Classical philosophy does not yield a helpful method of obtaining information about the world outside. Classical economics does not yield a helpful method of explaining how men acquire food, clothing and shelter. Initially, one expects better results from economics, because it deals with homely things like wheat, onions and parlour furniture. It wastes little effort in tracking down the Good, the True and the Beautiful. But on closer examination it appears that unwarranted identifications and high-order abstractions run riot here, as in philosophy. Just because it seems to be a more practical study, the results are perhaps even more lamentable.
Says Hogben in this connexion:
Instead of inventing a scientific nomenclature free from extraneous associations, economics, like theology, borrows its terms from common speech, defines them in a sense different from and often opposite to their accepted meaning, erects a stone wall of logic on concealed verbal foundations, and defies the plain man to scale it. The part of the real world with which economics is concerned is bounded above and below by the two covers of the dictionary. Hogben finds a sample in the works of Professor Lionel Robbins of the London School of Economics. Robbins states the ‘law’ of supply and demand as a well-known generalization of price theory. When some outside body fixes a price below the market-price, demand will exceed supply. Robbins then asks upon what foundations this statement rests. Not upon any appeal to history, he says. Not upon the results of controlled experiment. ‘In the last analysis our proposition rests upon deductions which are implicit in our initial definition of the subject matter of economic science.’
Hogben, the biologist, is scandalized. Such stuff, he says, is the astrology of the Power Age. The law of supply and demand rests on a manipulation of words rather than on verified observation. The process is like a game of chess which depends on knowing the initial definition of the moves.
A subject which admits to the dignity of law, statements solely based on logical manipulation of verbal assertions forfeits any right to be regarded as a science. In science the final arbiter is not the self-evidence of the initial statement, nor the facade of flawless logic which conceals it.
Final validity in science rests on doing, on performing an operation, not on talking.
A semantic analysis of economic theory would fill a book in itself. It would be a volume both instructive and depressing. Here we have space but for a few examples. The economists are as far from agreement among themselves as are the philosophers. This strongly suggests that extrapolation and shaky assumptions dominate the field, with the scientific method undeveloped. It is a safe rule that any study where students cannot agree upon what they are talking about is outside the scientific discipline.
I employ a skilled mechanic to mow my meadow and cultivate my garden. He used to be employed in a Connecticut mill, but a new machine was installed and he and some others lost their work. So he is keeping himself and his family alive as best he can at a fraction of his former income. He was a victim of what is termed ‘technological unemployment.’ A machine took his work from him, and for a considerable period he could find no other work to do. He might have left town, but he had bought a house, his children were in school, his wife liked the neighbourhood and to take to the road was a risky venture with machinists out of work on every hand. Now what do the classical economists do with my friend Roy Thompson?
They prove by irrefutable logic that technological unemployment is impossible. I know what I am saying, for I have debated the matter in public with classical economists and can tick off the arguments with my eyes shut. The logic proceeds like this: A new machine is put into a pin factory to take the place of men. The cost of making pins is lowered. Presently competition lowers the price of pins as the machine is generally adopted. Therefore housewives spend less money for pins and have more money to spend for silk stockings. Therefore the factories making stockings employ more help and no unemployment results. On the other hand, if the first factory has a monopoly of the new machine and does not choose to lower the price of pins, the owner of the factory takes in more money. This money he either spends, let us say for a private aeroplane, or invests in a new pin factory. Workers have to build the aeroplane or the factory, giving more employment. On purely logical grounds, you cannot get round it. Employment shifts, but does not decline and the same amount of money continues in circulation. Q.E.D.
How do you get round it? You look steadily at Roy Thompson, at scores of still less fortunate Roy Thompsons. You adopt the operational approach, disregard the logic in your head and observe what is happening outside. You are careful not to generalize from one or two cases. In the world of fact, you find that men and women frequently lose their jobs to machines, to stop-watch efficiency methods, photo-electric cells, to improvements in agricultural methods. You can count them if you have the heart, leaving their benches and their tools and going out upon the street.
