Tag Archives: Michael Polanyi

Why our times desperately need the economics of optimism

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Economics can be categorised and divided in a number of ways, but one the most fundamental divisions in economics is between that of the economics of optimism and that pessimism. Quite simply the first tells you how to do things and the second why should not attempt to do things. The former is the economics of change, the latter is the economics of no change. Usually the first is associated with left of centre politics and the latter with right of centre politics. Possibly the best example of the latter is the current policy of austerity practised by the Conservative government. They can say no too many desirable things such as more spending of health care on the grounds that there is no extra money to finance such spending. In the words of the Prime Minister Mrs May,  there is no ‘money tree’. They prioritise sound finance over other social goods. In contrast the social democrats or socialists would ask the question, how can we raise more money to finance increased spending on health.

Usually the economics of pessimism holds sway in economics, so I will explain that first. One of the earliest exponents of this school was the clergyman Thomas Malthus. The originator of the theory of diminishing returns. He stated quite simply that there was a finite quantity of productive resources and if the population increased indefinitely the same quantity of wealth would be divided between more and more people and so each successive generation would have less than the previous. There was he believed a  saviour which prevented the mass impoverishment of all, a natural system of checks and balances that kept the population numbers in check. These were disease, famine and war.

Today’s economists of pessimism believe that there is a similar limit on to the good things in life and for the sake of the well being of society the poor must be denied a fair share of these good thins. There is just not enough to go around.  Far better that wealth is restricted to the deserving few, the wealth creators, without whom we would all go hungry. These are the billionaires that the popular right wing novelist  Ayn Rand lauds in her books. Wealth is the just reward for their zeal and enterprise. She does not deny that the masses deserve some share of the  wealth. However all they are entitled to are the ‘crumbs’ that fall from the rich man’s table. What these economists call the trickle down theory.

In the simple story told by Ayn Rand, if the super rich were prevented from enjoying their obscene wealth, they would cease in their work of wealth creation. In one of her books she describes how the billionaires disappear from society and go into hiding. Without their enterprise societies collapse and thousands of the poor starve to death. Only when the billionaires cease their strike do things return to normal and the surviving poor are now able to benefit from that minimal income that the generous billionaires think they deserve.

There is interestingly another strand to this economics of pessimism, traditional Catholicism of the Catholic ultras. This although a Christian philosophy of life and economics, is in practical terms is little different from that of Ayn Rand. Mankind they believe is corrupted by original sin and human society is but a corruption construction made by sinful man. Any attempt to reform or improve this damned and corrupt society is doomed to failure. Only God has the power and knowledge to create the good society, or heaven on earth. Any attempts to redistribute are income doomed to failure by the very nature of this dysfunctional society. They are likely to have the unintended consequence of making things worse for all as increased taxes to will add to the costs of production so making businesses inefficient so reducing output making all poorer.  All that is permissible is individual acts of kindness or charity. In a corrupted society inequality is inevitable, as are the vast inequalities of wealth and income. Changing or improving a society of people damned with original sin is impossible and should not be attempted.

Although the economics of pessimism has usually been the dominant mode of economics, there was a brief period during the 1950s and 60s, when the reverse is true. Usually this philosophy is associated with J.M.Keynes, but there were others such as Michael Polanyi. Briefly economic practice was directed to making and preserving the good society or the welfare state. Economic policy making was intended to  five combat what William Beveridge defined as the “Giant Evils” in society: squalor, ignorance, want, idleness, and disease. Perhaps for the first time in its history the economy was directed in a manner which benefited the majority of people rather than the lucky minority.

Then when the economic crisis of the 1970s hit the Western economies it was easy for the economists of pessimism, to demonstrate that the crisis was caused by the profligate spending urged on governments by the economists of optimism.   Since then the pessimists have prevailed.

Now when faced with a crisis in Western economies, economies that fail to generate sufficient employment and income to meet the needs of their people, government policy can be summed up as either ‘can’t do’ or ‘won’t do’. As the governments have shown little interest in the welfare of their peoples, populist movements have developed. Movements that threaten governments with their ideology of economic pessimism. European right wing populist movements with the exception of the British, are threatening to intervene in the economy to protect and maximise the welfare of the people. If governments persist with their policies of ‘can’t and won’t do’, they will be replaced by those that can. What the populists of both the right and the left espouse is an economics of optimism or more simply the economics of ‘can do’. While some doubts must be expressed about the politics of the populists, what they do believe is that governments need an activist economic strategy. If the National Rally of Marie Le Pen ever attain power they will find that they need to intervene in business to protect the welfare of the people of France. Employment protection measures will be re-introduced, employers will find it impossible to pay less than a living  wage. Taxes will be increased on business to finance health and social care. Policies that are normally associated with the left. Societies may become less free and more intolerant but people will accept that if it means a better standard of living. What is forgotten is that the popularity of Hitler in Germany came improving the material well being of the German people. In return they tolerated the cruelties and barbarism of the Nazis.

