Technocracy

When I was a teenager trying to read all the books in the Nashville Public Library, I encountered some real doozies. One was an almost certainly self-published item called Behold! The Circle Squared Beyond Refutation by Heisel and Faber, 1934. As you might guess, I had to look it up, and I was mighty surprised to see that it’s been facsimile reprinted by something called the “Sacred Science Institute” that seems to publish all sorts of weird arcana.

Another real gem was The ABC of Technocracy, by Frank Arkright. The word “technocracy” means “rule by experts” and a lot of people were talking about it near the beginning of the 20th Century, people like H. G. Wells and Thorstein Veblen. But by the time the Great Depression rolled around, it had turned into a crank economic theory, holding that the problem was that the value of money fluctuated (which is mostly true), so it should be instead based on something whose value didn’t fluctuate (which is probably impossible). The Technocracists decided that money should be based on energy, with the basic unit being the erg.

I think I recall a mention of Technocracy in Martin Gardner’s Fads and Fallacies in the Name of Science but there’s no substitute for the pure uncut stuff. What I mostly recall from The ABC of Technocracy is just how tired I got of the endless repetition of the slogan, “an erg is always an erg.” (And you thought you got tired of the phrase “Guns, Germs, and Steel,” in the PBS series). Yes, from a physics standpoint it’s sorta kinda true that the erg is invariant, but from an economics standpoint, context still matters. An erg of electricity in my toaster is still more valuable to me than an erg of heat on my roof.

I’m guessing that the notion of a unit of energy as money came from the labor theory of value, the notion of Ricardo (and Marx) that all economic value is derived from human labor. Confuse “labor” with “work” and confuse the latter’s meaning in economics with it’s meaning in physics and bob’s your uncle.

Of course, even in physics, “work” isn’t the same as “energy,” since thermodynamics limits the amount of work that can be extracted from any given source of energy, but that’s hardly the most egregious error in the mix, is it?

And jeez, why the erg? I mean, that’s a tenth of a microjoule, and a joule is much closer to human scale, one watt-second, enough to lift a kilogram about tenth of a meter. An erg will lift one microgram one centimeter. What good is that? It would be like trying to base your money on micrograms of gold. That’s too small to even see.

Gold, at least, has some advantages as a commodity basis of money. It’s not a consumable, for example. It lasts more or less forever. It’s nice and compact, so it’s easy to store. It’s pretty, so you can always make a necklace out of it.

Of course any commodity-based money puts your money supply at the mercy of changes in relative commodity values. Gold in California resulted in a huge local inflation (e.g. the legendary ten dollar eggs), followed by a national inflation, which was then followed by the inevitable compensatory deflation. It was such a joy to be a commodity producer in the 19th Century, though I admit, it did beat being an inhabitant of Central America in the 16th Century.

The essential error here is confusing what are called “institutional facts” and “brute facts.” The former depend upon human institutions, like the value of money, the location of a state line, the name of the President of the United States, or, indeed, the existence of the Office of President, or even the United States itself.

By contrast, water freezing is a brute fact, as is the weight of a certain volume of gold, or the conversion of one form of energy to another. All proceed untouched by human hands.

There’s a related error here, however, and that is the notion that brute facts are somehow superior to institutional facts. One can make all sorts of conjectures and claims about “objectivity” vs “subjectivity” and the nature of human institutions and the physical world, but I rather suspect that a big part of the attraction of Technocracy and its erg-based money was the idea that scientists and engineers would run things better than politicians, bankers, or even economists. After all, energy is better understood than money, right? So why not use energy as money?

And there lies the error in the idea of technocracy in its more general meaning, “rule by experts.” It has at its center certain prejudices about what constitutes valid expertise. But a politician is an expert in his own field; if you don’t believe me, watch what happens if you try to get any given physicist elected to Congress. Everyone believes that their own job (or class, or race, or political philosophy) is more difficult and more important than the next guy’s, so why not try to gimmick the system to make sure that the “right” people run things?