You can examine the curves of output per man-hour for this commodity and that and note how they have been rising for fifty years. You can halt any working man and ask him to tell you how he or his friends have lost their work from time to time because of new inventions. It is not hard to check and recheck the facts of technological unemployment. Referents for the term are very plentiful. Very good – or rather, very bad. Millions of Roys have suffered for a greater or lesser period. Do they find other work? Many of them do. Often like Roy, they learn new trades at inferior pay. But the increasing obstinacy of unemployment in the modern world indicates that many do not. Whether they do or do not, certain relevant human factors must be brought into the concept. Can Roy1, after twenty years of working at a lathe shift his skill to qualify as a linesman if men are wanted in that field? Can Roy2, after living forty years in Middletown with his roots driven deep pick up his family and move to Seattle if men are wanted on the docks? Can Roy3 now unemployed hibernate like a woodchuck and live without eating because a year hence there is to be a demand for machinists in the television industry? Can Roy4 change from man’s work in a machine shop to women’s work in a rayon factory? What kind of employment awaits him? Where does it await him? When does it await him?
It is two very different things to talk about ‘technological unemployment’ as a net statistical effect and to observe Roy in his perplexity and discouragement. If new inventions speeds up, it is obvious that more men and women per thousand are in transit from a job lost to a job hopefully to be found. And what happens if the owner of the factory does not care to buy a private aeroplane or to invest in a new pin plant? Suppose he just puts his money in the bank, and the bank just lets it stay there? For the last eight years new investments in private industry have been pitifully small compared with earlier periods. What if we have as many pin factories as prospects for profitable investment warrant?
These considerations by no means exhaust the question. But perhaps I have given enough to show that knowledge about technological unemployment, or indeed any kind of employment, is not advanced by the syllogisms of classical economists. The classicists treat the term as thing-in-itself without finding the referents which give it meaning. Most characteristics are left out. Observe the brutality of the result. If one can prove by logic that there can be no such thing as technological unemployment, then any apparent idleness must he due to human cussedness – Roy must have been a slack worker, improvident and wrong-headed – and one can lean comfortably back in one’s chair with no need to do anything about it. More, one can violently object to anybody’s doing anything about it, for this would interfere with the functioning of ‘economic law.’
‘Unemployment’ is not a thing. You cannot prove its existence or nonexistence except as a word. The validity of the concept rests on the shoulders of millions of your fellow citizens. Are they suffering because they have no work? Are their families suffering? Are the children without shoes with which to go to school? In March, 1937, I visited WPA kitchens in Savannah, Georgia, where 4,500 schoolchildren certified as underweight from malnutrition, were being fed. Savannah is neither a large city nor a city of slums. If you cannot see through the word ‘unemployrnent’ to ragged children standing patiently in line with bowl and spoon, you have no business hanging out your shingle as an economist.
Let us inspect another favorite abstraction of the economic faculty: ‘The function of business is to supply the consumer with what he wants.’ Translating this to lower levels: The function of the radio business is to supply Adam1 with a serviceable radio at a price consistent with the cost of producing it. In the fall of 1936, a leading radio trade journal made the following editorial comment:
The ear of the average consumer is notoriously cauliflower when it comes to distinguishing between good radio reception and bad. Since original boorn-boom dynamic speakers superseded early high-pitched magnetics, few improvements impinging upon the auditory organs have been sufficiently obvious to nudge obsolete receivers into oblivion without the aid of vocal mesmerisms by some retail salesman. The public eye, on the other hand, appears to be readily impressed, and we predict the best year since 1929.
Design for selling.
In short, do not build radios for the ear, because there have been no recent improvements to warrant new models; build them to sell an elegant Circassian walnut cabinet. Here are some assorted vocal mesmerisms:
What the radio industry does in the economic textbooks is one thing; what it actually does is another. The observation holds for most industries which can make more goods in a year than people buy in a year, or in more learned language, where capacity exceeds demand.
