Economic Theory and Community Development
TRANSCEND MEMBERS, 28 Sep 2015
Chapter Eight – How to Pay for Social Programmes and How to Conceptualize the Issues
We hold that the paradoxical and tragic answer to the question why the world as it is presently organized makes plenty of resources available for luxury, for unnecessary goods and services, and for harmful activities but does not provide basic security or dignity for the poor is a complex answer. It is an answer that requires an overhaul of key concepts in dominant discourse. To understand what is going on and to take constructive actions it is useful to deploy the innovative ways of acting, talking and seeing we call “unbounded organization.” The discursive strategy of this chapter takes up again a central idea of dominant discourse: the idea that economic growth is and must be the aim of every nation. It seeks to destabilize the basic cultural structure. It seeks to destabilize the inter-related ways of acting, talking and seeing that cement injustice into place and make it immovable. But it does not only destabilize. It also includes a number of constructive proposals.
The immediate problem or presenting symptom: The obvious approach to paying for social programmes is, of course, to tax incomes and to prioritize social spending in the government budget.[i] Since revenue from an income tax is a function of how much income there is, and since GDP is a measure of how much income there is, on this simple view there is a rough positive linear relationship between ability to pay for social programmes and GDP. Now (2015) with slow growth, tax revenues declining and deficits growing, governments around the world are hard-pressed to keep funding their social programmes, let alone expand them. South Africa will be hard-pressed to expand the Community Work Programme and the other components of the Expanded Public Works programme to make them into a true employment guarantee. The challenge of this chapter is, in Wittgenstein’s terms “to shew the fly the way out of the fly bottle,”[ii] to move thinking beyond the obvious approach, which is not working and never will work, to thinking in terms of unbounded organization.
- Remarks of Sr. Alberto Arenas, Minister of Finance, Republic of Chile
- On the Philosophy of Social Science
- Remarks of Ms. Marissa Moore, Department of National Treasury, Republic of South Africa
- Remarks of Peter Heller, Senior Economist, International Monetary Fund.
- Production Defined as Production for Sale: Adam Smith
- Raising the Social Status of Use Value
- Setting in Stone the Games People Play: Immanuel Kant
- Setting in Stone the Games People Play: Jean-Baptiste Say
- Structural Transformation: Capturing Rents
- Structural Transformation: Thomas Piketty´s Contributions
- Culture Shifts
- Remarks of Sr. Alberto Arenas, Minister of Finance, Republic of Chile
This chapter begins at Santiago with a summary of a report by the minister of finance to the general public on how well the economy is doing. Beginning this chapter in this way is not an arbitrary choice. It follows conversations with several Chilean civil servants who administer anti-poverty programmes. They said in so many words that to pay for expanding social programmes it would be necessary to rekindle Chile’s sputtering growth. From such a viewpoint the minister of finance reported to the public on what it most needed to know: namely the prospects for re-accelerating Chile’s decelerating economy.
Chile is among the many countries similar to South Africa in the respect that slow growth is perceived as clouding the future of social programmes. Worldwide we see what might be called a Bachelet/Piketty Paradox. In 2011 the International Labour Office supported by the World Health Organization published the report of a commission chaired by President Bachelet of Chile detailing worldwide efforts to establish social safety nets, including but not limited to public employment programmes like India´s NREGA and South Africa´s EPWP and CWP[iii]. The report explicitly assumes that there are parallel worldwide efforts to stimulate economic growth. The cost of any given social programme is expressed as a percentage of Gross Domestic Product; for example Rwanda could fund a universal old age pension at a cost between .5 and 1% of its GDP.[iv] The same report, however, suggests reasons for seeing that the conceptual and causal links between funding social programmes and GDP are not as tight as might at first glance appear. Two years later in 2013 Thomas Piketty published his impressively documented study providing weighty reasons for projecting slow GDP growth throughout the 21st century.[v] Hence the apparent paradox: big needs, small resources.
Alberto Arenas as minister of finance published a short report on the Chilean economy in 2014 and its prospects for 2015 in Chile´s leading newspaper El Mercurio on February 8, 2015. He disregarded at least for the moment the question how to make social programmes more effective with fewer resources. He disregarded the question how to capture more of the social surplus (however generated and however measured) to transfer it to meeting social needs. He devoted himself entirely to the question how to accelerate Chile´s decelerating growth.[vi]
Arenas reported that The Chilean economy decelerated more than expected in 2014 in a context where the Latin American region as a whole turned in a poor performance (a bajo desempeño). But December of 2014 saw a GDP upsurge to a rate of 2.9% growth, which lifted GDP growth for the year to 1.8%.
Much of the (relative) dynamism of the last three months of 2014 was due to government spending. (Notice that all the key terms –dynamism, spending, decelerated, performance, growth, accelerate etc.—are different ways to talk about how much buying and selling is happening.) Public buying grew 10% in the last trimester, completing 2014 with a total 6.5% higher than the previous year. Separating out from all public buying the money spent on capital investments (infrastructure) there was a rate of increase for the last three months of 22.7%, and for 2014 as a whole of 7.4%.
The minister encourages his fellow citizens to look on the bright side. There is more than capital investments by the public sector to justify projecting a better year in 2015. In view of the fall in the price of copper, Chile´s largest export, Chile is re-assigning resources to selling other products in world markets. It is favoured by a fall of 15% in the value of the Chilean peso against the dollar. That makes Chilean exports more competitive in manufacturing and in agriculture.
The unemployment variable has remained low, and that is a good thing because it means we can expect consumer purchases to recover their dynamism. Recovery is aided by another falling variable: lower energy costs due to the fall in the price of oil. Since Chile imports 95% of its fuels, a fall in energy costs translates directly into more money in the pockets of Chilean consumers, which contributes to stronger sales.
Inflation has remained low, which makes it possible for the Central Bank to continue its low interest rate policy, which in turn favours investment.
The minister concludes that to project a good year in 2015 we must not let up (aflojar – get lazy) either in private investment or in public investment. “And, above all we must nurture confidence, for confidence is the best ally of investment, employment, and consumption”.[vii]
The concluding sentence and indeed the whole report evoke familiar dynamics: Production depends on the confidence of investors. Investor confidence, in turn, depends on the confidence of consumers that leads them to spend. Their spending chronically tends to be insufficient. When all goes well –when consumers spend more and investors invest more— then and only then will there be more good jobs for workers and more revenue from taxes for social programmes.
Why did we start by outlining a report from a minister of finance?
Because the standard reaction within the realm of dominant discourse is to respond to deficits and slow growth with austerity, which means cutting back funding for social programmes not expanding them. Within this standard way of thinking what the Chilean public most needs to know is what Alberto Arenas told them. This really is the dominant discourse. We are not just making it up.
- A Digression on the Philosophy of Social Science
The story minister Arenas tells in El Mercurio is a story about variables from beginning to end, beginning with the variable GDP and ending with the variables investment, employment, and consumption.[viii] Similarly, Sir Isaac Newton´s Principia Matematica is a story about vis (force) from beginning to end. The impact of an independent variable on a dependent variable in economics is an analogue of a force in mechanics (as in Newton´s formula force= massXacceleration). However, in mechanics a formula like f=ma yields an exact prediction, once friction, intervening variables, and measurement error are accounted for. This is somewhat different from, although also somewhat the same as, correlations and regressions in the social sciences. In the social sciences there is typically at base an equation recognizably similar to an equation in Newtonian mechanics, but there are more error terms measuring the difference between the observed data points and the trend line described by the equation. The metaphysical[ix] assumption in both cases –more plausible in mechanics, more dubious in economics—is that there are out there in the world measurable regularities of the form y = f(x) (the dependent variable is a function of the independent variable) waiting for scientists to measure them. Economists regularly find themselves constructing models to explain data, where the models are formally rigorous because the inferences from the numbers going in to the numbers coming out are tautologies, where the data are mainly social statistics, where the social statistics are mainly defined from accounting categories, where the accountants´ numbers are mainly drawn from source documents, and where the source documents mainly record sales, where the sales are governed by the constitutive rules of markets, where those rules and their detailed ramifications are specified not by mechanics or by physics of any kind but by legal and customary norms. Seated in offices high in buildings and looking at numbers economists may be only dimly aware of the normative framework of the buying and selling going on in the streets below where the numbers come from. Yet they may also be painfully aware of a brooding mushiness infecting their models like that evoked by Ludwig Wittgenstein in his image of a machine whose motions are supposed to be predictable from its diagram but in reality are unpredictable because the machine´s parts melt, break, and bend.[x]
Drawing on the contemporary movement in the philosophy of science known as critical realism, on John Searle[xi], Charles Taylor,[xii] Wittgenstein and Heidegger, we take as our Leitfaden (guide, thread running through the fabric) for understanding capitalism the constitutive rules of markets. Adam Smith called them “natural liberty,” Karl Marx compressed them into the “commodity form.” Our two Staggering Facts (the dependence of production on capital accumulation and the chronic insufficiency of effective demand) are generated by those rules.
Instead of assuming that the world out there consists of variables waiting to be measured and to be fine tuned until regressing them on each other yields observed functions matching the functions postulated in models, our realist alternative takes culture to be the ecological niche of the human species. The human activities constantly reorganizing the language-games of cultures become a source of scientific explanation[xiii]. We advocate starting from the basic constitutive rules of the culture organizing the modern world-system in order better to understand why the world as it is presently organized makes plenty of resources available for luxury, for unnecessary goods and services, and for harmful activities but does not provide basic security or dignity for the poor.[xiv]
Friedrich von Hayek made a methodological point similar to ours in his lecture accepting the Nobel Memorial Prize in Economics in 1974.[xv] He titled his lecture “The Pretence of Knowledge.” He argued that much of what passes for legitimate quantitative research in economics pretends to know things the researchers could not possibly know. He faulted such bogus research for having led to bad policy advice which in turn led to inflation. He advocated instead what he called “pattern explanations” deployed to understand “organized complexity. They start with a knowledge of the rules of the games that organize economic life.
Why do we contrast “variables” and “rules”?
Because we believe that a way of thinking about science that centres on variables (sometimes loosely called “positivism”) is part and parcel of a dysfunctional mainstream discourse that traps humanity. And because what are taken to be the alternatives to “the positivist temper,”[xvi] such as the Austrian view of von Hayek just cited, the similar views of Michael Polanyi, qualitative research, post-structuralism, post-Marxism, post-Keynesianism, religion, institutionalism, feminisms, phenomenology, one or another French or German philosophy, one or another ecological or evolutionary approach, systems thinking, design science, the sciences of complexity, noetic science, … and other non-positivisms commonly neglect to consider the possible reconstruction of social science using notions like speech acts and constitutive rules. They commonly neglect the ideas of thinkers loosely grouped as critical realists or close to critical realism like Roy Bhaskar, Margaret Archer, Searle, Taylor, John Dewey and Rom Harre. Much of this neglected possible reconstruction can be neatly summed up by thinking of humans as creators and performers of cultures governed by rules.
- Remarks of Ms. Marissa Moore, Department of National Treasury, Republic of South Africa
The scene shifts from Santiago, Chile, to the Union Buildings in Pretoria where a committee of the South African parliament is reviewing the Community Work Programme. Liberal economic thinking hangs heavily in the air of the room. The difficulty of funding CWP when growth is lagging behind National Development Plan targets appears dressed in the laconic phrase “fiscal constraints.”
On February 12, 2014, an appropriations committee of the South African Parliament met to review funding for the Community Work Programme.[xvii]
The meeting was confusing. We will outline what really happened in order to be faithful to real life as it really was, but we will forgive the reader who skips the details and goes directly to the general principle at the end of this section.
Before the discussion began there were two power-point presentations. One was by Tozi Faba of the Department of Cooperative Governance and Traditional Affairs (which is known by the acronym CoGTA). CoGTA administers CWP. The other was by Marissa Moore of the Department of the Treasury. Treasury pays for CWP.
According to Tozi Faba of CoGTA:
- In the fiscal year ending March 31, 2013 CWP provided work for 204,494 participants.
- Targets for the current (2013-14) ending March 2014 have already been surpassed, with work for 206,166 compared to a target of 172,000.
- The budget for the current year provides for a total cost of 1, 592, 268.[xviii]
- The target for 2014-2015 is 332,500 participants at a cost of 2,257,480.
- The target for 2015-16 is 487,500 participants at a cost of 2,505,413.
- The target for 2016-17 is 1,030,000 participants at a cost of 3,710,368.
The CoGTA projections for CWP fit in with the ideas behind the National Development Plan considered in chapter one, and with the failure of those ideas to bear fruit as planned. As the private sector continues to fail to provide the employment projected by the plan, public employment is called upon to provide the jobs that the plan promised to the people –and in the light of which the plan called on the people to resist the siren songs of populism.
According to Marissa Moore of Treasury:
- In the fiscal year ending March 31, 2013 CWP provided work for 205,494 participants.
- The estimated number of participants for 2013-2014 is 172,000.
- The current (2013-14) budget is 1,731, 326. (This is 139,058 more than CoGTA´s figure, being adjusted for actual expenditures.)
- Unlike CoGTA, Treasury goes back to look at costs in the prior years 2010-2011, 2011-12, and 2012-13. The year-by-year cost increases were 39%, 107%, and 34%.
- Regarding future years Ms. Moore does not give cost numbers or target numbers of participants, but says expenditures are expected to grow at an annual rate of 28.9%
- Using words without numbers she concludes: “Fiscal constraints require CWP to meet employment targets within the current budget allocations, thus emphasis needs to be placed on efficiencies and cost savings”.
The phrase “current budget allocations” here might refer to the current year budget, or it might refer to annual increments no greater than 28.9%. It cannot refer to the budget COGTA projects to reach 1,030,000 participants, which calls for a budget increase in 2016-17 of 67%.
Ms. Moore further appears to suggest that additional participants and new sites might be financed by private sector funding in these words: “As the CWP expands, it can make use of the NGOs involved in the non-state sector to run new sites”.
Marissa Moore´s suggestion to rely on NGOs might be read as an entering wedge for introducing the concept of Unbounded Organization. Necessity may be moving policy in that direction. If one logic and dynamic, that of a private-sector-producing-for-sale-for-profit, is unable to generate sufficient livelihoods due to what Keynes called “a drag on prosperity caused by an insufficiency of effective demand”; and if a second logic and dynamic, that of what Schumpeter called “the tax state” cannot fully take up the slack due to fiscal constraints; then necessity is tilting thought slightly forward in the direction of unbounded material practices aligned for the common good, beginning with a third logic and dynamic, that of giving-meaning-to-your-life-through-service-to-others embodied in NGOs. Three is a number smaller than infinity, but it is larger than two.[xix]
In the ensuing discussion with members of parliament Ms. Moore clarified the Treasury´s view that CWP must meet employment targets within current budget allocations. She dropped a bombshell: even the 28.9% figure, far under CoGTA’s 67%, needs to decrease. She said that although the CWP budget is “expected” to grow 28.9% per year in the medium term, this is not sustainable. Its ballooning expenses must be scaled down. Currently spending is split 65-35 between wages paid to participants and operational costs, but treasury would like to see an even larger portion go to the wages of participants, in order to create more job opportunities for less money. (Let it be noted here, as it was not noted in the appropriations committee meeting, that more than half of the 35% is due to CWP, unlike NREGA, providing training and proper tools and safety equipment for its workers and to CWP putting a greater emphasis on doing really useful work. CWP learned from NREGA to avoid the situations that have led some NREGA participants to complain that their work is useless and demeaning. They complain, as noted in chapter four, that they are required to do useless punishing manual labour to perform tasks that any reasonable person would perform with proper equipment).
Grant Snell MP representing East London said that the participants were doing low-skilled work now, but that a way must be found to train them with skills that would enable them to move on to formal jobs. For example, they could be trained to recycle waste.
Leonard Ramatlkane MP from Cape Town asked why the number of participants had decreased when the budget had increased. He was referring to the Treasury figure of 172,000 participants for 2013-2014 in spite of the increased budget. There were other questions concerning gaps and inconsistencies in the numbers provided to the parliamentarians.
MP Aline Mfulo, spoke from her wheelchair in a different voice. She wanted more involvement by the Department of Social Development. She said participants should be empowered, not merely trained.
Apart from Ms. Mfulo´s intervention there were no indications in the report that the committee knew anything about the thinking that went into the initiation of the Community Work Programme recounted in chapters two and three, or about the proliferation of its activities on the ground and its alignment with other actors illustrated in chapter seven and in the short quotes from participants interspersed in all our chapters. Nobody seemed to know that CWP had a mandate from cabinet to use public employment to catalyse community development. There seemed to be no awareness that the founders of CWP had anticipated in 2007 the basic problem that confronted the appropriations committee on February 12, 2014: the impossibility of government singlehandedly solving social problems by taxing-and-spending, and the consequent necessity of aligning across sectors for the common good. Nobody seemed to know that CWP was supposed to be part of the solution to public budget deficits, not part of the problem, because it was supposed to use public employment to mobilize complementary resources through partnering and community development.
What are the general principles that this rather confusing slice of life illustrates?