And there’s no idea that is so loopy that someone won’t re-invent it:

Quoted in The Economist’s View:

A new kind of money, by Julian Darley, Alternet: The decline in the availability of cheap energy is likely to be accompanied by an equally ominous possibility of world financial meltdown. That we are facing both of these threats now is not an accident: energy and financial stability are intimately linked. I believe the solutions for dealing with these twinned threats are equally linked. To build an environmentally sustainable, monetarily stable world, we need to create an economy in which locally produced energy provides the backing for local currencies. ...

Capital vs. Money

I've just put Mark Thoma's Economist's View blog on my blogroll, which is long overdue, as I've linked to discussions there with some frequency. One interesting thing is that someone recently referred to the people there as “left wing”, despite the fact that a goodly number of them, including me, would have been called "conservative" before The Movement took over. I continute to comment on “right wing” folks, as so many of them are lost in libertarian utopianism, or else they feel constrained to follow some sort of party line, presumably because that’s who pays the bills. In matters of this nature, it's important to remember the quote from Upton Sinclair:

"It is difficult to get a man to understand something when his salary depends on not understanding it."

There's just been a little comment thread on Economist's View about the opacity of the econojargon use of the word "utility." I've also already quibbled with the economics jargon inherent in the phrase "rent-seeking behavior," and what I'm about to say is another part of the general critique of how words are used, or mis-used in economics.

Generally speaking, I find that economists don’t often distinguish between money and capital. For example, they write about flows of international capital, when they’re actually talking about money flowing from one country to the other. Sometimes this makes it hard to get at the actual real economics of a situation. For example, it is often said that the U.S. is importing a huge amount of capital from China. On the other hand, a financial instrument is also often called “capital.” Since what is actually happening is that the U.S. is importing a lot of consumer goods from China (though China is actually adding only marginally to their value, having itself imported most of the goods, with only the final assembly being done by Chinese labor), and paying for those consumer goods with U.S. Treasury bonds. Now consumer goods are rarely called “capital” while bonds often are, so it looks like the “capital flow” is going the other way. But actually, neither part of the flow looks much like what is often called “capital,” i.e. something used to assist in the production of other goods and services.

Then there is the matter of “transfer payments.” This is a phrase that seems to have been invented to describe certain sorts of governmental payments, ostensibly those without a corresponding exchange of goods and services. Often, Social Security or Veteran’s benefits are named as an example. Huh? Both of those, in fact, require an earlier service (paying Social Security taxes or serving in the military). On the other hand, paying interest on the Federal debt is not considered a transfer payment, despite the fact that on a cash flow basis, it removes money from taxpayers, and transfers it to bond holders. One can argue that there was a previous exchange for the bond, but that argument isn’t used for Social Security, is it?

If you look at the details, there is a pretty clear distinction that can be made between a sort of “capital investment” that pays returns by actually increasing the amount of wealth in the world (a factory, an apartment building, a road, someone’s education), and one that merely gives someone the right to a future transfer of money. Moreover, you’d think that libertarians would be sensitive to the notion that some of those monetary transfers absolutely require governmental power and some do not. A government bond is intrinsically based on the taxing power of government, for example, while a secured personal loan does not. (Obviously some loans require government as an enforcer of contracts, but that’s usually considered kosher in libertarian circles, and besides, something like pawning your watch doesn’t even need that).

Now it so happens that most intellectual property requires a pretty agressive government policy. IP is basically a government-mandated monopoly, and a the enforcement of IP can get pretty obtrusive, such as raiding warehouses, issuing subpoenas to third parties, etc. It’s not something we’d put up with without a pretty hefty social return (the idea is to pay for the effort of creating IP in the first place, yes?), but a lot of people seem to view copyrights especially as some sort of “natural” property, and some of those argue for copyright in perpetuity. This is not the sort of mistake that Ayn Rand would make (and indeed, she did not).

There are some very good reasons for wanting to have a lot of “store of value” items around in an economy. Personal savings are a good thing, and I do not want to be poor in my old age. I also think it’s a decent thing to have a certain amount of personal, family wealth passed down from generation to generation. Still, having such things is an invitation for the “accumulation of great wealth,” and I don’t think that the existence of truly massive multi-generational fortunes has much to recommend it. The history of it doesn’t look that good, frankly, and I’m included the effects on its supposed “beneficiaries.”

