Saturday, July 31, 2021

Wealth and Civilization

The three essential elements of Carroll Quigley's "instrument of expansion" are "incentive to invent, accumulation of surplus, and application of this surplus to the new inventions." I direct your attention to the second of these. Quigley writes on page 132:

[Society] must be organized in such a way that somewhere in the society there is accumulation of surplus—that is, some persons in the society control more wealth than they wish to consume immediately; ...
Accumulation of "surplus" is accumulation of wealth. Just to be clear on that. 

Last time we talked, I started by presenting Quigley's mechanism of expansion. This mechanism includes the accumulation of surplus. Then halfway through the essay I was suddenly talking about "wealth".

It's the same thing. By Quigley's definition, accumulation of surplus *IS* accumulation of wealth.

I just wanted to point that out.


Last time we talked about the instrument of expansion, the mechanism that generates the growth of a civilization. It is this growth mechanism that enables a society to endure and expand, so that the society becomes a civilization.

Following Quigley, when the "instrument" becomes an "institution" the growth mechanism becomes corrupted and no longer provides adequate growth. Lacking adequate growth, other problems arise, and the civilization enters its decline stage. Quigley is specific and explicit on this point (page 132):

The civilization rises while this organization is an instrument and declines as this organization becomes an institution.
The transition from instrument to institution, the corruption of the mechanism, is clearly laid out in the Foreword as
the transformation of social arrangements functioning to meet real social needs into social institutions serving their own purposes
Finally, as noted yesterday, Wikipedia explains why this transformation works out as it does:
because of the preexisting influence that existing organizations have over the existing framework, change that is brought about is often in the interests of these organizations.
 

Quigley's growth mechanism works by accumulation of surplus which is used to invent more products and processes that make the surplus bigger. 

The "preexisting influence that existing organizations have over the existing framework" means that changes in the system will tend to be "in the interests of" the wealth-holders, and to serve their purposes rather than the needs of society.

The "surplus" is wealth, and the growth mechanism makes wealth-holders wealthier, whether or not the civilization is growing. The accumulation of surplus is always in the interest of wealth-holders. And by Adam Smith's principle of self-interest, they don't have to care if what's good for them is good for the rest of us. After the accumulation has reached a tipping point it is still good for wealth-holders, but there is not enough left over to make things good for society as a whole, and the rest of us suffer.


It makes a good story, doesn't it? And it is easy to add features. I'm tempted to say, for example, that when wealth is widely scattered the "preexisting influence" of wealth-holders will be varied rather than focused. Much of this "influence" will be self-cancelling because the varied interests contradict one another. But when wealth is highly concentrated, the influence will be highly focused, and highly effective. So then capitalism evolves at a faster rate.

It is a good story, but it has a lot of moving parts. It's not Occam-simple.


Keynes, in the General Theory, concerned himself with the same problem, except that he described it in terms of the economy, not in terms of civilization.

But Keynes's story is much simpler than Quigley's. Keynes in essence said Wealth undermines the growth of wealth. Keynes (chapter 3, section ii) wrote:

Not only is the marginal propensity to consume weaker in a wealthy community, but, owing to its accumulation of capital being already larger, the opportunities for further investment are less attractive...

 For Keynes, it all comes down to diminishing marginal returns.


It took me three or four essays to make good sense of Quigley's story. Three or four days, with several blogless days between each. It summarized nicely the last time (29 July) but it took me a long time to get there.

Keynes, by contrast, is Occam-simple. And Keynes doesn't depend on institutions going bad, or the reasons they do, or any of that. Nor does he get me all riled up and cursing at billionaires.

Still, wealth is wealth. Q talks about accumulation of surplus, which is accumulation of wealth. K talks about a problem arising when societies have a lot of wealth. They're not that far apart, these two.

 

I'm going to finish up now by repeating something I said before:

When the growth of wealth outpaces the concentration of wealth, civilization grows. When the concentration outpaces the growth of wealth, civilization declines.

Thursday, July 29, 2021

Quigley, Crotty's Keynes, and "institutionalization"

I have to go back to Carroll Quigley's Evolution of Civilizations for a moment.

Quigley develops the concept of the "instrument of expansion" (page 129 of 425), the mechanism that generates a civilization's growth:

The three essential parts of an instrument of expansion are incentive to invent, accumulation of surplus, and application of this surplus to the new inventions.
  • For invention think "progress".
  • For accumulation of surplus think "capital accumulation".
  • For application of this surplus to new inventions think "investment".

The progress of a civilization depends on capital accumulation and investment of the accumulation.

"All three of these things are essential to any civilization," Quigley says:

Taken together, we call them an instrument of expansion. If a producing society has such an organization (an instrument of expansion), we call it a civilization, and it passes through the process we are about to describe.
It needs the instrument of expansion so it can have the growth stage. If it doesn't have the growth stage, it's not a civilization.
The pattern of change in civilizations presented here consists of seven stages resulting from the fact that each civilization has an instrument of expansion that becomes an institution. The civilization rises while this organization is an instrument and declines as this organization becomes an institution.

Again, Harry Hogan distinguishes "instruments" from "institutions" in the Foreword of Quigley's book:

Quigley found the explanation of disintegration in the gradual transformation of social "instruments" into "institutions," that is, the transformation of social arrangements functioning to meet real social needs into social institutions serving their own purposes regardless of real social needs.

When social arrangements stop serving real social needs and start serving their own purposes, it signals the onset of decline. 

Come to think of it, Toynbee offered a similar thought: A "schism" arising in society, a schism "along lines of class", he says, is "a distinctive mark of the periods of breakdown and disintegration". When differences between classes start giving rise to troubles in society, civilization has reached the "breakdown" stage.

Quigley's version again: When the mechanism that drives the growth of civilization becomes an institution serving the purposes of wealth holders and ignoring real social needs, class-based differences give rise to troubles in society, and civilization has reached the breakdown stage.

We're living through it. I don't have to tell you. But I have to say that it is clearly laid out by both Toynbee and Quigley, with plenty of overlap of their explanations.

Wikipedia, too, is on top of it. From the Institution article:

In history, a distinction between eras or periods implies a major and fundamental change in the system of institutions governing a society.

Differences between eras: That's what Crotty's paper is about -- he says Keynes described the differences between different eras as a result of changes in institutions. It's starting to make sense.

Differences between eras. That's what Crotty was talking about, and Keynes, and Quigley, and Toynbee. 

 

From the same Wikipedia page, under Institutional persistence:

[Douglass] North argues that because of the preexisting influence that existing organizations have over the existing framework, change that is brought about is often in the interests of these organizations.

Exactly what we found in the Quigley Foreword: "social arrangements functioning to meet real social needs" transforming into "social institutions serving their own purposes regardless of real social needs." For example, billionaires who get to be the first to go into space in their own spaceships.

