1848, An Experiment in Socialism

1848, An Experiment in Socialism

I am afraid I have fallen somewhat behind in my reading of newspapers, and in a vain attempt to catch up I happened to come across an article in the June 2, 1871 issue of the (New York) World that struck my fancy. This was the time of the Commune in Paris, and the article contained a brief history of socialism. They say that history repeats itself, the first time in tragedy, the second time in farce. In this case farce was already reached by 1848, as can be seen from the following excerpt from that article:

“When the revolution of February 1848 became a fait accompli, it soon became evident that there was a want of unity in the feelings and purposes of the republicans who had acceded to power.

One party, headed by Lamartine, desired the republic for its own sake, or at least for the general prospect of good that it held out—these were called the moderate or political republicans.

The other class consisted of those who viewed the republic as a means to an end. Confident that it would come, but weary of waiting for it, they had occupied themselves with the discussion of social questions, the settlement of which they believed would form the first and principal business of the republic when it arrived.”Let others”, said they, “strive in the political arena to bring in the republic. We will assist them when it is necessary to do so, but meanwhile we will rehearse our parts in an imaginary republic of our own.” These were the social republicans. They took part in the struggle but when the fight was over they stood aloof from their companions and attempted to dictate. “You have done your part, “ they said, “in achieving the republic and now we will show you what to do with it.”

And between these discordant factions the struggle soon commenced. The socialist leaders virtually told their political friends to attend to foreign nations and that they would manage home affairs.

Three decrees were at once forced by them upon their colleagues, and these were: First the adoption of the principal that the state is bound to guarantee subsistence to all its citizens; second, the establishment of national workshops; third, the establishment of a commission to look into the condition of the working-class.

The National Workshops

The first business of the new republic was therefore the institution of the ateliers nationaux, or national workshops… The number of applicants for admission to these workshops was at once considerable, and more claimants daily poured in, men really in want, (also) the better class of mechanics, clerks, and even professional men, who had held out as long as they could, as well as idle vagabonds of all sorts who calculated on a franc a day for doing nothing. and finally hosts of workmen from the country who obtained admission by means of forged certificates of residence.

The wages they received at first was two francs a day, if employed, and one franc if not, (which allowance it was after found necessary to decrease.) Unfortunately work could only be found for but a small portion of the men enrolled, and even then some of the labor to which they were sent was of the most useless nature; and thus before many weeks had elapsed a mass of dangerous idlers had accumulated in Paris, and increased daily, the whole number enrolled on May 16 being 87,942, which total increased to over 100,000 by the end of the month, of which, owing to the difficulty of devising work, not 15,000 were employed, the rest receiving their allowance of one franc a day instead.

The ateliers nationaux degenerated therefore into a mere system of relieving pauperism in disguise, but it would have been imprudent to have told the recipients so, as they had been schooled to believe that what they received belonged to them as a right.

Louis Blanc and the Luxembourg Commission

On the formation of the Commission of Inquiry into the Condition of the Working Classes,… the position of President was given to Louis Blanc and the sittings appointed to be held at the Luxembourg , the other members (of the government) thus hoping to relieve themselves of the socialistic element in their (own) deliberations. With him was associated Albert the “ouvrier” and other acknowledged socialistic leaders.

In this commission all matters of dispute between workers and employers were arranged, and in its discussions its president had an opportunity of dilating upon his favorite industrial scheme. On one occasion he committed himself to the essential principle of fraternal communism as expounded by Cabet, namely, that the ideal of society is that in which each man producing according to his aptitude and powers, shall receive according to his wants; and he declared that the vicious civilization of the time, which concealed aptitudes and begot factitious wants, was tending toward that state, and that equality of salaries would be a step in the right direction. On another occasion he told the working-classes, when they were in great distress, that “The means of subsistence during periods of difficulty were wages equal to those enjoyed during prosperity, with a participation of profits” and in the future, “the free exercise of their faculties, the entire gratification of their wants and even their desires-- en fin, the maximum of happiness. “

In the terrible commercial crisis that the revolution had occasioned, and the consequent suspension of all kinds of industry, Blanc and his colleagues at the Luxembourg were beset by the heads of bankrupt establishments, anxious for the state to buy them up and turn them into communist ateliers, or whatever they chose; in short the Palace of the Luxembourg became the depot for all sorts of complaints and the theatre for propounding all manner of visionary schemes.