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The Dead Economist’s Society*

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Politicians have constantly complaining about economists, usually for not giving them the answers they want. Only recently Michael Gove a leading Brexit campaigner complained that the people were fed up with experts. What he was complaining about was the fact that economists who had previously supported the government weren’t making the upbeat predictions about Brexit that he expected. The loss of these expert cheer leaders must have been galling.

Michael Gove is typical of many politicians in their misunderstanding of economics. While throughout the course of his political career economists tended to speak with one voice, that of the Neo-Liberal free marketers. Free market economists of the Chicago school dominated the universities and the professions and maverick economists were marginalised or silenced. Economics Journals now refused to print articles that did not fit in with the mainstream view. Only by exposing free market economics could academics hope for preferment in their profession. However that did not mean that economics had completely lost their integrity, all economists still believe that their subject is an evidenced based one. Surprising to the Brexiteers these economists could not agree that leaving the largest and most prosperous free market in the world was a good idea. Only the most ideological and extreme of economists could believe in the Brexit fantasy.

What economics has lost is it’s robustness. Although economists have as a profession tended to be of the right and free marketers, they have in the past accepted that there is a space in their subject for alternative voices. Unfortunately in the 1980s these alternative voices were suppressed. Their books disappeared from the university curriculum. Now these alternative voices are needed as the government seems to have emptied the basket of free market policy measures and needs an alternative approach to policy making. If only government ministers and their civil servants were familiar with the writings of the non free market minority of economists of the past they would not be short of policy alternatives.

One such past economist is Michael Polanyi. Michael Polanyi argued that the unregulated free market was the worst possible of economic systems. What he suggested was that the state could be better at second guessing what people wanted, than did the market. In a free market the rich and powerful have undue influence over how the goods and services that the economy produces are distributed amongst the people. Not only could they claim the lions share of the wealth, but they could also deny the majority a fair share of the nations wealth. The health care system in the USA provides an example of his thinking. There the well off can have access to the best health care in the world, but also deny access to adequate health care for the less well off majority. Health care in the USA is run by for profit health care providers. The poor have the most health problems but they are the least able to pay for treatment. Since the provision of health care to the less well off is a loss making service, it is not provided. The poor and less well off instead have to rely upon the health care provided by those hospitals run by charitable institutions. These institutions are poorly funded and cannot provide the best of care. Michael Polanyi would argue that health care is a universal good, as all have a right to good health care only a state run health care service can provide health care for all.

When only one voice is heard the result is bad policy making. Michael Polanyi has long since been forgotten and the government only gets policy advice from free marketers of the school of Friedrich Hayek and Milton Friedman. (However today’s politicians are ignorant of the latter’s seminal work ‘Monetary theory and the Trade Cycle’. A book which if they read, they would realise that he would regard their current policy of quantitive easing and low interest rates as wrong headed.) Now all too often government policy has been that of trying to fit square pegs into round holes. Every government embarks on a new policy to make health care more market efficient, each reform costs billions, yet is considered as necessary by each new government. Never does any health minister ever stop to think that their policy might be wrong and that there are alternatives to remaking the NHS into a faux free market, by continually dividing and re-dividing health service care providers into competing groups of buyers and sellers. Never do they consider that each new bureaucratic structure they impose on the NHS, is yet another costly diversion of resources away from front line services.

What economists know but politicians do not is that evidence demonstrates that a health service run by health care professionals is more cost efficient that its for profit alternative. For example health care professionals might adopt some wasteful practices such as the over ordering of medicines, but this is less costly than its alternative. If this over ordering is to be eliminated a new and expensive bureaucracy of stock controllers, accountants and financial controllers is required to take over the purchasing and distribution of medicines. The cost of these bureaucrats far exceeds the cost of any over ordering of medicines. In the well managed private hospitals of the USA administrative costs account for 40% of the costs of running the business. Unfortunately in the U.K. the government with its various reforms is trying to divert an increasing share of the health care budget to these financial controllers in the name of cost efficiency.

