Economics In the Service of Ideology:

How political truth is constructed.

Preview:

Liberal and conservative defined

The Character of political Rhetoric: Hirschman, Hayek.

The Reagan record: fact and rhetoric; Stockman tells all.

The Historical and Economic perspective: Hobsbawm and Tobin.

Concliusion: Nozick, Rawls Kaun

What motivates homo oeconomicus : What has the most utility, the most justice.

searching for new approaches to democratic governance. Through govern-

ment, we address the common agenda of our community and our nation.

In neighborhoods, communities, states, provinces and nations, the same

concerns are voiced. How will we protect our liberty and our property?

What rules will determine the balance between public interests and private

interests? What limits will we accept on our freedom on behalf of justice,

security and fairness? How will we treat those among us who are vulner-

able or least well off -- the young, the poor, the disabled, the very old and

sick? What obligations do we owe our heritage, what do we owe to one

another as citizens and what heritage will we pass on to those yet unborn?"

Introduction:

It is customary in the social sciences to state the methodoligical pre-suppositions which went into this or that study, review or monograph. Since This paper is far less than a real scholarly enterprise, and since I come to it with little in the way of scholarly apparatus, I will plainly reveal what I do bring along in my carpet-bag...my prejudices.

I learned about capitalism from my father (as I suppose most boys do) -- he worked for a living. Dad never used the word capitalism; that was a word which was screamed out by those commies on Union Square. Since dad was old enough to remember the great depression, he might have seen some authentic reds shouting from real wooden soapboxes. No, he called it the free-enterprise system. You see, he was a true believer in the ensemble of opinions which Lindblom calls the grand-majoritarian beliefs. Without even referring to Lindblom, I can recite the catechism of the grand (what Nixon called the silent) majority:

"The system we have may not be perfect, it may not even be good (Dad knew that the working man got the short end of the stick), but it is the best of all possible worlds. Why, because every man has a chance to win the lottery and escape from the daily drudgery of life. And if you end up

on the top -- or the bottom --you have no one to thank or to blame but yourself. Why then indeed, should the government take his hard earned taxes and give it to those lazy bums on welfare.

Social Security is one thing; he’s just getting back the money he put in [sic]; and they better not monkey with that in Washinton. But as far as all those other welfare programs (including student loans for those draft-dodgers); they can take them and throw them in New York harbor." When I was 28, I had the honor to meet George McGovern. Since I had passionately supported and voted for him in 1972, I was thrilled to meet him in the flesh.We were not ready for him in 1972 I thought, or Nixon had too slick a campaign organization, but someday soon, the American public would see the light and a man of principle and compassion, and the straight-shooting courage of a B-29 Pilot like McGovern, would be swept into office and things would really change in this country. I went up to him and asked him the question which had burned in my mind ever since I had started thinking about politics.

"Why, Senator, doesn’t the Democratic Party finally just take the high ground and openly advocate a socialist alternative to business as usual."

"Your premise is wrong", he said "There isn’t one vote for socialism in this country and that word will never be uttered, except in scorn, by either party."

He went on to shake the Provost’s hand and I collapsed into a chair.

I continued to study politics, and enjoyed the formal rigor of the discipline, but that day I lost a certain missionary zeal.

Then, in the third year of my first tenure at UCSC, a foul wind called clinical depression blew in and scattered the tesserae of my psyche. Because of this breakdown, I ended up on the streets for 8 years. There I learned what it was like to be in the geographical domain of the United States, and not to be a citizen. It is a sense of alienation which will never leave me no matter where I go from here. And I have a special place of resentment for the liberals,

the radicals, and my former peers in the academy, who, while professing liberation for oppressed peoples in South Africa, walked around me just as easily as the Republicans who made no such pretensions.

Somehow, I found the inner resources to come back from my exile and give the rat-race another go. It’s a pity that my father had passed away because he wasn’t here to see me win the lottery.

He died, as most working men do, with little to show for his contribution to the industrial might of this country. Ironically, after feeding pigeons for

8 years, I happened to meet an old friend who was now a venture capitalist and I went to work for him. I traded derivatives in the financial markets, and in three years, "earned", and invested enough so that I can live, albeit frugally, for the rest of my life without ever holding another job.

This paper is about Ideology. I use the lens of Hirschman’s The Rhetoric of Reaction, as one instrument to examine the debate surrounding the issues of poverty and plenty in this country. The span of this examination covers, very superficially, the period from the inception of modern political theory, with Hobbes, to its closure with the competing visions of John Rawls and Robert Nozick in the 1970’s. Although he is not as extreme as Nozick, I make reference to Frederick Hayek as a clear expositor of the conservative

(I do not say classical) position in economics.

I will briefly touch on the Reagan Record, that recent experiment in "supply-side" policy, but not as a rigorous examination of the economic results (that is done much better by a professional in the field; q.v. Professor James Tobin) rather, I attempt to examine the relation between the public debate and some "objective" truth about the economy.

The goal of an examination such as this would be to determine how, in the nursery of public discourse, the rhetoric about who deserves what in our commonwealth is transsubstantiated into that thing which people like my father see as truth.

I apologize, I will not be able to complete that project today. This is in fact the very neglected research which Lindblom tells us needs attention.

Rather, after looking at the real world politics of the Reagan years,

I will venture some speculations on the good, just, and socially useful state.

If the state did not exist, would it be necessary to invent it ?

Would one be needed, and would it have to be invented ?

With this provocative question, Robert Nozick begins his technically dazzling, and highly influential work, Anarchy, State, and Utopia. This is a landmark work in the real, and not merely rhetorical sense of the word. It establishes the outer perimeter of the libertarian position of modern academic political theory. Along with John Rawls’ A Theory of Justice, which establishes the modern communitarian position, these two works form the closure of modern political theory begun with the publication of Hobbes’ Leviathan, published at the dawn of the commercial age.

