Mike,
Lovely! I'm doing the lump-of-labour history as a chapter for a book being
edited by an economist at Pennsylania State University. Routledge has shown
some interest in it and hopefully it will be published in the fall. What I'm
hoping to do is to line up a magazine expose of this "economic" hoax to
coincide with publication of the book. Besides Samuelson, the Economist is
the worst perpetrator -- nine times in the last five years they've run
articles "explaining" why work-sharing can't work because of the
lump-of-labour fallacy.
My archive of sources who refer to the so-called fallacy runs well over 50,
spread over 107 years, only one gives a specific reference to the original
expositor of the alleged "fallacy" -- to John Stuart Mill -- and that is
clearly wrong because Mill doesn't use the LoL terminology and argues
precisely the opposite (with regard to work time), to wit:
"The desirable medium is one which mankind have not often known how to hit:
when they labour, to do it with all their might, and especially with all
their mind; but to devote to labour, for mere pecuniary gain, fewer hours in
the day, fewer days in the year, and fewer years of life."
One key text that I haven't been able to get a hold of yet is William
Thornton's "On Labour, it's wrongful claims and rightful dues". Thornton's
book was the catalyst for John Stuart Mill to recant his wages-fund
doctrine. But it also contained, according to George Howell, the most
extensive catalogue of allegations about the regulations of trade unions and
their supposed purpose of limiting effort.
>For an answer to what I now name "The Lump of Samuelson Fallacy", please
>see my previous post about Krugman and the Austrians (below). Samuelson
>has been one of the greatest disasters to befall economics. It is devoutly
>to be wished that he had stuck to electrical engineering and left economics
>alone. He has said he made the transition because he thought economics
>looked easier. Just apply engineering math to economics and hey presto ! a
>successful career in economics without ever having to really learn any -
>see his Foundations of Economic Analysis and The Collected Papers of Paul
>A. Samuleson). He is still doing it.
>
>A side note on his hide bound habit of clinging to what he learned at
>engineering school in the 1920s. He has dismissed the evidence for long
>waves on the grounds that (at the time he made the comments) that there had
>only been three of them and that this number of cycles was insufficient for
>statistical testing fo the null hypothesis. This is obtuse because there
>are other mathematical techniques for testing the theory than conventional
>statistics based on the Normal, Chi-squared or F distributions, as
>Marchetti has shown (using Fisher-Prey Equations) and because there are
>other forms of statistics/time series analysis that can be used.
>Ironically,in view of Samuleson's educational background, one of them
>(Spectral Analysis using transformations of Fourier Series) was developed
>in electrical engineering and has been applied to energy and invention data
>with results that confirm Marchetti - see Bodger, Moutter and Gough,
>Tehnological Forecasting and Social Change 19, 367 - 386 (1986). Moreover,
>Jay Forrester and his team at MIT were also able to replicate these results
>using a systems dynamic model for the US economy (there are many papers but
>see An Alternative Approach to Economic Policy: Macrobehaviour from
>Microstructure in Economic Issues of the Eighties, Kamrany and Day eds,
>John Hopkins U Press) with the effect coming out of adjustments of the
>economy to investments in long lived capital and their interactions with
>consumption and lending. Finally, price series exist for grain prices in
>Cologne for over 300 years, which clearly show the cycle even with simple
>smoothing - more than enough cycles to satisfy even Dr. Samuelson, I would
>hope. If one can independently arrive at the same result using four
>totally different forms of analysis of the data covering altogether a
>period of 500 years, it is time to wake up and smell the coffee.
>
>Finally, from his comments re: labour market adjustments via migration and
>downward adjustment of real wage rates (a simple restatement of Classical
>Theory which must have Ricardo, Mill and Marshall chortling in their
>graves), one would have thought that Keynes had never written the General
>Theory. It is inadequate aggregate demand Dr. Samuleson, which explains
>what you make disappear with a wave of your Neo-classical theoretic wand.
>And it is caused by the factors I have explained - the long term nature of
>long-lived capital and output adjustments between industries due to waves
>of technological innovation, rigidities in labour markets which prevent
>quick, complete adjustment to them, and the sea change in social psychology
>which accompanies all this.
>
>Mike H
>
>Krugman dismisses the Austrians too soon.
>
>His error is to rely on Von Hayek's and Schumpeter's versions instead of
>that of the neo Schumpeterians.
>
>What he has done is equivalent to criticizing monetary economics on the
>basis of what Say said, ignoring Keynes and Friedman.
>
>There is solid statistical work on inventions, innovations and energy by
>Mensch and Marchetti to show that these long cycles exist and are
>associated with regular (55 year approximately) cycles in innovations (new
>products that create new industries) and substitutions between primary
>energy forms in the new world economies which accompany them. See Gerhard
>Mensch Stalemate in Technology, Ballinger 1979 and Cesar Marchetti Society
>as a Learning System: Discovery, Invention, and Innovation Cycles
>Revisited, Technological Forecasting and Social Change, volume 18, (1980).
>
>Moreover the dips between cycles are associated with other phenomena which
>go a long way to explaining why large numbers of people start preferring
>cash (saving) at that point. The economist Harold Innis and the
>sociologist Samuel Clark (both of U of T) before the War pointed to an
>association with the emergence of radical Protestant sects at these times
>and the University of Chicago historian William McLouglin, more recently,
>to the coincidence of alternate ones (the ones which in history have come
>to be called Commercial or Industrial Revolutions) with what religious
>historians refer to as Awakenings, which involve fundamental rethinking of
>cultural and religous values on a societal scale. When people are afraid
>and uncertain and depressed, as they are at these times, they hoard money
>or money equivalents.
