Sweden stunned by third night of rioting

Wednesday, May 22nd, 2013

Hundreds of “youths” have set fire to cars and attacked police and rescue services in Stockholm’s suburbs:

“We’ve had around 30 cars set on fire last night, fires that we connect to youth gangs and criminals,” Kjell Lindgren, spokesman for Stockholm police, said on Wednesday.

Yes, the key feature is that they are youths:

The riots appear to have been sparked by the police killing of a 69-year-old man wielding a machete in the suburb of Husby this month, which prompted accusations of police brutality.

I can see why the youths would feel such strong solidarity with a 69-year-old man and would be baffled by police brutality toward him for the simple act of wielding a machete.

So, what are the real issues?

While average living standards are still among the highest in Europe, governments have failed to substantially reduce long-term youth unemployment and poverty, which have affected immigrant communities worst.

Ah, long-term youth unemployment and poverty. Yes, yes, terrible that this youth unemployment is afflicting these immigrant communities:

Some 15 percent of the population is foreign-born, the highest proportion in the Nordic region. Unemployment among those born outside Sweden stands at 16 percent, compared with 6 percent for native Swedes, according to OECD data.

Among 44 industrialized countries, Sweden ranked fourth in the absolute number of asylum seekers, and second relative to its population, according to U.N. figures.

All this despite Sweden’s generous welfare benefits…

The Case Against Empathy

Monday, May 13th, 2013

Paul Bloom presents the case against empathy:

The key to engaging empathy is what has been called “the identifiable victim effect.” As the economist Thomas Schelling, writing forty-five years ago, mordantly observed, “Let a six-year-old girl with brown hair need thousands of dollars for an operation that will prolong her life until Christmas, and the post office will be swamped with nickels and dimes to save her. But let it be reported that without a sales tax the hospital facilities of Massachusetts will deteriorate and cause a barely perceptible increase in preventable deaths—not many will drop a tear or reach for their checkbooks.”

You can see the effect in the lab. The psychologists Tehila Kogut and Ilana Ritov asked some subjects how much money they would give to help develop a drug that would save the life of one child, and asked others how much they would give to save eight children. The answers were about the same. But when Kogut and Ritov told a third group a child’s name and age, and showed her picture, the donations shot up—now there were far more to the one than to the eight.

The number of victims hardly matters—there is little psychological difference between hearing about the suffering of five thousand and that of five hundred thousand. Imagine reading that two thousand people just died in an earthquake in a remote country, and then discovering that the actual number of deaths was twenty thousand. Do you now feel ten times worse? To the extent that we can recognize the numbers as significant, it’s because of reason, not empathy.

In the broader context of humanitarianism, as critics like Linda Polman have pointed out, the empathetic reflex can lead us astray. When the perpetrators of violence profit from aid—as in the “taxes” that warlords often demand from international relief agencies—they are actually given an incentive to commit further atrocities. It is similar to the practice of some parents in India who mutilate their children at birth in order to make them more effective beggars. The children’s debilities tug at our hearts, but a more dispassionate analysis of the situation is necessary if we are going to do anything meaningful to prevent them.

A “politics of empathy” doesn’t provide much clarity in the public sphere, either. Typically, political disputes involve a disagreement over whom we should empathize with. Liberals argue for gun control, for example, by focussing on the victims of gun violence; conservatives point to the unarmed victims of crime, defenseless against the savagery of others. Liberals in favor of tightening federally enforced safety regulations invoke the employee struggling with work-related injuries; their conservative counterparts talk about the small businessman bankrupted by onerous requirements. So don’t suppose that if your ideological opponents could only ramp up their empathy they would think just like you.

On many issues, empathy can pull us in the wrong direction. The outrage that comes from adopting the perspective of a victim can drive an appetite for retribution. (Think of those statutes named for dead children: Megan’s Law, Jessica’s Law, Caylee’s Law.) But the appetite for retribution is typically indifferent to long-term consequences. In one study, conducted by Jonathan Baron and Ilana Ritov, people were asked how best to punish a company for producing a vaccine that caused the death of a child. Some were told that a higher fine would make the company work harder to manufacture a safer product; others were told that a higher fine would discourage the company from making the vaccine, and since there were no acceptable alternatives on the market the punishment would lead to more deaths. Most people didn’t care; they wanted the company fined heavily, whatever the consequence.

These Happy Golden Years

Monday, May 13th, 2013

American society is increasingly stratified, Sean Reardon says, because elite parents are investing so much in the cognitive enrichment of their kids, but the real cause, Megan McArdle notes, could simply be that all the people who are really good at school are marrying other people who are really good at school and having children who are really, really good at school:

Recently, I came across a copy of These Happy Golden Years (the final book of the Little House on the Prairie series) in a used bookshop. I couldn’t resist buying it; I spent so many happy hours with those books as a kid.

