This will sound familiar to those who have read Joseph Campbell:
Graphing a Story Arc
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Category Archives: Books
War and Community
Robert Nisbet in The Quest for Community describes the effects of war on a modern, impersonal society composed of disconnected people in search of meaning and purpose.
War brings modern, atomized societies into a temporary sense of community. Empty activities are filled with moral meaning. Everyday life, with its anonymous people repeating meaningless tasks in standardized offices, become part of a common moral crusade. Modern wars are consciously cast as moral endeavors by governments, undertaken for moral abstractions like democracy, freedom, and even women’s rights. The enemy is seen as the personification of evil. War brings a temporary sense of spiritual peace to lives otherwise devoid of moral purpose and disconnected from their fellow citizens. Even shopping for the most meaningless material objects, the symbols of the society which man has striven for and which has made his existence that of a cog in a machine for the production of those objects, takes on a moral significance.
War administration and production for the war effort find their ways into science and education. Psychiatrists forswear their oaths in order to bring evil doers to justice. University researchers turn their attention to making weapons, with the aid of healthy government grants, of course.
After the fighting drags on, and the moral fervor dissipates, the psychological weight of returning to anonymous lives without moral purpose seems heavier than it was before the moral crusade started. What is left is a strengthened government and bureaucratic apparatus devoid of morality, existing for its own sake, more entwined with the productive society, and always on the lookout for new moral crusades for moral cover.
As the war does not turn out as promised, citizens lose faith in their political leaders and turn to the military as the source of national strength and efficiency. If only the politicians had turned the military loose, instead of shackling them, everything would have been different.
Military leaders are increasingly seen as the best of the nation, endowed with almost super-human properties. Soldiers are applauded at airports, and sporting events become constant celebrations of war and the politicians’ tool for waging it, the military. Instead of being seen as at best dupes, and at worst careerists and adventurists with no compunction against killing strangers, soldiers are seen as sacrificing, selfless protectors against an encroaching and ugly world. Minding their business and working for good, they were the victims of sneak attacks by cowards who hate us for who we are, because we are good. The people, despite the lies of politicians and the setbacks in the war of good and evil, have found a new totem, the sacrificial, yet always pure, soldier. For the masses, psychologically there is no choice but dissent into total national self-doubt.
Nisbet ends chapter 2 with a quote for Dostoevsky’s The Brothers Karamozov, from the Grand Inquisitor:
“So long as man remains free he strives for nothing so incessantly and painfully as to find someone to worship. But man seeks to worship what is established beyond dispute, so that all men will agree at once to worship it. For these pitiful creatures are concerned not only to find what one or the other can worship, but find something that all will believe in and worship; what is essential is that all may be together in it. This craving for community of worship is the chief misery of every man individually and of all humanity from the beginning of time.”
Metaphysical yearning is hard to quench. Its pain is ameliorated with communal continuity and symbolism, both religious and social. The continuity assures man of his place in a never-ending cycle, and the symbolism, revered by all in a community, binds that community together. This was the traditional world. It has almost disappeared in the Western world, and has left in its place free-ranging people searching for their place in the modern industrial society, where productive efficiency is valued most highly and which leaves little room for the encumbrances of the old continuities and symbols.
New symbols must be found. Needing something to worship, and needing to know that all others also worship it because the need to live in a community is so strong, the symbols of the managerial State take the place of the old symbols. Those who dare to abstain from worship, or who remain agnostic to these new gods, are despised. Phrases such as “love it or leave it”, or calls for the killing of dissenters become more common. Man must worship something, and when man is cast in a small role in a materialist society where the old ways have been overthrown, and where the democratic lowest common denominator is exalted, the new objects of worship will reflect this.
Brooks Adams on the Limits of Consolidation and Centralization
Brooks Adams, the great-grandson of John Adams and grandson of John Quincy Adams, saw danger in the consolidation of power in a centralized State, as opposed to the dispersion of power envisioned (by many, but not all, of the founders) at the nation’s founding. He wtote about it in The Law of Civilization and Decay. Again from The Conservative Mind:
“Just how far the acceleration of the human movement may go it is impossible to determine; but it seems certain that, sooner or later, consolidation, having reached its limit, will necessarily stop. There is nothing stationary in the universe. Not to advance is to go backward, and when a highly centralized society disintegrates under the pressure of economic competition, it is because the energy of the race has been exhausted.”
