Presented at Performance Studies International Conference (PSI #12), London, June 16, 2006.
Dear Abhay,
What debt do we owe Mohandas K. Gandhi?
My question to you has many faces. What is the debt with which Gandhi has left us? Or: What forces did colonialism deploy that Gandhi rethought as debt? Or: What did rethinking colonial force as debt allow to unleash as a force of liberation?
Each version of the question contains, circulates around, this word: debt. I have revealed the end of my essay at the start. After all, I am attempting a brief venture into economics, not a mystery story. But this approach requires that I backtrack and explain myself.
Already, I have presumed the value of naivete. Nothing qualifies me to venture, however briefly, into the field of economics, or into the historical discourse bequeathed us by this figure of monumental significance, Mohandas K. Gandhi. Nevertheless, my proposed question is simple enough, if one understands its foundations. Its first foundation, a further presumption, is the proposal that economic thought might elucidate Gandhi’s actions. Its second foundation would then be this, another question: what is debt? What do I mean by debt, and why do I mean it? I owe you an explanation. Or shall we say at this point in my essay I am in debt to you in the amount of one explanation. In the debt economy, this is the debt incurred with nothing borrowed. I owe you an explanation, but not because you have loaned me an explanation first. I am not repaying you an explanation. I owe you an explanation simply because I have started talking, and you as listener can expect an explanation as your right. In the pecuniary parlay of outgoing and returning accounts, something must be returning in order for a debt to have accrued, even though nothing has been loaned. What might that something be when the exchange has not been entirely material, but conceptual and linguistic? Maybe we have entered into an arena of ethical debt, a balance of equivalences. If I own the house, and you occupy a room in it, you owe me rent, even though I have not first loaned you that rent. I have loaned you the place to live, and we have agreed that the rent is the equivalent of the shelter. Is that a fair assessment? So in terms of me owing you an explanation, shall we say the explanation is the equivalent of the attention you have given in listening thus far? Here I will give away another version of my ending in asking the question about Gandhi and debt. India lived in a house, which it found suddenly to be owned by the British Empire, which then told the people of India they needed to pay rent to continue to live there. Gandhi claimed that the British Empire had thus constructed a debt, which India was in no position to reject, but was in a position to pay. Thus his noncooperation was in fact, at least in the economic sense, its opposite: absolute cooperation, meta-cooperation, holding the British Empire to the promise implicit in its social structure, that such debt, once having been constructed, cannot be refuted. So the debtors can pay it off through manual labor, and buy their house back from the creditors. In such an undertaking, Gandhi invoked a notion of debt with its roots in the religion of the land. Here I am again venturing into a field foreign to me. So before I attempt that concluding venture, I will backtrack once again. It is only in backtracking that I do not trespass.
You are the economist, Abhay; I the self-taught and interested amateur. You were born in Bombay, and studied at Bombay University. I was born in Flint, Michigan and studied at Kalamazoo. I have trespassed into your territory in more ways than one with my question, but before I turn it over to you for an answer, let me complicate it. At least I can say I knew of Gandhi before Richard Attenborough’s movie starring Ben Kingsley. In high school I read the book that Thomas Merton edited of Gandhi’s writings on nonviolence. I wrote a history paper comparing Gandhi to Martin Luther King Jr. I got a B+. The teacher preferred my earlier work on the musical 1776. It was, after all, 1976, the bicentennial year. But I knew in my heart he was wrong, and I repeated to myself my newfound mental mantra: First they ignore you, then they ridicule you, then they fight you, then you win, or some high school rewrite version that I will spare you. Be that as it may, I was soon thereafter cast as Fagin in the school production of Oliver! It was to be the role my parents still consider the apex of my career. Recently, in Roman Polanski’s film of Dickens’ Oliver Twist, the Fagin part was played by Ben Kingsley, an actor some have told me I resemble. This digression proves the extent of my trespass: you come from the very land of Gandhi; I come from a place where I was thought to resemble the actor who played the part of Gandhi, an actor, incidentally, from Yorkshire. Now, a subdigression. It happened ten years later, when in my mid-twenties I delivered pizzas in Chicago, one in a small army of deliverymen who congregated nightly awaiting our orders in the backroom of a thriving northside restaurant. Another driver, named Patel, the butt of many jokes, spoke with a thick Indian accent. The other drivers in their diverse ethnicities – Polish, German, Italian, Spanish, Mexican, Puerto Rican, Ukranian – made him their unwitting clown, since his limited English gave him only the vaguest sense of his own ridicule. I befriended a driver from Spain, Luis, older than the others, and not given to joking. I sometimes asked Luis about vocabulary, as I sat on the long drivers’ bench reading Faulkner or Carlo Levi, or whatever I read in those days. Once I asked him the meaning of dotage, and he explained it to me patiently as the happy old age of patriarchy. I don’t remember why, but in some conversation with Luis I mentioned something about Ben Kingsley. Suddenly I felt a vice grip on my bicep, and turned to find Patel, who had been standing next to me, clutching my arm and peering at me with a look of ferocious intensity. It seemed Patel had suddenly transformed into a kind of demon, and I had no idea what I had said to inflame him. He shouted at me: Exactly! Exactly! Exactly what, Patel? I asked. Exactly like Gandhi! Patel said. Walk like Gandhi! Talk like Gandhi! Look like Gandhi! Exactly! At that moment I realized he was speaking of Ben Kingsley. I looked to Luis for help. And Luis, with infinite wisdom, simply said, We understand you: Ben Kingsley was exactly like Gandhi. Exactly, said Patel, his passion calming. I noticed then that he had tears standing in his eyes. Ben Kingsley. The actor quoted the words exactly. Now I quote the actor’s quotations. Witness the extent of my echolalia. What debt do we owe Mohandas K. Gandhi? It is a question complicated with simplicity. Today I am the foreigner. And the journey of the question has been a 1,800 word walk to the sea, trespassing through your discipline and your country. Anyone who cares to join me on that walk may come along now to its end, where your answer will produce something useful as salt.
He defeated colonialism by accepting it, his acceptance as radical as it was mundane. We have been colonized, he said, and that has put us in debt. To escape the colonization, we must pay off the debt. Once we work our way out of it, through manual labor, we will arrive at a zero point. We will owe nothing, and no one will owe us. That point will be our independence.
