Tag Archives: Distribution of Wealth

The Piketty Opportunity

One of the projects that I have been pursuing over the last year or so is now available, and Pat Hudson and I are very pleased with the way it has turned out. We planned the collection in the autumn of 2015, recruited contributors who all delivered on time, it was copy-edited over the summer and went to the printers in early October. Not only are we very grateful to all the contributors for being such good citizens, our publisher Agenda has done a truly excellent job in seeing the project through.  The details can be found here: Agenda Catalogue.

Pat and I are presenting the book at the Core Seminar in Cambridge on 10 November, and there will be a more formal launch event at the LSE on 26 January 2017.

It’s the Stupidity, Stupid!

Last September I wrote about the recent General Election and the unlikely elevation of Jeremy Corbyn to lead the Labour Party; the lack of a post since then has been, I now realise, the result of deep-seated dismay.  In Britain, the first half of 2015 was dominated domestically by the backwash of the Scottish Independence referendum; internationally, by the circus of the Greek debt crisis, where Tsipras would agree one thing in Brussels and then go home and disown what he had agreed on TV, as if nobody outside Athens watched Greek TV.

Scottish independence vanished from the public agenda of the SNP just over a year after the referendum, with the collapse of the oil price.  Scotland’s prosperity now clearly lies with the current terms of the Union.  Although it should be noted that when in 2013 it looked as though the Grangemouth refinery was to be closed, the real problem was that this one closure would take 10% of the Scottish manufacturing base with it.  In January 2016 Scotland’s non-oil and gas exports to the rest of the United Kingdom were four times that to the rest of the EU and increasing – exports to the rest of the EU had fallen 8% in one year.  So the idea that the path to prosperity lay through an independent Scotland was always a rather flaky idea.  Besides which, actually establishing an independent Scotland could well turn out as costly as the Darien project.

Much the same is true of the idea that Britain could prosper through leaving the EU.  As Philip Stephens has pointed out in the FT recently, the idea that Britain could “reclaim sovereignty” by leaving the EU is self-refuting: the possibility of leaving is itself confirmation of sovereignty.  Quite apart from the very rudimentary idea of “sovereignty” that those who make such arguments display, detached from any serious consideration of the relationships now existing between European states, or any comprehension of the government of modern polities.  Best estimates of the economic gains from membership of the EU run at about 10%: that Britain is now 10% better off than it would have been had it never been a member of the EU.  Detaching Britain from the EU, and reorganising our political, economic and social relationships with the world’s third-most important political bloc, could well chew through that in short order.  What the dawning new era would be like is anyone’s guess, but there is no particular reason to suppose that it would be any improvement on the present.

Scottish independence could well follow on from Brexit.  The turbulence of Spanish politics could well lead into Catalan independence given the reduced legitimacy of established parties.  In France there is a related lack of support for the mainstream parties of right and left, which only together seem capable of stemming the electoral advance of the Front National.  Similar stories of disaffected voters placing their faith in the politics of anti-politics can be told about Italy, Germany, Greece, The Netherlands, Denmark.  And on the other side of the Atlantic those with any commitment to serious politics look on aghast as a huckster channelling the ghost of Huey Long steadily treads his path to nomination as the Republican Party presidential nominee.

As Max Weber noted, modern politics requires the firm, slow boring of hard boards, united with passion and a sense of proportion.  Today many seem to think that passion is enough.  “People” are said to be disaffected from politics and political leadership; a new antipolitics is said to be abroad.  True enough, today some of the leading British parliamentary figures plumb new depths of shallowness.  David Cameron presents himself as an honest broker, but he seeks to save us from a mess he created in the first place by his casual approach to party politics. George Osborne, set on spending ever less to “restore our finances”, seems baffled by the way that the less “he spends”, the poorer the nation becomes.  Tariq Ali tells us in the last London Review of Books that Jeremy Corbyn articulates a national mood – clearly he does not get out much, nor has he noticed that it is Corbyn’s advisers who seem to do all the articulating, the Labour Party leader being mostly mute.

The practice of politics in a representative democracy is an unedifying sight.  Representative democracy is however what we have, and the alternatives – plebiscitary democracy, authoritarian democracy, monarchy, dictatorship, oligarchic rule, theocracy – are all much worse.  We should be grateful for what we have, not be surprised by how imperfect it is.  Our efforts should be directed to improving ourselves and those around us, not blaming remote others for not giving us what we want.  All of the countries and regions mentioned above belong to the wealthiest part of the modern world.  Even being poor in a wealthy country is very rarely much like being even reasonably well-off in a poor country, a point that Adam Smith made long ago.  Articulating this principle in discussion of Europe’s immigration crisis would be helpful.  Simply being alive is a privilege; being alive in a wealthy country confers enormous benefits on those who live there, benefits to which they themselves have directly contributed little.

There is no economic case for Brexit, but that is more or less beside the point.  Extending the line of argument above, being a citizen of an EU member state brings with it social and cultural advantages that, being taken for granted, are usually ignored.  Britain is now more like eg. Holland than it is like any other non-EU country in the world – not the same, but in many significant ways similar.  Only for tourists and a wealthy elite does the USA look anything like Britain.  The truth of this is confirmed by the progress of Donald Trump through the Republican primaries.  But even here we can find confirmation of Adam Smith’s analysis of commercial society: that its motor is emulation and vanity; translated into the political process, those who already have much of what they need respond to politicians who promise them more of what they already have, which they no longer even notice they have.

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.