In setting the boundaries of the modern debate in economics, I am not quite ready to use the terms ‘liberal’, and ‘conservative’. Broadly speaking, in today’s jargon of public discourse, ‘liberal’ corresponds to the communitarian position, and ‘conservative’ to the individualist or, at its extremity, libertarian, position. Further, in the domain of economic policy, a Keynesian (or demand-sider) would be considered to be liberal, and a Free-Marketeer (or supply-sider) is conceded to be conservative.

As you see, we are already getting entangled in a complicated skein of political terminology. Further, the definitions for these words in the modern lexicon differ, sometimes diagonally, sometimes diametrically, from their original sense in the 18th century.

Because of this, the process of definition will have to be done hermeneutically , i.e. in the method of classical or biblical exegesis, where our ostensible understanding of a word in a relational or synchronic sense is only a fuzzy first-approximation and in order to pin it down, we must examine the term as it evolved in its contextual medium, historically (i.e. diachronically - through time). This is not so easy because the connotative and denotative attributes of a word mutate as it evolves in each successive debate. Moreover, each time the word is uttered in the political marketplace, the speaker assumes, self-referentially, that the audience all have the same understanding of its meaning.

Here, I am indebted to the resources found in Albert O. Hirschman’s compact and powerful essay, The Rhetoric of Reaction. He traces the left-right debate (I employ ‘left-right’ generically, as we still do not know what it means) from its genesis in the crucible of 18th century English parliamentary democracy, to the current tango on Capitol Hill over the disposition of the welfare state.

Albert O. Hirschman illuminates the track of political debate in the modern era by drawing a diagram of three columns by three rows. The columns are the three important political issues of our time: [1] The discussion over the question of civil rights, the first of the modern popular questions which emerged full-force upon the advent of the French Revolution; [2] The debate in the 19th century on the question of universal sufferage; and [3] The question which has come to prominence in the 19th and 20th centuries on the fitness and proper extent of the welfare state.

Hirschman reviews the debates in England, France, and later the United States in order to trace the character of the arguments around these three issues during the period from the French Revolution to the Reagan administration.

He asserts that in each case where a progressive movement has emerged, a reaction from the right has stood to oppose it--the reactionary force. In each case, the reactionary agents have employed one or more of three rhetorical weapons to attack the progressive movement: [a] The Perversity Thesis; [b] The Futility Thesis and; [c] The Jeopardy Thesis. These are the three categories (the three rows in the diagram) which Hirschman uses to illumine these debates and provide a regularity to political contests which are seemingly disconnected in time and circumstance.

Without running through all nine permutations of his analysis, I will give an example of the perversity thesis would be applied to AFDC: "the perverse effect of the policy of a program like AFDC, which is meant to ameliorate poverty among poor single mothers with children is that it encourages them to have more children and stay on the dole, thus making worse the poverty it was meant to remedy."

Hence, the perversity thesis states that any (usually progressive) policy of social action will tend to pervert or make worse, the problem it was supposed to help.

Likewise, the futility thesis asserts that any attempt to fundamentally change the social order is futile, that is, it will have no more than a superficial, cosmetic, or temporary effect. The futility thesis, according to Hirschman, assumes that there are fundamental, or deep, structures in society which are highly resistant to change and so, if they can’t be changed, say the conservatives, why waste the effort and the money.

The futility thesis is somewhat weaker in force than perversity (logically, because it is harder to prove the non-existence of an effect than its opposite). And so, in practice, an argument of futility is usually buttressed by a reinforcing argument of perverse effect.

Finally, the jeopardy thesis is has some surface similarity to the perversity thesis in that it is predicted that something bad will happen if we undertake this or that progressive reform, but its object is other than the original movement. The jeopardy argument was most forcefully marshalled in the debates on the English political reform bills of the 19th century, where it was heard that the extention of the vote to the lower (economic) classes would endanger the array of civil liberties which the English had already achieved. Likewise, in the modern era, Frederick Hayek argues that although there is some justification in extending the social welfare safety net to support the poorest members of the country, we should seriously consider limiting the recipients right to participate in the political process as:

There are difficult questions about the precise standard which should thus be assured; there is particularly the important question whether those who thus rely on the community should indefinitely enjoy all the same liberties as the rest. An incautious handling of these questions might well cause serious and perhaps even dangerous political problems; but there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody.

[Emphasis added.]

I have quoted this passage at length because it is illuminative of Hayek’s thought in more than one dimension. To the point at hand, it illustrates his use of the jeopardy argument to assert that extending minimum income support to those who need it is justified, but that this could indeed jeopardize our political stability if those on the public charge are allowed to participate fully in the political process. [ironically, he advocates the guaranteed national income which Martin Luther King proposed in 1968, while tacking on a provision which Dr. King would have found apalling.]

Interesting, also, that Hayek deviates from the rigorous libertarian position of Robert Nozick in that he allows some redistribution of wealth at all. More about that later; back to Hirschman.

After documenting the rhetorical strategy of the forces of reaction in this era, Hirschman does a fair but begrudging turnaround to shine his gaze on the political paradigms of the progressive camp. He concludes that this group employs positions which are almost symmetrically opposed to the reactionary mindset. In the jargon of formal logic, the arguments of the left are orthogonal to the arguments of the right, i.e., their respective categories of presentation are mutually exclusive and do not intersect.

He gives us our leave with a less than sanguine prognosis for the future of democracy, but the challenge to change it for the better:

There remains then a long and difficult road to be traveled from the traditional internecine, intransigent discourse to a more "democracy-friendly" kind of dialogue. For those wishing to undertake the expedition there should be value in knowing about a few danger signals, such as arguments that are in effect contraptions specifically designed to make dialogue and deliberation impossible. I have here attempted to supply a systematic and historically informed account of these arguments on one side of the traditional divide between "progressives" and "conservatives"-- and have then added, much more briefly, a similar account for the other side. As compared to my original aim of exposing the simplicities of reactionary rhetoric alone, I end up with a more even-handed contribution--one that could ultimately serve a more ambitious purpose.

We are now ready to jump to the debate in the modern era over the distribution of spoils in the Capitalist welfare state. But first, lets check back with our political lexicographer on any further clarification of the "terms of the art" used so far in our discussion.

