Author Archives: Keith Tribe

German Unification

The last time I was in Berlin was for a conference,  scheduled for 8-10 November 1989.  I had lived and worked there from 1968 to 1972, and it was then “West Berlin”.  My parents lived off the Heerstraße, near the Corbusierhaus and the Olympic Stadium; I worked during vacations at Smuts Barracks, an old Horse Transport barracks used by the British Army for its squadron of Centurion tanks (they didn’t bother to station any Chieftains in Berlin) and as the maintenance centre for all the civilian and military buildings it occupied in the British Sector.  In the summers there would be the odd sonic boom, as the Soviets maintained their low level harassment; and of course the East Germans ran the S-Bahn throughout Berlin, a cheap but very rackety urban railway.  We lived on the fringe of the Grünewald, a vast wood in the centre of Berlin between us and the Wannsee, on which I rowed during the summer vacation.  Of course, you could only go into East Berlin with a military car and driver, because the Wall separated West from East; so you never ran across anyone who lived outside West Berlin.

My beautiful picture

Bernauerstraße, Winter 1970

In November 1989 I was attending a conference at the Wissenschaftszentrum, and staying with friends (the Meilings, with whom I had rowed on the Wannsee) down in Dahlem.  Early on the morning of 10 November I got the U Bahn to Kurfürstendamm, walking the rest of the way to the Landwehr Canal and the Wissenschaftszentrum.  There was hardly anyone around, but then a man asked me where the Kurfürstendamm was.  A strange question, since it was just behind me.  But he looked a bit out of place, dressed rather differently to the average West Berliner; he was German, but not knowing where the Kudamm was?  So I pointed the way.  Then someone asked me where he might change some money; I suggested a bank.  And then what I immediately recognised as an East Berlin radio taxi came around the corner, and I knew that something very strange indeed had happened.

During the morning a constant stream of people followed the Landwehr Canal to the Kudamm, a place they knew about but which was not on any of their maps of the city.  At lunchtime we took a break and walked across the Tiergarten to see the Wall, a very busy place with people sitting on it, film crews interviewing them; I saw Willy Brandt at the Brandenburg Gate.  I had left my Nikon in Dahlem.  By the evening joy riders in Trabants had penetrated to the suburbs, doing a tour of a city they had heard of, but never visited.

I was in Mannheim during December 1990 for the first post-Unification election, and a depressing affair it was.  Helmut Kohl was riding a wave of popularity; Unification, he said, “would not cost a single pfennig”.

Well it did.  When they wound up the Treuhand a figure roughly equivalent of the GDP of Austria was added to German public debt in one go.  Looked at another way, this sum was roughly half contemporary British public debt.  The only bright spot was that the infrastructure of the former GDR was in such a poor state that it had to be replaced wholesale, a one-off upgrade at an important point in the development of new technologies of communication and environmental safeguards.  The former FRG economy swallowed all this without blinking much, along with a major influx of “ethnic Germans” from the former Soviet Union whose numbers dwarfed those bandied about today in UK immigration debate.  This was nothing new: in 1950 some 20% of the population living in the territory of the FRG were refugees and stateless persons of one sort or another.  Every few years some pundit or other writes about the impending “slowdown” of the German locomotive.  Some locomotive.

Kohl was never a great strategic thinker.  François Mitterand on the other hand did have a plan: to maintain French influence and bind Germany into the new Europe by creating a single currency, in which Germany would have to surrender the Deutschmark, a currency that had retained and increased its value more or less continuously from 1950 to 1990.  Critically, Mitterand had the support of his friend Margaret Thatcher on this.  1992 was the year in which the Single Market Programme terminated; at Maastricht in February 1992 Kohl agreed to move directly on to the creation of the euro.