A main reason why the world as it is presently organized makes plenty of resources available for unnecessary luxury and downright waste but does not provide basic security or dignity for the poor is that the damage done by Staggering Fact two (the inability of the market to provide buyers for everyone who needs to sell to live) can only rarely and with difficulty be repaired by public spending on social programmes. Governments are limited by “fiscal constraints.” They only marginally allocate the wealth of the countries they are said to govern. “Constraint” is shorthand for the facts that (1) most voters –many of whom are only a few paychecks away from homelessness themselves– are reluctant to pay higher taxes to provide funding for social programmes at a scale commensurate with the needs; (2) major businesses choose which government they will be taxed by when they choose where to site their operations, and they tend to choose those governments which tax them least; (3) the professionally-well-advised super-rich for the most part escape taxation; (4) the tax base of the national economy is easily eroded by downturns in global markets beyond national control. Due to such constraints somebody had to be a messenger conveying bad news to the MPs who approve the budgets. This time the person who got the job of being the messenger turned out to be Ms. Marissa Moore. As she spoke at a Union Building in Pretoria thousands of orange-uniformed CWP participants in all nine of South Africa’s province were considering themselves fortunate to have an opportunity to do community service two days a week in exchange for a pittance they could use to buy maize flour (“mealy meal”) and cooking oil.
- Remarks of Peter Heller, Senior Economist, International Monetary Fund
We make a stop in Geneva where the Bachelet Commission is making a report to the International Labour Organization showing that the nations of the earth have found creative ways to fund social programmes that do not depend on GDP growth. But Geneva is only a stop on the way to Washington DC. In that city on 19th Street near North West H Street we learn that the proposition that the poor must wait until GDP grows has deep roots in a rigid worldview. In its rigidity it tends to see the constitutive rules of markets (property, contract, autonomy of the juridical subject, absence of a duty of solidarity) as more than particular historically contingent socially created language-games. They are required by pure reason and by pure morality.
The Bachelet Commission uses the phrase “fiscal space” to describe finding the money to pay for a social protection floor. It finds many ways to create fiscal space. In Ghana debt cancellation provided the fiscal space for its Livelihoods Empowerment Against Poverty Programme.[xx] South Africa created fiscal space for social programmes first by giving social spending a special legal status by writing social rights into its Constitution (as Thailand, Costa Rica, and Brazil have also done), and then by re-prioritizing its budgets, cutting defence spending by 48%.[xxi] The Bachelet Commission suggests that less corruption can create more fiscal space, citing an African Union study estimating that in Sub-Saharan Africa in 2002 losses due to corruption were $148 billion USD, approximately half of total tax revenue.[xxii] Bolivia creates the fiscal space for an annual pension paid to every Bolivian citizen over 60 with a tax on hydrocarbons.[xxiii] Fiscal space has been created by taxes on airline tickets.[xxiv] There have been many proposals to tax international financial transactions and earmark the proceeds for social spending.[xxv] In its examples and lists of ways to fund social programmes the Commission does not even mention taking steps to increase GDP growth.
The Bachelet Commission’s report rules out of court the argument that improvement in the lot of the poor must wait until there is sufficient growth of the “pie” to pay for it.[xxvi] It does not, however, show, or even claim that its lists of creative fund-raising ideas demonstrate the feasibility of transfers large enough to meet the basic needs that are now unmet.
Some years earlier the widespread use of the concept of “fiscal space” had motivated Peter Heller, then Deputy Director of the Fiscal Affairs Department of the International Monetary Fund to pen a discussion paper defining it.[xxvii] Considering Heller’s definition will give us an opportunity to show some ways rigid thinking impairs pragmatic solutions to material problems.
We are trying to make it clear that the complex answer to the question why the world is so unequal requires re-examining taken-for-granted rigid patterns of thought deeply etched into our psyches and rigid basic structural norms of conduct firmly built into our habits. What we are pleading for is remembering the purpose of the game when playing the game. The purpose is serving life. The game is commodity exchange –which inevitably becomes a game whose rules are written in terms of money exchange.[xxviii] What we are pleading for is a pragmatic and realistic worldview that sees the rules of the game as flexible, and sees its purpose –serving life—as constant.
Heller defined fiscal space as follows: “In its broadest sense, fiscal space can be defined as the availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government´s financial position”.[xxix] This definition (read in the context provided by Heller´s paper) ties finding resources to transfer to the poor (implementing Karl Polanyi´s redistribution principle[xxx]) to a guarantee (“without any prejudice” i.e. with no danger of default) that in the future (“sustainability”) the government will be able to make the payments it owes as they come due (i.e. maintain unblemished its “financial position.”) . Heller’s definition of fiscal space appears to rule out pursuing any objective whatever in a way that would or might end up impairing the government’s future “financial position Playing correctly by the rules of the money game thus becomes –in Kantian terms—a categorical imperative, a command of reine Vernunft. Reine Vernunft is translated as “pure reason” but the translation does not express the full moral weight of reine in Kant’s philosophy. Reine means “clean.” Meeting human material needs is demoted –again in Kantian terms—to the impure (unclean) status of the merely material world. Guaranteeing the ability to pay future obligations is promoted to the pure (clean) status of the universal and eternal concepts that frame not just the experiences we happen to have but any possible experiences.
Whether the rules of finance are eternal and universal or historically relative and optional, is not merely a theoretical question. Flexibility and creativity are practical necessities. Building diverse plural economies and thriving resilient communities is (we claim) required to make it possible to govern a nation without undue reliance on large-scale private capital accumulation. Plurality and community are required to make large scale capital accumulation governable. When practical necessities in general, the practical necessity of community development in particular, and the practical necessity of liberating humanity from Staggering Fact one in particular, lose out to a definition of fiscal space that requires strict guarantees that future financial obligations will always be met, form defeats substance. Kant’s synthetic a priori[xxxi] defeats Dewey’s nature.[xxxii]
When Heller writes about fiscal space he speaks softly and carries a big stick. He writes: “Some of the volatility in external assistance experienced by many countries has arisen from the failure to implement agreed macroeconomic policy programs with the IMF. Delays in satisfactory IMF program reviews or cessation of IMF-supported programs can have an adverse multiplier effect in terms of their impact on other donor assistance. Certainly, countries that manage their macroeconomic policies well have far greater potential for creating additional fiscal space”.[xxxiii]
Let us look again at the two key parts of Heller’s definition of fiscal space: (1) the definition allows that there is fiscal space to fund a social programme only when resources are provided “without prejudice to financial sustainability”, and (2) what governments do with fiscal space is called “providing resources for a desired purpose”.
An ordinary human being innocent of economics and finance might well be forgiven for asking why finding resources to meet the vital necessities of the poor is complicated. Just riding around town on a bicycle observing the surfeit in the posh suburbs and the shortfall in the bosh townships, one would not immediately see any special reason why it would be complicated to recycle the surplus, nor would any such reason be immediately evident if instead of riding a bicycle around the city one were to ride an airplane around the planet. From a physical point of view moving things from one place to another is a piece of cake. “Financial sustainability” clouds the picture with the veil of cultural meanings that organize human behaviour. They make it complicated.
To be financially sustainable, in the ordinary sense Heller relies on, means to be able to continue to meet one’s financial obligations in the future. Heller cautions against committing to even meritorious social programmes, even when funds are available, if there is no assurance that there will be money to pay for them in the future.[xxxiv] Heller’s first (but not only) answer to the question where the government’s future revenue will come from is: it will come from production.[xxxv] He says increased GDP will lead to increased tax revenue due to “normal buoyancy.”[xxxvi]
Regarding the second of the two key parts of Heller´s definition of fiscal space “providing resources for a desired purpose”, Heller characterizes the “desired purpose” as “meritorious.”[xxxvii] His vocabulary suggests the interpretation that on his view of the world financial sustainability (which means being able to pay one´s obligations as they come due) is obligatory, while other objectives, however desirable or meritorious they may be, are optional. So interpreted, Heller echoes Kant: the duty to pay debts is a categorical imperative. Any duty to create human happiness or relieve human misery is not categorically imperative, but merely “meritorious.”[xxxviii] This would appear to be the meaning of Heller’s definition of fiscal space: “…fiscal space can be defined as the availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government´s financial position”. If the criterion is “without any prejudice” (italics added) then financial sustainability is an absolute duty like Kant’s categorical imperative; while pursuing a “desired purpose” whatever that desired purpose may be cannot be more than (as Kant and Heller say) “meritorious.”
In the next section, in search of clues for understanding the historical construction of today’s worldwide culture in which a philosophy like Kant’s and an economics like Heller’s strikes responsive chords in many hearts and minds, we return again to Adam Smith.
Why we bring Kant into a discussion of how to pay for social programmes.
There is a remarkable parallel between Heller’s principle that the infinite suffering of the poor may be relieved by a social programme only when there is no risk that paying for it will impair a government’s financial position, and Kant’s principle that categorical imperatives trump what Kant calls merely hypothetical imperatives. There is a reason not immediately obvious for pointing this out: When we make this general point we soon see that it applies beyond the context of paying for social programmes. A similar moral rigidity impairs pragmatic solutions in other contexts: in the context of cancelling debts, in modifying property rights, in liquidating bankrupt businesses, in writing down secured debt to its market value, in the context of speculation in junk bonds, in the context of taxing accumulated wealth, in the context of taking measures against capital flight, in the context of access to patented pharmaceuticals, and in others. The practical question why there is so much inequality in the world touches at many points on the theoretical question whether ethical principles are absolute or are relative to the particular facts of a context. We bring in Kant in this connection because he is famous; because his moral authority is often invoked by writers left, centre, and right; because his reasoning is clear; and because discussing his views provides a convenient bridge from the specific question how to pay for social programmes to the general question why wealth is so badly distributed. But we do not see Kant as a lone genius who used the grey matter between his two ears to invent ethical principles that for unknown reasons spread like wildfire and for more unknown reasons became the ethical, legal, and accounting principles that organize the modern world-system. We see Kant as a spokesperson for deep-seated tendencies in human nature found in any culture. Furthermore, we see his activity writing philosophical books as part of an historical process that sacralised the basic cultural structure of our culture.
- Production Defined as Production for Sale: Adam Smith
We just cannot stop going back to Adam Smith. He is the classical source of so many ideas that rule us today, even though it should be mentioned that his ideas were not original with him. They can be found also in his French and British predecessors and contemporaries. Now we need to go back to Smith to understand “production” –which is a key term needed to understand Gross Domestic Product, which is in turn a key term needed to understand the notion that social budgets are constrained by insufficient GDP. At first it seems obviously true that nothing more can be provided for the poor without more production because without production there is nothing to provide for anyone. But since Smith such a common-sense view of “production” does not define what the term means in economics. Putting social programmes on hold until there is more production does not mean what it at first seems to mean.
Let’s get ready for Smith by remembering that in CWP people work but do not sell –which is a big reason why we see CWP as a harbinger of a happy future when unbounded organization will be the prevailing normal worldview. Like the concept of “unbounded” itself, the concept of “work without sales” denotes an unlimited set. What is unbounded is everything that is not bounded. Livelihoods without sales are all the livelihoods that do not require willing buyers with money in their pockets in order to sustain a good life for the worker.
But for Adam Smith by definition productive labour is labour that creates a “vendible commodity.”[xxxix] Livelihoods (or work) without sales are therefore “unproductive labour.” Having distinguished use value from exchange value, and having at times appeared to lean toward saying that use value was, after all, the purpose of economic activity, when it comes down to defining “production” while Smith allows that some good is done by workers who make nothing to be sold, on the whole he frowns on making things for purposes other than sale. Smith makes production-for-sale by definition “production” tout court.
Consistently with his definition Smith counts as unproductive all menial servants, the sovereign and all his officers, the employees of courts of justice, the army and the navy, churchmen, lawyers, physicians, men of letters of all kinds, players, buffoons, musicians, opera-singers, opera-dancers, actors, orators, and whomever else he may have had in mind when he employed the abbreviation “&C”. However honourable their work may be, it is not productive because it does not produce vendible commodities which endure after their labour is over, and which can be exchanged in the market for money. Like the harangue of the orator and the tune of the musician, their labour “perishes in the very instant of its production”.
For the most part Smith’s twenty page chapter titled “Of the accumulation of capital, or of productive and unproductive labour” is a polemic against the great lords who spend their incomes hiring servants to staff their palaces, and a song of praise in favour of the undertakers (“undertakers” being a word that has since the time of Smith been replaced in English by its French synonym “entrepreneurs”) Undertakers hire only productive workers. The workers they hire produce vendible commodities that upon sale will provide enough revenue to pay their own wages and to return to their master his capital. Above and beyond keeping his capital intact, the productive workers provide their master with profit.
|“I noticed that CWP worked for our community. Because people were doing nothing at all but now CWP collected and employed those people”. — CWP Participant, Umthwalume[xl]|
Smith praises undertakers and savers in the same breath. On his account whatever is saved by parsimony is immediately spent on industry. When the products of industry are sold, saving will return with profit. He passes in review the cities of Europe — for example Copenhagen, the Dutch towns, Rouen in France, on the one hand; compared to Rome, Versailles, Madrid, and Vienna on the other. He finds that in cities where parsimony accumulates capital, trade and industry go on to accumulate it more. Opulence follows. But where the principal function of a city is merely to be the seat of a great court, the people are idle and poor. He draws the conclusion that every prodigal is a public enemy, while every frugal man is a public benefactor.
The stakes are high. Smith postulates an indissoluble link between sales and capital accumulation. He postulates an indissoluble link between capital accumulation and prosperity. It follows that there is no cure for poverty that does not prescribe production-for-sale-for-profit. To paraphrase Smith, opulence is a consequence of raising the proportion of society’s revenue spent on productive labour and lowering the proportion of society’s revenue spent on unproductive labour.
His analysis conflates two logically different things: (1) leaving behind some tangible and useful product when the work is done, and (2) sales. The difference can be seen in OWs and in CWP. When, for example, an Organization Workshop is over and the participants go home they invariably leave the host community with tangible assets that did not exist before the OW, such as a building for a crèche, or a fence separating grazing land from a residential area In the final report of an OW the list of tangible assets left behind is usually impressive. Although the participants are paid for their work, the products of their labour are gifts. In an OW and in CWP people are paid for doing community service. Smith’s (1) is separated from Smith’s (2).
If Smith conflates two logically different things in his theory, it is because he finds them to be for the most part inseparable in fact. Only work done for the purpose of profitable sales can be counted on to raise a city or a nation from idleness and poverty to industry and opulence. Smith relies on the self-interest of his butcher, his baker, and his brewer, and not on their benevolence, to provide him with his daily meat, bread, and ale. They sell things for profit, and if they did not Smith would not have (or at least he thinks he would not have) his meat, his bread, and his ale.
Smith does not deny that work without sales exists. He does not deny that it is necessary. He does not deny that even when it is not strictly necessary it is often beneficial. He does, however, count it as consumption, not as production. The king and his retinue, for example, live at the expense of the thrifty, enterprising, and labouring classes. The latter produce, while the former only consume. A decision to spend revenue on consumption instead of production is not always wrong – after all Smith acknowledges that the purpose of commerce, agriculture, and industry is to supply the people with the “necessaries and conveniences of life”.[xli] But it is always a decision to retard the accumulation of capital.
Those of us who see less orthodox and more innovative livelihoods-without-sales as keys to achieving the goals of the societal enterprise face a challenge, as Heller reminds us when he tends to conflate programmes for which fiscal space can legitimately be carved out with programmes that will eventually pay for themselves. Without categorically rejecting ends-in-themselves, Heller makes it clear that his preference is for expenditures-that-pay.[xlii] Smith´s 18th century groundwork and Heller´s contemporary discussion paper – and thousands of voices we do not mention — chime together to challenge us to explain how the social functions of capital accumulation and of profit-making can be made compatible with the social justice of dignity for everybody and of full employment. We think it is necessary –even now before the full impact of robotics and information technology is felt – to recycle the surplus in the form of ever more transfer payments to growing numbers of workers Smith and Heller would classify as unproductive.
What have we just learned?
We have just learned that as a matter of history the dynamic of production-for-sale-for-profit (Staggering Fact one), which is itself a consequence of the constitutive rules of markets, has been conceptually linked to “production.” This link is not an empirical finding. It is not a discovery about how the world must be. It is a definition.
Today when we are told that social programmes should not be “welfarist” or “charity” but should instead be “productive” we are being dragged like-it-or-not into the worldview of production-for-sale-for-profit. We are being dragged into commodification. We are being offered the Hobson’s choice of welfare, which leads nowhere, or commodification, which leads to denigrating community solidarity and to Staggering Fact two.
- Raising the Social Status of Use Value
Seeing the world with a social worldview, we see a need to create livelihoods for people that do not require them to create exchange value, especially because work as we know it is in the process of disappearing due to the steady advances of technologies that replace human physical and mental labour with ever-more-intelligent machines. The prejudices that only what is sold for money is “produced” and only what is followed by a successful sale is “production” get in the way of adjusting culture to reality.
We ended the last section in a dangerous place. We were being backed into a corner where we could not see what society needs: namely, livelihoods without sales. To emphasize our point we now chime in with Jeremy Rifkin, Robert Reich, Guy Standing, and others who announce a need to reinvent livelihoods and to recycle the social surplus to pay for it. Rifkin, Reich, Standing, we, and others are saying this at a moment in history when Fukuyama and many others say history is over and capitalism won. There seems at first to be a total contradiction: some say that in the age of robotics the social reality must be reconstructed from the ground up; others say the capitalist world we have now going to last indefinitely with no competitors.