Although Michael Polanyi was once was a well known economist, he is now virtually unknown. Contemporary economists are overwhelming free market economists and little is published that is contrary to their consensus view. What is now needed is a ‘Dead Economists’ society. A society that will popularise the policy prescriptions of these long dead and forgotten economists. There are a number that I can recall such as Michael Polanyi, J.K.Galbraith, Piero Staffa and John Maynard Keynes. If politicians were familiar with Friedrich Hayek’s work other than his short populist text, ‘The Return to Serfdom’, they would realise that he would have been critical of much their ill thought out policy making. There are numerous economists who have written about solutions to many of the now problems of facing the U.K. economy, but ignorance of them means they are never considered. What politicians want are the simple easy to under policies of the type offered by the free marketers, they have little patience with good economic practice, as it can be difficult to understand and ones that do not provide the simple answers that make good headlines in the popular press. Donald Trump is not a maverick politician contrary to the mainstream, but rather the exemplar of a mainstream politician that has little time for the different reality that is the real economy.

What adds urgency to my writing is an article published by the Institute for Public Policy Research that the Bank of England which states that the government is ill prepared for the next recession. They have exhausted all the possibilities that can derived from expanding the money supply, through a policy of quantitive easing and low interest rates. What they state is that the government’s policy cupboard is bare and they now lack the anti recessionary policies to deal with any future economic downturn.

* I don’t wish to claim originality for my title. It is one that I have borrowed and adapted from Larry Ridener’s website, Dead Sociologists Society, one which I used to good effect during my teaching career.

Alternative and/or Socialist Economics are overdue a revival

Economics, Neo-Liberal economics, Politics, , , , , , , , , , , ,

Politicians have constantly complaining about economists, usually for not giving them the they want. Only recently Michael Gove a leading Brexit campaigner complained that the people were fed up with experts. What he was complaining about was the fact that economists weren’t making the upbeat predictions about Brexit that he wanted. It was disappointing to him that all these economists who were backing the free market reforms of his government were no longer supporting him.

Michael Gove is typical of many politicians in their misunderstanding of economics. While throughout the course of his political career economists tended to speak with one voice, that of the Neo-Liberal free marketers, that resulted from the suppression of alternative economic voices. Free market economists of the Chicago school dominated the universities and the professions, maverick economists were marginalised or silenced. When he proposed that the UK leave the European Union, the largest and most prosperous free market in the world they could not support him. What he had misunderstood that while some economists were willing to ignore the evidence that a precipitate break from the EU would be bad for the EU economy, most economists subscribe to the view that there subject is evidence based and could not back a policy that was contrary to the facts. Free market economists could not support a policy that led to the U.K. breaking with the world’s largest and most prosperous free market.

However Michael Gove is not totally to blame for his misunderstanding of the nature of economics. Economists fail to recognise the divisions within society and the conflicting interests of the various groups that make up society. What they prefer is one ‘great theory of economics’, a theory that explains everything and benefits all. In the 1980s for a variety of reasons mainstream economists adopted the free market economics of the Chicago School. This is its essence stated that the free market brought about the most equitable of outcomes. The free bargaining of sellers and consumers would deliver the best outcomes for all. No longer would the state be ineffectively second guessing what the people or consumers wanted.

Contrary voices such as that of Michael Polanyi were ignored. Michael Polanyi argued that the unregulated free market was the worst possible of outcomes. He stated that the state was in effect could be better at second guessing what people wanted, than the market. In a free market the rich and powerful have undue influence over how the goods and services that the economy produces are distributed amongst the people. Not only could they claim the lions share of the wealth, but they could also deny the majority a fair share of the nations wealth. The health care system in the USA provides an example of his thinking. There the well off can have access to the best health care in the world, but also deny access to adequate health care for the majority. Health care in the USA is run by for profit health care providers. These health care businesses are usually companies owned by shareholders. Those share holders that hold a majority of the companies shares are the super rich and they are not going to permit their business to provide loss making services, as they want the best possible return on their investment. The provision of universal health care to the less well off is a loss making service, so it is not provided. The poor and less well off instead have to rely upon the health care provided by the hospitals run by charitable institutions. These institutions are poorly funded and cannot provide the best of care. Michael Polanyi would argue that health care is a universal good, as all have a right to good health care and only a state run health care service can provide health care for all.

