The Dream Café

Steven Brust: “A masterful storyteller of contagious glee and self-deprecating badassery” —Skyler White

TRB #6 Chapter two Part 2: Planned Economy and Zig-Zags of the Leadership

| 40 Comments

The Left Opposition

The Left Opposition. Sitting: Serebryakov, Radek, Trotsky, Boguslavsky, Preobrazhensky. Standing: Rakovsky, Drobnis, Beloborodov, Sosnovsky

In 1626, Sweden’s King Gustavus Adolphus commissioned a ship. The Vasa began her maiden voyage on August 10, 1628. She was terribly designed, with serious balance problems, and horribly overloaded with decorations and brass cannon, and the first time she encountered a wind stronger than a mild breeze, she foundered and sank. The reasons for this disaster, which took the lives of 30 crew members, involved design errors combined with economic and political considerations. Scholars and engineers have learned a great deal about ship design since then, and studying the Vasa has been a useful part of that.

Taking the longest and most general view, human history can be seen as the gradual triumph of reason and planning over superstition and instinct. Where once we ducked into caves to protect us from a hostile environment, now we have the disciplines of engineering, architecture, and many related fields to build caves that are more suited to our needs, and climatology and other related fields to predict what those needs are liable to be at a given time and place. Where once we could only eat what nature provided, now we are able, thanks to agriculture, horticulture, genetics, and other fields to tailor food animals, fruits, and vegetables to provide more nutritious and digestible food in massively greater quantity and even with some consistency. And so on. This is not to argue that in any of the above-mentioned disciplines we are done learning—far from it. And all of them are to one degree or another limited by class society. But we have learned enough to make a difference in our lives, and in the last analysis, that is the point of the study of nature. It is also the point of the study of society, which, after all, is only a specialized division of the study of nature.

And this, in my opinion, is the importance of the study of history. Some say that we must study history to avoid repeating past mistakes, others that it is pointless because we never do seem to learn. Both are missing something important: this study, too, is a process. History itself—by which I mean, the collection of individual human decisions that determine general, long-term movements—is in theory as subject to conscious control as planting a row of corn. We know that planting corn crosswise on a hill will prevent erosion, but making that kind of conscious alteration in determining where we as species want to go, is still beyond us. Part of why we study history, or at least part of the effect of doing so, is to reach the point where we can subject our own destiny, our future, to planning and deliberate decision making.   And just as we do not solve the problem of excessive runoff and erosion from rows of corn on a hillside by ignoring the problem, so, too, we cannot hope to determine our own future without engaging with our past, without attempting to understand why things happened as they did, without making the effort to take control of what will happen next.

All of which is to ask a simple question: If we have understood the forces of nature well enough to intervene in them to make our lives better, and if it is possible to similarly intervene in deciding on the direction of our progress, why not do the same for the economy? I would assert that there is no reason why humanity is less capable of applying planning to the creation and distribution of human wants than to the questions of where to build a highway, how to build a windfarm, when to prepare for a hurricane. After all, in a limited, contradictory, anarchic way, any manufacturer engages in some form of this when beginning production of a new product.

One of the most important triumphs of the Russian Revolution was that it was the first sustained, large-scale effort at the creation of a planned economy. It was no more a finished product than the first time we built a bridge that required more planning than “drop a log over the stream” was the final culmination of the art of bridge building, but it was an important start that allows us to discover some of the difficulties we’ll be seeing in the future. As in all new techniques, the Bolsheviks began with an a priori scheme, then did their best to correct and adjust it. Even though (or perhaps because) it was attempted under difficult or impossible conditions, we can learn a great deal.

This is why, as we look at the chapter on the zigzags of the leadership, it worth also taking a look (call it extra credit) at The Platform of the Left Opposition. The Left Opposition was formed, informally at first, in 1923 and continued in spite of exile, imprisonment, torture, and murder, until the founding of the Fourth International in 1938. It was, from the beginning, engaged in all of the controversies of the day: the growth of bureaucracy, the suppression of democracy in the Communist Party and the Soviets, the program of the Third International (ie, the program for the world working class), and the economic choices that were so thoroughly intertwined with all of the others.

For this chapter, what I think it most important to establish, and the reason I bring in the program of the Left Opposition, is to show that there were alternatives to the major errors of the Stalin clique. No one would suggest that the economic proposals of the Left Opposition were “perfect,” and certainly no one would say they would have solved every problem confronting the workers state. But by looking at the bureaucracy’s decisions on the one hand, the Opposition’s proposals on the other, and especially the way the former had to hastily, spasmodically, and often brutally change direction and adopt the latter, it is possible to see that, even under the worst of conditions (or especially under the worst of conditions), one can see a way forward if one is looking.

What, then, were those decisions, those proposals? They involved every facet of economic life. The classic case regards the peasants. The Opposition saw the need for collectivization of peasant holdings, whereas the Stalin faction denied it, and instead turned itself toward the Kulak (the well-to-do peasant who employed farm labor), which was part of the middle class basis on which that faction rested. The result was that, instead of gradual collectivization driven by incentives, by an increase in quantity and quality of farm equipment, by education and by showing the actual advantages (and by making industrial decisions to help the peasant so there were actual advantages), the ruling group was suddenly, in panic, forced to collectivize by the most brutal, coercive means, turning massive sections of the peasantry against the workers state, and, at the same time, creating conditions where the collective farms, because they had been forced into existence ahead of the advanced machinery needed, were in fact less efficient in large numbers of cases, which increased the already dangerous dichotomy between city and village. “The blame for these sacrifices lies not upon collectivization, but upon the blind, violent, gambling methods with which it was carried through.” This same sort of denial-followed-by panic-stricken-reversal runs like a thread of devastation through all of the decisions of the ruling group from 1924 to 1936. Consider, for a moment, with all that Soviet industry and agriculture managed, how much greater these accomplishments could have been with a better approach to planning the economy. But this brings up the question: why didn’t they? Is it just that the bureaucracy did not have planning technicians as skilled as those of the opposition?

