Worldly Philosophers: Quotes and Comments

Chapter 2

And as long as the problem was handled by tradition or command, it never gave rise to that special field of study called “economics.” Although the societies of history have shown the most astonishing economic diversity, … so long as they ran by custom or command, they needed no economists to make them comprehensible. Theologians, political theorists, statesmen, philosophers, historians, yes—but, strange as it may seem, economists, no.

For the economists waited upon the invention of a third solution to the problem of survival. They waited upon the development of an astonishing arrangement in which society assured its own continuance by allowing each individual to do exactly as he saw fit—provided he followed a central guiding rule. The arrangement was called the “market system,” and the rule was deceptively simple: each should do what was to his best monetary advantage. In the market system the lure of gain, not the pull of tradition or the whip of authority, steered the great majority to his (or her) task. And yet, although each was free to go wherever his acquisitive nose directed him, the interplay of one person against another resulted in the necessary tasks of society getting done.

It was this paradoxical, subtle, and difficult solution to the problem of survival that called forth the economists. For unlike the simplicity of custom and command, it was not at all obvious that with each person out only for his own gain, society could in fact endure. It was by no means clear that all the jobs of society—the dirty ones as well as the plush ones—would be done if custom and command no longer ran the world. When society no longer obeyed a ruler’s dictates, who was to say where it would end?

It was the economists who undertook to explain this puzzle. But until the idea of the market system itself had gained acceptance, there was no puzzle to explain. And until a very few centuries ago, men were not at all sure that the market system was to be viewed without suspicion, distaste, and distrust. The world had gotten along for centuries in the comfortable rut of tradition and command; to abandon this security for the dubious and perplexing workings of the market system, nothing short of a revolution was required.

It was the most important revolution, from the point of view of shaping modern society, that ever took place—fundamentally more disturbing by far than the French, the American, or even the Russian Revolution. To appreciate its magnitude, to understand the wrenching that it gave society, we must immerse ourselves in that earlier and long-forgotten world from which our own society finally sprang. Only then will it be clear why the economists had so long to wait. (15)

Comment: Even in a “market economy”, government command still dominates. A great chunk of economic output is taxed into government coffer. Government has the exclusive privilege to print money. Government is by far the largest customer of the economic output. Government has the monopoly power to make laws and enforce laws. Labor and capital flows are tightly regulated by the government. Government has the great power to affect the regulatory environment to influence competitive outcomes. Most important economic sectors, such as resource, military, medicine, education, technology, and finance, are heavily regulated by the government. Overall, economic performances are greatly influences by the political structures, even in so called “market economy”.

A fundamental problem of modern economic theory, since Adam Smith, is to vastly underestimate the role of government in a “market economy”. Modern economy is a continuation, not a complete break, from the ancient economy.

Chap 6: Marx

Why is Marxism so popular?

Marxism is Hegelism extended.

The philosopher Hegel had propounded a revolutionary scheme ... Change, according to Hegel, was the rule of life. Every idea, every force, irrepressibly bred its opposite, and the two merged into a “unity” that in turn produced its own contradiction. And history, said Hegel, was nothing but the expression of this flux of conflicting and resolving ideas and forces. Change—dialectical change—was immanent in human affairs. With one exception: when it came to the Prussian state, the rules no longer applied; the Prussian government, said Hegel, was like “a veritable earthly god.” (81)

To summarize, everything changes, except my god, my system, my idea, my product, etc. This is the best possible marketing scheme.

Today, Marxism dominates China, cultural Marxism (Marxism without mentioning Marx too much) dominates the rest of the world.

Many popular theories, such as those by Keynes and Kant, share the same trait. For Keynes, there exists optimal equilibrium state. But the real world is often in various disequilibrium. The government (God) needs to push the society toward the equilibrium state from time to time. For Kant, it is “the starry heavens above me and the moral law within me.” The starry heavens above me may change all the time. But moral law within me is fixed a priori.

Evolutionary theory describes the world more accurately. But for a true evolutionary theory, there is no allowance for someone’s pet project. Hence, evolutionary theory, or the so called social Darwinism, is viciously attacked by all schools, religious or secular.

 Marx and Proudhon

Proudhon was one of the villains in Marx’s life. What did Proudhon do?  

