In response to Saturday's post on quantum thinking, PSR, who is the most frequent commentator in the history of this blog, wrote:
OK, these are forming up nicely into coherent statements that have a certain consistent symmetry between them. Reading them makes ideas bounce out of your head. Well, mine anyway. Here are two:
1. The Henry Ford Question: Arguably, without labour, no output can be consumed. How will contemporary economics solve that in an equitable, sustainable way?
2. The Mark Carney Question: If AI is making people lose their jobs, and the savings from the cost of labour banked by capital/the producer, how are the societal effects of this loss being recorded and accommodated (acknowledged) in the accounts, and what actions will result?
PSR's comment and questions did three things for me.
Firstly, I was pleased that my work provoked a response. Anybody who writes wants to do that.
Secondly, I did, of course, want to answer the questions, but during much of the weekend, it was hard to find time.
Thirdly, it made me wonder what would happen if similar questions were to be asked of other political economists, challenging the core of their thinking. I even wondered whether the idea might be extended to politicians themselves.
I put the idea aside at first, but returned to it later yesterday as the rain stopped other play.
I spent some time playing with the idea because it occurred to me that this was, once again, a situation where AI could help hone a very precise question about what the essence of a person's thinking might be and how that could then be contextualised. Playing around with that idea took a while until I came up with a structure that I was happy with, although, as usual, I found that everything needs an edit and refinement when it comes out of AI.
The result is a post, following this one, on Henry Ford, and what the consequences of his thinking on workers' pay might be now.
Another one will follow on Mark Carney, based not on his time as a central banker, but on his questions on resource allocation.
Some other very obvious candidates will follow, including characters whose names will appear in my history of economic thought, when I do eventually get around to finishing this to a stage where I want to share it.
What was, however, amusing was that try as it might, ChatGPT seemed unable to identify any body of thought that might be associated with Keir Starmer or Rachel Reeves: it only seemed able to find critiques of their politics in practice. That, though, might be a topic for another theme, but I'm going to stick with this one on political economy first of all.
Suggestions are welcome. There are already a dozen or so on my list, not all of them glaringly obvious, I have to admit.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
There are links to this blog's glossary in the above post that explain technical terms used in it. Follow them for more explanations.
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Buy me a coffee!
Thanks to P S R and you for a crystallising presentation.
Might we be well advised to differentiatate between types of Capitalism and their inevitable socio- economic consequences?
Might Mr. Ford’s fundamental question be a manifestation of symbiotic capitalism?
Might, Mr. Trump’s current policies be manifestations of parasitic to predatory Capitalism?
P.S. Might Symbiotic Capitalism reduce governmental costs such those associated with social unrest, a work force which is undernourished, in ill health, ill defended, under educated etc?
P. P. S. Might/does Parastic or Predatory Capitalism result in an undemoctatic, impoverished, repressive unstable society?
That’s another whole issue….
Parasitic, predatory, symbiotic are terms that allow critical analysis of the flaws capitalism possesses. None of the different ways you can theorise about the flaws of capitalism, however ‘cut it’. The difference, the advantage capitalism has, is its effective, powerful methodology. The method is based on the capacity of capitalism to use highly focused, selective quantitative economic data to serve the goal of business, commerce and industry; in order to exclude everything else from attention, save the data that serves its purpose, and to act. The method serves the business, and the business serves itself. It is a very simple formula.
Critical analysis of the theory isn’t going to work, because of the effective practical power of the method; and because the critical theory has no practical method, that matches capitalism. Even the Chinese Communist Party, still in power today, figured that all out under Deng Xiao Ping in the 1970s. China never looked back (and I mean by that, the living standards of very many Chinese people were transformed). That, frankly, is all obvious. The left spends too much time theorising; and too little time on functional, practical, usable solutions; and too much time on the abstract, ideological, theoretical ‘purity’ of any practical intent it (rarely ever) produces. Nobody is interested, for very good reason.
I have nit the slightest idea what you are saying John.
Genuinely, this strikes me as word sod. What methodology? Indoctrination? Is that it? And you really think everything is that mechanistic? I never knew you subscribed to the theory of homo economicus so completely. If not, what are you saying? I am bemused.
And what are you saying the left should do? Again, I am left clueless.
I have no idea what you are criticising, Richard. I am surprised you are perplexed , and given the number of comments I have made over some time, accusing me of ‘word sod’, or being over-mechanistic, is a trifle, ungenerously gratuitous. Water off a duck’s back.
