Wednesday, October 31, 2007

Introduction to My New Book in Progress

Now that the Confiscation of American Prosperity has been published, I have a new book that is fairly well advanced. I expect that , The Manacles of Capitalism: How Market Control Undermines Productivity, I will have the manuscript ready to send to Stanford University Press in a few months.

Here is my introduction. Any suggestions would be appreciated. Most of all, my title is clunky. Anyone who comes up with a title that works for me, will win a free copy of the book.

Introduction: The Hidden Manacles

Setting the Stage

This book makes the case that the modern economy has matured to the point where markets do not and cannot harness the anything near the full productive potential of society; and even more important, that markets seriously undermine economic performance.

This book will emphasize only one of the many defects of the market that markets rely on a system of incentives that are self defeating. Purely monetary incentives may appear to work effectively when one takes a narrow view of their operation, but from a larger perspective they are counterproductive for the economy, as well as society as a whole.

To make my case, I will concentrate on the United States of America, which is the purest example of capitalism today. Here is the most powerful economy in the world, yet it seems powerless to meet the most pressing needs of society. The current U.S. economy falls short on a maddening array of counts. The list of pervasive problems includes excessive poverty, inadequate health care, environmental damage, pervasive toxins, and an unsatisfying quality of life, just to name a few. Although the United States neglects these problems in order to nurture market relations, the relative economic strength of its economy seems to be eroding.

The contradictory nature of the U.S. economy raises a host of relatively obvious questions about the quality of life. Why has a widening circle of poverty begun to engulf more and more people, even when the pace of technological change began to accelerate in the late twentieth century? Surely, an economy with a communication system that would have been unimaginable only a few years earlier should be able to nurture a sense of community or at least create a satisfying culture. Although the majority of the population may have access to considerable material goods, the current economic system fails miserably in creating a good quality lifestyle.

Such questions, while important, largely adopt the position of people as "consumers" whom the economy affects. This book will take a different perspective looking at how market incentives impact people as producers. To make this focus clearer, this book will, for the most part, leave aside many serious problems that typically tend to be seen from the perspective of people. For example, the market system has the adverse environmental consequences (see Perelman 2003). Most people regard these negative effects of the economy as a quality of life issue.

This producerist focus is doubly important because economists studiously ignore it; instead, they cleverly justify the status quo by arguing that people supposedly benefit greatly from the market through their participation in society as consumers. For example, Wal Mart is to be applauded because its prices are low while obscuring the company's effect on people as producers. Although the consumer perspective is important, the producer perspective should not be overlooked. This book is intended to remedy that neglect.

Some elements of the producer and consumer perspectives merge. For example, the pollution that degrades the quality of life can also seriously affect production through negative health effects on workers. Other seemingly consumer oriented questions have more far reching producerist consequences.

Consider the role of modern technology. Although engineers have devised methods of producing sophisticated electronic devices with virtually no human labor, the market economy has not managed to discover a way of reducing the working day. How is it that virtually nobody stops to ask even the better paid, but harried people if they would prefer to sacrifice some of the stuff that they consume for more leisure?

The producerist implication of this technology are equally important. One must wonder why an economy with such advanced technological capacities does not provide for more fulfilling work. Although this leisure might be used for more consumption, it could also increase the workers' productive capacity by improving their health. More leisure, like the opportunity for more fulfilling work, could also allow workers to develop improved skills.

The Theological Defense of Markets

The responses to anybody who dares to question the market are predictable. In their first strong line of defense, defenders of markets will respond, that any measures to address deficiencies other than the standard knee jerk remedy of expanding market powers even further threaten to interfere with economic efficiency. A second, and even stronger line of defence, will admit that problems exist, but insist that the cause is not the system, but the personal inadequacies of the people. As Margaret Thatcher, the Conservative British Prime Minister, popularly known as the Iron Lady once explained: "Economics (sic) are the method. The object is to change the soul" (Harris 1989). This call for spiritual Procrusteanism inspired the extreme neoliberalism that continues to this day.

The stubbornness of the prevailing ideological rhetoric of today reflects the view that markets are an end in themselves rather than a means to an end. Any challenge to the market, no matter how mild, reeks of heresy. Edmund Burke, perhaps the most famous British statesman of the eighteenth century, famously set the tone for theological defense of markets, declaring: "... the laws of commerce ... are the laws of nature, and consequently the laws of God" (Burke 1795, p. 137). The modern Journal of Markets and Morality continues to promote that theological tradition.