Marx had asked Proudhon to join forces with himself and Engels. This is Proudhon’s response:

Let us together seek, if you wish, the laws of society, the manner in which these laws are reached, the process by which we shall succeed in discovering them; but, for God’s sake, after having demolished all the a priori dogmatisms, do not let us in our turn dream of indoctrinating the people.... I applaud with all my heart your thought of inviting all shades of opinion; let us carry on a good and loyal polemic, let us give the world the example of an informed and farsighted tolerance, but let us not— simply because we are at the head of a movement—make ourselves into the leaders of a new intolerance, let us not pose as the apostles of a new religion, even if it be the religion of logic, the religion of reason. Let us gather together and encourage all dissent, let us outlaw all exclusiveness, all mysticism, let us never regard a question as exhausted, and when we have used one last argument, let us if necessary begin again—with eloquence and irony. On these conditions, I will gladly enter into your association. Otherwise, no! (87)

Anyone who wants to maintain his independence is a villain to the authority.

Chapter 8

Oddly enough, the book created less of a furor than The Theory of the Leisure Class. Business Enterprise never leaped the bounds of professional readership to take the country’s intelligentsia by storm, as its predecessor had done. It was more difficult; more technical; it even included a few formulas, perhaps to prove to the academicians that he could write “technical” economics if he wanted to. But underlying the aloof, unimpassioned prose was an animus impossible to miss. To Veblen, businessmen were essentially predators, however much they or their apologists might drape their activities in the elaborate rationale of supply and demand or marginal utility. Later, in an essay on “The Captain of Industry,” Veblen described the businessman as he really saw him; the following passage explains what is meant by the phrase “watchful waiting,” which had been used to describe the entrepreneurial function:

Doubtless this form of words, “watchful waiting” will have been employed in the first place to describe the frame of mind of a toad who has reached years of discretion and has found his appointed place along some frequented run where many flies and spiders pass and repass on their way to complete that destiny to which it has pleased an all-seeing and merciful Providence to call them; but by an easy turn of speech it has also been found suitable to describe that mature order of captains of industry who are governed by sound business principles. There is a certain bland sufficiency spread across the face of a toad so circumstanced, while his comely bulk gives assurance of a pyramidal stability of principles.

But The Theory of Business Enterprise eschewed such rhetoric, for Veblen had a serious purpose in mind—to present a theory of social change. More precisely, it was a theory of the eventual decline of the businessman and of the system that sustained him. Veblen believed that the days of the business leaders were numbered, that despite their power, there was ranged against them a formidable adversary. It was not the proletariat (for the Leisure Class had shown how the underlying population looked up to its leaders), but a still more implacable foe: the machine.

For the machine, thought Veblen, “throws out anthropomorphic habits of thought.” It forced men to think in terms of matter of fact, in terms precise, measurable, and devoid of superstition and animism. Hence those who came into contact with the machine process found it increasingly difficult to swallow the presumptions of “natural law” and social differentiation which surround the leisure class. And so society divided; not poor against rich, but technician versus businessman, mechanic against war lord, scientist opposed to ritualist. (133)

Comment: What good businessmen do is really watchful waiting. We might use some examples from Microsoft to illustrate “watchful waiting”. After WordPerfect was developed, Microsoft develop Word. After Lotus 123 was developed. Microsoft developed Excel. After Netscape was developed, Microsoft developed IE. After OpenAI spent great amount of effort developing ChatGPT, Microsoft bought OenAI.

I should read the book The Theory of Business Enterprise, The Higher Learning in America and other Veblen’s writings.

Man, said Veblen, is not to be comprehended in terms of sophisticated “economic laws” in which both his innate ferocity and creativity are smothered under a cloak of rationalization. He is better dealt with in the less flattering but more fundamental vocabulary of the anthropologist or the psychologist: a creature of strong and irrational drives, credulous, untutored, ritualistic. Leave aside flattering fictions, he asked of the economists, and find out why man actually behaves as he does. (137)

Chapter 9

It was the unemployment that was hardest to bear. The jobless millions were like an embolism in the nation’s vital circulation; and while their indisputable existence argued more forcibly than any text that something was wrong with the system, the economists wrung their hands and racked their brains and called upon the spirit of Adam Smith, but could offer neither diagnosis nor remedy. Unemployment—this kind of unemployment—was simply not listed among the possible ills of the system; it was absurd, unreasonable, and therefore impossible. But it was there. (140)

Comment: Great Depression occurs because utilizing oil is a lot more cheaper than pure labor. That is why many people in professions using pure labor, or animal labor, such as agriculture, lost jobs. Machines using oils are much cheaper.