Unification laid waste to the economy of the former GDR, the “Wild East” as it became known.  In August 1991, driving cross-country from Erfurt to Marburg, you could still tell where the border had been by the state of the roads and of the villages you passed through.  But that is all long gone.  At the time it was less certain how quickly and thoroughly this would happen, and in early 1992 I drafted a paper on all of this, commissioned for a collection on the politics and economics of Unification that never materialised.  It is a period piece, but all the same, one that makes a serious attempt to assess the impact of Unification on the economy of the former GDR: Unification

Rewarding Failure: The Swedish Riksbank Prize in Economic Sciences

While it is generally true that economists “failed to foresee” the recent near-collapse of the world’s financial system, the contention involves so many assumptions and qualifications that its point easily gets lost in claim and counter-claim.  It is not so much that economists “did not see the crash coming”: instead, the real problem is that the crash was the direct outcome of policies aligned with the way in which, since the 1970s, most economists had come to think about competition and regulation.  And the way they had come to think was a direct consequence of what they had been taught as students.  Economists are therefore part of the problems that became obvious in 2008, and so not obviously part of any solution.

This is not a story that sits easily with the view of economics promoted by the annual Riksbank Prize in Economic Sciences, which was awarded in mid-October 2014 to Jean Tirole for his work on regulation and competitive processes.  Tirole has been a leading figure in the study of industrial organisation since the 1980s.  This post does not seek to advance arguments, positive or negative, about the merits of this work.  Rather, I want to draw attention to the arguments advanced for the award.  In the press release accompanying the announcement of the 2014 award, the Committee stated that, up until the 1980s, “research into regulation was relatively sparse”, and that “traditional economic theory” does not deal with markets “dominated by a few firms that all influence prices” – the case of oligopoly.

There are two problems with this account of the development of economic thinking about markets, competition and industry structure.  The first is that it is quite wrong about the history of economic analysis.  The analysis of oligopolistic competition was well-advanced by the 1930s, but was sidelined in the 1950s by an approach to competition and markets that saw no need for anything other than the concepts of perfect competition and monopoly in market analysis.  This approach has proved remarkably resilient as an ideology of market functioning, exemplified in a recent article by Peter Thiel in the Wall Street Journal (“Competition is for losers”, 12 September 2014).  Moreover, the Committee awarded the 1982 Riksbank Prize to George Stigler for his vigorous promotion of exactly this ideology, which they now treat as the “traditional” approach.

Secondly, the issues of asymmetric information arising in the regulation of oligopolies and natural monopolies, issues to which Tirole has addressed much of his work, have proved remarkably resistant to the application of contemporary economic theory.  It can be plausibly argued that all of the major British utility privatisations involved at least one major structural defect, and different in each case.  Rail privatisation failed so catastrophically that the government had to dissolve the first industry model and allow a new one to develop.  Many of the mistakes made in designing a new “competitive” structure arose from the contractual relations established between its various elements; exactly the area that Tirole’s work is supposed to have addressed.  And as translator of Tirole et al. Balancing the Banks (2010) I could extend this argument to the area of financial regulation, but that is not my purpose here.

The problem is rather the way in which economists think of competition, and the way in which this is transmitted into a public realm.  There were really no formal models of competitive processes until the later nineteenth century, when Cournot’s treatment of duopoly began to have some impact.  In 1838 Cournot had imagined a situation where two producers of bottled water shared the market; he examined the way in which two producers would come to share this market.  This was in a context where industry structure was not seriously considered to be an aspect of price formation outside of the idea that “competition” was preferable to “monopoly”.  In 1912 Pigou introduced the idea of “monopolistic competition” (Wealth and Welfare Bk. II Ch. X), but it was primarily in the United States during the 1920s that ideas about price and competition in different industry structures developed.  This was for the very good reason that, since the 1890s, there had been vigorous public debate around the “Trust Question” and the impact of Supreme Court rulings on cases related to the Sherman Act of 1890.  A significant literature on railway rates and regulation also developed at this time.  (Nobody involved in the privatisation of British Railways during the 1990s seems to have been acquainted with the vast literature on railway administration and regulation).

“Perfect competition” was first named as such in the context of an “imaginary society” and itemised in Frank Knight’s Risk, Uncertainty and Profit (1921, pp. 76ff.).  In 1927 Knight published a translation of Max Weber’s Allgemeine Wirtschaftsgeschichte, and in the mid-1930s ran a Chicago seminar on Weber’s methodology attended, among others, by Milton Friedman and Edward Shils.  It is not therefore a stretch to suggest that this itemisation of “perfect competition” was intended as a Weberian ideal type – a set of characteristics employed to organise thinking about social phenomena, not isomorphic with them, and certainly not a specification of “ideal” competitive conditions.