I might amend Adams’ use of the word “economic” and instead use “political”, for economic power becomes subsumed to political power as that power is centralized. Economic power is then redistributed from the central power, the State in D.C., back to its original geographic sources in the provinces, but this time to the State’s preferred hands, those who play the game and know how to feed power and what to ask in return.
This centralized State, being short-sighted and greedy, unable to plan, able only to maximize today’s gains at tomorrow’s expense, is doomed to break apart. It may voluntarily relinquish some of its powers, but that is a sign that it is desperate, and that the relinquishing of power has only begun and will soon take on a life of its own.
The Radical Opponents of Conservatism
Kirk, after giving his six canons of conservative thought, turns to cataloging the schools of radicalism and gives a broad outline of their thoughts. The schools he gives are:
- the rationalist philosophes
- Rousseau‘s romantic emancipation
- Jeremy Bentham‘s utilitarianism
- Auguste Comte‘s positivism
- Marx‘s collective materialism
Their attacks on conservative social order are based on:
- “The perfectibility of man and the illimitable progress of society: meliorism“
- “Contempt for tradition. Reason, impulse, and materialistic determinism are severally preferred as guides to social welfare, trustier than the wisdom of our ancestors”
- Political levelling. Order and privilege are condemned; total democracy, as direct as practicable, is the professed radical ideal”
- Economic levelling. The ancient rights of property, especially property in land, are suspect to almost all radicals”
Radicals are neoterists. (The link is to something about post-neoterism, which is more interesting than anything out there about neoterism.) Change is sought for its own sake.
What is Conservatism?
I have long considered myself a libertarian, but with conservative leanings, where conservative implies a respect for established customs, beliefs, cultures, and social organization. It relies on bottom-up social processes and resorts to governmental re-ordering only when necessary to ensure negative rights.
I compare this to what today, at least in the U.S., is called liberalism, which is a system of belief which holds that the human condition can be improved by top-down engineering and that material progress is the paramount concern of those in need of the social engineers’ help, often referred to as the masses. I here use “masses” less as a socioeconomic descriptor and more as a state of mind, which is dominant in all classes of American society today.
Conservatism is hard to pin down because it is not an ideology (I am not talking about anything that has to do with the Republican Party in this post). It is more a mode of thought that is as varied as the persons contemplating its meaning. There is no orthodox conservatism as there is Marxism or even libertarianism, with its Non-Aggression Axiom.
In an attempt to sharpen my thinking as to what conservatism really is, I read Russell Kirk’s foundational The Conservative Mind: From Burke to Eliot. It would take thousands of posts to do the book justice, but I’ll start with what Kirk calls the six canons of conservative thought:
- “Belief in a transcendent order, or body of natural law, which rules society as well as conscience.”
- “Affection for the proliferating variety and mystery of human existence, as opposed to the narrowing uniformity, egalitarianism, and utilitarian aims of more radical systems.”
- “Conviction that civilized society requires orders and classes, as against the notion of a ‘classless society’.”
- “Persuasion that freedom and property are closely linked: separate property from private possession, and Leviathan becomes master of all.”
- “Faith in prescription and distrust of ‘sophisters, calculators, and economists’ who would reconstruct society upon abstract designs.”
- “Recognition that change may not be salutary reform: hasty innovation may be a devouring conflagration, rather than a torch of progress.”
Pakistani Democracy
Democracy moves to the lowest common denominator, which often resides in the mass of the people. Rarely has democracy descended into religious demagoguery and baseness as quickly as it did in Pakistan, of course with help from the ever-present, maleficent Saudis and self-serving politicians. It is entertainingly documented by MJ Akbar in Tinderbox: The Past and Future of Pakistan.
The Great Game
“The Great Game” was the name used by the English for their geostrategic struggle with Russia in Central Asia. The struggle continues today, with new and old players. An understanding of the area, the players and their goals, and the history of the conflict is required for an understanding of current events. An entertaining and educational place to start is with Peter Hopkirk’s book The Great Game.
