Becker or Beccaria?

There once was a young marquis who didn’t know what to do with his life. Fortunately, two older friends took him in hand, found him a journal to write for, and a cause to champion: the abolition of the barbarous punishments of an earlier epoch that had trespassed into the Age of Reason. The friends conceded to others that the young man ‘knows nothing of our criminal system’ and that  ‘… writing is laborious for him, and costs him so much effort that after an hour he collapses and can’t go on”.  But no matter:  “When he had amassed the materials” they ‘wrote it out, arranging them in order, and made a book out of them’ (Pierro Verri quoted in Paolucci 1963 xiv). In 1764 On Crimes and Punishments appeared, nominally written by Cesare Beccaria but in all probability by Pierro Verri, given Beccaria’s suspicious near zero productivity in the subsequent decades. But however anticlimactic his later career, Crimes and Punishments gave Beccaria a hugely successful entrée into the republic of letters.

The timing was, after all, perfect. In 1762  - just three years after Adam Smith had announced that even the ‘greatest ruffian’ is not without the principle sympathy -   a blameless calico merchant was broken on the wheel at the order of a tribunal of Toulouse nobility. Voltaire stormed at this outrage, and in 1764 the King annulled the terrible sentence. Thus Crimes and Punishments is very easily seen as  a shriek of the cult of sensibility against the official violence of the day. But there are other interpretations. Henry Paolucci takes the book to be an act of complaisance of a renegade noble, simultaneously gratifying the bourgeois and pleasing the absolute monarchy by deploying a bourgeois rhetoric to justify the extinction of aristocratic prerogative (Paolucci 1963). Bentham took it as the kernel of his philosophy, and historians of ideas prize it as a fountainhead of utilitarianism. I would suggest Becarria is recognizable as a prototype of the criminologist of our day: Becarria almost totally ignores crimes of violence, and construes legitimate punishment purely as an act of social efficiency. He accommodates no notion of equity as foundation for punishment: “an eye for an eye” - most palpably a principle of equity – is as alien to him as it is to the current criminological mind set.

But the author of the volume under review has a different use for Crimes and Punishments.  For Harcourt it is device to launch himself at his overarching target; policies of deregulation and free markets. His point of impact is the Economics of Crime, with its seemingly Benthamite logic and its ‘Chicago’ provenance. Some how, it is insinuated, Becaria will be the key to Becker, and all that spells.

Harcourt turns the key, but, regrettably, the lock doesn’t move. Harcourt immediately notes the incongruity between Becker and Beccaria. Beccaria may have been Benthamite avant la lettre but he was no economic liberal. And this is no surprise: utilitarianism  - the maximization of aggregate utility – amounts to an infinitely ramified prescription of what should be done, and is consequently perfectly totalitarian in implication.

And Chicago is not Benthamite, anyway. Its normative axiom is Paretianism not utilitarianism, something quite different. And its distinguishing axiom is a positive one:  a panglossian assumption of ‘efficiency’. Stigler, Becker etc do not merely seek efficiency, desire efficiency, hope for efficiency. Rather, they hold everything is efficient. Whatever is extant is efficient. And this applies to regulation as much as anything else. In the United States sugar regulation has been extant since 1789. And, consistent with his tenets, Stigler in a posthumous publication defended the appalling thicket of regulation engulfing this industry (Stigler 1992).

I venture to doubt whether the author approves a protection racket – in all senses of the term - that drives up sugar prices for hundreds of millions of consumers to the benefit of a tiny group of producers with politicians in their debt. But I am even more ready to wager the author of the Illusion of Free Markets would pour scorn on any move to deregulate that industry. For it is his evident conviction is that every economic encounter is and must be rigged, fixed, sewn up. He is possessed of a nihilism about the very possibility of the abolition of privilege, the symmetrical treatment of parties. This is not simply a nihilism about the attainment of an ideal, but even about the merely closer approach to the ideal.We are permanently trapped, it seems, in abusive associations. It is perhaps not surprising that this drastic nihilism is asserted rather than argued. What would be the argument? The frequent observation that to play is to have rules is no argument for this nihilism. Neither is one provided for by the author’s learned and curious history of 18^th century regulation.