In other words, I’d like to see some more attempts by economists to separate “productive” investment from “transfer payments.” Currently, I don’t see much effort being made to even make the distinction. I understand that it’s a hard problem, but that’s no excuse for pretending that it doesn’t exist.

The Little Scotsman

The Nashville Public Library that was home to much of my misspent youth was one of the original Carnegie Libraries, built in 1904, with the book stacks in an iron skeleton and translucent glass floors that were characteristic of many libraries before electric lighting took over the world. Leather soled shoes on glass generates a lot of static electricity on dry winter days, and many was the time when the first touch to the railing on the metal stairs brought this library patron a sudden exit from the world of daydreams.

A friend taught me the trick of holding a metal coin tightly and touching it to the railing to discharge the static. I’m not sure whether this was to reduce the shock (which it did, if only by eliminating the surprise and reducing involuntary muscle contraction because of the tight grip), or to maximize the spark. Sometimes we’d get sparks that traveled a goodly inch or two, occasionally with branching, like real lightning.

Nashville got a new library building in 1965, but for years afterwards, there were still books on the stacks that bore the imprint of the Carnegie Library of Nashville.

There was a feature on Carnegie a few nights ago on the PBS News Hour. While Economics Correspondent Paul Solman did a pretty good job, given the venue and time constraints, he missed some pretty important points.

First, Carnegie actually considered himself a friend of the working man, much like Henry Ford did a while later (before Ford, like Carnegie, resorted to the hired muscle of the Pinkerton Agency). In fact, in 1886, Carnegie wrote an article defending unions. But when the workers at the Homestead steel mill began thinking of the plant as more theirs than his (culminating in a worker seizure of the plant in 1892), Carnegie took action.

But he took action by proxy. Carnegie was actually on a trans-Atlantic voyage at the time that his partner, Henry Frick (who had joined his own coke making operation with Carnegie Steel in 1881), hired the Pinkertons who laid siege to the plant. The Pinkertons lost the battle, but the incident gave the Governor of Pennsylvania the excuse to send in the state militia, who evicted the workers and strikebreakers were then used to re-open the mill.

Carnegie was in telegraphic communication with Frick during the entire episode, and his reputation as a “friend of the working man” pretty much ended in that incident. But Carnegie continued to consider himself a friend of the downtrodden to his dying day, and always blamed the Homestead “incident” on Frick. He may have used that as part of his rationalization for attempting to later screw Frick in a buyout deal in 1900.

In 1901, Carnegie sold Carnegie steel to J. P. Morgan, or, more accurately to the bank, the J. P. Morgan and Co., to form the core of U. S. Steel. U. S. Steel was capitalized at a billion dollars; Carnegie was paid $480 million, and became the richest man in the world.

Carnegie was a Spenserian Social Darwinist, but, unlike many Social Darwinists, he didn’t believe in inherited wealth as a blood right. Instead, as he had written in “The Gospel of Wealth,” he believed in the “stewardship” of society by the wealthy, and that included large doses of philanthropy. Upon obtaining half a billion in 1901 dollars (on the order of an inflation adjusted 10 billion in today’s dollars, but a vastly greater sum in terms of, for example the fraction of U.S. GNP), Carnegie proceeded to give most of it away, to foundations of varying purposes, including the building of libraries.

But here is what you seldom hear in stories about Carnegie: Yes, he built libraries and put books in them, but he did not pay the salaries to librarians; he did not pay for the maintenance and upkeep of the buildings. Those tasks were left to the cities that got the libraries. Carnegie leveraged his philanthropy with a large amount of public money; eventually far more than he had actually given.

This was social engineering on a large scale, and it used private money to sway the priorities of the public purse. I was, as I have said many times, a major beneficiary of Carnegie’s social engineering. I daresay that I was just the sort of bright, self motivated individual that he had in mind as a beneficiary. Indeed, Carnegie started his real business ascent at a telegraph operator (see “I have a Code,”and made his first stake by investing in deals that he learned of as the telegrapher, i.e., what we now call insider trading.

