Wednesday, July 30, 2008

William Graham Sumner on Social Doctors

"The amateur social doctors are like amateur physicians--they always begin with the question of remedies, and they go at this without any diagnosis or any knowledge of the anatomy or physiology of society. They never have any doubt of the efficacy of their remedies. They never take account of any ulterior effects which may be apprehended from the remedy itself. It generally troubles them not a whit that their remedy implies a complete reconstruction of society, or even a reconstitution of human nature. Against all such social quackery the obvious injunction to the quacks is to mind their own business.

"The social doctors enjoy the satisfaction of feeling themselves to be more moral or more enlightened than their fellow-men. They are able to see what other men ought to do when the other men do not see it. An examination of the work of the social doctors, however, shows that they are only more ignorant and more presumptuous than other people. We have a great many social difficulties and hardships to contend with. Poverty, pain, disease, and misfortune surround our existence. We fight against them all the time. The individual is a centre of hopes, affections, desires and sufferings...But we have inherited a vast number of social ills which never came from Nature. They are the complicated products of all the tinkering, muddling and blundering of social doctors in the past. These products of social quackery are now buttressed by habit, fashion, prejudice, platitudinarian thinking, and new quackery in political economy and social science...the greatest reforms which could now be accomplished would consist in undoing the work of statesmen in the past and the greatest difficulty in the way of reform is to find out how to undo their work without injury to what is natural and sound."

---William Graham Sumner, What Social Classes Owe to Each Other, Originally published in 1883.

Tuesday, July 29, 2008

Herbert Clark Hoover on Twentieth Century Human Resource Management

In most standard treatments of twentieth century history such as Louis Hartz's Liberal Tradition in America Herbert Hoover is painted as a conservative advocate of laissez-faire who caused the Great Depression through indifference and inaction. He is contrasted with Franklin Roosevelt who is painted as a true social democrat and harbinger of socialist progress. In New History of Leviathan Murray Rothbard does a good job of debunking this nonsensical mythology. Hoover was very much a Progressive in the early twentieth century sense, and his policies anticipated much of the substance of the New Deal. One of the sources that Rothbard cites is the reprinting of a speech that Hoover gave in November 1920 to the Federated American Enginnering Societies in the American Federationist, the journal of the American Federation of Labor (January 1921 issue, volume XXVIII, pp. 35-40).

What is remarkable about Hoover's speech is not just his warmth toward organized labor and his fulsome expression of favor toward regulation of industry and collective bargaining but also the degree to which he anticipated flexible labor relationships that characterized late twentieth century Japanese and US factories. Hoover advocates competency-based pay, cooperation between labor and management guided by collective bargaining, employee involvement in problem solving, flexible work hours to adjust for business downturns, hours of labor that vary with trades and government restructuring of labor markets to facilitate job search among seasonal workers. This last concept was being touted as innovative by labor economists of the 1990s, seventy years after Hoover discussed it. Along with the flexible work practices, Hoover advocated collective bargaining and regulation of industry. He was not an advocate of laissez-faire. One must wonder about the historians who would claim so given easily available evidence such as this speech. Allow me to quote from part of the speech:

"Among the greatest of the problems before our country -and in fact before the world- are those growing out of industrial development....The congestion of population is producing subnormal conditions of life. The intermittency of employment due to bad coordination of industry...The aggregation of great wealth with its power of economic domination, present social, economic ills which we are constantly struggling to remedy...Our mass of regulation of public utilities and of many other types of industry...is a monument to our efforts to limit economic domination...A profound development in our economic system apart from control of capital and service during the last score of years has been the great growth and consolidation of voluntary local and national associations. These associations represent great economic groups of common purpose...And to me, one question of the successful development of our economic system rests upon whether we develop the aspects of these great national associations towards coordination with each other in the solution of national economic problems or whether they grow into groups for more violent conflict...There are certain areas of conflict of interest but there is between these groups a far greater area for common interest...

"...In the question of industrial conflict resulting in lockout and strike one mitigating measure has been agreed upon in principle by all sections of the community. That is collective bargaining...