When I was in seventh grade, John Glenn was a hero for all of America, maybe for all the world. Now I'm 72, and Bezos and Branson are heroes in their own minds. I'm being petty? Yeah I know. But I'm not concerned about Bezos and Branson. I'm concerned because the system has been perverted to help people like them in their Pinky-and-the-brain, take-over-the-world, high-functioning-sociopath activities.

That's right: It's the "schism along lines of class". Our institutions have been corrupted. But that's their doing, not mine.

Look. The growth of civilization requires invention, capital accumulation, and investment. Let's say Quigley is right about that. But capital accumulation is its own reward: people become billionaires. 

It is the task of government, in the age of capitalism, to provide policies that restore balance. Otherwise, inequality grows so great that capitalism begins to undermine its own progress, so that the age of capital must eventually give way to the next stage in the cycle of civilization, and life as we know it comes to an end.

Tuesday, July 27, 2021

James Crotty's Keynes

"Keynes on the Stages of Development of the Capitalist Economy: The Institutional Foundation of Keynes's Methodology" (1990) by James R. Crotty (PDF, 16 pages)


Professor Crotty writes:

Keynes provided the outlines of a theory of the evolution of two distinct stages of capitalist development (and anticipated the transition toward a third) in which each stage is assumed to possess unique institutions and agent practices that differentiate its processes and outcomes from the other.

Wow, that's impressive. There are only two common views of Keynes: One, that he was wrong about everything. Two, that he was right about deficit spending. Then there are a handful of people who distinguish between Keynes and the "Keynesians", hollering Keynes didn't say that! (I'm with them.)

Crotty is different: He has an original thought. I like it already. He continues:

Specifically, Keynes argues that nineteenth-century capitalism differed in institutional and class structure as well as in agent behavior patterns from post World War I capitalism. Because of these institutional differences, nineteenth-century capitalism exhibited impressive economic growth and stability, whereas twentieth-century capitalism was prone to stagnation-depression as well as to bouts of extreme instability.

Can we see this on a graph?

Some of it, certainly:

Based on UK GDP, the Consistent Series from MeasuringWorth

The graph shows growth over 20-year periods. For example, the first data point (at 1720) shows GDP growth for 1720 relative to 1700.

At first glance, I see three different periods of growth. Ballpark numbers:

  • around 5% growth over 20 year periods from 1720 to 1820
  • around 20% from 1820 to 1920
  • around 50% from 1920 to 2020

On closer look, however, there is a low that runs from 1920 to around 1940. This is the post World War I period that Crotty mentions. The low runs in the neighborhood of 5%, comparable to the 1700s on the graph. 

For context: The General Theory was written during that interwar low.

//

Crotty writes of the interwar period. But he also refers to "twentieth-century capitalism". He writes:

a brief review of Keynes's specification of the institutions and behaviors that molded the pattern of capital accumulation in the 1920s and 1930s will help clarify major differences between Keynes's theories of the macrodynamics of nineteenth- and twentieth-century capitalism.

He seems to suggest that "institutional differences" explain not only that interwar low but also the economy's later performance. But no: There is more to the story.

Keynes relied on two levels of analysis, Crotty says: The one, a general, abstract analysis of "the defining characteristics of the capitalist economy". The other, a more concrete, "institutionally and historically contingent" analysis that considers "the institutions, classes, and agent motivations peculiar to each particular stage of economic development". The differences between these "contingent" factors in different historical periods is central to Professor Crotty's evaluation of Keynes's work. 

The abstract ("Level I") analysis is the "general" part of the General Theory, Crotty says. But

[the] concrete object of investigation [in the General Theory] is the institutionally specific form of capitalism found in Britain (or the United States) in the interwar period

Crotty says the book's theoretical and policy conclusions are not "directly applicable" to later stages of economic development.

Going by Crotty's concept, then, if Keynes recommended deficit spending (for example), he didn't mean we should adopt it as standard practice for all time. He meant it was appropriate for the Great Depression of the interwar years. There are probably better examples, but you get the idea. Policies that are quote Keynesian unquote are not always policies that Keynes would have recommended. Not always, and not often.

Anyway, when Crotty starts presenting the differences in "institutions, classes, and agent motivations" for the different stages of capitalism, his paper gets downright fascinating.

http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.729.5461&rep=rep1&type=pdf

//

Crotty talks about institutions. Quigley talks about institutionalization. I had to stop writing and spend a day on the meaning of the words "institution", "institutionalization", and every version between. In all its forms, the word "institution" has unsavory connotations. And the more syllables a variant has, the more unsavory the connotations. Google turned up related phrases like

  • "institutionalized children"
  • "psychiatric institutionalization" and
  • "incarceration"

That's not what Crotty is talking about, of course. Nor Quigley, nor Keynes. But the unsavory meaning still gets in the way. Wikipedia offers something more appetizing:

In history, a distinction between eras or periods implies a major and fundamental change in the system of institutions governing a society. Political and military events are judged to be of historical significance to the extent that they are associated with changes in institutions.

The "distinction between eras or periods" is precisely what Crotty was talking about, and Crotty's Keynes. Wikipedia, offering an example, mentions the change from feudal to modern institutions in Europe -- something Quigley (e.g., page 145) focused on explicitly.

//

Crotty says the General Theory presents the 19th century and the 20th as separate stages of economic development. But Keynes also opened chapter 23 of that book with references to "the past one hundred years" (the 19th century, again) and "some two hundred years" before that. The 200 years encapsulate the Mercantile era; the 100 years, the "classical" economics that Keynes disputed.

These views together encompass three distinct stages: mercantile, classical, and whatever it is we have now, that developed out of the "interwar" years. These stages reach from the 2020s back to the 1600s.

But Keynes also considered in chapter 23 the economic views of the Medieval church. This takes us back to Thomas Aquinas and the 13th century, at least, and perhaps to the fall of Rome. From the 13th century to the 21st, inclusive, touches on nine centuries of economic development: almost a millennium. 

And by the way, this all comes out of the General Theory. We're looking at almost the whole growth phase of this cycle of civilization. Take it back to Rome, and we also bring in the parent-and-offspring relationship between civilizations, which Toynbee described.

Recall, then, that Keynes also called the 19th century "the greatest age of the inducement to investment". And recognize that this puts the peak of the cycle of civilization behind us.

//

Not to overstate the problem, but there may be some urgency here in regard to resuming the upward path. The first thing that must be done is to take the time to figure out what the problem really is. Because if we try to fix the wrong problem, our fix won't work. For example, restraining the growth of federal spending and balancing the budget. Fifty, sixty years now, this has not worked, because it is the wrong plan.

Here's my plan. Note that it starts with analysis of the problem. The analysis is unique and unfamiliar. That doesn't mean it's wrong.

