33. Prosperity Gospel vs. Austerity Gospel

A bit of a digression for this holiday season post...

Mike Konczal (of the blog Rortybomb), links toa pair of articles in The Atlantic on two different religious movements that involve questions of ethics, economics and debt:

The first is an article by Megan McArdle on Dave Ramsay, who preaches his gospel of living debt-free in evangelical churches and to the secular world as well:

"On a fine summer day at the end of August, I paid $220 for front-row seats on the floor of a minor-league hockey rink in Detroit, just to hear Ramsey talk for five hours. The ostensible topic: getting your financial life in order. Afterward, my fiancé, who grew up in the Bible Belt, called me to ask what I'd thought.

'I think I just attended my first prayer meeting,' I told him.

There was, of course, a great deal of talk about money, and what to do with it. But the format was more tent revival than accounting seminar, with the first 90 minutes or so mostly devoted to Ramsey’s personal story of ruin and redemption. We heard how, during the second half of the 1980s, a young Ramsey built up a multimillion-dollar real-estate empire—then lost it all as the bank got nervous and called his loans, ultimately forcing him and his wife into bankruptcy. How, searching for help in his hour of need, he turned to the Bible and discovered Proverbs 22:7: 'The rich rule over the poor, and the borrower is slave of the lender.' At that moment, he told an audience so hushed that we could hear the ice squeak, Ramsey decided to never borrow another dollar again."

The second is an article by Hanna Rosin on 'The Prosperity Gospel'

"That Sunday, Garay was preaching a variation on his usual theme, about how prosperity and abundance unerringly find true believers. 'It doesn’t matter what country you’re from, what degree you have, or what money you have in the bank,' Garay said. 'You don’t have to say, 'God, bless my business. Bless my bank account.' The blessings will come! The blessings are looking for you! God will take care of you. God will not let you be without a house!'

Pastor Garay, 48, is short and stocky, with thick black hair combed back. In his off hours, he looks like a contented tourist, in his printed Hawaiian shirts or bright guayaberas. But he preaches with a ferocity that taps into his youth as a cocaine dealer with a knife in his back pocket. 'Fight the attack of the devil on my finances! Fight him! We declare financial blessings! Financial miracles this week, NOW NOW NOW!' he preached that Sunday. 'More work! Better work! The best finances!' Gonzales shook and paced as the pastor spoke, eventually leaving his wife and three kids in the family section to join the single men toward the front, many of whom were jumping, raising their Bibles, and weeping. On the altar sat some anointing oils, alongside the keys to the Mercedes Benz."

Reading the two articles, I was struck by how the two different approaches picked up different elements from the commercial set of ethics that Jacobs described in Systems of Survival: Ramsay emphasizes thrift, and investing for productive purposes while the prosperity gospel emphasizes optimism and the promotion of comfort and convenience. Neither one really seems quite right on its own. Ramsay's approach would cutoff prudent borrowing to fund a business venture while the prosperity gospel seems to just encourage imprudent borrowing in the belief that God will provide one way or the other.

Anyway, it's some interesting reading.

32. Moral Conditions of Economic Efficiency, Part 3

Note: This post is the thirty-second in a series. Click here for the full listing of the series.

Chapter 4 of 'The Moral Conditions of Economic Efficiency', by Walter Schultz, takes on the notion that even though strict rational eogists may not be able to achieve economic efficiency immediately, their behaviour will settle into an efficient pattern as they (strictly rationally) adopt rules that prevent their selfishness from keeping them from achieving efficient outcomes.

For example, back here, I quoted a Washington Post article which read,

"[Alan] Greenspan had an unusual take on market fraud, Born recounted: "He explained there wasn't a need for a law against fraud because if a floor broker was committing fraud, the customer would figure it out and stop doing business with him."

Schultz first argues that, although coordination type situations (e.g. choosing which side of the road to drive on) enable strict rational egoists to form rules that are to everyone's benefit, exchange is not a coordination type situation. The reason is that a coordination situation allows everyone to achieve an optimal result, whereas in exchange, each person's best option is to get what the other person is offering without parting with anything themselves, by way of force or fraud if necessary. But it's not possible for both parties to come out ahead on exchange by cheating each other, so this makes exchange a collective action or Prisoner's Dilemma type problem.