Theory and Practice

It is a mistake to credit Louis Blanc with the establishment of ateliers nationaux . In fact he condemned as “an insensate project” those workshops in which all trades were huddled together and set to perform work for which nine tenths of them were utterly disqualified. What he desired were ateliers sociaux—large factories in which persons of the same trade should be employed together and divide equally among themselves the entire profits of their industry.

The position in which he was now placed enabled him to illustrate his theory by actual example. He therefore, along with his associates, started two industrial associations founded on the principle of equality, the one composed of saddlers, the other of tailors. The result of the experiment among the latter affords such a curious commentary on the workings of the principle of equality as interpreted by Louis Blanc that we … present it (here).

The tailors had placed at their disposal the Hotel Clichy, which was converted for the purpose from a debtors’ jail to a great national tailors’ shop, and given (to them) free of rent; in addition the government advanced the necessary capital, without interest, and ordered them to begin with 25,000 suits for the National Guard. The experiment was thus inaugurated under peculiarly favorable circumstances.

As a preliminary step it was ascertained that the price for which the large tailors of Paris, who employed the bulk of the workmen and undertook government contracts, would require for same would be eleven francs each suit, which sum would include the profit of the master tailor after paying all his expenses. The government accordingly agreed to pay the same price to the new establishment, and 1,500 men were speedily collected and set to work.

There being, however, no capital wherewith to pay the workmen while the order was being executed, the government advanced daily, in anticipation of the ultimate payment, a sum equal to two francs per head as “subsistence money,” the balance to be paid and equally divided amongst them on the completion of the order.

The workmen were so delighted with the arrangement that, notwithstanding the law limiting the hours of labor to ten, the “glory, love, and fraternity” principle was so strong that they voluntarily worked twelve or thirteen hours a day, and the same on Sundays.

But the result of the experiment was fatal. The first order was completed each man looked for his share of the gain. The riches of communism and the participation in the profits dazzled the views of the 1,500 tailors who had been content to receive the two francs a day for many weeks; and no doubt everyone in his own mind had appropriated his share of the “balance” and had felt in his own person the combined pleasure of “master and man”,

Eleven francs per dress for so many dresses came to so much. The subsistence money had to be deducted. The balance was to be divided as profit. Alas! It was a balance of loss and not of gain. Subsistence money had been paid equal to rather more, when it came to be calculated, than sixteen francs per dress; in place of eleven, at which the master tailor would have made a profit, paid his rent, the interest on his capital, and good wages to his men in place of a daily pittance for bare subsistence. The result was one of consternation and disappointment. Louis Blanc was not a match for the master tailors of Paris.”

(The “Constitutional Monarchy” of Louis-Philippe of Orleans in which franchise was limited to landholders who represented only one percent of the population, was overthrown in February of 1848 by individuals who represented all the rest of the French population. The leader was Lamartine, who however, gave some powers to the socialists, as described above. The first election under this regime was held in April of 1848, the socialists did very poorly, and the atelier nationaux, which had achieved no success and was bankrupting the government, was doomed. The socialists attempted a revolution on May 12, and again when that scheme was altered in June (The alteration included drafting the young unmarried men in the ateliers into the army.) The socialists also rebelled when Louis Napoleon was elected President of the Second Republic, and again when he usurped power and made himself Emperor. Each time the rebellions were quickly defeated, though in June with considerable damage to Paris. The Emperor made espousing socialism illegal for the twenty years his reign lasted.)

It seems that in nature, subhuman creatures often act together as communities for subsistence or defense. Ants and bees do so, and so even do bacteria which form colonies and when threatened by the incursion of rival colonies the colonies somehow arrange to lob antibiotics at those rivals. But such creatures tend to do so without central direction, since usually they have no means of direct communication with a center, acting as a sort of distributed communication network and distributed action network as well.

Human beings on the other hand find it almost impossible to understand the functioning of distributed networks, and find it much easier to imagine that centrally organized systems, though foreign to nature, can be made to be optimally efficient. Louis Blanc was neither the first nor the last to believe that the concept of organization of industry that flowered in his brain would be superior to that which had evolved over time without him. The same human beings who are incapable of understanding how lowly bacterial colonies are able to produce and deploy antibiotics hope and expect to provide, out of their own brains, rules for centrally controlling human populations (whose members are vastly more complicated than bacteria are) numbering in the hundreds of millions, more efficiently than those populations would function if left alone without them to their distributed networks. The ludicrous failure of Blanc’s tailoring adventure provides a perfect model of the typical fate of such schemes and the same result is repeated with monotonous regularity every time such things are attempted.

Not Seeking a Second Term?