Wednesday, July 21, 2021

"July 2021" and the precautionary motive

Reviewing the last three weeks here at EconCrit. First, the preliminaries:

  • I can't respect people who prefer to profit from economic decline rather than prevent it (30 June 2021);
  • What matters is that we prevent the decline (1 July 2021).

I point out that slow economic growth can kill a civilization (2 July). Then, in the best short summary I've ever written, I identify the overriding economic problem of our time (3 July). Also, I present the rise and decline of civilizations as an economic cycle, and attribute decline to "bad economic policy" (4 July).

We adopt A.J. Toynbee's terminology for the end of a civilization's growth, but reject his view of causation: Toynbee considers economic factors to be incidental. They are central (6 July).

We consider civilization as described by Carroll Quigley and find some similarity to the work of Toynbee, but prefer Quigley's "instrument of expansion" to Toynbee's causal analysis (8 July).

We then look at how the instrument of expansion fails: "In modern terms," Quigley says, "we say that the rate of investment decreases." Remarkably, Quigley finds that declining investment harms the growth of civilization. His focus is the civilization, not the economy (10 July).

Next we consider the details of investment as Quigley sees them, and find that he agrees with Keynes that the problem lies with the idea that "supply creates its own demand". Say's law. Supply doesn't create its own demand when saving is not fully invested. For Keynes, this is an imbalance that drives economic decline. For Quigley, it drives the decline of civilization (14 July).

For me, it drives both.

Finally we consider Keynes the economist. We know that Keynes, as the creator of macroeconomics, was a big-picture thinker. Repeatedly, we find him concerned with the troubles of civilization. He spoke of our "dying civilization". He treated the Dark Ages as the recession phase of a massive economic cycle. And he said that the Say's law problem -- the imbalance between saving and investment -- was a problem that could wipe out our economic system, leaving us in a new Dark Age (19 July).

 

If you're familiar with Keynes, you may not know that Quigley explains the decline of civilization by using the same idea that Keynes used (chapter three: "a wealthy community will have to discover much ampler opportunities for investment if the saving propensities of its wealthier members are to be compatible with the employment of its poorer members") to explain the decline of output and employment during the Great Depression.

If you're familiar with Quigley's The Evolution of Civilization but not with Keynes, you may not realize that Quigley's idea (pages 139-140: "Traditionally, this reappearance of savings as purchasing power in the market occurred through investment") was almost certainly borrowed from Keynes.

If you are familiar with Quigley's Tragedy and Hope, you might be surprised to learn that Quigley's argument about saving and investment, in Evolution, is the same as Keynes's argument about Say's law.


I accept the idea of "stages of civilization" (where civilizations tend to fit a general pattern) because Arnold J Toynbee presented almost endless evidence of it.

But Carroll Quigley offers a better explanation of the cause of civilizations' decline: that our economic system cannot produce, and consume all that it produces, "unless it also invests (that is, expands)."

Quigley's explanation is one that I already accept, as Keynes offered it to explain the cause of the Great Depression.

 

Not every wiggle in economic performance brings with it the threat of a new Dark Age, obviously. But when a series of wiggles suggests it, it would be unwise to dismiss the suggestion.

I put the start of such a series of wiggles at around 1960, when we came to depend more on credit than on money that doesn't cost interest when you use it. With the growth of debt and finance, the cost of interest puts growing downward pressure on profit and on the standard of living.

Keynes, however, who focused on the big picture, puts the start of the series of problematic wiggles around 1870. The wiggles were still problematic 50 years later in 1919, when he wrote about it.

Ten years after 1919, the Great Depression hit. We like to think we "recovered" from that. Okay. Maybe the Great Depression and the Great Recession were "recession phase" events of consecutive debt supercycles. 

Or maybe they were two "early warning" wiggles of the next dark age. Dunno. But if the cycle of civilization is an economic cycle, then if we act early enough the dark age can be prevented. 

If we don't, it can't.

Monday, July 19, 2021

Keynes and Civilization

Sometimes it can help to look at the big picture -- when you're doing a jigsaw puzzle, say, or studying the macroeconomy.


William Manchester, The Glory and the Dream

"Yes. It was called the Dark Ages, and it lasted four hundred years." That's big-picture.

William Manchester says comparing the Great Depression to the Dark Ages is "calamity howling on a cosmic scale". Only in ignorance, I think, would anyone be so dismissive of John Maynard Keynes. 

 

Keynes compared the severity of two economic slowdowns. But the comparison tells us more than just their relative severity.

A recession is a slump in the business cycle. 

A Dark Age is a slump in the massive cycle that I'm in the habit of calling the Great Cycle or the Cycle of Civilization: a very long economic cycle, with a long, deep low.

We commonly think of a depression as a severe recession. But it may be the "recession phase" of an economic cycle more severe than the business cycle, like the debt supercycle. Or it may be, or it may become, the recession phase of the cycle of civilization.

Keynes didn't compare the Great Depression to normal recessions. He compared it to the Dark Ages. At the very least, this tells us Keynes understood that the cycle of civilization is an economic cycle. He may also have been using the severity of the Depression as a way to gauge the economic cycle of which it was part.

Was it "the big one"?  The question was almost certainly on his mind. 


Late in the General Theory, in chapter 24, section iii, Keynes summarizes his recommendations as "the task of adjusting to one another the propensity to consume and the inducement to invest". In other words, the task is to correct the imbalance between the two factors we noted previously, when we found similarities between Keynes and Carroll Quigley, author of The Evolution of Civilizations.

Keynes described the task as "the only practicable means of avoiding the destruction of existing economic forms in their entirety". There are not very many things that can destroy an economic system "in its entirety". One that can is a Dark Age.

Was it necessary for Keynes to include in his discussion this "worst case" scenario involving the destruction of our entire economic system and the end of life as we know it? Evidently, Keynes found it necessary. And he offered his solution as the only practicable way to avoid that worst-case outcome. 

Maybe Keynes was wrong about his solution being the only way. Maybe he was wrong about it being practicable. Dunno. What I know for sure is that Keynes saw the cycle of civilization, recognized it as an economic cycle, and recognized that dark ages and depressions have features in common. He recognized that the Great Depression was similar to the Dark Age in that both were the low points of economic cycles. He also knew that an economic low can be an unforgiving problem capable of wiping an entire civilization off the map. 

He didn't dwell on it, but he knew.

 

From Essays in Persuasion, the "Paris" essay, the third paragraph:

But perhaps it is only in England (and America) that it is possible to be so unconscious. In continental Europe the earth heaves and no one but is aware of the rumblings. There it is not just a matter of extravagance or "labour troubles"; but of life and death, of starvation and existence, and of the fearful convulsions of a dying civilisation.

The words "dying civilisation" are not a reference to the first world war. Rather, the war is part of the larger problem Keynes describes. From the first paragraph:

Very few of us realise with conviction the intensely unusual, unstable, complicated, unreliable, temporary nature of the economic organisation by which Western Europe has lived for the last half-century.