Now we take a necessary detour within a necessary detour. We already took a detour to revisit Smith. Now we take a moment to fast-forward from Smith to Fukuyama. c
Let us consider for a moment the most famous among the many celebrators of the definitive triumph of free market capitalism, Francis Fukuyama. At first glance dissolving Smith’s distinction between productive and unproductive labour, as we are doing by counting bathing penniless old ladies at Orange Farm and neighbours pitching in to build a community centre at Bokfontein as productive, might appear to be the polar opposite of Fukuyama´s capitalist triumphalism. Fukuyama might be taken to say that the verdict of history is in. Smith was right. Exchange value is and forevermore will be the absolute monarch ruling planet earth. There is and always will be only one social philosophy regarded as legitimate, and it is liberal capitalism, complemented by democracy to satisfy humanity´s yearning for Anerkennung.[xliii] In Fukuyama´s sense history is over. When history is defined as competition among different social and economic systems, if today the competition is over, then there is no more history.[xliv]
Fukuyama at first glance seems to be claiming that there is only one solution to society’s main problems and we now know what it is; while on an unbounded organization approach there are many different solutions to many different problems and for the most part we do not really know what they are, although we do know that one of the problems that cries out for a solution is the end of work.[xlv]
A closer reading of Fukuyama shows, however, that he is quite aware that the “post-historical” liberal capitalist democracies have failed to solve their main problems. His triumphalism comes with reservations. The claims he actually makes can be scaled down to saying that in the future legitimate problem-solving (1) will be done in the context of political democracy, (2) will acknowledge the need for markets and for many autonomous or semi-autonomous institutions rather than one total institution, and (3) will not see Soviet-style central planning as a viable economic alternative. We can agree with all three. We also hypothesize that if we had chosen someone else instead of Fukuyama to speak for capitalist triumphalism, the someone else would at bottom make the same or similar claims and would express or at least should express the same or similar reservations.
Fukuyama acknowledges that we have not yet learned how to reconcile the productivity of a modern economy with the ethical claims of equality and dignity.[xlvi] For Fukuyama, although Soviet Communism is no longer on the agenda as an attractive model to follow, Scandinavian social democracy still is.[xlvii] Further: “No one has solved the problem of `creating culture´ –that is, of regenerating internalized moral values—as a matter of public policy”.[xlviii] Life in bourgeois society tends in the end, Fukuyama says, to be boring, failing to satisfy some of humanity’s deepest needs. [xlix] Liberalism has a corrosive effect on values predating liberalism that are necessary to sustain a community. [l] And so on.[li]
The recognition of some of the limitations of today’s Smithian dominant ideology by its most famous proponent encourages us to believe that the triumph of exchange value is not complete.[lii] The social status of use value can be raised. Indeed it is being raised. Smith´s entertainers who merely dance and sing, producing fleeting pleasures that perish in the very instant of their production, are today filling whole stadiums with fans in cities where whole neighbourhoods are living on social grants. Major corporations like Yahoo and Google work with business models where they make a profit while giving away information and services free to anybody. In the past what is now free on Google was costly and available only to a few if it existed at all. Movements like free-cycling and couch-surfing are bypassing markets with collaborative sharing.[liii]
Ideas like using public employment to catalyse community development and separating the right to a livelihood from the necessity to sell have something in common with these other examples of raising the social status of use value. Use is achieved without a solid and lasting physical product that can be both touched and sold. These are ideas that violate the principle (or, better, the way of seeing the world) that production must or should be for-sale for-profit. They give a different meaning to “productive.”
|“CWP helped a lot with the crime in our community. There was too much crime in this community but all of those people now are at work”. “There were children who were thieves but CWP took those people to work”. –CWP participants, Umthwalume|
How does raising the status of use value help pay for social programmes?
We have reconceptualised the issues. On the old jump-start-private-business approach that was examined and not wholly rejected but found to be insufficient in chapter three, a social programme deserves to be funded only if it helps the recipients to break into the market as sellers and earn some money there. Perhaps it also deserves funding when it is a grant that simply gives money. Now we talk use value. We ask different questions when we evaluate, for example, CWP. Are the participants cooking and cleaning house for penniless AIDS victims? Is their gardening improving the diets of the prisoners in the jails? Are they cleaning up the river making drinking water safer? Now we can argue that the government gets a bigger bang for its buck when it backs a model that identifies community needs and meets them; and, moreover, a model that builds relationships with partners who provide resources complementary to what the government can provide. Now we have (1) a better rationale for seeking government money, and (2) a broader idea of what “pay for” means. The community itself helps “pay for” the programme with everything from the volunteer time of the CWP participant who goes back after hours to change the bandages of an AIDS victim to the land lent for a community garden by an adjacent hospital that owns it. What was our method for reconceptualising the issues? We have dispelled some fog, taken off some blinders. Our method can be described not just as historical but also as Wittgensteinian, as when Wittgenstein writes, “What we are supplying are really remarks on the natural history of human beings; we are not contributing curiosities however, but observations which no one has doubted, but which have escaped remark only because they are always before our eyes.”[liv]
- Setting in Stone the Games People Play: Immanuel Kant
After some riding around the world on our magic bicycle in order to get a better view of it, we return to Peter Heller’s office at 19th and NW H Street. We look again at the notion that social programmes must wait until fiscal space is available, where availability of fiscal space means that there is no doubt that the government will be able to meet its pecuniary obligations in the future. We proceed to elaborate on our point that Heller’s rigidity reflects deep-seated rigidities in modern western culture that have been classically expressed in the philosophy of Immanuel Kant, partly because we want to nail down this point firmly with respect to ethics before making the same point in the next section with respect to economics.
Realism and pragmatism, with a dose of Aristotle’s golden mean: A human life should balance flexibility and integrity. When a person´s behaviour is too rigid the person is neurotic. When it is not rigid enough the person is unreliable. We can also speak of an overly rigid institution as a neurotic institution and of an insufficiently rigid institution as an unreliable institution. In both cases (the person and the institution) it is possible to become dysfunctional both by failing to continue established practices and by continuing them when they are not working. In this paragraph we have not set anything in stone. We have just given good reasons for a balanced approach.
Our use of the word “neurotic” here can be elaborated by quoting part of a report by a clinical psychologist on an interview with a neurotic patient:
“During an initial interview I asked a patient how long he had been married. He answered, `Sixteen months, three weeks´. The overly exact quality of his response aroused in me the suspicion that I was dealing with a person whose character was coloured by obsessional thinking and compulsive traits. To confirm my suspicion I asked further, “How long did you know your wife before you married her? ´ He answered: `Two years, three months.´ At this point, inwardly, I made a further set of predictions concerning this individual´s mental traits. I guessed that he would be especially concerned with money, that he would have a passion for accumulating it, keeping meticulous records of his financial transactions, and that he would be most reluctant to spend it. A further set of predictions concerned his relationship to cleanliness. … Questioning confirmed each of these predictions in minute detail”.[lv]
We suggest that there is a tendency toward excessive rigidity –not unlike that manifested clinically in obsession/compulsion neuroses– in Peter Heller´s discussion paper on fiscal space, in modern western culture generally, and quite likely in all cultures. If a culture is by definition something that persists, then every culture must have a quota of rigidity. A tendency for the rigidity of cultural norms to be excessive is quite likely universal. Quite likely any culture whatever tends to see its own basic cultural structure as natural, eternal, and universal. (Remember that here “basic” selects the norms that govern obtaining the basic necessities of life, such as food.) Here we extend our previous remarks on Heller and Kant in order to trace in a little more detail how excessive and dysfunctional rationalizing has happened in one particular culture, the one we live in, the culture of the European world-system of the 17th and 18th centuries that has expanded to become today’s global modern world-system.[lvi]
Remember Heller´s definition of fiscal space: “… fiscal space can be defined as the availability of budgetary room that allows a government to provide resources for a desired purpose without any prejudice to the sustainability of a government´s financial position”. The definition does not call for a balance between meeting human needs in the present and preserving capacity to meet them in the future. It does not balance anything with anything. It limits funding for a “desired purpose” to what can be done without any prejudice to financial sustainability.
Remember also Heller´s uses of the words “desired” and “meritorious.” They suggest a bright line separating what must be done, guaranteeing the government´s capacity to pay its bills, and what may be done, whatever is desired or meritorious. Remember that Heller´s distinction between a strict requirement not to prejudice the sustainability of the government´s financial position, on the one hand, and the desired purpose, on the other hand, parallels Immanuel Kant´s distinction between categorical and hypothetical imperatives. Heller probably did not consciously have Kant in mind when he wrote. He may have been influenced in his formative years by reading Kant or by reading authors directly or indirectly influenced by Kant –a category that can be stretched to include almost all modern western authors. But it seems most likely that the line of influence runs not so much from Kant to modern western culture to Heller, as it runs from a deep underlying sense of the sacredness of basic cultural norms deeply etched in occident’s conscience collective both to Kant in the 18th century and to Heller in the 21st.
Kant set forth his categorical/hypothetical imperative distinction in 1785 in his Groundwork for the Metaphysics of Morals.[lvii] He begins the book by saying that he is providing a philosophical defence of the difference between right and wrong as it is already known and understood by ordinary people (i.e. a defence of what we just called a conscience collective). He gives an example of an act ordinary people already know and understand is wrong: incurring a debt without intending to pay it. He will work with this same initial example throughout this short book; a moral duty to pay a debt will be his paradigm[lviii] of a categorical imperative.
Heller tracks Kant. It is wrong to borrow money from the IMF, or from anywhere, or to promise explicitly or implicitly to continue funding social programmes,[lix] without having the ability to pay in the future. Incurring an obligation without making adequate provision to repay it is seen as tantamount to not intending to pay it.
Having used debt-paying as his example throughout, Kant remarks toward the end of the same book that he could have made his point even more distinctly with examples drawn from attacks on the freedom and property of others.[lx] Thus Kant assigns the status of categorical imperative to three fundamental features of the constitutive rules of markets: debt-paying (keeping promises, honouring contracts), property rights, and the freedom of the juridical subject who does the buying and selling. With his categorical/hypothetical distinction he endorses a fourth: the absence of a strict duty to help others in need.
Their strictness emanates from their source in the pure reason of the free human subject who in his freedom is different from all of nature. “Everything in nature works in accordance with laws. Only a rational being has the faculty to act in accordance with the representation (Vorstellung) of law, i.e. in accordance with principles, or a will”.[lxiii]
This special status of human beings is the source both of the autonomy of the moral subject which permits and requires the moral subject to give itself its own moral commands, and the respect due to other people who are, like oneself, rational beings and therefore ends-in-themselves. Kant writes: “But suppose there were something whose existence in itself had an absolute worth, something that, as end in itself, could be a ground of determinate laws; then in it and only in it alone would lie the ground of a possible categorical imperative, i.e., of a practical law”.[lxiv]
A categorical imperative is categorical because it derives from pure reason; it derives from the categories of thought that the mind brings to experience, not from experience. In the cases of the categorical imperatives to keep promises and respect property, Kant points out that the very categories of thought employed –promises and property—would dissolve and become meaningless if we made it the law of our actions to break them and steal them (and as rational beings we are called to exercise our wills, i.e. to give laws[lxv] to our actions). The putative laws “Always break promises!” and “Always steal!” are nonsense because in them the very concepts of contract and property become meaningless. Putting them into practice cannot be imagined.
In contrast, when an imperative is hypothetical, “…the action is commanded not absolutely but only as a means to another aim”. [lxvi] In the realm of the hypothetical (i.e. not absolute, but only required as means to aims one happens to have) lie what Heller calls “desired purposes” and social programmes that are “meritorious.” Kant also uses the word “meritorious”. Kant distinguishes between strict (categorical, unremitting) duty and wide (hypothetical, meritorious) duty.[lxvii] A separation is thus established between two realms, a realm of universal and eternal pure reason, to which categorical imperatives belong; and the local and contingent realm of empirical reality, to which hypothetical imperatives belong. Heller echoes Kant when he implies that finance dwells in the former, and that social programmes dwell in the latter.
There is a parallel here to the dunning letters that collection agencies send to delinquent debtors. They invariably call on the debtor to pay “as agreed”. They demand payment even when the ratio of the debtor´s assets to liabilities is one to ten and therefore in the world of empirical reality there is no possibility of paying her debts “as agreed,” and even when the “agreement” is in fine print which contains clauses even the lawyers who wrote them do not understand. Cultural norms prescribing promise-keeping are strong enough that it is worth the while of the collection agency to appeal to the conscience of the debtor by writing the phrase “as agreed” even when everyone knows that the phrase does not refer to a possibility or to a meeting of the minds. Heller used the phrase, “as agreed”, in lines quoted above referring to nations that do not comply with promises that were conditions for receiving IMF assistance.
Although Kant´s reasoning is unusual and complicated (too much so to fully discuss here) his assignment of more-than-empirical, reine, and in a sense sacred status to ethical norms that constitute markets is not surprising. Where the physical existence of a people depends on corn, corn is sacred.[lxviii] Where the physical existence of a people depends on cows, cows are sacred.[lxix] Hence it is not surprising that when the physical existence of a people depends on market exchange, market exchange is sacred. Kant’s logic sets in stone the basic cultural structure of modernity as myths and rituals set in stone the basic cultural structures of pueblo native Americans and hindu villagers.
Let us now make four points about how the world looks when seen from our 21st century point of view:
- The system is made of language-games people play. It works the way it works, i.e. moved mainly by the dynamic of capital accumulation.
- It is necessary to keep the system going. If it stops, the vital processes of life stop. Its stability depends on it not only going but growing.
- It tolerates meeting vital human needs (even when from a physical point of view resources for doing so are abundantly available) only within definite limits. Funding for social programmes is expected to come from taxes, but taxes inhibit growth.
- The institutional facts that generate these three features of the world we live in are sold to the public as legitimate and imposed on practice as unmovable rigidities by clothing them in garbs of: (a) Science, (b) Fiscal constraints, and (3) Morality.
We submit that although the words we have quoted from our three expert witnesses, Alberto Arenas, Marissa Moore, and Peter Heller do not make any of these four points explicitly, everything they say is consistent with them. Our worldview is consistent with their testimony. We also submit that whether humans are capable of organizing themselves in ways different from those now dominant, aligning their diverse organizations to serve the common good, treating serving life as the constant purpose, inventing and continually re-inventing institutions to serve that purpose, is a question whose answer (or answers) does (or do) not fall in the province of economics. It falls (or they fall) in the province of psychology, especially when like Lev Vygotsky we conceive of psychology as a cultural and historical science.
What have we done in this section?
We have shown how one early modern philosopher (we could have cited others[lxx]) bullet-proofed the basic norms of markets. He made them immune from empirical refutation. No possible set of facts could invalidate Kant’s basic moral principles because the principles are guaranteed by pure reason.[lxxi]
- Setting in Stone the Games People Play: Jean-Baptiste Say ( Say’s Law )
Now we have another change of scene, moving to Paris in space and to the first third of the 19th century in time. We continue to trace the historical process that set in stone a worldview that dominates common sense, politics, and economics today. We comment on one of its 19th century precursors having very much in mind mainstream liberal economics. It runs the world and we don’t so we have to pay attention to it whether or not it pays attention to us. For mainstreamers who believe in Say’s Law our Staggering Fact two is a non-problem. For them we are on a wild goose chase to solve a problem that was already solved two hundred years ago in Paris.
Having shown how Immanuel Kant bullet-proofed liberal ethics, we will now show how Jean-Baptiste Say bullet-proofed the invisible hand –always regarding the writings of an individual as a small sample of a large historical process, not as a magic wand waved by a genius who by himself determined which way history would go.
We have previously mentioned Say’s Law but we have not yet discussed in detail. If Say´s Law were true then it would be easy to achieve dignity for all. There would be no difficulty in reconciling decent livelihoods for everybody with profit-making and capital accumulation. They would already be reconciled. Everybody already really would have what much of the ideology that pervades today´s common sense assumes everybody already really does have: an obvious open path to dignity. Namely: get a good job. All anybody would have to do would be to offer their services in the labour market. At most they would need to take a course to get a qualification in a field where employers are standing in line to hire employees. If the devotees of Say´s Law are to be believed then there is a simple explanation for the millions of young people out of work, and the millions more with precarious or miserably paid work, in Palestine, in Egypt, in the Dominican Republic, in Germany, in South Africa, in China, in India, in Greece and around the world, namely: the government got in the way and distorted the natural benevolence of the invisible hand.
A simple formulation of Say’s Law would be: For every seller there is a buyer. If this is true then every South African who needs to sell labour-power at a decent price in order to rise out of poverty, will sooner or later find a buyer. If this is false, then government policies limited to trying to end poverty by helping would-be sellers of labour-power to find their buyers and to qualify themselves by acquiring the skills the buyers want to buy are not useless but they are not sufficient to solve the problem either. Public policy should in addition follow Amartya Sen´s advice: Supplement capitalism with non- market institutions.[lxxii]
And there is a further practical consequence of frankly acknowledging that Say´s Law is false and that consequently sustainable full-employment in the private sector will never happen. (Strictly speaking we should not say “full employment” but “livelihoods for all” in order to include all those who are thriving and contributing to the common good even if there is doubt about whether they should be counted as “employed.”)
