Some Limitations of AP World History

While reading through C Menger’s Principles of Economics (1871), I have been struck by his references to “higher” and “lower” civilizations and to his coordination of these cultural categories with economic and, therefore, in his view, mathematical axioms. Menger’s readers will bear in mind how terribly modern Menger was (or, in any case, wanted to be). Menger was a fierce critic of aristocratic and noble airs. Nor did he tolerate his fellow Austrian’s imbecilic fondness for nationalism—Hungarian, German, or otherwise. So modern was Menger, in fact, that, rather than concealing his life-long relationship with his Jewish housemaid (Menger was baptized a Catholic), he demanded that both be admitted as his true and legitimate heirs, for such boldness even resigning his plumb appointment at the University of Vienna. Menger was modern.

But what did this mean during the last quarter of the nineteenth century? Or, more specifically, what did this mean for a German-speaker at the end of the nineteenth century?

AP World History often couches “western” history in a cloud of obscurity punctuated only by the evils of its insatiable colonial, imperial, and capitalist quest for world domination. This is because those who design AP World History feel that they already know how the west became “the West” and therefore feel that it is a matter of course to advance on to the real story, the story of western domination of the rest of the world.

Menger certainly believed that he and his colleagues knew why the west became “the West.” Non-western, non-modern, primitive folk live—according to Menger—from hand-to-mouth: short, brutish, and so-on. In Menger’s conceptual universe, primitive communities are stuck with the lowest level of goods, goods that require no production. Yet, in order to enjoy more refined, more culturally advanced first level goods—goods that supply an immediate need—individuals, according to Menger, need to be a part of a complex community of producers most of whom will be occupied by producing goods—second, third, and fourth order goods—that may have no immediate consumer value, but which only contribute to the production of some lower level good. Think of it this way:

1) Highest level goods: fertilizer, soil, rain, seed, labor, sea, mines

2) Next lower order: wheat, corn, grain, leaven, salt, sugar, coal, steel, iron

3) Next lower level: flour, labor, ovens, fire, building, transporters, shops

4) Lowest level: bread

In a primitive society, according to Menger, if it cannot be plucked off a tree or hunted and eaten immediately, it is not a good. What makes a society more or less civilized are the proliferation of these levels of goods and their interconnection with one another so that at some point the good that I am consuming on the lowest level might be, e.g., a Mozart opera.

Now, quite aside from Menger’s almost comical mischaracterization of non-capitalist, face-to-face, wandering or semi-nomadic communities, we are faced with his presumption that the proliferation of lowest level goods of ever-greater complexity, fulfilling an ever greater variety of human “needs,” is an indication also of a “higher” civilization and, teleologically, is the goal or aim of human being.

So, why do these two presumptions cast the curricula of AP World History into doubt? For one, it is impossible to move from a critique of imperialism, colonialism, and capitalism to the events and processes that brought communities in western Europe to adopt these twin presumptions on faith. Imperialism, colonialism, and capitalism were rather the consequences of these twin presumptions, presumptions that gained hold and spread beginning in fifteenth century western Europe. For another, AP World History focuses its attention on the consequences of imperialism, colonialism, and capitalism for the victims of these formations, it walls off from consideration the events, processes, and institutional arrangements that led to these formations in the first place. Finally, however, insofar as it fails to critically assess the assumption of a transhistorical directional dynamic implicit in the emergence of the modern West, it surreptitiously adopts this assumption into its interpretation of western domination, suggesting, for example, that such domination violates transhistorical principles of human rights or freedom (which, arguably, are products of the very process at which AP World History aims its criticism).

But this means that students enter a course on the History of Economic Thought completely ill-equipped to critically assess the ideas of a person such as Carl Menger, except to conclude either “I like neoliberalism,” or “I do not like neoliberalism,” which, of course, does not amount to a critical assessment, but a statement of preference.

Do I fault AP World History for this lack? Yes I do.

Carl Menger: The Consumate Modernist?

“Alle Dinge stehen unter dem Gesetze von Ursache und Wirkung.” So Carl Menger begins his magisterial Grundsatze der Volkswirthschaftslehre (1871), better known by the more recent generation of libertarians as “Principles of Economics.”

What we would not learn from the English language literature is how militantly modern was Professor Menger. Menger was a militant opponent of the Austrian and German aristocracies. He fiercely opposed all forms of nationalism. And, perhaps most noted (and feared) by his friends was his dismissal of all things spiritual or religious—this cultural Catholic. Indeed, so dismissive was this Austrian of cultural conservativism that not only did he openly take his Jewish housemaid for his lifelong female companion, but, when she bore him an heir, he did not hesitate to demand that she and he be legally named as such, choosing to give up his prestigious chair at the University of Vienna rather than deny his wife and progeny. Now, in any nation, that is modern! And in turn-of-the-century Austria?

