The Point of the Pencil
The visible hand of ideology or the hidden hand of magic? The oligarchs are clear which they want you to believe in. Keep the faith and they keep their power. That’s the way they prefer things. But sometimes things get awkward …
PART ONE:
In the aftermath of the recent New York City mayoral primary election the Financial Times said this:
“Leftwinger’s bid to be New York Mayor spurs Wall St. hunt for a moderate rival”
It seems that the oligarchs are upset because the locals are restless. The relentless attacks of the rentier class have so frayed the fabric of society that the proverbial pitchforks are out. Worse: the left-winger the FT is referring to is charismatic, engaging, young, and likely to win. The preferred candidate of the grandees of the Democratic Party was a throwback to the good old days when the ugly mob was of no concern to the elites. How dare they intrude into matters of high state? They simply don’t have the education or perspective to understand the necessities of sacrifice embedded in all policy. Or, perhaps, they feel that they’ve sacrificed enough.
The coddled and heavily subsidized denizens of Wall Street are in a tizzy because the winner of the Democratic Party primary isn’t the usual dull, so-called “mainstream” or “centrist” candidate. He is, the devious devil, more connected with voters rather than with business. That makes him radical. It make him dangerous. Moneyed folk will have to mobilize to stop this democratic uprising before it undoes the carefully erected support system that enables rentiers to make their rents. Bill Ackman, one of our more outspoken anti-social oligarchs, is quite clear when he vows to stop the upstart. Ominously for the rich people, though, one of the upstart’s supporters — someone who has observed him first hand — says “There’s not enough money to stop him.”
Oh dear, what are the oligarchs to do?
And who knew that the simple concept of “affordability” could be such a potent rallying cry? More than all the social justice siloes added together, affordability appears to provide the foundation upon which a winning coalition can be built. It’s as if the peons aren’t happy with the lot assigned them by the bigger people.
Oh dear oh dear, what are the oligarchs to do?
A modest translation illuminates the conundrum now facing them. Just one word change is all we need. Out goes the word “moderate”. In comes the word “compliant”. Now we see the true extent of the problem: this guy is not for sale. It’s an ugly moment for democracy when a politician cannot be bought. Whatever next?
Wasn’t the entire purpose of the business seizure of power during the 1980s ands 1990s under the rubric of neoliberalism supposed to be that democracy was purchased and bent to the benefit of profit? After all the flood of money into elections and the pockets of Supreme Court justices was not an act of charity or simple minded generosity. This is business. It was meant to buy something. Power. Power to make profit and avoid the pettiness of the whims of ordinary people.
That sounds a little raw doesn’t it? It must be unpalatable to many of you who still cling to sentimental ideas of democratic “values” and so on. But then most of you aren’t aware of the Powell memorandum that energized business and propelled it into political action back in the late 1970s. And many more of you simply want to pretend that the money that flowed into various university economics departments back in the postwar years was just good-hearted giving by people who had no interest in the outcome of the research supported by their money.
Stop being naive. Let me explain:
For the oligarch elite hiding the visible hand of ideology is vital. Whatever we do, they must keep up the pretense that there is an economic order of things that follows laws of nature, and, as we all know well, you can’t muck around with the laws of nature. Business is just business. Rotten outcomes are normal everyday byproducts of nature. Everything that business does is just, well, natural. If bad things happen for the lesser folk that’s too bad. Fighting against those outcomes is pointless. So, voting for someone who claims otherwise of simply a fool’s errand.
The legendary concoction called “hidden hand” has been given its mythic status precisely because it looks like a force of nature and seems to exempt business from any intention that might affect the way in which the results of economic activity are shared amongst us all. We can all debate whether Adam Smith would agree with how his metaphor has taken on such iconic status — Glory Liu certainly suggests he would be fairly disgusted at its modern usage — but we can all agree that it has been really helpful as a disguise or distraction in allowing business to carry on as if innocent.