A passage about Keynes and my comments.

By 1935 it was already a brilliantly established career. The book on Indian Currency and Finance had been a tour de force, albeit a small one; The Economic Consequences of the Peace had made an éclat; and the Treatise on Probability was an equal triumph, although far more specialized. An amusing incident in regard to this last book: Keynes was having dinner with Max Planck, the mathematical genius who was responsible for the development of quantum mechanics, one of the more bewildering achievements of the human mind. Planck turned to Keynes and told him that he had once considered going into economics himself. But he had decided against it—it was too hard. Keynes repeated the story with relish to a friend back at Cambridge. “Why, that’s odd,” said the friend. “Bertrand Russell was telling me just the other day that he’d also thought about going into economics. But he decided it was too easy.” (145)

Comment: Economics: Too hard or too easy

When Russell called economics too easy, he might think like a mathematical economist. Build a mathematical model from some arbitrary assumptions, something like Arrow-Debreu. Then call any real world phenomenon not consistent with the mathematical model as imperfection.

When Planck called economics too hard, he might think as a physicist. Build a mathematical model from fundamental physical laws.  The model has to be consistent with reality. This is hard. This is what we have achieved.

Hence, when one investment project dies, there may not be another ready to step into the breach. If there is—if investment maintains its size, although it changes its composition—the economy will sail smoothly along. But if there is no ready substitute for each investment casualty, contraction will begin.

Looking at this intrinsic vulnerability of the system, Keynes wrote:

Ancient Egypt was doubly fortunate and doubtless owed to this its fabled wealth, in that it possessed two activities, namely pyramid-building and the search for the precious metals, the fruits of which, since they could not serve the needs of man by being consumed, did not stale with abundance. The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead are twice as good as one; but not so two railways from London to York.

Here, then, was the gloomy diagnosis of The General Theory:

First, an economy in depression could stay there. There was nothing inherent in the economic mechanism to pull it out. One could have “equilibrium” with unemployment, even massive unemployment.

Second, prosperity depended on investment. If business spending for capital equipment fell, a spiral of contraction would begin. Only if business investment rose would a spiral of expansion follow.

And third, investment was an undependable drive wheel for the economy. Uncertainty, not assurance, lay at the very core of capitalism. Through no fault of the businessman it was constantly threatened with satiety, and satiety spelled economic decline. (151)

Comment: Keynes’ statement about pyramid building did not understand the true source of wealth. Elaborate more.

The depression was, in fact, a test of Schumpeter’s ideas. If capitalism derived its energy from the innovations of entrepreneurs, why was their stimulus missing in the grim years of the 1930s? Keynes had said that depressions reflected the state of expectations of businessmen, but his theory did not require him to account for the reason why their “animal spirits” were low. Schumpeter had a more demanding task because he explained boom and bust by the bunching of innovations and the swarming of businessmen. The endless depression therefore cried out for reasons why the new innovations were failing to arrive on time. (165)

Comment: The real reason for the Great Depression was the discovery of large oil fields worldwide at the end of 1920s. This is a much simpler and universal understanding.

For Marx the very essence of capitalism is dialectical change and self-created disequilibrium. (166)

Comment: The concept of disequilibrium comes from Marx.

But now comes the Schumpeterian contradiction: capitalism may be an economic success, but it is not a sociological success. This is because, as we have already seen, the economic base of capitalism creates its ideological superstructure—rational rather than romantic, critical rather than heroic, designed for men in lounge suits, not armor. In the end it is this capitalist frame of mind, this capitalist mentality, that brings down the system:

Capitalism creates a critical frame of mind which, after having destroyed the moral authority of so many other institutions, in the end turns against its own; the bourgeois finds to his amazement that the rationalist attitude does not stop at the credentials of kings and popes but goes on to attack private property and the whole scheme of bourgeois values. (166)

Comment:  It is clearer to read the original book by Schumpeter. There he made it clear that economic success leads to low fertility, or biological failure, which is the source of social decline.