Sunday, May 8, 2011

The New Feudalism IV: Intermission

There is so much ground covered by these two works that it is hard to begin to put them into modern perspective.  They call to mind so many ideas about the present and recent past, it would be impossible to comment on everything.  And no, I haven't managed to pull together a 'final analysis' yet.  Here are a select few ideas as a sort of intermission until I can get things done.

Modern Myths

Veblen, I think, was a good and insightful economist, but not the best I have ever read.  His strength is more in his observation of the transitions of social order and where the driving forces for this social order might arise.  As such, I think his most influential role is as a 'modern mythmaker,' one who looks at a situation, and behind and through it to arrive at a narrative that captures essence of it, as much 'romantically' -- in a spiritual and emotional sense -- as in a technical, factual one.  A myth is nothing more than a narrative that conveys important truths above and beyond the facts of the narrative, especially stories about how things came to be.  Generally, a myth is considered fictional, but it need not be, in my opinion.

The modern world looks askance at the romance of myth, preferring to focus exclusively on the factual, taking a scientific 'just the facts ma'm' approach to everything.  In so doing, it tends to produce mere data, which in the long run will always fade into the oblivion of the forgotten, the defunct, the outdated, and the irrelevant.  Our myths are important, and both elements are important to our myths.  It is romance that keeps truth relevant and fresh to living, human minds, as opposed to the computers we often pretend ourselves to be.  To capture the spirit of a story does not deny it of truthfulness by some infraction against 'objectivity.'  But to sterilize it, and to subsist only on the hard remainder robs one of his humanity, and eventually his sanity.

All useful history is myth in that it gives us more than mere facts.  Always, truth is preferable to falsehood, but an infraction against spirit is graver than a violation of fact.  Says I, anyway, for whatever that is worth.  With that, I shall do some modern myth-making of my own.

The Enlightened Corruption of Banking

It did not escape my notice in Veblen's discussion of the primacy of property rights and freedom of contract how such a view of things could, and probably did, lead to social and legal tolerance of the practice of fractional reserve accounting in the banking system.  The possibility probably escaped Veblen because he didn't recognize its importance in creating the business cycle, considering it just as illegitimate as the rest of corporate finance and not worthy of special attention.

The issue is quite worthy of special attention, in my opinion.  To the Enlightened mind, what is important in banking, as in all other enterprises, is that liberty is respected and contracts kept.  Thus, so long as a bank keeps up its contractual obligations by returning depositor money 'on demand' as stipulated by the banking agreement on receipt of deposits, it should be none of the depositors' business what the bank does with those deposits in the meantime.  Money is a unique good in terms of its infinite fungibility and the general indifference of its value to physical damage, so long as it is not too serious, especially if it consists of nothing more than an accounting entry.

A 'depositor' of some unique, fragile property for storage, such as at a warehouse, might be considered 'within his rights' for inquiring after storage conditions and practices to be certain of the state of his property when returned to him.  But in the case of money, such concern about what might go on behind the bank's closed doors or questions as to the legitimacy of its activities and practices would be considered an affront to Enlightenment attitides.  So long as contracts are kept, that ought to be none of the depositors' concern.  It is out of bounds, a meddlesome violation of privacy, individual sovereignty, and 'freedom of contract.'

The medieval mind would have had no problem condemning fractional reserve accounting practices as an improper usage of money, provided that the financially nonsensical nature and fundamental dishonesty of the practice was recognized.  In fact, the lending of money at interest was largely forbidden in much of the medieval world, albeit on different grounds.  Lately, I have been slowly coming to the persuasion that they might have had the right idea, as perhaps the usefulness of interest to reward savings and efficiently allocate capital may just not be worth the trouble.  What good are they if they are corrupted by the accounting used to arrive at them anyway?

Veblen thought that it was the machine process, daughter of the Enlightenment, that was so toxic to the social order that gave rise to it.  But it would not surprise me if it proved to be the modern banking system, which the Enlightenment also spawned, and was the driving force behind Veblen's 'corporate finance' bogeyman, that actually proved to be its undoing.