You read it differently as an adult, of course, and one of those things that struck me is that Almanzo Wilder doesn’t seem to be nearly as smart as his wife. Laura obviously liked school, and was good at it, from an early age. Almanzo hated it, and wanted to finish as quickly as possible. There’s no evidence that he reads or otherwise occupies himself with intellectual pursuits in his spare time. Laura doesn’t seem to find that strange, or to resent it; both contemporary reports and the way she writes about her husband makes it clear that she still loved him, all those decades later.

But today we’d find it hard to believe that those two could marry and be happy; what on earth would they talk about? Laura Ingalls would quite likely have gone to an elite school, and probably graduate school, then moved to a coastal city, and eventually married another bookworm. Almanzo Wilder would be married to someone like him, a hard worker who nonetheless found school tedious and left as quickly as possible. And when their two sets of children showed up at school, their test scores would be very different.

Instead they had one child, Rose Wilder Lane, who became a very talented short-story writer (her collection, Old Home Town, is a very fine and somewhat brutal study of the Missouri town where she grew up.) They could just as easily have had a child like Almanzo, whose talents lay in other directions. But the more that the educational elite clusters together, the less likely that is. And the higher the educational barrier to high-paying professions, the more tightly high income will seem to be linked to the educational proficiency of your kids.

Bundling

Saturday, May 11th, 2013

No, you’re not paying for all those channels you never watch, I’ve said before, and now Alex Tabarrok explains bundling more formally for his MRUniversity course on media economics:

The Debt We Shouldn’t Pay

Tuesday, May 7th, 2013

Robert Kuttner reviews David Graeber‘s Debt: The First 5,000 Years as a way of saying cancel the debts (and redistribute the land):

Graeber, an American teaching at Goldsmiths, a part of the University of London, begins his book with an anecdote. He is attending a garden party at Westminster Abbey. The guests are international activists and do-gooders, corporate liberals as well as antiglobalization radicals. He falls into a conversation with a lawyer for a foundation and explains his involvement in the campaign to stop the International Monetary Fund from imposing austerity on third-world nations. He mentions the biblical Jubilee, in which Hebrew kings periodically proclaimed debts forgiven.

“‘But,’ she objected, as if this were self-evident, ‘they’d borrowed the money! Surely one has to pay one’s debts.’”

Graeber reminds her that even in standard economic theory, “a lender is supposed to accept a certain degree of risk.” Indeed, the higher the anticipated return, the more likely the danger of default. Yet the premise that “surely one has to pay one’s debts” is so persuasive, Graeber writes, “because it’s not actually an economic statement: it’s a moral statement.” A debt, by definition, is something you owe that must be repaid.

Despite his twenty years as a columnist for Business Week, Kuttner never really addresses the nature of corporate debt and how it might contrast with either personal debt or public debt.

When ordinary people think of debt, they think of personal debt — improvident people borrowing money to buy things they don’t really need, and to buy them now, rather than later.

In business though, debt isn’t a way to conspicuously consume beyond your means; it’s a way of financing your enterprise. The other way is equity, or shares of stock. Historically most outside financing was debt, because owning a share of the business meant becoming part-owner of the business, with all the liability that entailed — and only earning your share of whatever profits the real owner cooked the books to show.

Eventually business law matured to the point where the owners of joint-stock companies faced limited liability, and firms could declare bankruptcy. Kuttner touches on this without emphasizing how different this is from modern personal bankruptcy used to discharge credit-card debt:

My own research explores a pivotal event in the history of debt — the invention of modern bankruptcy, in 1706, by ministers of Queen Anne. Before 1706, bankruptcy simply meant insolvency, and the bankrupt was packed off to debtors’ prison. It dawned on the reformers of the day that this practice was economically irrational. As the legal historian of bankruptcy Bruce Mann wrote, “it beggared debtors without significantly benefiting creditors.” Once behind bars, a debtor had no means of resuming productive economic life, much less satisfying his debts. In this insight was the germ of Chapter 11 of the modern US bankruptcy code, the provision that allows an insolvent corporation to write off old debts and have a fresh start as a going concern.

The British devised the concept of legal discharge from debt not out of a sudden attack of compassion but because the economic crisis of the 1690s had put much of the merchant class in jail. The cause was not improvident or immoral behavior on the part of debtors, but general economic dislocation beyond their control, caused by the confluence of bubonic plague, recent wars with France, and a storm that devastated the merchant fleet in 1703. The future novelist Daniel Defoe was a leading pamphleteer promoting the idea that debtors might settle with creditors at so many pence to the pound and then have their debts legally discharged. Defoe had himself spent some months in debtors’ prison in 1692 and 1693.