Perhaps a more productive line of attack might be to ask whether his modernism bled, just a bit, into the kind of idealism that Hannah Arendt once derided as domination by the idea.

When Menger wrote his Grundsatze, in 1871, Bismarck had only just shed retrograde Germany, i.e., conservative, agricultural, landed, backwards-looking Germany, preferring Kleindeutschland to Grossdeutschland for, it was openly known, purely political reasons. This displayed a preference of science over superstition, the future over the past. And Menger was a wholehearted supporter.

But did it not also display a certain naiveté when it came to the persistence of what we today might call “family” or “religious” values? The Ancien Régime was alive and well. And, yet, to it Menger proved entirely tone-deaf. What would replace long-standing traditional social and cultural relations? Would science?

Yes. Evidently, Menger believed that science would make a good substitute for the values of traditional religion and culture. And, yet, as the classically trained Menger must certainly have known, there is no path that leads from the “is” to the “ought,” no path that yields a “thou shalt” from a “this is.”

When Menger reduced economic science to cause and effect—Ursache und Wirkung—therein he conceded that the world of the future would be, he felt, based solely on need and the satisfaction of need. Nothing else.

But, of course, human society might be composed of something more. And failing to recognize, acknowledge, or account for this something more might yield disastrous results. Which makes me wonder whether Menger was a modernist or simply a dangerous ideologue.

Greed or Theocracy? How to Choose?

Newt Gingrich has won the South Carolina Republican Primary. But before we cast Mitt Romney in the role of Hillary Clinton (all the money, all the endorsements, etc.), we need to consider what the Gingrich-Romney polarization tells us about Republican voters. Obama-Clinton did not so much expose a polarization as much as it did a pairing. And Gingrich-Romney?

Call them knuckle-heads, but Gingrich’s supporters are Santorum supporters, Bachmann supporters, Perry supporters who believe that Gingrich is the only remaining candidate that can defeat Obama. That is to say, Gingrich’s supporters come from the moral-ideological pole of the Republican Party. Romney’s supporters, by contrast, come from the big business, Wall Street pole of the Republican Party.

First, a word about traditional republicanism. As all of the readers of this blog know, the word republican comes from the Latin res publica. Res publica means and, for the framers of the Constitution, meant public things, things shared by all of us, or, as many of the United States understood the term “common wealth.” Traditional republicans believed that the common wealth stood as a firewall between private wealth and political decision-making. Traditional republicans therefore stood for public parks, public schools, public highways and byways, public health, public institutions; they stood for common wealth.

It is in this sense that I call Newt Gingrich and his wing of the Republican Party anti-republican. That is to say, they are opposed to public things. They are anti-republican Republicans.

Mitt Romney by contrast represents unrestrained capital. Unrestrained capital, of course, is its own kind of anti-republicanism, an anti-republicanism that believes that money ought, by right, to control politics. Like Newt Gingrich’s anti-republicanism, Romney’s too is eager to tear down the firewall that protects public life from private life.

And, yet, there is a difference. Mitt Romney’s anti-republicanism has come to be associated with unprincipled greed. Newt Gingrich’s anti-republicanism by contrast has come to be associated with the Tea Party’s religious right (which is itself somewhat of an odd couple).

The result is that Republican voters have a difficult choice before them: Greed or Theocracy?

Some feel that this divide will tear the Republican Party apart, into call it a Republican Party and a Tea Party. But I am not so sure. If each wing can focus like a laser on their open hostility to public institutions, public values, and public ideals, I feel certain that this anti-republican Republican Party will survive.

Carl Menger’s Bold New Science

Economics might have been (and will attempt to again be) a universal social science. That is to say it might have been a science that, elaborating upon GFW Hegel’s outline, might have sought to reflect critically upon and offer explanations for a highly differentiated social landscape that included history, society, politics, geography, social psychology and so on.

However, if we are correct then capitalism itself demanded a different set of interpretive categories by which it would be understood. This set of categories would seek to grasp the abstract (formally neutral and temporally independent) character of value; value isolated from the historical, social, political, and social psychological landscape in which it was embedded. And it would seek to derive abstract, universal principles through which it could explain the increasingly comprehensive, total, and systematic appearance of the emerging capitalist social formation.