When only one voice is heard the result is bad policy making. Michael Polanyi has long since been forgotten and the government only gets policy advice from free marketers of the school of Friedrich Hayek and Milton Friedman. Now al too often government policy has been that of trying to fit square pegs into round holes. Every government embarks on a new policy to make health care services more market efficient, each reform costs billions, yet is considered necessary by each new government. Never does any health minister ever stop to think that their policy might be wrong and that there are alternatives to remaking the NHS into a faux free market. What all ministers believe is that by dividing the NHS into competing buyers and sellers (hospitals are sellers, selling there service to the various local health trusts) they get the most efficient of health services. Never do they understand that each new bureaucratic structure they impose on the NHS is yet another costly diversion of resources away from front line services and that these expensive bureaucracies may prevent health care being provided in the most effective and efficient way.

What economists know but politicians do not. Is that a health service run by health care professionals might adopt some wasteful practices such as over ordered get of medicines, but the cure for this problem is far more costly. If the most efficient distribution of medicines is to be ensured a new bureaucracy of stock controllers, accountants and financial controllers of all kinds. The cost of these bureaucrats far exceeds the cost of any over ordering by medical professionals. In the well managed private hospitals of the USA administrative costs account for 40% of the costs of running the business. Unfortunately in the U.K. the government with its various reforms is trying to divert an increasing share of the health care budget to these financial controllers.

Although Michael Polanyi who once was a well known economist he is now virtually unknown amongst contemporary politicians. Contemporary economists are overwhelming free market economists and little is published that is contrary to the consensus view. What is now needed is a ‘Dead Economists’ society. A society that popularises all the policy prescriptions of these long dead economists. There are a number that I can recall such as Michael Polanyi, J.K.Galbraith, Piero Staffa and John Maynard Keynes. If politicians were familiar with Friedrich Hayes’s work other than his short populist text, ‘The Return to Serfdom’, they would realise that he would have been critical of much ill thought out policy making. There are numerous economists who have written about the problems that face contemporary U.K. and suggest policy solutions, but all are ignored. What politicians want are the simple easy to under policies offered by the free marketers, they have little patience with good economic practice, as it is time consuming and does not offer the simple answers that make good headlines in the popular press. Donald Trump rather than be seen as a maverick politician contrary to the mainstream of politicians, should seen as representative of current political process in which politicians have a limited time span and want solutions produced within five minutes.

Why economists don’t do happiness

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Just last week my daughter told me that she was pregnant and it made me realise that there is a gaping hole at the centre of economics.  Economists state that anything that people value is to be considered as wealth. Yet there is an inconsistency according to this criteria  as much is missing from the lists of what economists classify as wealth. All those pleasures that mean so much, yet which cannot be ‘monetarised’ are ignored. Even if these many uncounted pleasures do add to the well being of an individual. Going back to my daughters pregnancy all an economist can tell me is the cost of bringing a child into the world and that the cost of their upbringing, will possibly to be offset by their later productivity as an adult. Only the negatives count, pleasure and happiness are missing from the economists index of wealth.

It is not that economists are unaware of the importance of happiness as part of the make up of an individuals well being, its just that they have no method of quantifying it, as they cannot count units of happiness, so they just ignore it.

The government has shown some awareness of this problem and they have produced a happiness index. They conduct social surveys to measure the happiness quotient. However there is always a great deal of cynicism about the project and its claim to have identified the happiest town are generally taken with a pinch of salt. Although the governments attempt to quantify happiness and to measure the overall level of happiness can be justified, as it does need to know the state of the nations well being. Yet it is of limited value, a recent international survey claimed that Norway was the happiest of countries. A survey dismissed by one Norwegian who said how can the introverted and anxious Norwegians be happier that the extroverted Greeks.

Although not a professional economist, George Osborne (former chancellor of the exchequer) he does belong in the category of ‘miserablilist’ economists, he made one of the most infamous statements about how human frivolity impacted badly on the economy. When a national holiday was given to celebrate the marriage of Prince William and Catherine Middleton, he bemoaned the lost productivity due to the people having an extra day’s holiday. He as a typical Gradgrind economist, could even give a spurious figure in billions for the estimated cost of lost output. Economists don’t do happiness or pleasure as it does contribute to a measurable increase in the nations wealth.  If it can’t measured it does not count. Economists have contributed a ‘miserablist’ mentality to the national consciousness.