Next, Schultz argues that 'the shadow of the future', i.e. concerns about what might happen in the future, will not cause strict rational egoists to refrain from force and fraud. I'm not sure I quite follow Schult'z argument on this point, so I'll quote him,

"we have already shown that strict rational egoists will always choose the best feasible means to achieve their most highly valued social state, so when similar situations emerge [in the future] inefficient outcomes result."

As best I can tell, Schultz is arguing that strict rational egoists are not capable of prudence in the sense of weighing the benefits of theft/fraud now against the benefits of cooperation over the long run. Schultz could make the case that this sort of prudence is itself a moral rule that does not belong in our sketch of the strict rational egoist but he doesn't make this argument explicitly.

The question of whether (strict) self-interest leads to cooperative behavior in collective action problems that are repeated is one that has been much studied and I will likely come back to it later on in the series. For now, I'll simply note that despite morals against force and fraud, and the presence of a government that will punish you if you are caught in such activities, we are far from eliminating these behaviours entirely, so the 'shadow of the future' (as game theorist refer to the effect where concerns about future results influence present decisions) may help some, but it seems incapable of playing the role Greenspan imagined it playing, where no rules against fraud are necessary.

In chapter 5, Schultz discusses externalities. He defines externalities as follows: "An externality is an uncompensated cost or benefit that may be intentional, accidental or incidental."

...and clarifies that...

"Acts of theft and fraud directly affect the well-being of consumers and exemplify intentional externalities. Harm resulting from negligence or from an accident exemplifies an accidental externality. Externalities also include incidental effects of the acts of production and consumption."

He goes on to comment that, "To assume that all externalities are absent and that every agent behaves competitively is to set aside the role of morality. The system of moral constraints presented in Chapter 6 secures competitive behaviour and eliminates intentional externalities but makes no provision for the internalization of accidental and incidental externalities."

Schultz then claims that:

1) A system of moral normative constraints precludes externalities due to intentional consequences of nonmarket action.

2) A system of moral normative constraints and conventions rectifies accidental and incidental externalities.

3) Moral normative constraints and conventions coordinate expectations and thereby reduce transaction costs

4) Moral normative constraints are the logical limits of the commodification of desire.

Schultz explains the first 3 points: "We have established the first claim. Claims (2) and (3) are based on the general goals of tort law, property law and contract law, respectively, and have been established."

To be honest, it wasn't clear to me how claims 2 and 3 have been established, but never mind.

Schultz says no more on the first 3 points and devotes the rest of the chapter to an explanation of point 4, arguing that the desires of people that we recognize in calculating the effects of externalities are limited by the rights that people need to have in order to secure economic efficiency. In other words, my desire to have you a slave is not recognized as a valid preference since if you don't have autonomy to make your own decisions we won't achieve the same efficiency that we might have (because you can't pursue your preferences properly, if you are my slave).


---

In chapter 6, Schultz sets out what he sees as the moral conditions of economic efficiency. Note that where I might say, for example, that people need to follow a moral rule to 'be honest', Schultz instead says, using the same example, that people have a 'right to true information' and that people also have a moral incentive to respect that right. It amount to the same thing, as far as I can tell.

The Moral Conditions of Economic Efficiency per Schultz:

1) Property Rights - meaning that people can't mess with your stuff and you can do what you want with your stuff.

2) Right to True Information (that is relevant to a potential exchange) - meaning that you shouldn't tell your car insurance company that your car is just for personal use, when really you drive to work and back every day.

3) A right to welfare - Schultz recognizes that given a choice between stealing or starving, people will and should choose the latter because the right to life takes precedence over the efficiency based rights. Plus Schultz makes an insurance argument (that seems a bit out of place) that it is more efficient for basic welfare to be assured centrally than for everyone to self-insure against deprivation.

4) A right to autonomy - without autonomy, people can't make exchanges that match their preferences, so autonomy is a precondition for trade as we understand it even being possible.

Schultz also notes that we need some mechanism by which people are held accountable for their behaviour in recognizing these rights as well as a set of conventions for setting prices and conventions and normative constraints for commodifying desire and for rectifying the results of accidental and intentional externalities.