In the later 1920s Harold Hotelling developed ideas of competitive conditions that were suggestive of the kind of suboptimal conditions that “free competition” generates, such as a reduced range of choice and convergence on a (possibly rather average) standard product.  At the same time, Edward Chamberlin completed a Harvard PhD thesis that began from Cournot’s duopoly model, eventually published in 1933 as The Theory of Monopolistic Competition.  In fact, this was not as the title suggests an elaboration of Pigou, but an account of the persistence of oligopolistic conditions in modern markets.  Chamberlin reduced perfect competition to one essential characteristic: that the perfectly-competitive firm was a price-taker.  A monopoly was by contrast a price-maker.  He then placed these two market characteristics at the poles of a continuum, and proposed that most market behaviour could be characterised as an attempt to secure monopoly conditions.  Since it is very hard to envisage a perfect monopoly – there are generally near-substitutes at different price ranges, and various factors conspire to undermine monopoly powers – efforts by firms to secure control of markets were constantly challenged and undermined.

Nonetheless, the important message here was that “perfect competition” had very limited use as a conceptualisation of market conditions, for this was a condition firms actively sought to evade or escape.  In so doing, market behaviour became oligopolistic, firms paying more attention to the behaviour of their competitors than to that of their customers.  From this brief sketch it should be clear that Chamberlin opened up a conception of a market as a set of negotiations between agents seeking to create or retain autonomy of decision.  The game theoretic implications of this are today obvious, underlined the following year by the publication of Heinrich von Stackelberg’s Marktform und Gleichgewicht (1934), which not only argued that competitive markets lacked a mechanism imposing a unique equilibrium of price or quantity, but that the more “perfect” the market, the more unstable it became.

That is a conclusion that resonates today; for deregulation and privatisation have been aimed at the creation of “ever more perfect” markets, presuming that in so doing the engine of economic growth would be fuelled.  But as we have seen, Stackelberg was on to something: the freer the market, the greater the instability.  The era of sustained stable postwar growth had many sources, but liberal economic policy comes a very long way down the list.  The millennial fantasy that well-informed economic policy could put an end to the “cycle of boom and bust” that had developed in the 1970s only lasted as long as the current boom that was supposed to be the new normal.  So what happened to the kind of thinking about markets and competition developing in the 1930s?

My attempt to answer the question can be accessed here: EUI-93.  The development of neoclassical economics in the later 1930s, and its consolidation in the later 1940s and early 1950s, meant that the attention of economists shifted from real markets and industries to the properties of competitive models.  Oligopolistic market models are relatively intractable in this framework, since price formation depends to a great extent on a range of factors such as the nature of the product or its raw materials, industry structure, geography, and income distribution, among others.  In this situation, one appealing property of perfect competition is that it requires no knowledge of any of this.  If the firm is a price taker, decisions made by the firm and industry structure are irrelevant.  Strictly speaking, there can be no neoclassical theory of the firm, since the decisions of the firm merely reflect market conditions.  Correspondingly, in a neoclassical world deviations from perfect competition are represented by “imperfect competition”, a category representing only the presence of features that prevent the realisation of perfect competition.

None of this would matter that much if it were made clear to students that perfect competition is a way of beginning to think about competition, prices, and markets that will subsequently be left a long way behind; that it is a logical step in their training, not an ideal condition.  Further, that markets are characterised by agencies actively seeking to control them; so attempting to analyse markets in terms of perfect competition makes no sense at all.  To understand market processes, one needs to command a great deal more than an understanding of market models.  Alfred Marshall conceived the training of economists as a process in which students assembled a mental “toolbox” from which they could take instruments for the analysis of economic problems and the formation of policy.  He implied that judgement was needed, both in the choice of tools and in their application; that, therefore, the training of economists did not involve the simple inculcation of technique, but the cultivation of powers of judgement.  “Prediction” is not really so important here; rather, an informed view on likely outcomes in given situations.  And it would help if a healthy regard for the unpredictability and instability of markets ranked rather higher in such thinking.