Some (mostly left-wing) economists have faulted Menger for merely borrowing from the physical sciences an abstract, formal scientific framework ill-adapted to the complexities of modern economic action. Yet this criticism ignores the increasingly abstract and formal character of economic action, regulation, law, and institutional arrangements emerging in late nineteenth century Europe. There was, it could be argued, an increasing correspondence between the kinds of categories that Menger adopted, the kinds of questions he was raising, and the kind of society he was examining. And while it may be true that mature capitalist societies did display increasing complexity, it is also undeniable that this complexity was not in kind, but in orders within kind. Thus, things that on appearance seemed to differ qualitatively from one another suddenly lent themselves to analysis using the same categories and explanatory structures.

This, I believe, is the significance of Carl Menger’s bold new economic science. It distinguishes Menger’s science from what could be called “romantic” economics, in the sense that, for example, the early Marx wished to recover and apply categories from early or pre-capitalist social formations to contemporary society. From this perspective, the early Marx, Adam Smith, David Ricardo, and Thomas Malthus all used interpretive categories that were ill-suited to the emerging mature capitalist social formation. That formation Menger sought to grasp scientifically.

An economy begging to be regulated and wealth begging to be taxed

Paul Krugman’s analysis of “nonfinancial debt, public plus private, as a percentage of GDP” in the NYT is impeccable, as far as it goes. The shrill voices demanding austerity will continue to demand austerity until the last non-military public institution has closed its doors. And, yes, this does mean that a modest $5B decline in overall debt as a percentage of the GDP is not going to bring them to holster their firearms.


Of greater interest is the dramatic climb in debt which began long before mid-2006 shown on Krugman’s chart. What does this steadily inclining debt show?

It shows that investors, public and private, believed that future earnings would “cover” current accounts. It showed that they were willing to go into ever greater debt today in order to realize even greater earnings tomorrow. So what?

Well, for one, their gamble might have made perfect sense had investors looked out and seen lines of other investors pouring their wealth into long-term job creation in industries promising high wages and benefits. Such investments would then have anticipated steady growth in employment-based consumption over time. And this growth, in turn, would have turned their current debt into future earnings, as promised.

But, for another, it could therefore have meant increasing receipts, public and private, which could then have meant not increasing, but declining debt.

So why then did none of this occur? Why, in fact, did the very opposite take place?

The opposite took place for a variety of reasons. But two reasons are paramount. Chief among these reasons was the deregulation of financial markets, the very markets whose promised earnings completely outpaced potential earnings for investments in long-term job creation in industries promising high wages and benefits. Rational self-interest drove investors to pour their wealth into instruments that promised higher returns—instruments that bore no relationship to job creation and everything to do with speculative investments promising ever high returns. Under such circumstances, investors who failed to invest in such shaky instruments inevitably fell behind.

But, alongside the deregulated financial markets was the politically-inspired ideological chorus opposing taxes. Thus, an overwhelmingly Republican Congress passed legislation whose costs they then refused to pay for.

It was this combination of deregulation and the refusal to levy taxes that led to the dramatic increase not only in public and private debt, but also in unemployment and flagging production and consumption.

This makes the Obama years even more unusual. For it suggests, against all ideologically driven rhetoric, that it was President Obama who actually took the bull by the horns and said “No more.” In other words, Obama has done what no Republican Congress or President has proved capable of doing: actually showing fiscal and monetary restraint.

Now that’s remarkable.

Debt And Transfiguration –

Gymnasium in a Box

Several lines of critical reflection follow from “Gymnasium in a Box” that have a direct bearing on Theories of Late Capitalism and the World System.

But, before we pursue those lines, it may be important for us to acknowledge that Aristotle’s fingerprints are all over Marx’s mature social theory. These fingerprints are clearly visible not only in Marx’s rejection of democracy, but also in his conclusion that “freedom begins where labor ends.”

Marx’s rejection of democracy stands in contrast to the dominant mid-18th century left-wing position, which equated “the people” with a kind of simple, innocent, unblemished purity of affect and judgment. Here J-J Rousseau and I Kant were on the same page: freedom entails the absence of constraint. The noble savage is judged “good” because he has not yet been polluted by the constraints of civilization. Similarly, in I Kant’s second critique, his Critique of Practical Reason, ethical conduct based on freedom is only judged good insofar as it is not constrained by—not compelled by—the three dimensional world in time and space. It must be transcendental and must be chosen transcendentally by the fully transcendental subject.

Marx, by contrast, agrees with Aristotle that freedom is not the absence of constraint,  but rather is the conditions that make for freedom: leisure, wealth, health, and knowledge. Marx rejected democracy for the same reason that Aristotle rejected democracy: since they were governed by necessity, were in poor health, were ignorant, and were impoverished, the people, the οἱ πολλοί (“hoi polloi” or many) could not make responsible decisions on their own behalf.