From a less elevated perspective, business and political leaders commonly join the familiar litany of praise for the market, bandying about lofty terms, such as freedom, democracy, and justice, not to mention efficiency and prosperity. While first running for president in 1999, George W. Bush offered a simpler formulation, declaring that "trade and markets are freedom" (Schwartz 2005, p. 6; citing Fischer 1999).

Surely nobody could object to people being allowed to enjoy freedom, democracy, or any of these other positive attributes of the market. Why would anyone be foolish enough to challenge the existing economic system, which supposedly represents the pinnacle of social organization or at least it would be if ill considered taxes and regulations did not interfere with what President Ronald Reagan called "the magic of the marketplace"?

But adults should not believe in magic. Despite Reagan's fanciful rhetoric, the market is a harsh taskmaster. Frederick Winslow Taylor, known as the father of scientific management and who devoted his life to cutting split seconds from workers' tasks, gave a more realistic verdict of the modern situation, observing: "In the past the man has been first; in the future the system must be first" (Taylor 1911, p. 7). But how well does this system serve people's essential needs? This book argues that it does not.

A Different Theology

Turning to a quite different theology than that of Burke according to Greek legend, a bandit named Damastes terrorized people near Eleusis, in Attica. People called him Procrustes, or "The Stretcher" because he compelled unwary travelers who fell into his hands to spend the night on an iron bed. He sadistically murdered his guests by stretching the ones who were too short for the bed, or, if they were too tall, cutting off as much of their limbs as necessary to fit the dimensions. His sadism supposedly turned the surrounding countryside into a desert. Procrustes's reign of terror was eventually cut short. Theseus, famous for his legendary exploits and destined to become king of Athens, subjected Procrustes to his own bed treatment.

This mythological reference might seem out of place in a book on the economy, but the workings of the economy have become so absurd and the language of the economy so perverted that reframing the subject in an unfamiliar context seems appropriate. As Frederick Winslow Taylor, who attempted to use the scientific method to tighten the screws on the Procrustean bed, suggested, the modern economy requires that people conform to its dictates: "the system must be first."

Max Weber, the famed German sociologist, who was hardly a radical, vividly captured this harsh spirit of the Procrustean world. For Weber, "the market is the most impersonal relationship of practical life into which humans can enter with one another .... Such absolute depersonalization is contrary to all the elementary form, of human relationship" (Weber 1921, pp. 636 37).

One of Weber's most famous expressions is his metaphor of the iron cage (actually a mistranslation of a less poetic "shell as hard as steel") (Weber 1904 5, p. 121). Weber described the inhuman consequences of this cage/shell:

Today's capitalist economic order is a monstrous cosmos, into which the individual is born and which in practice is for him, at least as an individual, simply a given, an immutable shell, in which he is obliged to live. It forces on the individual, to the extent that he is caught up in the relationships of the "market," the norms of its economic activity. [Weber 1904 5, p. 13]

Beyond the Procrustean Economy

In the spirit of Weber at least the mistranslated Weber you can think of the market as a Procrustean bed. Those who do not accommodate themselves to the system suffer a cruel fate. Like Procrustes, the market is also destructive of its surroundings.

In describing the economy as Procrustean, I realize that I am distancing myself from conventional economics. Certainly, the story economics tells about the market economy is very different. Markets are supposed to be purely voluntary arrangements. People chose to work where they want and to buy what they want. Nobody tells anybody what to do (except on the job).

Unlike the irrational sadism of Procrustes a parasite that destroyed its host economists present the modern economy as the height of rationality. Contemporary economists are fond of comparing the organizational achievements of a market economy with the efficiency of a computer or even the brain itself.

While I admit that many individual actors in the economy often do act quite rationally in furthering their own short term self interest, this book will show how, taken as a whole, the modern market economy falls quite short of the excellence ascribed to it. How can anyone rationalize that hours of work have not radically decreased despite the proliferation of modern, labor saving technology? How anyone reconcile increasing job insecurity and stagnating wages with market efficiency?

No, the market is indeed Procrustean. The business leaders, politicians, and economists who are quick to explain that the logic of the system is immutable and who come down hard on anyone who dares to question Procrustean rationality, are generally immune from the harsh demands of Procrusteanism.