 

Mike Hailwood and the Sports Motorcycles Ducati

In 1978, at the age of 38, Mike Hailwood made his comeback to motorcycle racing.  He had started racing in 1957, was world champion several times, riding for Honda through the 1960s.  He later switched to cars, eventually retiring to New Zealand in the 1970s.  He was always a very popular figure; you can still see his trademark helmet colours, a wide gold stripe edged with red on a white helmet, on bikers today.

Hailwood made his comeback on an 860cc. Ducati prepared by Steve Wynne of Sports Motorcycles.  This was not the obvious bike with which to go up against Hondas and Kawasakis, but perhaps Hailwood still had bad memories of the Honda 500 he had raced.  This was more camel than bike, and at one demonstration to Honda executives in Japan Hailwood is said to have stopped in front of them, unbolted one of the rear dampers, and demonstratively hurled it into a lake.  Well into the 1980s, Japanese bikes were generally thought to be indifferent when it came to steering and stopping, compared with British bikes, and especially when compared with Italian bikes.

Hailwood raced the Ducati in the Isle of Man and won Formula 1.  At the international follow-up race at Mallory Park he showed how he had done this on a very different circuit to the Island’s public roads.  He was never a showy rider, but a thoughtful one.  You can see this in this video, since Mallory is a small circuit and it is easy to follow almost every moment of the race.  His style is old school: at one with the bike, not moving around it, biding his time.  As the commentator says, one blink of an eye and you lose a fifth of a second; coming from the 37 miles of road in the Island, Hailwood masters Mallory’s short circuit too.

As you can see from the video, Mallory is a very simple track.  The start is followed by a 190 degree constant-radius bend whose end you cannot see until it is well past the time to be exiting.  There is a short straight, then a right through the Esses and up to a hairpin.  Likewise when you enter this you cannot see the exit.  There is a fast downhill left-hand sweep, the Devil’s Elbow, and you are back to the starting grid.  That is all.  I have ridden on the Oulton Park track and Mallory, and I really enjoyed Mallory.  It is simple, but its simplicity means that you have to get everything exactly right, every time.  This is what you can see Hailwood doing in this video.

Ducati first developed their V-twin racer from a 750cc. road bike.  Paul Smart track-tested the machine at Modena in 1972, having just got off a flight from Atlanta.  He had been racing Kawasakis in the USA, was short of money, and his wife fixed up a deal for him to ride for Ducati; he went because they sent him a plane ticket and promised to pay him £500.  He was unused to the broad powerband of the Ducati and its rather slow steering, since the big V twin motor dictated a fairly long wheelbase.  But a 90 degree V twin in line is the ideal layout for a motorcycle: the width of a single, the power of a twin, without the vibration of a single or a parallel twin.  Jet-lagged at Modena, at the end of the session Smart noticed that the mechanics in the pit were very lively.  It turned out that on his first outing on an unfamiliar bike he had broken Agostini’s lap record.  He went on to win the Imola 200 on the bike.

This was the original version of the bike Steve Wynne prepared for Hailwood.  He came back from retirement, won in the Island and at Mallory, then settled near Birmingham and started up the dealership where I later bought my own Ducati.  He was killed with his daughter in 1981 in a road traffic accident.  A truck U-turned on a dual carriageway and ran into Hailwood’s Rover while he was on the way to the local fish and chip shop.

The race lasts a little under 18 minutes.  To fully appreciate the reason for Hailwood’s success you will have to be patient, as he was.  He does not take the lead until about two-thirds through the race.  Then he just rides away from them all.

Translating Kafka

A sense of the flow, rhythm and simplicity that we associate with the writing of Franz Kafka is evident in the opening lines of The Castle:

Es war spät abend als K. ankam. Das Dorf lag in tiefem Schnee. Vom Schloßberg war nichts zu sehn. Nebel und Finsternis umgaben ihn, auch nicht der schwächste Lichtschein deutete das große Schloß an. Lange stand K. auf der Holzbrücke die von der Landstraße zum Dorf führt und blickte in die scheinbare Leere empor.