The further practical consequence concerns not whether there should be relief for the poor but the design of the relief. It is: The falsity of Say’s Law implies that there is no point in making the work as miserable as it is in NREGA from a morbid fear that if it were not thoroughly miserable it would crowd out private employment. There is no point in keeping millions living on social grants as in South Africa because of a morbid fear that if the grantees engaged in useful healthy activity instead of just passively living off the government they would crowd out private employment that would otherwise occur. The neoliberal utopia of everybody earning a good living in market-based employment is simply never going to happen. So why make people on the public payroll miserable for the purpose of chasing a will-of-the-wisp of sustainable full employment that is not going to happen anyway?
The fear that some private jobs might be lost by making livelihoods financed by transfer payments attractive, dignified, and useful should not morph into a Frankenstein’s Monster. It should not turn into an absolute principle requiring that every last livelihood financed by sales-in-markets must be squeezed into the economy before there can be even one livelihood financed by recycling the social surplus.
Unless, of course, Say was right. Let us look now at how the French businessman turned politician Jean-Baptiste Say first told the story now called Say’s Law in his Traité d`économie politique.[lxxiii] It was published in 1803 and then re-published repeatedly with revisions during the next several decades. Thomas Jefferson (the third president of the United States) translated it into English.
Say tells a story. Since time immemorial human groups have organized themselves with stories.[lxxiv] Say transparently writes a story that claims to be better than other stories because it is scientific and because it is based on the natural order of things.[lxxv] If today (2015) the same claim about the same story has become so sophisticated that it is no longer transparent, that is all the more reason to go back to 1803 to put it in historical perspective.
On Say’s account there was no science of political economy before Adam Smith, even though Smith himself made fundamental mistakes that Say devotes himself to correcting. Nevertheless, Say observes, even before The Wealth of Nations was published in 1776, from 1760 forward the opinions of économistes dominated the minds of the leading progressive thinkers of France. In spite of their intellectual bungling, « Ce que personne n’a refusé aux économistes, et ce qui suffit pour leur donner des droits à la reconnaissance et à l’estime générales, c’est que leurs écrits ont tous été favorables à la plus sévère morale et à la liberté que chaque homme doit avoir de disposer à son gré de sa personne, de ses talents et de ses biens, liberté sans laquelle le bonheur individuel et la prospérité publique sont des mots vides de sens. Je ne crois pas qu’on puisse compter parmi eux un homme de mauvaise foi ni un mauvais citoyen».[lxxvi] (What nobody denies to the economists, and what is sufficient to give them a right to recognition and general esteem, is that all of their writings favour the most severe morality and the liberty that every man should have to dispose at will of his person, his talents, and his property, a liberty without which individual happiness and public prosperity are meaningless words. I do not believe that one could find among them a single man of bad faith or a bad citizen.)
The secret the words quoted leak is that the mobilization of the leading thinkers of the time in favour of natural liberty came first. The correct elaboration of the science that (according to Say and its other proponents) gave it an intellectual status superior to the mere playing with words of traditional philosophy came second. Now that we know the secret: that at bottom Say was more committed to political effect than to intellectual coherence, we are not surprised to find that a twentieth century scholar like W.J. Baumol finds that that Say’s Law is subject to at least eight mutually inconsistent interpretations,[lxxvii] or that Joseph Schumpeter in his History of economic analysis finds that the history of debates about Say’s Law has been a history of endless confusion, starting with Say himself who according to Schumpeter did not understand his own law.[lxxviii] Say wrote with parti pris. He was advocating a social philosophy that pre-dated its scientific rationale.
The full title of Say’s three book treatise is Traité d´´economie politique: ou simple exposition de la manière dont se forment, se distribuent ou se consomment les richesses. (Treatise on political economy, or simple explanation of how wealth is formed, distributed or consumed.) The first book De la production des richesses is made of thirty chapters, some of which have long digressions. In the fifteenth chapter Say considers the common complaint of entrepreneurs that they often produce goods successfully enough but then they fail to sell them. Many tend to attribute slow sales to a scarcity of money. They could produce more if only they could find more buyers.[lxxix] Say writes, “The entrepreneurs in the several branches of industry are in the habit of saying that the problem is not in producing but in selling; that one could produce more goods if one could find an outlet for them.”[lxxx] Say at no point denies that such is in fact the common experience of entrepreneurs. Nevertheless he proposes to pursue the analysis. “Perhaps we will discover new truths, important truths, suitable for enlightening the desires of industrious men, and for securing the actions of governments eager to protect them”.[lxxxi]
The background of Chapter Fifteen is, as always for Say, an effort to persuade the reader that the natural order is the best order. Its foreground is a refutation of the entrepreneurs who attribute lack of sales to lack of money. Say describes money as merely the voiture (the vehicle) that carries value from buyer to seller.
The conclusion of the refutation of the illusion that a scarcity of money is the cause of gluts in markets is the beginning of Say’s statement of what we shall call his Principle, and which can be taken as one of a number of formulations that can plausibly be called “Say’s Law” or “Say’s Law of Markets”. Say´s reasoning: A neighbour becomes a buyer not because he magically comes into funds, but because he (or she) produces something useful that has exchange value. His vendible commodity (in Smith’s phrase) gives him access to the voiture that will facilitate the exchange of the value of his product for the value of someone else’s product. Here is the Principle: From the instant (The French and the English word are the same) when he comes to possess a saleable commodity, the value of his product can be exchanged for the value of your product. Like the transubstantiated host that is the real body of Christ, and not merely a symbol of the body of Christ, the finished goods stored in the warehouse of the manufacturer awaiting sale are already effective demand in the marketplace, and not merely potential effective demand in the marketplace.
Having made every producer into a buyer by definition (by following Smith in counting as a producer only someone who makes something that can be sold, and by defining the possessors of vendible commodities as buyers), Say is challenged to reconcile his Principle with the real-world experience of entrepreneurs for whom “the problem is not in producing but in selling.” One might read Say in the balance of the chapter as making a number of sensible observations that are not always consistent with each other or with his Principle. As we read him, Say concedes the facts while in strict logic he preserves his Principle.
It may be that the merchant cannot sell because the commodity he offers is something people do not want. Thus Say speaks of demandes diverses, déterminées par les mœurs, les besoins, l’état des capitaux, de l’industrie, des agents naturels du pays.[lxxxii] There are diverse demands for goods, determined by custom, by needs, the state of development and the natural features of a country. People’s motivations for buying are normally determined by causes independent of the need of someone else to sell something to make a living.
Or he may have made something people do want, but which is already sufficiently supplied. Say: car enfin ce n’est que dans les quantités abstraites qu’il y a des progressions infinies, et dans la pratique la nature des choses met des bornes à tous les excès. Consumer demand cannot be infinitely expanded. The nature of things places limits on excess. There comes a point when markets are satiated.
The would-be seller may have the misfortune to live in a backward area where there are no buyers to be found because other people there are not producing vendible commodities that could be exchanged with his. Say: Que feraient un actif manufacturier, un habile négociant dans une ville mal peuplée et mal civilisée de certaines portions de l’Espagne ou de la Pologne? What can an energetic manufacturer or a skilled businessperson do in a town that is under populated and under civilized like certain parts of Spain or Poland? Say advises entrepreneurs to move to places where there are many other entrepreneurs so that they can be buyers of each other’s products.
His costs of production may be so high that he cannot sell at a competitive price. Say writes: Alors on peut bien créer une chose utile, mais son utilité ne vaut pas ce qu’elle coûte, et elle ne remplit pas la condition essentielle d’un produit, qui est d’égaler tout au moins en valeur ses frais de production. One may well create something useful, but still the value of its utility is less than its cost, and one does not fulfil the essential condition of making a product, which is that its value must at least equal the cost of producing it.
And so on. Say also discusses other reasons why sales do not happen.
Say maintains his Principle while conceding all the facts cited by people who believe that in a mercantile system there is a chronic weakness of effective demand. Each reason why goods are not sold re-classifies entrepreneurs out of the category of “producers.” By definition if one’s commodity is not vendible, one is not a producer. By definition every product can be sold because if it cannot be sold it is not a product. Every seller has a buyer because if there is no buyer by definition there is no product, and without a product a seller is not a seller.
Meanwhile, the world goes on as before. Say’s Law in its first and most transparent version is set in stone because it is true by definition; it is immune to refutation by facts.[lxxxiii]
|“I also noticed that they like what they do because the cleaning people they made a design with white stones which says CWP. That is good and nice” — CWP participant, Umthwalume|
What have we done here?
We have reframed what is on some other accounts the scientific question whether Say’s Law might in some sense be true as an historical account of its genesis. In its genesis it was part of the rhetoric Jean-Baptiste Say deployed as he contributed to the social construction of modernity.
We are now in a better position to explain to a Martian on a bicycle how the veil of cultural meanings that organizes human behaviour complicates what might at first seem to be a simple process of moving resources from the posh suburbs of silliness and surfeit to the bosh townships of decadence and despair. First, the resources are property and that is set in stone. Second, legitimate transfers must be contracts and that is set in stone. Third, the juridical subjects who own the property and who would be parties to any contract possess freedom conceived as independence to do as they may and may not choose, which is also set in stone. Fourth (this fourth item –and also the first three—differs from the norms of archaic societies where people lived in extended families and clans) there is no strict duty of haves to share with have-nots, and this is set in stone. And fifth, this state of affairs is supposed to be, in Keynes´ words, the best of all possible worlds provided that we let well alone, and it is a world where if the bosh remain bosh it is their own fault because if they would take the trouble to offer something for sale they would (in the absence of government or union interference) inevitably find a buyer – and that too is set in stone. [lxxxiv]
In this chapter and throughout this book we have been suggesting that when you really think hard and long about an immediate pressing problem – -our sample problem has been finding adequate funding to expand CWP —you are inexorably led to the conclusion that our world needs structural transformation. By “structural transformation” we do not mean tearing socially constructed reality down and starting over. We mean intelligently preserving the good we already have while tweaking even the most basic cultural structures in good faith attempts to right the wrongs that humiliate the bosh and haunt the consciences of the posh.. There is no way out without, in one word, ¨community;” in two words, “unbounded organization.”
Structural Transformation : Capturing Rents
To reach our next scene, we fast forward about a century, whizzing from the time of Say that straddled 1800 to the time of Marshall that straddled 1900, crossing the English Channel on the ferry boat that runs from Calais to Dover and then after arriving in the UK trekking to Marshall House at Cambridge on a chilly, damp, windy day.
In this book we have pinned many hopes on the concept of rent. Capturing rent is supposed to fund the inclusion of the excluded. It is supposed to make society governable. It is supposed to reduce inequality and withal to bring us lower rates of crime and more personal self-esteem and better schools and more united families and better health and so on and on down the long list of the benefits research has shown to flow from living in a more equal society.[lxxxv] We owe the reader a better explanation than any we have given so far of how capturing rent is supposed to work.
As it happens we write at a moment when the prices of minerals South Africa exports are falling. From mid 2014 to mid 2015 the price of platinum fell from around USD 1500 per ounce to around 1000. Coal fell from $84 per tonne to $62. From July 2014 to July 2015 the price of an ounce of gold fell from $1364 to $1091. Other minerals followed suit.[lxxxvi] As prices fall to at or near the costs of production experts call for the mechanization of the mines as the only way to keep the industry profitable. Mechanizations and mine closings will swell the already swollen ranks of the unemployed, creating an even larger class of people who need livelihoods funded by rents. But there would appear to be fewer rents to capture.
Therefore, if our understanding of the concept of rent is limited to the social surplus derived from gifts of nature exploited by miners, in times like these we will not see much light at the end of the tunnel. The miners are squeezed between high costs and low prices. They do not have much to offer the tax collector. There is now all the more reason to look more closely at the concept of rent, in order to assess more comprehensively the prospects for capturing rents to pay for social programmes.
On a scenario we consider psychologically possible, even probable, the problem of making the social functions of profit and capital accumulation compatible with dignity for all will be regarded as a problem everybody wants to solve. Similarly, the related problems how to capture rents and recycle the surplus will be regarded as problems everybody wants to solve. We approach the issues with the expectation that consensus can be reached and absolute conflict avoided. We would never have this expectation is we studied only political science and economics; we get it from social psychology.
We can advance toward greater understanding by studying the theory of economic rent found in the works of Keynes´ teacher Alfred Marshall. We believe that Keynes had the theory of rent of his teacher in mind when he advocated the euthanasia of the rentier class. The recycling of rents to fund social programmes can be a centrepiece of a policy of social security that makes everyone secure –including the children of the now-euthanized ex-rentier dynasties.
The issues around rent and around the potential of rent as a source of funding for social programmes centre on what Marshall called, “…that vague and perhaps misleading sentence –Rent does not enter cost of production.” [lxxxvii] As a first approximation we can describe economic rent as the gravy left over after all costs of production are paid —counting normal profit as a cost of production (because in the case of a for-profit private business, without a profit sufficient to motivate the entrepreneur there would be no production), and counting a normal return on capital as a cost of production (because without capital, presumed to be raised in capital markets where one must pay normal rates of return in order to buy its use, there would be no production). Before rent comes into existence, there must already be paid all costs that must be paid to swing production into motion and make it happen. (Of course we are not counting as a cost of production paying rent itself –which might be paid to a landlord whose only act is a permissive act and who contributes nothing to production beyond allowing it in his capacity as a landowner.)
It follows that if rent is transferred to the government or to eleemosynary institutions to pay for social programmes production will not be impaired. By definition all things needed to supply all the factors of production, including the profit needed to motivate the entrepreneur, survive the transfer. If a government imposes a tax “on rent” and the result is that farms and businesses fade away into stagnation and bankruptcy because the burden of the tax drives their revenues below what they need to continue, what this proves is that what the government thought was “rent” was not in fact rent.[lxxxviii] By definition, if it had been rent, the farmers would have continued to farm and the businesspeople would have continued to trade.
Judging that Marshall´s “perhaps misleading sentence” can be –as Marshall also judged—in substance largely vindicated after the necessary qualifications and clarifications are made, Jorge Leiva, who has been Minister of the Economy in Chile and the Chilean representative to the Inter-American Development Bank, has provided a list of reasons why rents should be recycled for public purposes. Although for an international readership this list may have a bit too much local colour relevant specifically to Chile, it has the great merit of being succinct:
- The private appropriation of rents is the largest source of social inequality in a mining country (país minero).
- Rent-seeking behaviour should be discouraged because it channels resources away from use in the real economy.
- In the case of rents derived from natural resources, private appropriation of rents diminishes the country´s natural capital without making the productive investments needed to prepare the country for the time when the natural resources are exhausted.
- Financing government with rents is neutral with respect to the efficient allocation of resources and does not affect investment.
- The public appropriation of rents could finance, among other things, an industrial policy diversifying an economy that is overly specialized.[lxxxix]
The history of the economic concept of rent goes back at least to Adam Smith. Smith´s answer to the question how much rent the landlord charges the tenant was that the landlord charges as much as he can get away with. “Rent, considered as the price paid for the use of land, is generally the highest which the tenant can afford to pay”.[xc] Rent is, “…naturally a monopoly price. It is not at all proportioned to what the landlord may have laid out upon the improvement of land, or to what he can afford to take; but to what the farmer can afford to give”.
It should not be forgotten that Smith began to formulate the ideas in The Wealth of Nations barely a century after the English Civil War of 1642-48. The levellers had lost the war. The traditional aristocracy had retained its right to live without working by exacting rent for the use of land. In Smith´s language the landlords “love to reap where they never sowed.”[xci] The new science of political economy was as David Ricardo said a study of the laws which determine the division of produce among the social classes.[xcii] The mathematical renaming of social classes as ·”factors” or “variables” came later.
In the theory of rent the ethical and political question whether some should live in leisure without toil has for more than two centuries been intertwined with the scientific question whether rent enters into the cost of production.
It is sometimes called the theory of Ricardian rent because in 1817 Ricardo gave it its classic formulation.[xciii] Ricardo asks us to imagine that exactly the same quantities of capital and labour are devoted to raising food on two different plots of land. If the value yielded by the land (i.e the price times the quantity produced) is greater on one plot than on the other, then the difference of the two values will be rent, not produced by or explained by either capital or labour. If we then further imagine that the first plot of land is so marginal that it barely justifies the labour and capital devoted to cultivating it, then that first plot pays zero rent. For any plot the difference between its yield and the first plot’s yield will be the amount of rent. In Ricardo´s words: “Rent is that portion of the produce of the earth, which is paid to the landlord for the use of the original and indestructible powers of the soil”.[xciv]
As the population increases and with it the demand for food and the price of food, more and more land of worse and worse quality is pressed into service. The result is that the rent that can be charged for the use of better land goes up and up. In Ricardo´s words the rent the landlord can charge can be calculated as the difference between the fertility of the land the landlord happens to own and the fertility of the “the least productive land in cultivation.”