What a remarkable term is ‘business’, especially in America! How is business? – not your business, but business-in-general. Statisticians toil over composite graphs and charts to answer this mythological question. If there is no such entity as ‘business’ – and by now we know there is not – it seems a little superfluous to be constantly taking its temperature. Business says. Business speaks. Business recovers its voice. Business views with alarm. Business is jubilant when the Supreme Court votes down the NRA. Business is sick. Business is terrible. Business runs through a cycle – charming image. Business has recovered: Look at the chart – there it is, as plain as the nose on your face. Back to 1929. The curve says we are all right, therefore we must be all right. What, eight million unemployed; farmers in the Dust Bowl down and out; share-croppers reach new depths of misery? Forget it. Keep your eye on the chart.
This is pure hocus-pocus. Not only are there no dependable referents to which we can hitch the chart, but those to which it has been hitched – ‘carloadings’, ‘bank loans’, ‘lumber production’, ‘cotton-mill consumption’ – cannot he combined into any composite curve which does not violate mathematical sanity. A great mathematician, Ivar Fredholm, calls such omnibus index numbers ‘hermaphrodite arithmetic monsters devoid of all sense’. At this point we note a curious perversion of the scientific attitude. Opinions as to the health of ‘business’ are based on figures, rather than on hearsay and hunches. We are looking, we believe, at cold facts. We are scientific as hell. But the ‘facts and figures’ we look at have been mutilated beyond meaning. Some day we must give up prostrations before a phantom ‘business’, though the charts reach from Wall Street to the moon. The term ‘business’ and its faithful follower ‘service’, often prevent us from observing what useful or useless things businessmen are actually doing.
Many economists and statisticians believe it legitimate to argue that industrial prosperity after a slump will inevitably return, because their charts show ups and downs in the past. They point to the scientific nature of the ‘proof’. But the graphs a real scientist draws describe the conditions of an experiment arranged by him. They can be used safely for drawing conclusions only if similar conditions can he arranged. The humps and hollows on the economists’ charts refer to changing conditions. There is no similar arrangement and few valid conclusions are possible. The context has changed and the result must be guesswork. ‘Introducing graphs of supply and demand,’ says Hogben, ‘in a fictitious free-exchange economy does not make economics an exact science.’
A business executive with whom I am associated asked me the other day, ‘What will be the reaction of the public to the new laws for retail price maintenance?’ This was an important question, for as manufacturer, wholesaler and retailer of a commodity he had to decide a policy covering costs, prices, possible injunctions, court orders, notification to retailers and so on. Yet my colleague was trying to settle this critical matter with the aid of a ghost.
There is no ‘public’ which is a useful concept in the premises. Calling it ‘John Q. Public’ does not help. Between us, we had to break down ‘public’ into a series of interested groups – New York retailers, retailers in the West, jobbing houses, customers of various kinds – before we could know what we were talking about and arrive at a valid decision. Observe that in this case no theory was involved. As businessmen, we had to determine, by the following Saturday morning, a specific course of action involving the stability and the jobs of a considerable business enterprise.
Formal economics wanders in a veritable jungle of abstract terms. Here is a sample of the flora:
wages; the iron law of wages
interest; the long-term interest rate
profit the profit system
money: the gold standard
credit; debt; savings; securities
inflation; deflation; reflation
the law of diminishing returns
the economic man
free competition; the free market
the law of supply and demand
monopoly; the trusts
socialism; public ownership
the consumer; the producer
the standard of living
Some of these terms are useful short cuts provided one does not objectify them. But if one employs them without being conscious of abstracting, they acquire a fictitious existence. Some have no discoverable referents. ‘Value’, for instance, is as elusive as ‘the Omnipotent’. Some have referents very difficult to1ocate: ‘capitalism’, ‘individualism’, ‘inflation’, ‘credit’, ‘money’, ‘business’. Some have referents easier to locate, provided one makes the rare effort to find them.