I think, at this juncture, we can safely attribute some meaning to the terms "progressive" and "reactionary". In the last half of the 18th century, the descriptive disciplines (i.e., observational studies like chemistry, botany, and the new discipline of political economy) aspired to the rigor of

the science of mechanics and so, the Newtonian paradigm of action -- reaction was grafted into the social science vocabulary.

We can safely cede that a figure like Proudhon, one of the architects of the Declaration of the Rights of Man, was clearly a figure of action, a progressive, conversely, Edmund Burke, the stern critic of the "abuses" of the French Revolution, was clearly a reactionary. Further, as

the dean of English conservatism, we can justifiably call him a conservative as well. Burke is easy; he was a conservative then and he would still be welcome at the dinner table of Maggie Thatcher or William Bennet today. Likewise, Proudhon was a radical then, and he would still be considered.... at least progressive, today.

Adam Smith could be called nothing other than a Liberal with a capital L. His theory is the expression of the English liberal tradion as it is expressed in the new science of economy. I could not responsibly speculate on where Smith would be today if he were alive. I suspect he might very well prefer M.I.T. to the University of Chicago. Smith, after all, advocated a system of universal public education, and, in the style of Thurow and

John Kenneth Galbraith, assessed the free market for its abuses as well as its benefits.

Yet, those who invoke his name today are squarely in the "conservative" camp:

Friedman, Hayek, et al., and the denizens of the institutes of Enterprise, Hoover, and Cato.

No, "liberal" cannot yet be defined.

Karl Marx is a more elusive figure.

A radical, yes, but opposed to what? To the capitalist revolution exploding around him on all sides. A supporter of the French Revolution, but only in some of its political and ideological features. Some other fruits of this quintessentially bourgeois spectacle were profoundly disturbing to Marx. Eric Hobsbawm writes:

Over most of Europe this meant that the complex of traditional legal and political arrangements commonly known as ‘feudalism’ had to be abolished, where it was not already absent. Broadly speaking, in the period from

1789 to 1848 this was achieved--mostly by direct or indirect agency of the French Revolution--from Gibraltar to East Prussia, and from the Baltic to Sicily. . . .

The main cutting edge of the new law was therefore turned against the relics of the peasantry, the cottagers and the labourers. Some 5,000 ’enclosures’ under private and general Enclosure Acts broke up some six million acres of common fields and common lands from 1760 onwards, transformed them into private holdings, and numerous less formal arrangements supplemented them. The Poor Law of 1834 was designed to make life so intolerable for the rural paupers as to force them to migrate to any jobs that offered.

This revolution in land tenure, which swept from the continent to England like a cold wind, and which was the necessary precondition for rapid industrialization, was the most profound result of the French Revolution. This legal metamorphosis defined Marx’s concept of alienation. No longer was a man inseparable from the fief (or his lord). No longer was the cottager or the master craftsman inseparable from his tools, his livelihood.

Everything from land to labor was now to be parceled out and sold at its market price.

And who did Marx have as an ally tilting against this horror?

Edmund Burke.

The same cataclysm which gave us the storming of the Bastille and

the Committee on Public Safety, was that paradoxical event which shook

the houses of serf and lord alike, and for this reason, to a traditionalist like

Burke, it was an abomination to be feared and loathed.

So, where stands Marx?

We shall have to leave that question until later.

We come to the part of this undertaking that I was not looking forward to: I need to take on the Gipper and his posse.

I remember when they rode into town. It was a day that made social-democrats, Keynesians, and lefties of all stripes and flavors quake in their boots. Yet, you couldn’t help but like Reagan. After watching the Cheshire-Cat Grin fade into nothing in the four years of an impotent administration, it was enormously refreshing to see this infusion of energy into the White House. Even if one suspected and abhorred the proposed changes and the underlying philosophy, one could at least be hopeful that the housecleaning would engender the new renascence of American glory which was promised. And Reagan made you feel good to be an American again. We didn’t need our President to tell us that we were in an age of limited

resources and we needed to lower our expectations. America was going to regain its rightful place again -- on top.

The first thing official Washington did after the party was to hide all their sacred cows in the barn. Reagan had appointed David Stockman to head OMB. Stockman, a loyal Republican and a scion of the farm-belt midwest, was about as earnest a man as could be found. It is telling that he studied for the Divinity degree at Harvard after attending Michigan State because he was indeed a true believer in fiscal conservatism. You ran your

farm that way and the country should be run that way too. If he did not have the training to untangle the arcane arguments flying around the issues of supply vs demand side stimulation, the validity of the Laffer Curve, multiplyier effects &c., he could at least accept on faith that it was better to let working people spend their own money than to give it to the federal bureacracy.

In those first heady weeks it looked as though things were really going to change. Stockman, in an indefatigable burst of effort, traversed official Washington with missionary zeal. He jawboned with the leading men on the hill from both sides of the aisle. And it wasn’t easy, because every one of them had a pet development project back in the district which just couldn’t be cut. And then also, Defense and Social Security were off limits.

Defense, for three reasons: First, because a strong bulwark against the "Evil Empire" was the ideological soul and promise of the Reagan foreign policy; next, because Reagan’s power base was the community of defense industries centered in southern California; and finally, because the Reagan plan would never fly without the support of the "boll-weevil"

democrats, whose districts withered or prospered with the military bases in their domain.

Seymour Melman, in The Permanent War Economy, showed how the defense industry was insinuating itself into a place of primacy in American industrial and political life. In the Reagan Era, this process comes to fruition in the greatest peace-time military build-up in American history.

Without Defense and Social Security, Stockman had little room to manoever.

But move he did: Head Start, cut; CETA, zeroed-out; milk-price supports, cut; EPA, cut to the bone; and it must be said that Stockman was even handed, hitting the EX-IM Bank, a favored source of funds for American Multinationals doing business overseas. It was a hard target with clients like Boeing and Scoop Jackson backing it up.