In order to act and think responsibly, the people must first be freed from the realm of necessity, from work.

The history of the world since 1867 has instead moved in the opposite direction, tying human beings ever more tightly to the necessity of work and to a world mediated by abstract labor and value. At the same time, as GFW Hegel imagined, mechanization in the pursuit of ever greater efficiency and productivity has made human labor increasingly obsolete, at least in theory making it possible, as both Hegel and Marx postulated, for “human beings to step aside and install machines in their place.”

This tension—between the increasing obsolescence of human labor, but society’s continuing mediation by abstract labor time expended—might have brought about a complete collapse of the capitalist social formation under the weight of its own efficiencies. One reason it did not collapse is that the cost of mechanization in industrialized countries outstripped the cost of human labor in non-industrialized countries. This often made it more efficient to contract human labor elsewhere to perform work that machines could have performed in industrialized countries, but for the cost. (There are some things that even machines won’t do.)

Another reason, however, centers upon the abstract character of value as such. With each ramping up of efficiency—i.e., the number of hours it takes to produce some item over time—this increase necessarily cheapens the labor entailed in producing any item. Value declines even as volume increases. Under these conditions, the only way to prevent widespread unemployment, poverty, hunger, and social unrest is either to socially mediate the social product—which begins in the 17th century—or to dramatically increase the volume of production. In the end, both of these strategies act in concert to stave off disaster.

Yet, at critical junctures since the emergence of the Global System, this tension between productivity and value has grown so great as to systemically require the destruction of both. Such moments, I would suggest, offer an insight into the growing disconnect between the Global System, which is mediated by labor, and the increasing obsolescence of labor.

What will all of the laborers, who are no longer defined by their labor, do with all of their free time?

The Problem with Late Capitalism

Today we begin GEOG 170 with a brief overview of the problem of late capitalism. This problem begins with the term itself, “late capitalism,” or as it was expressed in its mother tongue, German, Spätkapitalismus. Of course, the problem with Spätkapitalismus is that it always seems to be arriving, but it never seems to actually pull into the station. This establishes two related problems for GEOG 170. What qualities of mature capitalism—which is to say fully elaborated capitalism—regularly lead interpreters to hypothesize the immanent end of capitalism; and why do these hypotheses so predictably fail to adequately grasp the true character—the Phoenix-like resilience—of this remarkably durable social form?

Even so staid a repository of neoliberal wisdom, The Economist, bore the recent title “What Next?” on its banner head. What Next? Well, capitalism of course.

But perhaps our problem and the problem of so many interpreters who have been duped by the appearance of Spätkapitalismus is that we think we know what late capitalism will look like. Will it look like Tahrir Square or Times Square? Or will it look like something “completely different,” as Monty Python’s Flying Circus was fond of reminding us?

So, as we settle into late capitalism it might be worthwhile to reflect on precisely what late capitalism would look like. Like this? And, if not like this, then like what?

Is Jens Weidmann Serious?

No one disputes that there are conditions under which public deficit spending leaves no impact or worse. There is therefore nothing at all controversial to Jack Ewing’s observation that “austerity and growth are not enemies.” When the private economy is humming along, unemployment is low, and consumer spending is keeping up with growth, no one to my knowledge would count austerity an enemy of growth.

What might make the statement controversial is if some group of economists—let’s call them Keynesians—believed that austerity and growth are enemies. But I would challenge anyone to find even the most diehard Keynesian economist defending such a claim.

So what gives? Here’s what gives and here is why.

Jens Weidmann, President of the Bundesbank, wants to blur the distinction between increased public spending during an economic recession and increased public spending at any time. In other words, Weidmann wants to paint all public spending, under all circumstances, with the same profligate brush. Weidmann wants to blur this distinction because, well . . . because its his job. For, unlike the United States Federal Reserve, which is statutorily obligated to maintain full employment, the Bundesbank’s statutory obligation is to maintain a strong currency.

The question is, how is the Bundesbank to maintain a strong currency during a recession? In theory, maintaining a strong currency entails withdrawing currency from circulation to match actual economic growth. So, for example, as factories close, unemployment rises, consumer spending declines, and overall economic growth shrinks, the Bundesbank has an obligation to shrink the supply of currency to match demand for that currency. In theory, if growth were to drop by 50%, then the Bundesbank would be obligated to maintain a strong currency even if it entailed maintaining depression-level unemployment and declining production.

This explains why the Bundesbank can only see one path to eliminating debt: austerity.