But when the law was finally enacted, allowing a magistrate to settle debts with partial repayment, only substantial merchants could qualify for relief. Common debtors still languished in jail, since their penury had scant wider consequences. Yet an important conceptual breakthrough had occurred. Canceling some debts was deemed economically efficient. Legal historians such as Bruce Mann have observed that, for capitalism to proceed, it was necessary to shift the economic thinking and legal policy governing debt from moral questions to instrumental ones.

Modern Chapter 11 bankruptcy is not old-fashioned bankruptcy. That‘s Chapter 7 bankruptcy, where the business ceases operations, and a trustee sells all of its assets and distributes the proceeds to its creditors.

Modern Chapter 11 bankruptcy often wipes out the shareholders — the former “owners” — but allows the company to continue operations, if it is worth more to its new owners — the creditors — as a going concern than as a simple jumble of assets.

Kuttner sees this as a double standard:

The double standard in debt relief that favored large merchants, present at the creation of bankruptcy law in 1706, persists today in many different forms. It gets surprisingly little attention in the debt debates. Despite the tacit assumption that “surely one has to pay one’s debts,” the evasion of repayment is both widespread and selective. Corporate executives routinely walk away from their debts via Chapter 11 of the national bankruptcy law when that seems expedient. Morality scarcely enters the conversation — this is strictly business.

Even more galling is the fact that the executives who drove the company into the ground often keep control by means of a doctrine known as debtor-in- possession. A judge simply permits the company to write off old debts, while creditors collect so many cents on the dollar out of available assets. Every major airline has now been through bankruptcy, and US Airways has gone in and out of Chapter 11 twice. In this process, all creditors are not created equal. Since banks typically have liens on the aircraft, bankers get paid ahead of others. Major losers are employees and retirees, since Chapter 11 allows a corporation to break a labor contact or reduce pension debts. Shareholders also lose, but by the time bankruptcy is declared, the company’s share value has usually dwindled to almost nothing. Much of the private equity industry uses the strategy of acquiring a company, taking it into bankruptcy, thus shedding its debts, and then cashing in on its subsequent profitability. Despite the misleading term private “equity,” tax-deductible private debt is the essence of this industry, which relies heavily on borrowed money to finance its takeovers.

Homeowners, however, are explicitly prohibited from using the bankruptcy code to reduce their outstanding mortgage debt.

Kuttner clearly sees debt along the progressive-liberal oppressor-oppressed axis of Arnold Kling’s three-axis model. Big creditors are oppressors. Small debtors are oppressed. End of story.

Lisa Turner on Organic Farming

Monday, May 6th, 2013

Russ Roberts talks to Lisa Turner about her organic farm — and her employees:

So we hire some high school kids. And they are lovely people. But usually it’s one of their first jobs, like maybe they’ve mowed the lawn for their neighbor or maybe they did some babysitting. But by and large we’re their first job.

So, everything else that’s happened in their life has happened for their benefit. They’ve gone to summer camp — that was for their benefit. They’ve gone to school — that was for their benefit. We as parents certainly do everything we can to benefit our children. And then they come to me and — yeah, there are a lot of programs that go on in the summer. And that’s not what this is. This is: You are going to work, and at the end of the week I’m going to give you money; and I expect that because you are here, I will make more money. And that’s a concept that I’ve had to explain to them. And it comes in really hard.

And I have to say: Why would I have you here if I wasn’t going to end up with more money? Why on earth would I have you show up every day? And they kind of start to get that this should be a mutually beneficial arrangement, not just that I shouldn’t come out even because I think of — capitalism as me making money for the aggravation of having you here.

And then we get the college kids; they’ve kind of gotten that kind of concept a little better. But then I’ll say: What do you want to do when you are done with college? And they’ll say: Oh, I want to work for a non-profit. And that one makes me angry. First, it’s like, well, non-profit, that could be a hospital, that could be a — like you haven’t thought about this any more — that could be a land trust, it could be anything. ‘Non-profit’ is huge. You don’t have any more direction than that you want to work for a non-profit?

But also, they are telling me that profit is bad. So, I say: Well, look around at all this stuff you see, the tractors, the greenhouses, the walk-in cooler — like all this stuff. Ralph and I could have taken that money and even if we put it in the bank in a savings account we’d have earned like a percent or something, even now. But we’ve done this, and we’re risking that — it may not work out; we may not make any money from this; we may not get back the money we put in. Don’t we deserve a little more than what we could get in a bank by doing something safe? And they say: Oh, well yeah, of course you do. And I say: Well, that’s profit. And that’s all that profit is. And: Ohhhh. And then the light dawns. But they come with no idea about how capitalism works, even though capitalism is the economic system of our country.