The position advocated in this book flies in the face of prevailing opinion. Besides the dogmatic defenders of the markt, some well intentioned people acknowledge some shortcomings, but pin their hopes on minor regulatory tinkering. History does not look kindly on those who have expected much from such piecemeal measures in the past. Still others might promise that better technologies will be able to correct existing problems within the framework of market. The underlying problem, however, is not technological inadequacy. Nor is it a material deficiency. For example, people do not go hungry because too little food is produced. After all, food surpluses have long plagued most developed countries.

Viable alternatives do exist, but they might seem impossibly utopian only because the gatekeepers of the Procrustean economy adamantly refuse to accept any dialogue or even the possibility of a dialogue. As Prime Minister Thatcher proclaimed: "There is no alternative." The iron bed must remain in place. Everyone must learn to accept the dictates of the Procrustean economy. Neither individuals nor societies have any choice in the matter. To defy the logic of the market would be suicidal at least in an economic sense.

This book makes the case that this Procrustean ideology is as absurd as it is inhuman. The book shows why markets are incapable of permitting people to use their productive potential, while, at the same time, pointing in a more positive direction. Once people realize that the economy does not have to put the system first, as Taylor suggested, society can tap into people's potential and create a more fulfilling life.

The first step is a critical evaluation of the market. Hopefully, with sufficient intelligence, courage, and imagination we can get the kind of economy we deserve an anti Procrustean one in which the productive system will finally adjust to meet society's most pressing needs.


Anonymous said...

How about "The Invisible Handcuffs"?

Michael Perelman said...

Very nice idea. Thanks.

Robert D Feinman said...

I think one needs to separate "market economy" from capitalism. Capitalism is a system of raising capital to fund for-profit enterprises. A market is a way to exchange goods, it can exist in with any sort of economic system. The communists had markets, although the setting of prices was somewhat arbitrary. But, of course, so are ours what with oligopolies and monopsonies.

I claim that the problem we are facing is that capitalism is inappropriate for a planet facing resource shortages. Capitalism requires growth and growth is just what cannot continue in a finite world.

I've yet to see a single economist or politician discuss alternatives to capitalism, so I've taken a stab at it myself. Consider it naive or a call to think outside the box. Here's my 2cents:
After Capitalism, What?

Everyone is coming out with books detailing the problems with modern society, but there are few willing to suggest remedies.

Anonymous said...

Less specific, also clunky, perhaps too strong but first thing that came to mind:

Systemic Suicide: Capitalism's Struggle to Deny the Future said...


"Invisible Handcuffs" does sound cool for this project.


Well, lots of people have spent time talking about alternatives, especially to the more full-throated version of market capitalism one finds in the US. Such discussions have often appeared in books on comparative economics. I might recommend one that I know of quite well, _Comparative Economics in a Transforming World Economy_, J. Barkley Rosser, Jr. and Marina V. Rosser, 2nd edition, 2004, MIT Press.

Barkley, :-)

Robert D Feinman said...

Barkley Rosser:
I'll look up your book. I certainly am aware that I'm reinventing an (inferior) wheel, but I don't see any discussion online.

Why don't you take the initiative and discuss the book. You have an available platform and an audience.

Myrtle Blackwood said...

I see 'the market' as just one of a range of inconsistent and often contradictory ideologies employed by 'capitalists' to justify what amounts to ongoing theft tempered by social pressures and physical limitations.

"..“Many observers view the US neo-conservative clique and its agenda as a conspiracy. This article, however, is based on the premise that they are merely part of a larger equation of global systemic structures. This view is rooted in an understanding that vested interests representing the energy, electronics, weapons, and influential segments of the media and communications industries in the US are always entrenched in key sectors of government. These interests are concerned with maintaining their privileged position. And key elements of the US economic and political elite are now responding directly to changes in global conditions that have arisen since the end of the Cold War. This is not a conspiracy. It is only business as usual..

From: Iraq, Iran and the end of petrodollar:The waning influence of the USA in the Asian century
Dr. Bulent Gokay. 17th May 2006

I agree with John Ralston Saul when he writes that "societies which perceive themselves as being interest-based, end up in violence. [And that] "This is a natural outcome of the natural imbalance of markets.

[John Ralston Saul 'Democracy and Globalisation']

So, Michael Perelman, when you write "the modern economy has matured to the point where markets do not and cannot harness the anything near the full productive potential of society; and even more important, that markets seriously undermine economic performance.

I have a disagreement of sorts. Has ANY economy harnessed much in the way of human potential? Has capitalism really been about maximising economic performance? If so, for whom? and for what?