Although I know of no studies of weddings by economists, they are one of those pleasurable occasions that consume large quantities of wealth and that appear to make little meaningful contribution to the nation’s wealth. Therefore they meet with their disapproval. Earlier this year my daughter got married and we spent a substantial sum of money on the occasion.  Economists would describe this as a  potlatch* like ceremony, a ceremonial practice in which the families give away substantial amounts of their wealth. This mood of disapproval infects the media, there are constant censorious articles about the nation’s excessive spending  on weddings. While I don’t intend to defend the spending of the rich, as when one rich young woman spent £12 million on her wedding, what I do want to defend is the spending of the average family on a wedding.

When I looked up the practice of potlatch on Wikipedia,  it reminded me that the practice was intended to strengthen social bonds within the tribal group. Exactly the same is true of contemporary weddings, they add glue to the social cohesion of society. My family is as so many in contemporary Britain an extended family. Social and economic change has dispersed the family across the country. Only at weddings and funerals do the family come together. Weddings being the more effective glue as they are a happy occasion and people are more willing to come together for such occasions. What such family get togethers do is to counter fissiparous tendencies of the free market. A largely unregulated free market such as that which is destructive of all social bonds. This destructiveness also has a cost but one that is never counted.

If I can give an example of this. Teaching was once a family friendly occupation, parental leave was generous compared to other occupations and the maternity leave was assured. However now the free market has been introduced to the education system, maternity leave is no longer celebrated. Losing an experienced teacher to either maternity or paternity leave is seen as taking a valuable asset out of the classroom. The management in schools are now uniformly hostile in their attitude to new parents. Now there is the obligatory out of school hours working that negatively impacts on childcare. Teachers are expected to put in several out of hours work both in school and out of it. When family life is put under such stress it makes breakdown of the family more likely. When 1  in 3 of new marriages end in divorce, the harsh economic and social system in the UK must be a large factor contributing to this.

Durkheim identified this sense of social isolation, which he called anomie, as significant factor that contributed to the individual committing the act of  suicide. Some doubt has been thrown on his research; but there is evidence that the loss of community is a factor in the development of mental and physical ill health in individuals. There is even some research that suggests that those who live alone are more likely to develop dementia. The cost of family and community break up is never costed. Michael Polanyi stated that the free market is a threat to social order. He wrote that the state should intervene to mitigate the worst effects of the free market. He believed that Britain only avoided revolution in the late eighteenth century, because all those thousands of hand loom weavers made unemployed by the factory system could get money from the parish with which to support themselves and their families. In France of the same period it was the unemployed and hungry poor who provided the muscle to overthrow the royalist system of government. They were the sans culottes who cheered the execution of the king.

While the free market in Britain has not created the misery equivalent to that, which the economic upheaval in the eighteenth century caused, it has wrecked damage on the social fabric. Why I as an economist celebrate the ‘excessive’ spending on weddings, is that it is the push back by families and individuals against the destructiveness of the free market system. Governments have  been complicit in this laying waste, removing employment protection laws and enabling the most unfriendly of family employment practices to become widespread. The government is now being forced to recognise the high cost of the free market unfriendly policies of business. Only recently it introduced a policy guaranteeing thirty hours of free child care at a nursery.  An inadequate and under funded child care programme, but least it’s a belated recognition of the problem. However it still remains hostile to those organisations and groups that resist the worst abuses of the free market.

In such a society when the government does little to prevent the divisive forces of the free market wreaking havoc on the social system, it is essential that there is some countervailing force that resists this most destructive of forces. The family is one such unit and the other is the local community. People need some security that comes from the feeling of belonging, something which a market of freely competing individuals does not offer. Although even the government is careless of the health of the family, doing little to offset the damage done to this social institution by the free market. Unlike the free marketeers of business and government, people see the family unit as being essential to their well being and will constant remake the family unit in whatever mutation. The family survives as an extended family, as family members are able to exploit new technology such as the smart phone to strengthen family links.

Economists fail to recognise that the free market can only prosper in an ordered society. A society of all against all is one that is going to fail.In a society whose raison d’etre is competitiveness and insecurity, it is left to the family to provide that sense of security and personal well being that is so essential of personal well being. This is why I value the wedding, as it celebrates the most essential of social units the family. For this economist long may families go on spending large sums on weddings as is a celebration of social togetherness, and as such it is the one remaining bulwark against the destructive individualism of the free market. Economists’ only  have the tools to celebrate production, they have no means of celebrating human happiness or togetherness. Simply put economists don’t do happiness and given their influence on politicians and policies their input into the political process can be very damaging.