Well, to be sure, making decisions about how to run something as complex as the economy of 150 million people requires skill and learning and trial-and-error, but I would argue that the difference between the Stalin camp and the Opposition camp was not about who was “smarter”; it was, like everything else, about social forces: Trotsky represented those forces that had made the proletarian revolution, Stalin the forces that were reacting against it, distrusting it. They were not individuals who had “better” or “worse” ideas, they were the representatives of particular social groupings, and carried out their tasks as best they could in the interest of those groupings. This leads us directly and immediately to the question: which forces did they represent, and how is it that those of the Stalin camp came out on top? That is the key question in all of these posts, and we’re getting there.

For now, when considering the planned economy, there is one thing I want to emphasize: When the Vasa sank, no one said, “Well, I guess we’d better not build any more ships, then.” We experiment, we learn, we study, we do it better, because there is no other way that progress happens.

 

Previous Post   Next Post

 

skzb

Author: skzb

I play the drum.

40 Comments

  1. Just a quick note that I am reading along, and we’re coming up to the meat of the discussion we had shortly before you began this thread. Looking forward to the next.

  2. As far as ships go, I suspect both the Vasa and the Titanic designers were directed by management to add or remove features.

    Looking at the Vasa design, it is pretty obvious that it isn’t sea worthy. Perhaps if a lot of ballast were added, it could stay upright. Ship designers were not stupid, but they can be overridden by those in charge who do not understand and who poo-poo engineering concerns. I can hear them now talking about how this project will fail, but they need the job.

    The Titanic had the waterproof compartments modified by management to save money. To be sure, the designers did not understand that their steel would become brittle in cold weather. But if the upper bulkheads had not been removed, the ship would have survived. Also the need for speed record headlines on the maiden voyage (another management goal) contributed a lot to the problem.

    skzb, now we can analyze the ship failures and design improvements. Unfortunately, as you say, people and politics do not seem to learn by history. It is the management problem all over. The real concerns are glossed over as insignificant while the attractive and expensive features are made primary. Unfortunately, this seems to be pretty universal. Yes, the US is totally f**ked up this way. Drilling for oil and gas preempts the need for safe drinking water. Making money off of poisons added to our food preempts keeping the food safe to eat, and so on.

    I do not feel that the form of government (e.g., socialist) necessarily changes the above situation. The problem is that most people think they understand what is going on, but in reality, they haven’t a clue. And the more clueless the person, the easier it is for them to be elected as long as they can manipulate politics. Again, the form of government does not affect this human weakness or eliminate greed.

    Unless you can come up with a way for a real meritocracy to rule, we are doomed to repeat history.

  3. Of course, one of the problems of experimenting with economies is that the cost of failure is much larger. The sinking of the Vasa killed thirty people and wasted a lot of resources; the crashing of a national economy makes that look like a flea bite. It isn’t surprising to me that people looked at the USSR and said “welp, we’d better not try that again.” (Even though, of course, cruising along without further experimentation can be disastrous in its own way. We are not perfectly rational creatures, we hominids.)

    Societies also don’t lend themselves quite as well to quantitative analysis as things like ship-building, which makes understanding the causes of success or failure much harder — and by the time you have enough perspective to make a good guess at it, conditions may have changed enough that you’re back to speculating about how things will go if you try this right now. In my admittedly quite limited knowledge of economic theory, far too much of it depends on assuming that human beings will always behave as rational actors . . . at which point I refer to my comment above. 😛

    But all of that is just a description of why it’s hard to make this work. None of it equates to “therefore we shouldn’t bother to try.”

    Anyway, thank you for these posts. I confess to quite a lot of ignorance on this topic, and while I don’t have time to read the book myself right now — too many other things I need to be researching — even getting just your commentary is very enlightening and thought-provoking.

  4. The suggestion has just been made that some of the Vasa builders used Swedish feet, some Amsterdam feet. These are different lengths. The ship was defnitely lopsided, but I’m not sure I believe this explanation.

    http://www.pri.org/stories/2012-02-23/new-clues-emerge-centuries-old-swedish-shipwreck

    We now return to your regularly scheduled revolutionary betrayal.

  5. I don’t buy the different feet explanation either. It would be really obvious to the shipwrights if dimensions did not match. The ship could have warped being under water for 400 years.

    The link above says the decks were heavier than need be. Maybe. But the real problem is all of those cannon up high above the center of buoyancy and the lower row of gun ports, too close to the water line. Plus all those decorations up high. The hull shape is also too rounded for stability, I suppose they were going for speed. It looks like a design by committee.

  6. SKZB – “One of the most important triumphs of the Russian Revolution was that it was the first sustained, large-scale effort at the creation of a planned economy. ”

    Historically, economists consider three types of economies; pre-historic, command, and market economies. With the advent of states most economies were planned, command economies. The great dynasties of Egypt, India, China, the Maya, the Inca were all planned economies. These economies produced great works that could only be accomplished through planning. And typically it was centrally planned since all power devolved to the ruler of the state.

    In the 18th and 19th centuries these command economies began being replaced with market economies. In The Communist Manifesto Marx and Engels wrote that in less than a century the capitalist system had created “more massive and more colossal productive forces than have all preceding generations together.”

    In this sense the USSR was a regression to the previous historically prevalent economy – the command economy. The difference was not that of planning, but whom the planning was to benefit. Historically this was the ruler or the ruling class. The Soviet revolution and its command economy was intended to benefit the workers.

