Re: HOMESTEAD: Ray Carey's Democratic Capitalism

["Keith Wilde" <keithwilde@sympatico.ca>]

A very few comments inserted.  It looks like changed fonts don't come 
through, so I'll resort to CAPS.

Keith

----- Original Message ----- 
From: "John Médaille" <john@medaille.com>
To: <homestead@cog.kent.edu>; <homestead@cog.kent.edu>
Sent: Wednesday, July 27, 2005 10:18 AM
Subject: Re: HOMESTEAD: Ray Carey's Democratic Capitalism


>> > On binary economics, despite my own disagreements with that "science," 
>> > I
>> > think there is a point to speaking of economics as *binary*, even if
>> not as
>> > Kelso used the term. A proper study of economics involves both 
>> > production
>> > and distribution of the things produced.
>>
>>I agree with your principle, but as you seem to acknowledge, that isn't 
>>what Kelso meant by "binary" as I understand him--and his current 
>>expositors.  There must be other ways to emphasize the importance of 
>>distribution than mixing it up with a word that has become associated with 
>>the productive process (two factors).
>
> No disagreement. I merely think that economists ought to think about 
> *both* sides of their art.
>
>>
>>You might say that this is so
>> > self-evident as to be trivial. Alas, it is not so among economists. I
>> offer
>> > as evidence the very popular economics textbook, "The Economic Way of
>> > Thinking," now in its 10th or 11th edition. The book does indeed have a
>> > chapter on distribution, but only to show that distributions are 
>> > automatic
>> > and beyond the reach of any human intentionality. Or as the authors put
>> it,
>> > "Because income isn't really distributed by anyone, it can't actually 
>> > be
>> > redistributed. No one is in a position to apportion shares of the 
>> > social
>> > product." (285) Wages, unlike profit, are the automatic result of 
>> > supply
>> > and demand curves, beyond the ken or control of any human.
>>
>>This is a stunner, and shows how out of touch I have become with 
>>contemporary economic fads.  Is this really a standard text?  My latest 
>>edition of Samuelson's was the 8th, and I am pretty sure that it retained 
>>his comment that the neoclassical interpretation of factor compensation 
>>(distribution) as put together by John Bates Clark was, like Adam Smith's 
>>invisible hand a "purple  passage", meaning that is too perfect in its 
>>internal logic to be fully representative of reality. I wonder if the last 
>>sentence above is from the book, or is it your own exaggeration?  The last 
>>time I looked, one of the currently "most e-mailed articles" from the NYT 
>>electronic edition is about the success of Costco, which is challenging 
>>Wal-Mart with a policy of much higher compensation to 'associates'.  Carey 
>>directly disagrees with your statement, of course, in asserting that there 
>>are many American companies that focus first on the contentment of 
>>employees as the most important element in their productivity and 
>>profitability.  This is the management perspective as contrasted to the 
>>exploitive financial power.  Note that Carey is very aware that it is 
>>extremely difficult for enlightened management to pursue this policy due 
>>to the ascendent power of the financial sector in having banished the 
>>regulatory safeguards that are essential to the vaunted blessings of the 
>>"free market".  The authors of your text appear to have consigned a 
>>century's worth of political economic rationale to the dustbin.
>
> The Economic Way of Thinking has an Austrian bias and is one of the most 
> intellectually shabby efforts I have ever read. It is not a matter of 
> agreeing or disagreeing with what it says, but the way it says it. Terms 
> are rarely defined, or defined so poorly as to be useless. For example, 
> economics is defined as "the science of choices and their unintended 
> consequences," which is the sort of thing that leaves one scratching one's 
> head. But the rationale of making wages automatic is really not that far 
> from the mainstream. After all, wages are just another name for the price 
> of one particular "commodity," labor, or so the theory has it. If labor is 
> a commodity like any other, then its price must be computed in the same 
> way as any other commodity. But the EWT is a popular text in pure free 
> market schools. It is the text for the University of Dallas, which is why 
> I read it. I wanted to use the same definitions that the students were 
> getting in their econ classes, and then discovered that they weren't 
> getting any. IN one way, that was an advantage for my class, since my 
> students knowledge of economic ideas were so mushy and ideological that I 
> didn't need to worry about them. On the other hand, it was a great 
> disadvantage, because their ideas about economics were so mushy and 
> ideological that I needed to worry about them.
>
>>
>>Only production
>> > is interesting to the authors of this text, and I think they are not 
>> > alone
>> > among economists in thinking this way. But in truth, both "supply-side" 
>> > or
>> > "demand-side" economics are rather silly. By definition, these 
>> > economists,
>> > whether supply or demand side, treat of half the science, like a doctor
>> who
>> > will only treat the left side of the body. This is a tradition that 
>> > goes
>> > back to J. S. Mill, who said that while the laws of production "Partake 
>> > of
>> > the character of physical truth," the laws of distribution are "of 
>> > human
>> > institution solely" and could be made "different, if mankind so chose"
>>
>>I really do wonder about the orthodoxy of your text.  Insufficiency of 
>>consumer demand is a venerable understanding in economics literature, 
>>going back to Marx and Mill at least, and much emphasized since the basic 
>>principles course has incorporated both a micro and a macro side.
>
> The problem of distribution goes back at least to Aristotle, who said that 
> distribution will vary from culture to culture depending on their idea  of 
> "merit"; it will be different in democratic, aristocratic, and monarchial 
> societies. The same principle underlies the Medieval idea of just price, 
> which is the basis of the just wage.
>
>
>> > Mill's position only apparently contradicts Heyne's; both concentrate 
>> > the
>> > useful part of the "science" of economics on production, while leaving
>> > distribution either to social decisions (Mill) or an automatic effect 
>> > of
>> > the production process needing no separate study.
>>I don't know Heyne.  Did you possibly mean to write Keynes? If so, your 
>>comment seems wrong.  Keynes' focus was on idle capacity and insufficient 
>>demand.  His solution was income from employment, but that doesn't make it 
>>an emphasis on production.
>
> Sorry, Heyne is the principle author of The Economic Way of Thinking, and 
> certainly cannot be confused with Keynes. Keynes is a "demand-side" 
> economist, although more balanced imo than almost any other modern 
> economist.
>
>
>> > My point is that whether or not one thinks economics are Kelsonian, one
>> > ought to think of them as binary.
>>
>>But that is a twist of Kelso's meaning and associates economics with his 
>>term, thereby contributing confusion.
>
> Oh, I think they mean the proper thing by the two factors, they just 
> misunderstand one of the factors. Unless you have a different 
> understanding of their meaning.
>
>> >
>> > The title of Carey's book echoes Michael Novak's "The Spirit of 
>> > Democratic
>> > Capitalism." As chance would have it, I have just written a critique of
>> > that tome for my own book. Carey and Novak mean opposite things by
>> > "Democratic Capitalism." Carey means (I suspect) that capitalist firms
>> > ought to be democratic, while Novak means that they ought NOT to be
>> > democratic. In Novak's words, ""To organize industry democratically 
>> > would
>> > be a grave and costly error, since democratic procedures are not 
>> > designed
>> > for productivity and efficiency." (128)
>>
>>A useful distinction. Carey does categorically disagree with Novak as 
>>quoted. The nature of contemporary industry means that it cannot be 
>>productive and efficiency unless it is democratic in his sense.
>
> Does Carey go into the reason for that? The reason is, imo, the agency 
> dilemma and the costs it imposes on the organizational structure. If the 
> interests of the owners and the workers are divergent, there will be 
> tremendous managerial costs imposed to ensure that the "agents" of the 
> owners (the workers) are carrying out the wishes of the owners.