That is the entire first paragraph, describing how K. arrived late at a castle wrapped in fog and gloom, in contrast to the deep (white) snow under which the village lay; implying also here perhaps a deadening of sound. And in the next sentence we read that not even a glimmer of light indicated where the castle might stand. K. stood for a long time on the wooden bridge, looking up into the apparent void.

So few words, so much meaning. And this is not just a matter of lexical simplicity; there is the sibilance in the third sentence, the lack of two grammatical commas in the fourth sentence. How one translates Kafka presents the translator with many interesting problems.

I was reminded of this by a review in the TLS by Carolin Duttlinger of Michelle Woods’ Kafka Translated and Susan Bernofsky’s new translation of Die Verwandlung (Metamorphosis) (TLS 22/29 August 2014, p. 32). Duttlinger’s endorsement of Bernofsky’s translation cites the opening lines of the story, in the decision to translate “Ungeziefer” as “insect”, rather than “vermin”, which as the “literal translation of Ungeziefer, is too rodentine in association.” This is a good point, and demonstrates how a translator can steer a reader away from inappropriate association; there is no license taken here, since after all in the last sentence of the first paragraph we read of Gregor Samsa’s many horribly thin legs, dancing before his eyes.

However, the second example of Bernofksy’s translation that Duttlinger introduces highlights a questionable translation, and adds to it a questionable commentary. Bernofsky, Duttlinger writes, “instils Kafka’s text with new resonances.” This should by rights be an amber warning, but it seems to be intended as a recommendation. Gregor Samsa has returned to his room, his sister has slammed the door shut, shouted “At last!” to their parents and turned the key in the lock. He finds that he can no longer move, but he feels relatively comfortable:

Er hatte zwar Schmerzen im ganzen Leib, aber ihm war, als würden sie allmählich schwächer und schwächer, als würden sie schließlich ganz vergehen.

Bernofksy renders this as:

Admittedly his entire body was racked with pain, but it seemed to him as if it was gradually becoming weaker and weaker and in the end would fade away altogether.

Duttlinger notes that Bernofsky has shifted “Schmerzen” into the singular “pain”, hence widening the scope of the pronoun “it” to include both the pain and the entire body in what comes next – growing weaker and weaker. This is an odd reading: anyone would translate the German plural with an English singular, since that is just a property of the way English and German people talk about “pains”. In German I have “headaches”, in English “a headache”, or alternatively in German the equivalent of “my head hurts me”. This often happens in translation, that the source language uses a plural for something that in the target language is referred to in the singular – that is why French people speaking English might talk about “some informations”. Duttlinger’s comment about this translation of Schmerzen is misconceived in this respect, but she also apparently fails to note that there is no license at all in Kafka’s text for the move that follows. Kafka is quite unambiguous – it is the pain that is growing weaker and weaker, the plural pronoun “sie” referring to the pains, not the body, which is singular and a masculine noun. And so Bernofsky has introduced an ambiguity into Kafka where there was none.

Furthermore, the idea that his body was “racked with pain” is also Bernofksy’s invention; Kafka writes just that Samsa had pain in his whole body. And it would be better translated as “He did have pain in his whole body, but…”, qualifying the last word in the previous sentence, “behaglich” – comfortable, cosy. The interpolation of “zwar” downgrades the qualification slightly from something rather clumsy, like “Obwohl er Schmerzen im ganzen Leib hatte”, which would be a retranslation into German of Bernofsky’s own rendering; and shifting it clearly into a subordinate clause, which checks the flow of the text that Kafka wrote.

Quite how a translation might be “accurate” is therefore a complex question.  As I wrote in my “Note on the Text and Translation” in Fichte’s Addresses to the German Nation (Hackett, 2013 p. xxxiv), commenting on a very different writer of German, an “authentic” translation of Fichte’s florid prose might well end up making a translation as unintelligible to a modern English reader as Fichte is today for an average German reader. He was not writing for philosophers, but for Germans. I justified my approach by referring to the communicative context in which Fichte was working, reading out addresses that he had previously written, and whose prime audience was not those who attended the presentations in Berlin, but those who would subsequently read the text throughout Germany. Quite how one conveys a source text into a target language has to take into account the motivations of the target readers: why would they wish to read this text?