The purpose of the “hidden hand” is to distract us from the visible hand of business ideology that is the real power shaping the economy and society as a whole.
Puncturing this illusion is too big a risk. Hence the search by the oligarchs for a more compliant political alternative. As I said: what’s the point of democracy if it can’t be bought and bent to the benefit of oligarchs like Ackman?
PART TWO:
I ruminate on this because three times within a few days I have come across references to the embarrassing and obviously ideological essay “I, Pencil”. You can get your own copy of it at the Foundation for Economic Education. As propaganda it is priceless. As a description of a real world economy it is simply weird. The goal is not to educate but to indoctrinate. Its lack of realism is awe inspiring. Its eloquence undoubted. Its goal simply to make sure that young minds do not err onto intellectual territory less amiable for the oligarchs.
That New York City election makes quite clear why such indoctrination is so necessary.
This conclusion is reinforced by the essay’s use by no lesser an ideologue than Milton Friedman in a famous televised appearance, during which he waxes lyrical about the capacity of “the market” to bring together a pencil as if by magic. Friedman was no shrinking violet in his role as front man for the visible hand of ideology. “I, Pencil” was the perfect script for his mission. Indeed, in an afterword appended to the essay he says this:
“It is even more astounding that the pencil was ever produced. No one sitting in a central office gave orders to these thousands of people. No military police enforced the orders that were not given. These people live in many lands, speak different languages, practice different religions, may even hate one another—yet none of these differences prevented them from cooperating to produce a pencil. How did it happen? Adam Smith gave us the answer two hundred years ago.”
My goodness! The magic is breathtaking.
No one. Not a single person. Ever. Sat in a central office and gave orders. Never. Not at all. It was all simply happy cooperation. As Cyril Hedoin recently reminds us it was vital to the anti-democratic views of the neoliberals that any form of central planning be dismissed as not just economically impossible, but as morally impermissible also. These were the Cold War years after all. Ideology mattered more than empiricism.
So “I, Pencil” is an excellent example of Cold War economics, which is the sort of economics developed in America in the 1950s and 1960s and designed specifically to play an ideological role. Economists like Friedman, and Hayek before him, deliberately blurred the lines between economics and politics because they saw themselves on the front lines of “freedom’” defending us from the predations of the state and the evils of central planning. “I, Pencil” is a prime example of the product they used to sell their politics to a public needing re-orientation away from the evils of the New Deal and its sundry state interferences into the wonders of “the market”.
Friedman was happy to recapitulate the political message of an essay that uses the following words — coming from the mouth of the pencil no less:
“Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my kind produced in the U.S.A. each year.”
I challenge you to watch “the market” to assemble a pencil. You will be waiting a while.
And the news that “not a single person on the face of this earth knows how to make me” is probably quite upsetting to the good folks who manufacture pencils at Ticonderoga and at all the other businesses dedicated to pencil making.
The essay talks blithely about all the components of pencil making as if they happened magically without any coordination other than the magic of “the market”. There are glib references to mining, milling, and transport, but there is no mention of the management involved in those activities. Then there are casual mentions of various groups of people whose hands touch the necessary bits and pieces needed to manufacture a pencil. But there is a remarkable lack of description of the organization needed at each waypoint to ensure that all these intermediary steps can be merged into a final product. “The market” is, apparently, inhabited only by a horde of individuals who have minimal contact with one another, do not engage in design, do not engage in coordination, do not think about supply chains, and absolutely have no idea of what’s going on. They just act alone. They are mere automatons and are limited parts of a greater machine. Crucially, they are all passive. Only “the market” plays an active role.
Organization, we are left to believe, is what “the market” does. And, the glory is that it does it all comes together via the magic of the invisible hand:
There is a fact still more astounding: The absence of a master mind, of anyone dictating or forcibly directing these countless actions which bring me into being. No trace of such a person can be found. Instead, we find the Invisible Hand at work
Again, this must surprise the management at the pencil factory. Apparently the activity we call business recedes into the background leaving only “the market”in the foreground to awe onlookers with its magic. A magic sufficient to mislead generations of economists let alone the unknowing public.