BTW, I've read Barkley's book on Comparative Economics and made particular note of the his description of the downsides of the planned economies on pages 250, 251. Because they describe Tasmania's contemporary economic disease to a 'T'.

Michael Perelman said...

Thank you for all the wonderful comments and suggestions. Brenda (whom I assume has the honor of being somehow related to Barkely, or is it the reverse?) asked if any economy ever has reached its potential. Of course not. The point of the book is that the capitalist economy is stalled at a stage which has become increasingly dysfunctional.

Lots of people have written about the negative characteristics of capitalism, but fewer have taken notice of the way that, by subjecting workers to a hierarchical, profit-oriented relationship, the ability to take advantage of their potential becomes stunted. You can see things of this in the literature about principle-agent problems, but few books go much further -- with the exception of The Good Soldier Schweik.

Eleanor said...

I am about to order Railroading Economics from the MR Press. It sounds as if you are doing good work in areas I find really interesting.

P.S. It is probably my lack of modern savvy, but I have trouble posting to this blog and may end double posting, because it looks as if the first post did not go through.

Eleanor said...

Your introduction makes me want to read the book. The market seems to work well if what you want is a collapsing infrastructure, a lot of crap from China, too few good jobs and pollution. (Russia has most of these, which suggests that you don't need a market economy to reach this place. Maybe it's the inevitable end of capitalist and state capitalist economies.On the other hand, Cuba has ended in a different place, as have the Nordic countries.)

Anonymous said...

From a global perspective, stalling/'stalled' and 'increasingly dysfunctional' applies to the whole post-1970 period don't you think. Certainly capital has advanced during this period but advances which have been a creating and displacing to higher levels of the problems it has fought to escape until more recently global limits seem more apparent. And Brenda, these limits are not all or even mostly to do with natural resources but instead the types of contradictions that Michael refers to, social and I would say inescapable within the capital system which, when locked into 'permanent transition' becomes only more barbaric.

Anonymous said...


Please excuse my last sentence which, while sounding to be a 'lecture', was not intended as such and more a result of not yet having had sufficient coffee.

As further excuse, while I know that you are aware of the dialectic(s) of nature and society, there are so many who take what I think of as a neomalthusian perspective in which the sole constraints are natural. (So then also an acceptance of the present system of social relations as 'God given', once and for all, best there can ever be) said...


I will note just briefly the obvious social democracies of northern Europe, which are technically "market capitalist" to a substantial degree, but mitigate that in many ways, and also the still substantially worker managed, now worker-owned economy of Slovenia, formerly a republic of the market socialist, worker-managed Yugoslavia. It is the best off in terms of real per capita income of all the formerly socialist states, is now a member of the EU and the only transition economy to adopt (and be allowed to adopt) the euro, even as it retains crucial elements of its former economic system. said...


Brenda and I are only distantly related, with neither of us knowing the exact links. We first encountered each other in discussions of the ultimate origin of our last name, regarding which there is some controversy, although all agree that it eventually came out of Wales.

Robert D Feinman said...

I'm still working on my ideas, so I guess I'm not making my point clearly yet.

My issue is with capitalism, not with democracy. It doesn't matter if the capitalists are the oligarchs, or worker councils or, as increasingly in the US, retirement plans. I don't care who owns the capital, I care that the model requires the conversion of natural resources into derivative goods and that this must be done while pursuing "growth".

What I'm trying to get people to discuss is what an alternative to economic growth might look like. This is complicated by the fact that there are many areas of the planet that are in need of more growth, the developed nations just aren't among them. We have more than enough "stuff". It's just maldistributed. Rather than address inequality politiicians preach the "rising tide" argument.

In thousands of years the tide has yet to rise enough to eliminate the poor. In areas with little poverty (say Scandinavia) it is because of government policies, not trickle down.

A finite planet requires a steady-state economy (at least on a global basis). We are now consuming at an estimated rate of 1.5 times the replenishment capacity.

I assume that the developed countries will have to do with less in the future. There are no technological fixes on the horizon that will change this. A second green revolution is unlikely as is the discovery of some new source of energy.

I hope you'll take up my suggestion to write about your work in this area outside of the usual scholarly circles.

Kevin Carson said...

Most of the problems of the corporate economy result from the fact that it is *not* subject to any form of market discipline.

On a systemic level, the state subsidizes a major part of the operating expenses of big business. So there is little competitive penalty for the inefficiencies of large size, and it operates in an environment of "calculational chaos" when it comes to deciding how to consume resource inputs. Specifically, big business adds inputs of natural resources, energy, and transportation extensively, rather than making intensive use of existing inputs, because it does not have to pay anything like the real market price for them.