Ricardo´s advice to government is to tax rents: “A tax on rent would affect rent only; it would fall wholly on landlords, and could not be shifted to any class of consumers”.[xcv] It would not affect the wages of the workers, nor would it affect either the profits or the motivations of the farmers.
For Karl Marx, rent is part of the trio rent, profits, and interest which he mocks as the “holy trinity”.[xcvi] The three are distinct portions coming from one original source: surplus value. Surplus value is derived from the exploitation of the labour-power of the workers during the production process. Nevertheless, although he seems to say most of the time that any surplus generated anywhere is due to the exploitation of labour, he begins his 1875 Critique of the Gotha Programme with the emphatic words: “Labour is not the source of all wealth. Nature is just as much the source of use values (and it is surely of such that material wealth consists!) as labour, which itself is only the manifestation of a force of nature, human labour power”.[xcvii] Marx did not live long enough to read Joan Robinson´s arguments rejecting the labour theory by accepting counting the private control of capital goods and of natural resources as sources of exchange value.[xcviii] He is not alive today to see human labour replaced by robots while exploitation takes the form of deriving huge rents from financial speculation, from the privatization of water and seeds, and from intellectual property such as patents on information technology, alternative fuels, and pharmaceuticals.[xcix] We believe that if Marx were with us now he would agree that while we move toward ever more social appropriation of the social product, we must simultaneously take measures to be sure that the social functions performed by profit and interest continue to be performed. One way or another. We think Marx would also agree that rents can and should be transferred to social programmes provided that we avoid what Alfred Marshall would call a “violent shock” [c]to the productive processes that satisfy (albeit so far quite imperfectly) the vital needs of the people.
The most famous attack on Ricardo´s theory of rent is the “Exposition and Refutation of the English Theory of Rent” in Lesson 39 of Leon Walras´s Elements of Pure Economics (first edition 1874).[ci] Walras´s critique of Ricardo has been highly praised by Milton Friedman[cii] as an “excellent example” of using symbolic forms and elementary mathematics to clarify “vague statements”.
What Walras´ 1874 refutation of Ricardo actually shows is that rent cannot properly be calculated as Ricardo calculated it. The calculation of rent needs to be incorporated into a more complete system of variables, where more quantities are flexible and fewer fixed, and all are related to each other. Walras specifically separates his scientific inquiry from an ethical inquiry into property rights which would consider Smith´s point that landlords reap where they have not sown.[ciii] Walras specifically recognizes that, “…to be sure the English school succeeded in demonstrating that rent does not enter into the cost of production…”[civ] We see Walras´s contributions and those of others to the debates that followed on Ricardo´s proposal to tax rents as prologue to the more sophisticated account of rents provided by Alfred Marshall (1842-1924).
Marshall introduces what he calls situation rent. “It consists of those incomes, or rather those parts of incomes which are the indirect result of the general progress of society rather than the direct result of the investment of capital and labour by individuals for the sake of securing certain gains for themselves”. A good location, for example, gives a business an advantage that can be translated into money. If the location itself, considered as a small plot of land, stays the same, while a railroad or a port is built nearby, then the owner will derive a rent because the situation is improved by the general progress of society.
Marshall goes on to say that the so-called rent of a building (economists are aware of the difference between the common use of the word “rent” and “rent” defined in economics in the Ricardian tradition) is commonly composed of two elements. One is the rent of the ground on which the building is built, which is often chiefly a situation rent. If the ground happens to be, for example, in an airport, there is a situation rent because the airport provides a captive clientele for a restaurant or a shop. The other part of the rent of the building includes what Marshall calls a “quasi-rent.”
Ricardo thought primarily of the rent of land, and secondarily of the rent of any natural resource. Marshall coined the term “quasi-rent” to refer to income derived from machines and other man-made sources of income. It refers to income from old investments of capital, as distinct from profits on current investments. Good agricultural land itself—as Ricardo´s critics point out—is rarely just “the original and indestructible power of the soil” and is usually the result of many years of careful cultivation. With quasi-rent time enters the picture. Improved agricultural land is scarce, both because a major component of its value consists of gifts of nature –which are limited– and also because of improvements like those John Stuart Mill attributed to “the centuries-long marriage of the peasant and the soil.” Human-made improvements are also limited (hence Ricardo’s concept of rent shades into Marshall’s concept of quasi-rent) even though human-made improvements are limited less strictly than nature’s gifts. In the course of time the quantity of human-improved land can eventually be expanded –but not quickly. Much the same can be said of a building and a complex machine. They are also scarce. When demand is high their price will be bid up not only because of what it costs to make them but also because supply is inelastic in the short and medium term. If their price ever descends to their cost of production it will not be soon. Hence they fetch a quasi-rent, as a restaurant location that is the only one at an airport fetches a situation rent. Situation rent is indeed one of the most common kinds of rent. It derives from the fact that there is only so much space on the planet, and from the fact that some locations are better sites for business than others. Governments have been especially inclined to tax situation rent when the government itself creates a surplus for a landowner by, for example, building a highway that makes the land an ideal site for a business.
Marshall summarizes: “Thus our central doctrine is that interest on free capital and quasi-rent on an old investment of capital shade into one another gradually; even the rent of land being not a thing by itself, but the leading species of a large genus”. [cv]
To briefly summarize what Marshall spells out at length in carefully nuanced detail, we have the rent of land, the rent of natural resources, situation rent, and quasi-rent. In these four categories it is often the case that normal profits can be made and a normal return on capital earned (in other words, the opportunity cost of capital can be paid) leaving left over a rent. The rent is a social surplus.
Critics have made other points that do not really affect Jorge Leiva´s and our support for ethical and rational recycling of surplus to meet vital needs. It is said, for example, that Ricardo was wrong because he expected rent to become in the future an increasing part of national income, when in fact rents have shrunk as a proportion of total income and wages have become a larger proportion. It is said that Ricardo´s practical problem of the high price of grain in Great Britain was solved in practice by free trade making all the land in the world available to satisfy the needs of the British consumer. It is said that Ricardo was wrong because he thought land was unique, while in fact anything whatever might be sold by its owner for more than is necessary to motivate its production (for example a professional athlete who would gladly sell his services as a football player for a million might be paid two million because of lucrative contracts to telecast the games he plays in).[cvi] None of these points contradicts the principle of paying for social programmes with rents. The last indeed augments it –leading to a definition of rent as a payment that is not needed to motivate production (in this example the production of skilful play by an athlete). Thus the critics of Marshall pave the way for a contemporary definition of rent: it is windfall income that performs no social function because it is in excess of the income needed to motivate socially desirable behaviour –here the entertaining of a vast audience by the skilful play of the athlete was our example. Expanding our example, it can be assumed that soccer aces, rock stars, bankers, real estate speculators, and many others in South Africa will be generating rents far in excess of the incentives it takes to make their work socially useful, be what may the price of platinum or gold in global markets.
Our opinion remains that of Marshall: “However untenable may be the so-called ‘Ricardian dogmas’, the analysis of which Ricardo was the chief builder, has firm if often unseen foundations”.[cvii] It is also the opinion of Joseph Stiglitz, who has recently written a series of papers advocating the capture of rents as an integral part of social policies designed to fund social programmes and to reduce inequality.[cviii]
What is the bottom line?
Fiscal constraints imposed by fear that the redistribution of wealth will damage production are constraints that can be lifted to the extent that economic rent can be identified, captured, and transferred to pay for social programmes.
- Structural Transformation: Thomas Piketty´s Contributions
After our time-machine whizzes us forward from 1915 to 2015 trains take us from Cambridge back to Paris through a tunnel under the English Channel. Then we take a taxi to the Paris School of Economics, 48 Boulevard Jourdan, Building B, where we meet a young man who has amassed evidence supporting our claim that it is possible to make the global economy governable, or at least more governable than it is now, and to redistribute wealth more effectively than it is redistributed now, without causing major damage to the wonderful bread machine that keeps us all alive.
The contemporary French economist and historian Thomas Piketty and his many collaborators have built up a case for higher taxes on people with high incomes and high wealth. Social programmes could be funded in part through recycling the money of those who have money in order to spend it for the benefit of those who do not have money.
We underline what we regard as Piketty’s most important finding: over time productive capital tends to become rentier capital.[cix] Accumulation that starts out as active entrepreneurialism typically becomes in one or a few generations an accumulated fortune that relieves its owners from the necessity of working. Piketty also makes a related finding that is less important but still significant: increasingly today rentiers who do not have to work nevertheless do work. Piketty et al comment: “…today it may be socially unacceptable to live purely off unearned income”. [cx]
Piketty´s findings suggest the feasibility of what John Maynard Keynes called the euthanasia of the rentier class.[cxi] They suggest that in principle resources could be recycled from the top of the pyramid to the bottom of the pyramid with little or no effect on production. Consider, for example the L’Oreal group founded by Eugène Schueller in 1907. His principal heiress Liliane Bettencourt does not need to work for a living although she can if she wants to. Suppose she gets a bill from the government to pay her share of France’s “solidarity tax on fortunes.” To pay the tax she sells some of her stock in L’Oreal. The stock registrar for the company certifies that she is no longer the owner of these particular shares and inserts in the registry the name of the new owner. Then everything at L’Oreal goes on as before. Most people in the organization do not know the transaction happened.
Keynes suggested that the amazing productivity and decentralized decision-making of capitalism could be preserved in governable and equitable social democracies. They would achieve –not completely but more than formerly– the social appropriation of the social product that socialists have always advocated and enlightened capitalists have always attempted to deliver.[cxii] Keynes wrote, “I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work. And with the disappearance of its rentier aspect much else in it besides will suffer a sea-change. It will be, moreover, a great advantage of the order of events which I am advocating, that the euthanasia of the rentier, of the functionless investor, will be nothing sudden, merely a gradual but prolonged continuance of what we have seen recently in Great Britain, and will need no revolution”.[cxiii] To Keynes proposal-cum-expectation of a transformed capitalism without its rentier aspects one might add other transformations that contribute to leading some people to say that we are now living in a time of post-capitalism. These would include what Peter Drucker calls “a society or organizations”; a shift in the locus of control from shareholders to management; retained earnings as the principal source of capital; knowledge as the principal factor of production; creating shared value and other forms of ethical responsibility; the rise of pension funds, mutual funds, insurance companies, charitable endowments and other institutional investors; and more recently the reliance of stock markets on public funding through the emissions of central banks. All of this might be expected to give greater scope to the ethical principle of equality of opportunity as rising to the top in an organization comes to depend more on performance and less on inheritance.
Piketty shows that the accumulated wealth in the hands of “functionless investors” is quite large, in Europe something on the order of six times Europe´s annual national income.[cxiv] We take the precaution of putting the phrase “functionless investors” in scare quotes for several reasons; two of them are: (1) much accumulated wealth takes the form of intact capital goods (for example a pharmaceutical factory), where it is functional to leave the wealth intact in the respect that it cannot be divided and put in the form of consumer goods without grave damage to society; (2) many of the rentiers who are collecting unearned income from accumulated wealth are pensioners, hospital endowments, museum endowments, and eleemosynary institutions of all kinds.[cxv] When the revenue pie is divided between capital and labour, and when capital over the years accumulates and becomes enormous wealth generating enormous unearned income, not all of capital´s share goes to the idle rich Marx satirized as having nothing better to do than to live in luxury while seducing each other´s wives. Nevertheless, Piketty´s findings show that in most countries the scope for redistributing resources from where they are not needed to where they are needed, while doing little or no sapping of the incentives that motivate socially useful activity, is quite large.
We already knew we could do structural transformation by transfers of a particular kind of income —rents defined as revenue that is not a cost of production (not even a “cost” of the kind Marshall calls “the supply price of business” i.e. not even an incentive needed to motivate the entrepreneur). Now we know we can also do structural transformation by transfers of a particular kind of wealth —fortunes that have accumulated over the years and no longer play an essential role in supplying “the wants and conveniences of life.”
Recent decades have seen, particularly in the United States and the United Kingdom, tendencies to tax top incomes and the inheritance of wealth less and not more. Piketty and his colleagues find that the much-touted benefits predicted by proponents of cutting taxes on high incomes have not materialized. Inequality has increased as taxes on the rich have decreased, but the rich have not worked harder or been more creative in ways that have boosted general prosperity. Here is his proof: The advanced industrial countries have all grown at approximately the same rates, both those like the U.S.A and the U.K. who have drastically increased inequality through (among other policies) tax policy, and those like Germany and Switzerland that have for the most part continued the tax rates of the post-World War II years. “… the regression analysis … using the complete time-series data since 1960, shows that the absence of correlation between economic growth and top tax rates is quite robust. By and large, the bottom line is that rich countries have all grown at roughly the same rate over the past 40 years – in spite of huge variations in tax policies”.[cxvi] Estimating –granting their critics more than the data entitle them to– that the large recent pay increases of top executives in some countries are due three fifths to more aggressive bargaining on their part to raise their salaries and two fifths to more productive work, Piketty and his co-authors plug these estimates into a model designed to optimize tax rates. They conclude that the tax rate on the highest incomes could potentially be set as high as 83%.[cxvii]
Piketty and Saez propose an econometric model for calculating optimum inheritance tax rates. Considering equity-efficiency trade-offs and social preferences for redistribution they conclude: “We find that, for realistic parameters, the optimal inheritance tax rate might be as large as 50%—60%—or even higher for top bequests, in line with historical experience.”[cxviii]
In Part IV of Capitalism in the Twenty-First Century Piketty sets out his proposals for funding a social state. For Piketty the issue of paying for social programmes dovetails with a broader goal we also have emphasized: “..regaining control over the dynamics of capital accumulation…”[cxix] We cannot emphasize these words enough: “…regaining control over the dynamics of capital accumulation.” With them Piketty restates our Staggering Fact one in slightly different words, and concurs with our view that the emancipation of humanity from the need to live under one regime of accumulation or another is Job One. As long as the necessity of keeping the rate of profit up trumps any social or ecological objective that comes into conflict with it, nations will not be governable. Our species –in spite of occasional victories for environmentalism– will remain on a path toward destroying itself and the biosphere. This is our gloss on Piketty when he says the broader goal is to regain control over the dynamics of capital accumulation.
Before World War I the tax share of national income was everywhere low, in the neighbourhood of 7% or 8%, making it impossible to fund a social state. Between 1920 and 1980 the tax share of national income dramatically increased. After 1980 it has stabilized around 25% in South Africa, 30% in the USA, 40% in the UK, 45% in Germany, 50% in France and 55% in Sweden.[cxx] Piketty sees some room for income tax increases but he does not see anything on the scale of the 1920-1980 increases happening again.
Spending on education and health consumes 10 to 15% of national income in developed countries today. Other transfer payments[cxxi] consume the same proportion or somewhat more, up to 20%. Spending on these two social categories accounts for most of the now-stabilized 1920-1980 tax increase. In short, the new taxes went to fund a social state. Piketty regards it as an open question whether anything of the sort will happen in the developing world. On the one hand, the developing world has taken the social states of the developed world as defining the very meaning of “modernization”. On the other hand ideological and economic pressures of a global economy promoted by the developed world itself make it hard to raise the tax share of national income above 10 to 15%, which is insufficient to fund health, education, and pensions on the scale enjoyed in the developed world. He adds that there is danger that in the developed world itself the pattern of rise followed by stabilization will turn into a pattern of rise followed by stabilization followed by decline: “But progressive taxation today is under serious threat, both intellectually (because its various functions have never been debated) and politically (because tax competition is allowing entire categories of income to gain exemption from the common rules).”[cxxii] We would add that social benefits have already been reduced in the developed world. The aging of the population, structural unemployment and other factors have driven up the numbers of people receiving those reduced benefits. There are cutbacks; the welfare state is not as generous as it used to be; but in spite of the cutbacks the total costs and the total tax-take needed to pay those costs have so far remained approximately stable (and governments have gotten deeper in debt). Although the benefits are smaller a larger proportion of the population is getting them.
Piketty´s breakthrough proposal is “a progressive annual tax on individual wealth – that is, on the net value of assets each person controls.”[cxxiii] He imagines a tax rate of 0 percent on fortunes worth less than one million euros, 1 percent between 1 and 5 million, and 2 percent above 5 million.[cxxiv] Although they are riddled with exemptions, some European countries (including France, Switzerland, and Spain) already have progressive taxes on total wealth. Ideally, Piketty´s tax would be global, levied on everyone in the world whose fortune is large enough to be taxed more than 0 percent. He regards such an ideal as worth bearing in mind as an ultimate goal, even though it is not realizable anytime soon.
Piketty´s proposal commands attention because it is advanced by a scholar who with the help of many colleagues has marshalled an enormous quantity of statistical data that demonstrates that most wealth –and an increasing proportion of wealth—is in private hands, and that for the most part it is not in the hands of active entrepreneurs.
