wagehist

wagehist - Excerpts from Thompson-Hickson’s, Ideolofl...

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Unformatted text preview: Excerpts from Thompson-Hickson’s, Ideolofl and the Evolution of Vital Institutions. (Kluwer, 2000) FROM THE INTRODUCTION: Suppose that the state and its present and future political representatives, are facing a new military technology, one in which the existing political system will no longer generate the previously intended distribution of tax burdens. More specifically, say that the initial military technology and corresponding political system previously reflected an international environment in which states competed for people while the new military technology confers an international political monopoly, an unprecedented world-empire, on a single state. The mechanisms previously employed to attract people away from other states will then, in the absence of informed current intervention, be increasingly replaced by mechanisms that redistribute wealth to the ruling classes of the world‘s hegemonic leader, thereby commencing a subsequently self-rationalizing trend toward an increasingly inegalitarian tax distribution. Useful political economists, reflecting the relatively humanistic distributional values of the current society (including its underlying military leaders), and using Buchanan's commitment-theory of constitution, would then work to promptly identify and constitutionally correct the unintended, time-inconsistent, distributional defect in the world's political system. Political economists may be able to supplement and enhance this purely distribution-oriented advice by also suggesting reforms that substantially extend the life of the existing, relatively humanistic, political regime through improving its citizen- efficiency. Adding this to the above-described distributional role, similarly suppose that, in the absence of the current input of political economists and a corresponding world—constitutional reform, there would be both an avoidably increasingly inegalitarian distributional trend and a substantial allocational inefficiency stemming from the same general fault in the geo-political institutions of the current regime. To sufficiently work to produce the appropriate constitutional reform, existing political economists must be able to recognize both the threat to our currently humanistic distributional preferences and the violation of citizen-efficiency. Regarding the former, they must recognize where the trends of their times would lead in the absence of a preemptive constitutional reform. Armed with this information, they can adequately advise current and potential future rulers similarly desiring to eliminate both the anti- humanistic distributional trend and the violation of citizen-efficiency. The latter sections of both Chapters 2 and 6 will attempt to put some empirical meat on these distribution-theoretical bones. In any case, the new, distribution- oriented, policy role for political economists reinforces our early argument in that political economists cannot even begin to specify the requisite geo-political reforms if they either retreat into distributional metaphysics or accept any set of distributional goals to be as good as any other. FROM CHAPTER 2: II. THE DISTRIBUTIONAL PROBLEM A. The Free International Competition for People A classic study of the history of real wages by Thorold Rogers reveals that real wages in England, and probably all of western Europe, varied within a narrow band, remaining essentially constant, from at least the height of the Middle Ages to 1820, slightly after the end of the Napoleonic Wars. A price-theoretic interpretation of Roger's running political commentary is that a conveniently-timed series of aristocratically—imposed tax-increases on workers -— not the supply-side speculations of either Malthus or Ricardo and not the stagnant-technology speculations of neoclassical and modern authors -- was the cause of the wage-constancy. Reinforcing our tax interpretation -- besides the social theory of Appendix B.1 -- is the aristocratic wisdom, especially widespread prior to the mid-19th century, that workers must be kept poor in order to assure a healthy abundance of labor inputs. The subsequently well- documented positivity of the effect of income on leisure thus implied a dual redistributive benefit to an aristocracy from a tax increase on the laboring population. There is correspondingly no reason why a world with a unified aristocracy would not -- unless constitutionally constrained -- come to rely on a similar "wisdom" and thereby generate a similarly near-subsistence wage rate. Also, regarding the common neoclassical—modem explanation of a heightened rate of innovation in modern times, 1760 is increasingly used to mark the dramatically heightened rate of innovation represented by the industrial revolution. In view of the 1820 date as the start of the climb in wages, this neoclassical-modem explanation can only be objectively maintained by arguing for a highly implausible, 60-year, lag in the determination of real wages. The huge reduction in labor supply during the war-and-plague-ravaged 14th century provides us with perhaps the simplest simple test of the theory. While before- tax real-wages jumped during this calamitous century, a reflection of the accuracy of the neoclassical theory as regards inessentials such as before-tax distribution, taxes on labor also jumped so that after-tax labor income (largely the income of free peasants) generally failed to increase at all (e.g., Rosener, pp. 271-73). This, of course, was also the age of futile peasant revolts. While Rogers' study ends in the early 18605, the subsequent l 10 years of wage history impressively confirmed Rogers' hypothesis that a sea change had occurred at the end of the Napoleonic Wars. Never explained, however, is just what happened in the 1820s that would allow for a complete break in the historic pattern, a 15-fold explosion in real wages over the ensuing 150 years. Now an obvious military lesson of the peace-producing Napoleonic Wars to the nations of the West was that any attempt to acquire the surplus of a neighboring nation by military aggression would induce such a widespread defensive involvement by ordinary civilians that much of the basic labor force of the victimized country would be destroyed in the essentially Pyrrhic victory. Thereafter, the typical response of neighboring nations to the significant increase in the basic labor productivity of a nearby nation -- which had been military attack against the more productive nation -- was peaceful emigration to that nation. Correspondingly, what had been the traditional military response to the significant emigration of a western nation's labor to a more labor-productive neighbor -- i.e., punitive warfare against the labor—acquiring neighbor -- came to an abrupt end.