  7. skzb

    I do not believe the distinctions made by economists are useful in this case. In particular, they conflate a planned economy with a command economy. Here is a quote from the Wikipedia article about command economies: “Advocates of economic planning have sometimes been staunch critics of command economies and centralized planning. For example, Leon Trotsky believed that central planners, regardless of their intellectual capacity, operated without the input and participation of the millions of people who participate in the economy and understand/respond to local conditions and changes in the economy, and therefore would be unable to effectively coordinate all economic activity.[10]…command economies are planned economies, but not necessarily the reverse.”

  8. SKZB – how can you have a planned economy and not have it be a command economy? Are we talking of a plebiscite on every economic decision? No one would work because the entirety of every day would be spent voting.

    You assert that command economies are planned economies, but not the reverse – but that’s only because the reverse has not and probably cannot ever exist. As to your original claim, the USSR certainly never attempted – much less reached – this level of distinction.

  9. > how can you have a planned economy and not have it be a command economy?

    Just off the top of my head, an anarcho-syndicalist approach to local issues with central control for macro issues. Could even be a council of councils system in hierarchy moving up from local to regional to national or world-level economic policy.

    Consider the vast impact the Fed has on the US economy from day to day, and the way that strategic government initiatives like “free-trade” agreements and tariff elimination have directly caused the movement of commodity industry from union-operated domestic factories to exploitive low-regulation, low-labor-cost countries. I think it’s arguable that we have a planned economy that is not administered by command here in the US. It’s just not a very good plan, is all.

  10. All types of economies have planning; in capitalism it tends to be called market research.

    The distinctive thing about Stalinist-style economies is that given a plan, they can _enforce_ it.

    It would be relatively straightforward to write a medium-size computer program and plan the current US economy for the next 5 years. It’s just no-one would pay any attention to what the computer said. Without an enforcement mechanism, a plan is nothing.

    Which is why the Soviet economy worked kind of OK when it had gulags, and went to pot afterwards. They gulags weren’t an excess or betrayal of the economic system; they were the system.

  11. 1soru1 – “Today Amazon sells over 200 million products in the USA, which are categorised into 35 departments. There are almost 5 million items in the Clothing department, almost 20 million in Sports & Outdoors, and over 4 million Office Products. There 7 million items in the Amazon Jewelry department, 24 million in Electronics, 1.4 million products in the Beauty department, 570 thousand Baby products, and 600 thousand Grocery items.”

    Now, do we want to talk about industrial products? I don’t think Amazon sells many of those. Probably an order of magnitude larger. A single automobile has 30,000 total parts – roughly 2000 unique parts.

    Now, just to collate those would require something more than a straightforward medium-size computer program. And we have to ensure the raw materials for production, adequate labor force, and distribution. And we haven’t even touched on the service industry.

    The idea of planning an economy of any size with any level of actual detail – and actually making it palatable to the populace – is pretty mind-numbing. Yes, if we eliminate most of the products we could do it. Which means it probably won’t be palatable to the populace. This is the Catch-22.

  12. That kind of stuff is why I said medium-sized rather than trivial; it’s still smaller than a weather model, designing a fighter jet, etc. Millions are a small number to a computer.

    It’s not like you need to have an exactly perfect optimal solution to be better than the status quo.

    It’s the enforcement problem that’s really intractable. If your computer model says ‘we should have 5000 indie bands, 400 professional sports teams, 10 nuclear power stations’ what could you do to make that happen? Locking people up for not following the plan works on its own terms, but kind of loses sight of the goal of being less bad than liberal capitalism.

  13. 1soru1- ” If your computer model says ‘we should have 5000 indie bands … what could you do to make that happen?”

    If your model is any good it will determine why there aren’t more indie bands. Is it lack of musicians? Lyricists? Singers? Instruments? Education? Then seek to remedy the situation. Increasing musician wages, opening more nightclubs offering live music, increasing spending on music education, importing indie bands from abroad, offering incentives for musicians from genres considered overpopulated to switch,etc. Or is it just a fad that will fade away in a week? Or are indie bands a socially destructive force that we don’t want to encourage?

    Of course a similar analysis has to be done on a constant basis for everyone of the billion parts, products and services that constitute the economy.

    It’s ironic that you mention GCMs because an efficient planning model would have to have at least two GCM modules – probably three. One for short-term weather, another for seasonal projections, and likely one for longer decadal projections.

    The program would also have to be aware of all relevant current events both domestic and foreign. If the price of rare earth metals drops 40% is the new mine ready to begin construction still economically feasible? Are there considerations other than economics that greenlights it anyways?

    And all of this is tangled together in an intricate web of co-dependency. We’re talking hundreds of millions – if not billions – of variables alone. And every decision has a cascade effect causing many prior decision to be reanalyzed. A GCMs 500,000 kines of code would like like child’s play in comparison.

  14. Kevin, try this analogy. Your body has a whole lot of feedback systems that work automatically so you don’t have to think about them. Among them, you have eyes which look the direction you want to look. Your nose detects a variety of odors and your brain remembers threats that have been associated with particular odors in the past. So if you’re walking down the street you may smell something that makes you alert and wary. You may not consciously notice the smell, but lots of things are going on in your body — a bit of adrenaline and each of your organs has its own response to that, which you don’t have to think about at all. Then you see something that looks like a threat and your body responds further. It reduces blood flow to your digestive tract and sends more blood to your skeletal muscles. Your veins gets slippery and hard to cut. Little muscles around your dura mater pull it down tight so that it gets harder for you to be knocked unconscious. Etc etc. You don’t have to think about any of that. You only have to notice a threat.

    You do planning on a large scale. Will you need to stay up late? Maybe you’ll need some exercise, running away or heavy lifting? You may be planning where to have dinner. And while you make those plans your body responds to them. It continually adjusts your blood pressure, your muscle tone, it constricts or relaxes specific arteries to adjust blood flow to different places, it continually maintains your joints, it digests your food, sometimes growing extra lengths of intestine or shortening it, it does breathing sufficient for your current needs while your kidneys and liver repair your blood. Many millions of decisions each hour, that happen mostly without you noticing. Those decisions happen so that you can make a big decision and have it carried out.