Making Mordor’s Economy Work

Wednesday, May 1st, 2013

Making Mordor’s economy work takes some effort, if you assume the ashen wasteland produces no food yet feeds an army:

If Mordor was trading something, then we imagine that this would be swords. Sauron had both mines and forges, and so supply should not have been an issue. A medieval sword cost around 6d (6 pence) each. We got in touch with expert Hector Cole, master arrowsmith and archaeological ironworker, who gave us some ideas of medieval sword manufacture.

Six smiths produce ten swords per day, 6d (6 pence) per sword, 60d revenue per day.

Bearing in mind that within Mordor itself there isn’t an economy; it’s a command system governed by Sauron and his Nazgul. So mining and manufacture costs aren’t monetary, and all 60d can be spent on other things. Like…

Food. Feeding an army isn’t easy. One option for mass consupmtion is pig.

A hog roast can feed about 100 at a sitting. Assuming 3 meals per day this is 33 orcs per pig. A medieval pig cost 2 shilling (24 pence) each. So 100 orcs can be fed for 72d per day.

So to keep 500 orcs fighting, around 35 orcs are needed to be smithing, and about 1 orc smelting.

Thus for Mordor’s economy to work, constant wars would be needed to keep up the demand for weapons, so that Mordor could trade them for food. This raises the question of how moral it would be for Sauron not to start wars. Due to the requirements of smithing and smelting, about 7% of orcs would be involved in ‘civilian’ roles. When considering firewood, building, and particularly mining, this figure would become much higher.

(Hat tip to Tyler Cowen.)

License to the Strong

Sunday, April 28th, 2013

The bestowing upon men equality of rights, Fitzhugh argues, is but giving license to the strong to oppress the weak:

It begets the grossest inequalities of condition. Menials and day laborers are and must be as numerous as in a land of slavery. And these menials and laborers are only taken care of while young, strong and healthy. If the laborer gets sick, his wages cease just as his demands are greatest. If two of the poor get married, who being young and healthy, are getting good wages, in a few years they may have four children. Their wants have increased, but the mother has enough to do to nurse the children, and the wages of the husband must support six.

There is no equality, except in theory, in such society, and there is no liberty. The men of property, those who own lands and money, are masters of the poor; masters, with none of the feelings, interests or sympathies of masters; they employ them when they please, and for what they please, and may leave them to die in the highway, for it is the only home to which the poor in free countries are entitled. They (the property holders) beheaded Charles Stuart and Louis Capet, because these kings asserted a divine right to govern wrong, and forgot that office was a trust to be exercised for the benefit of the governed; and yet they seem to think that property is of divine right, and that they may abuse its possession to the detriment of the rest of society, as much as they please. A pretty exchange the world would make, to get rid of kings who often love and protect the poor, and get in their place a million of pelting, petty officers in the garb of money-changers and land-owners, who think that as they own all the property, the rest of mankind have no right to a living, except on the conditions they may prescribe. ” ‘Tis bettter to fall before the lion than the wolf,” and modern liberty has substituted a thousand wolves for a few lions. The vulgar landlords, capitalists and employers of to-day, have the liberties and lives of the people more completely in their hands, than had the kings, barons and gentlemen of former times; and they hate and oppress the people as cordially as the people despise them. But these vulgar parvenus, these psalm-singing regicides, these worshipers of mammon, “have but taught bloody instructions which being taught, return to plague the inventor.”

The king’s office was a trust, so are your lands, houses and money. Society permits you to hold them, because private property well administered conduces to the good of all society. This is your only title; you lose your right to your property as the king did to his crown, so soon as you cease faithfully to execute your trust; you can’t make commons and forests of your lands and starve mankind; you must manage your lands to produce the most food and raiment for mankind, or you forfeit your title; you may not understand this philosophy, but you feel that it is true, and are trembling in your seats as you hear the murmurings and threats of the starving poor.

New Things Under the Sun

Saturday, April 27th, 2013

Liberty and equality are new things under the sun, Fitzhugh reminds us — writing from the antebellum South:

The free states of antiquity abounded with slaves. The feudal system that supplanted Roman institutionally changed the form of slavery, but brought with it neither liberty nor equality. France and the Northern States of our Union have alone fully and fairly tried the experiment of a social organization founded upon universal liberty and equality of rights. England has only approximated to this condition in her commercial and manufacturing cities. The examples of small communities in Europe are not fit exponents of the working of the system.