Not the war, but the last half-century of troubles is what Keynes had in mind: troubles in the "economic organisation" of Western Europe. The essay is dated 1919; half a century moves the date back to 1869; call it 1870. 

What was his concern? Not the war, obviously. 

Civilization? I think so, yes.

 

At the same link, in another essay (also dated 1919) Keynes considers the role of the US in relation to the problems of Europe:

The impulse which, we are told, is now strong in the mind of the United States to be quit of the turmoil, the complication, the violence, the expense, and, above all, the unintelligibility of the European problems, is easily understood. No one can feel more intensely than the writer how natural it is to retort to the folly and impracticability of the European statesmen,—Rot, then, in your own malice, and we will go our way—

Remote from Europe; from her blasted hopes;
Her fields of carnage, and polluted air.

But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilisation of all mankind?

He quotes poetry and promotes "the progress and civilisation of all mankind".

The words, from 1919, feel Eurocentric and may lack the political correctness you expect, but clearly Keynes's concern was civilization and the advance of civilization.


Keynes is often given credit for inventing macroeconomics, for looking at the "big picture" of the economy. Yes. He made economics interesting.

But we don't give him enough credit. We fail to notice how big the big picture really is. Keynes knew. He knew that the rise and fall of civilizations is an economic cycle, a cycle driven by economic forces. And he knew this is where it really gets interesting.

Wednesday, July 14, 2021

Quigley and Keynes

It took longer than I expected to get my thoughts together for this essay. I was bingeing Lilyhammer and couldn't look away. 

 

Discussing the costs of production, Carroll Quigley writes (page 140): 

These costs, including profits for entrepreneurs, have a double aspect. On the one side they represent the costs of producing the goods, and ... on the other hand, these costs represent the incomes of those who receive them...
I remember that thought as Charles Schultze expressed it:

Prices and wages have a dual nature when considered in the aggregate: they are costs to buyers and incomes to sellers.

Schultze used that thought in relation to inflation:

Thus an increase in the general level of prices does not automatically mean a reduction in the quantity of goods and services demanded...

Quigley uses the thought in relation to the way our economic system works, given our natural inclination to save part of our income (p.141):

This whole relationship means that our modern economic system cannot produce and consume what it produces unless it also invests (that is, expands).

That's significant. It means we could not survive as a stable, non-growing society where we produce output and then consume it (but do not invest and grow). Our inclination to save out of income would mean we consume a little less than we produce. If we consumed less, our businesses would produce less and we would earn less income as a result.

It's a vicious circle, a self-sustaining feedback loop: We buy less, so we produce less, so we have less income, so we buy less. And the cycle repeats. For Quigley, this explains the decline of civilization when the "surplus-creating instrument" (page 137) is capital accumulation, as in our civilization.

It never occurred to me before, that we could not survive as a no-growth society. That's pretty damn interesting. But actually, it's the "civilization is a shark" thing: If it doesn't keep moving forward, it will die.

 

Quigley (page 139) says the nature of the "organizational stresses and tensions arising from a decrease in the rate of a society's expansion can be seen most clearly in contemporary Western civilization." What he presents next sounds like an economics discussion. It is. Quigley's topic, however, is not the economy. His topic is civilization and its decline.

Quigley's explanation is rather long, but you'll notice that it ends with the "significant" sentence quoted above:

If we look, for a moment, only at the flow of consumers' goods, we see that this flow of goods is offered for sale at a price that, by just covering the costs of the goods, is just equivalent to the purchasing power distributed to the economic community as incomes available for buying these goods. But, of course, some incomes are saved. These savings reduce the flow of purchasing power below the level of the flow of consumers' goods at prices sufficient to cover costs of these goods. Thus there is not sufficient purchasing power available to buy the goods being offered at the price being asked, and either goods must go unsold or prices must fall, unless the money which was held back as savings appears in the market as purchasing power for consumers' goods. Traditionally, this reappearance of savings as purchasing power in the market occurred through investment—that is, as expenditures for the factors of production to be used to make capital goods. This process provided the purchasing power needed to permit the flow of consumers' goods to go to consumers because investment distributed rent, salaries, wages, interest, profits, and such to the community to form incomes and thus available purchasing power but did not demand purchasing power from the economic community because the producers' goods created by these expenditures were not offered for sale to consumers, as consumers goods were, but, if sold at all, were merely exchanged for the savings of investors. This whole relationship means that our modern economic system cannot produce and consume what it produces unless it also invests (that is, expands).

Quigley explains why our civilization cannot survive unless it grows. As noted above, his explanation is that people save part of their income, and spend less in total than producers must recoup to cover the cost of production. 

Another source of spending is needed, to boost consumer income and consumer spending enough that producers can sell all they produce. "Traditionally", Quigley says, producers would invest enough to make up the difference. The investment spending would boost income and boost consumer spending enough to clear markets of the otherwise unsold goods. So the economy would maintain equilibrium, and avoid a downward spiral.

I have not found him saying this in so many words, but Quigley's idea is that if we cannot maintain economic growth over the long term, the economy will decline and so will civilization.

 

Here is a bullet-point summary of Carroll Quigley's paragraph:

  • Work creates income and output in equal measure.
  • Therefore, income and output are equal.
  • So there is enough income to purchase all of output.
  • But people sometimes save money.
  • So there is not enough consumer spending to buy all of the output.
  • If business investment spending makes up the difference, everything is copacetic.
  • If not, it's all downhill from here.

Saving reduces demand, and investment of the saved funds restores demand. If these thoughts sound familiar, they should. Keynes said something similar. Very similar. I have to think that Quigley picked up the idea from Keynes. 

What did Keynes say? Wikipedia's article on Keynesian economics has a great short summary. First, they define terms:

Saving is that part of income not devoted to consumption, and consumption is that part of expenditure not allocated to investment...

Then they put those terms to use, to pinpoint what Keynes said:

Once he rejects the classical theory that unemployment is due to excessive wages, Keynes proposes an alternative based on the relationship between saving and investment. In his view, unemployment arises whenever entrepreneurs' incentive to invest fails to keep pace with society's propensity to save...

Keynes sees imbalance between saving and investment as the problem. Quigley identified the same problem. 

They do seem to have different conclusions: Quigley focused on the survival of civilization, and Keynes on unemployment. But Keynes was writing during the Great Depression, when unemployment was as high as 25% and a focus on that problem was obviously required.

Keynes focused on the economy, not on civilization. But he also said this about his view:

I defend it ... as  the only practicable means of avoiding the destruction of existing economic forms in their entirety...

Far as I'm concerned, Keynes was saying that if we don't fix this problem it'll be the end of life as we know it. And now it sounds like Quigley's topic: the decline of civilization.