    Sometimes you aren’t doing any planning. When you’re asleep. Maybe all your automatic feedback systems work particularly well then, when your governing brain isn’t distorting them.

  15. skzb

    A good discussion. This is the sort of conversation I’d hoped for. For myself, I pretty much agree with Miramon.

  16. Up to this point Trotsky has identified several points that are as true today as they were then:

    An economic system can, at least in part, be judged by its productivity
    To do this we need accurate metrics
    Productivity is a measure of both the creation/adaptation of best practices and an adequate supply of trained workers
    Basic infrastructure is an important element to any economy
    Markets, via consumers, are one gauge of a product’s quality
    These same markets provide feedback that needs to be incorporated into the productive process
    Best practices are not static. There needs to be constant process improvement.
    The general populace will not be swayed by sheets of impressive numbers, but by the improvement in the quality of their lives
    Just as ‘no man is an island,’ so too no state is an island. Globalization is not a result of capitalism, it is a logical step in virtually any technologically advanced economic system.

  17. Miramon – there is no doubt that we live in a world that is neither chicken nor egg. Certain aspects of the economy are certainly planned at national levels and occasionally at international levels (the Montreal Protocol and CFCs for example).

    One of the failures in the USA is a lack of education on economic history. Many ‘zombie ideas’ perpetuate no matter how many times they’re proven wrong. One of the most dangerous is the idea that innovation and new ideas are a direct result of capitalism and would/should fall under any socialist economic system. Our own history as a quasi-socialist democracy proves this wrong. While there are dozens of historical examples, we need only look at current products, as Iowa State professor Tony Smith writes:

    … Apple’s tremendously successful line of products — iPads, iPhones, and iPods — incorporate twelve key innovations. All twelve (central processing units, dynamic random-access memory, hard-drive disks, liquid-crystal displays, batteries, digital signal processing, the Internet, the HTTP and HTML languages, cellular networks, GPS system, and voice-user AI programs) were developed by publicly funded research and development projects.”

    Noam Chomsky has spent a lot of time on this same subject which he refers to as Privatizing Profit and Socializing Risk. The government *should* fund basic research – but the fruits of that research should not then be simply a profit vehicle for private concerns. To this end something akin to the Open Source/Common Use license should be required. Yes, a company can use this technological advance to make a product – as long as *their* product is Open Source and freely available to be shared/copied.

  18. The problem with the US today is the way corporations and people with money have a strangle hold on the rest of the country. Just look at the guy who is buying up an effective monopoly on small volume life sustaining drugs and raising the prices to stratospheric levels. Then there is the TPP which will extend corporate control over any country that signs on, making corporate rule 10 times worse.

    To use J Thomas’ analogy, we have a number of cancers that do not care about the effect on the body. The assumption is that the body (or the world) is so big it can survive anything they do. How does the body respond, by attacking the cancer. So that is the direction corporations are forcing the country to go. Wouldn’t it be great if corporations had a concern for the welfare of the country and people? I blame the business schools that today teach that the only responsibility a corporation has is to make money.

    To the OP, would socialism prevent this cancer? Only if it had the tools, the power and the will to prevent this; as it seems to be the nature of some people to create little kingdoms for their benefit. Corruption is a continuous problem regardless of the political system. So an effective means of preventing it is needed. Unfortunately, I don’t know of any that is working.

    If everybody is educated and emotionally tied to system that does not allow corruption, that might work. But sociopaths and psychopaths are so good at manipulating people that at least for a while, they can convince people that black is white to suit their purposes. I guess the punishment for corruption needs to be really severe. Rather than just fining the corrupt bank, the banker needs to be put before a public firing squad.

  19. I would like to be here tomorrow: New York ComicCon – The Amazing Economics of Star Trek with two of my favorite economists!

  20. > One of the failures in the USA is a lack of education on economic history.

    Indeed! I quite agree. And an even greater failure is revealed if you delete your last three words, sadly enough.

  21. “One of the failures in the USA is a lack of education on economic history. Many ‘zombie ideas’ perpetuate no matter how many times they’re proven wrong.”

    Many of them are actively defended by people who simply disagree that they have been proved wrong. Often the proofs are subject to a lot of interpretation and there’s room for honest disagreement. Other times it’s more like a religious belief and telling people that it’s proven is like telling them you’ve proven there is no god.

    For example, there are people today who still believe that a socialist economy could be possible! Despite all the proofs and all the examples which show beyond doubt that socialism can never ever work under any circumstances and always results in societal collapse, they believe it anyway. There are university economists with PhDs who say it’s been proven scientifically. There are some who say that scientific method is not needed and they have proven it praxeologically. And still there are people who reject the proofs. Would you believe there are even communists alive — to this day! — who do not understand that communism has been proven to always inevitably fail? Proven not just by science and praxeology but also by astrology and by haruspicy and cybernetics and by the fundamental truths of Objectivism! And they refuse to understand!

    Given that many many citizens refuse to understand economics, is it any wonder that it doesn’t get taught at a pre-college level? They’re still fighting about teaching evolution.

    But worse than that, professional economists themselves don’t in fact agree on that much. They are divided into a collection of abstruse specialties, and no one economist can understand the details of all of them. There is a central core that everybody pretty much agrees about, and then there are all the specialties. And it turns out that almost everything in that core is incorrect, or at least badly oversimplified with the wrong parts emphasized. It’s pretty much all superceded by one specialty or another. Most of the consensus about economics is in fact zombie economics. Each specialist has only a little piece he disagrees with, but when you put all the specialists together there isn’t much left….