That erasure of the role of business was no accident though. It was deliberate. Cold War economics had a bifurcated objective: it both created the anti-state intellectual framework needed to defeat central planning whilst it also hid the reality of business as a political force. The dis-embedding of economics from the pre-existing theories of political economy was essential if the role of power, and the role of business in politics, was to be expunged from consideration.
All those donations poured into elite university economics departments paid off: economics was diverted from discussing actual economies and shunted into irrelevance as it discussed itself, its various models, and its methods. Safely neutralized it was no longer interested in actual economic activity, and so business and its surrounding cast of wealthy individuals had successfully foreclosed on a potential source of criticism.
Fairy tales such as “I,Pencil” were the consequence of the desire rich people, who deeply regretted their loss of status and control during the New Deal years, to re-establish their control over society. The neoliberal takeover of power in the 1980s and 1990s was too prolonged to call a “coup”, but the net effect was the same. By the end of the twentieth century business was back on the perch it had occupied throughout American history. And democracy had been hollowed out — perhaps destroyed — along the way.
Which is why the hint of democracy in the recent election is of such concern to our oligarchs.
PART THREE
Hence Wall Street ’s reaction to New York’s election. Back in the Cold War business had the same issue. They needed compliant politicians who could be relied upon to restore the supremacy of business interests in the legislative process. All that postwar New Deal democracy had cost a lot. The rich folk were hurting. Social programs limit profits. Obviously things had to change.
Which is where economics stepped up. What better a way to re-establish business and to diminish the state than to proselytize “the market”, which as “I, Pencil” makes clear has nothing to do with business. It’s just that invisible hand magic. And all sorts of people self-organizing and, quite by chance, cutting down logs, mining stuff, and shipping it all over the place. At the end of which a pencil pops out. No business involved. Not at all. Just “the market”. The essay actually refers to “millions of tiny know-hows configurating naturally and spontaneously in response to human necessity”.
Configurating?
Absolutely. One morning a bunch of people randomly bumped into each other in a forest. Naturally. And they configured spontaneously and cut down some lumber. It happens all the time. People just cohere suddenly into these configurations. No one has any intent. It just seems to happen that way.
So not only was there no intent, design, or invention of a pencil, there was no manufacturing process, ordering of supplies, identification of consumers, marketing, hiring of workers, purchase of machinery, acquisition of cash, or any other aspects of business.
It was all so … natural.
Thus we are saved from the predations of the big “know-hows” we call the state.
And so it goes. The imperative of denigrating the state overcomes any attempt at realism. Descriptions of the economy become caricatures. The choices of economists of what to leave out tell us all we need to know. The process of abstraction allows reality to leak away until we are left with a few suggestive strokes on the page — just enough for us to conjure up an image of “liberty” when nudged suitably by a professional ideological hack like Friedman. With liberty carefully defined as the absence of the state.
Such is Cold War economics. The invisible hand of economics is the visible hand of business. Power relations are eliminated on one hand so they can be preserved on the other. Business disappears from the machinery of “the market” in textbooks so as to continue to dominate in reality. It takes a great deal of skill to abstract away the right things so as to arrive at the right answer. Economists have developed and honed those skills. They cover the intellectual flanks of business with all sorts of natural laws.
PART FOUR
The essay derives its own inspiration from Hayek’s equally iconic paper “The Use of Knowledge in Society”, which deserves fame as a contribution to the identification of evolution and complexity as cornerstones of any realistic enquiry into real world economies. Sam Bowles sums up Hayek’s importance in this regard when he says that it was this paper above all else that established the notion of “the market” as being an information processing system. Note the word “processing”. Not simply communicating. It’s a subtle difference. The existence of processes suggests that information plays many roles. Indeed it is fundamental to all economic activity.