---

I realize that this post doesn't really show all that clearly how Schultz gets to his final requirements, but that's likely because it wasn't all that clear to me reading the book.

Canada's Back

The Conservatives used to complain that the Liberals were hypocritical for talking a good game but not taking a lot of action on the climate change front. I guess we all knew that once in power the Conservatives would avoid this hypocrisy by refusing to talk a good game.

For example, see this Maclean's article headlined, "Suddenly the World Hates Canada" To be honest, I'm not sure how this means Canada's back¹, since I don't recall the world hating Canada at any point in the past, but I'm sure Harper can explain.

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¹Harper, in a 2007 speech, noted that since the Conservatives had taken charge, Canada was 'back as vital player on the world stage'.

31. Moral Conditions of Economic Efficiency, Part 2

Note: This post is the thirty-first in a series. Click here for the full listing of the series.

Chapter 2 of 'The Moral Conditions of Economic Efficiency', by Walter Schultz, sets out to answer the question, "Can a population of strict rational egoists achieve efficient allocations of commodities in the absence of moral normative constraints?"

To answer this question, Schultz first constructs a social situation that depicts ' Strict Rational Egoism'. It is defined by 9 parameters.

The first 2 parameters describes the preferences held by agents (people who are strict rational egoists) in this model:

(p1) Each agent's preferences range over alternative social states defined solely in terms of their own consumption bundles

(p2) Agent's preference relations are stable. rational and locally non-satiated

The first basically says that people prefer one situation to another based on how much stuff they get (and not based on how much stuff other people get, or what people think of them, etc.)

The second basically just says that, whatever they have, they want more (and also that their preferences 'make sense' - they don't prefer apples to bananas, bananas to pears and pears to apples, and they don't prefer chicken to steak one minute and steak to chicken the next)

The next 3 parameters define how agents make decisions:

(p3) Agents' goals are selected according to a utility maximization criterion (i.e. the more the better)

(p4) Agents' beliefs depend only on information (and not on, for example, force of habit)

(p5) Agents are sufficiently and instrumentally rational (i.e. people try to get the most results for the smallest effort/expenditure of resources, think back to Patience saying how she never gives out money she doesn't have to).

The next two parameters define the positive (physical) limits of the situation.

(p6) Agents are constrained by a perfectly competitive market: numerous participants, homogeneous products, freedom of exit and entry, and perfect information (I covered perfect competition back here)

(p7) Agents control finite resources (seems reasonable)

The last two parameters define the social, or normative limits of the situation

(p8) There are no moral rules (that's what makes strict rational egoism 'strict'!)

(p9) There are conventions to equilibriate supply and demand (in other words, there is a mechanism for setting prices)


After setting out his 9 parameters, Schultz launches into a multi-page proof of the first welfare theorem, namely that the equilibrium result of perfect competition will be a pareto-optimal allocation of resources (i.e. nobody can be made better off without anyone being made worse off). The proof basically comes down to pointing out that if two people could make a trade that would benefit both of them (give them more satisfaction), they will, since they want more (by definition) and there is nothing stopping them from making the trade.

The reason Schultz goes through the proof in detail is to note that it relies on some elements that go beyond his 9 parameters defining strict rational egoism. In particular, it relies on 'price-taking' behaviour by people (i.e. people make no effort / have no ability to influence prices) and it also relies on specifying that externalities do not exist.

Schultz goes on in chapter 3 to explain how we can't assume that people act as 'price-takers' (externalities are covered in a later chapter and a later post) because they choose to trade at a given price even when they could take some alternative action (e.g. just take stuff from people, or trick them into giving it to you) because one of the given parameters (p5) says they wouldn't act that way, and if we remove (p5) then that will make the proof of the first theorem fail as well (if people aren't trying to get all they can, the market won't lead to a Pareto-efficient final outcome). So the only way out is to assume that people are not capable of committing acts of fraud or force that would let them get what they want. But the physical reality of markets means that people will have these opportunities.