But Stockman prevailed, and in the following months Reagan achieves victory after legislative victory.

He gets his landmark tax-cut through easily which is promised to stimulate the economy to new levels of prosperity. To the end of his tenure Ronald Reagan will be remembered, second only to FDR perhaps, as the most politically successful President in American history and these first few months were the blitzkrieg which really put him on the map.

When people like my dear father, who subscribe the the majoritarian ideology, remember Ronald Reagan, they remember a man who, by force of arms and character, defeated the Soviet Union; a man who overturned the power of the entrenched unions and federal bureaucrats, and who put this country back on the map.

And to a certain extent, they’re right.

. . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ten million new jobs were created. Of course, the guy who was earning $20.00 an hour as an auto worker might now be making 6. without benefits, but (after the un employment spike in 1982) most of us were working and we had more of our tax-money

in our pockets.]

But this is not an exhaustive review of the Reagan Record. What we’re concerned with here is ideology, so let us return to the central thread of the argument.

The Reagan plan was being deployed with stunning speed and efficiency, yet the markets were not responding positively.

Perhaps they were uneasy about the question John Anderson had asked in the 1980 campaign: How are you going to accomplish an enormous military build-up, cut taxes, and balance the budget at the same time.

It was clear to Wall Street at this point, as it was to Stockman, that the numbers just weren’t there. There was little else that could be cut, politically or practically, and the supply side stimulus to output and tax revenues--which was supposed to make the boat float-- just didn’t materialize. The bond traders were especially nervous at this point because it was clear that the government would have to borrow heavily to finance the deficits. Government borrowing increases the demand for credit, causing interest rates to rise and thereby depresses the value of privately held debt holdings.

Moreover, unemployment was now (2Q 82) at nearly 10%; the S & L debacle was showing on the horizon; and the dollar was falling.

Yet, Reagan’s popularity with the public never flagged and his presence on the Hill was as formidable as ever.

The columnists, liberal and conservative alike, derisively called him the

"teflon president", but to the average American he was doing a great job. If they got laid off from Ford, it was because of the Japanese cheaters and a congress that still had a lot of fat to cut. [Perhaps they would blame Volker whom Reagan had appointed to a second term at the Fed]. In any case the supply-side idea had to work; it was only common sense. That’s what the businessmen told us and that’s what the president told us.

But was Reagan really a supply-sider. A perusal of Newsweek in those weeks amd months yields an inside look at the academic debate which ran coterminously with the discussion in congress and the popular imagination. Two columnists went at it, almost like rock-em sock-em robots often on succeeding pages in the same issue. Thurow says stmulate demand, make investments in human capital; Friedman says Congress is failing

its fiscal responsibility. Friedman says cut. Thurow says spend. Actually, they were both right. The budget, with profligate defense and district programs, was just as fiscally wasteful as ever; and, in addition, we needed to make investments in our human capital and infrastructure to become competitive in the world economy.

But with the eggheads going at it like this, who is the man in the street supposed to believe. If you subscribe to Lindblom’s view on ideological indoctrination, its easy to see who would hold sway. It is especially telling thet for years before he ascended to the presidency, Ronald Reagan was the spokesman for General Electric, extolling the virtues of the market system on radio and TV. This is perhaps the first time in history that one of Lindblom’s media sculptors of popular majoritarian opinion himself became the chief executive.

It is beyond my expertise in the field to give a comprehensive review of the Reagan economic performance, however, I refer the reader to an exceedingly clear series of essays written by Professor James Tobin of Yale University.

In a well documented set of arguments, Tobin asserts that the fundamental assumptions of supply-side were all wrong from the very beginning.

"Arthur Laffer drew his curve on a cocktail napkin for the instruction of Congressman Jack Kemp. The curve dramatized the incontrovertible truth that beyond some point a rise in tax rates will discourage taxable activities so much that revenues actually decline. Laffer and Kemp jumped to the unsupported conclusion that tax rates were already there. [emphasis added]

This assertion was naturally an instant sensation in conservative political and business circles, lending as it did apparent scientific authority to something they wanted very much to believe. Ronald Reagan believed it, and he still does."

Tobin goes on to show how the "supply-siders" were outside of the main channel of conservative neo-classical economics:

The ambivalence of the Reaganomics intellectuals towards monetarism and floating exchange rates sets some distance between them and the worlds leading conservative economist, Milton Friedman.

Supply side thinking differentiates also Reaganomics from the more orthodox conservatism guiding the policies of other governments these days, notably in Japan, West Germany, which sets the tone for Europe, and the United Kingdom. These governments share Reagan’s faith in laissez-faire , but they also subscribe to traditional budgetary prudence

and firm monetarism.

Again, I quote Eric Hobsbawm, who, with the long perspective of hiistory, states this much more eloquently than I:

The battle between Keynesians and Neo-Liberals was neither a purely technical confrontation between professional economists, nor a search for ways of dealing with novel and troubling economic problems. (Who, for instance, had so much as considered the unpredicted combination of economic stagnation and rising prices, for which the jargon term

"stagflation" had to be invented in the 1970’s?)

It was a war of incompatible ideologies. Both sides put forward economic arguments. ......

Yet economics in both cases rationalized an ideological committment, an a priori view of human society. Neo-liberals distrusted and disliked social-democratic Sweden, a spetacular success-story of the twentieth century, not because it was to run into trouble in the crisis decades--as did other types of economy--but because it was based on the "famed Swedish economic model with its collectivist values of equality and solidarity"(Financial Times, 11/11/90). Conversely, Mrs. Thatcher’s government in Britain was unpopular on the Left, even during its years of economic success, because it was based on an a-social, indeed an anti-

social egoism.

These were positions barely accessible to argument.

[emphasis added]

This is a direct example of Hirschman’s analysis of how ideological rhetoric leads to an impasse that cannot be breached. Further, I’ve attempted to show that economic theory, as a rhetorical figure, is used in the service of a political ideology which has no necessary relationship to that theory.