As a somewhat dull observer of our President, I find myself ever more convinced, despite my dullness, that he is not enjoying the job of presidenting. His facial appearance seems to be strained and at times angry. He appears annoyed that there are many people who do not accept his judgments and who persist in opposing his policies. He seems bothered, I know not why.

Perhaps it is because none of his initiatives have shown success, except in the direction of hiring left wingers to government and providing government support of his political supporters.

In the beginning, with Democrat control of both houses of Congress, he was able to obtain passage of several massive bills, that nobody was given a chance to read, that vastly increased bureaucracy and rules on business as well as costing trillions. Having lost control of the House of Representatives this source of pleasure has vanished.

His foreign affairs ventures have all been unusually unsuccessful. His wooing of Russia, Iran and Syria have brought only contempt from them and escalation of their trouble making. His Libyan venture not only annoyed congress by being done without consulting it, but was an instant quagmire, easily predictable because it was aimed at prolonging the insurrection and against ending it with victory for either side. His campaign promises to improve the civil liberties of terrorists, to close Gitmo and to end all wars disappeared (thankfully) upon taking office. Making the Afghanistan war his own hasn’t worked so well. His inaction in the face of unrest in Iran and now in Syria and Iranian meddling in Iraq make him seem like a wuss, perhaps even to himself.

The economy and employment situation have eaten into his support and since despite their names all of his initiatives have been destimulating to the economy and to employment, even his supporters are beginning to wonder whether all troubles can be blamed on his predecessor. Some question how threatening to smite employers with high taxes and worse will get them to hire more people. By the way, the Democrats controlled congress during the second term of his predecessor so they must share blame for what happened then.

Most of his interactions with foreign dignitaries (another of his presidential duties) have been painful at best.

At the beginning he seemed to enjoy addressing the people and he did so incessantly

There have been a number of occasions in which the President has made decisions on his own that have been high handed and poorly thought out. Can he be completely unaware of all of them? Perhaps his anger stems from his awareness that some fools disagree with his belief that he has never made a single mistake as President.

In general, in my mind he is coming to resemble Joe Bftzyk, the Al Capp character who walked around in a cloud that always surrounded him, and always, apparently, kept raining on him.

At the beginning he seemed to enjoy sports, at least hobnobbing with big time sports figures, playing basketball and golf, presiding over gala parties and taking vacations. These are worthwhile sources of pleasure and distraction, but do not require his being president for him to enjoy. He also seems to enjoy fundraising gatherings and making political speeches. The necessity of being nice to fat cats who he randomly turns on later and denounces in his speeches, suggests that he actually hates doing this and hates them.

What I cannot fathom is why he want a second term. Unless the Democrats regain control of the House, which seems quite unlikely, he will get nothing he wants passed in a second term. True nobody is suing him or calling for impeachment, but there are some scandals, particularly in the Justice Department, which may yet lead to that, particularly if the Republicans take control of both houses.

I wonder what would happen if one could assure the President that if he does not run, he can keep all the hard earned campaign funds that he has raised and would not have to spend. If this can be done, his optimal path would be to raise as much money as possible up until the time comes to spend it, and then decide to bow out, on the basis of some hitherto unknown health problem (like that of the perpetrator of the Lockerbie disaster.) He could then spend all his time in playing golf or whatever, and taking vacations, and even pontificating a la James Carter, to an admiring national press.

I first thought that the Republicans would gain from this, being able to have some other Democrat as presidential candidate in 2012. In fact most prominent Democrat politicians are insults to the human race, and would surely lose. But if the Democrats could convince either Chris Christie or the Republican Senator from Massachusetts to run as Democrats, they could win in a walk, so maybe the Dems could turn this into a win.

Some Economic Fallacies

The words that people use to describe things are often highly misleading, and they cause a great deal of mischief. Let’s look at some examples.

In speaking of taxes, there is argument and disagreement about “raising taxes”, but what actually do we mean by that phrase?

There are really two concepts involved here: one is raising tax rates, and the other is raising the amount of money brought in by taxes. It is often assumed that these are synonymous but this is usually wrong.

Generally speaking, when the cost of something goes up, less of that something gets purchased, and the total of all purchases of the thing may go down as the price of it rises. Thus, as every business person knows, the way to stimulate business activity when sales are sluggish is not to raise prices, but rather to reduce them, which is often done by running a sale. The way to get income to exceed expenses for a business is normally by lowering prices rather than by raising them.

Yet in government it is generally assumed that raising tax rates which represent the price of government, will increase tax revenue and not diminish it.