Schultz explains how in a market where prices are set by an auctioneer (a common economic model of how prices are set), even if people refrain from using force and outright fraud, they can simply misrepresent how much they are willing to pay for certain items and this will benefit them at the expense of others (much in the manner that one seldom enters a negotiation by stating up front just how much they would be willing to pay for an item), causing the outcome not to reach a Pareto optimal outcome.

Another way out would be to assume some sort of Leviathan style referee who prevents/punishes force or fraud - but if the referee is a strict rational egoist (and everybody is in this model) then they will logically use their superior force to simply take everything they want.

Finally, the only solution left is a normative constraint, either directly on the market participants, or on the referee. People must decide for themselves not to take advantage of opportunities for force and fraud where they inevitably arise.

In a nutshell, what Schultz is saying is that when proofs of the economic efficiency of trade assume that people are 'price-takers' they are assuming a certain moral behaviour (restraint from force and fraud even where this would be beneficial to the person in question) that is inconsistent with people being strict rational egoists.

Note that *if* people could read each others minds so that they could never be fooled, and *if* there were not just a large, but an infinite number of buyers and sellers in the market and *if* everyone was capable of effortlessly defending possession of all their goods against any attempts at theft, and *if* we similarly assumed away any other possibilities for non-price taking behaviour, then we could agree that strict rational egoists could reach pareto-optimal outcomes.

The point is that once we take into consideration real factors that affect almost all real markets (people can't read minds, people *can* steal things and deceive others), the 'invisible hand' notion that people can achieve a good outcome (economic efficiency) by pursuing their own interests (via strict rational egoism) fails, unless supplemented by moral rules.

In the language of the previous post, in a world of people like Patience, economic efficiency will fail because Patience lacks a willingness to act as a price-taker, whereas in a world of people like Mal, it will succeed, and the difference between them is a difference in morals - Patience is a strict rational egoist, Mal is not.

Media Illiteracy

From the Globe and Mail:

"Seven of the members of the Group of 20 nations are on a trajectory that will leave them with debts bigger than 75 per cent of their economies by 2014" ... "Even in Canada, a relative paragon of fiscal prudence, the combined gross debt of the federal and provincial governments is on pace to reach 79 per cent of gross domestic product next year"

So here's 3 statements in those 2 paragraphs:
1) 7 out of the G20 nations will have a public debt/GDP ratio above 75% by 2014.
2) Canada's ratio will be at 79% next year.
3) Canada is a relative paragon of fiscal prudence.

OK then.

Since I'm posting, I have to say I find it somewhat mystifying how much more attention high levels of public debt get vs. high levels of private debt. I understand there being some more focus on the public debt, but the ratio seems way out of proportion - especially given events of the last few years.

30. The Moral Conditions of Economic Efficiency

Note: This post is the thirtieth in a series. Click here for the full listing of the series.

The next few posts will discuss the book, 'The Moral Conditions of Economic Efficiency', by Walter Schultz. It is a similar book to 'Morals by Agreement' by David Gauthier in that it looks into what morals would be needed to achieve economic efficiency under conditions of perfect competition (recall that Gauthier argued that a market under perfect competition was a 'moral-free zone').

In, The Moral Conditions of Economic Efficiency, Walter Schultz sets out to show that the 'invisible hand' (as encoded mathematically in the First Theorem of Welfare Economics) won't function without the participants in the market having some moral constraints on their behaviour. It does this by constructing an abstract representation of the world containing what Schultz refers to as 'Strict Rational Egoists' (i.e. people who follow the narrow version of self-interest as discussed back in this post) and showing that market interaction of these 'strict rational egoists' would not lead to (pareto) efficient outcomes.

It's an academic book, and the material is pretty abstract, so I thought I'd offer a more concrete example before launching in to a summary of the argument in the next couple of posts.

---

The pilot to Joss Whedon's short-lived cowboys in space TV series Firefly opens with Mal, captain of an outlaw trading vessel, and his crew 'salvaging' some valuable cargo (condensed food) from a wrecked ship.

Later on in the show we find out that the food has been stamped with a government sign so the original buyer backs out and now Mal needs to find a new buyer. Given that the cargo was obtained illegally and is marked as such, both sides to the transaction will have to be outlaws, or in other words, the exchange will take place without any formal constraints in the form of government oversight or legal penalties for rule breaking. And since both sides to the transaction are outlaws and rule-breakers so they can't be expected to hold to any particular moral code themselves.