‘ And, quite symmetrically, what had been a successful state's traditional military response to its M high domestic productivity growth, i.e., military aggression against less economically successful neighbors in order to acquire additional inexpensive labor, was transformed into a purely civilian response, i.e., allowing after- tax wages to rise in order to legitimately attract immigration from the neighboring countries. As labor was economically attracted to the more productive country, the shrinking neighbors could only respond by competitively lightening the tax burdens on their own urban laborers and peasants, correspondingly extending voting rights to the masses. The source of the previous five centuries of wage constancy -- secularly increasing labor-taxation by politically exploitative aristocratic investors in land and capital rather than some imaginary (Ricardian or Malthusian) "iron law" of wages or some similarly imaginary (neoclassical or modern) assertion of a relative lack of prior technical inventions -- was finally being reversed by the simple international competition of free and independent countries for the labor of other countries. Emigration into the high-wage countries thus proceeded along-side the mass-army- induced popularization of democracy, both continuing to grow at an unprecedented rates after the Napoleonic Wars. The taxation of labor could no longer expand with the productivity of labor. "Nations" were converted from the enserfing racial or cultural entities of the past into the peacefully competing legal entities of the subsequent 170 years. Cosmopolitan cities, immigrant rights, and popular democracy reawakened after an at least 500-year slumber.2 One can only imagine all the grief and suffering that the world would have been spared if only Marx or his followers would have understood the international distributional benefits that had already begun to flow from this early 19th century IMost familiar to the United States is the War of 1812, which Britain fought to regain its emigrating seamen. The ensuing war, which ended in 1819, was the last war Britain fought in response to the emigration of its labor force. This basic military change brought a correspondingly abrupt end to what had been the long-standing, quite rational, labor-import policy in Europe prior to the 18205, a guild-enforced refusal to hire the labor of a foreign nation. 2Popular democracy represents a kind of democracy in which citizens who invest only in human capital are granted the same political participation rights as owners of non-human capital. As we shall see in Section I.A of Chapter 3, citizen-efficiency generally requires this complete form of investor-democracy. Moreover, as shown in Section III.C of Chapter 3, popular elections by militarily-sacrificing individuals represent a vital institution in the presence of inter-regional labor mobility. The explosive grth of real wages in the modern Anglo-Saxon countries following the Napoleonic Wars, for example, was immediately preceded by voting- rights legislation that suddenly converted upper-middle-class (e. g., Jeffersonian) democracies into popular (e.g., Jacksonian) democracies. Note once more, however, that a popularly elected government is not a popular democracy unless the citizens may also freely participate in the legislative process. The 19th century boom was in both popular government fl popular democracy. change in military technology. B. Earlier Civilizational Blossomings The same introduction of widespread civilian participation in warfare -- followed by a competitively induced popularization of democracy, cosmopolitan cities, and widespread per-capita income growth —- had arisen earlier among the city-states of Classical Greece; among the Italian city-states of both the Hellenistic Era and the Middle Ages; and among the trading towns of High Medieval England, France, Spain, Portugal, and Germany up until the emergence of professional armies during the last two centuries of the Middle Ages. Moving eastward, the same sequence had occurred among the competing city-states of ancient Sumer, the early Egyptians, and much later, among the 7th and 8th century Saracens, and still later, within the feudal states of both the Fatimid and Safivid dynasties. Moving further eastward, we see a duplication of this pattern among the Feudal states of Aryan-India up through the 5th century, and the similarly among the peacefully competing feudal states of China during the later Tang, Sung, and early Ming dymasties. In each case, the remarkable explosion in technological innovation that suddenly emerged probably represented the simple exploitation of what had been an expanding latent technology, inventions that had been accumulating for centuries as reflected in artistic achievements and increasingly sophisticated weaponry but nevertheless largely unexploited by the masses because of the absence of a mass market and corresponding presence of historically cheap skilled labor (Thompson, 1961). The underlying competition in these repeated civilizational blossomings was more than an efficiency-generating competition among policy ideas pragmatically designed to efficiently serve the increasingly valuable civilian populations. It was also a competition among states for immigrants. The latter competition is what generated the skilled-wage and middle-class income grth necessary for the predictable realization of the innovational golden ages.3 C. The Costly Reversion to Empire The elimination of the international competition among states for people -- an elimination that has recently commenced in modern