The question which will occupy our labors for the remainder of the essay is this: if much of what surfaces in the political marketplace is rhetoric without substantive content, then what are the two competing economic worldviews, in their essential form, i.e. denuded of the rhetorical passions and interests which accrete upon them in the political marketplace; and, examining them in their formal essence, which alternative best offers the benefit of utility; which the benefit of justice.

Here is a preview of the terrain ahead:

a.) Robert Nozick provides the essential Libetarian (or individualist) position.

b.) John Rawls proposes the essential communitarian position.

c.) For the fundamental question of what motivates homo oeconomicus and which motivations produce the greatest utility, I draw upon an article entitled "The Economists’ Theory of Ideology: Competing Views," by Professor David Kaun of the University of California.

We really have reached the end of political economy.

Capital is now spelled with a small -c-. It is something which is invested in plant and equipment in order to produce a return. "Capital"

has ceased to sound the resonance it once had in the age of Carnegie and

Morgan when it identified a very conspicuous class and a distinct consciousness.

There isn’t much call for appropriating the means of production in a society where most baby-boomer John Q. Publics own a stake, either through their 401(k) or mutual fund, in a market that’s going through the roof.

In academic economics, the linkages among the forces of accumulation and production really are very well understood. Alan Greenspan may be vilified on the Hill by politicians who need to blame the Fed for the hardships of their poor constituents, but, among the press and his professional peers alike he is conceded to be guiding the helm very skillfully with the tools of his trade. In purely instrumental terms, economics has become largely a matter of fine tuning. We should note that only in the mature stage of a science can mathematics become its dominant articulation .

There is no longer any real debate on the substantive issues in economic policy. It is recognized by Wall Street and the public alike that "trickle -down" was a ruse. Furthermore, it is widely held that public spending is essential to our economy. Aside from a few Montana tax protestors, no one seriously wants to pare down our government to the minimal state in the libertarian Valhalla.

This consensus was resoundingly heard in the last two elections. The first Clinton victory was an endorsement of the "neo-progressive" economic philosophy of investments in human capital and infrastructure largely crafted by Harvard’s Robert Reich. The electorate chose this pathagainst the conservative stewardship of George Bush presiding over the remains of the Reagan movie-set. Then, despite Clinton’s uninspiring performance in the first four years, the people rejected Bob Dole’s 15% tax cut handout and returned Bill Clinton to office. Not even the lay publicbelieved the tired promise that Dole could perform an extravagant giveaway and balance the budget at the same time; Reagan had tried to pull a rabbit out of the same hat.

Instead, the public endorsed Clinton’s moderate, maybe conservative Keynesian package: of entitlement cuts, targeted tax breaks, and investments in human and knowledge-based capital.

No, the strict orthodoxy of a minimal state which confines its activities to roads-building, internal security, and national defense has largely achieved the status of a historical artifact. Like a Norman Rockwell cover from the Saturday Evening Post, it is used rather, as a propaganda tool by groups like the Heritage Foundation to evoke an emotional groundswell from grass-roots America. And like St. Augustine’s proof for the existence of God, it is used also as a first principle by philosophers like Hayek and Nozick in the abstract debate on the proper role of the state in a free society. But few, in the Universities or on Capitol Hill, believe that it is a practicable policy. I need only cite here that the Balanced Budget Amendment failed again by one vote to make it past the Senate. A coincidence? I think not.

I have endeavored to support the thesis that the whole experiment

in Reaganomics was never true neoclassical economic policy. As such, the validity of neoclassical principles (those advocated by Friedman and Hayek). have never been tested. Reagonomics was not neoclassical economics, it was simply trick economics. Further, I assert that the program of Reaganomics was only an ideological smokescreen, a shell game if you will, to conceal the real aim of the enterprise -- the most massive redistribution of wealth in the history of this country.

What questions are left to answer when the material ones- the ones involving the means of production, the logistics of distribution, and the secrets of research and innovation have largely been solved. What remain are the hard ones, the ones posed by the challenge at the beginning of this paper. By what ethical criteria will we distribute the spoils of our productive machinery, how will we treat the least fortunate among us and at the same time reward those who strive to go farther than anyone else?

How do we balance equity with justice.

All discussion of the tandem issues of economic and human rights, and how man organizes his productive activities must begin with this simple question: what motivates man to produce.

The liberal temperament habitually disposes one to see the altruistic strain in human nature(I use "liberal" in the contemporary sense here). Man is motivated by those virtues of idealism, concern for ones fellows, and committment to collective participation which Utopian socialists like Fourier and Owen sought to cultivate. The conservative, on the other hand, sees the equally worthy qualities of individualism, self reliance, and fair but parsimonious dealings with his fellows as the hallmarks of the human character.

The researches of history and anthropology reveal that the communal strain predominated in pre-literate societies, while the individualist has arisen in tandem with the commercial and industrial revolutions of the modern age. But whether it is more natural to live in cooperative harmony as Polanyi will tell us, or to "truck and barter", as Hayek would assert, is a question which hasn’t been adequately resolved.

Indeed, this may be one of those questions which has no resolution, yet, if we are to seriously discuss the distribution of resources in our world, answer it we must.

The modern tradition of classical liberalism began in England with the Magna Carta whereby a group of Nobles demanded their portion of rights from the King, who until then was considered to be divinely ordained. This process, whereby society was stratified and diversified along secular lines grew coterminously with the rise of towns, guilds and commerce in the middle ages, and finds its singular expression in Adam Smith’s The Wealth of Nations , published in 1776.

I need not recapitulate Smith’s arguments here. My concern is how he has been read by contemporary scholars. Of particular interest to me is how the corpus of Smith’s work may be used to support one ideological position or its alternative.

I cite the passage which needs no introduction and which has established the point of departure for every argument in neo-classical economic theory.

He states that those who have become wealthy have been...

led by an invisible hand to make nearly the same distribution o of the necessaries of life which would have been made, had the earth been divided into equal portions among all its inhabitants

and thus without intending it, without knowing it, advance the interests of the society, and afford means to the multiplication of the species.