Notes On the 20th Century

It is interesting to note that --

--  The establishment of the banking cartel under the FED and WWI both followed within just a few years of the publication of The Theory of Business Enterprise.

--  Almost all economists view the last two decades in Japan as a period of economic stagnation and 'deflation.'  Yet this period is uniquely notable as a time of very low inflation, the success of smaller businesses over larger, moderation and evening out of income and lifestyle disparities, and generally quiet times with respect to the business cycle, warfare and other such disturbances to tranquility, the recent earthquake and tsunami notwithstanding.  It also corresponds roughly with the idealized economic environments of Veblen and the Austrians, and in outward appearance to be moving in the direction of the artisan economies of the early Enlightenment.  This has not generally been considered a period of 'national greatness' by the international community, but a great many people have found it to have been relatively beneficient.  Food for thought.

--  The 20th century was the bloodiest century in human history.  The central ideological conflicts were concerned with the ordering of society and the role of property in it.  Most of the principle combatants staked their ideological positions on opposite sides of the Enlightenment.

--  Socialism was first strongly articulated in modern times in the 19th century.  It did not fully take hold until the 20th.  It proved theoretically unsound and morally bankrupt, yet it still persists.  At its core was a radical change in the notion of property, much as the early Enlightenment radically changed medieval notions.

--  America moved in a socialist-reordering direction through the New Deal and into the 1970's.  However, with the election of Reagan and a turn towards broadly Enlightenment policies, smaller businesses tended to proliferate.  Enlightenment sentiments seemed to grow stronger as lifestyles and the economy moved in that direction.

--  The reassertion of early Enlightenment ideals at the end of the 20th century produced a rapidly accelerating globalist division of labor, though this was helped along and guided to no small extent by the activities of governments and central banking.  Interestingly, this 'managed free-trade' tended to result in the transfer of industrial jobs out of the West towards the undeveloped world, especially nominally socialist countries with an entrenched 'mechanical' view of life and society.  Meanwhile, the trades of Veblen's 'pecuniary class,' such as financial, legal, and political roles tended to proliferate here.

--  Advances in technology continue to chip away at cartelized enterprises.  Digital music has undermined a centralized music industry.  The Internet has undermined the mainstream media cartel and opened up communication and information transfer.  Cheaper electronics and communication also now threaten the education cartel, as instructional materials may now be produced by practically anyone and viewed anywhere.  Hollywood may be next.

-- The technology issue brings up particularly interesting issues with regards to its effects on property.  Rampant copying of digital music and software begins to call into question their practical status as property.  If the owner is effectively incapable of asserting his sovereignty over what he claims is his, does it (or can it) really belong to him?  When it begins to take police state tactics to assert property rights, it begins to look less and less like a legitimate claim.  This is perhaps just one example of the machine process beginning to enforce its own order against whatever the law may say.

Class Warfare

Veblen noted what I think are important sentiments with respect to 'advantage taking' and violence under the pecuniary norm.

Capitalist appologists often hold out the principle of mutual benefit as the ideal of contracts and trade and one of the driving forces of the success of the capitalist order.  Yet in practice, these activities degenerate into rancorous disputes more often than probably anyone would like.  There are two tendencies that I observe to cause the most trouble in this respect -- to aggressively seek advantage to the point of disadvantage to the counterparty, and the inability of one party to understand or appreciate the advantage he receives.  Both tendencies produce transactions that dissatisfy one party and result in disputes.  Repeated experience of such dissatisfaction tends to undermine faith in freedom of contract and the capitalist order itself.  That is to say nothing of the instances of outright bad faith and fraud.

Veblen's 'class structure' exacerbates this problem greatly.  On the one hand, you have a pecuniary class whose members specialize in such transactions and whose very livelihood depends on their skill with them, and on the other, the mechanical class, who not only do not much deal with them, but in many ways are actively 'programmed' not to handle them well.