When it comes to works of political or economic theory, the prime flaw is often not so much a matter of style, but the simple imposition of a modern conceptual framework.  Older writers are presumed to be addressing their own problems in a manner similar to the way in which we would think about them today – recent translations of Serra and of Cantillon are clear examples of this problem. The problem of translating past texts such as these is however the precise opposite: trying to establish how problems were once conceived, and so seeking a vocabulary and style adequate to this.

As we can see from Kafka, that is only the beginning of issues about accuracy.  We read Kafka because of the way he writes, not for what he writes about.  But in thinking about the way that Kafka writes, and how that might be translated, it is easier to see the many levels of decisions that have been taken in a “good translation”.  Indeed, an over-enthusiastic translator, seeking to make a text “relevant”, or “readable”, can entirely destroy its narrative purpose.  Many years ago, I read a translator’s note to Gogol’s short story “The Overcoat”, in which the translator had eliminated many deviations, repetitions and hesitations, seeking to clean up Gogol.  But as Boris Eichenbaum made clear in his essay, “How Gogol’s Overcoat is Made”, the deviations, repetitions and hesitations were the point of the story, replicating the oral delivery of an unreliable narrator.

Thomas Piketty: Kondratiev Redux

In 1971 I went to hear Ernest Mandel give a lecture at the LSE.  He talked, as always, about the contradictions of capitalism, and the global forces that would drive it on to its eventual doom.  Whenever an event seemed out of place in this determinist story, he put it down to the “dialectic of history”.

Thomas Piketty is a master dialectician.  At several points in his book Capital in the Twenty-First Century one can read (eg. pp. 24, 90, 58, 168) qualifications to his main argument that are simply bulldozed aside in the onward march of history.  The history that he constructs has a flimsy theoretical framework, and its empirical foundation has been put through the statistical equivalent of a blender.  It is a big book, but diffusely, not densely, argued.

The analytical basis seems to be elementary neoclassical economics combined with a loose grasp of the economics of Malthus, Ricardo and Marx.  He fails to recognise that Malthus has an underlying mechanism that links population growth to output and prices; while he entirely misses the point that Ricardo’s argument for free trade was linked to his analysis of the long run tendency of the rate of profit to fall.  A deeper understanding of the arguments advanced by Malthus and Ricardo might have enabled him to develop a rather more complex and comprehensive story.

Later on in the book there is some discussion of the idea of “human capital”.  This idea is an unfortunate metaphorical blind alley given its standard form by Gary Becker’s classic work of 1964, Human Capital.  Becker here deployed lifetime returns to education and training over periods in the mid-twentieth century where life-chances depended mainly on nationality, involvement or not in military conflicts, or the sheer luck of being born in the West after the 1940s and not before.  But instead of pointing to the essential vacuity of seeking precise aggregate estimates for “returns” to “investment” in “human capital”, Piketty wonders rather whether more data might clarify the picture (p. 223).

The same kind of problem characterises his use of various formulations related to the long-term growth of economies.  The Cobb-Douglas production function, the Harrod-Domar growth model, the Solow growth model (the “Dual Sector” model of Arthur Lewis is not mentioned, but very relevant): these are all textbook tools for training students, not instruments for practical economic analysis.  Picketty treats these very elementary models as direct ways of making sense of “long-run” trends in real economies, which trends owe a great deal to the highly-aggregated nature of the data he uses.  For a Professor of Economics he has a very attenuated grasp of what economic analysis might offer.

Nonetheless, the prime weakness of this book does not lie in its rudimentary analytical framework, but rather in the way data is employed to account for the flux of economic inequality since the eighteenth century.  Chris Giles in the Financial Times highlighted the way in which conclusions were drawn from smoothed data involving very few countries – that, essentially, the trends identified in the empirical evidence are in some cases created out of aggregated constructs.  When this highly aggregated data is plugged into his simple ratios, it is no surprise that we see stable relationships over time.  That is the outcome of the aggregation, not of the “analysis”.  The level of aggregation at which Piketty is forced to work means that very often we are talking about averages of averages over long periods.  That is one reason why this post suggests that he is the new Kondratiev, whose cyclical “long waves” rested upon price and income data of dubious reliability.