The proposition often gleaned from this passage, is that the most efficient provenance and distribution of goods occurs when each one on earth acts solely in his self interest. This is taken to be axiomatic by every proponent of what is called free-market or laissez-faire capitalism. Yet, could this be a selective or myopic reading?

Professor David Kaun, in "The Economists’ Theory of Ideology:

Competing Views", does an exhaustive examination of the differing visions of human nature inherent in the writings of neo-classical economists such as Schumpeter and Hayek, and contrasts the "self-interested man" of Adam Smith with "theories based on motives of benevolence and altruism, found in the work of Bentham, Boulding Tawney, and Polanyi."

In a novel and refreshing reading, Professor Kaun examines the seminal writings of Jeremy Benthan. In the canon of political thought,

Bentham is credited with the forging of Utilitarianism a doctrine which is

formulaically cited in the academic literature as the philosophy of

producing "the greatest good for the greatest number." This is referred to in shorthand as Bentham’s hedonistic calculus. This stock reading paints Bentham as a mere sensory accountant who counts up aggregate pleasure points and judges the worth of an action on that basis.

Kaun looks at the same text and illumines the strain of compassion and concern inherent in Bentham’s writings and social activism:

How does the latter[Benthams humanitarian activism] square with Bentham’s narrow view of human nature, with it’s seeming focus on individual happiness? The fact is that seeing

the hedonistic calculus as Bentham’s major statement on human

motives is to do substantial injustice to his views. Bentham’s concern was not with the individual per se, but rather with a broader notion of society--’a man may be said to be a partisan of the principle of utility, when the approbation or disappro-

bation he annexes to any action, or to any measure, is determined by and is proportional to the tendancy which he conceives it to have to augment or to diminish the happiness of the community’ (Bentham, 1939: 793; emphasis added). Granted that the happiness of the community is measured by the ‘sum of the interests of the several members who compose it’, Bentham(1939:392) makes normative distinctions about the variety of individual interests. It is here that one can find the basis for his active interest in social justice and measures of equality. Adam Smith’s emphasis on the motive of exchange does not come off particularly well in the Bentham hierarchy.

If the thought of Jeremy Bentham has this dual character, could even Smith be read differently from the canonical interpretation? I say yes.

In Book Two of The Wealth of Nations, after he describes how man’s primary motive is the acquisition of goods which will raise his esteem in the eyes of others (after, of course, he has satisfied his subsistence), Smith goes on to propose how this agressive quest for lucre is moderated by social censure:

In the race for wealth, and honours, and preferments. . . may run as hard as he can, and strain every nerve and every muscle, in order to outstrip all his competetors. But if he should jostle or throw down any of them , the indulgence of the spectators is entirely at an end. It is a violation of fair play, which they cannot admit of. (II,ii,2,1)

From this perspective that man will indeed moderate his acquisitive press in order to gain the approval of his fellows, Smith steps forward to assert that while public censure may put the brakes on anti-social greed, and that man may practice "simple benevolence" for the payment of "the pleasing consciousness of a deserved reward", :

Justice, on the contrary is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society......must in a moment crumble into atoms.(II,ii,3,4)

Smith was indeed averring that the sine qua non of orderly society is a regime of positive law. Smith is here groping for a principle of universality which would unite the swarm of selfish individuals to "advance the interests of society and afford the multiplication of the species."

If he knows, Smith does not expressly state what this principle of consortium might be, but I do not believe that he intends it to be solely the justice of criminal law.

I assert that this missing element, if not identical, is at least commensurate with the central principle in Rawls’ A Theory of Justice.

It is there that we now turn.

Nozick and Rawls

Justifiably or not, it is Robert Nozick, Professor of Philosophy at Harvard

University who has, among thinkers in the basic problems of political philosophy, become the important steward of the tradition of classical liberalism. His book, Anarchy, State, And Utopia has become the de-facto standard by which works of libertarian social and economic theory are judged.

In a technically impressive argument, Nozick starts from the first principles implied by the Hobbesian state of nature and sets out to demonstrate: 1) how, in a well ordered society, a state with universal legitimacy, must arise to supercede the natural state of anarchy; and 2) how the only justifiable and efficient state is the minimal state which satisfies the requirements of internal security, infrastructure, and national defense. Nozick assumes the radical posture and does not even allow for the provision of Hayek’s rudimentary safety net or the parish schools proposed by Adam Smith. The operative word here is compulsory . Any compulsory public action beyond the basics is inherently

immoral.

Nozick writes:

Our main conclusions about the state are that a minimal state, limited to the narrow functions of protection against force, theft,

fraud, enforcement of contracts, and so on, is justified; that any more extensive state will violate persons’ rights not to be forced to do certain things, and is unjustified; and that the minimal state is inspiring as well as right. Two noteworthy implications are that the state may not use its coercive apparatus for the purpose of getting some citizens to aid others, or in order to prohibit activities to people for their own good or protection.

This is the canonical position of classical liberalism enshrined in the writings of Locke, Montesquieu, and the architects of the French Revolution.

It is indeed also the position taken by Adam Smith in The Wealth of Nations.

The conjunction of open markets, free trade, and the personal liberty to "truck and barter" as one sees fit is the statement of the liberal tradition as it is expressed in the marketplace.

It would stand to reason Nozick’s argument, as simply the theoretical distillation of liberal thought, would be exactly, or most nearly so, commensurate with the program of reform advocated in The Wealth Of Nations. But this is not the case; what Nozick misses is the detail explicated in the account of Adam Smith.

And, as someone once said: "the devil is in the details." Nozick’s programmatic philosophy is indeed a reductio ad absurdum of the road which Smith begins to forge in his project to eliminate the abuses of the mercantile system. Smith, however, with the benefit of historical vision, sees very clearly that caveats and exceptions have to be placed on the free market to make it work as advertised.

For example, Smith is very cognizant of the fact that the captains of industry may very easily combine with one another to effect a monopoly or restraint of trade.

Also, Smith was keenly aware that government often colludes with commerce to the advantage of one player over another.