"There lies at the heart of all these questions the great human conception that this is a community working for the benefit of its human members, not for the benefit of its machines or to aggrandize individuals..."

Among the steps that Hoover advocated to encourage community of interests were hours of labor varying with trades; improvement of labor exchanges; flexible hours to adjust for business downturns; competency- or pay-for-knowledge-based wages with wage structures graded for skill; cooperation between labor and management; employee involvement in problem solving; and the use of the closed shop to encourage greater worker efficiency. The Japanese have done much along the lines of the last point with their "enterprise unions", but Hoover was not saying "company unions" or "representation plans". He used the phrase "closed shop", an approach that was illegalized under the Taft Hartley Act as granting excessive power to labor.

It is also of special interest that Hoover emphasized the role of factions or special interest groups. His hope that they would cooperate never really materialized, although as Rothbard shows during World War I and as Radosh shows during the early period of the New Deal, fascist-like regulation of the economy through governmentally-mandated cartels were attempted.

Late 19th Century Closing of America's (Economic) Frontier

In the 19th century there were two strands in American political ideology: the statist-developmental and the laissez-faire-agrarian. In the Federalist period from 1788-1800 the conflict between Hamilton and Jefferson concerned in part the extent of government intervention, taxation, central banking and centralized planning in which the federal government should be engaged. The Federalists favored a high degree, Jefferson's Democratic Republicans a lesser degree. Due to the nature of American economic development, the influence of the French physiocrats who emphasized the importance of agriculture to wealth, and Jefferson's personal background in Virginia, he coupled his belief in reduced centralized power with a belief in the importance of agriculture. The Jeffersonian perspective defeated the Federalist one in 1800, and for two decades there was a single party. Differences reappeared over centralization by the 1820s. Henry Clay's Whigs, an offshoot of the Democratic Republicans, adopted some of the impulses of the Federalists coupled with Jeffersonian distrust of big cities. Clay's American System emphasized government investment in public works and canals, economic development, central banking, and high tariffs to support business, and in these ways shared some of Madison's Federalist impulses. Thus, the American System and the Whigs were more Madisonian than Jeffersonian. Madison had initially been a Federalist, and then rejected Hamilton's more aggressively statist ideas. The Whigs' basic orientation was derived from the country philosophy but may be said to be suburban as opposed to country. Clay and the Whigs believed in balance in government and opposed the spoils system. They favored a middle course between city and country and perhaps today's love of suburban life hearkens back to the Whigs. In contrast, Jackson is most famously associated with the spoils system and central banking. The opposition to central banking is a country position but the spoils system is a court position.

Neither the Whigs nor the Jacksonian democrats were fully associated with the court and country philosophies that characterized England under George III. Historians emphasize this distinction, but by the 1830s both sides had elements of the country philosophy and both sides had elements of the court philosophy. Jacksonians believed in the spoils system, which was characteristic of the elitist court philosophy but tended to favor agrarianism, states' rights, slavery, racism, dispossession of the Cherokees and other Native Americans, and the rights of plantation farmers, the closest American class to the English landed gentry who were associated with the English country philosophy.

In contrast, the Whigs favored central banking, the corporate form of economic development, government investment in the economy and linkages between government and business, which were court philosophies. On the biggest fight between the Jacksonian Democrats and the Whigs, the Whigs took the pro-bank court position and the Jacksonians took the anti-bank country position. Clay and his followers, including John Pendleton Kennedy, Daniel Webster, and evangelical leaders like Charles G. Finney began calling their party the "Whigs" in part because they saw Jackson as an excessively strong executive. With respect to his own power, Jackson adopted a court perspective.

The Whigs combined the religious views of evangelicals who were often Abolitionists with an opposition to slavery, opposition to "manifest destiny" and expansion through war, especially the Mexican War, and rights of Native Americans, which were all anti-elitist views. Also, they were less aggressively in favor of the spoils system than were Jackson's Democrats. But they favored economic development through statist, centralized means.