Garrison’s “Time and Money”, Chapter 3 Overview
The basic outline of Austrian macroeconomics and business cycle theory described above will now be elaborated. A three part analysis, using the loanable funds market, the production possibilities frontier, and the Hayekian triangle to model the intertemporal production structure, will be employed to this end.
Capital Based Macroeconomics
Austrian macroeconomic theory is based on the market process, as the result of individual actions, in the context of the intertemporal capital structure. Focusing on the intertemporal nature of capital allows this theory to capture the two pervasive elements in macroeconomics, time and money, where other theories can’t. In so doing, it rejects the Keynesian theoretical division between macroeconomics and the economics of growth. Mainstream macroeconomics studies economy-wide disequilibria with a focus on aggregates in a short term setting. Growth theory studies a growing capital stock and its consequences in the long term. Austrian macroeconomics, being capital based, combines the study of the short term macro, cyclical changes in the economy with the long run secular economic expansion due to a growth in capital.
This capital based approach has three integrated elements: the market for loanable funds, the production possibilities frontier, and the intertemporal structure of production, where the market process is guided by the attempted match, by entrepreneurs, between consumer preferences and production.
The Loanable Funds Market
Austrian theory defines a loanable funds market with some modifications. Consumer lending is netted out on the supply side. The supply and demand of loanable funds is broadened to include retained earnings, which are simply a fund with which a business lends to and borrows from itself. The purchase of equities, which in this context are closely related to debt instruments, is considered a form of saving.
The supply of loanable funds is defined as total income not spent on consumer goods, but instead used to earn interest or dividends. In other words, investable resources. Loanable funds are used to invest in the means of production, not in financial instruments. Demand for these funds reflects businesses’ desires to pay for inputs now in order to sell output later. Supply represents that part of income foregone by consumers for the consumption of goods now in order to save for more consumption later. The supply/demand equilibrium coordinates these actions.
The investment of loanable funds brings the loan rates and the implicit interest rates among the various stages of production in line. As more investment goes to those stages with temporarily higher returns, those stages are brought in line with the implicit rates in all other stages and the loan rate, so all rates tend to equalize. The loan rate includes the expected return. In this way it differs from the pure rate of interest, which is a reflection of societal time preferences.
Keynesian macroeconomics hints at psychological explanations for economic fluctuations. Business confidence is described as the “waxing and waning of animal spirits”. The other side of the coin from business confidence is the saver’s “liquidity preference”. Austrian theory eschews these psychological explanations and instead focuses on economics. Business confidence is assumed to be usually stable, and an economic explanation for expected losses from intertemporal discoordination is desired. For savers, the concept of liquidity preference is discarded in favor of an economic explanation of lender’s risk, which, as with business confidence, is assumed to be usually stable.
As alluded to above, mainstream macro has two conflicting theoretical constructs: one for short run equilibrium/disequilibrium and another for long run economic capital accumulation and growth. The idea of saving as not consuming is important for the short run consumption-based theory. Saving and decreased consumption are assumed to be permanent by businesses in the short run theory. The paradox of thrift enters the picture here as savings won’t be fully borrowed for investment in production due to business pessimism. For Keynesians especially, what appears to be disequilibrium is really an equilibrium with unemployment and is the normal course of things. The long run theory, however, views saving and investment as the foundations of growth.
Austrian theory falls somewhere in between these two constructions. People don’t just save; they save for the purpose of consuming more later. They accumulate purchasing power for later use. There is, of course, risk and uncertainty inherent in future demand for consumption goods. The entrepreneur takes on this risk as he tries to earn a profit from the coordination of current saving and future demand. The entrepreneur, then, is crucial in the Austrian theory.
The Production Possibilities Frontier
The Production Possibilities Frontier (PPF) can be used to show the tradeoff between consumption (C) and investment (I), rather than the tradeoff between consumption and capital goods as is normally done. This modified use of the PPF captures gross investment, including capital maintenance and capital expansion. The production of capital goods is equal to investment in any given period. A stationary economy, with no growth and no contraction, has gross investment at a level only to maintain capital.