In France and in our Northern States the experiment has already failed, if we are to form our opinions from the discontent of the masses, or to believe the evidence of the Socialists, Communists, Anti-Renters, and a thousand other agrarian sects that have arisen in these countries, and threaten to subvert the whole social fabric. The leaders of these sects, at least in France, comprise within their ranks the greater number of the most cultivated and profound minds in the nation, who have made government their study. Add to the evidence of these social philosophers, who, watching closely the working of the system have proclaimed to the world its total failure, the condition of the working classes, and we have conclusive proof that liberty and equality have not conduced to enhance the comfort or the happiness of the people. Crime and pauperism have increased. Riots, trades unions, strikes for higher wages, discontent breaking out into revolution, are things of daily occurrence, and show that the poor see and feel quite as clearly as the philosophers, that their condition is far worse under the new than under the old order of things.

Radicalism and Chartism in England owe their birth to the free and equal institutions of her commercial and manufacturing districts, and are little heard of in the quiet farming districts, where remnants of feudalism still exist in the relation of landlord and tenant, and in the laws of entail and primogeniture.

Jane Austen, Game Theorist

Friday, April 26th, 2013

Michael Chwe argues that Jane Austen laid the philosophical groundwork for a new theory of strategic action:

First among her as yet unequaled concepts is “cluelessness,” which in Mr. Chwe’s analysis isn’t just tween-friendly slang but an analytic concept worthy of consideration alongside game-theoretic chestnuts like “zero-sum,” “risk dominance” and “prisoner’s dilemma.”

Most game theory, he noted, treats players as equally “rational” parties sitting across a chessboard. But many situations, Mr. Chwe points out, involve parties with unequal levels of strategic thinking. Sometimes a party may simply lack ability. But sometimes a powerful party faced with a weaker one may not realize it even needs to think strategically.

Take the scene in “Pride and Prejudice” where Lady Catherine de Bourgh demands that Elizabeth Bennet promise not to marry Mr. Darcy. Elizabeth refuses to promise, and Lady Catherine repeats this to Mr. Darcy as an example of her insolence — not realizing that she is helping Elizabeth indirectly signal to Mr. Darcy that she is still interested.

It’s a classic case of cluelessness, which is distinct from garden-variety stupidity, Mr. Chwe argues. “Lady Catherine doesn’t even think that Elizabeth” — her social inferior — “could be manipulating her,” he said. (Ditto for Mr. Darcy: gender differences can also “cause cluelessness,” he noted, though Austen was generally more tolerant of the male variety.)

The phenomenon is hardly limited to Austen’s fictional rural society. In a chapter called “Real-World Cluelessness,” Mr. Chwe argues that the moralistic American reaction to the 2004 killing and mutilation of four private security guards working with the American military in Falluja — L. Paul Bremer III, leader of the American occupation of Iraq, later compared the killers to “human jackals”— obscured a strategic truth: that striking back at the city as a whole would only be counterproductive.

“Calling your enemy an animal might improve your bargaining position or deaden your moral qualms, but at the expense of not being able to think about your enemy strategically,” Mr. Chwe writes.

The darker side of Austen is hardly unknown to literary scholars. “Regulated Hatred,” a classic 1940 paper by the psychologist D. W. Harding, argued that her novels explored containment strategies against the “eruption of fear and hatred into the relationships of everyday social life.”

But Mr. Chwe, who identifies some 50 “strategic manipulations” in Austen (in addition to a chapter on the sophisticated “folk game theory” insights in traditional African tales), is more interested in exploring the softer side of game theory. Game theory, he argues, isn’t just part of “hegemonic cold war discourse,” but what the political scientist James Scott called a subversive “weapon of the weak.”

Such analysis may not go over well with military types, to say nothing of literary scholars, many of whom see books like Mr. Chwe’s or “Graphing Jane Austen,” an anthology of Darwinian literary criticism published last year, as examples of ham-handed scientific imperialism.

The Slave Trade

Friday, April 26th, 2013

As a strong proponent of paternalistic slavery, Fitzhugh argues against the slave trade:

From several quarters propositions have of late been made for the revival of the African slave trade. The South has generally been opposed to this trade, the North favorable to it. Such is likely to be the case again; for the North would make much money by conducting the trade; the settled states of the South lose much by the depreciation of their negroes. The extreme inhumanity of this trade is enough to condemn it, but men’s interests blind their eyes and steel their hearts against considerations of humanity. Besides, the argument will be most successfully played in its behalf, that it will but take the place of another kind of slave trade, that is still more inhuman. The importation of apprentices or temporary slaves is now actively conducted by England from Africa and various parts of Asia. These apprentices, if not worked to death before their terms of service expire, are left to starve afterwards, and new ones imported in their place. They are treated with less humanity than slaves, because the master has little interest in their lives. Vastly larger numbers must be imported to supply the demand for labor, because their children are not slaves, and they themselves but for a time. After liberation they will become a nuisance to the country that imports them.