Jackson, a Democrat who was in many ways Jefferson's heir, believed in the country philosophy too, but the Democratic egalitarianism was reserved for white males. As president, Jackson ignored John Marshall's Supreme Court (Marshall was a Whig, not a Democrat) and allowed Georgia to force the Cherokees to leave their settlements that had previously been established by legal treaty to march in the famous "trail of tears". The nineteenth century attacks on the Indians and racism were in large measure partisan attitudes. The Whigs opposed them, the Jacksonian Democrats favored them.

Abraham Lincoln was a Whig who implemented many of Henry Clay's ideas. This was overshadowed by the Civil War and abolition. Although the nineteenth century is remembered as a laissez-faire period, it is important to keep in mind that key improvements such as the Erie Canal and high tariffs throughout the century protected American business. Thus, big business flourished not just because of laissez-faire but because of laissez-faire and government support. It is not clear that firms would have become so large without the government support.

In the post-Civil War period the Republicans, the successors of the Whigs, adopted a more laissez-faire economic philosophy than the ante-bellum Whigs held. The reason for this may be that business had grown to the point where public works, tariffs and other subsidies became less important than they had previously been because business, to include the railroads, oil and manufacturing, had begun to grow to a point where it was internationally competitive.

The ideological assertion of laissez-faire in the late nineteenth century via the ideas of Charles Graham Sumner, EL Godkin and other "Mugwumps" was short lived. One of the characteristics of the Whigs was their strong emphasis on morality, and these late 19th century Whigs (cum Republicans) shared the belief that the economy ought to be moral and ought to inculcate morality. Thus, the apparent conflict between the corruption associated with the growth of big business, urban government-business connections and the laissez-faire ideas of the late nineteenth century Republicans created considerable cognitive dissonance. Again, it was not the laissez-faire so much as the government support coupled with laissez-faire that caused the corruption in cities. You cannot have bribery unless politicians are bribed.

This led to an odd step. Seeing the corruption in government associated with big business, Americans began to argue that the corruption could be solved by more government. This is an "infinite regress" argument that is a logical fallacy. But almost all of social democratic ideology (under the misappropriated rubrics "liberalism" and "progressivism") is based on this infinite regress. If government in the cities was corrupt and so failed to manage its relationships ethically, then the solution is to add additional layers of government. By the 1880s Charles Sumner in his book "What the Social Classes Owe to Each Other" was debating this logical fallacy, but it somehow was ignored by the advocates of social democracy. Hence, over the next 100 years, increasingly corrupt and ineffective government expanded for illogical reasons. The end products of social democracy, Enron, Worldcom, Bear Stearns and Fannie Mae are examples of corruption and incompetence on a scale that nineteenth century moralists could not have imagined.

Frederick Jackson Turner's thesis that the frontier had closed intensified a sense of scarcity as the rugged individualism of the late nineteenth century seemed to have lost its primary outlet. Moreover, in the late nineteenth century Americans increasingly looked to Germany for higher education because of the absence of research universities here. In the late nineteenth century more than 10,000 Americans obtained degrees in Germany at a time when fewer than five percent of the population had attended college. This coincided with the institution of Bismarck's social democracy, and it is natural that many of those educated in Germany would have imported social democratic impulses when they returned to the United States. This resulted in battles between the Mugwumps and advocates of the anti-laissez-faire historical school that Richard T. Ely and John R. Commons advocated in America in the late nineteenth and early twentieth century. Although institutionalist economics never became dominant in economics here, it had a strong effect on practical policy. Commons drafted the first workers' compensation laws, for example.