There is an obvious difference between government and business activities. In dealing with government you are forced to pay assessed taxes and will be penalized if you do not. Private activities are voluntary and subject to competition and this means that the lower profit margin available to a business during a sale can be made up for by increased market share, to produce a better net profit when prices are lowered.

There are many kinds of taxes, and there is something similar for each. The various states, for example, compete with one another for new business and for population through their state tax rates. It seems to be the case that low tax states usually do better than high tax states in this regard, and the increase in population and business activity in the low tax states even seems to lead to better public services in them, compared the same in high tax states.

Federal income taxes seem like they can only be avoided by moving abroad, or by taking advantage of quirks in the tax code that insulate taxpayers from rate changes. But that is not actually so. As a general rule, higher taxes affect the costs of doing business for the worse, and they can cause people contemplating starting a business to decide against it on that basis. This has a slowing effect on the overall economy and tends to reduce tax collection.

I recall reading years ago that most of John Kerry’s wealth was invested in federal tax free state bonds, which tend to go up in value if federal taxes rates increase. Raising federal tax rates tends to encourage individuals to purchase such bonds, and in this way can lower federal tax revenues. And of course people can invest abroad to avoid federal taxes here. But a more serious cause of the difference between increases in federal tax rates and federal tax revenues comes from the fact that not all federal taxes are mandatory. Capital gains, which are increases in the value of property are only taxed when the property is sold. A high tax on capital gains discourages people from selling the items whose value has increased. When capital gain taxes have been lowered, the selling of appreciated property has accelerated and that usually increases the capital gain tax collection.

The collections from capital gain taxes are exactly like commercial sales, in that running a sale increases collection.

And there are many other ways that people and corporations can use that employ the myriad of incentives and tax credits imbedded in our tax code to reduce their taxes, when tax rates increase.

So in fact, raising tax rates in most cases does not increase tax collections, except when they are imposed retroactively or the change in tax collection is measured over a time interval too short to register changes in taxpayer behavior.

Of course there are other important side effects of high taxes. Taxes act like a brake on the economy. The higher taxes are, the heavier the government foot is on the brake.

There are two ways to reduce the national debt. One is by promoting expansion of the national economy while keeping government expenditures down. The other is by inflating the currency so that the debt need only be repaid in worthless money. slamming brakes on the economy tends to make the former of these impossible. The latter will ruin us all.

Another example. Many pundits speak as if those with high income are the rich, and the rich have high income (I suppose income is measured by AGI which on your tax form is Adjusted Gross Income). But this is very far from true. Some of the very rich, like Senator Kerry, have most of their money invested in state bonds, and a relatively small AGI, since state bond income does not appear in that figure.

More importantly, many people with high incomes have such for only a few years of their lives, and are by no means very rich and will probably never be very rich. This includes those whose high income comes from sales of some family asset, like a family business, which income appears high for only one year. Others are people like star athletes who make large sums for only a few years of their lives

An important question on this subject is: what does it mean to be very rich? To have an estate over say a hundred million dollars (in current funds) can be said to be very rich today. Suppose we take that round number as a threshold for being very rich. Today, someone with income over $250,000 per year will pay approximately 40% of that in federal and state taxes. (or more with real estate and sales taxes included). Such a person cannot become very rich with an estate of $100 million now unless his total income before taxes over the years exceeds $165 million even if he never spent a penny on living

Raising taxes on people with incomes over $250,000 will have very little effect on the very rich, will increase the value of John Kerry’s portfolio, and will prevent some people probably including your children) from ever becoming very rich. and will hurt many people who are not really rich at all. It’s no wonder to me that people who now are very rich have no quarrel with higher taxes on income. It means little to them. Actually it means that there will be fewer others of them which renders them more special and important. It is those with income in the $300k range who would bear the brunt of the change, and unless they were born to great wealth they will never get there (unless of course they spent nothing and had this income for 500 years).

As a final example, there are some soi-disant economists who believe that government spending is capable of stimulating economic activity. The idea sounds reasonable. If the government spends money, that money will circulate in the economy; those who receive it will spend it and it will slosh around the economy producing economic activity.

This sounds quite reasonable, except when one asks, where does the government get the money that it spends to perform such stimulus?

There are actually three possible sources of money. One is through taxation: But the money spent that is paid for from funds raised by taxation, is money taken out of the hands of taxpayers. As a result they have available to spend or invest that much less money. The question then becomes, does the money spent by government have a greater effect in stimulating the economy than the money taken in taxation unspent would have had it had been spent by the citizenry taxed.