Anyway, if you see it as I see it -- the economy drives civilization -- then the decline of the economy brings on the decline of civilization. I think we watched it happen over the past 40-50 years.


Carroll Quigley might not agree that the economy drives civilization. His focus was civilizations, plural.  Beginning on page 137 he writes:

This surplus-creating instrument does not have to be an economic organization. In fact, it can be any kind of organization, military, political, social, religious, and so forth. In Mesopotamian civilization it was a religious organization, the Sumerian priesthood...
I assume Quigley is right. It doesn't have to be an economic instrument. However, in the case of our civilization, it is an economic instrument. If I was writing this in the Mesopotamian era, my argument might have been that the Sumerian priesthood drives civilization. Doesn't matter. In the here-and-now, our surplus-creating instrument is economic, our problems generally are economic or have economic roots, and the solution will certainly be an economic solution. And if we don't find that solution, the cause of the fall of civilization, this time around, will also be economic.


One more look. Quigley and Keynes on the imbalance between saving and investment:

QuigleyKeynes
But, of course, some incomes are saved. These savings reduce the flow of purchasing power below the level of the flow of consumers' goods at prices sufficient to cover costs of these goods. The psychology of the community is such that when aggregate real income is increased aggregate consumption is increased, but not by so much as income.
Thus there is not sufficient purchasing power available to buy the goods being offered at the price being asked, and either goods must go unsold or prices must fall, unless the money which was held back as savings appears in the market as purchasing power for consumers' goods. Hence employers would make a loss if the whole of the increased employment were to be devoted to satisfying the increased demand for immediate consumption.
Traditionally, this reappearance of savings as purchasing power in the market occurred through investment—that is, as expenditures for the factors of production to be used to make capital goods. Thus, to justify any given amount of employment there must be an amount of current investment sufficient to absorb the excess of total output over what the community chooses to consume when employment is at the given level.

The three steps described by both Keynes and Quigley in the table above are these:

  • saving creates an imbalance
  • the imbalance leads to decline
  • investment can restore balance.

The excerpts from Quigley appear on page 140 of The Evolution of Civilizations.
The excerpts from Keynes appear in Chapter 3 of the General Theory, section ii.

Keynes's focus is maintaining a high level of employment to keep the economy growing. Quigley's concern is maintaining a high level of investment to keep the civilization growing. But it's the same concept, really, and the same story: Healthy economic growth sustains the growth phase of civilization, and economic decline is the leading economic indicator of the decline of civilization.

I'm not saying the economy is the only cause of the fall of civilization. But I'm screaming at the top of my lungs that it has to be on the list of possible causes -- and first on the list.


"When a country is growing in wealth somewhat rapidly, the further progress of this happy state of affairs is liable to be interrupted, in conditions of laissez-faire, by the insufficiency of the inducements to new investment."  Keynes, chapter 23

Saturday, July 10, 2021

Carroll Quigley: Investment

In The Evolution of Civilizations, Carroll Quigley identifies two kinds of societies:

Page 76 (74 of 425):
(a) parasitic societies and (b) producing societies. The former are those which live from hunting, fishing, or merely gleaning. By their economic activities they do not increase, but rather decrease, the amount of wealth in the world. The second kind of societies, producing societies, live by agricultural and pastoral activities. By these activities they seek to increase the amount of wealth in the world.
I've heard of "hunter-gatherer" societies and the pastoral or agricultural societies. Quigley identifies them by a different standard, and as a result he is able to advance the discussion to the next level:
Page 148 (145):
If this society is productive and if it becomes organized so that it has an instrument of expansion, a new civilization will be born.

An instrument of expansion?

Page 132 (129):
The three essential parts of an instrument of expansion are incentive to invent, accumulation of surplus, and application of this surplus to the new inventions.

Arnold J Toynbee described a "growth" phase for civilizations. Carroll Quigley describes a growth device, the instrument of expansion, which creates growth. In terms of our time:

  • Invent something;
  • Sell it for a profit;
  • Use the profit to invent more stuff.

It can work for an individual. It can work for a society. Quigley reinforces the idea:

Page 137 (134):
Loosely speaking, the term "instrument of expansion" might be applied to the organization for capital accumulation alone, although, strictly speaking, this organization should be called the surplus-creating instrument. This surplus-creating instrument is the essential element in any civilization, although, of course, there will be no expansion unless the two other elements (invention and investment) are also present.

Note well: "This surplus-creating instrument is the essential element in any civilization". The essential element. The essential one.

This brings us to investment:

... there will be no expansion unless the two other elements (invention and investment) are also present. However, the surplus-creating instrument, by controlling the surplus and thus the disposition of it, will also control investment

And will, he adds, have at least an indirect influence on the incentive to invent. In the story Quigley tells, all the pieces are there. Everything fits. If I want to describe that story and emphasize investment, I have to break his sentences apart do it.

Quigley's use of familiar terminology makes it easy to understand his idea, and easy to see the economic troubles of our time as the troubles of a civilization. That's important, because those troubles must be solved if our civilization is to endure.

Perhaps Quigley's familiar terminology makes it difficult to picture the instrument of expansion in other civilizations, especially ancient ones. No problem:

Page 137-38 (134):
This surplus-creating instrument does not have to be an economic organization. In fact, it can be any kind of organization, military, political, social, religious, and so forth. In Mesopotamian civilization it was a religious organization, the Sumerian priesthood to which all members of the society paid tribute. In Egyptian, Andean and, probably, Minoan civilizations it was a political organization, a state that created surpluses by a process of taxation or tribute collection. In Classical civilization it was a kind of social organization, slavery, that allowed one class of society, the slaveowners, to claim most of the production of another class in society, the slaves. In the early part of Western civilization it was a military organization, feudalism, that allowed a small portion of the society, the fighting men or lords, to collect economic goods from the majority of society, the serfs, as a kind of payment for providing political protection for these serfs. In the later period of Western civilization the surplus-creating instrument was an economic organization (the price-profit system, or capitalism, if you wish) that permitted entrepreneurs who organized the factors of production to obtain from society in return for the goods produced by this organization a surplus (called profit) beyond what these factors of production had cost these entrepreneurs.

It's all there.

Instruments and institutions

I have a little trouble distinguishing between Quigley's "instruments" and his "institutions" for a very silly reason: both words start with the same letter. (Teaching myself the C language in the 1980s, I had problems with the language for three years, until I finally paid attention to the difference between "declarations" and "definitions".)

In the Foreword to Quigley's Evolution, Harry J. Hogan clarifies the difference between "instruments" and "institutions":

Page 17 (19): Quigley found the explanation of disintegration in the gradual transformation of social "instruments" into "institutions," that is, the transformation of social arrangements functioning to meet real social needs into social institutions serving their own purposes regardless of real social needs.