YES, THAT IS THE MAIN BURDEN OF HIS ARGUMENT. THE INTERESTS OF OWNERS, 
WORKERS AND MANAGERS ARE NOT DIVERGENT, AT LEAST NOT IN THE LONG TERM.  IT 
IS ONLY THE ABUSES OF "ULTRA-CAPITALISM" (E.G. STOCK OPTIONS) THAT HAVE 
TEMPTED CEOs AND CFOs (AND THEIR ACCOUNTANTS) TO BILK AND GUT COMPANIES FOR 
THEIR OWN SHORT-TERM SPECULATIVE PROFIT.

>
>> >
>> > The odd thing about "independent productiveness" is that, were it true, 
>> > it
>> > would make employee ownership well-nigh impossible; the price of a 
>> > share,
>> > assuming somebody would be willing to part with something so valuable,
>> > would be a thousand times what a worker earns. But then the whole 
>> > problem
>> > of ESOPs is that they can only work as a re-distributive tool if the
>> > current owners are willing or compelled to dilute their ownership, that
>> is,
>> > sell them below below market rates. If sold at market rates, than 
>> > nothing
>> > is redistributed, only the form of ownership changes. The market is 
>> > Pareto
>> > optimal, which is Italian for "nothing really changes."
>> >
>> > And a final point. Could it be that everyone must talk about  financial
>> > parasites because no one is willing to talk about usury?
>>
>>There is more to "ultra-capitalism" than simple usury. Also, I think that 
>>"finanicial parasites" (possibly my term rather than Carey's) is more 
>>immediately descriptive to contemporary ears than usury, which has a 
>>medieval religious flavor.  I'm pretty sure you are going to enjoy the 
>>book.
>
> Usury has indeed been consigned to the Dark Ages, which is odd considering 
> how dependent consumption is on borrowing. The last great thinker to take 
> usury seriously was Keynes, who said:
>
> Provisions against usury are amongst the most ancient economic practices 
> of which we have record. The destruction of the inducement to invest by an 
> excessive liquidity preference was the outstanding evil, the prime 
> impediment to the growth of wealth, in the ancient and medieval worlds.I 
> was brought up to believe that the attitude of the Medieval Church to the 
> rate of interest was inherently absurd, and that the subtle discussions 
> aimed at distinguishing the return on money-loans from the return to 
> active investment were merely Jesuitical attempts to find a practical 
> escape from a foolish theory. But I now read these discussions as an 
> honest intellectual effort to keep separate what the classical theory has 
> inextricably confused together, namely, the rate of interest and the 
> marginal efficiency of capital. (GT, 351-2)

VERY USEFUL QUOTE.  I WILL HAVE TO RE-READ THE BOOK!
>
> Usury hurts in (at least) two ways. It hides problems in the distribution 
> system, that is, wages. It props up demand but at a terrible cost; if it 
> were not for consumer credit, the insufficiency of wages would be 
> immediately apparent to all, in the form of a crash. Further, it removes 
> funds for useful investment. After all, if one can lend money to fools at 
> 20% to buy trinkets, why lend that money to an entrepreneur at 10% to 
> provide jobs.
>
> To find out who those fools are, we simply need to pull out our credit 
> cards and read the name there on.
>
>
> John C. Médaille
> www.medaille.com/distributivism.htm
>
> Are we not, all unawares, objectively risking a shameless individualism
> and selfishness when we seek to live in the Church in such a way as baldly
> to arrange it to our own taste?
> - Karl Rahner
>
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