I told you it was a simple idea.
But complexity lies in the radical acceptance, for after all, what had Gandhi accepted but the ownership consequences of criminal acts? Such was the culture of colonialism: making India pay for something that was India’s by right; taking it from them first by force, and withholding it to demand payment returns. The rejection of colonialism’s criminality, one could argue, lay in the acceptance of its code of ethics – of ownership through labor, as if the house had been built on foundations of illusion, and the criminality dispelled by the strict adherence to the illusion’s laws. We have locked you in a debtors prison by virtue of our strength, says Empire, and your only recourse is to work your way out for the next 1,000 years, to which the prisoner responds, I will begin my work today, and in the purity of the task I will enact my perfect escape.
Furthermore, in the method of the payment, the perfect act of purified labor, was a profound refusal – a refusal to accrue more debt, not just economic, but ethical, which is to say, and this is the point about religion where I left off: karmic – a debt not of, or not only of, material and labor. The debt economy is the symptom; the cause lies in an economy of deeds and actions. Because man, according to Brahmanism, is born “as debt.” Debt marks his mortal condition. This does not mean that an original sin determines human nature. Debt is neither the sign nor the consequence of a fall, nor does it result from a contract. It simply and directly places man in the condition of debtor. This status is made concrete and diversified in a series of duties, invoked, in the Hindu laws, to justify the rules which organize material administration. It is a karmic approach to debt, as a connection and drawing together of heaven and earth, into which we humans buy our destiny by pouring into the celestial treasury the bad money of sacrifice.
Thus the action of working off colonialism entwines with the action of working off one’s human condition, and such working must be nonviolent, that is, with violence turned only inward on the self, since externalized violence would produce more debt, would multiply that debt we have been born as, under heaven or under empire. Nonviolence does not spend currency it does not have.
Dear Abhay, forgive me my intervening into this subject, my presumption mediated only by my role as interlocutor. What debt do we owe Mohandas K. Gandhi? What debt has Gandhi left us with? What forces did colonialism deploy that Gandhi rethought as debt? What did rethinking colonial force as debt allow to unleash as a force of liberation? And finally: What forces of liberation does such thought – shall we call it our Gandhiology? – allow us to unleash now?
I look forward as always to your response.
Matthew
Sources:
Gandhi on Non-Violence ed. Thomas Merton, New Directions, New York, 1964.
On the Name by Jacques Derrida, “Passions: ‘An Oblique Suffering’”, note 3, pages 132 – 137, with extensive quotations from Benveniste and Malamoud, Stanford University Press, Stanford, CA, 1993.
My dear Matthew,
1.
A young female disciple in the Ashram has a dream which she describes to Gandhi the next day:
I was lying in your lap, Bapu, and you were breast-feeding me. I said I had had enough milk but you kept saying, have more have more have more. Milk squirted into my mouth continuously.
2.
In the language of economics, debts are a function of deficits and credits. A fresh deficit increases the debt. A fresh credit decreases the debt.
We were allotted 30 minutes to read our latest letters of which you, my dear Matthew, took 14 to ask your question, leaving me with the possibility of one answer 16 minutes long. Or 16 answers each a minute long. An answer that takes less than a minute creates a credit, one that takes over a minute, a deficit. I have 16 minutes to repay my debt to you.
3.
I am supposed to start speaking. I am standing in front of 300 students and teachers of Jamnabai Narsee School. The headmistress who is secretly known as Dolly by the teachers is motioning to me to start. Speak, she now whispers. But I simply stand there silently. I have been unable to memorize the speech written for me by Divya Shah’s father. It is 1976 and it is Gandhi’s birthday and I stand silent in front of the assembly. I can not even get to the opening sentence: He was known as the naked fakir.
Later, my father spends days talking to me about Gandhi. Having studied at a school started by freedom fighters, he has read every word Gandhi has written in his native Gujerati. Thus begins a dialogue on Gandhi between father and son that lasts seven years, until father dies, unexpectedly. The opportunity to say more about Gandhi does not arrive for another thirty years. Until today.
1976 is also the year my family does not move to Bangladesh. My father turns down an offer from a United Nations agency to serve as Chief Economist there. I remember him saying, the Bangladeshi question must be answered by a Bangladeshi.
4.
Leading classical economist Robert J. Barro can not understand why countries want political freedom when their material conditions are poor. “It sounds nice to try to install democracy in Haiti or Somalia, but does it make any sense?” He obviously does not think so. According to him democracy should come later, as a sort of reward for materialist development.
5.
I am 13 years old. I have just joined the original Aurobindo Ashram founded by the Maharaja of Baroda. I am here to learn yoga but my teacher likes to talk about bicycles and economics and rna or debt as he sips goat’s milk from a tall glass.
Like Newton’s laws of motion, the laws of karma are about actions and reactions. People and nations come together to repay past rna. If I steal from you, Matthew, I only complete an action that you once started. My act does not create a fresh karmic debt for me.
It is only by my ego-identification with the act that I create rnanubandhana or debt bondage.
6.
The old physics professor is with us. We are on the last train to Virar, the end of the line at the foot of the mountain we will climb early in the morning.
The old physics professor is slow and mild mannered. From time to time he tries to get me and Bento, my fellow economics student, into a discussion of the contradictions of classical economics. “You must read the works of the great radical economist A. G. Frank. He distinguishes between underdevelopment and undevelopment. Undevelopment is the natural state of a country that has not harnessed its economic resources. Underdevelopment on the other hand is a state of economic distortion created by colonialism.” Frankly, we are not interested in any of this.
It is so dark that I can not see more than a shadow when I hold my hand out in front of me. Little circles of light crisscross the wet ground. We are moving in one uniform group when a lone figure separates itself from us. Would any of you join me? It asks. Join me in teaching people in Taragoan village to read and write.
Bento and I mumble something about literacy being an itemized entry in the 6th Five Year Plan and ignore the old Gandhian.
7.
Indian psychoanalyst Sudhir Kakar defines fantasy as the gap between the many desires, formulated as demands on the environment and the environment’s inability or unwillingness to fulfill them.
What strikes me about this definition is its exact correspondence to classical economics: the gap between unlimited demands and limited resources.
We may say,
classical economics = fantasy
8.
