bloomberg piece.

Does that mean that teaching physics corrupts students, that the field of engineering breeds more crooks and scoundrels than other fields?

The difference between these fields and economics is that the subject of economics is people. Libertarian economics want to be thought of as having money as a subject, but it is actually a social science. One the creation and magnification of that metaphysical substance called "value" becomes the goal of economic activity, it's a short step away from blaming "the market" for any kind of suffering "it" causes. In the case of economists, is there a real difference between one who enforces a mass layoff with no emotion (had to be done to protect shareholder value) and one who sends off the laid off with the words "I almost feel as bad as you do"?

"In the case of economists, is there a real difference between one who enforces a mass layoff with no emotion (had to be done to protect shareholder value) and one who sends off the laid off with the words I almost feel as bad as you do?"I guess I am beginning to lose sight of your point unagidon (except that you really don't like "libertarian" economics). So let's take a "case study" of your query above. It is well-documented that Steve Jobs laid off around 3,000 people from Apple when he returned to the company (something which was an economic positive from a number of perspectives). Moreover, he was also a heartless jerk as a manager (he cut out many of his friends who had helped him get his start when Apple went public).Not only is Apple now considered - from a purely economic POV - a raging success due to many of those actions, but Jobs is celebrated as a kind of modern-day saint (and not just by heartless libertarians). So I guess I'm wondering at what point in the Apple/Job case study you would step in and say "Wait a minute, this decision is wrong, stop." And would the lost benefits - economic, social and others - be justified?

"The difference between these fields and economics is that the subject of economics is people. "I don't see that it matters. Shakespeare wrote about people, too. Do we drop Richard III from college courses lest students become power-mad insurrectionists?The whole point of studying economics is to create a more virtuous managerial class. If I understand the price elasticity of demand for my products, I'm more likely to price them in a way that allows them to succeed - and succeeding means jobs and prosperity for the workers who design, build and sell my products. If I understand the impact of a weaker dollar on my overseas operations, I am more likely to succeed in those endeavors, hopefully with similarly happy results for the workers.Really, in my own studies, the courses the tickled my greedy bone weren't the economics courses, they were the finance courses. That's where I learned the magic of Black-Scholes and the wonders of shorting a call. (That they didn't teach me how to rig the Libor has me dashing off a text to the bursar to demand a refund.) Maybe we're blaming the wrong faculty :-)

u --"The subject of economics is people". Umm, yes and no. Too often economists define "economic system" as merely the expression of laws governing abstract people playing abstract games. Then they confuse their abstractions with the real world system of actual players with actual rights, duties, preferences, choices and values of various sorts. But the abstract and the actual systems are very different -- one a mental construct, the other a real-world cosntruct. I might add that there is no one current "physics". There are many different mathematical systems expressing what the authors think is real. But the abstract reality and the real thing out there are two different things.

So I guess Im wondering at what point in the Apple/Job case study you would step in and say Wait a minute, this decision is wrong, stop. And would the lost benefits economic, social and others be justified?

I wouldn't necessarily stop the layoffs; probably not at all. But I have seen this case dragged out over and over again to show why downsizing and off-shoring are good. There's three assumptions here. First, in the end overall wealth was increased, so there was a happy ending. This wealth in the abstract is the subject of supply side economists like Woods. Somehow, everyone is better off because Apple became eventually a more productive company. Second, the benefits lost by the workers (economic, social, and others) who were laid off don't matter, because overall wealth increased. I'm not sure the workers would agree. Third, in the individualist economic theory we have been discussing, including all of the people you have mentioned, the workers are paid and when they are laid off they are on their own. Apple has no responsibility for them. Neither does society. The workers, in short, are required to have a stake in Apple, but Apple is not required to have a a stake in them. And that is a function of economic theories likes Woods'.Here is Woods talking about the physical mobility of labor versus capital:

..since workers need employment to survive, and since they do not possess a substantial stock of goods on which to subsist while they seek work, they are forced to accept work at wages that do not adequately reflect their productivity. This argument, however, is long on assertion and short on proof. It is especially implausible given the unprecedented mobility of labor in the modern world, with affordable modes of transportation that past centuries could scarcely have imagined. Employers, on the other hand, possessing enormous investments in fixed plant and other capital, generally lack such mobility, and therefore may be said to possess a certain inability to wait. pg 71

Does the example of Apple look like this?

The whole point of studying economics is to create a more virtuous managerial class. If I understand the price elasticity of demand for my products, Im more likely to price them in a way that allows them to succeed and succeeding means jobs and prosperity for the workers who design, build and sell my products. If I understand the impact of a weaker dollar on my overseas operations, I am more likely to succeed in those endeavors, hopefully with similarly happy results for the workers.

The workers (also known as "human capital" are a cost of production in most economic theory. Benign management may care about them as people, but the logic of the firm is driven by profit, not concern for the worker, which at its best is merely (and hopefully happily) a by-product.

Really, in my own studies, the courses the tickled my greedy bone werent the economics courses, they were the finance courses. Thats where I learned the magic of Black-Scholes and the wonders of shorting a call. (That they didnt teach me how to rig the Libor has me dashing off a text to the bursar to demand a refund.) Maybe were blaming the wrong faculty :-)

It is true that Finance departments in universities are finishing schools for Satan. I won't argue there, having been in the business myself.

"The workers (also known as human capital are a cost of production in most economic theory. Benign management may care about them as people, but the logic of the firm is driven by profit, not concern for the worker, which at its best is merely (and hopefully happily) a by-product."Because workers are paid wages by the owner(s), there is a cost to the owner(s) associated with employing workers. If the firm is not profitable, it will die, which is a bad outcome, not only for the owner(s) but for the workers whose livelihood depends on the firm's existence. In order for the firm to be profitable, its revenues must be higher than its costs. The firm's owners and workers would both like the firm to bring in as much revenue as possible, but the firm's ability to do so is constrained by its customers' demand for its goods and services, and also by competitors who compete to fulfill the same customer demand. Because of these constraints, most firms are not able to pay its workers as much as the workers could wish.I'd suggest that, operating within these parameters, owners and workers are both stakeholders, and that their interests seem to run together. It is true that not all owners (nor all workers) recognize this. It is also true that some do recognize it, and are able to construct mutually beneficial relationships. The ones who do not recognize this should be helped to recognize it.

Thank you for laying bare the crux of the matter, particularly in the concluding quote.

This is dumb -- but for Smith, Marx and Keynes, what is the difference between capital and money? Or maybe I should ask: does each of them really stick to one definition? Anybody know a nice simple book or article, easily available (I can't get to good libraries easily)?When I find the answer to that, maybe I"ll be able to understand "utility". Sigh.

Add new comment

You may login with your assigned e-mail address.
The password field is case sensitive.

Or log in with...

Add new comment