There is another reason to introduce the name of Kondratiev in this context.  Piketty’s story is about long-run trends in “capitalism”.  While there is a nod to Marx in the title of his book, he largely ignores Marx’s efforts at making sense of the new business cycle of the nineteenth century.  Despite recent interest in the work of Joseph Schumpeter, who thought Business Cycles (1939) to be his magnum opus, there is only one passing reference by Piketty to Schumpeter, to his 1942 Capitalism, Socialism and Democracy.  Even if Kondratiev’s own long waves of fifty or sixty years were provided with a better empirical foundation, the underlying problem with such long-term trends is usually the absence of a unitary cause demonstrably and consistently producing the observed effect.  And if we have a number of causes, or different combinations of causes, are we really talking about the same effect?

As with Mandel, identifying a long-term trend which turns out to be made up of all sorts of apparently random and sometimes contradictory events tells us nothing about the origin, course and resolution of each event.  The grand narrative of Piketty’s r > g sheds no light at all on the real processes by which “capital” in its broadest sense is accumulated, and also suffers random destruction – as, for instance, in the Savings and Loans crisis, the severe recession in the UK housing market from 1988 to 1996, the 1997 Asian crisis, the dotcom bubble, the Argentine default of 2001, and last but not least, the near collapse of the global financial system starting in 2007.  And these are only some comparatively recent financial events that relate to issues of the “accumulation of capital” and its random destruction.

None of this is to deny that the fruits of the growth of the world economy since the early 1800s have been shared unequally, within and between nations.  Argument about this issue among British economic historians goes back at least to the 1950s, when the issue of economic growth versus the distribution of income took the form of the “Standard of Living Debate”.  To put this in perspective, we could ask today whether Robert Malthus with his £500 per annum, free house, coal and candles was not in fact better paid than any modern economist?  Of course, the question makes little sense, mainly because changes to the structure of employment over time blurs trends in individual countries, let alone continents.  So long as we depend on prices and incomes as key indicators of change in the “standard of living” over long periods of time and across large numbers of countries, the results will always be inconclusive.

They can however be augmented with other indicators to make more sense of changes in social and economic structure.  Jane Humphries has for example recently applied modern estimates of human nutritional requirements to historical English households of differing sizes and structures.  When compared with contemporary prices, she is able to draw conclusions about the level of current income, throughout the household life cycle,  required for the basic needs of its members (Economic History Review Vol. 66 (2013) 693-714).  In the early nineteenth century the question of inequality among European households can more or less be reduced in this way to the life-chances represented by nutrition and mortality.  Humphries shines a bright light into such problems of inequality in early nineteenth-century England.  In time, other factors come to play a major part, and then in turn give way to new markers: housing, sanitation, clean water, medical care, working hours, job security, education.

Income and price data have an important part in making sense of all this, but things quickly become very complex.  Sensible argument over policy, including whether there is a need for any policy, requires that this complexity be preserved and properly understood.  Whether such argument is best served by the identification of putative long-run trends is questionable; and a focus on such “trends” leads inexorably to a need for comprehensive “solutions”, like the global tax on capital which Piketty advocates in conclusion.  For that, you would need H. G. Wells’ “world government”.

 

 

Wealth & Welfare

We are about to move into a rolling commemoration of the Great War that will certainly not be over by Christmas, but promises to be an ongoing media event for the foreseeable future.  So many Australians and New Zealanders wanted to visit Gallipoli in 2015 that there would not have been room for them all on the beaches, so tickets have been allocated.  Battlefield tourism could well overwhelm the actual battlefields.  This is no bad thing, but in the process there is something that needs re-emphasis: that in among the complex impact of the Great War on Great Britain and Ireland, the perspectives of those who before the war had been in the forefront of social and political reform were shattered.  To appreciate this, we need to look back upon the aspirations and hopes of the years before the War not from the standpoint of today, but from that of the 1920s.  We need to find a way back to the prewar world that does not simply label it “prewar”.  Maynard Keynes made this point at the beginning of Economic Consequences of the Peace – that the prewar world was in some respects more “globalised”, more “modern”, than the world of the 1920s and 1930s, let alone the 1940s and 1950s.