The Indian economist Amartya Sen has demonstrated that famines are not a problem of underproduction. In fact during the worst year of a famine, food availability is often at an all time high. The problem is not lack of food but rather what he calls entitlements and capabilities. The poor, now unemployed as a result of the famine are unable to purchase food.
Sen has shown beyond a shadow of doubt that political freedom is a precondition to the elimination of mass starvation. No democracy with a relatively free press in history has ever suffered a famine.
9.
The economics of colonialism starts with the logic of competition which ensures that any producer who lags behind in investment is run to the ground. If we accept the notion that dominant values in society are always the values of the ruling class, then thrift, which is for the producer a necessity for survival, becomes the value of the great middle class. Production and savings begin to outweigh the capacity of the economy to absorb them and must be directed abroad.
How well does this model fit the data? Consider this: From the time India became a colony to the outbreak of the Great War, one half of British savings were invested abroad. Flow of dividends and interest alone provided 10% of British national income.
10.
Classical economics views debt with the same mixture of pleasure, guilt, disgust, and feeling of power that a young child exhibits towards its feces.
We may say,
Debt = feces
11.
The young disciple asked Gandhi to explain her dream. Gandhi said, it means that you can trust me.
Sudhir Kakar has called Gandhi a brilliant amateur analyst.
12.
In classical colonial economics, credit is first directed towards the richest segment of society, then on to inhuman extensions of the capitalist’s ego: machinery, and finally abroad, to the colonies.
Gandhi’s radical rethinking was to apply credit to the poorest strata of society, then to machines that were small, powered by human effort and requiring mental and physical dexterity and alertness. Finally, credit would flow to one’s neighbors.
13.
In 1976 while I wrestled with the idiotic Gandhi speech, Bangladesh was under severe famine. Muhammad Yunus, a young economics professor at the University of Chittagong put together his life’s savings and made credit available to 42 hard-working but severely impoverished neighbors in Jobra village. The total credit was dispersed by him personally, using all his own resources, which amounted to a total of $27.
In doing so he started a bloodless revolution. Yunus, in that act, repositioned his country from a state of underdevelopment to a state of undevelopment.
Thirty years later Grameen Bank has dispersed over $5 billion in credit to 4 million borrowers, 96% of them women.
Consider two of his most recent ventures:
1. Extending credit to women to buy cell phones, not for personal use, but effectively creating a public call office in even the remotest of the poor communities, linking them to neighbors, and the rest of the world.
2. Credit is being extended to 26,000 beggars in rural Bangladesh who now on their daily begging rounds from house to house carry with them sweetmeats and toys for sale. Where once the beggars faced irate householders throwing money and food at them from small windows, they now have families who have set up stools for them to sit on during their daily visit. Children come running out of the houses to see the latest candy and toys that the beggar has brought. Yunus has turned social deficits into social credits.
A remarkable study of rural money lending in Pakistan by Irfan Aleem has found that default rates amongst the very poorest who have been extended credit are amongst the lowest in the world at around 2%.
14.
“Dear Prime Minister,
You are reported to have the desire to crush the ‘naked fakir’, as you are said to have described me. I have been long trying to be a fakir and that, naked – a more difficult task. I therefore regard the expression as a compliment though unintended. I approach you then as such and ask you to trust and use me for the sake of your people and mine and through them those of the world.
Your sincere friend,
M. K. Gandhi”
15.
Muhammad Yunus has one more dream. He wants to make credit a human right. “We all consider it normal that banks exclude 80% of the world’s population,” he says, anger brimming just below the surface. “I want the United Nations to include the right to credit in its Universal Declaration of Human Rights.”
The ability to accept a debt is the next frontier of human rights.
16.
When the child comes to realize that the passing of resources through its bottom is related to the further taking in of nourishment from its mouth, it has learned the economics of Mahatma Gandhi.
We must reword our equation to say,
debt = milk
And in deference to Gandhi’s dietary choices we may modify the equation one last time and say,
debt = goat’s milk
Your friend,
Abhay
Sources:
Aleem, Irfan. “Imperfect Information, Screening, and the Costs of Informal Lending: A Study of Rural Credit Market in Pakistan,” The World Bank Economic Review 4(3) 329-349 (1990).
Barro, Robert J. Getting It Right: Markets and Choices in a Free Society (Cambridge: MIT Press, 1997).
Fenichel, Otto. “The Drive to Amass Wealth,” The Psychoanalytic Quarterly 7:69-95 (1938).
Gandhi, M. K. The Selected Works of Mahatma Gandhi vols. 1-6. (Bombay: Navajivan Trust, 1968).
Heilbroner, Robert. The Worldly Philosophers: The Lives, Times, and Ideas of the Great Economic Thinkers. (New York: Touchstone: 1999).
Kakar, Sudhir. Intimate Relations: Exploring Indian Sexuality (Chicago: University of Chicago Press, 1989).
Kanth, Rajani. Paradigms in Economic Development: Classic Perspectives, Critiques, and Reflections. (New York: M. E. Sharpe, 1994).
O’Bryon, Linda. “Muhammad Yunus, Banker to the World’s Poorest Citizens Makes His Case,” O’Bryon interviews Muhammad Yunus, Nightly Business Report, March 9 (2005).
Schumacher, E.F. Gandhi Memorial Lecture, Institute of Gandhian Studies, Varanasi, 1973.
Schumacher, E.F. Small is Beautiful: Economics as if People Mattered. (New York: Harper Perennial, 1989).
Sen, Amartya. “The Economics of Life and Death,” Scientific American 268(5) 40-7 (1993).
Svoboda, Robert E. Aghora: At the Left Hand of God (Albuquerque: Brotherhood of Life, 1986).
Visscher, Marco. “The World Champ of Poverty Fighters,” Ode 3(6) 26-31 (2005).
Weber, Thomas. “Gandhi, Deep Ecology, Peace Research, and Buddhist Economics,” Journal of Peace Research 36(3) 349-362 (1999).
20060428
Four More Years of Economics #3 and #4 Sacrifice / Thick Analysis / J Curve
Four More Years of Economics #3
Sacrifice and the ends of conservation
September 30, 2005
Dear Abhay,
As I expect you noticed, this week, for the first time in his presidency which will soon mark its fifth year, George W. Bush suggested that Americans consider conservation of gasoline. We could trace the complex series of events – hurricanes pummeling refinery areas, mishandled federal responses, escalating legal scandals – that backed him into the political corner from which he felt compelled to talk about conservation. I am more inclined, however, to focus on the moment of the statement, a moment I find as difficult to render as it is commonplace for this President. Nearly all descriptions, reporting, references to what he said, even verbatim transcripts of the words, seem to me to overstate the utterance. Only a sound recording, devoid of the visual documentation of concerned facial expressions, captures the stuttering sense with which he stumbles into the words as he says them, and the feeling that they, as Seymour Hersh has said, are just words to him. They don’t really mean the meanings that we who value words attribute to them. I would say he suggested conservation; he did not call on Americans to conserve. He said one might consider not driving if a trip is not really necessary, or perhaps taking a bus instead of a car. While “don’t drive if you don’t have to” is certainly an odd piece of advice for hurricane survivors, the suggestion of taking mass transit altogether contradicts his policy decisions, which included zeroing out Amtrak funding in his proposed budget, and even excluding trains from evacuation planning. But for the sake of this correspondence, let’s give him the benefit of the doubt and take him at his word. He promoted conservation. What can we make of this? Let us note that he never used the word sacrifice. Sacrifice, perhaps, was not on his mind.
By contrast, Jeremy Rifkin has written a powerful commentary, which I saw published in the Chicago Tribune and the Guardian in the UK, arguing that the storms directly resulted from the carbon dioxide emissions of American vehicular traffic. The effects of global climate change brought on by these emissions, he argues, have first taken effect in the Caribbean, with a documented increase in Category 4 and 5 hurricanes. Rifkin advocates conservation as well, but of a structural nature, replacing combustion engines with fuel cells, or cars with mass transit – alternatives considered in light of a distinct historical teleology; the goal of reducing carbon dioxide emissions to the point of elimination. Most American drivers would no doubt see this as a sacrifice, and would have a difficult time identifying the positive aspects of these replacement technologies when confronted with slowness, cost, and restricted convenience; or of imagining the broader economic position from which Rifkin reasons – the position that my SUV caused a hurricane that destroyed my house and took away my job. But if we accept his premise, it appears that Rifkin does not call for sacrifice either, unless one considers change a sacrifice of the status quo.
I suspect that the President’s stammering circularity around the word conservation stems from an entirely different economic model, and a much simpler one, of supply and demand. In his equation (and this is just a speculation leading to a question for you) motorist demand has remained roughly constant, while hurricanes have disrupted distribution, reducing supply. This has caused a national spike in costs, which might in turn prompt consumers to recoil and curtail travel plans (conserve). Such conservation would reduce profits. So the President, with profits in mind, made a pre-emptive strike: a suggestion that we don’t drive if we don’t have to, or take a bus. He hopes this might bring demand back into balance with supply, which would ultimately lower prices, and bring about an increase in purchasing and ultimately in profits. Profits only remain consistent in supply/demand balance; imbalance threatens them. In other words, when it becomes impossible to increase supply, one must reduce demand for the same effect. So the teleology, the ultimate goal of his words, is not one of advancement toward a changed environmental relation, or even one that takes hurricane disasters into account in any way other than as supply-reducing factors, but rather one seeking an economic balance. In this regard he is calling for a short-term consumer sacrifice, to maximize producer profits. We could further suggest that his words, and even their stammering quality, had a calculated effect on the oil producers, who would understand that the conservation he called for is precisely not structural but temporary. They might read this as a political necessity, as exactly a President backed into a corner and forced to express caring he does not really feel. Would it be going too far to suggest his statement thus contained for them a coded encouragement of price gouging?
In any event, here’s my question, in three parts.
1: First, the obligatory one: Is this a sensible economic formulation?
2: If so, (since I know you are very forgiving in what you consider a “sensible economic formulation” from me) how do we distinguish between conservation to maximize profits and conservation to alter structure? I understand that the President’s conservation might be temporary, with the idea that consumption will return to a normal level soon, whereas Rifkin’s conservation might be permanent. But setting that point aside for now, what is the difference today? If Jeremy Rifkin and George W. Bush are riding a bus side-by-side at this moment, how do their modes of conservation differ?
3: To sacrifice, literally, means to make sacred; to make sacred an event, an object, an action, even a life, through its elimination. Something becomes imbued with a double life, a physical existence on earth and a symbolic, transfigured existence in a celestial plane, through its deliberate and perhaps ritualized removal. Sacrifice also demonstrates a teleology; in fact it is a teleological act – an action precisely to bring about a goal, or catalyze a movement toward an end. I suppose this part of the question has occurred to me independent of the above Rifkin/Bush contrast: In economics, is there such a thing as sacrifice?
As always, I look forward to your response,
Matthew
§
FMYOE #4
Thick analysis in the shape of the J curve
Feb 6, 2006
DALLAS - Exxon Mobil Corp. posted record profits for any U.S. company on Monday -- $10.71 billion for the fourth quarter and $36.13 billion for the year -- as the world's biggest publicly traded oil company benefited from high oil and natural-gas prices and solid demand for refined products.—Associated Press, Feb 6 2006.
“I think that basically, the price is determined by the marketplace and that's the way it should be.” —George W. Bush to an AP reporter.
My dear Matthew,
My most sincere condolences to you.
1.
Soon after the President’s recent (and brilliant) State of the Union address, I was approached by representatives of the Esteemed Establishment of Economics demanding that I make a sacrifice. Having little on my person at the time save your last letter to me, I dutifully handed the letter over to them as a gesture of sacrifice.
2.
The French naturalist Jean-Baptiste Lamarck was, until recently, widely ridiculed for his idea that characteristics inherited during an organism’s lifetime can be passed on. His views were supposedly inconsistent with the views of modern genetics.
3.
You can imagine my surprise when the most Esteemed Establishment wrote a reply to your letter and sent it to me demanding some answers from you. I hasten to forward you excerpts of their letter, wanting no part in your ill-advised questioning of our President.
4.
The older rebuttals of Lamarckian views were simplistic: One researcher cut off rats’ tails and showed that their progeny were not born tailless. Others argued that centuries of circumcision of men among certain communities had not led to the withering of foreskins of their men.
5.
The most powerful operational use of sacrifice in economics is Marx’s concept of Surplus Value. It is the ultimate sacrifice made by that invention of industrial-capitalist society: wage labor.
Labor in a capitalist society earns a fraction of what it creates. Most products and services command their value-in-exchange. Hence a product utilizing twice as many resources will usually cost twice as much. However labor only commands its value-in-use. It is paid what is needed to reproduce itself, what Marx called the subsistence wage. The remainder, which is the bulk of the value created, is what Marx called Surplus Value, all of which flows to the owners of capital.
6.
We are sorry to report, Mr. Goulish, that your economic analysis has been subject to a quick and quite unnatural death. The Esteemed Establishment of Economics has already pronounced your letter of September 30, 2005 to be classified in the category of Most Difficult to Mathematically Misrepresent and Hence Most Dangerous If Allowed to Remain Alive.
7.
The economics department at the University of Notre Dame, that last remaining refuge of free and independent thinkers succumbed to the powers of the Esteemed Establishment. Actually, the department has been allowed to continue. But only as an undergraduate department (whatever that means). A brand new graduate economics department is being created under the close supervision of the Esteemed Establishment of Economics.
8.
We ask, no command, you to immediately sacrifice your most troubling economic analyses in league with the other trouble-maker Mr. Ghiara. We thought we had eliminated the menace of Ghiara when he dropped out of Graduate School after spending seven years fighting the Esteemed Establishment of Economics at Northwestern University.
9.
In the 1970s during the last oil crisis, the great economist E. F. Schumacher, father of humanistic economics, discussed the problem with economic policies concerning oil production and conservation. He pointed out something very simple: Economic policies were (and continue to be) formulated to treat oil and other natural resources as income rather than capital.
10.
During the autopsy of your aforementioned letter, the Esteemed Establishment of Economics has found the following disturbing heretical organs:
a. In the very first sentence of your so-called analysis, you question the very bastion of the Esteemed Establishment: Supply and Demand. And you dare suggest (we now paraphrase) that a reduction in effective demand may actually allow companies to keep their profits high! May we remind you that a reduction in demand would ensure, through the workings of the Invisible Hand, a lower price and lower profit. The President is willing to allow profits in the oil industry to actually fall if it is the will of the marketplace!
b. The suggestion that the President may take action to attempt a balancing of supply and demand forces is preposterous! Every Econ 101 student is taught that the forces of Supply and Demand follow natural laws. Just as the pendulum seeks balance, the marketplace automatically and consistently seeks balance.
c. The idea that an autonomous inducement to conserve would allow profits to remain high is unsound! A reduction in supply as a result of war or other disruptions in the stream of production raises prices simply to make up for the higher costs of production. If Robinson Crusoe found that weather conditions made it twice as expensive (in terms of time and effort) to catch fish as before, he would trade half as much fish for the firewood Friday collects but his overall state of welfare or profits would certainly be unchanged! Similarly, the oil companies have raised prices simply to reflect the higher costs of production. Their profits do not increase with the higher prices.
Seeing no future in your ill-conceived views, the Esteemed Establishment pronounces your letter DEAD.
Sincerely,
The Esteemed Establishment
PS: The economist Paul Krugman whom you so respect drives a SUV. And he does not carpool. Sacrifice Goulish, sacrifice!
11.
Lamarck was, contrary to his critics, making a much more subtle point. He never believed that gross injuries or mutilations would count as acquired characteristics. Instead he forwarded the theory that function precedes form. When an organism develops a functional characteristic, it is able to pass it on, on a cellular level, to its offspring. This Lamarckian view has recently been accepted by the biological field of study called epigenetic inheritance.
12.
In a social accounting matrix, the simple error of treating capital as income would eventually lead to the draining of natural resources without a viable replacement of existing resources. If a private fund manager were to treat the stock of his or her portfolio of assets as current income it would be considered not only inappropriate but also criminal. As trustee of our natural resources our government has been acting in like manner for five years.
13.
The J curve is an important concept that was developed to explain a seemingly confusing empirical observation in currency valuation and its effects on international trade. Economic theory suggests that a drop in the value of the dollar, for example, would improve America’s trade position: The cheaper dollar would make American goods appear cheaper to foreigners, thereby stimulating our exports. At the same time, a lower purchasing power of the dollar would make Americans pick the now cheaper American goods over foreign goods. So imports should drop. Overall, since exports rise and imports drop, our trade position improves.
The problem has always been that while that is precisely what happens in the long run, in the short run the opposite seems to hold true. That is, in the short run, when the dollar depreciates, the trade position worsens! Economists explain this seeming contradiction using the shape of the letter J to explain the inner workings of this mystery. Writing the letter J involves a small but distinct loop in the downward direction before moving its trajectory upwards if the letter is written from left to right. In the short run, the physical amounts of exports and imports do not change. After all, it takes a while for people to notice changes in exchange rates and respond to them. So in the short run, since the prices of our exports are seemingly lower when the dollar drops, but the physical quantity of our exports is unchanged, the dollar value (that is price times quantity) of our exports drops. Similarly, in the short run, the dollar value of our imports is actually higher. Thus the J curve describes a movement of our trade position first towards deficit (in the short run) and then towards a surplus (in the long run).
14.
I would describe, my dear Matthew, your complex but elegant analysis of the current oil crisis as a Thick analysis (in the tradition of the philosopher Gilbert Ryle and anthropologist Clifford Geertz) whereas the Establishment Economics formulation used by the President may be described as a Thin analysis. Permit me to translate your Thick analysis into economic terms:
The idea of Surplus Value can be extended to the use of natural resources such as oil. These natural resources, as we have seen, are properly considered as capital rather than income. However, in a capitalist society with little Government regulation, the treatment of natural resources must be in the form of income. That is because if natural resources were to be treated as capital, it would be impossible to extract a surplus value from it! Capital will always command its full value-in-exchange.
Income, on the other hand, is another matter altogether. Income, like wage labor, is the product of the rise of industrial capitalism. If I own the land that oil is obtained from, and treat it as income, I must simply pay for it its value-in-use: what it takes to reproduce itself. In other words I can keep pumping oil as long as I take care to ensure that the equipment I am using can pump as much oil tomorrow as it can today. I add to that the going subsistence wages for labor and the remainder is my Surplus Value or profit.
The capitalist socio-economic structure ensures that natural resources are continuously treated as income without a need for coercion: incentive structures are laid out in such a way that each atomistic capitalist treats his or her share of natural resources, whether publicly owned or not, as income rather than capital.
Under such a formulation it is easy to see that the kind of conservation the President has called for makes absolutely no structural change to the issue of oil and other natural resources. Had the President’s words meant a genuine change in the government’s treatment of oil from income to capital, we would have observed a corresponding sharp decline in the profits made by the oil companies as Surplus Values were drained.
My four month lag in replying to your letter from September has provided us with a wonderful chance for empirical validation: Which scenario was the President really representing? One where the government’s policy seriously shifts the economy from treating oil as income towards treating it more as capital or one where the status quo is maintained under the apologist veneer of what I have called the Esteemed Establishment of Economics?
15.
You can not have incentive structures clearly laid out to encourage an automobile-based economy and seriously expect individuals to then not follow those very incentive structures. A Lamarckian approach to the issue of oil would require us to rethink our approach to the economics of oil and natural resources. The conservation policies that the President is suggesting amount to gross and nonfunctional changes that are not likely to effect inter-generational changes much as cutting off rats’ tails do not lead to future generations of tailless rats. As Lamarck stated, function precedes form. What we have here from our President is form (in the form of conservation policies) without a corresponding function. A call for conservation under such circumstances is disingenuous.
If we postulate that the J curve may explain more than the balance of trade on currency markets, that the J curve may in fact describe more general movements of economic magnitudes (involving prices and quantities) from the short to the long run, we can explain why the President would favor his version of conservation while his administration’s policies are clearly pointed in a diametrically opposed direction. The J curve requires the administration to move consumers in one direction in the short run only to ensure a sustained movement in the opposite direction! That is precisely what your brilliant Thick analysis of the current situation indicated.
And so, my dear Matthew, my heartiest congratulations to you,
Abhay
§
Epilogue: Impose Pain
March 25, 2006
Dear Abhay,
The conservative talk show host Laura Ingraham recently asked Vice President Dick Cheney to comment on proposals to increase gasoline tax in order to encourage the use of energy-saving vehicles. The Vice President responded:
“Well, I don’t agree with that. I think – the president and I believe very deeply that, obviously, the government has got a role to play here in terms of supporting research into new technologies and encouraging the development of new methods of generating energy … But we also are big believers in the market, and that we need to be careful about having government come in, for example, and tell people how to live their lives …This notion that we have to ‘impose pain,’ some kind of government mandate, I think we would resist. The market place does work out there.”
To my knowledge, Laura Ingraham did not ask follow-up questions about why, if the market place “does work out there,” the administration seeks to influence it by lowering taxes, but not by raising them; about why the administration’s 2005 energy act contained roughly $2 billion in tax breaks for oil companies; or about the decision, historically unprecedented, to enact wartime tax cuts, thus financing a war by raiding our children’s social security.
Thank you, Abhay, for the clarity of your statement: that we have come to treat natural resources as income to be devoured rather than as capital to be conserved. Now it appears we have begun to treat the future that way as well.
Matthew
Sacrifice and the ends of conservation
September 30, 2005
Dear Abhay,
As I expect you noticed, this week, for the first time in his presidency which will soon mark its fifth year, George W. Bush suggested that Americans consider conservation of gasoline. We could trace the complex series of events – hurricanes pummeling refinery areas, mishandled federal responses, escalating legal scandals – that backed him into the political corner from which he felt compelled to talk about conservation. I am more inclined, however, to focus on the moment of the statement, a moment I find as difficult to render as it is commonplace for this President. Nearly all descriptions, reporting, references to what he said, even verbatim transcripts of the words, seem to me to overstate the utterance. Only a sound recording, devoid of the visual documentation of concerned facial expressions, captures the stuttering sense with which he stumbles into the words as he says them, and the feeling that they, as Seymour Hersh has said, are just words to him. They don’t really mean the meanings that we who value words attribute to them. I would say he suggested conservation; he did not call on Americans to conserve. He said one might consider not driving if a trip is not really necessary, or perhaps taking a bus instead of a car. While “don’t drive if you don’t have to” is certainly an odd piece of advice for hurricane survivors, the suggestion of taking mass transit altogether contradicts his policy decisions, which included zeroing out Amtrak funding in his proposed budget, and even excluding trains from evacuation planning. But for the sake of this correspondence, let’s give him the benefit of the doubt and take him at his word. He promoted conservation. What can we make of this? Let us note that he never used the word sacrifice. Sacrifice, perhaps, was not on his mind.
By contrast, Jeremy Rifkin has written a powerful commentary, which I saw published in the Chicago Tribune and the Guardian in the UK, arguing that the storms directly resulted from the carbon dioxide emissions of American vehicular traffic. The effects of global climate change brought on by these emissions, he argues, have first taken effect in the Caribbean, with a documented increase in Category 4 and 5 hurricanes. Rifkin advocates conservation as well, but of a structural nature, replacing combustion engines with fuel cells, or cars with mass transit – alternatives considered in light of a distinct historical teleology; the goal of reducing carbon dioxide emissions to the point of elimination. Most American drivers would no doubt see this as a sacrifice, and would have a difficult time identifying the positive aspects of these replacement technologies when confronted with slowness, cost, and restricted convenience; or of imagining the broader economic position from which Rifkin reasons – the position that my SUV caused a hurricane that destroyed my house and took away my job. But if we accept his premise, it appears that Rifkin does not call for sacrifice either, unless one considers change a sacrifice of the status quo.
I suspect that the President’s stammering circularity around the word conservation stems from an entirely different economic model, and a much simpler one, of supply and demand. In his equation (and this is just a speculation leading to a question for you) motorist demand has remained roughly constant, while hurricanes have disrupted distribution, reducing supply. This has caused a national spike in costs, which might in turn prompt consumers to recoil and curtail travel plans (conserve). Such conservation would reduce profits. So the President, with profits in mind, made a pre-emptive strike: a suggestion that we don’t drive if we don’t have to, or take a bus. He hopes this might bring demand back into balance with supply, which would ultimately lower prices, and bring about an increase in purchasing and ultimately in profits. Profits only remain consistent in supply/demand balance; imbalance threatens them. In other words, when it becomes impossible to increase supply, one must reduce demand for the same effect. So the teleology, the ultimate goal of his words, is not one of advancement toward a changed environmental relation, or even one that takes hurricane disasters into account in any way other than as supply-reducing factors, but rather one seeking an economic balance. In this regard he is calling for a short-term consumer sacrifice, to maximize producer profits. We could further suggest that his words, and even their stammering quality, had a calculated effect on the oil producers, who would understand that the conservation he called for is precisely not structural but temporary. They might read this as a political necessity, as exactly a President backed into a corner and forced to express caring he does not really feel. Would it be going too far to suggest his statement thus contained for them a coded encouragement of price gouging?
In any event, here’s my question, in three parts.
1: First, the obligatory one: Is this a sensible economic formulation?
2: If so, (since I know you are very forgiving in what you consider a “sensible economic formulation” from me) how do we distinguish between conservation to maximize profits and conservation to alter structure? I understand that the President’s conservation might be temporary, with the idea that consumption will return to a normal level soon, whereas Rifkin’s conservation might be permanent. But setting that point aside for now, what is the difference today? If Jeremy Rifkin and George W. Bush are riding a bus side-by-side at this moment, how do their modes of conservation differ?
3: To sacrifice, literally, means to make sacred; to make sacred an event, an object, an action, even a life, through its elimination. Something becomes imbued with a double life, a physical existence on earth and a symbolic, transfigured existence in a celestial plane, through its deliberate and perhaps ritualized removal. Sacrifice also demonstrates a teleology; in fact it is a teleological act – an action precisely to bring about a goal, or catalyze a movement toward an end. I suppose this part of the question has occurred to me independent of the above Rifkin/Bush contrast: In economics, is there such a thing as sacrifice?
As always, I look forward to your response,
Matthew
§
FMYOE #4
Thick analysis in the shape of the J curve
Feb 6, 2006
DALLAS - Exxon Mobil Corp. posted record profits for any U.S. company on Monday -- $10.71 billion for the fourth quarter and $36.13 billion for the year -- as the world's biggest publicly traded oil company benefited from high oil and natural-gas prices and solid demand for refined products.—Associated Press, Feb 6 2006.
“I think that basically, the price is determined by the marketplace and that's the way it should be.” —George W. Bush to an AP reporter.
My dear Matthew,
My most sincere condolences to you.
1.
Soon after the President’s recent (and brilliant) State of the Union address, I was approached by representatives of the Esteemed Establishment of Economics demanding that I make a sacrifice. Having little on my person at the time save your last letter to me, I dutifully handed the letter over to them as a gesture of sacrifice.
2.
The French naturalist Jean-Baptiste Lamarck was, until recently, widely ridiculed for his idea that characteristics inherited during an organism’s lifetime can be passed on. His views were supposedly inconsistent with the views of modern genetics.
3.
You can imagine my surprise when the most Esteemed Establishment wrote a reply to your letter and sent it to me demanding some answers from you. I hasten to forward you excerpts of their letter, wanting no part in your ill-advised questioning of our President.
4.
The older rebuttals of Lamarckian views were simplistic: One researcher cut off rats’ tails and showed that their progeny were not born tailless. Others argued that centuries of circumcision of men among certain communities had not led to the withering of foreskins of their men.
5.
The most powerful operational use of sacrifice in economics is Marx’s concept of Surplus Value. It is the ultimate sacrifice made by that invention of industrial-capitalist society: wage labor.
Labor in a capitalist society earns a fraction of what it creates. Most products and services command their value-in-exchange. Hence a product utilizing twice as many resources will usually cost twice as much. However labor only commands its value-in-use. It is paid what is needed to reproduce itself, what Marx called the subsistence wage. The remainder, which is the bulk of the value created, is what Marx called Surplus Value, all of which flows to the owners of capital.
6.
We are sorry to report, Mr. Goulish, that your economic analysis has been subject to a quick and quite unnatural death. The Esteemed Establishment of Economics has already pronounced your letter of September 30, 2005 to be classified in the category of Most Difficult to Mathematically Misrepresent and Hence Most Dangerous If Allowed to Remain Alive.
7.
The economics department at the University of Notre Dame, that last remaining refuge of free and independent thinkers succumbed to the powers of the Esteemed Establishment. Actually, the department has been allowed to continue. But only as an undergraduate department (whatever that means). A brand new graduate economics department is being created under the close supervision of the Esteemed Establishment of Economics.
8.
We ask, no command, you to immediately sacrifice your most troubling economic analyses in league with the other trouble-maker Mr. Ghiara. We thought we had eliminated the menace of Ghiara when he dropped out of Graduate School after spending seven years fighting the Esteemed Establishment of Economics at Northwestern University.
9.
In the 1970s during the last oil crisis, the great economist E. F. Schumacher, father of humanistic economics, discussed the problem with economic policies concerning oil production and conservation. He pointed out something very simple: Economic policies were (and continue to be) formulated to treat oil and other natural resources as income rather than capital.
10.
During the autopsy of your aforementioned letter, the Esteemed Establishment of Economics has found the following disturbing heretical organs:
a. In the very first sentence of your so-called analysis, you question the very bastion of the Esteemed Establishment: Supply and Demand. And you dare suggest (we now paraphrase) that a reduction in effective demand may actually allow companies to keep their profits high! May we remind you that a reduction in demand would ensure, through the workings of the Invisible Hand, a lower price and lower profit. The President is willing to allow profits in the oil industry to actually fall if it is the will of the marketplace!
b. The suggestion that the President may take action to attempt a balancing of supply and demand forces is preposterous! Every Econ 101 student is taught that the forces of Supply and Demand follow natural laws. Just as the pendulum seeks balance, the marketplace automatically and consistently seeks balance.
c. The idea that an autonomous inducement to conserve would allow profits to remain high is unsound! A reduction in supply as a result of war or other disruptions in the stream of production raises prices simply to make up for the higher costs of production. If Robinson Crusoe found that weather conditions made it twice as expensive (in terms of time and effort) to catch fish as before, he would trade half as much fish for the firewood Friday collects but his overall state of welfare or profits would certainly be unchanged! Similarly, the oil companies have raised prices simply to reflect the higher costs of production. Their profits do not increase with the higher prices.
Seeing no future in your ill-conceived views, the Esteemed Establishment pronounces your letter DEAD.
Sincerely,
The Esteemed Establishment
PS: The economist Paul Krugman whom you so respect drives a SUV. And he does not carpool. Sacrifice Goulish, sacrifice!
11.
Lamarck was, contrary to his critics, making a much more subtle point. He never believed that gross injuries or mutilations would count as acquired characteristics. Instead he forwarded the theory that function precedes form. When an organism develops a functional characteristic, it is able to pass it on, on a cellular level, to its offspring. This Lamarckian view has recently been accepted by the biological field of study called epigenetic inheritance.
12.
In a social accounting matrix, the simple error of treating capital as income would eventually lead to the draining of natural resources without a viable replacement of existing resources. If a private fund manager were to treat the stock of his or her portfolio of assets as current income it would be considered not only inappropriate but also criminal. As trustee of our natural resources our government has been acting in like manner for five years.
13.
The J curve is an important concept that was developed to explain a seemingly confusing empirical observation in currency valuation and its effects on international trade. Economic theory suggests that a drop in the value of the dollar, for example, would improve America’s trade position: The cheaper dollar would make American goods appear cheaper to foreigners, thereby stimulating our exports. At the same time, a lower purchasing power of the dollar would make Americans pick the now cheaper American goods over foreign goods. So imports should drop. Overall, since exports rise and imports drop, our trade position improves.
The problem has always been that while that is precisely what happens in the long run, in the short run the opposite seems to hold true. That is, in the short run, when the dollar depreciates, the trade position worsens! Economists explain this seeming contradiction using the shape of the letter J to explain the inner workings of this mystery. Writing the letter J involves a small but distinct loop in the downward direction before moving its trajectory upwards if the letter is written from left to right. In the short run, the physical amounts of exports and imports do not change. After all, it takes a while for people to notice changes in exchange rates and respond to them. So in the short run, since the prices of our exports are seemingly lower when the dollar drops, but the physical quantity of our exports is unchanged, the dollar value (that is price times quantity) of our exports drops. Similarly, in the short run, the dollar value of our imports is actually higher. Thus the J curve describes a movement of our trade position first towards deficit (in the short run) and then towards a surplus (in the long run).
14.
I would describe, my dear Matthew, your complex but elegant analysis of the current oil crisis as a Thick analysis (in the tradition of the philosopher Gilbert Ryle and anthropologist Clifford Geertz) whereas the Establishment Economics formulation used by the President may be described as a Thin analysis. Permit me to translate your Thick analysis into economic terms:
The idea of Surplus Value can be extended to the use of natural resources such as oil. These natural resources, as we have seen, are properly considered as capital rather than income. However, in a capitalist society with little Government regulation, the treatment of natural resources must be in the form of income. That is because if natural resources were to be treated as capital, it would be impossible to extract a surplus value from it! Capital will always command its full value-in-exchange.
Income, on the other hand, is another matter altogether. Income, like wage labor, is the product of the rise of industrial capitalism. If I own the land that oil is obtained from, and treat it as income, I must simply pay for it its value-in-use: what it takes to reproduce itself. In other words I can keep pumping oil as long as I take care to ensure that the equipment I am using can pump as much oil tomorrow as it can today. I add to that the going subsistence wages for labor and the remainder is my Surplus Value or profit.
The capitalist socio-economic structure ensures that natural resources are continuously treated as income without a need for coercion: incentive structures are laid out in such a way that each atomistic capitalist treats his or her share of natural resources, whether publicly owned or not, as income rather than capital.
Under such a formulation it is easy to see that the kind of conservation the President has called for makes absolutely no structural change to the issue of oil and other natural resources. Had the President’s words meant a genuine change in the government’s treatment of oil from income to capital, we would have observed a corresponding sharp decline in the profits made by the oil companies as Surplus Values were drained.
My four month lag in replying to your letter from September has provided us with a wonderful chance for empirical validation: Which scenario was the President really representing? One where the government’s policy seriously shifts the economy from treating oil as income towards treating it more as capital or one where the status quo is maintained under the apologist veneer of what I have called the Esteemed Establishment of Economics?
15.
You can not have incentive structures clearly laid out to encourage an automobile-based economy and seriously expect individuals to then not follow those very incentive structures. A Lamarckian approach to the issue of oil would require us to rethink our approach to the economics of oil and natural resources. The conservation policies that the President is suggesting amount to gross and nonfunctional changes that are not likely to effect inter-generational changes much as cutting off rats’ tails do not lead to future generations of tailless rats. As Lamarck stated, function precedes form. What we have here from our President is form (in the form of conservation policies) without a corresponding function. A call for conservation under such circumstances is disingenuous.
If we postulate that the J curve may explain more than the balance of trade on currency markets, that the J curve may in fact describe more general movements of economic magnitudes (involving prices and quantities) from the short to the long run, we can explain why the President would favor his version of conservation while his administration’s policies are clearly pointed in a diametrically opposed direction. The J curve requires the administration to move consumers in one direction in the short run only to ensure a sustained movement in the opposite direction! That is precisely what your brilliant Thick analysis of the current situation indicated.
And so, my dear Matthew, my heartiest congratulations to you,
Abhay
§
Epilogue: Impose Pain
March 25, 2006
Dear Abhay,
The conservative talk show host Laura Ingraham recently asked Vice President Dick Cheney to comment on proposals to increase gasoline tax in order to encourage the use of energy-saving vehicles. The Vice President responded:
“Well, I don’t agree with that. I think – the president and I believe very deeply that, obviously, the government has got a role to play here in terms of supporting research into new technologies and encouraging the development of new methods of generating energy … But we also are big believers in the market, and that we need to be careful about having government come in, for example, and tell people how to live their lives …This notion that we have to ‘impose pain,’ some kind of government mandate, I think we would resist. The market place does work out there.”
To my knowledge, Laura Ingraham did not ask follow-up questions about why, if the market place “does work out there,” the administration seeks to influence it by lowering taxes, but not by raising them; about why the administration’s 2005 energy act contained roughly $2 billion in tax breaks for oil companies; or about the decision, historically unprecedented, to enact wartime tax cuts, thus financing a war by raiding our children’s social security.
Thank you, Abhay, for the clarity of your statement: that we have come to treat natural resources as income to be devoured rather than as capital to be conserved. Now it appears we have begun to treat the future that way as well.
Matthew
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