*Potlatch a practice of giving away the families wealth, which could involve the destruction of such wealth. It was a custom practised by the Indians of Northwest USA and Canada. It was a practice designed to strengthen social bonds and to maintain social equality. No one individual was able to accumulate wealth and become the rich and powerful individual who would dominate tribal society.

Xenophobic and racist behaviours as understood by an economist

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Neo-Liberalism or the practice of free market economics is claimed to be responsible for the decline in living standards, but it is not usually blamed for the decline in public behaviours. In the UK ever since the vote to leave the EU there has been an increase in racism and xenophobic behaviours. (A policy decision desired by NeoLiberal and Libertarian politicians.) What I want to suggest is that the adoption by Western European governments of Neoliberalism and in particular by Britain, has been one of the main contributory factors in the increase in racism and xenophobic behaviours.

One of the great economists but who is rarely read today gives an insight into the processes by which the practice of Neo-Liberalism gives rise to anti social behaviours. This economist is Micheal Polanyi and any reader of his book ‘The Great Transformation’ on reading the first chapter would think that he is describing today’s society, whereas in fact he is describing that of the 1930s. The great insight that he reveals in this book is that the unregulated free market is destructive of social order. He demonstrates that this was a fact known to rulers in the past who insisted on regulating the market to minimise its most destructive effects. Although he does not quote this particular example, the biblical story of Joseph shows that the Pharaohs of Ancient Egypt were all to well aware of the destructive effects of an unregulated market. Joseph interprets Pharaoh’s dream to as a warning that there will be seven years of plenty followed by seven years of famine. Then Joseph and the Pharaoh store grain during the good seven years to distribute to the people in the years of need. The Pharaoh’s understood the importance of controlling the market, they knew that food shortages and their exploitation by the merchants who took the exploit the situation to raise prices for the scarce  supplies of food could lead to food riots and possible threats to the rule. A careful reading of folk tales shows that good rulers regularly opened the warehouses of the greedy merchants to the hungry people.

Evidence seems to suggest that the great Greek dynasties of the era of the Trojan wars and Agamenon, were overthrown by internal revolt. One possible cause is the shortage of food caused by adverse climatic changes, a problem worsened a self indulgent aristocratic elite failing alleviate the hunger of the poor and preferring to spend the wealth of their society on conspicuous consumption by creating ever grander palaces.

When reading Polanyi’s book I noted uncanny resemblances between the England of today and that of the 18th century. He writes about the plight of the workers in the cottage based textile industry, as they lost work and income to the large cotton manufacturers who employed the latest technology in weaving and spinning. These people were reduced to a life of misery, having to rely upon handouts from the parish  to feed their families. Their contemporary counterparts are those workers in the so called ‘gig economy’. The development of the mobile phone has made it possible employers no longer to have workers on site or in situ, as its possible to call them in for work when they are needed. No longer does business have to keep a large staff team on site to deal with those busy periods, instead they can be called in when needed.

These workers are also disadvantaged by the lack of employment protection legislation, as ever since the Neo-Liberal revolution of the 1980s, successive governments whether of the centre right or left have seen as it as their task to remove as many as possible of the labour protection measures. These measures it was believed hampered the efficient operation of the labour market. What this legislation did was to leave the worker increasing defenceless against the actions of the exploitative employer. The gig economy is made possible by two things, the mobile phone and the lack of legislation to protect the rights of the worker.

Not surprisingly this was paralleled in the 18th century when legislation removed workers access to common land. Prior to the 18th century workers in the countryside had access to the common land on which they could keep cattle and raise crops. This meant that in time of hardship they could rely upon this as a source of income and food for their family. These people were often the workers in the cottage based textile industry, who when trade was bad could rely on the produce from the common land to keep the family fed. A series of enclosure acts deprived rural residents of their rights to common land. When the collapse of the home based textile industry happened these people were deprived of two sources of income and reduced to abject misery. (These hungry and desperate people were the workforce of the new textile mills willing to endure the most dreadful of working conditions as the alternative was going without.).

When society falls to deliver people look to alternatives. In the 18th century  it was to France where the  revolution had otherthrown the old exploitative landlord class and promised a fairer society. In England many revolutionary societies were formed and the aristocratic government was in constant fear of revolution. They were only able to suppress the revolutionary instincts of the poor through repression and through a system of regional handouts (the Speenhamland system) which prevented workers being reduced to that state of despair that would make them resort to dangerous measures. The Speenlandham system was not unlike our current tax credits system.