This was the perspective of A. C. Pigou, Professor of Political Economy at the University of Cambridge since 1908.  He was elected in 1908 at the age of 30 as successor to Alfred Marshall, whose retirement had followed the publication of what quickly became recognised as the leading English-language textbook of economics in 1890, the foundation of the Economic Journal in 1891, and the establishment of the first honours economics degree in the world in 1903.  Cambridge was then, briefly, at the forefront of the new discipline of economics.

In 1912 Pigou published his book Wealth and Welfare, a work that hinged on an issue that Henry Sidgwick had first articulated in his Principles of Political Economy (1883).  Hitherto, Sidgwick noted, the “wealth of nations” was directly associated with the welfare of the populations of these nations.  The wealthier the nation, the better-off its citizens.  However, Sidgwick observed that the new emphasis upon the marginal utilities of consumers carried an interesting implication: that the more equal the distribution of wealth, the “wealthier” the nation.  As Gossen had already argued in 1854, the wealth of a whole kingdom had failed to make Louis XV “happier” than the poorest peasant; while the poorest peasant could be made “happier” with an infinitesimal fraction of the wealth commanded by his king.

Pigou’s book marked the beginning of a new genre of economic texts in Britain that would turn out to be shortlived, terminating in 1936 with Maynard Keynes’ General Theory.  Dealing with what we would call GDP, he sought to distinguish fluctuations in the growth of the economy from variations in degrees of poverty, and the manner in which redistribution from the relatively richer to the relatively poorer might be effected.

The reception of the book was overtaken by the outbreak of war.  Pigou, 36 when the war broke out, remained in Cambridge teaching, driving ambulances on the Italian front during vacations.  When conscription was introduced in 1916 he was subjected to a vicious campaign from Foxwell and Cunningham, two embittered and reactionary former colleagues of Marshall.  It was Neville Keynes, Maynard’s father, who as Registrary of the University of Cambridge handled Pigou’s plea of conscientious objection, at the age of 38 when the call-up included all males to the age of 40.

After the war Pigou played no part in the development of teaching in Cambridge.  He is more or less invisible in the Cambridge Reporter and the faculty archives.  There are no surviving papers.  He confined himself to courses of introductory lectures.  But in 1920 he published the Economics of Welfare, and with this marked the beginning of “welfare economics”.

The Economics of Welfare is a rather complicated revamp of Wealth and Welfare which I discuss in detail HERE.  But more importantly, it did not attract a great deal of attention until the fourth edition of 1932, by which time whole sections, even entire books, had been included, then expelled, from its covers.  Also of course, since the 1930s everyone has referred to the 1932 edition as if it represents a finished foundation, and entirely ignored the fact that this text was radically different from the 1920 version, which in turn was a new version of a 1912 original.  And so by looking at the progressive construction of Pigou’s Economics of Welfare it might be possible to reconsider the invention of a neoclassical “welfare economics” in the 1930s, so remote from the ideas and arguments of 1912.  The idea being that we might be able to ditch the certitudes of the 1930s that founded “modern economics”, and so find our way back to some rather more interesting ideas.

Furthermore, this perspective could well shed light on a rather more recent controversy, over Thomas Piketty’s argument about long-term changes in inequality in his recent book, Capital in the Twenty-First Century.  Much of the commentary seems to have been limited to whether his main contention about the concentration of wealth is right or wrong.  It seems fairly obvious that this is true: that we have entered a period of increasing inequality and growing impoverishment.  Whether this is something that could be comprehensively substantiated in the way Piketty wants is a different matter.  Here his leading question is suspect: “What are the grand dynamics that drive the accumulation and distribution of capital?”  Why should one need to think that there is any such “grand dynamic”?  I will take this up in my next post.