A PPF describing a mixed economy must also capture government spending (G) and taxation (T). Conventional, Keynesian-based, macroeconomics defines total expenditure (E) as C + I + G. In the Keynesian framework, consumption is stable, investment is unstable, and government spending is a stabilizing force. Consumption depends on net income, but investment and government spending do not. Investment has a mind of its own, so to speak, so Keynesian policy calls for G to counteract changes in I to allow for stable growth.
The particular design of the tax system and the types of government spending, whether that money goes to domestic investment or foreign military activities or so forth, will affect the shape of the PPF and the specific point of the PPF an economy will find itself. Of course, governments often spend more than they bring in and finance the difference with debt. This borrowing increases the demand for loanable funds, and government deficits, Gd, are added to investment, I, on the PPF’s horizontal axis. Gd is defined as G – T.
In a private economy or an economy with G = T, the net PPF shows the sustainable combinations of C and I and assumes full resource employment. Points inside the PPF have unemployment of labor (L) and resources. This is considered the normal state of affairs in a private economy by Keynesians, where scarcity will not impede growth and C and I can move in the same direction. In fact, Keynes’ General Theory includes points inside the PPF, and the theory considers points on the PPF to represent a special case, where Classical theory describes the economy well.
Representing the Intertemporal Structure of Production
Capital-based macroeconomics can make use of the Hayekian triangle to make a simple illustration of both the value added between production stages and the time dimension of the capital structure. The horizontal leg of the triangle is production time, the vertical leg is the value of output, and the slope of the hypotenuse represents value added between stages. The simplest, point input/point output, case, such as putting a food in storage before selling the more valuable aged product, contains one stage. The triangle can be divided vertically to represent different production stages. Consumption of consumer durables can be represented by another triangle back to back with the first, where the slope of its hypotenuse represents consumption through time.
The Macroeconomics of Capital Structure
Austrian macroeconomics combines the three part analysis described above. The interest rate and the return on capital tend toward each other, so the slope of the Hayekian triangle and the interest rate normally move in the same direction in the absence of government spending and borrowing and other economic interventions. The location of the economy described by the three part analysis on the PPF gives us that economy’s “natural” rate of employment, and the clearing rate of our loanable funds market gives us the “natural” rate of interest.
The supply and demand of money is not explicitly represented in this analysis, so transaction demand and speculative demand for money are not a part of Austrian macroeconomics. The model of the economy, absent government intervention, is a system where money simply facilitates trade and is not a source of disequilibrium. As such it is “pure” theory, and not monetary theory. Finally, this method does not track the absolute price level, and instead focused on relative prices as the more important factor in the intertemporal coordination of production.
Austrian Business Cycle Theory (ABCT), on the other hand, treats money as a “loose joint”, where policy-induced money supply and interest rate changes cause economic disequilibria. As such, ABCT is a monetary theory. Keynesians consider the Real Balance Effect, where an increase in money’s purchasing power causes increased consumption, the only possible, though highly unlikely, market solution to economic depression. Austrian macroeconomics counters by using the Capital Allocation Effect, where movements in relative prices within the capital structure allow for intertemporal resource allocation and societal consumption preferences to be in line without idle labor or resources. Also unlike Keynesian macroeconomics, Austrian macro does not include “the” labor market. Instead, many labor and resource markets are represented, with labor and resources moving between different stages as needed.
Macroeconomics of Secular Growth
A static economy is easily applied using the three part analysis of the PPF, the loanable funds market, and the Hayekian triangle, but secular growth is the more general case. During growth, we have outward shifts of the PPF. At the same time, societal time preferences might not have changed, so the interest rate can remain the same, and with it the slope of the Hayekian triangle, as the supply of and demand for loans both increase. Historically, though, increases in wealth generally bring decreased time preferences, so the supply of loanable funds will outpace their demand, causing interest rates to fall. Put another way, consumption increases at a slower rate than income since saving and investment also increase with rising income.
The equation of exchange, MV = PQ, where Q = C + I, implies that the general price level declines as consumption and investment increase. Secular growth will bring lowered prices and wages in the sectors experiencing the growth with a given money supply and velocity. This growth-based deflation does not bring disequilibrium, unlike deflation caused by changes in the supply and demand for money. Growth brings greater saving and investment, which allows for a lengthening of the production structure and an eventual fall in the prices of consumer goods.