The second source of stimulus money is from borrowing. But again the money borrowed by the government is as a result of that borrowing, not available to be borrowed by businesses in the private economy. Thus it will lead to stimulus only if the government is more efficient than private borrowers would have been in expanding the economy.

There is a third source but that is a very dangerous one. The government can simply print more paper money. This is what our government has been doing lately in its quantitative easing policy. The trouble is, that money is a measure of wealth. If you increase the amount of money in circulation without changing the amount of wealth, you are actually reducing the wealth value of all money in circulation. You are in effect stealing wealth from anyone who is holding your currency. This kind of policy has always led to disaster wherever attempted.

Let us examine the questions raised in these last paragraphs. First, can the government stimulate the economy more efficiently than the citizens taxed would have if they had their tax money to spend or invest?

The answer to this question seems to be no! Government spending is intrinsically a drag on the economy.

Why? How come?

One problem is that the government spends other people’s money while private individuals or corporations spend their own money (or in the latter case money that the spenders will be held accountable for spending.) This means that government expenditures are required to go through extensive formal procedures to protect them from being stolen by corrupt government agents. Without such protection, and even sometimes with it, government spending has a tendency to go to friends of the government agents disbursing it, rather than to forward the public good. These formal procedures tend to slow down the speed with money circulates when it passes through government as opposed to when it remains in the hands of private spenders. In short, you can spend your money as soon as you see an opportunity to do so, while the government has to delay and delay when a similar opportunity arises.

The production of wealth in an economy is proportional to the “action” in it, and that action of an economy is proportional to the amount of money in circulation multiplied by the speed at which this money circulates. Thus, the slowing down that arises from the intrusion of government spending slows down the production of wealth and the GNP. This slowdown is typically by a factor of 1/3 or more.

There is more to economy than this. The actual production of wealth requires sustainable action that actually produces wealth. Much of government spending does nothing to do so rather it impedes it. Much of government operation consists of making ever tighter rules that inhibit wealth creation and certainly don’t help it. There are myriads of examples of this: efforts (that are failing) for the purpose of saving a species of owls has shut down almost all of the once multi-billion logging industry in the Pacific Northwest. The moratorium on drilling in the gulf, and in much of the country has effectively crippled another industry, as have ever more restrictive rules about almost every possible pollutant. These new regulations have almost no positive benefits to society and great costs. All the efforts of writing tax laws and collecting taxes are important to government but produce no wealth. And the time and effort that individuals and corporations must devote to obeying rules and paying taxes are all unproductive of wealth.

All human institutions, if left to themselves, start with promising motivation toward positive goals, but soon end up being run mainly for the people who run them and for their own employees, with their original stated purposes strictly secondary. Inner city school systems are a perfect example of this. The systems fail to meet the needs of a majority of their students, but they do well by their teachers other staff and administrators. It is very rare that one of these is fired for incompetence, though the systems are functionally incompetent. In general government employees get to bargain for improved benefits and conditions with politicians whose campaigns they contribute to, a situation that is the epitome of corruption.

If left unchecked government employees evolve into an aristocracy, with special rules and privileges unavailable to the private citizen. Actually aristocracies of the past consisted of those who had especially served their king or tyrant; just like high level civil servants. And in the Soviet Union, society was highly stratified, with the higher levels of civil servants allowed to shop at separate stores and go to separate hospitals from those available to ordinary citizens. This is still true in North Korea. What is most embarrassing about all this is that the government eventually fails to perform its basic functions effectively as in North Korea, the USSR and many other countries.

There is even another disadvantage to government spending. What is valuable to an economy is wealth producing expenditure and more particularly, sustainable wealth producing expenditure. Mere spending that is neither of these has the effect of crowding out the important sustainable wealth producing expenditure.

For example, I have observed that many people will not seriously look for jobs until their unemployment compensation runs out. Thus extending unemployment compensation periods tends to keep these people out of the job market, even when they could get jobs.

Another example: it is not a coincidence that the areas that have received the most pork government spending (West Virginia and Western Pennsylvania) have remained quite poor. Powerful congressmen put people to work on pointless public works thereby crowding out the natural development of sustainable wealth producing businesses. When these projects ended there was little of the latter left.

And another: Government spending and incentives were the biggest factor in producing the housing boom which produced an unsustainable glut of housing. The ending of this boom produced the recession of 2008 which is still with us.

In all of these ways government expenditure is a drag on the economy. It is no wonder therefore that the massive government expenditures of the “stimulus” actually tended to cripple it.