Harcourt, Bernard E (2011), The Illusion of Free Markets: Punishment and the Myth of the Natural Order¸Harvard University Press.

Paolucci, Henry (1963) ‘Introduction’ to On Crimes and Punishments by Cesare Beccaria, Indianapolis : Bobbs-Merrill.

 Stigler George J. 1992  ‘Law or Economics?' Journal of Law and Economics, 35( 2), pp. 455-468.

More is Less: the Australian Productivity Miracle

Here is the news:

Australian economy is now less productive than it was 10 years ago.

Let me spell that out: for a given quantity of labour and capital, Australia is now producing less than it was a decade ago. 

And not just a trifle less; 5.18 percent less, to precisely report (the inevitably approximate) estimate of the Australian Bureau of Statistics. (5260.0.55.002 Estimates of Industry Multifactor Productivity, Table 2, 6 December 2013).

How has this remarkable feat been achieved?  How - in the face of a decade of technical progress - has Australia managed to produce 5 percent less per unit of input than it was in 2002/3?

Several candidate explanations will not serve as answers. There has been no continuous succession of destructive ‘acts of God’ (droughts, flood) over the past decade, which would blunt the impact of impact of improving technology. Similarly, there has been no unremitting upward trend in the price Australia’s pays for the raw materials it imports, which would have the same effect. (GDP, remember, is the amount of income derived from the application of factors of production, and less income will be drawn for any given application of factors if imported raw materials cost more). Finally, ten years is long enough, presumably, for factor markets to be in equilibrium on average, and pay each factor what it adds to production: an implicit assumption of the ABS measure of ‘multi-factor productivity’.

Finally, the dismal productivity performance occurred over both Liberal and Labor governments; though the performance under the Rudd-Gillard epoch is worse than the Howard’s last five years. Consider the percent change in ‘multi-factor productivity’ year by year:

2002/3              -0.2

2003/4             1.1

2004/5             -1.0

2005/6             -0.6

2006/7             -0.7

2007/8             -0.8

2008/9             -1.7

2009/10           0.1

2010/11           -1.3

2011/12           0.5

20012/13         -0.8

Here is my shot at this unwelcome marvel: the resources boom is to blame. It has given Australia gratuitous windfall income, and the entirety of society has taken this income out in the form of leisure on the job. 

Whatever the cause, the ABS data is grist for a picture of creeping somnolence consuming Australia.

the value of a life

Ah, yes, the frog in boiling water ...

In Australia the very frequency of indecencies of the criminal justice system inure us in some measure to those indecencies. But the most recent insult may yet provoke a   Thomas Kelly: 18 years old; walking in a public area; murdered in a unprovoked attack by a stranger.For this act of extermination the murderer is jailed for 4 years.

Postscript: on the appeal of the public prosecutor, Kelly's killer minimum sentence was increased to 10 years and two months.

Bagging Chicago Economics

Building Chicago Economics

(Edited by Robert van Horn, Philip Mirowski and Thomas A. Stapleford, Cambridge University Press, 2011)

Social structures commonly seek to reinforce themselves by means of systems of honour and dishonor. Thus prizes, distinctions and accolades are afforded those who have strengthened some structure. and correspondingly,  those who have damaged it will be degraded by various disfiguring marks. The best exemplification of a  regime of dishonour is probably the criminal justice system; historically it administered disgrace as much as punishment. In modern times the most crafted exercises in disgrace are found in  the (aptly named) ‘show trials’ of unfree societies. Free societies tend to more informal methods.