Internally, the large corporation is a centrally planned economy. Everything Mises said about calculational chaos, and Hayek said about distributed knowledge, in the context of state planned economies, is true of the large corporation--in spades.

The large corporation is dominated by a managerial elite that allocates investment unproductively. It guts organizations of human capital and other productive resources, and engages in systematic asset stripping, milking and starving, in order to create illusory short-term profits. Worse, corporate management engage in such gutting of productive capacity in order to feather their own nests; the stripping of productive assets is accompanied by management self-dealing and featherbedding that make the old Soviet apparat's dachas and GUM cards look like the door prize at an Elks meeting.

Worst of all, because of absentee ownership of capital and the hierarchical form, the corporation is forced to systematically substitute administrative incentives for intrinsic motivation. The people who know most about the production process, whose distributed idiosyncratic knowledge is most vital to increasing productivity, have absolutely no incentive whatsoever to increase productivity. In fact their productive knowledge is systematically filtered through the hierarchy, so that those on top live in completely imaginary worlds. And those at the top do not internalize the ill effects of their decisions, so to the winning combination of ignorance and power we can add yet another ingredient: the lack of accountability.

Genuine free market economics tells us that rational and efficient decisions can only be made when power is vested in those with direct knowledge, and the good and ill effects of the decision are fully internalized by the decision-maker.

So the ideal economy, from a genuinely free market standpoint, is a decentralized economy of small-scale industry organized as producer cooperatives.

And had the first and second industrial revolutions taken place in a genuine free market environment (no Enclosures and other land expropriations, no Laws of Settlement or Combination Laws, no subsidies to long-distance transportation and other centralizing factors, no cartelizing effects of tariffs and patents, no imperialism), the economy would probably be a lot closer to that model. It would look a lot more like the pattern described by Kropotkin and Mumford than the one described by Schumpeter and Chandler. said...


In chap. 3 of our book we discuss various current proposals for newer versions of socialism. A lot of these are discussed in a special issue of Science and Society that came out in 2002. Among those participating were Albert and Hahnel, who have a scheme of participatory planning, Cockshott and Cottrill, who place their hopes in more advanced computers for planning, Pat Devine, David Kotz, David Laibman (longtime editor of S and S), and John O'Neil, with Pat Devine (not Jim, our econoclast), editing the special issue.

Regarding "greenness," I would say the Nordic economies look the best out of actually existing economies, except for oil producer, Norway, with their soc-dem versions of market capitalism.

Regarding worker-managed systems, there is some evidence that they do a bit better than other kinds of firms on the environment (at least regarding local pollution that affects them), but this is not an overwhelming effect.

Robert D Feinman said...

I'm having a bit of trouble finding your book (I no longer buy books, part of my post-materialist phase) in the local libraries. I'll try interlibrary loan next.

So, perhaps this remark is a bit unfair, but I'm not concerned with how the economy is managed, but what it produces. Obviously some methods of management are better than other, and the more democratic the better, but my issue is with making and consuming "stuff" as opposed to finding other things to do with one's life.

I don't know if you have ever read Melville's "Typee", and I assume much of it is romanticized, but his description of a South Sea Island economy is certainly different from what anyone is contemplating currently.

Myrtle Blackwood said...

Catching up after a big day in town.

It's the reverse. Glad to hear that you don't like hierarchies ;-)

Yes. Agree that there is a link between social relations and the last cup of coffee.

The earliest Rosser to the US that I've found was one that purportedly arrived in 1609. Some young waif kidnapped from the streets and indentured for work in the colonies, I suspect.

Eleanoer, Robert, Kevin
Very helpful, thanks.

Myrtle Blackwood said...

Juan said: "these limits are not all or even mostly to do with natural resources but instead the types of contradictions that Michael refers to, social and I would say inescapable within the capital system which, when locked into 'permanent transition' becomes only more barbaric..."

[Okay, now that I'm over my vegemite-induced bout of flippancy]

Yes, I think so. Social in origin.

If capitalism is (as you say) "a system in which progressively more physical and service production is not for use by the direct producers but specifically to be sold. That is, an ongoing expansion and deepening of exchange relations and money, a process within which human labor [and the natural world -BR] becomes a commodity.."

Then yes the essential contradiction is that we are impoverished - rather than enriched - by such a system. Made poor in many different ways.