Hogan says that over time,

social arrangements are molded to express a rigidly idealized version of reality. Such institutionalization would not have the flexibility to accommodate to the pressures of changing reality...
Okay. Now we can finish Quigley's thought on the surplus-creating instrument. We pick up right where we left off, on page 138. He now describes how the growth device fails:
Page 138 (135):
Like   all   instruments,   an   instrument   of   expansion   in   the   course  of  time  becomes  an  institution  and  the  rate of  expansion  slows  down.  This  process  is  the  same  as  the  institutionalization  of  any  instrument,  but  appears  specifically  as  a  breakdown  of  one  of  the  three  necessary  elements  of  expansion.  The  one  that  usually  breaks  down  is  the  third — application   of   surplus   to   new   ways   of   doing   things.   In   modern  terms  we  say  that  the  rate  of  investment  decreases.

The rate of investment decreases. Quigley's words. Quigley's words to describe not a troubled economy, but a failing civilization. At last, I have found what I've been looking for.

I've been a fan of Arnold Toynbee's A Study of History since the 1990s, because he uses the facts of history like ornaments on a christmas tree to produce a truly amazing and fascinating display. I accept the idea of "stages of civilization" because of Toynbee.

But Toynbee doesn't seem to see economic concerns as a significant factor affecting the decisions people make. This is something I cannot accept. As I see it, everything we do for money and everything we do with money, taken together, creates a highly significant driving force that gives direction to most of the decisions we make: a highly significant driving force arising overwhelmingly from the economic conditions we face. And the worse the economic conditions, the greater is the economic component of our decision-making process.

Toynbee doesn't see it, but Carroll Quigley does. You don't know what a relief this is for me.

Thursday, July 8, 2021

Carroll Quigley: Instruments and institutions, growth and decline

Carroll Quigley's The Evolution of Civilizations is available at no cost from carrollquigley.net


Like Toynbee, Quigley presents a theory of civilization. As expressed in the Foreword of Quigley's book, his is an attempt to present "a  causal  explanation  of  the stages of civilization". I find it fascinating. Perhaps even better than Toynbee.

 

Today I want to show Quigley working toward his list of the stages of civilization.

Page 129 (126 of 425 in the PDF):
The most popular explanation of the causes of historical change and especially of the rise and fall of civilizations has been by means of some biological analogy in which a people, once young and vigorous, were softened and weakened by rising standards of living, or by a loss of the ideology of hard work and self-sacrifice that had made their rise possible...

I am reminded of something I read recently, a quote from the author G. Michael Hopf:

Hard times create strong men, strong men create good times, good times create weak men, and weak men create hard times.

The Hopf quote is striking. It's the repetition, I think, that makes it so effective. But good phrasing is not the same as good argument. In what sense do they mean "strong" and "weak"? Moral? Physical? Military? I dunno. Hopf's book is available as a Google Book, but there is "no preview available" for the relevant page -- I can't see the context. So I cannot evaluate the quote unless I start by putting some assumptions on it. And I don't want to start there.

So all I can say that's relevant to the Hopf quote is that "good times" and then "hard times" arise because monetary balances accumulate over time until they become problematic -- that is, until they become imbalances. That's why good times and hard times affect people, the species, human society, and human civilization, but not the wild animals, not in the same way: Monetary balances accumulate.

Maybe you think I'm feeding you some bullshit. But stop for a moment to consider all the things people say about the Federal debt: It's bad, it's good, it's the problem, it's the solution. That's the bullshit. I'm only pointing out that the Federal debt is an accumulated monetary balance. And that's just one example. 

My point is, Carroll Quigley would reject Hopf's statement, quicker and far more resoundingly than I can manage. He already rejected it in the quote that I interrupted to present the Hopf quote!

Quigley continues:

In  many  cases  no  real  explanation  of  the  process  of  change  has  been given  at  all,  the  theorists  in  question  being  satisfied  with attaching  names  to  the  various  stages  of  historical  change.  Giovanni Battista Vico, for example, saw the history of each people as a process by which barbarian vigor slowly developed into rationalism, the period of greatest success being merely the middle period when the two qualities of vigor and rationality were in a fruitful, precarious, and temporary balance, while the decline was due to the final triumph of rationalism over energy. 

Quigley finds Vico's explanation inadequate. So do I: It is certainly far from an explanation based on economic forces, financial costs, and monetary imbalances.

 

Quigley prepares before presenting his stages of civilization:

Page 128 (125 of 425 in the PDF):
This process of evolution of civilizations can only be studied in an effective fashion if we divide it into a number of consecutive periods. We might divide it into two periods, such as "rise" and "decline"; we might divide it into three periods, such as "youth," "maturity," and "old age"; or we might divide it into five or fifty periods...

He considers every little thing. Here he reminds me of Toynbee, Somervell's Toynbee:

The illusion of progress as something which proceeds in a straight line is an example of that tendency to over-simplification which the human mind displays in all its activities. In their 'periodizations' our historians dispose of their periods in a single series end to end, like the sections of a bamboo stem between joint and joint or the sections of the patent extensible handle on the end of which an up-to-date modern chimney-sweep pokes his brush up the flue. On the brush-handle which our modern historians have inherited there were originally two joints only -- 'ancient' and 'modern', roughly though not exactly corresponding to the Old Testament and the New Testament and to the dual back-to-back reckoning of dates B.C. and A.D. ...

As time has gone on, our historians have found it convenient to extend their telescopic brush-handle by adding a third section, which they have called 'medieval' because they have inserted it between the other two. ...

Their styles are different, Toynbee and Quigley, but they have many ideas in common.

 

Quigley's stages of civilization:

Page 145 (142 of 425):
The  process  that  we  have  described,  which  we  shall  call  the  institutionalization  of  an  instrument  of  expansion,  will  help  us  to  understand  why  civilizations  rise  and  fall.  By  a  close  examination  of  this  process,  it  becomes  possible  to  divide  the  history  of  any  civilization  into  successive  stages.  We  have  said  that  these  divisions  are  largely  arbitrary  and  subjective  and  could  be  made  in  any  convenient  number  of  stages. We shall divide the process into seven stages, since this  permits  us  to  relate  our  divisions  conveniently  to  the  process  of  rise  and  fall.  These  seven  stages  we  shall  name  as  follows:
1.  Mixture
2.  Gestation
3.  Expansion
4.  Age of Conflict
5.  Universal Empire
6.  Decay
7.  Invasion

That is the second time Quigley mentions "seven stages" in The Evolution of Civilizations. He prefaces it by relating the instrument of expansion to the rise and fall of civilizations, or more precisely the instrument to the rise and its institutionalization to the fall.