    If we tried to actually teach economics in the USA, would it be GOP economics or Democrat economics? Libertarian economics or Green economics? Something that doesn’t go along with any of them? So much of the economics people believe is thinly-disguised ideology….

    I just don’t see it. What might work is to find a way to set up a variety of technocracies, and let technocrats with different economic ideas run each different nation in the experiment, and then we try to get a sense of where each of them went wrong so we could do it better next time. So far we have only one solid experiment along those lines, Pinochet’s Chile. The economists are still arguing about what happened and what it meant.

    I’m only moderately hopeful….

  22. What I studied in college and in later classes, was classical capitalistic economics. It has some usefulness as long as you realize it is oversimplified to the point where it cannot be applied directly. Because there are other effects which tend to dominate and the basic assumptions are not met.

    But also, there was little or no consideration of any other form of economy. So people coming out of business school may not have the tools to really analyze an economy, or even a business, accurately. Any economists out there?

  23. I’d like to mention one of my pet peeves. It’s about an economic doctrine called Mercantilism.

    Mercantilism used to be an important economic doctrine but it has been discredited. The central idea was that governments should try to manage their economies to make the state stronger. Oversimplifying, the opposing arguments were basicly that more total wealth is produced when governments don’t interfere, and that governments which compete this way tend to get into wars etc which do not promote the common good. But of course, these are arguments that governments should not compete. And in reality governments do compete.

    The original doctrine involved trying to manipulate trade so that the value of your exports is consistently greater than the value of your imports. At first sight this is stupid. Your people work hard making stuff for other nations, and they get less back than they give. But it has long-run advantages. Your money becomes worth more than theirs. People will tend to invest more in your nation because the returns are higher, which makes it easier for you to export more than you import. Increasingly other nations will export raw materials and you give them back finished products. Your people work hard and have the opportunity for work, theirs are unemployed, their labor is wasted except for the miners and farmers and lumberjacks who make stuff for you. Their road network will increasingly lead to ports and not be interconnected, making them easier to invade if invasion is needed. Your nation dominates.

    When the industrial revolution came along, it was increasingly obvious that your nation was better off to provide industrial goods in return for raw materials. You might easily need raw materials that only foreigners could supply. And the more industrial wealth your nation controlled, the more powerful the nation became.

    Textiles was one of the early industries. The textile industry needed wool, wool needed sheep, sheep needed pasture. Farmers were pushed off their land, replaced by sheep who didn’t need so many farmers. Later cotton was king, leading to many large cotton plantations in the US south and to the civil war. Cotton planters wanted to sell to the highest bidder; yankee industrialists wanted the cotton for themselves. Either way, the south was an economic colony, with railroads that primarily carried agricultural products to the coast.

    I haven’t tried to document the following idea, but I think it’s true — Mercantilism got discredited about the time that Britain had established a degree of global dominance. The british government did not much need to manipulate trade when british industry could easily outcompete their competitors in the nations they wanted to buy raw materials from. They argued that other nations should have free trade, that this would result in more total wealth and more wealth is better than less wealth. They did not mention that the wealth would be concentrated in Britain and not India or China etc.

    Bigger wealth is best wealth.

    Of course the USA adopted the same line, arguing vociferously that free trade is always best even while we did nothing like free trade in practice.

    As the highest quality iron ore in the USA started to run out, we increasingly shipped iron ore from Brazil to the USA. The Brazilians wanted their own steel mills, but somehow nobody in the world would sell them one. They could of course have reverse-engineered the methods, but they made expensive steel that way. They kept asking until finally Germany sold them a small steel mill, much smaller than they wanted to buy. This was about the time that Japan made new steel mills, subsidized by their government, and undercut the prices. Then Korea etc. Somehow it turned out that new nations could enter the steel-making business about the time it became a dying industry.

    Nations needed industrial capacity for war.

    It makes perfect sense that the Soviets concentrated on industry. And they needed to concentrate on the fundamentals, things like steel and electricity. If those were flawed then everything that needed them would be affected. And they needed to wage war immediately. The farm problem was vitally important but easy to put off, under the circumstances.

    Today, how is it that Americans don’t see the Chinese using a mercantilist strategy? Some economists don’t see it because they fundamentally believe it does not work, so they don’t care. “They give us whatever we want that they can make. We give them little pieces of paper that they store away. Who should complain?”

    And there’s the argument that there’s more total wealth when the chinese make it than when we make it. If they can make it cheaper then they deserve to have the investment and the jobs etc. If we can’t compete then we need to work harder and cheaper until we can compete. Americans didn’t object to that reasoning when it was applied to third-world nations. Why should they object to the same reasoning when the USA is becoming a third world nation itself?

    I’m afraid that US political economists won’t do much to change this thinking until they see that chinese economists are starting to outcompete them at supplying economic opinion to the US government and US public.

  24. A really large amount of compute power is used in trying to figure out aspects of the stock market (essentially where to make your bet) in both the extreme micro end and macro ends of the scale. Many of those considerations, or complementary considerations, could also be argued to be needed in a really good model of a planned economy.
    As skzb mentions above, Trotsky envisions taking individual peoples inputs into account for a good planned economy vs a command version. Currently, that gives us about 7.3 billion inputs that rapidly fan out to something really large.
    A good plan would require a rather large amount of compute power. Just how much is an interesting research question.

  25. “Currently, that gives us about 7.3 billion inputs that rapidly fan out to something really large.”

    You don’t have to plan for the whole world until you are controlling the whole world. So let’s cut that back to a few hundred million for now.

