Following is what I sent to the editor of Economic Reform as a
response to criticisms about my review of Democratic Capitalism.
He didn't like it, and chopped out more than half the content. You could
have read that part from the COMER website, but I didn't mention it here
because it doesn't engage any of your contributions. I infer from
very cryptic comment that it was going too far afield from his central
concerns. I did want you to know that I did take the comments seriously,
and have responded.
Keith
On Carey and Douglas.
In a well-taken caveat at the end of my commentary on Democratic
Capitalism (August 2005) the editor of ER demurred on its implication
of a ratings scale and preference for one man’s solution over the contributions
of others.
The warning is particularly apt with reference to C.H. Douglas, for there is
no reference at all to his name or ideas in Ray Carey’s book. Brief mention of
some aspects of Social Credit were my initiative, to point up distinctions in
Carey’s treatment from that other approach which has been receiving increasing
and favorable coverage in ER. Brevity (and haste to the deadline) were
interpreted as hostility or ignorance by some of my correspondents who are
guardians and expositors of the Douglas legacy. Their comments were predictable
and also useful as points of focus on what I perceive to be the intersection of
their objectives with the campaign of COMER.
Comments about the Carey review were of three kinds:
Democratic Capitalism as described in the review does not address the
primary problem of the economic system as analyzed by Douglas.
Skepticism by a former industrialist who has experience of modest attempts to
implement a version of democratic capitalism. He wonders if a majority of
workers can really be converted to a frame of mind and cooperative spirit that
lasts when times are bad as well as when they are good. That is, can they accept
reductions in their profit share?
Complaints that I was unfair to their side when describing the dynamics of
economic progress and its displacement of labor from productive processes,
entailing social and economic adjustments to a world that could be
"work-free".
The first is unexceptionable. Carey does not pretend that he is familiar at
all with Douglas or his political-economic legacy. He does express some faith
that the general equilibrium fantasy of neoclassical economic theorists can be
achieved if the abuses of ultra-capitalism were eliminated, but he has not made
a deliberate effort to incorporate the situation of monetary shortfall described
by Douglas. Both of them nonetheless reject that (neo-classical) theory built up
since the 1870s which tends to justify the distribution of income as a
near-inevitable consequence of "the market system" (the marginal productivity of
factor proportions). Carey’s approval of economic theorists ends with the
classical tradition, especially Smith, Marx and J.S. Mill, and he implicitly
repudiates the factor proportions theory in his views on (1) appropriate
compensation and (2) the benefits to all members of society via higher incomes
out of the increased productivity of engaged and motivated "associates".
An extreme example of the currently conventional doctrine was provided by one
of my correspondents, John Medaille, who is not a student of Douglas but does
teach political economy from the perspective of Roman Catholic social thought.
He cited a "very popular textbook used at the University of Dallas, The
Economic Way of Thinking, now in its 10th or 11th edition (by Heyne). 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.
"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." Although the text is characterized as "Austrian", Medaille notes that
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. If labor is a commodity like any other, then
its price must be computed in the same way as any other commodity. Wages, unlike
profit, are the automatic result of supply and demand curves, beyond the ken or
control of any human. Only production is interesting to the authors of this
text, and I think they are not alone among economists in thinking this way."
Medaille went on to affirm an implicit point in Carey’s treatment, that J. S.
Mill 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". Medaille then added that "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."
Whereas Carey builds on these observations to propose a managerial
perspective on making distribution different, Medaille complains that economics
is defective in not having a more "scientific" approach to it. Both of these
writers might find it useful to consider that Douglas did propose such an
approach—and that he also seems to have manifested an affinity to Catholic
social teaching. Thus a further potential linkage here is that Carey
acknowledges a strong Irish-Catholic background and education in a Jesuit
college before a counter-cultural exposure to (and graduation from) Harvard
Business School. "At Holy Cross…I majored in Business Administration. …Most of
the courses were in Philosophy, Ontology, Epistemology, Cosmology and other
ambitious subjects that Jesuits love to teach." Near his retirement from an
active business career, Carey records that he wrote to the then Dean of Harvard
Business School to describe HBS as "a soulless institution with opportunities
lost. [T]he reputation of capitalism is sinking, the reputation of Business
Schools in general is sinking, the standing of HBS is declining [relative to
others], and the performance of some HBS graduates in corporate scandals such as
Enron is an embarrassment."
Douglas emphasized the absurdity of the factor proportions theory in pointing
out that it is impossible to isolate individual contributions to the productive
process, for it is an ineluctably social product, involving not only many
contemporary contributors but also the legacy of centuries of productivity
improvements—a "cultural heritage". It is consequently absurd to conceive that
when individuals meet in a market that they are exchanging "the fruits of their
individual labors". That could only conceivably happen in a rude barter exchange
where, for example, hunters brought meat into a meeting place to exchange with
bananas offered by gatherers. (I have seen anthropological reports of just such
a system.) In modern systems, all exchange is effected through money prices. To
suppose that retail prices and the incomes that consumers are able to pay to
meet them is the seamless reflection of a circular flow of mutual contributions
and fully effective compensation for same is manifest nonsense. (As Carey points
out, Henry Ford was also onto that principle.) That is because, in the ongoing
processes of production, part of the effort must go into maintenance of the
productive environment and equipment and into its improvement and replacement.