The depressed poor not only turned to thoughts of revolution, but also to xenophobia. There is the story of the monkey that was cast ashore from a shipwreck in Yorkshire. This unfortunate monkey was then hung as a French spy. Whatever the truth of this story xenophobia thrives when people are in need and society appears to be failing them. They look for scapegoats to blame for their misery, then it was the French, now its immigrants. When resources such as housing are scarce, its easy to see it as being caused by the foreigner who has taken the house that by rights should have gone to a native born citizen. Politicians have used this xenophobia as a means of winning popular support. They have constantly used the EU as a convenient scapegoat to blame for the nations economic and social ills, ills which were often of there making and so it was no surprise that when people were given a choice they would opt to leave the EU.

Now there is a situation in which a government refuses to acknowledge its culpability for the increasingly dire economic circumstances, and instead relies on scapegoating the other (the foreigner) to distract from its failures of governance. It has boxed itself into a corner and now the only policy measure that it can offer to alleviate the misery of the people is the limiting of  immigration.They promise that no longer will the European immigrant take the council house or job that should have gone to the native born Englishman or woman. What they fail to realise or the brightest and most cynical politicians fail acknowledge, is that their anti immigrant policies will make the situation much worse for the so called ‘just managing class’. Even when the negative effects of abandoning the EU become apparent the politicians will be unable to acknowledge there policies are failing. What instead they will do is to to adopt more and more extremist language to disguise their policy failings. Economic decline will be blamed on those opponents of Brexit who have talked down the economy. Already one Conservative party councillor has suggested that the people and politicians that oppose Brexit should be charged with treason. The only hope for a xenophobic government is to turn up the volume of abuse directed at their opponents in the expectation of silencing them. This of course is the policy pursued by the current government, when any reasoned criticism of Brexit is answered with abuse. The opponents are the ‘Bremoaners’ or whatever catchy phrase of abuse that they can conjure up.

When the government’s sole claim to legitimacy is that it embodies the xenophobic instincts of the people, it language will be that which both implicitly and explicitly gives sanction to racist and xenophobic behaviours. The government will not act effectively to discourage such behaviours or to  condemn them without fear of alienating its most xenophobic supporters. Next year when the negotiations start in earnest and the impact of the uncertainty accompanying those negotiations will cause increasing unemployment, increasing inflation and falling house prices, what can be expected is an increase in the abuse directed at those who dare to suggest that these are a consequence of Brexit. Incidences of racism will increase as the government’s abusive language towards its opponents will seem to give a green light to their extreme behaviours. A government that suggests the actions of its opponents is bordering on the treason will be seen to sanction violent racist actions, as they can be described helping the government cleanse the nation of that element that is responsible for the ills that beset society.

The Economic Devil

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There is one great flaw in economic analysis and that it that it has no theories that explain generalised wrong doing within the economy. Instead it recognises that there may be individual wrong doers but that wrong doing can be systemic throughout a particular sector the economy. Unlike Christianity it lacks a devil, Christians can account for wrong doing by referring to the malign influence of the devil, whereas in economics the assumption is that there are only occasional examples of wrong doing. There is on earth an economic Garden of Eden that is the free market system ensures no evil practices will prosper. Competition will force all businesses to adopt the highest standards of conduct through fear of losing sales to more ethical competitors.

Christians would have no difficultly in understanding that the greed of bankers was a key factor in precipitating the crash of 2008/9. It was their desire to accumulate larger and larger bonuses that encouraged them to undertake increasingly risky investments, investments that offered the possibility of greater and greater profits and bonuses. Self restraint was a characteristic absent from the traders and bankers money in the City of London. When it is phrased in these words the Christians seem to have a better explanation for the crash of 2008/9 than do economists. Fundamentalist Christians might suggest that the devil who had corrupted the behaviour of bankers and that this corruption directly led to the crash. Faust sold his soul to the devil in exchange for the love of Helen of Troy and as such was committed to a life of sin. It could be argued that the bankers sold their souls to the devil in exchange for untold wealth. Certainly there behaviour in that time suggested that they were little more than the servants of the devil.