Why? Here is the worst case scenario that Weidmann fears. Let us assume that Greece, Portugal, Italy, France, and even the United Kingdom continue to suffer declining receipts, declining investment, decreasing consumption, decreasing industrial production and increasing unemployment. Let us assume furthermore that, largely for political reasons, the PIGS + France and UK are unable to plow ahead with their austerity plans. According to this scenario, Germany would become the sole adult in the house, responsible single-handedly for maintaining the value of the Euro, in which it currently values the debt it has purchased from other Eurozone countries. In other words, absent German austerity, the whole house collapses and, with it, the value of the Euro and the debt Germans have purchased. Germany therefore is obligated to push austerity, if for no other reason then simply because its economy is based on a strong Euro.

But this really begs the question. If European unemployment continues to rise, if investment continues to dry up, if consumer purchasing continues to flag, and if these indicators begin to eat into German production, employment, consumption, investment, and so on, then it really doesn’t matter how strong the Euro is. For in that case, we would have a strong Euro, but a weak Europe. Moreover, if this scenario actually does play out, which seems likely given Europe’s commitment to austerity, this will make it even more, not less, difficult for Germany to achieve its goal of a balanced budget by 2016.

Why? In an economy dramatically weakened by catastrophic recession, the public means for settling debt accumulated under comparatively strong economic conditions will also be dramatically reduced.

Think of it this way. Let us for the sake of argument say that the debt is € 1.5T under current conditions. Let us then take conditions under which growth is halved and the currency is also halved (in order to maintain a strong Euro, remember?). What this means is that the € 1.5T debt has effectively ballooned into a € 3T debt. Retiring this debt will then entail further austerity measures, doubling the € 3T to € 6T, and so on.

This is because debt is always relative to growth, employment, receipts, etc. Therefore, laying aside for the moment what Germany should do for the Eurozone, Germany should increase spending for its own sake, precisely in order to retire its debt by 2016.

But such are the economic blinders that Germany’s economists now wear that they anachronistically offer up precisely the opposite rationale:

Despite the worsening circumstances — which most economists schooled in the thinking of John Maynard Keynes see as a compelling reason to loosen monetary reins and increase government borrowing — German fiscal policy is already effectively set in stone. In 2009, the country adopted a constitutional “debt brake” that requires a nearly balanced national budget by 2016.

Berlin can achieve that requirement only if it starts reducing deficit spending now. Mr. Weidmann called for the government to achieve that goal sooner.

What Weidmann is calling for is nothing less than the prosaic “race to the bottom.” Germany cuts public spending. Consumer purchases decline. Production declines. Receipts decline. And now what might have otherwise been a reasonable goal seems beyond reach.

Why? Because austerity in the interest of a strong Euro has generated the very economic contraction that makes the debt balloon relative to the weakened economy.

Not only should Berlin not start reducing deficit spending now. Reducing deficit spending now will be the surest way to guarantee that the 2016 goal will not be met. If Germany wants to achieve its 2016 goal, it should instead take its lead from the U.S. Federal Reserve (rather than the U.S. Congress) and should make full employment its goal. Under conditions of near full employment and full industrial capacity, Germany’s (and Europe’s) debt crisis would quickly disappear into insignificance.

To see this, however, we need to run the above example in reverse. Let’s say that the debt is € 1.5T. Now let’s increase German industrial growth two times its current level. Now, with a demand for twice as much currency, the Bundesbank can expand its currency reserves by two, in effect halving the € 1.5T debt to €750M.

Now let’s bring the Eurozone back into the equation. Just as Germany cannot rescue its own economy by ignoring the Eurozone, so it cannot rescue its own economy if the rest of Europe insists on a course of austerity. Germany should certainly increase (or in any case not decrease) public spending for its own sake. But Germany should also encourage other Eurozone members to make full employment and full use of productive capacity their principle goals.

Thus Jack Ewing’s red herring. No one feels that austerity and growth are enemies. That is because austerity is not, in fact, an economic concept. It is a moral concept. The question is now what it has always been: how do we best distribute public goods to maximize public good? Adopting a policy of austerity with respect to the very mechanism that creates economic growth—i.e., the mechanism of employment, which drives consumption, which drives investment, which drives economic growth—might be morally satisfying, but it is economically stupid. Rather should Eurozone members identify those mechanisms that eat into and sap economic growth.

In the U.S., those mechanisms are easy to identify: un- and under-regulated financial markets, uncontrolled executive salaries, private firms that, with a few well-spent millions on a handful of politicians, can save millionaires bucketfulls of tax revenues while costing tax-paying working families the same.

Weidmann and his friends should think long and hard about where the road they are on leads. Does it lead to full employment, full production, and declining debt? Or does it lead to U.S.-style unregulated industrial and capital markets, ballooning deficits, and the destruction of the public sphere?