times by what establishment intellectuals are widely portraying as a "progression" to centralized world institutions, an effective world empire -- would thus represent a devastating distributional regression. Indeed, a major ruling-class "economy" of governmental scale stems from the ability of the ruling class to monopsonize the masses. The imperial centralizations of the Merovingian and Carolingian Franks, whose main idea was to exploit, through taxation, the Gaulish countryside, is thus easy to understand despite their high cost of internal organization. Although, during the 3Investments in innovation are typically just part of the complex of complementary investments that characterize the escape from any underdevelopment trap. It is efficiency (perhaps achieved in part by an effective patent system), not innovation per se, that constitutes the escape. Indeed, the theoretical and empirically estimated marginal social rate of return to innovation in the United States is not substantially higher than the retum to other investments (Thompson, et a1., Vol. III, Chapters 5 and 6). Nevertheless, these innovational waves serve as quite visible measures of economic progress. subsequent political decentralization represented by the age of feudalism, wages should have correspondingly increased, an alternative form of exploitation was found in serfdom, at least outside of the solidly Germanic communities (Rosener, pp. 19-20; Strayer and Gatske, p. 193). Since imperial taxation was no longer possible, the o_nlv way to continue the monopsonization of labor was to physically and legally tie workers and their offspring to the soil in effective slavery despite the substantial efficiency costs of such an institution (Appendix B. 1, Section 6). Where, of course, a feudal province came to be extraordinarily wealthy, serfdom was phased out even before the wave of re-centralizations of the 13th-15th centuries (Section II.B.4 of Chapter 3), for there was relatively little provincial exit to fear from even highly taxed freemen because of the attraction of its urban life and the province's relatively large scale (Pirenne, Ch. 3). And where, as northeastern Europe, a post-15th century province or nation was relatively poor, it retained serfdom because, for them, centralization into a nation-state was not sufficient to prevent mass emigration. So, with the basically exploitative preferences of these various ruling classes, most of whom were quite Christian, revealed by their evolved institutional choices, labor's numerous centuries of secular stagnation up to the period of international labor competition beginning in 1820 should come as no surprise. The lesson is quite clear: Ruling classes simply do not pay higher wages than they have to. If, as economists commonly surmise, the persistently growing inequality of income in our increasingly imperial world merely reflected a change in civilian technology, it would find little historical precedent. In a similar vein, referring to the above-mentioned civilizational history, we find a corresponding sequence of distributionally devastating imperial centralizations. Corresponding to the above sequence of Western civilizational blossomings, we find: the increasingly oppressive Athenian imperialization arising in the temporarily successful states of the Classical Greek city states and the even more oppressive imperializations of the Hellenistic Age; the notoriously inegalitarian formation of the Roman Empire, and the middle—class-eliminating centralizations of an imperializing late 15th and 16th century Europe. In the Middle-East, we find the similarly distributionally devastating centralization of the previously democratic city-states of ancient Sumer by various Emperors from Urukagina and Sargon to Hammurabi, the similarly inspired centralization of the initially democratic feudal kingdom of ancient Egypt by the later pharaohs of each of the various Kingdoms, the centralizing Abbasid Caliphs of the 9th and 10th centuries, and the even more centralizing Ottoman Emperors during the 15th and 16th centuries. Moving further eastward, we find the later Guptan and later Manchu centralizations. Eveg one of these historic imperial centralizations, once secure, produced both a rapid economic decline as well as a dehumanizing impoverishment of a previously vibrant middle class.4 Such episodes, taken as a whole, should vividly alert us to the distributional as well as the allocational dangers posed by our rapidly centralizing institutions of world government. How these dangers are reflected in current geo-political trends is elaborated below in Chapters 5 and 6. D. The Prospective Rational Surrender of Popular Democracy 4The evidentiary basis for the less well-known of these stylized facts is summarized in Thompson, et al., Vol. 11, Ch. 6. The intellectuals and the masses living in the dominant states of the modern era have been taught that we have "natural" rights and that we exercise these rights in a social contract in which we hire a leader who protects us from foreign and domestic enemies. However, the logic of social organization complements history by telling us that quite the opposite is true (Appendix B. 1). Natural social organization begins with a prior commitment from the social leaders. Ultimately, these primary social leaders are the military founders of the state. George Washington decided against a monarchy; so we don't have a monarchy. But note that the original U.S. and British democracies were pg; popular democracies. They were property-owner, or "aristocratic", democracies. As we have argued, it was only during the late 1820s and 18305, reflecting the new, market-based, international competition for people through peacefial immigration movements, that ushered in popular democracy and secularly growing real wages. Moreover, this popular democracy is not irreversible, even within the confines of a popularly democratic legal system.5 The new, post-cold-war, worldwide dominance of the US. and its European allies, and the corresponding ability of our ruling classes to use this control over third- world polities and worldwide lending agencies (e. g., the World Bank and International Monetary Fund (IMF)) to determine the tax and expenditure policies of