Following Bridgman, we might prepare a list of meaningless questions in economics:
1. Does capital produce wealth?
2. Is the consumer more important than the producer?
3. What is a reasonable profit?
4. Is man by nature co-operative or competitive?
5. Is fascism a kind of capitalism?
6. What is a classless society?
7. What is the American standard of living?
8. Are capital and labour partners?
9. Are we headed for inflation?
10. Is decentralization better than centralization?
These questions are either completely meaningless, or meaningless as they stand. Given a position in time and space with further description of the terms employed, qualified answers might be found for some. For instance, Margaret Mead studied a tribe in New Guinea where habits of co-operation were very strong. A hundred miles over the mountains she studied another tribe where competition was so ferocious that it threatened survival. On the basis of these observations we might venture a qualified answer to question 4. For question 8, one can say that capital and labour are partners in the same sense that Castor and Pollux are brothers – mythological matters both.
Korzybski observes that any study to become a science must begin with the lowest abstractions available, which means descriptions of happenings on the level of sense impressions. Economic literature usually reverses this procedure, starting with high-order terms and working down. Thus you will find in Chapter I of Dr. Blank’s Principles of Economics elaborate definitions of ‘land’, ‘labour’, ‘capital’, ‘wealth’, ‘profit’, ‘money’, ‘credit’, ‘property’, ‘marginal utility’. As any two economists have great difficulty in agreeing upon the precise meaning of these terms, the treatise begins with shaky assumptions. Worse follows when the shaky assumptions are woven into elaborate systems by deductive logic. The best fun which a professor of economics apparently gets out of his academic life is to demolish the theories of his confrères. The single time to my knowledge that American economists were in general agreement was when they objected to the Smoot-Hawley tariff bill in 1930, by a joint memorandum of more than a thousand signers. That was a red-letter day in the history of economic thought.
To extend agreement and make the study of economics conform to the scientific method, it is necessary to lay aside abstract definitions and apply the operational approach, What is Rufus1 doing on his farm? What is Roy1 doing at his factory bench? What is Junius1 doing in his bank? (A bank studied on the basis of what is going on inside without recourse to abstractions like ‘credit’, ‘liquidity’, ‘soundness’, is a pretty whimsical thing.) What is Sylvia1 doing at her desk? Observe and record what a great number of men and women are actually doing in furnishing themselves and the community with food, clothing, and shelter. Then proceed to inferences. Then proceed to general rules governing economic behaviour – if any can be found. Then check the rules with more first-hand observation. Never forget Adam1 acting, the date at which he acts, the place where he acts. Fortunately some economists and sociologists are beginning to follow this programme. We find it in the studies of Middletown by the Lynds, in Ogburn’s Social Change, in Economic Behaviour and Recent Social Trends, in the studies of the National Resources Committee.
Inferences drawn by Adam Smith about the England of 1770, or by Karl Marx about the England, France and Germany of the 1850’s, are obviously worthless for the America of today. Some deductions may still he sound, but all are suspect pending operational check in modern America. To criticize American economic behaviour today, or to prescribe for its improvement because Adam Smith said thus and Marx said so, is as foolish as believing that a fly has eight legs because Aristotle said so. Both Smith and Marx used their eyes and ears more than their fellow theorists. Ricardo, for instance, might have been born blind, so pure a theorist was he.
Economic laws became in the hands of the classical school just laws in themselves. Often they were merely logical exercises. So it was that classical theory stood triumphantly symmetrical, an absolute! And so it is still too much taught. By a series of assumptions and with the use of certain chosen illustrations it can be worked up to climactically. And when the thing is complete – there you are! But the student goes away from the demonstration unsatisfied, frustrated, angry, feeling as though a logical trick had been played upon him. And why? Well, because for one thing, in the twentieth century the truth must be useful and this is not. So says R. G. Tugwell. Meanwhile Dr. Wesley C. Mitchell observes that it is impossible to prove or disprove the classical laws.