The first time he mentions his seven stages of civilization, he interrupts himself to point out the importance of the instrument of expansion, and doesn't even get around to listing the stages:

Page 132 (129):
The  pattern  of  change  in  civilizations  presented  here  consists  of  seven  stages  resulting  from  the  fact  that each  civilization   has   an   instrument   of   expansion   that   becomes an   institution.  The  civilization  rises  while  this  organization  is  an  instrument   and   declines   as   this   organization   becomes   an   institution.

When I first read page 132, I wondered if Quigley forgot to proofread the page. He seemed to be going off-topic. That's not it. Quigley emphasizes the instrument of expansion at every opportunity, because of its great importance.

Why? Because it is the long period of growth that makes a civilization different from a primitive society. Growth makes the civilization. In addition, the ruin of the instrument of growth by "institutionalization" brings growth to an end and, ultimately, brings the civilization to an end.

Toynbee called it the "breakdown", the termination of the period of growth. Quigley calls it "the institutionalization of the instrument of expansion". The growth of civilization is central in both cases. Quigley puts greater emphasis on it.


When I was in grammar school, around 15 years before the US Bicentennial in 1976, one of my teachers expressed concern because nations "seldom survive more than 200 years." I remember.

As a nation we are something over 200 years now. And we do have our problems.

As a civilization, we're up over 2000 years. Toynbee described three generations of civilization in a 6000-year time frame. On average, 2000 years per generation. And I recall Toynbee quoting Lord Acton: "General history naturally depends on the action of forces which are not national but proceed from wider causes." Maybe our problems are not those of a dying nation, but of a dying civilization. And we do have our problems.

Asimov's Foundation begins when the Galactic Empire is 12,000 years old. The 1984 film Dune begins in the year 10,191. In our world, on average, 2000 years and it's over.

We can do better.

Tuesday, July 6, 2021

The patently unremunerative. The diminishing economic returns. The decline of prosperity.

Looking at "breakdown" in Arnold J. Toynbee's work, I neglected to mention what he means by that word. He means the end of the period of growth. In an Editor's Note (page 273) in Toynbee's Study, we find:

In fact we use 'breakdown' in common parlance to mean very much what Mr. Toynbee means when he writes 'disintegration'. But 'breakdown' in this Study does not mean quite that; it means the termination of the period of growth.

... a society does not ever die 'from natural causes', but always dies from suicide or murder -- and nearly always from the former, as this chapter has shown. Similarly the termination of the growth-period, which is a natural event in the history of a living organism, is an 'unnatural' event, due to crime or blunder, in a society; and to this crime or blunder Mr. Toynbee has applied the term 'breakdown' for the purposes of this Study.

Going by the titles of the volumes that make up A Study of History, Toynbee's sequence of stages in the life of a civilization is: genesis, growth, breakdown, and disintegration.

Breakdown: the termination of the period of growth.


Searching the abridged Study of History for Toynbee's use of the word "wealth", I found several instances where the word is used to mean a lot of something, like "a wealth of experience".

I found about half as many instances when Toynbee used the word in the economic sense, like "the measurement of political power: in territory, population, and wealth."

I found no cases where Toynbee used the word to describe the cause of the breakdowns of civilizations. So then I searched for "investment" and "investing". No occurrences of "investment" in the book. For "investing", just one. He gives an example and says the civilization didn't make the investment that a healthy society would have made.

This lack of investment: Was it the cause of the breakdown? A coincidence? A consequence? This is Toynbee's topic. In a memorable paragraph, he writes:

When a civilization is in decline it sometimes happens that a particular technique, that has been both feasible and profitable during the growth stage, now begins to encounter social obstacles and to yield diminishing economic returns; if it becomes patently unremunerative it may be deliberately abandoned. In such a case it would obviously be a complete inversion of the true order of cause and effect to suggest that the abandonment of the technique in such circumstances was due to a technical inability to practise it and that this technical inability was a cause of the breakdown of the civilization.
At least, I find it memorable. Toynbee adds:
An obvious case in point is the abandonment of the Roman roads in Western Europe, which was obviously not a cause but a consequence of the breakdown of the Roman Empire.

"These roads became derelict," Toynbee adds, "because the society which required them ... had gone to pieces."

He offers another example. "In the seventh century of the Christian era," he says, the irrigation system of the Tigris and Euphrates was not repaired, after it 

had been put out of action by a flood which had probably done no more serious damage than many floods that had come and gone in the course of four thousand years.

I like the argument: If the irrigation system lasted for 4000 years, it must not have been flood damage that made it suddenly irreparable. It was the condition of the civilization at the time -- the onset of breakdown, the  concomitant "general state of insecurity", the "patently unremunerative" nature of the irrigation system under such conditions. Toynbee's own view:

This lapse in a matter of technique was in fact not the cause but the consequence of a decline in population and prosperity which was itself due to social causes.

Toynbee goes too easily to "social" causes.

In support of his argument, Toynbee provides on the same page a quote from the historian Rostovtzeff, from The Social and Economic History of the Roman Empire:

The economic explanation of the decay of the Ancient World must be rejected completely. . . . The economic simplification of ancient life was not the cause of what we call the decline of the Ancient World but one of the aspects of the more general phenomenon.

I like Rostovtzeff, so I looked up the quote. Toynbee has it right. I guess I define "economic" different that Rostovtzeff does.  But no: In the phrase "economic simplification" the word economic is only a modifier. The subject of Rostovtzeff's sentence is simplification.

Toynbee puts the emphasis on "economic", as I did initially. Toynbee's emphasis suits his own argument, but it doesn't suit Rostovtzeff's statement. Surely the "simplification of ancient life" is evidence of "the decay of the Ancient World". But the economic simplification of ancient life was just part of the process of simplification. That's Rostovtzeff's point: The economic simplification at that late stage was part of the overall simplification, so the economic explanation of the decay must be rejected. 

But the "decay" is not genesis, nor growth, nor breakdown. Decay is part of Toynbee's "disintegration" stage. The breakdown occurs before the decay. And the economic explanation of the breakdown is a different matter altogether from the explanation of decay and disintegration. So, what caused the breakdown? This is the relevant question.

My answer: The patently unremunerative. The diminishing economic returns. The decline of prosperity. And more significantly, the underlying economic problem that created these other problems: This is the true cause of the troubles.

Rostovtzeff is right: The economic explanation of decay must be rejected. The problem started before the decay, during the breakdown. Or, actually, the problem started even before the breakdown, during the time of growth, and ended up causing both the breakdown and the decline.

Toynbee precisely pinpointed the problem the last time we spoke: the horizontal schism of society along lines of class, because the natural limits on inequality were exceeded; also, other economic imbalances of that nature, imbalances that arise during the time of growth. Imbalances that arise before the breakdown, and long before the decay.

For Toynbee, the horizontal schism appears at the moment of breakdown by definition, because the schism defines and locates the occurrence of the breakdown. But the imbalances that create the schism exist for decades or centuries before the schism appears. The imbalances exist; they grow worse; the growth of the civilization gradually slows. And the imbalances continue to grow worse until a definite schism appears. And then you have the breakdown (the termination of growth). After that, decay and disintegration.