Systems of honour and dishonor extend to include mythologies. Positive mythologies will commonly commend their subjects by articulating an illustrious pedigree, or by enumerating the tests their subject has endured, or by blazoning their ultimate triumph or (perhaps) martyrdom. Negative mythologies seek to degrade in a variety of ways: by alleging discreditable associations, by imputing base motives, and by highlighting anything inglorious or diminishing in their target's  story .

A given individual may be tussled over by  conflicting system  of honour and dishonor. An example is Herbert  Spencer, who after enjoying a flush of adulation during the middle part of his own lifetime, was fated to be cast in the 20^th century as the bugaboo of semi-mythical  monster called ‘social darwinism’. (See Leonard 2009). In a parallel way, Milton Friedman today  is evidently the  object of contention of contrary systems of honour and dishonour. Thus there exists a biennial Milton Friedman Prize (valued at $500,000), a Milton Friedman Institute, and there has even been a Milton Friedman Day. And yet the Nobel Laureate, at the age of  86,  suffered a pie being driven into his face. 

This contention over Friedman between the positive and negative extends to mythologisation. There have been several  accounts of his life and work lionising  him  (eg Ebenstein 2007). Now it is the turn of the negative mythology. The assumed task of the volume under review, Building Chicago Economics, is to diminish and taint Milton Friedman and his doctrinal peers.

The editors' negative mythology is composed out of several elements. The first is, predictably, ‘Chile’, which the authors hasten to mention on their first page. But ‘Chile’ is small beer in an old hat, and the editors quickly move on.

The second element, curiously enough, is Friedman's involvement in the Mont Pelerin Society (at least before he proposed its abolition!). Several  contributors to the volume under review seem quite atingle at this involvement; and some attribute a great importance to Friedman's attendance at the original Society gathering in 1947. But their insinuation that a person of Friedman's deep self-belief  would be dazzled into doctrinal deference by the gathered luminaries is ridiculous. It also ignores the fact Friedman did not attend again until 1957; and that the Society was no credal sect, but a medley of fractious individuals, several of whom Friedman fought.  

What the editors presumably find gratifying in Friedman's association with the Society is that it underlines  the ideological aspect of  his thought, and thereby diminishes a much resented claim of classical liberalism for ‘economics’. Friedman, of course, never remotely claimed economic theory for classical liberalism; to Friedman economic theory  in general was the emptiest of  empty boxes. What he claimed was that his ‘hypotheses’ - competitive markets; a rational consumer;  the quantity theory - could outpredict rival theories of pricing, consumption and nominal GDP. To Friedman’s mind, in other words, theories are many, but the usefully accurate ones are those of classical liberalism. This contention may be true, or it may be false. But there seems  little gained in stressing that those who deem it true have been classical liberals.

But the prime exhibit  of Building Chicago Economics is not a discussion club, however distinguished or ambitious. It is the funding of various Chicago School activities by business fortunes controlled by persons concerned to advocate deregulated markets. Thus in the 1930s Charles R. Walgreen established a Walgreen Foundation to encourage a greater appreciation of the "American Way" at  Chicago; and to that end it later funded not only scholarships (etc) but public lectures by Chicago School  figures. Even more stimulating to the editors is the Volker Fund, that under Harold W. Luhnow financed not only lecture tours of Chicago thinkers, but a ‘Free Market Study’, under Aaron Director, that articulated doubts about the merits of competition policy.

That authors receive the patronage of rich men who think they agree with them is no discovery. There once was an author of  very strong views who was employed for only few months in his life, and who for decades was supported by the profits of a cotton mill gifted him by its owner. That man was called Karl Marx.

But the editors are not interested in the simple possibility that patronage expedites the dissemination of an ideology. Rather their concern is to suggest that the patronage at issue was responsible for the (well-known) fact that in various matters (especially competition policy) ‘the founders of postwar Chicago school (including Friedman, Stigler and Aaron Director) departed quite sharply from the classical liberals, that had animated their mentors  art the university, such as of Knight and Henry Simons’(Horn, Mirowski and Stapleford, xix).