    You don’t need to sample that many people, and it isn’t useful to do it. Like, say you want to estimate how many Pop-Tarts people will want to eat in the next year. The rule of thumb is that if you sample 100 people, you’ll get some error. If you sample 400 people you can cut the error in half. If you sample 1600 people you can cut it in half again. THen if you sample 6400 people you can cut it in half a third time, the error should be an eighth as large. 25600 halves it again, 102400 halves it again, 409600 again, 1638200 again. Just how accurate do you need it? Is it worth going from 1.6 million data points to all 300+ million? Probably not. A lot of those people really don’t know how many Pop-Tarts they will eat in the next year. If they thought about it they might choose not to. Maybe what you need is more to be ready to make Pop-Tarts quickly if people want them, and then track how much they’re wanted with some sort of JIT technology, and take it from there. Be ready to shift production as needed.

    Since you can’t plan accurately, plan for resilience and flexibility. Grow as much wheat, corn, rice as you expect the population will eat and then some more. Use the extra for whatever — feed it to domestic animals, ferment it and distill it into some form of alcohol that peole believe needs to sit on a shelf for some years, and put it on shelves. Have some low-priority projects that get as much stuff as is surplus, they can boom and bust depending on how much surplus is available for them.

    I’ve heard people make the following argument: You can’r be sure what jobs you will have, or how much money you’ll make. You could be fired tomorrow. And if you “invest” money in the stock market you can’t tell whether the market will go up or down, except you know it will do both. Therefore it is impossible for you to make a retirement plan. Planning for retirement is impossible so you might as well not try.

    And yet many millions of people do have retirement plans which they try to follow.

    I’ve seen the same argument for national economies. Since you can’t predict anything with perfect accuracy, and to plan well it would take far more data than can ever be available, therefore there is no excuse to try to do any planning at all.

    And yet businessmen who make this argument still try to plan their own businesses in the face of radical uncertainty.

    I think maybe they believe they personally will benefit if the government makes no attempt to plan.

  26. Flexibility works best when people/companies are free to enter or leave the market as it suits them. That is often not the case in the US. If you have a food product, try getting space on the store’s shelves. Space is contracted out and you have to pay the store. That pretty much kills putting out a new product. Of course existing producers need to be “agile” (the new catch word for flexible) to keep the shelves full, but not overflowing. A good trend I’ve seen is to give excess food products near the expiration date to local food shelves.

    The need for certainty is often used as an excuse for inaction. “Are you 100% certain that bridge will fall down this year if I don’t repair it?” Engineers are never 100% certain of anything, so the 35W bridge collapses and the engineers are blamed rather than the politician. Ditto the Challenger disaster.

    Surveys I have heard of (other than political push polls) tend to be limited to several thousand people. Which means they have to be from different parts of the area of interest to get a representative sample. That is probably good enough, for as you point out people may not know what they want or can change their minds. I do get a kick out of political polls where say the GOP polls their own hard core political base and then declares the results as universal.

  27. I think that Trotsky would want (were he alive) to model the whole world–that seems like one of the major differences between his position and that of Stalin. The concept of Permanent Revolution vs. socialism in one country.
    To accurately model the goods and services needed to maintain the desired percentage of the worlds population at a level X will require a large amount of computing capacity. Not an unachievable capacity–just large.

    As an aside, here is a transcript of Paul Krugman and Brad Delong, Annalee Newitz (i09), Chris Black (Enterprise writer), Felix Salmon and Manu Saadia discussing the economics of Star Trek:
    ftalphaville.ft.com/2015/10/12/2142030/you-see-money-doesnt-exist-in-the-24th-century/?

  28. Angus Deaton is a recent Nobel Prize winner in economics, who address some of the very issues we have been discussing. Namely accuracy of data and tying economic plans to accurate real world data, vs. sitting back with your scotch and cigar and pontificating theories (as much of economic theory seems to have been done in the past).
    http://www.nytimes.com/2015/10/13/upshot/why-angus-deaton-deserved-the-economics-nobel-prize.html

  29. Steve Halter, thank you for the link. It was a very interesting read. The panel couldn’t quite convince themselves that 400 years from now, everybody will lead an idyllic Utopian meretricious life. People seem to get in the way. ;>)

  30. J Thomas – I think you overlook the key ingredient to mercantilism – namely it was not simply protectionism, but protectionism designed to encourage manufacturing over agriculture. You also neglect its importance to the development of the fledgling United States. As Yi Wen writes in a footnote on page 10 of ‘The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization, an article (book) in the Federal Reserve Bank Working Paper Series:

    Mercantilism is economic nationalism for the purpose of building a wealthy and powerful state based on commerce and manufacturing. It sought to enrich the country by restraining imports of manufactured goods and encouraging exports of manufactured goods. In short, it emphasizes and promotes manufacturing over agriculture,
    commercialism over physiocracy. However, most of the literature on mercantilism views it simply as a form of protectionism and overlooks the key point of commerce and manufacturing. An economy relying solely on agriculture has nothing to benefit from mercantilism. But a nation intending to build on manufacturing can benefit greatly from mercantilism because manufacturing stimulates the division of labor and generates the economies of scale. The historical importance of mercantilism in the 16th to 18th century Europe as the prototype of capitalism and the key step leading to the English Industrial Revolution can never be emphasized enough. Indeed, the promotion of manufacturing inherent in mercantilism has seldom been appreciated by classical economists, including Adam Smith, unlike Friedrich List (1841). One example of the impact of mercantilism on economic development is the 19th century American Industrial Revolution based on the “American System”, which was an economic development strategy envisioned by Alexander Hamilton (1755-1804) in 1791 and vigorously implemented throughout the 19th century to win global competition with Great Britain. It consisted of several mutually reinforcing parts: high tariffs to protect and promote the American infant Northern manufacturing sector; a national bank to foster commerce, stabilize the currency, and rein in risk-taking private banks; a maintenance of high public land prices to generate federal revenue; and large-scale federal subsidies for roads, canals, and other infrastructures to develop an unified national market—financed through the tariffs and land sales. Also see Ha-Joon Chang (2003), “Kicking Away the Ladder: Development Strategies in Historical Perspective,” for many great examples of mercantilism and the historical role it played in Western economic development. However, many Latin American countries in the middle 20th century also adopted various forms of mercantilism (e.g., the Import Substitution Industrialization) but failed miserably. The reasons behind such successes and failures are precisely what this article (book) is about.