The laws and principles were developed with the industrial revolution. The Wealth of Nations was published in the same year that Watt made a steam engine which would really work – the same year, incidentally, that the American Declaration of Independence was drafted and signed. The classicists were much influenced by notions about science, but they did not adopt the scientific method. They tried to erect economic laws like Newton’s laws of gravitation, but they did not copy Newton’s operational technique. It was like a little boy making himself a choo-choo after seeing a locomotive.
Editorial writers today are still infatuated with these ‘laws’ of a make-believe science. They pull them out of their heads with pontifical finality whenever reformers or Congressmen propose a measure which editors do not like. ‘Economic law cannot so cavalierly be set aside,’ they say. ‘We cannot circumvent the law of supply and demand any more than we can circumvent the law of gravitation.’ ‘Only crackpots would seek to outwit the immutable principles of economics.’
Classical economics not only was largely innocent of the scientific method; it also became a kind of theology selling indulgences to businessmen. As factories expanded after Watt’s steam engine, a philosophy was needed to give respectability and prestige to the rising class of manufacturers. The philosophy was first identified with the ‘natural laws’ of Newton. Then it twined itself like a boa constrictor (yes, I am conscious of abstracting) around Darwin’s hypothesis of the ‘survival of the fittest’. What a handout! The greatest good for the greatest number, so ran the dogma, arises from the unimpeded competitive activities of enlightened self-interest. The faster the stragglers are bankrupted and undone, the stronger the economic frame. What appears as competitive anarchy is not really anarchy at all, but a beneficent system of control by natural forces. The big fish eats the little fish, the strong businessman eats the weak. It is all very gratifying and lovely, and as remote from reality as the labours of Hercules.
In 1798, Malthus published his famous essay on population, one of the grandest examples of extrapolation on record. The essay was in part designed to answer William Godwin’s argument to the effect that mankind could achieve happiness through the use of reason. Malthus wanted to scotch the dangerous idea that happiness was in prospect for the mass of the people. (The principle of ‘original sin’ again). So by study of the exceedingly unreliable statistics of the time, he laid down two postulates: first, that population tends to grow at a geometrical rate; second that the food supply tends to grow at an arithmetical rate. The population of England was then 7,000,000; in a hundred years if the curve was followed it would be, he said, 112,000,000. If food was sufficient for the 7,000,000 in 1800, by 1900 the supply would expand to feed only 35,000,000 – ‘which would leave a population of 77,000,000 totally unprovided for.’
This fantastic hypothesis was then solemnly applied to the problem of poverty. As population was destined to leap ahead of food supply, restrained only by pestilence, war, and famine, it followed that measures to improve the living-standards of the mass of the people were futile. ‘It is, undoubtedly, a most disheartening reflection, that the great obstacle in the way of any extraordinary improvement in society, is of a nature that we can never hope to overcome.’ That stopped the fellow Godwin in his tracks. The essay was also used for decades as conclusive proof that reform laws were pernicious. In the second edition of his essay, in 1803, Malthus relented to the point where a new element was introduced into his equations. It the poor would employ ‘moral restraint’ in their procreational activities, they might possibly gain a notch or two on the food supply. It was very cheering news to the well-to-do. The poor had themselves to blame for their poverty and even if moral restraint was widely practised, poverty was largely inevitable anyhow.
Malthus’s iron law of population was paralleled by Ricardo’s iron law of wages. This great principle put poor people in another vice. Since labour is a commodity, said Ricardo, its price goes up and down with demand. When demand for labour is slack, wages will remain at the bare-subsistence level. If demand becomes brisk, wages will rise, workers will have more money. They will then produce more children and presently the addition to the population will bring the price of labour back to bare-subsistence level again. So what is the use of trying to improve the condition of the workers?