In particular, rules have a tendency to mean very different things to these two groups.  For those with a mechanical inclination, rules tend to be viewed as actual guides to behavior.  As in, they are there to be obeyed.  After all, that is the way machines behave, very reliably, and it is reliability and predictability makes a useful and productive machine.  A good set of rules can be liberating to those of this temperament, as they facilitate smoothe functioning and reduce personal frictions, especially in the realms of the unknown.  Bad rules, of course will be viewed in quite the opposite light for someone to whom rules are important in this capacity.

The pecuniary class, however, knows better.  Rules are impediments to be navigated or ignored, if possible and need be, and best used to hem in the behavior of others.  The pecuniary artist has realized the secret that the mechanic usually has not -- that rules and contracts only really matter 'when and if it comes down to it.'  Until then, which is 90% of the time at least, posturing and maneuvering is at least ten times more practically efficient.  Predictability is not always an asset, and quite often a liability, to the success of members of this class. The mechanic tends to say exactly what is on his mind.  The pecuniary master has gained expert control of his tongue, his expressions...and often his conscience.

Fran provided an excellent example of a clash of these two points of view a few weeks ago.  Through the Veblenian lens, the exchange might be viewed as follows -- pecuniary business manager attempts to extract a verbal commitment (a contract) from a mechanical-class engineer to complete a new project.  He knows the weakness of the mechanical class in negotiations and for hewing to rules.  He disguises the full nature of this commitment by merely asking for a completion date and tries to hem in the engineer in by implicitly invoking the engineer's subordinate status.

The engineer recognizes that intimidation is being used against him, that the request is indefinite and potentially in violation of natural law, and responds with a witticism as such.  The business manager grudgingly backs off, defeated for the time being.  He makes a mental note that this specimen would make an unsuitable yes-man lackey and is unfit for promotion.

Such is the nature of modern bureaucracy.

This is all well and good if you happen to be a galactic superintelligence.  Certain masters of the pecuniary as well as the mechanical like Fran and Robert Heinlein may not have that much difficulty confronting such behavior.  But for the rest of us mechanical types, it isn't so easy.  We are generally honest people, we don't like being treated this way and we feel we don't deserve it.

The law tends towards silence on such tactics, as they are generally considered within it even if viewed by most people as being outside the realm of fair play.  The mechanical versions of such unfair play -- the discreet snipping of a brake line, the drugging of a recalcitrant social interest -- however, are generally considered criminal.  The pecuniary class gets to carry its skills with it in finding advantage in personal affairs, while the mechanical class generally cannot and often finds itself in a position of weakness.  It also happens to form the vast majority, and I can only imagine that the skilled pecuniary types must often feel themselves surrounded by a vast sea of easy pickings.

In summary, what we have here is the potential for a severe breakdown in the division of labor, which seems to me to be well under way.  The ideal of contractual mutual benefit is going to be difficult to meet if the pecuniary class doesn't show some restraint in its dealings with the mechanical class.  This taking advantage of and lording one's expertise over others is a basic human tendency that is inimical to fair dealings in relationships, but particularly so in this case.  Specialization that entails implicit social arrogation and license to unrestrained piracy towards those of other 'castes' runs counter to, well, everything good and decent.  This series is called The New Feudalism for a number of reasons, though, with my apologies, I seem to be a long time in coming to them.  The West seems to have slowly acquired most of the power-mongering intrigue, stratification, and wealth extracting elements of the old feudalism with practically none of its endearing elements to speak of.

Frankly, if you ask me, a system isn't worth defending if it produces such an outcome in practice.  Capitalism's best justifications are its occupation of the moral high ground in respect for the rights of others, liberty, and fair dealing, and its general benevolence in producing material wealth to the benefit of all of society who would participate in its production, and even often for those who would not.  What happens if, as a practical matter, it can claim none of these?

Freedom of contract may turn into 'no contract for you at all if you don't behave yourself.'  Already we see companies like CarMax making hay out of the displeasure we mechanical types experience at haggling and negotiation. 

I'm not looking forward to becoming a third world country.

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