Put simply, the Chicago School was bought. This, in its all ignominious crudity, is the editors’ thesis. 

This is not expressly stated, but rather is a matter of  ‘character assassination by innuendo’, as Bruce Caldwell puts it  in the chapter he contributes to this volume, which serves as kind of a Speech in Reply. In that chapter Caldwell  also brings out one spectacular error of the editors in making this innuendo:  that a certain conversation of Hayek dated to 1950 could not have taken place until at least 1977 . 

But the refutation of the innuendo does not require a mastery of the details of biography; it fails to fit the contours of American attitudes in general, and the Chicago School in particular. It fails to appreciate that American society at large had by the post-War period already lost interest in 'anti-trust' competition policy . Thus in 1964 it was observed by Richard Hofstadter – no neoliberal he! -  that ‘The anti-trust movement is one of the faded passions of American Reform’. Hofstadter not only underlined how public opinion had come to tolerate big business  by the early 1950s, but asked of the liberal left why was it that ‘the last thing they are interested in is the restoration of competition to correct the evils that they see’. Hofstadter had an answer. It was not that the liberal left was reading George Stigler;  it was that they were reading J. K Galbraith. To Hofstadter,  Galbraith's American Capitalism that ‘has probably done as much as any work to reconcile the contemporary liberal mind to the diminished role of competition as a force of modern society’ (Hofstadter 1965, 227)

There is a second palpable inconsistency with reality of the editors' '30 silver pieces' explanation  of  the ‘sharp departures’ of post-War Chicago from its pre-War variant: whereas Simons was almost hysterical in his hostility to trade unionism, post-war Chicago smoothly reconciled itself to it. So in 1951, near the apex of union strength in the US, Friedman sought to rebut the passionate denunciations of trade unions of Edward Chamberlin  - the Harvard apostle of imperfect competition. Unions, Friedman declared, had a ‘’negligible’ effect on wage rates; and this was because the American economy was, contrary to Chamberlin, essentially competitive. This shift  between Old and New Chicago on unionism is seen even better in the work of H. Gregg Lewis; from a partisan of Simon's crusade against unions in 1951 to theorising unions as a 'negotiation business' in 1965 (see Coleman 2010). Was Lewis bought by the AFL-CIO?

It is the duty of any reviewer to identify the value-added the work under review. To that end I would especially highlight Emmet’s chapter ‘The Workshop System and the Chicago’s School’s Success’, that tells how what was (in essence) a pedagogical innovation of Friedman had by the late 1970s spread right across the University of Chicago. Van Horn’s ‘Chicago’s Shifts on Patents’ brings out how slippery an issue is intellectual property for classical liberals.  Stapleford's ‘Friedman, Institutionalism and the Science of History’ underlines the irony that Friedman’s first paying job was at a ‘bastion of statist planning’, the Industrial section of the National Resources Committee. This is, indeed, ironic but  perhaps not mysterious. In the New Deal Friedman had sensed (in his own words) the ‘birth of a new order’, and elected to join it. But the birth was stillborn: in the post-war period the market economy ‘performed in a way we hardly dreamed of before World War 2’ (Hofstadter). It was this astonishing revival of capitalism that Friedman chose, in his own way, to join. I suggest that it is in the need that a spirited personality feels to choose sides and take to the field that  we are likely to find the germ of post-War Chicago, and not in the pursuit a trail of ancient per diems.

Coleman, William (2010), The Political Economy of Wages and Unemployment: A neoclassical exploration Edward Elgar, U.K.

Ebenstein, Larry (2007), Milton Friedman. A Biography , Palgrave Macmillan, New York.

Hofstadter, Richard (1965),The Paranoid Style in American Politics and Other Essays , A.A.Knopf, New York.

Leonard,Thomas C. (2009) ,"Origins of the Myth of Social Darwinism: The Ambiguous Legacy of Richard Hofstadter’s Social Darwinism in American Thought." Journal of Economic Behavior and Organization 71: 37–51.