A process of elimination leads Mal and his crew to the conclusion that the only person ¹who might buy their goods is Patience, the local ruler of an out of the way moon, notwithstanding the fact that the last time they met, she shot Mal.

Arriving on the moon, Mal and his crew first bury their cargo so that it can't simply be taken from them by force. Then Mal tells his henchman to take out the snipers Patience will have waiting for them in ambush, warning him, "Don't kill anyone you don't have to, we're here to make a deal²"

When Mal and his second in command come face to face with Patience, who has brought a number of men with her, Patience suggests that she brought the extra men because she was concerned that Mal might be motivated by vengeance, but he replies that he is 'just doing the job, not looking for surprises'.

Mal tosses Patience one piece of their cargo (food) to prove they have a real cargo, and then Patience tosses Mal the money (the tossing helps keep a safe distance between them). Mal tells Patience the location of the cargo and then suggests he'd prefer it if Patience left first (not wanting to turn his back and get shot).

Patience tells him there's a hitch, and Mal replies, 'we both made out on this deal, don't complicate things' (i.e. the deal was pareto-efficient, so there's no cause for greediness)

Patience tells him she has a rule that she never lets go of money she doesn't have to. In reply, Mal tosses the money back to Patience, meaning they could just part without making a deal at all.

Despite his offer, violence erupts, Mal's side is victorious and he ends up standing over Patience with a gun pointed at her. But instead of shooting her, he simply takes back his money, commenting that, "I do the job, and then I get paid".

So the transaction ends up being entertaining, but it is not very efficient in the sense that a lot of resources were used on both sides (burying the cargo, bringing accomplices, shooting people and horses, etc.)that wouldn't have needed to be used if they could have just trusted each other.

Its the sort of inefficiency that led Hobbes to conclude that life in a state of nature would be 'nasty, brutish and short' but note that the transaction does end up meeting Schultz's definition of efficiency, since both sides benefit from the exchange - Patience gets the food and Mal gets the money (since both parties are better off after the exchange, it is Pareto efficient).

But note that the only reason the outcome turns out this way is due to the moral code followed by Mal, wherein even though he had the opportunity to take his money and keep his cargo as well, he chose to make the exchange as if it had been made honestly and without resort to force by either side. So although both sides apply force and fraud in their dealings with each other, Mal and company are applying those in the service of achieving an efficient exchange which benefits both parties, whereas Patience and her henchmen are employing force and fraud in an attempt to achieve a Pareto-inefficient exchange that benefits them at the expense of Mal and his team.

In a nutshell, what Schultz ends up arguing in The Moral Conditions of Economic Efficiency is that an economy composed only of people like Patience, who 'never give up money when they don't have to' will lead to economic inefficiency and only by adding in people like Mal who restrain themselves from 'strict rational egoism' (taking what they can get) based on normative constraints (i.e. moral rules) can the 'invisible hand' work to achieve a pareto efficient distribution of goods.

Schultz does this by first establishing precisely what it means for someone to be a 'strict rational egoist' and then showing how the proof of the first welfare theorem fails to hold if participants in a market are strict rational egoists.

Having done that, he then goes on determine just what sorts of normative constraints are required to make a market work (Pareto) efficiently. But those are topics for subsequent posts.

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¹This is a violation of one of the conditions of the first welfare theorem and perfect competition - that there are multiple buyers and sellers, but even if there were more options, it's hard to see how that really changes the point much in this particular instance.

²The comment reminds me of Jane Jacobs, describing how Moses distinguished between when the Israelites have been a military force, 'killing and pillaging their way through territories' and when they instead bought passage through other people's territory and that in these cases they should stick to the highway, 'invading neither left nor right, taking heed to their good conduct'.

29. Community and Market Economy

Note: This post is the twenty-ninth in a series. Click here for the full listing of the series.

A while back, in reviewing Mancur Olson's 'Logic of Collective Action', I included a long passage that Olson quoted from 'Community and Market Economy' by Hans Ritschl and I noted that Ritschl sounded a lot like Jane Jacobs in Systems of Survival.

So I eventually got around to tracking down a copy of 'Community and Market Economy' for myself. It's a relatively short essay, and Ritschl devotes most of it to differentiating the 'Community' economy from the 'Market' economy. He starts by describing the State economy, which he considers as an actually existing type of economy, and then, by contrasting the State economy with the free market economy, attempts to determine the characteristics of a pure 'communal' economy (which the State economy resembles in some ways).

"Both the state economy and the free market economy presuppose a group of persons whom the economy encompasses and by whom it is carried. But there is a great difference in the form of social cohesion within these groups. The free market rests on an exchange society...

The elements of this exchange society include economic units of the most diverse social structure: family associations ... co-operatives, foundations and clubs ... and associations formed to secure profits. Whatever the principle of cohesion in the internal structure of these units, the social relation among them is that of the market: they trade with each other and against each other.

...

The principle of social cohesion in the State is not that of society, but that of community.

...

Anyone is welcome to the exchange society who obeys its regulations. But to the national community belong only the men and women of the same speech, of the same ilk, the same mind. They have in common love of their homeland, of its mountains, woods and rivers, its villages and cities; they have in common the great figures of its past, the same hatred and suspicion of the 'hereditary' enemy; they have in common joy of victory, the sacrifice of their sons, maternal sorrow, the grief of defeat and the bitterness of bondage. 'All for each and each for all' is the motto of community. But the exchange society's motto is 'Chacun pour soi, Dieu pour nous tous' Through the veins of society streams the one, same money; through those of the community the same blood.

Is it necessary to demonstrate once again that any individualistic conception of 'the State' is a gross aberration? It is nothing but a blind ideology of shopkeepers and hawkers, a universalization of exchange thinking...

These quotes all go to Ritschl's point that the fundamental difference between the market economy and the communal, or State economy is the bonds between members of the society and the corresponding motivations of the members. (Note: the bolding is added by me to reflect where Ritschl is commenting on one of the ethics identified by Jane Jacobs in Systems of Survival).


Like Jacobs, and in contrast to Plato, Ritschl believes that people should be members of both the communal and market economies at the same time:

It is of the essence that the member of an exchange society is at the same time a member of the community, that the member of a community is also a member of an exchange society.

Ritschl disagrees with the idea that communal needs are just individual needs that can't be provided for individually for technical reasons:

In essence and substance the economy of the State is a matter of satisfying pure or partaking communal needs. These are not in any way to be considered as needs of the individual which for some reason must be provided for 'collectively'

In the next section Ritschl differentiates between the two types of self-interest that I discussed previously here noting that the narrower meaning of self-interest is what applies in the market economy whereas the wider meaning of self-interest as synonymous with 'rational' applies in both the market economy and the communal economy:

"In the free market economy the economic self-interest of the individual reigns supreme and the almost sole factor governing relations is the profit motive, in which the classical theory of the free market was appropriately and securely anchored."

...

The classical theory was right in observing on the market none but the home oeconomicus, but this is only a partial view of the economy and the classical theory's association of he concept of the economic process with self-interest has remained disastrous to this day. In it's second formulation, to achieve the greatest utility with given means, the economic principle has frequently become quite independent of self-interest operating as between one person and another.

...

In the exchange society, then, self-interest alone regulates the relations of the members; by contrast, the state economy is characterized by communal spirit within the community. Egotism is replaced by the spirit of sacrifice, loyalty and the communal spirit. In the exchange society, the individual is guided only by personal advantage; here, he thinks, feels and acts as a member of the community. His own interests take second place.

Ritschl explains how this understanding leads to the justification of coercion by the State, the last quote in this section in particular shows how he understood the situation as being represented by a Prisoner's Dilemma, even though he doesn't use that term since it hadn't been coined yet.

This understanding of the fundamental power of the communal spirit leads to a meaningful explanation of coercion in the state economy. Coercion is a means of assuring the full effectiveness of the communal spirit, which is not equally developed in all members of the community. Coercion forces the individual to act as if he were inspired by communal spirit. Coercion is only the outer clasp and fastening of the community, but if communal spirit be lacking, coercion can replace it only in part.

...

..."unity is shown by the willing subordination to the will of the community and State. Obedience, submission and submission are held in honour as manly virtues. Willing subordination remains an indispensable virtue also in the democratic State. The minority complies."

...

Given the unequal measure of people's communal spirit and given the need to ensure the success of the willing sacrifice, the voluntary principle is not enough. The contributions and obligations must be legally determined and laid down. In fundamental contrast to the exchange society and market economy, community and public economy rest on compulsory military service and taxation.

Ritschl comments on how the State economy resembles that of a household more than that of a firm (I made the same point at some length back here)

...the State is, in the last analysis of its nature and content, not a production economy but a consumption economy ... This consumption aspect is expressed meaningfully in speaking of the public household. The economy of the State is comparable not to the firm but to the household.

Finally, Ritschl comments on some of the ways that the State gets involved in the economy to meet individual needs that the market fails to meet for one reason or another, but he notes that this meeting of individual needs is not the fundamental basis of the communal economy. He also distinguishes between market economy wages which are based on the value brought to exchange by an individual and State economy salaries which reflect the status of the person being paid rather than the economic value of their labour.

Given unequal endowment with material goods and intellectual capacity, the market system by itself does not lead to an harmonious and complete satisfaction of all socially important needs and the gap must be filled by the public economy.

..[this is] not, however, the meaning and historical basis of public economy itself.

...

In the free capitalistic market economy the hiring of outside labour for services and work is again subject to specific compensation: payment by performance, the wage principle.

...

In the State economy, by contrast, we find the principle of maintenance. The soldier is adequately clothed, housed and fed, and his pay is a sort of pocket money.

...

For old age, widows and orphans, the State provides by old age pensions ... and thereby assures a proper standard of living for the officials family as well. In the free market all these cases of loss of earnings are covered not by the maintenance principle, but by the insurance principle. But since the market economy does not apply the insurance principle generally or in good time, the State provides by social insurance for collective needs partaking in care of the unemployed, the old and the sick, the disabled and widows and orphans. State coercion thus makes the insurance principle universal.

----
My reading of the essay picked up on the following traits identified by Ritschl with market economy:

"Come to voluntary agreements"
"Shun force"
"Collaborate easily with strangers and aliens"


And the following traits identified with communal economy:

"Exert prowess"
"Be obedient and disciplined"
"Adhere to tradition"
"Respect hierarchy"
"Be loyal"
"Take vengeance"
"Dispense largesse"
"Be exclusive"
"Treasure honour"

Ritschl didn't cover all the ethics that Jacobs identified in Systems of Survival (although he's not far off on the Guardian system), but those he did identify are a perfect match with what Jacobs came up with in her similar dichotomy between market ethics (market economy) and guardian ethics (communal economy).

Sadly, Ritschl's essay doesn't provide a more theoretical framework which can take us past a simple identification of the two distinct syndromes, but it is another voice in favour of the notion of two distinct, complementary systems that govern ethics/economics - one based on the ethics of 'shopkeepers and hawkers' and one based on communal needs and the state.

Rite and Wrong

"The next day the little prince came back.

"It would have been better to come back at the same hour," said the fox. "If, for example, you come at four o'clock in the afternoon, then at three o'clock I shall begin to be happy. I shall feel happier and happier as the hour advances. At four o'clock, I shall already be worrying and jumping about. I shall show you how happy I am! But if you come at just any time, I shall never know at what hour my heart is to be ready to greet you... One must observe the proper rites..."

"What is a rite?" asked the little prince.

"Those also are actions too often neglected," said the fox. "They are what make one day different from other days, one hour from other hours. There is a rite, for example, among my hunters. Every Thursday they dance with the village girls. So Thursday is a wonderful day for me! I can take a walk as far as the vineyards. But if the hunters danced at just any time, every day would be like every other day, and I should never have any vacation at all."

I've decided to take a page out of the book of the Fox and the Archdruid and bring some structure to my posting on ethics and systems of survival. From now on, I'll make one post a week, posting on Tuesday each week.

Other posts will continue to appear at random as per usual.