Nozick has no such temper on the steel of his logic. Nozick, as a professioal

philosopher should recognize sooner than most, that he is running up against the logical antinomy which Kant attempted to solve in his Critique. There question there is whether synthetic a priori judgements are possible. Nozick attempts, by generalizing from the fields of social theory and political economy, and then constructing an abstract argument from the denuded interstices of these studies, to create an epistemological structure which is both synthetic and a priori,; that is, which both has applicability to the real world, and at the same time, the character of a universal law. Kant could not solve this aporia without resorting to the expediency of a quasi-mystical noumenal realm beyond the jurisdiction of deductive verification. Nozick fares no better.

I will briefly focus on one specific defect which vitiates the integrity of Nozick’s argument. It is in his keystone section on entitlement theory. Entitlement theory is a rather straightforward approach to the transfer of wealth from one person to another, whether among friends, associates, or family members. It states simply that any distribution of wealth, after a legitimate transfer has taken place, is itself legitimate. The problem is that Nozick mentions the problem of the initial distribution of wealth in passing, and then never adequately deals with the problem this. He never adequately answers the challenge posed by Marx: where did the money come from in the first place?

Further, while apparently ignoring the researches done by that "empirical" discipline, sociology, on the very real effects of stratification among classes from generation to generation, Nozick asserts the view that his entitlement schema will ensure a random "unpatterned" distribution of resources.

It is particularly ironic that Nozick uses the same term "patterned" to describe an unjust distribution of wealth based upon some prescriptive plan of social welfare, that Lindblom uses to describe the stock constellation of attitudes and beliefs engendered by the dissemination of corporate culture.

My final assessment is that Anarchy, State, and Utopia does not have the formal rigor to qualify as a serious grounding principle for the classical Though it is, perhaps, an interesting exercise in logical construction, it is more clearly an ideological justification for a particular point of view.

Loosely speaking, John Rawl’s work, A Theory of Justice, is the heir to the communitarian tradition in non-Marxist political scholarship. Unlike the classical liberal tradition, which arose contemporaneously with the advent of European secular culture, towns, and commerce, it is difficult to site the origin of the collectivist ethos. It is ancient by comparison with the commercial mindset, and perhaps one has to look into pre-history to find its genesis. This is indeed a primitive and ancient form of social organization. Rightly or wrongly, Polanyi takes this to be the natural and proper order of society.

In the middle ages in Europe, community was ready made. It was the essential feature of the manor system. A man was tied to the land, but, symmetrically, the land was tied to the him. There was a predictability to the rhythm of life that one could depend upon for generations or even centuries.

With the advent of the commercial age that security was swept away in three generations and the mass of humanity became landless workers in an open market where everything became a commodoty to be bought or sold.

It is with these developments that people, and movements, sought to regain that lost sense of community. The utopian socialism of Fourier, Owen and others was one response. The more radical program came from Marx. The marxian program, however was more of a critique of capitalism than a positive plan of action . The diversity of regimes organized along a Marxist rationale attests to the fact that the corpus of Marx gives much more thought to how to overturn capitalism than what to replace it with.

By far, the most viable adaptations to the harsh climate of modern industrial society have been the movements for social democracy, education, labor, health and safety &c. --what we today call the welfare state.

As with any complex social phenomenon, the development of the welfare state in western Europe and America has a dual character. It is at once welcomed as the package of reforms which made life tolerable for workers and their families,

and simultaneously it is denounced by critics like James O’Connor as an accomodation to th needs of Capital.

It is this social-democratic tradition in the west that gives rise to the thought of John Rawls.

Just as Nozick has his fundamental principle, the libertarian ne plus ultra of self-reliance, so Rawls has his inviolable law: no inequality (in wealth) may be justified unless it serves, by some effect , to raise the standard of living of the worst off in our society.

This principle is indeed more flexible than the levelling mandated in the Marxian prescription; the Rawlsian world allows for

vast wealth and inequality if the one prime directive is satisfied .

Yet, how is this regime any less arbitrary than the world which Robert Nozick proposes. Like Nozick, Rawls lives in an abstract space where problems of ethnic conflict, crime, laziness, &c. do not figure into the theoretical model; and, if Nozick’s world is biased by its initial distribution of wealth, Rawls’ formula allows for a taking of private monies to equalize the least well off, and he requires it in perpetuity, that is, long after the initial poor may have risen to a level of comfort and security.

In view of these considerations, can we yet answer the question which I posed at the outset: Which has greater utility, which is more just?

In order to venture an answer, we need to posit a theory of motivation for each of the two scenarios. The libertarian justification is easy: you get to keep everything you make. So obviously, those among us who are particularly industrious, or capable, or strong, would prefer a world where those virtues were rewarded without penalty. Further, anyone who is radically committed to personal freedom would be better off in the world envisioned by Nozick. Aside from the requirements of good citizenship and contractual integrity, there are no significant curbs on the personal freedom of behavior and acquisition.

On the other hand, those of us who are not so industrious but still want the comforts of society, those who are disabled or simply less endowed, and those good quakers and unitarians who have an instinct for benevolence would be happier in a world where the differences were leveled out.

Is the simple benevolence of "the butcher or the baker" enough for them to give up their place in line, their Sunday brunch, or their child’s seat at an Ivy League school so that someone less fortunate can take their place. I think not.

The homeless sleep on the street in liberal Santa Cruz just as they do in Orange County. In Santa Cruz, I would venture to say that a homeless person is more likely to end up in County Jail than he is to be invited to the home of a Marxist lawyer or professor for dinner. No, I agree with Smith that "simple benificence is the ornament" (II,ii,3,4) and not the foundation of an orderly society.

Simple benificence was added too late in our evolution to take primacy over the fundamental drive for biological and territorial security.

But if simple benificence is not enough, nor is the single minded pursuit of self-interest so often attributed to Smith. He tells us that a competition untempered by some higher authority or "Magistracy" will inevitably end up in "bloodshed and disorder." (VIII, iv, 3.6)

To review, it is indeed:

Justice, on the contrary is the main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society......must in a moment crumble into atoms.(II,ii,3,4)

How can we achieve justice over simple equity?