Whatever capitalism is, the word “indoctrination” does not sum it. Luca Pacioli’s founding text on the practical Venetian method of double-entry book-keeping (‘Summa de Arithmetica’, 1494); which was used by the Venetians to create a trading giant, but was hitherto effectively unrecorded by anyone outside the Venetian trading community is, in effect the intellectual foundation stone of modern capitalism; it gave them a method to run stable, profitable businesses that supplied the owners with critical information. It was later developed by the Dutch financial community in Amsterdam, and further developed into the discernible modern, but constantly evolving world of finance in London; by men like William Paterson (from the founding of the BoE, 1694 to the modern DCF in 1707). Capitalism functions (then or today) far less by ideology, than by using and manipulating for advantage a patchwork of methods, and it still does so; the methods can change, but the most basic are remarkably stable. The methods are far more effective than the windy analysis of what is wrong that is typically offered as an ineffective solution (notably by the Left). The problem is – the Law (and Parliament), which we rely on to regulate capitalism’s operations (from the propensity to monopoly to the manipulation of markets/technology for its own exclusive benefit) is always an afterthought, and never, ever catches up with Capitalism’s capacity to stay one step ahead of its political management for the wider common good; nor do the politicians ever catch up, and nor does the Left.
We need solutions to the problems it creates, not endless descriptions of capitalism’s shortcomings, using different terminology to say much the same thing: we know have a problem. It is not being addressed in the only form that counts – very specific, practical solutions, either incremental or large scale (like for example tiered reserves in the BoE, or your own analysis of Wealth and Tax, and the way to use taxation to correct the current rapid trend to sharp inequality and brazen monopoly).
And given the word restictions, I think that is a fair, very short summary.
Criticism not accepted John.
How I was meant to get from your first comment to this, I do not know.
I also happen to think that double entry has little to do with capitalism: it applies in any system of society, and I do not as a result see it as the slightest bit foundational to capitalism at all. That would be like saying words necessarily imply socialism: neither claim makes any sense. The existence of double entry did not prescribe systems of capital accumulation, natural resource exploitation (which it has ignored, in any event, rather proving my point) or the extraction of value from labour, which it actually fails to do, as such or it would be more readily apparent, which it is not. Nor does it have any theory of ownership implicit within it. No wonder I was baffled in that case: I cannot see how your premise makes sense.
I entirely agree we need workable solutions and the left does not deliver them because it refuses too often to engage with reality, but reality is not defined by double entry or DCF. The former narrates it. The latter is just a bit of maths used for anti-social effect, too often. Understanding these languages matters – but they are not the problem. The problems are in moral philosophy, and in that sense the left is right. The problem is, however, most on the left cannot relate any solution in moral philosophy to reality because they have no training in the necessary language to explain the consequences. In that sense I think we agree, but otherwise I think we will have to differ, but I am pleased to know what you were, I think, communicating and that I was right to be baffled.
The accumulation of capital was vastly enhanced in potential by Pacioli’s methods; and the passed most effectively to Amsterdam, which realised the potential, and from there to London. The joint-stock company (of Dutch and British origin) was created as a vehicle for Capital, first in Chartered Monopolist Mercantilist trading operations, but later in the better adapted Capitalist form not relying on Chartered monopoly, but always relying on double entry book-keeping (whether openly or not, but if done badly not long for survival); and Capitalism has always used it most effectively. Whether Chartered Monopoly or other form, double entry can be used for other purposes, but these forms came later, and have never had the dominance or the success or power highly adaptive Capitalist form and structure. The narrow focus, flexibility, opportunism, moral indifference and selectivity of data appear, empirically the most resilient. It isn’t necessarily an attractive story; but it is what it is. It is what we are fated to continue to deal with. It isn’t going away, and it isn’t losing ground. I am an admirer of Mutual Funds, and their great and high-minded (well, at least in the round) history. Where are they now. Gone. De-mutualised. Corporatised and joint-stock Capitalist. Most of the owners of the mutuals sold out to Capital twenty years+ ago. Bought and sold. This is what we are to solve.
Politely John, you are wrong.