Piketty goes on: “The primary purpose of the capital tax is not to finance the social state but to regulate capitalism.”[cxxv] With these words he underlines again the key point we already underlined above. The first step toward regulating global capitalism is transparency. At this point in history global capitalism cannot be regulated because it is “opaque.” The information-gathering systems that would be put in place to collect the wealth tax would be a major step toward making possible effective taxation of financial transactions and income flows (as well as taxation of accumulated wealth itself). It would make regulation in general possible by reducing opacity. One, but not the only, type of opacity occurs in transfer pricing. “Transfer pricing” refers to the numbers that transnational corporations make up to assign a price when they sell things to themselves by having one of their branches in one nation “sell” to another branch in another nation. Transfer prices are routinely manipulated to minimize taxes.[cxxvi] Joseph Stiglitz gives an example: “Apple has become the prime example of how a clever firm can use its ingenuity to avoid paying its fair share of taxes by attributing profits to corporations that are essentially stateless, existing only in cyberspace, and which pay taxes to no jurisdiction”.”[cxxvii]
A second purpose of Piketty’s proposed capital tax is to reverse the process of ever-increasing inequality. If nothing is done to counter it, inequality will tend to be ever-increasing because of an empirical trend Piketty documents and expresses as r > g. The rate of growth “r” of large fortunes is around 6% to 7% per year, while most of the time for most economies the overall rate of growth “g” is around 2% in a typical year and around 5% in a very good year –thus by simple arithmetic leading to increasing inequality.[cxxviii]
A third purpose –which is not to be sneezed at—is to pay for social programmes. At the tax rates Piketty imagines (0% under a million, 1% from 1 to 5, 2% on total wealth exceeding 5 million euros) considering only Europe a tax would be paid by about 2.5% of the population. It would bring in revenues on the order of 2% of Europe´s GDP.[cxxix]
Piketty struggles with the practical barrier that without almost inconceivable levels of international cooperation, starting with regional cooperation, significant taxes on wealth will be almost impossible to collect. He gives the example of a failed attempt in Italy. Faced with an exceptionally high level of public debt, and an exceptionally high level of private wealth, Italy in 2012 enacted what was supposed to be a progressive annual tax on individual wealth. For fear that financial wealth would simply flee the country its tax rate was set at 0.1%. Since real estate is harder to move, its rate was 0.8%. Nevertheless the tax could not withstand the political opposition mobilized against it. The attempt was abandoned in 2013.[cxxx]
Piketty concludes reaffirming that a global progressive annual tax on individual wealth would be ideal. There is no technical reason why it would not be possible. But he does not really convince himself, let alone the reader, that it will be in practice possible to move very far very fast toward such an ideal global wealth tax; or toward a regional wealth tax in Europe; or toward an ideal national wealth tax anywhere. On the positive side, in the course of his discussion he points out that some countries already have progressive annual taxes on wealth even though they are studded with too many exemptions. He particularly notes the French ISF Impôt de Solidarité sur la Fortune enacted in1981, repealed in 1986, re-enacted in 1988 and still in force. He also points out that almost all countries already have some form or other of wealth tax –most commonly a property tax on real estate and an inheritance tax. The arguments in his best-selling book –although they may fail for the foreseeable future to pave the way to his ideal– may well serve to light a fire under the piecemeal reformulation of existing wealth taxes to make them more progressive.
- Culture Shifts
We have no one left to interview. We just need a place to sit to do a think. What do we make of it all? Since we are already in Paris and since we have long daydreamed of sitting in chairs where Jean-Paul Sartre and Simone de Beauvoir used to sit, we take the subway to Saint-Germain-des-Prés and walk to café Les Deux Magots. We find it full of tourists, and expensive, not at all like it must have been during dark dreary winters in German-occupied Paris when Jean-Paul and Simone came here to shiver, drink cheap coffee, and smoke cheap cigarettes. I am too upset to talk. Too many ideas whirling around in my head. Too many emotions. I ask you to do the talking. You oblige.
You say you cannot help but remember that a main theme of Sartre’s Critique de la Raison Dialectique was the fusion of individuals to create an historical subject capable of seizing power, capable of taking power away from the ruling class, taking power away from the bourgeoisie; you cannot help but remember that Jean-Paul and Simone inspired many people to take sides in the class struggle on the side of the working class and on the side of women’s liberation and generally the side of human liberation, to be engagés as they were engagés, but unbounded organization comes on the scene in danger of being ignored as a cloud of idiosyncratic fluff, words, words, words, with overtures to all and commitment to none, with no partisans and no plan, reconceiving history not as the history of class struggle, not as a whig story of the inexorable triumph of liberal ideals, not as a triumphalist story of modernization, not as enlightenment following thousands of years of darkness like the darkness that still persists in the dark shadows of the dry hills of Yemen and Afghanistan; not as a Nietzschean story of will-to-power; nor as a history of emancipation whose concluding chapter is emancipation from patriarchy, nor is it about successive modes of production, or a succession of epistemes, nor is it a history of technologies where the agricultural revolution plays the role of ushering in surplus and therefore politics, religion and war; nor unlike Anthony Giddens Contemporary Critique of Historical Materialism is UO a story about the complex interplay of economics, politics, and religion; but rather it tells a story about constitutive rules, where the book of Exodus morphs into crossing the parted waters of the Red Sea from the captivity of deeply etched patterns of bounded organization to the promised land of unbounded organization; it is about history as a series of basic cultural structures invented by humans and judged worthy either of survival or of death by Nature, as a many-thousand-year parade of living forms that are not individuals, or nations, or tribes, or groups of any kind, and not DNA codes either, but rather organizational codes passed on from generation to generation by education-through-activity and either meeting or failing to meet the test of satisfying the vital needs of the people including the need for the cohesion that alone gives a form of life the power to survive among its competitors, avoiding passing into nothingness by being swallowed up by another form of life or exterminated, or else morphing into a new form of life or else disappearing altogether; all the while pulsing with desire, with the Instinkte and Trieben that fill life with victories and frustrations, colours and sounds, sweat, blood, tears, pleasure, pain, glory, shame, drama; and thus by rewriting history as a series of inventions and judgments, by demurring to the claim that no ruling class ever gave up power voluntarily with the counter-claim that no ruling class ever held power, because the power has always been in the constitutive rules of the basic cultural structures, never in the hands of a bourgeoisie or other ruling class living by powers it pretended to understand, thus UO comes out nevertheless engagé, on the side of life, on the side of everybody, and on the side of all the living plant and animal forms that share with humans the earth as our common habitat; which might appear to be a sneaky way to deceive the capitalists by hiding in a mountain of charming rhetoric the bitter (for the capitalists) fact that an emancipated life-process no longer constrained by the systematic imperatives of capital accumulation will be a life-process where the capitalists will no longer enjoy the power and the privileges they have now, where their consolation for their demotion will be “merely” that the capitalists and their grandchildren will enjoy living in a more equal society, a sustainable society, a safer society, a more beautiful and more loving society; and then –there is another side to this coin– if UO can escape being branded as a roundabout way of sweet-talking the capitalists into surrendering, it will then run another risk of being misunderstood and underappreciated, not to say vilified, this time falling into dark shadows of infamy by being seen as a sneaky way to lull the socialists into accepting capitalism in a revised form, as a hypocrisy which cites Marx and all the socialist classics, and unmasks as clearly as anyone else unmasks the ruses that today’s dominant ideology employs to paint exploitation and exclusion couleur de rose, and then when all is said and done it turns out that there has to be capital, as Alfred Marshall said the demise of the last capital item will be preceded by that of the last man, the world cannot run without capital, somebody has to administer it, a completely centrally planned command economy is not an option, living without the affordable products of highly-capitalized high-tech glossy-imaged mega-organizations that line the supermarket shelves is not an option, so forget the fine dreams; when one reads the fine print one finds that the book titled “Classless Society” is not to be judged by its cover; the fine print says we are still wage slaves while all the gold is still sitting in a bank in London’s West End in somebody else’s name, or to update the metaphor to suit this age when knowledge has become the principal factor of production, all the codes of all the DNA of all the seeds that produce all the food are or soon will be patented by Monsanto; unless, of course, socialism is defined and implemented as the power of the people to choose and constantly to amend the institutions they believe will best serve their interests, in other words as democracy, for in that case unbounded organization is socialism, it is democracy, because it is alignment across sectors for the common good, with unlimited options to mix and match, including the option to mix the best of what capitalism has to offer –the highly efficient socially responsible well-managed organization that delivers high wages, dignified working conditions, consumer satisfaction, forward-looking innovation leading to a sustainable future— with –and here is the main point—livelihoods financed in many different ways, including by mobilization of community resources, by capturing of rents, and by transfers of inherited wealth, sopping up through lifelong education and myriad useful and worthy activities the unemployment that would otherwise result from legislation that allows only the best capitalist enterprises to operate and shuts down the sweatshops; and because unbounded organization calls for the same brotherly and sisterly solidarity and the same intelligent creativity that it applies to the question how best to design the organization of labour, to that other organizational question that Peter Drucker[cxxxi] identified as a leading political question of our times, which is the question where the profits (the surplus)— should go after an efficient modern business enterprise has generated wealth –certainly its distribution should not kill the goose that laid the golden egg, but neither should it bankroll a leisure class dreaming away its days in gated luxury while a marginalized class with no money in its pockets dreams fantasies of violent revenge, while the narcos and the muggers and the militarists and the suicide bombers and the lone gunmen and the out-of-control police and the tattooed gangs make it every day harder and every day more expensive to find a peaceful spot on planet earth to sit down and breathe deeply and drink a cup of kindness, but all this is still not enough to acquit unbounded organization of the charge of proposing to organize a better world on the fictitious foundation of an imaginary human nature better than human nature really is, threatening once again a road to hell paved with good intentions, like the road that led in a few short years from la déclaration des droits de l’homme et du citoyen to le guillotine, to which charge the answer is that there are more truths in heaven and earth and in the findings of behavioural biology[cxxxii] and in the findings of the psychology of moral development[cxxxiii] than are dreamt of in your economics and your political science, and in any case as Buckminster Fuller put it, we really have no choice but to act on the premise that a better world is possible because culture shifts are possible, because at this point in history the human species must either “graduate” to becoming its better self or resign itself to getting a pink slip from Nature marked “wages of sin;” and that is why, you say, while we are not engagés in precisely the same way that Jean-Paul and Simone were, we are nevertheless sitting in the same chairs and in our own ways we are engagés too.
Fortified by a double shot of espresso I feel moved to add a few remarks regarding the capture of rents and the taxation of wealth. I want to make it clear that taking the trouble to show how Adam Smith, Immanuel Kant, and Jean-Baptiste Say (and many others not discussed) set in stone the basic language-games of the global economy was not an unnecessary detour. If today the knee-jerk reaction of almost every government in the world to falling sales and profits is that of the Chilean minister of finance (“And, above all we must nurture confidence, for confidence is the best ally of investment, employment, and consumption”.[cxxxiv]); if the faltering of the invest-to-produce-to-sell-for-profit machine is not seized as an opportunity –carpe diem !– to fortify other logics and dynamics to build a more plural economy; but instead is squandered by cranking up the same old same old machine with tax cuts favouring investors, quantitative easing, currency devaluations, austerity, and privatizations; if experts on robots, 3D printers, and artificial photosynthesis have no clue what people will do to earn a living when workers become obsolete[cxxxv]; it is not just because policy makers have not read Marshall or Piketty and do not realize that livelihoods without sales could be financed by capture of rents and taxation of wealth. We really do need an overhaul of key concepts in dominant discourse, a transformation of the basic structures of the modern world, culture shifts.
Here is an example of why culture shifts are needed: While Joseph Stiglitz urges western governments to capture rents to refill an empty public purse and lighten a heavy public debt, eastern governments whose coffers are already overflowing with captured rents, notably the governments of some oil-rich countries in the Middle East, are criticized by western political scientists for their lack of democratic virtues.[cxxxvi] Meanwhile, neoliberal scholars track self-serving behaviour in the public sector and find there is little or no democratic virtue in the governments of the West either – just homo economicus “cobrando lo que puede cobrar y pagando lo que tiene que pagar.” (charging as much as he can and paying what he has to pay).[cxxxvii] Here we have an eastern and a western version of the same challenge: to build a culture of service to others in the public sector and indeed everywhere. If that challenge is not met then the objective of transferring resources from where they are not needed to where they are needed is not likely to be achieved. To be sure Zakat [cxxxviii](which might be defined as obligatory charity) is already one of the five pillars of Islam, and servant leadership[cxxxix] is already a beacon light in the west, and one could go on and on listing alive and well communitarian values. But these many cultural resources we are thankful for do not demonstrate that all is well with the basic Roman-liberal institutional frame of economics. They demonstrate that when we set out to transform the basic structure by building a culture of service we do not start from nothing. We cultivate growth points we find.
The relevance of thinking at the level of basic structures is even clearer when we look at tax competition and capital flight. Let’s remember a few points from the discussion of Piketty’s contributions above: Piketty doubts that third world countries will be able to raise taxes high enough to pay for a social state because of tax competition. He ascribes to tax competition loopholes that weaken the few wealth taxes that already exist in Europe. He also alludes to other forms of tax competition in the developed world. After his book came out there have been new proposals to cut taxes on business to make the USA more competitive in global markets.[cxl] When Italy attempted to impose a wealth tax in 2012 it set the tax rate on financial wealth at only one tenth of one per cent for fear of capital flight, while taxing real estate more because land does not move. It will be remembered from chapter seven that in its negotiations with creditors in 2015 Greece was stopped in its tracks by capital flight and by runs on banks. If one were to draw a general conclusion from these facts and countless others these resemble, it would be that globalisation has made nation-states even more ungovernable than they already were. And when one then reflects on what globalization is all about, one would observe that globalization has made the constitutive rules of markets even more dominant than they already were, making it even harder for local customs and national laws to modify them. Savers and investors choose which customs and which laws they will be governed by when they decide where to save and invest. Buyers (except for those influenced by the conscientious consumer movement) select products from those places that offer them the best product at the lowest price, without considering –usually without even knowing– the wages, the working conditions, the ecological footprint &c prevailing at the place where the product came from. The box, the global market, dissolves the created harmony, the national welfare state.
- The world as it is presently organized makes plenty of resources available for luxury, for unnecessary goods and services, and for harmful activities but does not provide basic security or dignity for the poor.
- In the world as it is presently basically organized (overlooking for the moment –saving for dessert– the many ethical counter-cultures we pin our hopes for organizing a better future on) the right to use one’s property as one pleases is set in stone, freedom conceived as independence from social responsibility is set in stone, individualism is set in stone, the absence of a strict duty of solidarity is set in stone, the myth that for every seller there is a buyer is set in stone.
At this point readers who have gotten this far are requested to spell out for themselves in their own words why (2) implies (1) and why changing (1) implies changing (2).
[i] Samuel Bowles runs a variation on this obvious approach when he assumes that a key to determining the amount available to pay for social programmes is the generosity of voters, whether they are or are not willing to pay more in taxes to aid their fellow citizens in need. Samuel Bowles, The New Economics of Inequality and Redistribution. Cambridge: Cambridge University Press, 2012. Chapters 4 and 5.
[ii] Ludwig Wittgenstein, Philosophical Investigations. Oxford: Blackwell, 1958. Paragraph 309 p. 103e.
[iii] Michelle Bachelet et al, Social Protection Floor for a Fair and Inclusive Globalization. Geneva: International Labour Organization, 2011. Bachelet chaired the commission during the interim between her two terms as President of Chile, while she was working for the United Nations. (http://ilo.org/global /publications/ilo-bookstore/order-online/books/WCMS_165750/lang–en/index.htm – accessed March 2015).
[iv] Id. p. 44. The figure for Rwanda presumably refers to what the report calls a “horizontal” old age pension including every old person at a low amount like the 80,000 peso [about 800 ZAR] solidarity pension for every senior Chilean who needs it promulgated by Bachelet herself, leaving pending the “vertical” challenge of raising the amount.
[v] Thomas Piketty, Capital in the Twenty-First Century. Cambridge MA: Harvard University Press, 2014. Op cit. (original French edition 2013)
[vi] Arenas cites figures from Chile´s own measure of growth the IMACEC (Indicador Mensual de Actividad Economica en Chile) calculated monthly. It is “harmonized” with GDP and we treat it as equivalent to GDP. See the methodological note, economic study 48 on the web page of the Chilean Central Bank. Let nothing in these pages be taken as criticism of Sr. Arenas or as implying that he is not doing a good job as finance minister. It must be mentioned that he went to jail four times for protesting the Pinochet dictatorship and that he spearheaded a pension reform that made a minimal solidarity pension universal in Chile.
[vii] Y, por sobre todo, tenemos que cuidar las expectativas, que son las mejores aliadas de la inversión, el empleo, y el consumo.
[viii] Irving Fisher: “The economic system contains innumerable variables –quantities of `goods´ (physical wealth, property rights, and services), the prices of these goods, and their values (the quantities multiplied by their prices). Changes in any or all of this vast array of variables may be due to many causes. Only in imagination can all of these variables remain constant and be kept in equilibrium by the balanced forces of human desires, as manifested through `supply and demand. The Debt Deflation Theory of Great Depressions. Kindle Edition position 20. Important Books, 2012 (1933) (https://fraser.stlouisfed.org/docs/meltzer /fisdeb33.pdf – accessed March 2015). This is the first of 49 “conclusions” stated at the beginning of the book.