  31. Kevin, mercantilsm started before the industrial revolution, when manufacturing didn’t have big economy of scale. It was preadapted for those technologies.

    I don’t see why you think I missed that, but anyway I agree with you.

    I think that mercantiliism fails for some nations because it is essentially a sort of economic warfare, and when nations go to war some of them lose. A quick rule-of-thumb for deciding which are likely to fail at mercantilism is to look at their trading partners and ask, if they were to get into a shooting war, which would lose? If they can’t hold their own in a military war, they probably can’t get away with mercantilism either.

  32. And, here is an article by Laurie Penny in the New Statesman:
    http://www.newstatesman.com/politics/economy/2015/10/robots-are-coming-your-job-might-not-be-bad-news

    Learning all the lessons we can from attempts at various economic systems continues to seem like a really good plan as some sort of new economic system will be needed–probably sooner than many think.

  33. J Thomas – “Mercantilism used to be an important economic doctrine but it has been discredited.”

    No, that is the opposite of the point I was making and the reason I quoted Yi Wen’s footnote. Per Yi Wen, mercantilism turns out to be the precursor stage necessary for successful industrialisation. Without it, attempts at industrialisation typically fail.

    As Yi Wen points out in the article, China attempted to industrialize in 4 different periods between 1840 and 1960 – none of which were successful. Only after 1978, when China built up a mercantile class (with the infrastructure necessary for a mercantile class), was a successful industrialisation policy able to take root.

    Britain, the US, Japan, South Korea, and most other industrialized nations have followed a similar path (proto-industrialisation, rural light manufacturing, mercantilism). It is the development of markets, the infrastructure for non-local trade, the division of labor, and disposable income of the working class (rural peasants) that allows industrialisation to flourish.

  34. Kevin, I agree with you right down the line.

    https://en.wikipedia.org/wiki/Mercantilism#Legacy

    “As of 2010, the word “mercantilism” remains a pejorative term, often used to attack various forms of protectionism.”

    “Murray Rothbard, representing the Austrian School of economics, describes it this way:

    ” Mercantilism, which reached its height in the Europe of the seventeenth and eighteenth centuries, was a system of statism which employed economic fallacy to build up a structure of imperial state power, as well as special subsidy and monopolistic privilege to individuals or groups favored by the state. Thus, mercantilism held exports should be encouraged by the government and imports discouraged.”

    While there are a number of specific exceptions, I believe that in general mercantilism is wrongly considered to be discredited. Wikipedia reflects this:

    “Mercantilism was an economic theory and practice, dominant in Europe from the 16th to the 18th century,[1] that promoted governmental regulation of a nation’s economy for the purpose of augmenting state power at the expense of rival national powers. It was the economic counterpart of political absolutism or absolute monarchies.[2] Mercantilism includes a national economic policy aimed at accumulating monetary reserves through a positive balance of trade, especially of finished goods. Historically, such policies frequently led to war and also motivated colonial expansion.”

    Past tense. It was a theory which was discredited by Adam Smith.

  35. J Thomas – “Mercantilism was an economic theory and practice, dominant in Europe from the 16th to the 18th century …”

    I.e., proto-industrialization precisely during the time preceding the industrial revolution. Remember, the industrial revolution occurred in England – which Napoleon famously referred to as “a nation of shopkeepers.” It didn’t occur in a nation of farmers, or a nation of shipbuilders, or a nation of explorers, or etc.

    What Yie Wen describes is that mercantilism *also* preceded the US’s industrial revolution in the 19th century, Japan’s industrial revolution in the early 20th century, South Korea’s industrial revolution in the late 20th century and now China’s industrial revolution in the 21st century.

  36. Kevin, yes, exactly. It is a systematic way for one nation to dominate its neighbors. It works for the nation which is best suited to dominate its neighbors — it does not work for those neighbors.

    It did not work particularly well for the USSR, first because they were late to industrialize compared to other nations that were already dominating much of the world, and they got partly frozen out of trade with nations they might have dominated, and once they had the Warsaw Pact to dominate, some of those nations were already industrialized (apart from the small matter of WWII running over them).

    When you’re starting out, you don’t start with a great transportation network. So for example, to make iron it helps to have iron ore, coal, and limestone together, so you don’t have to carry them far. I saw a map of mineral distribution which I can’t find online (behind paywalls). It showed those together in places in Britain, Alsace-Lorraine, Germany, Poland, and Kursk, Russia. In the USA they started with northwestern Pennsylvania and north-central Alabama.

    So we have France and Germany fighting for possession of Alsace-Lorraine, Germany and Russia fighting over Poland, etc. Nations that depended on imported iron couldn’t be world powers. The US South shipped coal from Alabama to other places there was iron, and Virginia produced a lot of iron using charcoal, but they couldn’t really make enough to defend their mines and smelters from the Yankees.

    When you’re starting out competing against an advanced industrial economy, their steel industry may pay more for your iron ore or coal than you can pay to move them together inside your nation. They have cheap transportation and you don’t. So you subsidize your own industry and do things to reduce imports, and it runs at a loss. Your economy could in theory grow faster if you bought foreign steel but if you do, you’ll always be an economic colony. After 20 to 50 years of subsidizing your own infant industries which never become efficient, you might be ready to give up….

    It only works for the ones it works for, and that depends partly on the amount and distribution of resources you have available.

  37. J Thomas, obviously you haven’t read Yi Wen. Almost all your arguments he addresses – and shows to be false. I do not think I’ll try to regurgitate 180 pages of analysis.