Thus the payments left over for consumer incomes can’t quite be equal to the
full costs of production. The shortfall must be made up in some way if the flow
from production to consumption is to be maintained. But the process also means
that productive capacity has been increased. If all that is thenceforth produced
is to be consumed, therefore, there must either be reductions in prices or some
expansion in the money supply. For it would be unfair to expect producers to ask
for less than the money costs they incurred, similarly for retailers. So, how
does the money supply get expanded? Fundamentally, as students of the financial
system know, through the extension of bank loans. This engages the vehement
complaint of money reformers of all stripes that the system is exploited by the
monopoly powers granted to its players, resulting in an accumulation of
ultimately unrepayable debts that eventually reaches a breaking point in
financial panic, meltdown and the massive redistribution of individual wealth
positions. Douglas proposed a solution for that via the distribution of credits
(essentially new money) to both retailers and consumers to account for the real
increases in productive capacity.
This comment engages issues of social and individual psychology that cannot
be ignored in any realistic analysis of the contemporary scene and its
implications for the future of society. The commentator obviously believes that
the Douglas system of distributing new credits is a more reliable way of
effective product distribution and keeping the productive system humming. Once
that improved system is in place, problems of industrial harmony would be
immensely mitigated, if not eliminated.
Hurdles to implementing the Douglas solution remain immense, however, and
advocates of Social Credit might serve their cause by welcoming Carey as an
important ally, especially in respect of his analysis of ultra capitalism and
his impatience with the failures of academic political economy and its
intellectual hangers-on.
The comment on worker motivation and industrial organization bears on the
third criticism of my review, to which I now turn.
It was pointed out that Douglas never said that workers would be replaced by
mechanical robots. Instead, he made the more general observation that manual
labor is progressively displaced in the trajectory of human progress by the
harnessing of non-human (ultimately solar) energy sources. My characterization
was therefore crude. The displacement of labor and its implications for behavior
and social order nonetheless remain as the problematic element in concepts of
nirvana that look increasingly suspect as time passes from the days when Douglas
was doing his most focused thinking.
Some critics suggested that I infer unorganized voluntarism from the
increased leisure made possible by labor displacement. That is not the case. In
the 21st century it is no longer necessary to beat on the theme that
physical labor is a thing of the past. (Although I am relieved to see civilian
conscription to some essential services prescribed in a Social Credit text.) The
burgeoning array of "service industries" (including the financial "industry") is
certainly amenable to productivity improvements and hence further displacement
of "persons". But do all of the unmet needs lend themselves to modest
entrepreneurial endeavors? Technological progress seems so far to entail
progressive urbanization, and that in turn to require greater collectivization
of service activities. Sanitation, water supply, power and communications
networks, education, public health, transportation, police, border protection
and warfare all seem to be most effectively and efficiently taken care of by
large-scale organizations involving public finance, taxation and bureaucracy.
I do have a sensation that Douglas and other Social Credit writers view the
"leisure society" through rose-tinted lenses. By the time of my encounter with
the notion, in the early sixties, the bloom was already coming off the rose
(Ellul, Mumford, etc.), and I was perplexed by economistic attitudes and
practices that emphasized maximum short-term pecuniary gains regardless of the
implicated beneficiary and of impacts on non-monetary aspects of general
welfare. Those concerns brought me into the company of like-minded,
multi-disciplinary scholars ranging from psychiatrists and psychologists through
physicists, ecologists, public health specialists, engineers and humanists with
whom I explored for a couple of decades the impacts of rapidly expanding
technological prowess on the world around us and on ourselves as the human
animal. A seminal thinker in this endeavor was an engineer turned philosopher of
science (also proudly Roman Catholic as a compatriot of John Paul II) who built
an international reputation on the theme of knowledge as a serious problem for
the future of humanity. His shorthand, diagrammatic exposition of the dilemma
may be viewed in a refereed electronic journal at
http://trumpeter.athabascau.ca/archives.html
(From that archive, select Volume 20.1, 2004 to get a table of contents and
select there the article by Wilde and Caley. The diagrammatic exposition starts
after the sixth page.) It has only been in more recent years that I have had the
time to turn my attention to a long-standing but unexplored hunch that monetary
phenomena are a key element. "Ultra capitalism" is a manifestation of the
disease I sensed in economic doctrines. And it feeds in turn a social disease
described at the following website:
Dr. Sam Vaknin is a specialist in eastern European affairs generally but has
focused on gross and apparently endemic misbehaviors. These make it doubtful
that post-industrial societies can make a return to concepts of civilization as
understood in the Western tradition. The site provides links to several other of
Vaknin’s wide-ranging topics in economics and politics, which are so abundant
that I might have dismissed him as inevitably lightweight were it not for the
recommendation of a highly esteemed colleague (a professor of political
philosophy with ancillary specializations in anthropology and psychiatry). The
disease he describes is endemic to bureaucracy, but also to incomes unlinked to
responsible effort (my uneasy suspicion).
Concerns of the foregoing paragraph link the second of the criticisms above
with my conjecture that the potential and dimensions of the "leisure society" as
conceived by early Social Credit writers may be in need of some serious
re-thinking.
But the Japanese may have found a way out. Readers with an interest in
Democratic Capitalism will be enlightened by Robert Locke in "Japan,
Refutation of Neoliberalism", Post-Autistic Economics Review, issue no.
23, 5 January 2004, article 1.
Response to critic
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