The fact that, despite of the enormous annual importation of slaves to Cuba, the number of whites is greater than that of blacks in that island, proves clearly enough that where it is cheaper to buy African slaves than to rear them, men will work these poor natives to death, regardless of humanity. Besides, the natural antipathy between the savage and the civilized man, not only prevents the influence of domestic affection on the heart of the master, but indurates his feelings and degrades his morals. Our slaves are treated far better than they were forty years ago, because they have improved in mind and morals, approached nearer to the master’s state of civilization, and thus elicited more of his interest and attachment. Slavery with us is becoming milder every day; were the slave trade revived, it would resume its pristine cruelty. The slaves we now hold would become less valuable, and we should take less care of them. In justice to them let us protest against the renewal of this infamous traffic. Slavery originating from the conquest of a country is beneficent even in its origin, for it preserves the slaves or serfs who are parcelled out to the conquering chiefs from the waste, pillage, cruelty and oppression of the common soldiers of the conquering army, — but slavery brought about by hunting and catching Africans like beasts, and then exposing them to the horrors of the middle passage, is quite a different thing.

We think it would be both wise and humane to subject the free negroes in America to some modification of slavery. Competition with the whites is killing them out. They are neither so moral, so happy, nor half so well provided as the slaves. Let them select their masters, and this would be another instance of slavery originating without violence or cruelty — another instance in which slavery would redress much greater evils than it occasioned.

I remember watching a documentary on Brazil years ago, which explained how the slave-owners there found it more economical to work slaves to death and import a new batch from Africa each season. When the British ended the slave trade, the Brazilian system had to evolve.

Can Emancipated Slaves take Care of Themselves?

Thursday, April 25th, 2013

In 1862 the New York Times republished a piece from the Friends’ Intelligencer, itself an abridged version of a piece from the Cincinnati Gazette from 1943, asking, Can emancipated slaves take care of themselves?

Mr. MCDONOUGH, finding that his slaves worked for themselves on Sunday, for want of time on other days, proposed to give them Saturday afternoon to work for themselves, if they would keep the Sabbath.

He was soon struck with the amount of labor they performed during the half day they had to themselves, and with the sums of money they contrived to derive from it.

It occurred to him that it would be a good plan gradually to sell them the remaining days of the week, on condition of their paying him certain sums out of their wages, at appointed periods. So far as appears, the plan was suggested solely by financial policy, uninfluenced by any conviction of the wrongfulness of taking other people’s wages. He called his slaves together, eighty in number, and proposed for them to work for him on Saturday afternoons at small wages, instead of working for themselves.

He advised them to draw upon these wages as little as possible, and leave the remainder in his hands to buy Saturday for themselves. That the terms he offered them were pretty hard, is evident from the fact that he told them he calculated it would take them seven years to buy one day. But he reminded them that the first part of the process would be the most difficult; for when they had the whole of Saturday to work for wages, they could, in less time, buy Friday for themselves; and the facility would go on increasing with every day of the week they succeeded in purchasing.

He told them that according to the terms he could offer, and the calculations he had made, it would take them nearly fifteen years to buy their entire freedom.

Undismayed by the tediousness of the process, the slaves seized his offer with eagerness. They went to work so zealously that they bought the whole of Saturday in less than six years. Friday was bought in four years, Thursday in two years and a quarter, Wednesday in fifteen months, Tuesday in one year, and Monday was bought in six months.

In fourteen years and a half they had purchased their freedom, besides working diligently for their master on the days that still legally belonged to him. It would have been done sooner, but during the later years they expended more than they had formerly done for comforts and conveniences for their families The labor of their little boys and girls had not made up the sum required for them by their master, so that there was a balance due on their account which they worked five additional months to pay.

Mr. MCDONOUGH, describing his experiment, says “They had always been well disposed and orderly, but, from the day I made the proposal, a great change took place in them. A sedateness, a care, an economy and industry took possession of them, to which there appeared to be no bound, but their physical strength. They became temperate, moral and religious, setting an example that was admired by all They performed for me more labor and better labor than slaves usually perform, and in addition to that earned money enough to buy themselves. From the time the experiment began to its completion, besides paying for themselves, they gained me money enough to enable me to buy a gang of slaves, nearly twice their number, at the prices in Carolina and Virginia, This I state from exact accounts kept by me, which I am ready to attest to in the most solemn manner at any time.”