essentially all of the other nations of the world (see Chapter 5), has given our ruling classes an ability to end the worldwide competition among nations for people that has been responsible for our moderate middle-class tax rates and growing real wages since the 1820s. IMF "globalization", which essentially buys cheap-labor and free-trade policies from the voters of third-world countries in exchange for emergency government finance (Chapter 5), has recently put such a policy in place. The correspondingly new profit opportunity for the wealthy property owners in the dominant countries, which has certainly not failed to impress buyers of common stock, is also being domestically exploited. To the extent that this emerging decimation of the domestic middle class requires something beyond the deceptions achieved by progress-suggesting shibboleths such as "globalization," the wealthy ruling class can achieve their emerging distributional goal by essentially buying regressive changes in their domestic political systems from their relatively poor contemporaries. For these poor voters have relatively high time preferences and little ability or willingness to efficiently sacrifice for their children, as indicated by the relative infrequency with which we observe relatively poor parents granting lump-sum transfers to their recently grown-up children (Thompson, et al., Vol. I, Ch. 3). We have thus observed a continued weakening in 5A US. trend away from egalitarian tax and expenditure systems began with the U.S. defeat in Vietnam and the corresponding replacement of conscripted citizen armies with professional armies. The subsequent decrease in the feeling of indebtedness of the wealthier voters for the military sacrifices of the country's youth has obviously accompanied the sharp decrease in the extent of these sacrifices. The result has, of course, been a sharp decrease in the tax contributions of the wealthy to programs that benefit our country's youth and, more ominously, a purchase of political power from the poorer voters and their descendants through a political purchase of campaign-finance laws favoring large contributors. Nevertheless, such a trend cannot be taken too far because a mere professionalization of the local armed forces does not eliminate the international competition for people. It is only when there is a single, militarily dominant, country -- an imperial leader -— that there is genuine, world-wide, threat to popular government. This threat is the subject of the remainder of this chapter. our legislatively determined rules limiting campaign spending, thereby generating a continuing trend toward legislatures that favor wealthy property owners. (Meanwhile, the masses are assuaged with leaders who ostensibly represent them but actually adopt policies supported by the wealthy property owners and their representatives.) Eventually, the equivalent of a poll tax could be passed, giving current tax relief to the poor but inducing a dramatic fall in their future political participation and distant future income. It would, in effect, represent the rationally voted end of popular democracy.6 III. A CONSTITUTIONAL SOLUTION The only apparent way to prevent the wholly predictable reoccurrence of yet another civilizational-wide disaster, another relentless distributional as well as allocational retrogression, is for the world's dominant nations to quickly move to establish a decentralization-based world constitution. Such a constitution would maintain what would otherwise soon become an obsoletely egalitarian fiscal structure. This currently valuable distributional goal would be constitutionally achieved by permanently allowing each nation-state to legislate its own tax, expenditure, and welfare system, independent of the desires of any other nation, or even of multinational corporations having significant political influence in the dominate nations. An uncompromising "states-rights" value system, as well as a world anti-monopoly policy, would be required to maintain such a world-constitution and the resulting free competition of states for people. This political ideal -- which is diametrically opposed to the hot new "globalization" trend that has predictably come to dominate our international economic agencies since the collapse of the Soviet Union -- and the corresponding world-constitution would have to be supported and defended by the world's militarily dominant nation. So, to gain the support of the dominant nation, its elected national leader should appoint, with the approval of a constitutionally constrained world legislature, a conditional world leader. First-best efficiency, again according to Appendix B. l , requires the complete absence of ideology. Under current conditions, this would entail an elimination of the educational and political influence of professional elites. As elaborated in the concluding chapter, the above constitutional recommendation works significantly towards this elimination. And future work will recommend further tailoring to fully achieve this efficiency goal. Nevertheless, we must establish the nature and magnitude of this efficiency problem before we can hope to be taken seriously. The investigations that immediately follow will center upon democratically- evolved institutions that have been widely criticized by existing economic ideologies. Taken sequentially, these long-maligned institutions are guilds and tariffs, the gold standard, and various post-WWI international financial innovations such as fixed exchange rates and foreign exchange controls. 6Other, less direct, and much less efficient, means of redistribution -- methods generating higher incomes to cartels of lawyers and related professionals at the expense of gl_l others in die world, including the wealthy investors -— are increasingly likely as we approach a long—run equilibrium. But discussing them here would take us too far afield. ...
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This note was uploaded on 04/20/2010 for the course ECON 152 taught by Professor Thompson during the Spring '10 term at UCLA.

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wagehist - Excerpts from Thompson-Hickson’s, Ideolofl...

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