Andrew Carnegie is in no way any sort of libertarian, Randite, or even Spenserian
role model. A great deal of his success had to do with being fortunately the right person in the right place at the right time. He lived in a time when government was at the beck and call of wealth, and his wealth derived in part from the land grants given to railroads (which bought his steel), the use to state troops to break strikes, and a complete disregard for polluting the property (and bodies) of other people. In the end, his greatest philanthropic achievement was to divert tax money to a purpose of his conception.

Yes, I’m an heir to Carnegie’s philanthropy, and rightly glad of it. Still, we bite the hands that feed us, and when you set out to enable education, especially self-education, don’t be surprised if some of the ideas that result are not entirely what you had in mind.

Playing the Rent II – Tolls

Of all the alternatives to the jargonizing of the term “rent” by economists, I think that the most useful is probably “toll.” People generally know what it means, and they know how it differs from rent. Rent is what you pay for the temporary use of some material good. A toll is what you pay for access, usually to a transportation or communication system.

The key factor with tolls is that it is not necessary to control all of the things that may be accessed by the transport system that takes the toll. In fact, one does not even need to control the entire transport system, just a “choke point.” This is the epitome of “positional advantage,” an easily defended position that can extract value from a much larger area that need not be under the toll taker’s control or ownership.

There are a great many economic models that have been developed for the specific cases of transportation and communications tolls. In fact, there are so many such models that it is difficult to tell if there are examples of the use of toll models for more general processes, i.e. as a more specialized model for “rents.”

Consider, for example, that every major port city represents a choke point on a transport system, and hence represents some tolling potential. Some of that tolling potential is certainly captured by dock fees, local taxes on businesses, even by actual rents of property connected to the port itself.

But the situation is broader than that. Although the U.S. Constitution forbids tariffs between states, various sorts of “local” taxes still have the effect of capturing some tolls from transport. For example, diesel fuel taxes in California, a state that receives a great deal of foreign shipping, represent some monetary input from what is basically interstate (and international) commerce. Similarly, gasoline prices are observably higher near interstate highways than are prices at some greater distance, which represents a toll on highway drivers, especially those who are less familiar with the local area, where there may be cheaper gasoline sold in filling stations known to locals. It would be interesting to see a study of how gasoline prices cluster in sparsely served areas. Intuitively, large service areas, having major economies of scale, depress prices to some distance, with state taxes, etc. further modifying the economics of the situation.

On a more abstract level, controlling “barriers to entry” can probably be better considered as a toll than a rent. The vesting period for pension qualifications is a toll that is extracted from new employees—a toll that is forfeited by those employees who leave before vesting, and thereby passed on to either the remaining employees, the firm, or both.

This feature, incidentally, is one of those places where, in the past, unions have shown their darker side. A long vesting period allows a union to claim to have obtained great benefits from negotiations, but those negotiations result in greater privileges to current employees at the expense of those newly hired. In recent years, this tendency has grown, as union contracts have sometimes resulted in “multi-tier” pay and benefit schemes, with current employees grandfathered into the greater benefits. This has also often led to the selective firing of employees who near the time of greater benefits, as they become more expensive to the firm. One might suggest that this shows the folly of allowing wedges to be driven into group and class divisions, but such divisions are, sadly, typical when large groups such as employees, deal with smaller groups such as professional managers.

The academic/professional/guild model of employment also has elements of toll taking. The current professionals (tenured professors, physicians, guild members), benefit from the labor of would-be entrants (doctoral candidates, interns, apprentices), who are paid what would be a less-than-market wage, with the promise of later ascending to the ranks of the privileged. Added to this toll taking is a generous dollop of risk; many of the candidates for entry fail to achieve their goal, and the ongoing labor of their class fuels the much smaller class of those who have achieved entry.

Thus, we reach the next method in which wealth is accumulated and transferred from the efforts of the many to the hands of the few: lotteries and gambling. And that is a big subject, so I’ll stop for now.

One out of Two Inevitables

We're heading into tax time again and there is the usual gnashing of teeth throughout the land.