The problems that arise during the growth phase cause growth to slow. They cause the breakdown. And they cause the decay.

The problems can be solved. They must be solved, if the civilization is to endure. This was Toynbee's most important message.

Sunday, July 4, 2021

Wealth as a strange attractor

From Wikipedia:

Societal collapse (also known as civilizational collapse) is the fall of a complex human society characterized by the loss of cultural identity and of socioeconomic complexity, the downfall of government, and the rise of violence... A collapsed society may revert to a more primitive state, be absorbed into a stronger society, or completely disappear.
Virtually all civilizations have suffered this fate regardless of size or complexity.
They list five "possible causes" in the first paragraph
natural catastrophe, war, pestilence, famine, and depopulation

and eight "causative factors" in the third:

environmental change, depletion of resources, unsustainable complexity, decay of social cohesion, rising inequality, secular decline of cognitive abilities, loss of creativity, and misfortune.

"Bad economic policy" doesn't appear on either list. It should be first.


From the list of eight, "loss of creativity", that's Toynbee. In the "Argument" of the abridged A Study of History, under the heading "The Breakdowns of Civilizations" we read:

The nature of a breakdown can be summed up in three points: a failure of creative power in the creative minority, which henceforth becomes a merely ‘dominant’ minority; an answering withdrawal of allegiance and mimesis on the part of the majority; a consequent loss of social unity in the society as a whole.

Toynbee's phrase "withdrawal of allegiance" is equivalent to Wikipedia's "loss of cultural identity". His "mimesis" -- mimicry -- is the method by which social and cultural innovations spread through the society and bind it together, until the breakdown.

Oh, and Wikipedia's "virtually all civilizations have suffered this fate" is a reflection of Toynbee's observation, expressed in the same paragraph quoted above, that

Of twenty-eight civilizations that we have identified (including the arrested civilizations in the list) eighteen are dead and nine of the remaining ten -- all, in fact, except our own -- are shown to have already broken down.


From the list of eight, "decay of social cohesion" is Toynbee's "loss of social unity". On page 365 in the abridged Study, from Chapter V: The Disintegrations of Civilizations:

... we have found already that the ultimate criterion and the fundamental cause of the breakdowns which precede disintegrations is an outbreak of internal discords ...

The social schisms in which this discord partially reveals itself rend the broken-down society in two different dimensions simultaneously. There are vertical schisms between geographically segregated communities and horizontal schisms between geographically intermingled but socially segregated classes.

... [T]he horizontal schism of a society along lines of class is not only peculiar to civilizations [as opposed to primitive societies] but is also a phenomenon which appears at the moment of their breakdowns and which is a distinctive mark of the periods of breakdown and disintegration, by contrast with its absence during the phases of genesis and growth.

This is huge. When differences between classes start giving rise to troubles in society, Toynbee says, the civilization has reached the "breakdown" stage. He is saying there is a natural limit to the concentration of wealth and income, a limit beyond which civilization can no longer continue to advance, but will begin to decline.

Toynbee does not explicitly specify the economic aspects of class struggle, rising inequality and the like. Myself, I would have insisted that economic factors are the root of the problem.

By the way, "rising inequality" is also on the list of eight.


My theory of decline: The rise and decline of civilizations is an economic cycle. Concentration of wealth is the cause of decline. When wealth grows faster than it concentrates, wealth spreads, and you get the upswing of the cycle. When wealth concentrates faster than it grows, you get the downswing.

If you want people to join your group, or if you want "voluntary allegiance" (Toynbee's term) from your own citizens, you need to create wealth faster than it concentrates.

Saturday, July 3, 2021

Not the rate of interest, but the cost of finance. Not inflation, but the decline of growth.

It is surely true that the price level cannot rise without a corresponding increase in the quantity of money or velocity or use of credit. But to deny that real costs matter (as many people do) is a problem, for rising cost hinders growth.

In a simple example where finance is non-productive and adds nothing to the economy but cost, growth of the financial sector is inflationary. But even if finance is only in part non-productive, the growth of finance is still in part inflationary. And either way, the inflation is cost-push. 

Unlike demand-pull inflation, cost-push shifts the aggregate supply curve to the left, reducing output. If the Fed fights this inflation by raising rates and slowing the economy, output is further reduced.

Furthermore, in a society with an expanding financial sector, the growth of finance is a "sustained" event, not "temporary" like an oil shock. Thus the resulting cost pressure is sustained, the cost-push inflation is sustained, and the decline of economic growth is sustained.

In such an economy, the best you can hope to achieve is sustained low-level inflation along with long-term slowing of economic growth. 

It is slow growth that kills civilization. Inflation is just evidence of the problem.

If the growth of finance is the problematic cost, then suppressing demand will not solve the problem. Only reducing the incentives that drive the growth of finance will reduce the cost pressure, solve the inflation problem, and restore the forces of economic growth.

Friday, July 2, 2021

It is slow growth that kills civilization

A group grows by gaining members. It dies by losing them.

If you want your group to grow you have to gain members. There are different ways to do this, but the best way is to get people to want to join your group. You don't have to let them in, but you have to get them to want in.

How do you get them to want in? The best way is to offer something better than other groups offer.

 

The groups I'm thinking of are nations and civilizations. In days of old, streets paved with gold, the USA was a popular destination. Everyone wanted in. All we offered them, really, was opportunity. They did the rest themselves.

But, as soon as the civilization has ceased to grow, the charm of its culture evaporates.

In recent years, the streets are not paved with gold and no one pretends they are. People still come here, because things are still better here than elsewhere. The opportunities are better. Not good, and not better than in the past, but better than most places. 

 

In this time of general decline, the fact that we remain a better destination than most does not solve the problems created by general decline. Even those of us who come from here sometimes find ourselves on the lookout for a place where things might be better. And most of us, it seems, when we self-identify, no longer think of ourselves first as Americans. Or if we do, we don't see other Americans as American. 

Many people think of this as a problem. It is a problem, but not one that can be solved by changing how people think of themselves. You can't change how people think of themselves. They can only do that for themselves. (Thus the term "self-identify".) As an outsider to that process, the only way to make it happen is to get people to want to join or rejoin your group.

You have to offer them something better than other groups offer. But not just something better than they can get elsewhere. You have to offer them something better than we have been getting here. You have to make things so good that people want to be Americans again, most especially those of us who come from here.

You have to fix the problem, not the consequences. You have to fix the economy.

Thursday, July 1, 2021

It doesn't matter why Rome fell

It doesn't matter why Rome fell. It doesn't matter why any of the old civilizations fell. It only matters that we prevent the fall of this one. Ours. That's what matters.

To that end, if we need to look into ancient Rome and the others, so be it.