Nassau Senior ‘proved’ that hours of labour could not be reduced, because the employer’s profit came out of the last hour of operation. A 68-hour week was common at the time. Eliminate that last hour, he said, and industrial profits would be eliminated and the business of the nation ruined. Thus if children in factories worked 67 hours rather than 68, panic would replace prosperity. Senior’s analysis was derived from theoretical examples where the arithmetic was correct but the assumptions untenable.
Senior’s contribution to economic theory proved that hours could not be reduced. John Stuart Mill and other classicists proved that wages could not be raised, by the famous ‘wage-fund doctrine’. Workers joined unions and struck for a raise. Pure madness, said the economists. Why? Because there was a certain fund set aside out of capital for the payment of wages. There was a certain number of wage-earners. Divide the first by the second. It was all arranged by Heaven and arithmetic and trade unions could do nothing about it. The wage-fund theory was the stock answer of the manufacturer and editor to the claims of organized workmen. It had been blessed by economists and must be true.
Observe how these ‘laws’ were put to tangible use, holding back improvements in working-conditions for scores of years. The philosophers produced nonsense which was at least disinterested. Many of these classical economists had an axe to grind and cruelly sharp they ground it. Not until 1876 was the wage-fund theory exploded by an American economist, Francis Walker. He argued that wages were paid not out of a fund of stored capital, but out of current earnings – a theory which came closer to the facts. It is a pleasure to note that John Stuart Mill who first popularized the wage-fund hypothesis in his Principles of Political Economy in 1848, published the following statement years later: ‘The doctrine hitherto taught by most economists (including myself) which denied it to be possible that trade combinations can raise wages... is deprived of its scientific foundation, and must be thrown aside.’ A brave, fine statement. But working people in England and elsewhere for fifty years had paid a bitter price for a ‘law’ that had no scientific foundation.
Orthodox economists have had a particularly bad time of it since 1929. Governments all over the world have been indulging in financial operations of a shockingly unorthodox character. As Chester T. Crowell points out in the New Republic, the learned faculty stands on the sidelines shouting: ‘No! You can’t do that!’ And while they shout, it is done. The economically impossible is performed again and again. For instance:
1. Mussolini simply could not carry on his vast operations in Ethiopia with a gold reserve of only $3,000,000,000. It was unthinkable. The reserve was a mere drop in the bucket; it would be gone in a month. But Mussolini did it. Ethiopia was brought to heel, and Italy is still afloat financially.
2. If a nation has a gold coverage of less than 2 per cent, obviously it has no currency worthy of the name. Panic and chaos are inevitable. It cannot hope to carry on foreign trade; its citizens will fly from their native money standard. In terms of respectable economic theory, the German financial system today is a corpse. But the corpse does not fall down. It goes right on acting as if it were alive.
3. We were all brought up on the fundamental idea that if the British Treasury ever repudiated a government debt, it would be the end of the pound sterling and of world trade. The financial backbone of the planet would be broken. Well, the British Treasury owes the American Treasury some billions of dollars, and the latter can whistle for its money. The pound remains firm, and ships still sail the seas. Because of the repudiation, Congress passed the Johnson Act, forbidding loans to warring nations, and so giving the American people one of the sturdiest defences against being dragged into war that it was ever our good fortune to secure. England’s perfidy has been our blessing.
4. A nation, we were taught, could not go off the gold standard in fact, no matter how many proclamations its statesmen made. If it devalued, prices would shoot up, and gold would still be master. The United States went off the gold standard by proclamation and most domestic prices hardly fluttered. France, which clung nobly to gold, suffered a much more severe depression than the reprobates who abandoned it.
Yes, the orthodox economists are having difficulties on the sidelines. Is the trouble with the wicked world which pays little attention to their ‘laws’, or is the trouble with the laws themselves? How valid are ‘natural laws’ which can be violated right and left?