[ix] The metaphysics of positivism that is still with us in many forms today began at positivism´s birth in the writings of its founder Auguste Comte. Comte´s crusade was a now-familiar one in the history of philosophy, “Away with metaphysics!”. Immediately after proclaiming the end of metaphysics he declared that its replacement would be science. Science would be built exclusively from observed facts. In the next breath, however, he unwittingly retracted his denunciation of metaphysics by announcing a metaphysical faith of his own: observing the facts would lead to the discovery of the regular laws governing both nature and society. In other writings he called for a “religion of humanity” in which scientific sociology would provide new and better principles of authority to replace the authority of the monarchy and the church that had been swept away by the French Revolution. Positivism was born being what other metaphysics are: a synthesis of ontology and ethics, declaring what is (law-like regularity) and what ought to be (technocracy).
[x] Ludwig Wittenstein, Philosophical Investigations. Oxford: Basil Blackwell, 1958. Paragraph 193. (http:// gormendizer.co.za/wp-content/uploads/2010/06/Ludwig.Wittgenstein.-.Philosophical.Investigations.pdf accessed March 2015).
[xi] John Searle explains constitutive rules in several works, including The Construction of Social Reality. London: Penguin Press, 1995. (http://philoscience.unibe.ch/documents/kursarchiv/SS06/searle_engl_ch1.pdf – accessed March 2015).
[xii] Charles Taylor begins his seminal essay Interpretation and the Sciences of Man The Review of Metaphysics. Volume 25 (1971) pp. 3-51 (http://goodliffe.byu.edu/301/protect/taylorinterp.pdf – accessed March 2015) and often reprinted by asking how interpretation (Heidegger´s seeing as) is essential to causal explanation in the human sciences. Later he contrasts the constitutive rules of our “bargaining society” with those of a traditional Japanese peasant society. Karl Polanyi and many others have researched many material practices with constitutive rules other than those of the market, perhaps most notably those of reciprocity and redistribution (now included alongside market exchange as principles of a plural economy in the Constitution of Ecuador thanks in part to the prominence in Ecuadoran politics of professional anthropologists familiar with Polanyi). Redistribution is the principle of the transfers advocated by the Bachelet Commission to fund social safety nets.
[xiii] These notions can usefully be compared with Anthony Giddens notions of “structuration” and “double hermeneutic.” Anthony Giddens, The Structure of Society. Berkeley: University of California Press, 1984. Social systems are produced and reproduced as a result of the activities of situated actors. P. 25. Andy Blunden has connected the generation of social structure to the activity theory tradition in social psychology pioneered by Lev Vygotsky. Andy Blunden, Selected Writings on the Semiotics of Modernity. Kettering Ohio: Erythros Press, 2012.
[xiv] We believe our view fits within the general category of critical realism, whose leading proponent is Roy Bhaskar. It derives also from the work of the philosopher of science Rom Harre, who can be regarded as a precursor of critical realism . See especially Rom Harre and Paul Secord, The Explanation of Social Behaviour. Totowa NJ: Rowman and Littlefield, 1972.
[xv] Friedrich von Hayek, The Pretence of Knowledge (http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/ 1974/hayek-lecture.html – accessed March 2015). Such methodological views are also expressed in other works by the same author. They have historical roots in his Austrian liberal tradition von Hayek starting with Carl Menger who learned something from his opponents in his Methodenstreit with the German historicists. See Carl Menger, Investigations into the Methods of the Social Sciences. New York and London: New York University Press, 1985 (1883). (http://mises.org/library/investigations-method-social-sciences – accessed March 2015). See also in a similar vein Carl Menger, On the Origins of Money Economic Journal. Volume 2 (1892) pp. 239-55. Of the three inventors of marginal utility theory –Jevons, Walras, and Menger—Menger was the only one who did not dress it up in a deceptively precise mathematical garb..
[xvi][xvi] The expansion of positivism strictly so-called to include thinking of a positivist temper is suggested by Richard Bernstein in The Restructuring of Political and Social Theory. New York: Wiley, 1978.
[xvii] Department of Cooperative Governance and National Treasury on funding model for Community Works Program briefing (/pmg.org.za/committee-meeting/16915/ – accessed March 2015). The committee made no decisions.
[xviii] The cost numbers are in thousands of rands. They can be roughly converted to thousands of US dollars by dividing by ten, that is to say by moving the decimal point one space to the left. From dollars they can easily be converted to any currency.
[xix] To expand the series to make it 1, 2,3,4, 5,6 ……n it helps to read Gavin Andersson, Unbounded Organization: Embracing the Societal Enterprise. Pretoria: University of South Africa Press, 2016, and to consider besides obvious options less obvious ones like resignifying the mainstream business corporation as an organization with a social mission, see See Andrew Crane et al (Eds.) 2008. The Oxford handbook of corporate social responsibility. Oxford: Oxford University Press, and Michael Porter and Mark Kramer 2006. Creating shared value. Harvard Business Review. Volume 89 pages 62-77. (http://boost-afrique.weebly.com/uploads/2/5/0/7/2507823/hbr-creating_shared_value-developing_countries-abstract.pdf – accessed March 2015); ecovillages, see Kaspar van Schyndel 2008. Redefining community in the ecovillage. Human Ecology Review. Volume 15 pages 12-24. (http://www.humanecologyreview.org/pastissues/her151/kasper.pdf – accessed March 2015); social entrepreneurship, see David Bornstein 2007. How to change the world: social entrepreneurs and the power of new ideas. New York: Oxford University Press. http://www.coregroup.org/storage/Social_Behavior_Change/Book_ Reviews/How_to_Change_ the_World_ Social_Entrepreneurs_and_the_Power_of_New_Ideas.pdf – accessed March 2015); worker ownership See Frank Adams and Gary Hansen 1993. Putting democracy to work: a practical guide to starting and managing worker-owned businesses. San Francisco, Berrett-KoehlerSee Frank Adams and Gary Hansen 1993. Putting democracy to work: a practical guide to starting and managing worker-owned businesses. San Francisco, Berrett-Koehler; basic provisioning at the neighbourhood leve, see ABC Abastecimiento Básico Comunitario (http://www.inti.gob.ar/abc/ accessed March 2015); permaculture, see Bill Mollison 1996. Permaculture: A designer´s manual. Tyalgum Australia, Tagari Publications.
(https://archive.org/details/PermacultureADesignersManual_306 – accessed March 2015). Mollison´s three basic principles are: Love the earth. Love the people. Share the surplus; municipal banks lending only to local little people, see Howard Richards 2008, Solidaridad Participación, Transparencia. Rosario Argentina, Fundación Estévez Boero. Howard Richards 2008, Solidaridad Participación, Transparencia. Rosario Argentina, Fundación Estévez Boero chapter eight; community currencies, see Edgar S. Cahn, No More Throw Away People: the co-production imperative. Washington DC: Essential Books, 2004, and so on and on.
[xx] Bachelet Commission op. cit. p. 69.
[xxi] Id. pp. 69-70
[xxii] Id. p 70
[xxiii] Id. p. 69
[xxiv] The UN has sponsored an airline ticket tax to fund basic health care. The scheme was initially adopted by Brazil, Chile, Norway, France, and the United Kingdom. Ten African countries, Mauritius, and the Republic of Korea later joined. Id. p.74
[xxv] One proposal was made in a Bill Gates’ report to the Cannes G20 summit. It called for taxing share and bond transactions on the world´s stock exchanges to fund basic social protection. Id. p. 74.
[xxvi] On p. 71 of the Bachelet Commission report there is a chart listing ten ways to create fiscal space for social programmes. Economic growth is not on the list. However, economic growth is treated elsewhere in the report as creating possibilities for redistribution –contrary to the implicit argument of O´Connor in The Fiscal Crisis of the State op. cit. that the pursuit of economic growth often leads to tax competition and to more regressive taxation (the Value Added Tax), effectively de-redistributing wealth from the poor to the rich.
- accessed March 2015). IMF Policy Discussion Paper PDP/05/04. Washington DC: International Monetary Fund, 2005. Heller retired from the IMF in 2006. Heller was, of course, not responding specifically to the Bachelet Commission, because his paper is older than its report.
[xxviii] Karl Marx developed this point in his Comments on James Mill. Marx Engels Collected Works MECW), volume three 1843-1844. P. 211 et seq. MECW was a joint publication of Progress Publishers Moscow, Lawrence and Wishart London, and International Publishers New York. Volume three was published in 1975.
[xxix] Id. p. 3
[xxx] As mentioned earlier Polanyi and many historians and anthropologists of the “substantivist” school find redistribution (as in Exodus the Pharaoh ‘s granaries redistributed grain to the Egyptians) and reciprocity (social obligation) to be at the heart of the practices that met human needs in pre-capitalist times and places.
[xxxi] Kant’s synthetic a priori propositions are supposed to be eternally and universally certain but not mere tautologies true because of the definitions of the terms. Most famously applied to basic mathematics and science (Kritik der reinen Vernunft, 1781) Kant also (for example Grundlagen der Metaphysik der Sitten, 1785) attributed a synthetic a priori character to basic norms of morals and jurisprudence.
[xxxii] For Dewey there are no eternal and universal certainties in science or in ethics. See e.g. John Dewey, Experience and Nature. Chicago: Open Court, 1925; The Quest for Certainty: a Study of the Relation of Knowledge and Action. London: George Allen & Unwin, 1929. Enrique Dussel has elaborated an ethics of liberation applying the principle that categories of thought, moral norms, and institutions should all be constructed and reconstructed in the service of life, not the other way about. E.g. Enrique Dussel, Etica de la Liberacion en la Edad de la Globalizacion y la Exclusion. Madrid: Editorial Trotta, 1998.
[xxxiii] Heller Id. pp 11-12.
[xxxiv] Heller further develops this thought in Peter S. Heller, “Are Governments Overextended?” World Economics. Volume Five (2004) pp. 1-31. (http://www.world-economics-journal.com /Are%20 Governments%20Overextended.details?AID=190 – accessed March 2015).
[xxxv] We have been emphasizing that economic growth measured by GDP is essentially about sales. The definition of GDP is the value of production in a given territory in a given time period, which on one of three equivalent approaches is for the most part measured by sales.
[xxxvi] Id. p. 5
[xxxvii] Heller uses the term “meritorious” at Id. pages 2,4,6,7, and 12.
[xxxviii] The duty to seek the happiness of oneself or others if for Kant a “hypothetical imperative,” analytic rather than synthetic, less strict than a categorical imperative because derived from impure facts rather than from pure reason. See Mark Timmons, Necessitation and Justification in Kant’s Ethics. Canadian Journal of Philosophy. Volume 22 (1992) pp. 223-261.
[xxxix] Adam Smith (first edition 1776, edition usually reprinted 1789), An inquiry into the nature and causes of the wealth of nations. Book II Chapter Three is titled “Of the Accumulation of Capital, or of productive and unproductive labour.” (op cit). The restriction of productive labour to that which produces vendible commodities is found on its first page. Book and chapter are cited instead of page numbers because different editions may have different page numbers. For some historical notes on the development of these ideas prior to Smith see Ellen Meiksins Wood, Empire of Capital. London: Verso, 2005.
[xl] This and the following quotations from CWP participants are translated from Zulu. They are taken from A qualitative evaluation of the community work programme, Umthwalume CWP” prepared by Thutong Training and Development, dated October 2011, available at TIPS. (www.tips.org.za – accessed December 18, 2013).
[xli] Smith (1776) in the “Introduction and Plan of the Work” Op cit. preceding Book One Chapter One. Op cit.
[xlii] For example at op. cit. p. 3 Heller writes: “The incentive for creating fiscal space is strengthened where the resulting fiscal outlays would boost medium-term growth and perhaps even pay for itself in terms of future fiscal revenue”. On p. 2 he favours granting fiscal space to health and education when they will pay for themselves in the long run by upgrading human resources.
[xliii] Francis Fukuyama. 1992. The end of history and the last man. New York, Macmillan. (op cit http://www.social-sciences-and-humanities.com/PDF/The-End-of-History-and-the-Last-Man-.pdf – accessed March 2005). It will be remembered from the previous chapter that Hegel´s notion of Anerkennung builds an ethics on the human need to be recognized and respected by other persons.
[xliv] Actually Fukuyama distinguishes between the liberal capitalist democracies and the rest of the world. The former are post-historical. The rest of the world is “still in history.” History has not ended there yet. See Fukuyama 1992 Chapter 26 starting at page 276.
[xlv] Thus Karl Popper and John Dewey famously argued that what society needs is not so much solutions to its problems as procedures for systematically looking for solutions and evaluating how well prototype and provisional solutions work. Karl Popper, 1945. The open society and its enemies. London: Routledge (https://archive.org/details/opensocietyandit033120mbp – accessed March 2015); John Dewey, 1927, The public and its problems. New York: Henry Holt. (www.unav.es/gep/Dewey/Opinion Publica Comunicacion.pdf – accessed March 2015). Similarly John Maynard Keynes argued that since economic science does not really know the best way to solve the problems of capitalism, nations should be encouraged to experiment with different solutions. Keynes 1933. National self-sufficiency. Yale Review. Volume 22, pages 755-769. (https://www.mtholyoke.edu/acad/intrel/interwar/keynes.htm – accessed March 2015).
[xlvi] Fukuyama 1992. pp. 289 and following.
[xlvii] Fukuyama 1992. p. 294.
[xlviii] Fukuyama 1992. p. 292.
[xlix] Fukuyama 1992, p. 314.
[l] Fukuyama 1992, p. 327.
[li] See generally parts IV and V of Fukuyama 1992, chapters 20 through 31.
[lii] Andy Blunden finds that today’s political right is an unstable coalition. It consists of economic neo-liberals and social conservatives. But neo-liberalism is commodifying family, love, tradition, and everything social conservatives hold dear. Selected Writings on the Semiotics of Modernity.
[liii] These examples are taken from Jeremy Rifkin, The Zero Marginal Cost Society: the Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism. New York: Palgrave Macmillan, 2014.( http://digam o.free.fr/rifkin14.pdf accessed March 2015).
[liv] Ludwig Wittenstein, Philosophical Investigations. Oxford: Blackwell, 1958. Paragraph 415 at page 125e.
[lv] Jacob Arlow, “Psychoanalysis as Scientific Method,” in Sidney Hook (ed.) Psychoanalysis, Scientific Method, and Philosophy. (http://archive.org/stream/psychoanalysissc02newy/ psychoanalysis sc02newy _djvu.txt – accessed 2015). New York: New York University Press, 1959. pp. 206-7. pp. 206-07.
[lvi] We adopt from Immanuel Wallerstein the idea that the modern world-system is an expansion of the European world-system, and the related idea that today the social sciences have only one object of study and it is the global economy.
[lvii] Immanuel Kant, Groundwork for the Metaphysics of Morals. New Haven and London: Yale University Press, 2002. (http://www.earlymoderntexts.com/pdfs/kant1785.pdf – accessed March 2015). Original German edition Grundlegung zur Metaphysik der Sitten. 1785.
[lviii] In the sense of “paradigm” specified by Kuhn in the second edition of The Structure of Scientific Revolutions, i.e. in the sense of the concrete case as opposed to the rule. In this sense, says Kuhn, science can get by without rules but it cannot get by without paradigms.
[lix] Heller op. cit. p. 5. A reader will notice how often words like “should” and “obligation” appear, for example on page 4.
[lx] Kant, op. cit. p. 48.
[lxi] In addition to strict duties to others there are also strict duties to oneself, for example a strict duty not to commit suicide. Kant, op. cit. p 47.
[lxii] Although the strict logic of his argument in the Groundwork admits no exceptions, in another work Critique of Practical Reason, Kant takes up the question when, after all, there can be exceptions.
[lxiii] Kant, op. cit. p. 29.
[lxiv] Kant, op. cit. p. 45
[lxv] For simplicity Kant´s distinction between law and maxim is omitted.
[lxvi] Kant op. cit. p. 33
[lxvii] Kant op. cit. p. 42
[lxviii] Dennis Wall and Virgil Masayesva, People of the Corn: Teachings in Hopi Traditional Agriculture, Spirituality, and Sustainability American Indian Quarterly. Volume 28 (2004) pp. 435-453.( http://muse.jhu.edu/login?auth=0&type=summary&url=/journals/american_indian_quarterly/v028/28.3wall.html – accessed March 2015).
[lxix] Marvin Harris, Cows, Pigs, Wars and Witches. New York: Random House, 2011 (1973).( http://detc.ls.urfu.ru/courses/cphilos0021/text/hrest_03_02_06.pdf – accessed March 2015).
[lxx] In other works we have cited others.
[lxxi] The link between pure reason in mathematics and science and pure reason in morality and jurisprudence requires for Kant not only the notion that there are synthetic a priori truths but also his concept of freedom. The freedom of the rational being is conceived of as independence from the causal laws that govern all experienced phenomena. Armed with freedom conceived as pure independence Kant is able to deduce from it Ulpian’s basic principles of jurisprudence –not surprisingly because in its beginnings Roman law postulated the paterfamilias as absolute ruler of the property of the familia with nothing to limit his absolute freedom but the equivalent power of another paterfamilias commanding another familia. See Immanuel Kant, The Metaphysical Elements of Justice (Rechtslehre, translated by John Ladd) , Indianapolis: Hackett Publishing Company, 1999; Juan Iglesias, Derecho Romano. Barcelona: Ariel, 2004; Catherine Hoppers and Howard Richards, Rethinking Thinking. Pretoria: University of South Africa Press, 2016. Chapter four.