The steadiness and industry of these slaves attracted the attention of the neighborhood, and also in the adjacent city of New-Orleans, where twenty or thirty of them were led out to work under the superintendance of a head bricklayer, named JIM. The public were not informed of the stimulus which prompted these slaves to unusual activity and diligence. Perhaps Mr. MCDONOUGH did not consider it prudent to talk much about it.

That sounds like a simple yet powerful lesson in incentives.

(Hat tip to commenter Alex J.)

Free Trade Prevents the Growth of Civilization

Wednesday, April 24th, 2013

Fitzhugh finds the standard arguments for free trade as false as they are specious:

The usual and familiar arguments in favor of this policy are, that it is cheaper to buy abroad good manufactured articles in exchange for agricultural products, than to buy them at home, where more indifferent articles would be obtained for a larger amount of agricultural products.

And again, that we, having no skill or spare moneyed capital, but possessing a rich soil, fine climate, and suitable labor for farming, should follow farming, whilst other nations, without these advantages, but having a large moneyed capital, and great artistic and mechanical skill, should produce manufactured articles, and exchange them for our grain and other products, that thus both we and they would be benefited. The argument is specious, but as false as it is specious.

If an agricultural people were found without any manufactures, by a manufacturing one, the effect of free trade would be to prevent the invention and practice of all the mechanic arts, for “necessity is the mother of invention,” and trade would remove the necessity of home manufactures. But, in truth, there never was a people, however savage, without some knowledge of manufactures and the mechanic arts. When that knowledge, as in the instances of Africans and Indians, is very slight, and the processes of course very tedious, laborious, and inefficient, the immediate effect of contact with a civilized nation by trade, is to extinguish the little knowledge they have, and to divert them to fishing, hunting, searching for gold and similar pursuits, which savages can practice almost as well as civilized men. The African ceases to smelt iron when he finds a day’s work in hunting for slaves, iron or gold, will purchase more and better instruments than he could make in a week, and the Indian pursues trapping, and hunting, and fishing, exclusively, when he can exchange his game, his furs and fish, for blankets, guns, powder and whiskey, with the American. Thus does free trade prevent the growth of civilization and depress and destroy it, by removing the necessity that alone can beget it. Its effects on agricultural countries, however civilized, are precisely similar in character to those on savages. Necessity compels people in poor regions, to cultivate commerce and the mechanic arts, and for that purpose to build ships and cities. They soon acquire skill in manufactures, and all the advantages necessary to produce them with cheapness and facility. The agricultural people with whom they trade, have been bred to exclusive farming, by the simplicity of its operations, its independence of life, and the fertility of their soil. If cut off like China was, and Japan yet is, from the rest of the civilized world, they would have to practise at home all the arts, trades and professions of civilized life, in order to supply the wants of civilized beings. But trade will supply everything they need, except the products of the soil. As they are unskilled in mechanic arts, have few towns, little accumulated capital, and a sparse population, they produce, with great labor and expense, all manufactured articles. To them it is cheaper, at present, to exchange their crops for manufactures than to make them. They begin the exchange, and each day the necessity increases for continuing it, for each day they learn to rely more and more on others to produce articles, some of which they formerly manufactured, — and their ignorance of all, save agriculture, is thus daily increasing. It is cheaper for a man, little skilled in mechanics, to buy his plough and wagon by the exchange of agricultural products, than awkwardly, clumsily and tediously to manufacture them of bad quality with his own hands. Yet, if this same man will become a skilful mechanic, he will be able to procure four times as much agricultural products for his labor, as he can now secure with his own hands. His labor too, will be of a lighter, less exposed, more social character, and far more improving to his mind. What is true of the individual, is true as to a nation, the people who buy their manufactures abroad, labor four times as hard, and as long, to produce them, as if they made them at home. In the case of the nation, this exclusive agriculture begets a sparse and poor population; sparse, because no more people can be employed, than are sufficient to cultivate the land, — poor, because their labor, though harder and more exposed, produces in the aggregate about one-fourth what the same amount of lighter labor would, in a purely mechanical and manufacturing country. Density of population doubles and quadruples the value of labor and of property, because it furnishes the opportunity for association and division of labor, and the division of charges and expenses. When one man has to bear the expense of a school, a church, a mill, a store, a smith’s shop, &c., he is very apt to let his family go without religion and education, and his farm without many of the necessaries and conveniences that properly appertain to it. Where a few have to bear these expenses, the burden on each is very heavy, but where, as in manufacturing countries, with a dense population and many villages, these expenses are sub-divided among many, the burden is light to each, — so that their property and their labor is vastly more available and valuable.