In my first real job out of college, one year I got a big raise. This was back in the 1970s, and when my first paycheck reflecting that raise appeared, it was pretty disappointing. Turned out my marginal tax rate was just short of 50%, which isn’t wonderful.

I took account of my circumstances, however. I was working in environmental science, primarily on contracts that were either from government agencies, or from companies that were doing the work almost entirely because of various regulatory mandates. So I shrugged and said to myself, “the government giveth and it taketh away,” and refused to get too upset about it. The linkage was even more apparent during the Reagan years when taxes went down, but so did the money going to environmental research.

One of the flanks of the right wing is manned by the gold bugs, people who decry “fiat money” and want every dollar (or whatever) to be backed with something “real” like gold. It was either Ayn Rand or one of her acolytes who made a statement that all that backed up fiat money was the willingness of the government to tax the populace. They thought that was a bad thing.

But really now, the history of gold-backed currencies isn’t that pretty, matching every inflation with a painful deflation, yet still hostage to the international flows of specie, new mining (and other) discoveries, etc. Making your currency hostage to a single commodity might not be the best plan.

Then too, we have all those SF stories about what happens when gold is synthesized, or otherwise made cheap (Fred Hoyle wrote one about a solid gold asteroid landing in England). There’s nothing particularly natural or inevitable about the love of gold, and men’s willingness to accept it as a medium of exchange and store of value. Also, the conflict between “medium of exchange” and “store of value” can conflict. Convertible currencies are very good at producing “bank runs,” among other things. Bank runs seem quaint now, with many people only having seen on it “It’s a Wonderful Life.” Thank god.

On the other hand, consider the system that we actually have: the government issues currency (I’m greatly simplifying, of course), uses it to buy things, then goes out and demands it back in the form of taxes. That last part is important; it’s what gives money its value. The tax man shows up, you hand him “legal tender” and he goes away. Such a deal. You’d rather have to give him something with intrinsic value?

Just incidentally, although he became a gold bug in his later years, Heinlein gave one of the best capsule descriptions of the virtues of “fiat money” in Beyond This Horizon. You could look it up.

People do, naturally, want assurances that their tax money is spent on things that are good for them, and not on things that are bad for them. Politics arises when people differ on what those things are. Politics also occurs because many people would like a free ride (I wouldn’t have been annoyed if I’d not had to pay taxes on my earnings back on my first job). All that is common and natural.

It’s also common and natural for people to invent philosophies to make things they want seem like universal truths and absolute good. When people have a lot of money, they even spend some of it on think tanks and sycophants who will do the rationalizing for them. And one of the outputs of the sycophancy of the past several decades has been an attack on the very idea of taxation.

But there is a difference between taxation and theft, and that is the rule of law. An attack on the legitimacy of taxation is an attack on the legitimacy of government, and an attack on the legitimacy of government is an attack on the rule of law.

Of course, it’s possible to turn the chain of causation around: illegitimate governments destroy the rule of law and often destroy the legitimacy of money as well.

Fighting City Hall IV – Property and Money

“The Hobo Code says that if you put something down you’re done with it.”
– U. Utah Phillips

Modern property law considers “ownership” to be a bundle of rights, which can then be unbundled and traded (sold), according to the will of the owner in accordance with the law. We should also bear in mind the difference between “real” property (land plus what’s built upon it i.e. real estate), “chattel” or “personal” property, which is moveable (so a building can be chattel if you move it somewhere else), and “statutory property,” which includes some things which are called “intellectual property,” like copyrights and patents, but also things like broadcast licenses and commercial airline travel routes.

Property is both a matter of Custom and Law (Command, in my previous alliterative list). Without Custom, no amount of Law will hold; without Law, the intricacies of a modern society are intractable. But Custom is a popular conception and it often does not correspond to what the Law says.

There was, for example, the big kerfluffle that recently erupted over the use of Eminent Domain by a city in Connecticut to take a number of private homes to turn them over to a developer to build a shopping mall. This was seen as an unjust “taking” by many people, because it used government power to transfer property from one group of private citizens and hand it over to another group, for no “greater purpose” than to enhance the tax base of the city.

