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Saturday, July 21, 2007

"Economics is the Dope of the Religious People"

This is from Joan Robinson. It's about using economics as an ideological defense of wealth. Keep in mind as you read this that it was written in 1936, not today.

A lot of the discussion is about tax cuts, and I was amused at the end where she says that even though her opponent wasn't clever enough to think of it, to be fair, there is a way a tax cut can affect employment. She then goes on to foreshadow supply-side arguments, then dismisses them as unlikely to have much of an impact in alleviating short-run economic difficulties.

The introduction to this section of the book where this essay appears (the fourth volume of Collected Economic Papers by Joan Robinson) says that "Keynes read the drafts and I cut out anything that I could not persuade him was correct..." And, though it doesn't relate to the essay that follows, given the charges that the traditional Keynesian model ignores inflation, this is an interesting statement (it is in reference to an essay called "Full Employment" in the same section), "It is certainly absurd to suppose [Keynes] was not aware of the prospect of inflation setting in when near-full employment is maintained for a run of years." Here's her essay, "An Economist's Sermon":

An Economist's Sermon: Economics is the Dope of the Religious People, by Joan Robinson, 1936: Consider the case of a man to-day who has an honest intelligence, a strong social conscience and an independent income.

His intelligence tells him that he has no particular right to enjoy a privileged position. 'Right' is a vague phrase. A doctor has in a sense a right to a motor-car because it makes him do his work better than he could without it. And if he uses it to visit his friends as well as his patients, no harm is done to anyone. But our man is too honest to try to persuade himself that his own comfort really makes very much difference to the amount of benefit that he does to other people. His conscience tells him that he would be doing a good act if he endowed a hospital with his wealth and worked for his living. But his inde­pendent income is not easy to give up.

He cannot keep all three - integrity of mind, a quiet conscience, and the privileges of wealth. One must be sacrificed. If he is a saint he sacrifices the wealth - but we will suppose that he is not. If he is a man of no definite religious creed he can keep his mental honesty and his income by sacrificing his conscience. He can say "I am a selfish individual. I don't pretend to have any better right than anyone else to a comfortable life, but I propose to enjoy it if I can."

But if he belongs to a definite religion this line of escape is impossible for him. Conscience is more precious than anything else. Without its approval he can have no peace. He will have to sacrifice his honesty of mind instead, and make up arguments to show that it is right for him to be better off than the majority of his neighbours.

Now, it is here that the economist is a godsend to him. The economist is a self-appointed expert. It is his business to know about these things. A man may have an honest and independent mind and yet take on trust the opinion of experts on a subject that he has not time to master for himself. If the economist tells him it is all right, then he can keep his integrity, his income and his conscience all intact.

One of the main effects (I will not say purposes) of orthodox traditional economics was to fill this want. It was a plan for explaining to the privileged class that their position was morally right and was necessary for the welfare of society. Even the poor were better off under the existing system than they would be under any other. There is a significant passage in the reminiscences of Alfred Marshall. As a young man, a mathematician and philosopher, before he had embarked upon economics, he began to be troubled by social conscience:

From Metaphysics I went to Ethics, and thought that the justification of the existing condition of society was not easy. A friend, who had read a great deal of what are called the Moral Sciences, constantly said: "Ah! if you understood Political Economy you would not say that."

Marshall himself did much to break down the doctrine that no matter how much poverty and distress there may be it is still true that all is for the best in the best of all possible worlds. But even in the system of economics as it was handed down by Marshall the main theme is still the justification of the existing system.

I will put forward ... examples of the products of traditional teaching: First, the doctrine that increased wealth of the propertied class brings about an automatic increase of income to the poor, so that, if the rich were made poorer [through income transfers], the poor would necessarily become poorer also. ... The whole basis of the argument lies in a simple confusion of thought.

But that is not the concern of our honest inquirer with capital of his own. He can take the word of the experts and rest satisfied. If the experts' arguments do not hold water it is not his business to put them right. And see how comforting their word is. If poor relief did the poor good, the awkward question might arise whether he ought not to contribute to the aid of the poor more than the State demands, or ought not to vote for a government that would demand more. But if even poor relief does the poor positive harm then he can go on enjoying his comfortable life without distress of mind. ...

My last example is taken from a letter to The Times of the Bishop of Gloucester. At the time of the "National Crisis" in 1931 it was considered necessary to introduce emergency measures to balance the budget. In the name of "equality of sacrifice" an addition was made of 6d. to the income tax and a cut of 10 per cent in unemployment benefit. In 1934, the budgetary position being favourable, the Archbishop of York published a plea in The Times that in the event of a surplus, the restoration of cuts in the allowances of the unemployed should come before any other concessions, including remission of income tax.

To his letter the Bishop of Gloucester replied as follows:

"1. 'Unemployment is more than a misfortune for those who are overtaken by it; it is a curse.' So he [the Archbishop of York] tells us. I agree, and therefore it seems to me to be the first duty of the Government to do all in their power to reduce the number of unemployed. It is recognised that one of the most fruitful causes of unemployment is excessive taxation, and in particular a high tax. I am convinced that nothing would ease the situation more at the present time than a substantial reduction of income tax, for it is very largely a tax on industry. We are none of us concerned with the discomforts of those, whether ourselves or others, who are reputed wealthy. But the experience of history tells us that it is always the poorer classes who suffer most from excessive taxation. If a man is compelled to dismiss a certain number of his workmen, it may diminish his profits or comfort, but it ruins the men dismissed.

"2. The result is still more the case if funds diverted from industry are used to increase the amount spent in supporting the unemployed, for all money spent in that way must be withdrawn from paying the wages of working men and will be expended entirely unproductively. It therefore leads automatically to increase the evil it is fighting against.

"3. What I particularly resent is the use of the authority of religion to justify a policy which I believe to be damaging to the country . . . There are generally two policies open to a nation: the one is popular, attractive, sentimental and ultimately harmful to those whom it professes to benefit, the other demands sternness and courage, but will in the end bring a happier time to the people of this country. That I should hope to see the Government adopt."

Stripped of the Bishop's forceful rhetoric the arguments seem to be these: That a remission of income tax would lead to increased spending by the taxpayers, thus increasing employment, while money given to the unemployed would have no such effect. The first paragraph of the Bishop's letter is somewhat obscure and I hesitate to attribute such an extravagance to him, but this argument was openly used by other correspondents on his side of the question.

Alternatively he may be taken to mean that, when a businessman finds that he has less tax to pay, he allots the entire addition to his net income to wages for an increased number of employees. It need hardly be said that this is not a convincing account of business practice. Unless market conditions improve the entrepreneur has no motive for employing more men, and if he does wish to employ more men his usual method of financing is to obtain additional credit. Out of the whole increase of net income to taxpayers due to a reduction of 6d in the income tax it can hardly be maintained that a significant amount will be devoted to building up increased working capital. The argument can only be made to sound plausible to the layman by dark references to the formidable Economic Law...

The Bishop's second point is not ambiguous. He is maintaining that a country which makes provision for its unemployed will suffer from more unemployment than a country which makes none. This is contrary to the "experience of history". For instance, one reason why Great Britain suffered less than the United States from the impact of the present (1936) world slump was because she was already provided with a scheme of public maintenance for the unemployed. Moreover, this argument is contrary to common sense. Suppose that a man is thrown out of work for some external reason, such as a loss of an export market to which his product was formerly sent. When he loses his income he must cut down his consumption and the loss of market is passed on to those trades which formerly supplied his needs. Here also there is unemployment and curtailment of consumption; fresh losses to home industry and further unemployment follow. The more lavish the provision which is made for the unemployed the less is this secondary loss of employment and the smaller are the repercussions at each round which follow from the initial loss. The Bishop's argument is without foundation either in fact or in logic.

It is only fair to say that there is one argument which goes to show that remission of income tax may increase employment. It may enhance the attractiveness to businessmen of schemes of capital expansion. This effect, in times of severe depression, it not likely to be very great, and it is a far less certain and powerful remedy for unemployment than an increase in the incomes of persons who are certain to spend all that they receive on immediate consumption. But however that may be, the Bishop's acquaintance with economic reasoning was not sufficiently great for him to hit upon this argument.

He concludes his letter with an emotional appeal, contrasting the soft and sentimental expedient of increasing the incomes of the unemployed with the strenuous and heroic course of remitting taxation to those "who are reputed wealthy".

But, if economics is the dope of the religious, the chief blame for the excesses of the drug addicts is to be laid upon the manufacturers of the drug the economists who have made it so fatally easy for the rich and pious to preserve an easy conscience by the sacrifice of their honesty of mind.

    Posted by on Saturday, July 21, 2007 at 12:15 AM in Economics, Taxes | Permalink  TrackBack (0)  Comments (18)

          

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