A product design is information. So is a production line. So is a marketing campaign. So is a supply chain. So is … everything.
It brings to mind Archibald Wheeler’s “it from bit”, or Cesar Hidalgo’s “information grows”. Economists still stumble over information. Their ideas have roots that predate the information age, so they are stuck with communication as the pre-eminent description of information. They fail to see it as, along with energy, the basic input to economic activity.
Businesses are also information processors — more so than “the market” because business uses information as input as well as communication device. But — I forget — business is not part of economics. Which opens the space for Friedman to wax lyrical about magic.
Hayek’s attack is on central planning at the level of the state. In other words it is an attack on Soviet era economic management. Hayek is adamant: it’s just too much to ask for a single “person” or “authority” to gather all the information “needed” to coordinate an economy. They are far too complex. Information often contradicts. And, in any case, there’s just too much. Its a computational impossibility. So central planning is impossible.
Tell that to the central planners at Apple et al.
But Hayek creates a paradox:
It is this computational conundrum that undermines any subsequent claim economists might make about the relative efficacy or efficiency of “the market” — how would they know? They cannot compute all that information to draw a conclusion. By claiming that central planning is computationally impossible they have blocked their own ability to identify any systemic superiority. After that it’s all ideology. If an economy is computationally opaque and obscure in one analysis it must be in all analyses. Inscrutability is not optional. It is. Or it isn’t.
As Hayek says: the information exists. There’s just too much. So no one knows what economic organization is “best” or “optimal” in the real world. But to admit that economics is all just a construct designed as an ideological counterpoint to the Soviet Union is a step too far. So we keep on pretending. And we keep reverting to two-dimensional charts in a hyper dimensional world to explain what’s going on.
Which reinforces the larger ideological point: it is one thing to ignore reality in an attempt to theorize about an economy, it is quite another to ignore business, unless, of course, you want to downplay its role in politics.
For the followers of Hayek, the dictatorial consequences of central planners is such an anathema to “liberty” that it needs eradicating root and branch. Except, that businesses are precisely centrally planned economies. Not at the state level obviously, but there is an abundance of central planning throughout the economy. Which rather suggests that “the market:” cannot get the job done without a lot of help. Planning, it seems, is essential to getting stuff done. Which is why economists ignore business.
Any subsequent re-introduction of business organization — as Coase famously attempted — presents a major problem. Once you have climbed your fitness peak built on the superiority of “the market” over and above central planning, it’s hard to climb down and start over. So you don’t. You go all in. You invent explanations like transaction costs that preserve “the market” as the preferred and superior coordinator and which allow you to ignore the firm as anything but a “nexus of contracts” embedded in a wider sea of contacts.
Who negotiates those contracts, and why, we ought not ask. Because central planners do. Whoops.
Hopefully this act of obfuscation blurs our vision sufficiently to take our mind off the still remaining question that Coase posed: if “the market” has all those super powers, why do firms exist at all? Stuck as we are at the top of the wrong fitness peak we simply pretend to have resolved the problem and we move on. Which is what propaganda like “I, Pencil” seeks to do simply by ignoring business in the first place.
It is this remarkable absence of business organization in the story that is one of the tell-tales of Cold War economics. Clearly, the ideological goal is to proclaim the supremacy of “the market”, not to describe the real world. And “the market” is left as an ill-defined amorphous collection of individuals who, periodically, “configure spontaneously”.
Really.
And the Ford Motor Corporation does not exist. Really. Or GM. Or Google. Or …
And, just like that, with the active agents we know as businesses swept off the stage, Cold War economics brings us “liberty”. How convenient. Liberty!
For whom?
Check who donates and supports the Foundation for Economic Education. Or the University of Chicago economics department for that matter.
The visible hand of business?
Meanwhile, about that mayoral election. We need someone more compliant moderate. Someone who, for instance, will take into account “business interests” rather than listening to the masses of mere “people”.
Obviously.