The sparsely settled agricultural country makes by its pursuits, one-fourth what the manufacturing country does, and the money that it makes is probably, in general, if spent at home, capable of purchasing one-half only of the pleasures, comforts and luxuries of life that the same amount of money would in countries engaged in other pursuits. The pleasures of society are seldom indulged in, or if indulged in, at much expense of time and inconvenience, in merely farming countries, where people live at considerable distance from each other. There is no occasion for towns or cities, and not enough of the rich to support places of recreation and amusement. The rich are, therefore, all absentees. Some go off for pleasure, some to religious conventions and associations, some for education, and those who remain at home, do so not to spend money and improve the country, but to save it, in order that they too may hereafter visit other regions. The latter class are no less absentees, in effect, than the former classes.

Usury

Tuesday, April 23rd, 2013

Nothing has more perplexed political economists and mankind at large, Fitzhugh says, than the subject of usury:

That it was right, proper, and laudable for every man to get the highest market price for the use of his money, as for the use of every other article, was an obvious deduction from the axioms of the economists. The instincts and common sense of mankind, whilst admitting the premises, stubbornly denied the unavoidable conclusion. Convicted in argument, but not convinced; they still fought on. In truth, the error lay in the premises, in the axioms and first principles of political economy. That systematic selfishness that inculcates the moral duty to let every man take care of himself and his own selfish interest, that advises each to use his wits, his prudence, and his providence, to get the better of those who have less wit, prudence and providence, to make the best bargains one can, and that a thing is worth what it will bring, is false and rotten to the core. It bears no sound fruit, brings forth no good morality. “Laissez nous faire,” and “Caveat Emptor,” (the latter the maxim of the common law,) justify usury, encourage the weak to oppress the strong, and would justify swindling and theft, if fully carried out into practice. But it is not safe or prudent to swindle or steal; one incurs the penalties of the law; and it is not politic, for one scares off customers and subjects. The man who makes good shaving bargains, will in the long run grow rich; the swindler and the thief never do. Mankind have ever detested the extortionate usurer who takes advantage of distress and misfortune to increase his profits, more than a Robin Hood who robs the rich to relieve the poor. There is always at bottom some sound moral reason for the prejudices of mankind. Analyze their motives, their feelings and sentiments closely. The man who spends a life in dealing hardly and harshly with his fellow men, is a much worse and meaner man than the highway robber. The latter is chivalrous, and where there is chivalry there will be occasional generosity.

The law should protect men, as well from the assaults of superior wit as from those of superior bodily strength. Men’s inequalities of wit, prudence, and providence, differ in nothing so much, as in their capacity to deal in and take care of money. This creates the necessity for laws against usury. Under occasional circumstances, a heavy rate of interest is morally right, but it is generally wrong, and laws are passed for ordinary and not extraordinary occasions.

I think he has made a better case against complex contracts and financial derivatives than against high interest rates.

Instinct and Common Sense

Monday, April 22nd, 2013

Instinct and common sense deny the economic proposition that a nation gains nothing by selling more than it buys, Fitzhugh says:

They say, that the way for individuals or people to get rich is to sell more than buy. Philosophy beats them all hollow in argument, yet instinct and common sense are right and philosophy wrong. Philosophy is always wrong and instinct and common sense always right, because philosophy is unobservant and reasons from narrow and insufficient premises, whilst common sense sees and observes all things, giving them their due weight, comes to just conclusions, but being busied about practical every day matters, has never learned the process of abstraction, has never learned how to look into the operations of its mind and see how it has come to its conclusions. It always judges rightly, but reasons wrong. It comes to its conclusions by the same processes of ratiocination that abstract philosophers do, but unaccustomed and untrained to look into its own mental operations, it knows not how it arrived at those conclusions. It sees all the facts and concludes rightly, — abstract philosophers see but a few, reason correctly on them, but err in judgment because their promises are partial and incorrect. Men of sound judgments, are always men who give wrong reasons for their opinions. They form correct opinions because they are practical and experienced; they give wrong reasons for those opinions, because they are no abstractionists and cannot detect, follow and explain the operations of their own minds. The judgment of women is far superior to that of men. They are more calm and observant. Every married man knows that when he places a scheme before his wife and she disapproves it, he conquers her in argument, goes away distrusting his own opinion, though triumphant, and finds in the end his wife was right, though she could not tell him why. Women have more sense than men, but they want courage to carry out and execute what their judgments commend. Hence men, although they fail in a thousand visionary schemes, succeed at last in some one, and are dubbed the nobler sex. An old bachelor friend of ours, says: women are great at a quarrel, bad at argument.