The joint stock company was rare until 1855 when the UK made it possible by registration and if you had studied the history of accounting (and I have) double entry was not common then in the UK. It was imposed on these entities by their auditors, who did the books at the year end – and it was not used for everyday entry by them until maybe 1870 or so (and maybe later) in many cases, when it was effectively reverse engineered into the business process to save audit cost. It was more commonplace in banks, maybe, but not all commercial entities – which is why accounting failures were so commonplace.
Your claims seem to be very confused to me.
I neither sought, nor expected an apology. Moving on.
“I entirely agree we need workable solutions and the left does not deliver them because it refuses too often to engage with reality, but reality is not defined by double entry or DCF. The former narrates it. The latter is just a bit of maths”.
Reality is not defined by double entry or DCF. I do not understand that statement. At least, I didn’t define “reality”, and I am not quite sure what “narrates” means in the context of the previous sentence, that makes it an issue. DCF is just a bit of maths; but this bit of maths in the history of banks, business and money, provided a far better way of establishing the time value of money for major, long-term investment than existed before it was invented. And that does not mean it was “real”, or even measurably very accurate; but it does mean far more effective, persuasive, powerful and usable; sufficient to be transformative in the way central banks and (eventually) businesses looked at time and money: no more and no less. “Reality”, however remains elusively, somewhere else.
This is boring John. Narrate means to relate a story – precisely what double entry was created to do.
And as for DCF – the technique was not known in business until Irving Fisher wrote about it in the early 20C. It was hardly used by anyone until the 50s, was rare until the 70s, and even now is not universal and in medium and smaller businesses (the vast majority) simply unknown. Even in big business it is rarely peruasive – because it is so easily manipulated. I am sorry to challenge you – but nothing you are saying makes any sense to me – and much of it is just wrong in an area with which I am very familiar. I can also say for sure banks did not ever ask for DCF in my exerience – including on very big sums.
“Of the nearly 150 companies in existence in England and Scotland as of 1695, approximately 85% had been launched since 1688. By this time, a fully fledged secondary market for company shares had developed, with Exchange Alley, a network of coffee houses in London, serving as the primary venue for share dealing. This occurred in the absence of a meaningful regulatory framework, either official or self-imposed by market practitioners” (Brian R Cheffins and Bobby V Reddy, ‘Law and Stock Market Development in the UK over Time: An Uneasy Match’; ‘Oxford Journal of Legal Studies’ 2023, Vol. 43, No. 4, pp. 725–752.
The South Sea Bubble in particular, and punitive Parliamentary legislation thereafter made it difficult for joint-stock companies, but did not cripple their development, and by the Repeal of the Bubble Act there were already 258 companies being traded on the LSE (which was founded, at least in modern form, in 1801).
On double entry book-keeping I would refer to Alan Sangster, ‘The Diffusion of Double Entry Bookkeeping before 1800—Establishing a New Research Agenda’; ‘Accounting History’, vol. 30, no. 3, pp. 368-391 for further analysis and his argument against the prevailing tendency to underestimate double-entry book-keeping before 1800, and not only its prevalence in banks (his paper is both a critique and argument for much more rigorous further research).
150 comapnies? Most Royal granted monopolies? You are extrapolating a microcosm of practice into a generality, inappropriately.
The same with double entry: it was very obviously absent in the early railways era, which led to the 1848 crash, for example, and to chaged reporting requirements which eventually made it commonplace and then de rigeur. The 1855 Act, and subsequent changes, such as the creation of an accounting profession, did that.
Sorry John, but to go back to your opening hypothesis that led to this, which was your claim that double entry and DCF created capitalism, there is no credible evdience to support your claims, or anything re the left that you extrapolated from them in the way you did. I was definitely right to be confused.
Yes, it is boring, so I will leave the matter here as an unsettled disagreement, because we are now disputing issues on different threads. I don’t think continuing this debate will resolve the differences.
They could not be resolved, in my opinion. I cannot establish that you have an argument. Sorry, but that is the case, in my opinion.
Might valid criticism of whatever, not least capitalism, include its outcomes for society generally and for particular groups which comprise society, in economic, social and political facets?
Might U. K. capitalism between tha Attlee government and the Thatcher government, have served its society better than the current parasitic and/or predatory Austerity/Neoliberal version of capitalism?
[…] The economic questions […]
[…] This is one of a series of posts that will ask what the most pertinent question raised by a prominent influencer of political economy might have been, and what the relevance of that question might be today. There is a list of all posts in the series at the end of each entry. The origin of this series is noted here. […]