Fortunately economists don’t have to re-invent the devil to explain the wrong doing that takes place within the economy. The corruption of the spirit comes from the belief that the main purpose of all human activity is the accumulation of wealth. It is the quest to maximise income and profit that will lead to the adoption of unethical behaviour. Adam Smith (The Wealth of Nations 1776) stated that when a group of businessmen are gathered together their purpose is not to promote the common good but to further their own selfish interests. He was familiar with the practices of 18th century merchants who would divide a market between themselves; where each would be guaranteed a local monopoly so they could charge the highest possible price for their goods without having to worry about being undercut by a low cost rival.

Today there is a report in the newspapers that house builders are restricting the supply of houses so as to force up the price of houses. The former Mayor of London Ken Livingstone produced a report that claimed that house builders in London made a profit of 26% on each house sold at a time when the average company profit was 10%.

While there is no devil in economics but there is the devil like ethos which is summed up in the words profit maximisation. Any behaviour is deemed acceptable if it results in increased profits for the business. A practice demonstrated when international firms operating in the developing countries hire mercenaries to eliminate local politicians and trade unionists that might campaign for better wages or environmental protections that would increase their operating costs.

Bad behaviour amongst business executives is not unknown to economists, its just that the current generation of economists assume that such behaviours have only a small impact on the economy and its host society. Yet a recent writer on the Italian mafia asserted that London was responsible for facilitating the activities of the various Italian drug cartels through money laundering, which gave the gangs clean money with which to finance their corrupt practices in Italy and other European countries. The very opaqueness of the banking system makes it impossible to know the extent to which such bad practices are common in the London financial markets, whether it is one or two bad apples or the whole barrel that is rotten.What evidence there is suggests the latter.
What I am arguing for is a recognition that there is a devil in the economy, there is an ethos that perverts its workings so as to favour the selfish interests of small groups at the expense of the majority. I would suggest that Gresham’s law needs updating, in its original form it states that bad money drives out good. Gresham was thinking of Henry VIII and his constant debasement of the currency. A contemporary Gresham’s law would state that bad economic practices drive out the good. I do have some experience of this as when I worked in the City of London in the 1960s, new sharp practices began to creep into the city. At first the old established city firms resisted employing these sharp practices, but when it was clear that these new practices were very profitable the old ethical behaviours were soon abandoned.

The old city insurance firms were very conservative in their practices they never employed aggressive selling techniques, such as cold calling. New comers to the market employed much more aggressive tactics and took an increasing share of the insurance market forcing the old established insurers had to follow suit. This had one unfortunate consequence as life insurers competed with each other by offering more and more generous end of term policy benefits. To finance these generous payouts the insurers had to raid their cash reserves. This had two effects the first was to reduce the viability of the company forcing a wave of mergers as these firms sort tried restore their viability through consolidating into a few large companies so building up their depleted reserves. The second was that the life insurance industry was unable to pay such large end of policy benefits and were guilty of overselling their products. This led to the pensions scandal when it was revealed that the many millions who had on exchanged their occupational pension for one provided by an insurance company believing that their promises of a much higher pension, discovered that their private sector pensions generated a pension far less than that offered by their former occupational pensions. What has happened is that the old conservative but financially sound companies of the past have been replaced by more aggressive but less viable businesses. The trusted figure of the man from the Pru is now a figure from the past as he has been replaced by the salesman eager to win your custom.

Christianity has another lesson for economics, according to Christianity mankind is tainted by original sin and only an outsider untainted by human corruption can save them, that is God. Similarly the market system is tainted by an original sin, greed or perhaps more accurately original greed. The economic devil an integral part of the free market, this devil is ever ready to corrupt the participants in the market with the promise of riches. The business ethic, that is the desire to maximise profits is all too often little more than a disguise for this primal greed. Personalising the faults of the market system in form of the devil (even if it’s a metaphor for greed) has one important role it will constantly reminds politicians that the free market is not the solution to all problems, but is yet another flawed human creation that is corrupted with all the sins of its makers. The unregulated free market is a threat to social order as all manner of unethical behaviours are made possible, if there are no laws or regulations to prohibit them. The behaviour of the bankers and traders in the financial markets in 2008 and since demonstrates the folly of leaving the market and its members to set their own rules. Once this is accepted the government will return to its former function of legislating to stop powerful players in the market from abusing their power at the expense of other members and outlaw the most undesirable of economic behaviours. What politicians fail to realise just are there are crimes against the person and property, there also the economic crimes, which are also a threat to the person and property.

Note. A more sophisticated version of the threat that an unregulated market poses to the social order is to be found in Michael Polanyi’s ‘The Great Transformation’.