[lxxii] Amartya Sen, 2003. Sraffa, Wittgenstein, and Gramsci. Journal of Economic Literature. Volume 41, pages 1240-1255. p. 1247. (op cit).
[lxxiii] Jean-Baptiste Say. 1841. Traité d´économie politique. Sixth and last edition. Paris, Guillamin. (first edition 1803), (https://archive.org/details/traitedeconomie00saygoog – accessed March 2015). An early edition of this work was translated into English by Thomas Jefferson, the third president of the United States.
[lxxiv] See for example, Bronislaw Malinowski 1960. A scientific theory of culture and other essays. New York, Oxford University Press. (http://monoskop.org/images/f/f5/Malinowski_Bronislaw_A_Scientific_Theory_ of_Culture_and_Other_Essays_1961.pdf – accessed March 2015). We have in mind also Martin Heidegger´s proposal in Sein und Zeit to see human being-in-the-world always as a matter of interpretation and “story-ness” (Geschictlichkeit).
[lxxv] Of course the same can be said of all the pioneers who first articulated today´s dominant ideologies. See for example, Louis Dumont 1977. From Mandeville to Marx: the genesis and triumph of economic ideology. Chicago: University of Chicago Press (op cit); Gideon Freudenthal 1982. Atom und Individuum im Zeitalter Newtons. Zur Genese der mechanistischen Natur- und Sozialphilosophie. Frankfurt, Suhrkamp.
[lxxvi] Say 1841 (1803) in the Discours preliminaire that precedes the beginning of Book I.
[lxxvii] William J. Baumol 1999, Retrospectives: Say’s law. Journal of Economic Perspectives. Volume 13, pages 195-204. (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.184.9525&rep=rep1&type=pdf
- accessed March 2015). Diverse interpretations are also discussed in Steven Kates (Ed.) 2003 Two hundred years of Say’s law: Essays on economic theory´s most controversial principle. Cheltenham UK: Edward Elgar.
[lxxviii] Joseph Schumpeter 1954, History of economic analysis. New York, Oxford University Press. pp, 621-25.(op cit.)
[lxxix] That more could be produced if there were more buyers is of course true in spades today. Most firms in most industries typically operate at a little over half of their productive capacity. Nevertheless, it is common to acquire additional productive capacity, not pursuant to the liberal myth of producing until marginal cost equals marginal revenue, but pursuant to the real-world strategy of erecting barriers to entry to preserve oligopolistic pricing. These matters are elucidated in Yanis Varoufakis et al, Modern Political Economy: making sense of the post.2008 World. London: Routledge, 2012. (http://digamo.free.fr/varouh11.pdf – accessed March 2015).
[lxxx] Say 1841 at the beginning of Book One Chapter Fifteen.
[lxxxi] Ibid. Our translations.
[lxxxii] These quotations from Say are from Book I Chapter Fifteen. The English words after the French here and following are not meant to be exact translations.
[lxxxiii] As noted previously Keynes writes at the end of the second chapter of his General theory that Say’s Law, regarding full employment as normal, and equating the real wage with the marginal disutility of employment are three interconnected assumptions of classical economics that stand or fall together. John Maynard Keynes 1936. The general theory of employment, interest, and money. New York, Macmillan. page. 21. (op cit). On his view they fall together, and are partly replaced by the concept that liquidity preference produces a chronic weakness of effective demand. Keynes´ view, much more than Say’s, takes the form of a mathematical theorem, but on our view Keynes’ mathematical argument against Say’s Law depends no less than Say’s original argument in its favour on premises whose ontology is that of cultural norms. See the chapter on Keynes in Howard Richards 2004. Understanding the global economy. Santa Barbara, Peace Education Books (op cit); see also Alvin Hansen 1936. Mr. Keynes on underemployment equilibrium. Journal of Political Economy. Volume 44, pages 667-686. (http://www.jstor.org/stable/ 1824136? seq=1 #page_scan_tab_contents – accessed March 2015).
[lxxxiv] For an important account of how the basic juridical norms listed here organize social life see Karl Renner, The Institutions of Private Law and their Social Functions. New Brunswick NJ: Transaction Publishers, 2010. (first German edition 1904)
[lxxxv] Richard Wilkinson and Kate Pickett, The Spirit Level: why more equal societies almost always do better. London: Allen Lane, 2009.
[lxxxvi] These numbers can easily be verified by searching on Google for websites the prices of these commodities.
[lxxxvii] Alfred Marshall, On Rent The Economic Journal. Volume 3 (1893) pp. 74-90. p75. (http://www.jstor. org/discover/10.2307/2223636?sid=21105580141501&uid=4&uid=3738032&uid=2&uid=70&uid=2129 – accessed March 2015).
[lxxxviii] This happened in India in the early 19th century when some disciples of David Ricardo (who pioneered the doctrine of rent) imposed a tax on farmers . The tax was intended to transfer to the public purse a surplus the farmers did not need. In fact it suffocated agriculture and had to be repealed. Michelle Burge McAlpin, Economic Policy and the True Believer The Journal of Economic History. Volume 44 (1984) pp. 421-427. (http://journals.cambridge.org/action/displayAbstract?fromPage=online&aid=4152040 – accessed March 2015).
[lxxxix] Jorge Leiva Lavalle, ‘Las rentas del cobre y el desarrollo chileno’ in Gonzalo Martner and Jorge Rivera (eds) Radiografia Critica del “Modelo Chileno” Santiago: LOM/USACH, 2013. pp. 177-204. p. 199. (http://www.revistas.usach.cl/ojs/index.php/politicas/article/viewFile/1365/1276 – accessed March 2015). We have simplified as well as translated.
[xc] Adam Smith, Wealth of Nations, at the beginning of Book I, chapter 11. (op cit).
[xci] Id. chapter 6.
[xcii] David Ricardo, letter to Thomas Malthus of October 9, 1920, quoted by Keynes, op cit. p 4.
[xciii] David Ricardo, Principles of Political Economy and Taxation. Third edition. London: John Murray, 1821 (1817) (http://socserv.mcmaster.ca/econ/ugcm/3ll3/ricardo/Principles.pdf – accessed March 2015).
[xciv] Id. Chapter Two, first sentence of second paragraph.
[xcv] Ricardo op. cit. First sentence of chapter ten.
[xcvi] Marx develops these ideas in the posthumously published third volume of Capital.
[xcvii] Critique of the Gotha Programme (https://www.marxists.org/archive/marx/works/1875/gotha/ch01.htm – accessed March 2015).
[xcix] See for example Vandana Shiva, Water Wars: Privatization, Pollution, and Profit. (http://books.google .co.uk/books/about/Water_Wars.html?id=Vftlst082acC&redir_esc=y – accessed April 2015) Boston: South End Press, 2002.
[c] Marshall, On Rent, op. cit. p. 78.
[ci] LéonWalras, Elements of Pure Economics. London: Routledge, 2003. Pp. 404 et seq. (http://www.gbv .de/dms/zbw/657540056.pdf – accessed March 2015). (First French edition 1874) The theory is “English” because it was supported by John Stuart Mill and others.
[cii] Milton Friedman, Léon Walras and his Economic System Journal of Political Economy. Volume 45 (1955) pp. 900-909. p906. (http://0055d26.netsolhost.com/friedman/pdfs/aea/AEA-AER.12.01.1955.pdf – accessed March 2015).
[ciii] Walras op. cit. Lessons 2, 3, and 4.
[civ] Walras op. cit. Lesson 39 p. 417. Walras goes on to say that “this proved to be the rock on which the English school foundered” meaning that their reasoning makes their calculations of the amount of rent incorrect. But Walras´ reasoning does not deny the point that rents can be transferred from where they are least needed to where they are most needed. Indeed Walras was an advocate of the nationalization of land. He believed that rents from land could fund the government so well that no taxation would be needed. See Renato Cirillo, Leon Walras and Social Justice. American Journal of Economics and Sociology. Volume 43 (1984) pp. 53-60.
[cv] Alfred Marshall, Principles of Economics. London: Macmillan, 1893. p85. (op cit).
[cvi] These criticisms of Ricardo are made in George Stigler, Bernard Shaw, Sidney Webb, and the Theory of Fabian Socialism Proceedings of the American Philosophical Society. Volume 103 (1959) pp. 469-475. (http://www.jstor.org/discover/10.2307/985478?sid=21105580401151&uid=2&uid=2129&uid=4&uid=70&uid=3738032 – accessed March 2015). Stigler nevertheless concedes that there is such a thing as functionless profit. For a view closer to ours see Richard Arnott and Joseph E. Stiglitz, Aggregate Land Rents, Expenditure on Public Goods and Optimal City Size Quarterly Journal of Economics, Volume 93 (1979) pp. 471-500. (http://academiccommons.columbia.edu/catalog/ac%3A148879 – accessed March 2015).
[cvii] Marshall On Rent op. cit. p. 90.
[cviii] See Joseph E. Stiglitz, The Great Divide: Unequal Societies and What We Can do About Them. New York: W.W. Norton, 2015.
[cix] Piketty in this respect echoes and updates the 19th century American economist Henry George. Drawing on his own observations in the American west, George observed that inequality increased over time. Some became rentiers able to live from land rents while others fell into poverty. Henry George, Progress and Poverty. Cambridge: Cambridge University Press, 2009. (first published 1879)
[cx] Facundo Alvaredo, Anthony B. Atkinson, Thomas Piketty, and Emmanuel Saez, The Top 1 Percent in International and Historical Perspective The Journal of Economic Perspectives. Volume 27 (2013) pp. 3-20. p. 18. (http://eml.berkeley.edu/~saez/alvaredo-atkinson-piketty-saezJEP13top1percent.pdf – accessed March 2015)
[cxi] Paul Mattick argues, apparently to the contrary, that Keynesian macroeconomics cannot achieve the necessary transformation of capitalism. We agree with Mattick and we suspect that Keynes himself would have major reservations about what came to be called “Keynesian.” We agree with Keynes that there is such a thing as non-functional unearned income. Our proposed solution is a pragmatic and flexible unbounded approach that calls on management theory, anthropology, and psychology to create solutions not available within any form of economics. See Paul Mattick, Marx and Keynes;the limits of the mixed economy. Boston: Porter Sargent, 1969. (https://www.marxists.org/archive/mattick-paul/1969/marx-keynes/ – accessed March 2015).
[cxii] Another approach to social appropriation of the product is the concept of social market economy. Ludwig Erhard, The Economics of Success. London: Thames and Hudson, 1963. Erhard advocates a soziale Markwirtschaft that in principle harnesses efficiency fostered by competition to fund meeting social needs generally and specifically a welfare state. Many other books promote other variations on this theme. See Andrew Crane et al (Eds.). The Oxford handbook of corporate social responsibility. Oxford: Oxford University Press, 2008. Given a wide consensus on the soziale objectives, there is room for many views on how to achieve them, including our view that an unbounded mixed economy aligned toward the common good achieves them better than a pure Markwirtschaft. A wealthy person like Andrew Carnegie can imagine himself achieving the social appropriation of the social product by his own personal decision to donate money to build libraries in small towns across America, while Keynes could think of it as happening by an inheritance tax.
[cxiii] Keynes, General Theory. p. 376.
[cxiv] Thomas Piketty, Capital in the Twenty-First Century. Cambridge MA: Harvard University Press, 2014. (op cit). “The current per capita national income in Britain and France is on the order of 30,000 euros per year, and national capital is about 6 times national income, or roughly 180,000 euros per head.” From position 2108 of the Kindle edition.
[cxv] Piketty estimates that about 7% of private wealth in the countries he studies is held by non-profit foundations. Public wealth is a wash, the total value of all public assets being roughly equivalent to total public debt.
[cxvi] Alvaredo, Atkinson, Piketty and Saez op. cit. p. 12.
[cxvii] Id. p. 11, p. 12
[cxviii] Thomas Piketty and Emmanuel Saez, A Theory of Optimal Inheritance Taxation Econometrica. Volume 81 (2013) pp. 1851-1886. (http://eml.berkeley.edu/~saez/piketty-saezECMA13.pdf – accessed March 2015).
The quote is the last sentence of the abstract.
[cxix] Piketty. op. cit. Position 8171 in the Kindle Edition. p. 471.
[cxx] Piketty op. cit. Position 8254 of Kindle Edition. The South Africa figure is from Wikipedia and is for 2012 and 2013.
[cxxi] Piketty counts as transfer payments family allowances, guaranteed income etc. and as income replacement pensions and unemployment insurance. We lump more than he lumps into the category of transfers.
[cxxii] Piketty op. cit. p. 497.
[cxxiii] Id. p. 516.
[cxxiv] Ibid. On another page Piketty makes a different but related proposal: a one- time tax on large fortunes at a rate of 15% in order to pay down the national debt to zero. Id. p. 542. He appears to have in mind a typical country where accumulated private wealth held by a few people is equivalent to about six times one year´s national income, and where public wealth is zero because the amount of public debt is equal to the value of all public assets.
[cxxv] Id. p. 518 (italics added)
[cxxvi] Messauod Mehafdi, The Ethics of International Transfer Pricing Journal of Business Ethics. Volume 28 (2000) pp. 365-381. (http://arikamayanti.lecture.ub.ac.id/files/2015/02/The-ethics-of-international-transfer-pricing-Ak-Manjemen.pdf – accessed March 2015).
[cxxviii] Piketty cautions against taking r>g as a general explanation of inequality in his article About Capital in the Twenty-First Century. American Economic Review: Papers and Proceedings. Volume 105 (2015) pp. 1-6.
[cxxix] Id. p. 528
[cxxx] Ibid. Piketty believes, however, that if bank information were automatically shared internationally and if authorities had accurate information on who owns what, then a single country like Italy could impose such a tax acting on its own. Id. p. 529
[cxxxi] Peter F. Drucker, Business Objectives and Survival Needs, The Journal of Business Vol. 31, No. 2 (Apr., 1958), pp. 81-90 p.87.
[cxxxii] Regarding behavioural biology see Samuel Bowles and Herbert Gintis, A Cooperative Species. Oxford: Princeton University Press, 2011.
[cxxxiii] Regarding the psychology of moral development see John C. Gibbs, Moral Development and Reality. London: Oxford University Press, 2014 http://www.naruto-u.ac.jp/center/prevention/pictures/flier/Gibbs%20Moral%20Development%20%20 Reality%202nd%20Ed%20.pdf – accessed April 2015).
[cxxxiv] Y, por sobre todo, tenemos que cuidar las expectativas, que son las mejores aliadas de la inversión, el empleo, y el consumo.
[cxxxv] For an admission that at least two experts have no clue see the last chapter of Peter H. Diamantis and Steven Kotler, Abundance, the Future is Better than you Think. New York: Free Press, 2012.
[cxxxvi] For example, Michael Herb, No Representation without Taxation? Rents, Development, and Democracy Comparative Politics. Volume 37 (2005) pp. 297-316. (http://www.jstor.org/stable/20072891?seq= 1#page_scan_tab_contents – accessed March 2015).
[cxxxvii] For example, Geoffrey Brennan and James Buchanan wrote an important book on tax policy whose central premise is that the officers of the government self-interested men and women. The Power to Tax. New York: Cambridge University Press, 1980. Steven Kelman dissents, finding the neoliberal view that self-interest motivates public officials as well as everyone else to be dominant but not accurate. Making Public Policy. New York: Basic Books, 1987. The words in Spanish are a Chilean saying attributed to the novelist Manuel Rojas.
[cxxxviii] Imran Ashraf Toor and Abu Nasr, Zakat as a Social Safety Net. Pakistan Economic and Social Review. Vol. 42 (2004) pp. 87-102.
[cxxxix] Larry Spears and Michelle Lawrence, Practicing Servant Leadership. San Francisco: Jossey-Bass, 2004.
[cxl] “On the business side, we would cut the current 35% corporate tax rate to make it competitive in the global economy” from www.marcorubio.com, the official site of presidential candidate Marco Rubio. Accessed September 17, 2015. In the presidential debate on September 16 Rubio called for a 20% rate and said it would be less than the tax rate of any country in the developed world.
Howard Richards is a member of the TRANSCEND Network for Peace, Development and Environment. He was born in Pasadena, California but since 1966 has lived in Chile when not teaching in other places. Professor of Peace and Global Studies Emeritus, Earlham College, a school in Richmond Indiana affiliated with the Society of Friends (Quakers) known for its peace and social justice commitments. Stanford Law School, MA and PhD in Philosophy from UC Santa Barbara, Advanced Certificate in Education-Oxford, PhD in Educational Planning from University of Toronto. Books: Dilemmas of Social Democracies with Joanna Swanger, Gandhi and the Future of Economics with Joanna Swanger, The Nurturing of Time Future, Understanding the Global Economy (available as e-books), The Evaluation of Cultural Action (not an e book). Hacia otras Economias with Raul Gonzalez, free download available at www.repensar.cl. Solidaridad, Participacion, Transparencia: conversaciones sobre el socialismo en Rosario, Argentina. Available free on the blogspot lahoradelaetica.
This article originally appeared on Transcend Media Service (TMS) on 28 Sep 2015.
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