It was and is unclear to me how this differs from the huge land grants that were given to railroads in the 19th Century, except possibly that the railroads gave lots of stock to the legislators who voted for such patronage, nor how it differs from more recent “takings” of homes for airports (I personally know some folks who lost their homes to an expanding Nashville International Airport). One may hold that “transportation benefits everybody,” but in fact, these cases benefited the private railroads and airlines. That the public may use them for transportation is quite true; the public can shop at a shopping mall as well.

And trust me, the folks who lost their homes to the airport thought it just as unfair as those Connecticut citizens who lost theirs.

But shopping mall developers have clout with city governments, while homeowners have clout with state legislatures, and besides, it made a good story on cable news, so a lot of states have now passed laws that limit the power of cities to do this sort of thing. I bet they haven’t restricted the states themselves all that much, however, and they can’t do anything about the Federal Government’s powers of Eminent Domain, not that the Feds would ever use them for the benefit of private corporations or anything.

I recently saw an article in the Wall Street Journal about another interesting property situation in Vermont. It turns out that there are a large number of unmarked and little used (often to the point of invisibility) roads in Vermont that go through private property, often property that has recently been sold to owners who had no idea that road easements ran through their property. One particular problem with the situation is that many of the new owners are new to Vermont, so they were not only ignorant of the easements, but also they were accustomed to different Customs, as it were. They would put up “No Trespassing” signs where the local custom was free access across neighboring properties.

When different Customs clash, the Law inevitably becomes involved, and things can get messy. Often one party or another (or both) gets Coerced.

The clash is caused by Other People, of course, and as Sartre famously noted, Hell is Other People. There’s always someone who has a vision of how Heaven should be constructed.

The Randites and the Libertarians put their faith in the perfection of the philosophy of Property, specifically Private Property. I’ve even seen arguments to the effect that there should be no such thing as public property, and the idea that there are some things that shouldn’t be property at all seems to be alien to them.

Criticisms of Libertarian and Randian philosophies are numerous and targets that big are hard to miss. But what I’d like to observe here is the curious way that their proponents (the right wing variants, anyway) choose to deal with the individual/group question. Ayn Rand in particular was adamant that “power over people” was not her aim, yet she chose to elevate the idea of private property to a Stirnerian “fixed idea.” Yet private property as a concept makes no sense except as it controls the actions of people. The fabled man-alone-on-a-desert-island has no need of it; he can do whatever he can to everything he can do it to.

Ayn Rand chose the dollar sign as her symbol, a bit of “political incorrectness” before the term was ever used (it is the same as present day political incorrectness in that flaunting it was entirely safe; indeed, all she was doing was lauding something that is almost universally desired, an action approximately as risky as saluting the flag). Money is the essence of trade and property, the medium of the exchange of property. Money conveys vast power over people, and without people, money is worthless.

The left libertarian Karl Hess once spoke about men (invariably men) who bragged to him about their “individualism,” their separation from the common herd. Who were they? Typically, he noted, they were commodity traders and the like, people whose lives and livelihoods depended entirely on playing a complex game with other people for money. Competitive they might be, but individualists? Spare me, Hess said, with a note of genuine pity in his voice.

But money has this going for it: it reduces the actual personal interactions you must have with your fellows. Often this is a good thing; if I am tired and out of sorts, I may not wish to have to follow the social niceties with every single person with whom I transact business on a given day. There are times when the credit card reader at the gas pump, or the automatic vending machine are as much of society as I wish to deal with for a while.

Money, of course, is attractive just for the material possessions it can buy, and the power that it gives you over other people’s actions. You can pay people to do things they’d never do for you if you had to convince them to do it for free, and they’ll do a better job of it than if you were using force or other means of coercion.

But money is also a means of keeping score, and it’s a way for people with poor social skills to achieve a position in society that they would otherwise never have. It’s even a way for some to tell themselves that they are individualists, when everything they do is predicated on accumulating something that has no value except in relation to other people.

”You know what I did? I went down to this place where they had a lot of food and I got a lot of it and put it into a basket. There were people at the door and I gave them some little engraved slips of paper so they’d let me take the food with me. You know what? They fell for it.”
– from the “Dear Friends” radio show by Firesign Theater