The laissez-faire philosophy of the late nineteenth century anticipated developments that were to occur in the twentieth century, but its advocates could not anticipate the developments theoretically and so lost the policy debate. First, the growth of corporations in large scale "trusts" and the employment of thousands of workers in a single firm or even in a single plant seemed to augur the end of individual entrepreneurship. Second, the belief of Abraham Lincoln and the Whigs that work as an employee was a temporary stop-off to self-employment was difficult to believe given the increasing scale of industry. Third, the spoils system in the cities between the 1830s and the early twentieth century had become associated with corruption and with support for the same large firms, so that the moralistic Whig impulses were violated by the growth of somewhat corrupt big businessmen like Jay Gould. Fourth, the opponents of laissez-faire emphasized the role of freedom in the growth of big business, ignoring the tariffs, land subsidies to railroads, public improvements and various other supports that government had provided to big business in order to facilitate its growth. Fifth, the advocates of dissolution of the trusts and then Progressivism ignored the fundamentally fluid nature of the economy which meant that the trusts were not permanent and were not necessarily economically viable unless grounded in efficiency. Over time, it turned out that some trusts, like Standard Oil, were efficient, but that others were not. Sixth, and most importantly, developments in the economy beginning in the 1930s began to render scale of considerably less significance in economic development. These developments included changes in the nature and rate of innovation, changes in manufacturing technology and changes in the importance of information flow to production processes. America (and the developed world) began to move from a mass scale economy where low costs were paramount to one where innovation was the most important variable. The supports to business that encouraged investment of capital in a single, large-scale firm with long production lines and large plant investments that would take a long time to recapture were no longer what was needed for economic development.

However, government policy did not change. The Progressives, failing to anticipate the coming emphasis on lean manufacturing, the transmission of information, flexibility, and the need to replace firms with new ones that were better attuned to change, emphasized policies that facilitated investment in large plants. These included regulatory regimes that deterred entrepreneurial start ups, central banking, diversion of capital to large firms and support for large firms' exports that favored large firms over small ones at the very time that fluidity and innovation were becoming more important in the economy than scale.

Sadly, the late nineteenth advocates of laissez-faire did not anticipate the importance of fluidity of the economy until the Austrian economists, Ludwig von Mises and Friderich A. Hayek discussed the impossibility of centralized economic planning. Thus, the Progressives, believing themselves to be pragmatists and to be coping with change and solving problems related to change instead developed regulatory and central banking that were forestalling economic development and change. The American frontier closed not physically but fiscally because of human inability to know the future direction of economic and technological innovation. The cognitive limits on information have been so severe, that eight decades past the point where these changes began to manifest, social democrats like Barack Obama and the New York Times continue to ritualistically harp on the importance of modernist regulation that is eight decades out of date.

Monday, July 28, 2008

Needed: An Anti-Obama Chicago Seven

A correspondent has forwarded an e-mail from David Plouffe stating that Barack Obama intends to make his nomination acceptance speech at the Democratic National Convention outdoors among 75,000 people (also see Rocky Mountain Newsarticle). Might not a creative counter-demonstration be appropriate?

>This was sent to a friend of mine on "Facebook" because she is a supporter!...

>Big Announcement: Open Convention
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Monday, July 7, 2008 at 4:46pm

>I wanted you to be the first to hear the news.

>At the Democratic National Convention next month, we're going to kick off the general election with an event that opens up the political process the same way we've opened it up throughout this campaign.

>Barack has made it clear that this is your convention, not his.

>On Thursday, August 28th, he's scheduled to formally accept the Democratic nomination in a speech at the convention hall in front of the assembled delegates.

>Instead, Barack will leave the convention hall and join more than 75,000 people for a huge, free, open-air event where he will deliver his acceptance speech to the American people.

>It's going to be an amazing event, and Barack would like you to join him. Free tickets will become available as the date approaches, but we've reserved a special place for a few of the people who brought us this far and who continue to drive this campaign.

>If you make a donation of $5 or more between now and midnight on July 31st, you could be one of 10 supporters chosen to fly to Denver and spend two days and nights at the convention, meet Barack backstage, and watch his acceptance speech in person. Each of the ten supporters who are selected will be able to bring one guest to join them.

>Make a donation now and you could have a front row seat to history.

>We'll follow up with more details on this and other convention activities as we get closer, but please take a moment and pass this note to someone you know who might like to be there.

>It will be an event you'll never forget.

>Thank you,

David

David Plouffe
Campaign Manager
Obama for America