Rawls does this by virtue of a simple and elegant expedient:

The Veil Of Ignorance.

Imagine you are going to eat dinner at the Crown dining hall tonight .

You know that they have those round tables there that are a pain in the rear because you can’t reach the napkin dispenser if it’s shifted to the other side of the table.

And you happen to be a rather anti-social computer-nerd type who is rather self-reliant and loathe the prospect of asking for a napkin.

If you are held up in the lab, you’ll be in the back of the line and will have to take any seat that’s available.

You’re getting a panic attack just thinking about dinner.

How do you solve the problem.

What if you’ve got one vote on where to place the napkin dispensers.

In the middle of course.

I cite Marshall Cohen of New York University, on Rawls:

"Rawls tries to insure this fairness by requiring that the principles which are to govern society are chosen behind a ‘veil of ignorance.’ This veil prevents those who occupy the "original position" from knowing their own natural abilities or their own position in the social order. What they do not know, they cannot turn to their own advantage; this ignorance guarantees that their choice will be fair. And since everyone in the "original position" is assumed to be rational, every one will be convinced by the same arguments. In the social contract tradition the choice of political principles is unanimous."

John Rawls has found the optimal game-theoretical solution to the riddle posed to us by the Kennedy School brochure, the conundrum which has occupied the labors of philosophers since Plato first joined the debate. This solution, as a formal instrument, requires no acts of benevolence; no prescriptive christian morality; no arbitrary marxist levelling. Nor does it subject us to the Hobbesian

state of nature "nasty, brutish, and short", in Nozick’s(I need say simple-minded) free-market vision.

This is indeed the conjunction of justice and utility illuminated by David Kaun’s reading of Jeremy Bentham:

For Bentham, benevolence as a motive for human behavior obviously ranks above the narrower, self-interested, and generally material and economic motives. And the distinction he makes is, I think, a key to a fuller understanding of the basis for social welfare legislation.

Of course, one might make the argument that acting in a benevolent manner is not in conflict with self-interested, utility-maximizing behavior. Indeed, in a sense this is what Bentham was arguing, and it is often argued today.

So, where do we stand today. Where have we achieved that conjunction of utility and benificence that Jeremy Bentham was aiming for. Where have we found the balance between equity and justice which Adam Smith asserted was the foundation to the good commonwealth.

Today, in America, we are experiencing one of the longest recoveries in post-war history. If you factor in that we are enjoying the unprecedented conjunction of an unemployment rate which has breached the historically considered "natural" rate while producing negligible inflation, the country seems to be doing rather well.

Yet, the poor are still among us. And for the mass of them,

no significant amelioration of their condition seems to be imminent.

With the aid of Alan Greenspan, Clinton is conductting a rational plan which includes some strategic investments in education, high-tech

infrastructure, and free-trade which would be considered, if not

"parsimonious", by Adam Smith's standards, at least rational. And it's working. Without resorting to the folly of a balanced budget amendment, we are steadily reducing the national debt as a percentage of GDP, the markets are justifiably ebullient, and a leaner and more efficient American Industry has regained its post-war position as (to quote the old Cadillac slogan) :"the standard of the world".

But who are we leaving behind. Clinton is presiding over the most severe cuts in Welfare and other programs since their enactment in the 1960's. If we do not, as a nation, endorse the radical cuts implied by the right-republican forces, neither do we support the traditional democratic program of a blank check for entitlements to the poor.

The Great Society failed for the same reason that the inviolable monument to the New Deal still stands today as strong as ever.

The needs-tested programs, constructed in the Great Society were passed at a time when Americans at work were enjoying unparalleled

prosperity. For this reason, Lyndon Johnson and the Democratic Leadership could easily exploit the good will that prosperity brings and redistribute some of this product to the poorest and least able in our society. If I were cynical, I would interpret this move as an ideal opportunity for the Democratic party to solidify it's constituency among the underclass, while retaining its traditional popularity among the industrial workers. By 1968, however, the country was fed up with Viet-Nam, and that didn't help the democrats, but it was the blue-collars for Nixon who turned the tide of the election.

The economy was now slipping into stagflation. And white men like my father were beginning to ask: "they bus my kids to the Ghetto, I lost out on that promotion because they gave the nigger 20 extra points, and my taxes are going to those bums on welfare: what gives? "

Nixon, and later Reagan were the only ones willing to answer their concerns.

Franklin D. Roosevelt is uncontestably the greatest leader in modern American history. Not only because he had the courage to guide the ship of state through some very treacherous waters; but moreso because he had the common sense and the integrity to know what would and what wouldn't fly with the American people.

The enduring monument to his achievement is, of course,

Social Security. Though it started out rather modestly, the framers of

this legislation rightly saw that it would be supported if everyone had a stake in the pot. And it will endure, I believe, for as long as this commonwealth exists.

The programs of the Great Society were, by contrast, instituted for the various special interests which they benefit, and so, enjoy none of the consensus which protects Social Security.

Lyndon Johnson was a man as stupid as he was arrogant, and by his pusillanimity, we lost the crucial moment to establish a social welfare structure of universal consensus which would endure for the ages. It is indeed a national tragedy rivalling the insanity of Viet-Nam.

I often return to Berkeley to eat at the soup kitchen which sustained me so many rainy days when I had no where else to go. Of course, I can’t really return, but I go there to remember. And I ponder what makes man tick. What is the limit to our appetites. I’ve traded financial instruments on the floor of the Chicago Mercantile Exchange where millions of dollars change hands in a second, and the fates of entire nations depend on the movement of the interest rate up or down; and it reminds me of the crush to get to the front of the line when the special treat of day-old jelly donuts is doled out to the street people

in Berkeley.

The first principle of economics holds:

the market always clears at the right price.

And the issue that’s resolved is the same in both cases :

who eats and who doesn’t.

Notes: