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I agree with your second paragraph. By the late medieval period money of various denominations had come into use, and people in cities, at least, were using money regularly. But I am not sure I buy the idea that when money was in short supply, like in the 15th century, that the economy was depressed. For ordinary people times were quote good in the 15th century, or so I understand. Times were not so good for elites, for whom the chroniclers write, so an earlier generation of medieval scholars had characterized the 15th century as one of depression. The economy had shrunk of course, but so had the population to a greater degree.
If we look at an earlier time, we find things like Bolton “demonstrates that, while population growth from 1086 (Domesday Book) to 1300 at least doubled and may have tripled (from 2.0/2.5 million to 5.0/6.0 million), the money supply expanded by 27 to 40 fold:” A 13-fold growth in the amount of coinage per capita does not imply that nominal GDP per capita in England increased by that amount. At the beginning of that period a large share of economic activity was mediated through informal credit between people who know each other (economists often call this “barter” but it’s not, the credit may be measured in terms of coinage, but with coins lacking or of inconvenient denomination, an actual exchange of coins may not happen).
Here’s a plot with more detail on the medieval price revolution. The series is close to the one used by David Hackett Fisher in The Great Wave.
Drumm writes: “monetary interventions such as debasements are intended to draw hoarded coins out of hoards and to the mint.”
This doesn’t make sense. Why on Earth would debasement of the circulating coin encourage one to exchange good coin for bad? During medieval times point with bulk silver could have to minted into coins for a fee. But if you already have coin there is no need to remint it.
I am no expert, but my understanding has always been that business between parties with a long-term relationship (neighbors, relatives, friends, trading partners) was largely conducted with credit (credit preceded coinage by millennia). Coin, when available, would be used for periodic settling of accounts. Coin would also be used for business with people with whom one had a short-term or adversarial relationship (e.g. travelers or soldiers at a tavern or dealings with the state such as paying taxes). So, monarchs producing diluted coins to meet military payrolls would find themselves getting these diluted coins back as taxes, that is, bad money drives out (of circulation) good money (Gresham’s Law). The good money might no longer circulate, but it could still be used to settle credit imbalances, so its withdrawal would not necessarily affect commerce.
Today we face a similar fear of inflation by elites. At some point the stock market will begin to decline. Back in 2007 this decline began in Sept 2007. The TARP issue came a little over a year later, suggesting time to mobilize. It is possible that such a decline has begun, but I am not betting on it, but it could be. There may be potential for action later this year or next year.
So how would this work? The very best case would be if stocks begin a bear market, which then accelerates after the Fed stops QE operations. Meanwhile prices continue to rise. At this point a big chunk of the investor class would be opposed to Fed money creation to prevent stock market declines because of its inflationary connotations. Conservatives could also be opposed to this because of “money creation in service to woke capital” while leftists would understand this to be an effort to preserve capitalist hegemony in our civilization. If I understand correctly, CasP implies that capitalization (discounted future earnings) is power so a decline in this, which would happen in a stock market crash, is a positive outcome.
The question then comes, since a collapse of the economy and financial system generally leads to depression, how does this help the 99%. The answer is it doesn’t, unless one can prevent policy makers from enacting something like the TARP or QE that prevents mass bankruptcies of financial firms. If such bankruptcies happen, then, for a brief period, the 1% and the 99% have objectives that all aligned. Both want reflation of the economy. But such reflated MUST be through stimulation of aggregate demand and not from stabilization of asset values/
The answer is this would create a situation like that after the 1929 crash. The result of this crash was a bipartisan increase in the top tax rate from 24% to 63% in 1932 enacted under a Republican president. The reason was fear of inflation. The same fear drove a second tax increase to 75% in 1935 by a Democratic president and Congress and yet more tax increases after war broke out in 1941. This tax policy had unanticipated effects (from chapter 3 of my book–link below):
With the onset of income taxes in 1913, the marginal cost of executive compensation to shareholders is given by the ratio (1−TCorp)/(1−TInd), where TInd and TCorp refer to the individual and corporate tax rates. Marginal cost is the amount of after-tax earnings sacrificed by owners in order to provide an extra dollar of after-tax executive compensation. Very high values of marginal cost would be expected to discourage increases in executive compensation.
Initially, the marginal cost of executive compensation was modest; it averaged about 1.2 over 1913-1931, excluding the period of extraordinary WW I taxation. Furthermore, about half of this period fell into the economic and stock market boom of the 1920’s, during which share owners and their managers did very well. We can assume that the business paradigm was largely SP in 1929, as implied by the high level of inequality then (see Figure 2.1).
Individual tax rates went up to high levels in 1932 and remained there for nearly fifty years. The marginal cost of executive compensation rose to an average value of 3.7 over 1933-1980 and 5.2 over 1937-1963. It made little sense (particularly over 1937-63) to provide high executive compensation, as tax policy had made it very expensive. This new environment of high-cost executive compensation was associated with a lagging trend towards lower levels of executive compensation that lasted until the early 1980’s (see fig)
Executive earnings are adjusted for inflation and economic growth using per capita GDPHigher taxes would be expected to affect stock market values. During the 1930-80 period of high taxes and rising SC (as indicated by falling inequality), the stock market was valued about 30% lower than during the adjacent periods. For example, the ratio of the S&P 500 index to GDP per capita showed average values of 2.17, 1.54, and 2.42 during 1871-1930, 1931-1980 and 1981-2017, respectively. Further evidence of low-valued financial markets during the 1933-1980 period was the absence of asset bubbles or associated market crashes and financial panics. Compare this absence with the three panics in 1873, 1893 and 1907 and the 1929 crash in the pre-1933 period, and the 1987 crash, 2000 internet bubble and the 2008 panic in the post-1980 era.
In an environment of tax-constrained compensation and lackluster stock values, gaining great wealth was hard for executives. Capable pursuit of financial performance as called for by SP culture would not necessarily lead to great wealth, while the depressed market prevented their bottom-line focus to translate into high stock valuations, preventing an acquisition strategy to buy the size that led to prestige. Prestige could still be gained through aggressive organic growth strategies intended to grow large and important corporations. Such strategies require a firm to strongly hire when demand picked up, and to maintain some slack in its workforce when the economy was weak in order to respond quickly to opportunities when they arrived. This necessarily meant higher labor costs. Such strategies would be eschewed by SP managers focused on the bottom line, who would achieve greater profitability, but when compensation did not follow, they would not acquire the wealth symbolic marker. Meanwhile, SC managers, more willing to sacrifice financial performance for growth, would out-expand them, gaining market share and economies of scale that put them at a functional advantage relative to their SP peers in the competition for prestige. In a world of high taxes and depressed stock values, SC culture would prove adaptive.
link to book manuscript: https://mikebert.neocities.org/America-in-crisis.pdf
Besides income taxes, other policies that can help produce depressed stock prices include the following. Raising cap gains tax to 28% and defining long term as 1.5 years rather than 1 year (actual policy in late 1980’s). Repealing SEC Rule 10b-18, making stock buybacks illegal as was the case before 1982.
After the collapse of the Bretton Woods system in August 1971, the Fed revolution in October 1979, and the Reagan Revolution over 1981-86, the pre-New Deal world had been reestablished. The Left had been utterly defeated:
Economic inequality soared in response to the environment created by this economic policy. The issue progressives/leftists face today is what to do now? The operating assumption I will use here is it easily to get people together to oppose something rather than to build something. An counterfactual example of this for the modern era would be a Left+Right protest against the TARP in 2008. The core idea for the Left is *all* efforts to prevent financial or economic *collapse* are in the service of the capitalist ruling class and must be prevented. For the Right it is an argument against debauching the currency by “printing money to bail out bankers for their irresponsibility”. That didn’t happen either. But how would that work? Why is this a good idea?
I read some of this material. The Debt as Power material provides a program: debt strike to achieve progressive goals. The previous chapter in that work describes a program that could only be achieved as a result of revolution, which is impossible in the US today without violence at a massive scale. Much easier is to organize opposition to proposed policy.
For example, supposed leftists had combined with rightwingers in response to the Berlin Wall in demonstrations to oppose the expenditure of American treasure (deficit spending) and American boys to defend Europeans–why can’t they defend themselves? Alternatively, when the prospect of intervening in Vietnam was being discussed, organizing a similar coalition to oppose intervention. The argument for the left:it’s a war for capitalists, and no tax cuts for fat cats! The argument for the right (why spend billions and sacrifice American boys for a bunch of gooks) and why cuts rich fckrs taxes? The objective would be to prevent the deficit spending resulting from the war and its impact on the gold reserves in Fort Knox:
The implication of the figure is if the spending for the war and tax cuts avoided the decline in gold reserves would not have happened. Had this happened the gold window would not have been closed in August 1971. Gold prices would not then soar, leading to a bull market in commodities that incented commodity producers to believe they could improve their deal by using their cartel powers (e.g. OPEC) to boost prices, thus triggering the stagflation of the latter 1970’s. This led to the “October Revolution” in Federal Reserve policy in 1979 that ended real wage increases for four decades and destroyed the Labor movement.SC’s reign was short, just 40 years (ca. 1945-1985). SC has nothing to do with Alger. SC and SP are hypothetical types of business culture is a very simply cultural evolution model intended to explain how inequality (measured as top 1% income share) varies over time. Inequality is seen as a proxy for the relative amount of SP vs SC culture present at any time. Since 1916 the business economic environment has changed dramatic as shown by things like top income tax rate, which has varied between 24% and 91% since 1916. There were long stretches of time when stock buybacks with illegal and times when it was perfectly acceptable. There were times with low real interest rates and times with high rates. There were times of strong labor power (measured by strike frequency) and times with weak labor power. These environmental changes affect which type of business strategies are more likely to lead to success, and how success is translated into symbolic markers of prestige, thus leading to their emulation by other businesspersons. Emulation means the spread of the meme being emulated, which is akin to “fitness” in conventional biological evolution.
I cannot really cover ten pages of material in a post. The model development is covered in sections 3.3 through 3.6. Introductory remarks about the concept of cultural evolution are given in sections 3.1-3.2. An alternate model for inequality, that proposed by Piketty is presented and compared to the cultural evolution model in section 3.7.
I do not see how or why capitalism and the liberal creed would have any connection. It seems to me that it is perfectly possible to have one without the other. China, Vietnam, and if one accepts the idea that the USSR was actually state capitalism, are examples of capitalism w/o liberalism. True socialism is presented as a system with liberalism but w/o capitalism.
As for romanticism, I agree. The document is written to project a very friendly view of our American capitalism. But the underlying message is not all happy-clappy. You mention you were once a believer in the liberal creed. I was once a believer in elite competence.
I do not believe that there is some elite conspiracy where they are oppressing everyone. They are as clueless as our foreign and economic elites, but since they wield great power, they can (and actually do) cause much harm. Also, they are steering the country to a bad outcome. I think many people sense this. In my book I try to present an explanation for how we have come to where we are, how we successfully navigated this sort of crisis last time, and provide some ideas on who we might be able to do it a second time.
People sense America is in decline, our civilization is falling. Civilizations fall because their leaders engage in folly. Folly is when decision makers operate in what they perceive as their short term self-interest, that ends up producing a very different outcome.
In the beginning, capitalism resulted in output growth because the would-be capitalist needed to exploit some market that had not yet been fully exploited. This results in new or expanded products or services, resulting in more division of labor. For example the voyages of exploration were partly about finding products to sell at home. At first, Columbus and de Gama seeking a source of pepper, a product for which unmet demand existed. Over time, a number of recreation drugs: sugar, tobacco, rum, tea, coffee, were developed, all of which were new products to be produced alongside the existing industries.
Besides traveling overseas in search of new markets to exploit, entrepreneurs also sought to develop new products, or ways to produce existing things more efficiently, to produce industry that when harnessed to a business, generated profit. Entrepreneurs could acquire patents granting them monopoly rights over this created industry. Queen Elizabeth issued 55 patents over her reign, showing that some of this sort of activity was happening already in the 16th century, although there was significant cronyism and corrupt practices involved as well. Things became more regularized after 1623 and the rate of useful inventions creating new economic activities accelerated: eyeballing a list in wikipedia and counting what seem to be commercial (as opposed to scientific) inventions I see
1 invention in 16th cent 2nd half
2 inventions in 17th C 1st half
3 inventions in 17th C 2nd half
5 inventions in 18th C 1st half
11 inventions in 18th C 2nd half … and so on.This quickening of invention/entrepreneurship is the beginning of capitalism. The merger of natural philosophy and technology created modern science. Thus the emergence of capitalist is intertwined with the scientific revolution. The industrial revolution is the child of this early entreprenarial/scientific activity.
Not all kinds of capitalism result in expanded output. The forms of capitalism that see capital as something real do this. Among these are early capitalism and what is sometimes called stakeholder capitalism (SC). The shareholder primacy (SP) form of capitalism sees capital as purely financial. I suspect that the CasP view of capital as power reflects SP capitalism, which is largely what we have now. How SC and SP evolving into each other is described in chapter 3 of my book. With SP capitalist, output is uncoupled from the operation of capitalism. I never really thought of what the operation of SP capitalism entails, but capitalism as a mode of power (or mind-fuckery for that matter) kinda hits the nail in the head.
Marx conceived of capital the way he did because his initial take as a young man in the 1840’s was still during the early period of capitalism when it did involve output increases. Since humans provided the “life force” of economic production all output came from labor, as magnified by accumulated previous labor (i.e. capital), it was labor all the way down according to Marx. OTOH, CasP was developed at a time when capitalism was mostly SP, which would be defined in financial terms (see chapter 4 for the link between business culture and finance).
I perused the article about how strikes do not rise and fall with the rate of profit. That seems right to me. Increased strike frequency (S) would likely be associated with lower rate of profit, as I would think rate of profit to be correlated with capitalist power and so inversely with labor power (which I proxy with S).
The key factor I see is capitalist culture. SC capitalists see the objective of business as acquiring prestige within the SC paradigm by achieving “business greatness” as measured mostly be “real” measures like sales, market penetration/domination, new product development, or sheer size as measured by number of employees and number of facilities (relative to one’s industry). In CasP terms, SC capitalists use measures of prestige that reflect industry. SC capitalists see employees, plant, equipment, and other kinds of “real” capital, customers, and operating locations as assets needed to achieve business greatness”. Seeing employees as assets the SC capitalist will bargain with labor and not actively try to destroy them.
SP capitalists see the objective of business as acquiring prestige within the SP paradigm by maximizing shareholder value (market capitalization). This is mostly easily achieved by investing surplus profits in stock buybacks to boost share prices. In CasP terms, SP capitalists use measures of prestige that reflect business, which are all financial. SP capitalists see employees, “real” capital, customers, and operating locations as liabilities to be minimized. A hostile view towards workers/Labor, and the development of the concept of “platform companies” are examples of the first two. The rise of automated help lines and bidding wars between cities for siting of company facilities are examples of the latter two.
Here is my take on the issue for what it is worth. In my book (linked below) I use strike frequency (S) and top marginal income tax rate (T) to characterize the “business/economic environment” in which business culture evolves in the US. I characterize the latter as being a mix of two types: stakeholder capitalism (SC) and shareholder primacy (SP). Economic inequality, measured as top 1% income share, is used as a proxy for business culture with higher inequality indicating higher prevalence of SP culture. I fit a cultural evolution model to inequality data with and obtained an excellent fit (r-square = 0.86) with this 4-parameter model, where X is business culture (top 1% income share):
dX/dt = 0.92 X – 0.08 (23.7 – 0.07 T – 0.12S)
A plot of the fit is given in Figure 3.5.
https://mikebert.neocities.org/America-in-crisis.pdf
I see a correlation between the rate of change in S and which party occupies the White House which is given in Table 3.1. Based on this correlation I then replaced S with a binary variable indicating which party held the White House. I found I could obtain an equally good take if I assumed that Democrats acted as Republicans after 1968. That is, a Democratic administration exerted a pro-Labor effect, boosting S, between 1912 and 1968, but not afterward.
Without a pro-Labor Democratic party, S would he expected to decline regardless of which party was in power. I describe in chapter 4 how fiscal policy choices made by the Kennedy and Johnson administrations led to 1970’s stagflation during which public support for labor dried up. After this time, a pro-Labor stance offered little political gain for new Democratic candidates. Chapter 5 describes how political culture evolved in such a way to diminish Democratic support for continuing the informal alliance with Labor that had been in place since the Wilson administration.
It is instructive to extend this type of relation further back. The figure below is US government debt as a percent of GDP over time. The dashed line is when the Bretton Woods system collapsed. What we see are periods when debt/GDP is falling and periods when it is rising. Prior to the 1979 “October Revolution” in Fed policy, fiscal policy affected inflationary dynamics. For example, Table 4.1 in my book shows how fiscal balance during periods of war vs. peace in Anglo-American wars from the war of the League of Augsburg to WW I is correlated with inflation. https://mikebert.neocities.org/America-in-crisis.pdf
Periods after wars, when debt was being paid down, shown in the figure below as declining ratio of debt/GDP were exerted a deflationary effect, while periods of rising ratio had an inflationary effect. Accommodative Fed policy (low real interest rates intended to spur economic growth) is inflationary since it leads to creation of more private debt. During the postwar boom, Fed policy was accommodative resulting in strong growth. The inflationary effects of this were countered by the deflationary effects of declining debt/GDP. This downwards trend ended shortly after the end of the Bretton Woods system, which allowed the inflationary effects of Fed low interest policy to manifest as 1970’s inflation. This inflation led to the October Revolution that end the relation between fiscal balance and inflation. For the next two decades inflationary fiscal policy shown by the rising ratio in the figure was countered by tight Fed policy which controls inflation by preventing wage increases (if wages don’t rise, consumers will be more price conscious producing the desired deflationary effect). After giving China MFN status in 1999 it was not possible to exert a deflationary effect by exporting dollars overseas in return for goods (trade deficit). This affects the ratio of dollars circulating in the US relative to goods available for purchase, which should have a deflationary effect.
The figure ends in 2019 and so doesn’t show the big increase as a result of Covid. Recent experience with inflation suggests that the inflationary impact of rising debt/GDP is finally overwhelming the deflationary effect of trade imbalance and with interest rates near zero there is nothing to stop inflation. Time will tell is this is so.
I see economic production as a process by which people transform resources into output that is product inhibited. Accumulation of product shuts down its production. Capital acts like catalyst, binding with people to carry out a more rapid transformation of resources into product.
Because of product inhibition economic activity is self-limiting, unless product is cleared away. For example, an autarkic farming community will stop producing once it has enough. Once integrated with other communities in a trading system, there is a division of labor among the system members: excess product is removed from the community and traded for other products the community does not produce. In this case the community produces more output than what they need. Creating more output requires more capital to boost productivity. Division of labor goes hand in hand with application of capital.
Capitalism is an economic system in which division of labor and application of capital happens spontaneously through the action of entrepreneurial individuals, whose existence is only possible because of restraint on the part of political elites. Normally one would expect individuals who pioneer some new money-making activity and get rich would have that wealth stripped from them by some political elite. Think of the Jews in 12th and 13th century England. Foreigners were also a juicy target. The newcomer would not have the connections to defend himself. Capitalism happens when elites tolerate these newcomers sufficiently so they reach a critical mass where their collective action can affect aggregate economic output as measured in real things that matter to rulers–like army size.
You have a point on secular cycles.
You write “Yes, in actuality all these theories are really normative, ethical judgments, but I didn’t label them theories. Economists did.”
Point taken. I guess the issue I have is I cannot wrap my head around these ideas, since they are so amphorous. What do you use them for, other than establishing social norms? That would make economics sociology, to which most economists would object, I should think.
For me, capitalism has to do with growth in output per person, whether measured in terms of GDP units, military power, QUADs of power generated or what have you. It also economic in nature and has to do with economic actors–businesspersons. I think you get capitalism when businesspersons develop a “growth ethic”. Here’s a biological analogy: phages. A phage is a virus that infects bacteria, taking over their metabolic machinery and putting it work replicating phases. Capital infects businesspersons, turning them into capitalists, who now devote their lives to replicating capital.
Now this is just as analogy, just as the concept of infectious memes or social contagion are analogies. But I do think it is a cultural construct, or social technology that spread in the same way other cultural constructs do. Previously, in pre- or noncapitalist situations, successful businesspersons would spend surplus profits on land/titles of nobility, patronage of the arts (the Renaissance happened where it did because that’s was where the surplus profits were at the time), or (in China) education for their children to gain entrance to the elite mandarin class, etc. Merchants tended to have low prestige and all these things boosted one’s prestige.
Once rulers made the connection between more taxable enterprise –> more income streams–>military power–>achieving career success, they accelerate this chain of events by conferring prestige onto individuals who continued to be businesspersons. That is, elevating merchants who operated in ways that augmented the ruler’s ability to achieve success relative to their peers. Such merchants gained the growth ethic and became capitalists.
A couple of observations. These first two theories of values do not strike me as theories at all. Theories are validated hypotheses, which cannot be done before measurement was possible. Some sort of econometrics or prediction power is necessary to convert hypothesis into theory. Also, in both the case of Locke and Marx economic and moral value concepts seem entrained. How can a theory of economic value (which since economic exchange happened was a real phenomenon) be used to provide a moral justification? It can’t be logically. But it can be asserted as an act of power. Assertions of power is what these theories seem to be when I look at them.
As such I don’t see what there is to embrace. I don’t think slavery is justified so what is there to embrace from the first theory? As for the Marxist ToV, I am more sympathetic with the embedded moral value, but I find the technology/practice aspects of Marxism wanting (i.e. Marxism had a poor track record before Marx and the record afterward wasn’t any better). In the end it is a political project.
As for the third, I am not that familiar with how utils are used; I am not an economist. My understanding it was used for the development of a more mathematical theory of economics that would make economics appear to be more scientific than other disciplines, but I could easily be wrong here.
As for why I see capitalism (as I define it) as a major shift is because of the consequences it had for state power as measure by army size. The Roman Empire had been able to mobilize about 0.8% of the population in the military accord to this article:
https://historyanswers.com/what-percentage-of-romans-were-soldiers/I took some Great Power army size data I happened to have and calculated army size as a percent of population for the great powers as a whole.
Cent Army (% of pop)
16-1 0.3
16-2 0.4
17-1 0.8
17-2 0.7
18-1 0.9
18-2 1.5
19-1 1.9
19-2 2.3
20-1 11.6The 17th century great powers collectively had matched the Roman record. They then went beyond them in the 18th and subsequent centuries. The upwards shift happened before industrialization had taken place in most of the Great Powers and so cannot be attributed to that. The most logical explanation is something affecting economic output per capita like what happened in Britain in the late 17th century started happening to the other great powers in the 18th and 19th centuries. I call that capitalism, and see it as a different animal as the sorts of economic organizing common before it showed up.