>
>If Dr. Krugman prefers statistics to qualitative history to measure
>societal distress then he should take a look at sucicide and homicide
>statistics which track the cycle perfectly, They peak at each mid-point of
>the wave of technological innovations (1929 and 1982 for the last two
>cycles).
>
>In other words, Krugman, like the vast majority of economists, ignores
>"non-economic" phenomena which would explain a lot of the thing he finds
>unexplainable. It is also notable that the statistical methodology which
>Marchetti used to analyze invention, innovation and energy data was
>developed by biologists to study predator prey relationships. It was
>adopted by engineers employed by the Pentagon for the purpose of
>technological forecasting in the 1950s. It was also used by marketers to
>analyze product cycles. What we have here is the peculiar blindness to
>evidence which does not come from one's own narrow area of expertise and
>usually presages a paradigm change in a discipline.
>
>He also ignores demographics. Detroit has been able to ramp up automobile
>production far faster than society has been able to ramp up the population
>to buy them. Once you have two cars in every garage, as you had by the
>1970s, the market grows much more slowly, because then you are not selling
>a car to someone who has never owned one so much as you are selling one to
>someone whose automobile has worn out. If I have no car and a pocket full
>of dollars I am a customer now. If I have a car and a pocket full of
>dollars I am someone else's customer (for stereos and personal computers).
>I won't be in the market for a new car for five to fifteen years.
>Replacement demand is far slower than new demand. Over production/capacity
>therefore does matter, Dr. Krugman.
>
>Krugman's economics suffers from over generalization and an inability to
>appreciate Schumpeter's most important contribution - the fact that the
>nature of the economy changes at these times - whole industries die and
>whole industries are born. Put another way, it is not just a case of
>aggregate demand changing (an over generalization); the structure of demand
>changes too. Over generalization appears also in his remark that
>underutilized capital would be fully utilized if demand were adequate (the
>demand for money reduced). The structural change in demand means that
>stranded assets are left all over the place (as the electricity generating
>industry has discovered). You cannot make silicon chips with steel plants.
>Ergo the value of unwanted steel plants goes to zero and they are left to
>rust away behind locked gates. The savings they embody, if they are not
>fully depreciated, also disappear. When people feel less wealthy because
>their savings in the form of shares in steel companies disappear, there is
>a real wealth effect; people spend less (prefer cash). Has Krugman never
>read Patinkin ? Go visit Pittsburg and Youngstown if you want evidence.
>
>Moreover the industries which die and the ones which are born, do so in
>different places geographically. The silicon chip plants were built in
>California and Texas not in Michigan or Pennsylvania. Labour is not
>perfectly mobile, and those who don't make the move to California find
>their incomes fall so their consumption also falls. Moreover, labour is
>also not homogenous (another one of those wonderful neo-classical
>assumptions). People educated to a level to work in a steel plant and with
>the skills of a steel plant worker and with the work to rule attitudes of
>organized labour in a mature industry are unwanted by the new industries
>anyway. Their children and grandchildren may have the education and
>attitudes needed and move, but not the mature worker. Even if he could
>finance it - remember most of his savings are in his house which the
>collapse of local industry has caused to fall (indeed it may be unsaleable
>at any price, like the steel mill in which he once worked - another real
>wealth effect Mr. Krugman).
>
>The people who grow the new industries and are employed by them enjoy
>economic rents due to their innovation and enterprise. There is a
>redistribution of income. Take a look at the way income distribution has
>skewed over the past ten years Dr. Krugman. Unfortunately,the people whose
>incomes are depressed far out number those whose incomes are growing - you
>can flatten an industry which has matured overnight, but you can't grow a
>new one at the same pace. People with high incomes cannot consume them all,
>much as they try (just go to Seattle and look at the monster houses Bill's
>Microsoft millionaires are building), so much of their income goes into
>financial assets (stocks and bonds = near money) - look at the money piling
>into the financial markets.
>
>Why do the new economies arise some place else ? A variety of reasons
>historically. Usually it has to do with revolutions in transportation
>technology which transform location economics - Edmonton and Calgary and
>Irkutsk could not have grown without the transcontinental railway, to take
>extreme examples. It has also been influenced by the availability of a
>suitable primary energy - that is why the English cotton industry which
>drove the first industrial revolution was first located on remote streams
>and rivers and then on the coal fields. In the case of silicon plants the
>reason was social/human, according to Spanish sociologist Cassils in his
>recently published study of new high tech or science cities. The man who
>founded the Stanford Research Institute around which the industry
>subsequently bloomed (his students included pioneers like Hewlett and
>Packard) had initially tried to interest Boston area universities and
>prominent citizens in his ideas (Boston was where the electronics
>industries developed in the Second World War were located, firms like
>Raytheon). He was given the cold shoulder. He didn't fit their paradigm -
>vacuum tubes, anymore than Krugman's theorizing fits the facts :-) So he
>broadened his field of search and Stanford, then a very minor college, said
>yes. The fact that his widowed mother had earlier settled nearby may also
>have had something to do with his decision :-).
>
>So the frictional problems which the Austrian school pointed to and which
>Krugman dismisses are very real. And so is the real wealth effect of
>stranded assets. And so are the spiritual and social psychological crises
>which cause people to become pietistic (consume less) and demand more money
>for security's sake.
>
>Mike H
Tom Walker
http://www.vcn.bc.ca/timework/