    You need to think about several questions: why did the industrial revolution occur in Britain and not Holland, France, Germany, etc? Why were China’s attempts at industrial revolution failures until now? Why has India – despite several attempts – been unsuccessful? Why was South Korea (or Singapore) successful?

    There are commonalities and there are contradictions. The factors that *you* theorize on are *not* commonalities. Being late to industrialize is generally considered an advantage. Neither South Korea or Singapore dominated it’s neighbors – for that matter, neither did China use any military threats or coercion to industrialize.

  38. “why did the industrial revolution occur in Britain and not Holland, France, Germany, etc?”

    It did occur in Holland, France, Germany etc. Britain came in first. One reason was that at a critical time they had the dominant navy and merchant marine. There were lots of other interlinking reasons why Britain wound up with the biggest empire and the others were also-rans.

    “Why were China’s attempts at industrial revolution failures until now?” They suffered the Manchus and a degree of foreign control until they threw those out. Then they suffered warlords and the Japanese empire until 1945, and civil war until 1948. Then they suffered through a lot of crackpot turmoil under Mao. Until Mao was gone they could not fool capitalists into thinking China was no longer communist. They started changing things around about the earliest time they possibly could, politically.

    “Why has India – despite several attempts – been unsuccessful?”

    Why would you say India is unsuccessful? They have an economy about the size and sophistication of France, in the middle of a bunch of poor people. Would you say France is unsuccessful? India hasn’t found wealth for all their peasants, but neither has China.

    “Being late to industrialize is generally considered an advantage.”

    It depends. If you get a sudden influx of capital, then being late means you don’t have a lot of old decaying industry that you must decide to close down or to allow to limp along. Instead you can build whatever you need with that big influx of capital, and it’s all new and efficient. But if you don’t get the capital then you aren’t better off that you lack the old stuff and the new stuff both.

    “Neither South Korea or Singapore dominated it’s neighbors” Yes, Singapore was a lot like Hong Kong. Nations that say they aren’t trading can shuffle stuff through Singapore and not have to admit it. Hong Kong was a trade conduit between Red China and various nations that didn’t want to admit to the trade. They talked about the tremendous productivity of Hong King, their people made such a tremendous amount of stuff to sell…. Haha. Of course they did have a lot of sweatshops where poor people got to make stuff.

    Singapore has one of the highest income inequalities in the world. A lot of millionaires, and the per capita GDP is not all that high. Officially they only allow foreign workers who can make $3000/month, which sounds pretty good except that public subsidized famlly apartments (80% of the population live in them) cost $2200 to $3000 per month. And poorer people have a lot of trouble with gangs. Singapore has an economy about the size and wealth of the Cote de Azur, mixed in with a lot of very-hard-working poor people. The Singapore government scatters chicken feed among the poor in the form of various subsidies and perqs, provided they individually do not get out of line.

    Singapore is a special case.

    Anyway, you say I’m missing things that you understand, and so far I don’t see what you’re talking about. I’ll put your 180 page book on my reading list. They might understand things I don’t, that you have not explained.

  39. JT- Many don’t believe India has yet industrialized: India — Skipping the Industrial Revolution? Can India advance to the IT age without first undergoing an industrial revolution?

    Others believe it is happening now: India’s Late, Late Industrial Revolution: Democratizing Entrepreneurship

    In any event – you offer no explanation why it has taken nearly 200 years since the earliest industrial revolution.

    Everyone I’ve read says the industrial revolution began in Britain. Yes, many other countries industrialized or had their own industrial revolutions, but why did it start in England?

    Singapore, South Korea? These countries falsify your thesis, so basically you ignore them.

    I’ve already stated that for countries to have a successful industrial revolution they needed a large mercantile class and the infrastructure that goes with it. Each of the successful countries had that mercantile class. India is building that class now. Occam’s razor?

  40. “Many don’t believe India has yet industrialized”

    Here’s a quick overview.
    https://en.wikipedia.org/wiki/Economy_of_India

    What do you think? Is India non-industrialized?

    “In any event – you offer no explanation why it has taken nearly 200 years since the earliest industrial revolution.”

    Why would this need an explanation? Why hasn’t Kentucky industrialized in 200 years? Well, they do have some automobile plants that were moved to Kentucky to take advantage of their cheap labor. There’s a uranium gaseous diffusion plant that used to create LEU. 12% of Kentucky employment is in manufacturing, 17% is in government. Why is industrialization lagging so much more in Kentucky than it is in India?

    There are reasons for these things, and we can guess at some of the larger reasons.

    “Everyone I’ve read says the industrial revolution began in Britain. Yes, many other countries industrialized or had their own industrial revolutions, but why did it start in England?”

    It may not have started in England, but it got a whole lot of development in England. Here’s one possible reason — in europe, the use of artillery reached the point that rich cities built giant earthworks with bastions and interlocking fields of fire to mostly prevent attacking armies from prevailing. This was incredibly expensive and soaked up a whole lot of labor and materials. But it was better than the alternative — places which were too poor for that got repeatedly knocked over by wandering armies who did a lot of living off the land. In Britain, kings who could destroy oldstyle castles did not want modern fortifications under local control, and built only a few controlled by themselves at strategic locations. Some were built during the civil wars, but I want to suggest that the total expense was far less than in the wealthy parts of europe. So England had more resources available to put into other things.

    No doubt there were many other reasons also. There are lots of reasons for everything.

    “Singapore, South Korea? These countries falsify your thesis, so basically you ignore them.”

    The arguments in favor of mercantilism at the time were in terms of dominating neighbors and avoiding domination. You give some examples of nations that have had some development without attempting to dominate their neighbors. This does not falsify anything in particular, unless we are to assume that the only way to industrialize requires that you attempt domination. I have never claimed that.

Leave a Reply