Wealth Distribution and the Puzzle of Germany

There’s been some discussion recently of the new estimates from Emmanuel Saez and Gabriel Zucman of the distribution of household wealth in the US. Using the capital income reported in the tax data, and applying appropriate rates of return to different kinds of assets, they are able to estimate the distribution of household wealth holdings going back to the beginning of the income tax in 1913. They find that wealth inequality is back to the levels of the 1920s, with 40% of net worth accounted for the richest one percent of households. The bottom 50% of households have a net worth of zero.

There’s a natural reaction to see this as posing the same kind of problem as the distribution of income — only more extreme — and respond with proposals to redistribute wealth. This case is argued by the very smart Steve Roth in comments here and on his own blog. But I’m not convinced. It’s worth recalling that proposals for broadening the ranks of property-owners are more likely to come from the right. What else was Bush’s “ownership society”? Social Security privatization, if he’d been able to pull it off, would have  dramatically broadened the distribution of wealth. In general, I think the distribution of wealth has a more ambiguous relationship than the distribution of income to broader social inequality.

Case in point: Last summer, the ECB released a survey of European household wealth. And unexpectedly, the Germans turned out to be among the poorest people in Europe. The median German household reported net worth of just €50,000, compared with €100,000 in Greece, €110,000 in France, and €180,000 in Spain. The pattern is essentially the same if you look at assets rather than net worth — median household assets are lower in Germany than almost anywhere else in Europe, including the crisis countries of the Mediterranean.

At the time, this finding was mostly received in terms the familiar North-South morality tale, as one more argument for forcing austerity on the shiftless South. Not only are the thrifty Germans being asked to bail out the wastrel Mediterraneans, now it turns out the Southerners are actually richer? Why can’t they take responsibility for their own debts? No more bailouts!

No surprise there. But how do we make sense of the results themselves, given what we know about the economies of Germany and the rest of Europe? I think that understood correctly, they speak directly to the political implications of wealth distribution.

First, though: Did the survey really find what it claimed to find? The answer seems to be more or less yes, but with caveats.

Paul de Grauwe points out some distortions in the headline numbers reported by the ECB. First, this is a survey of household wealth, but, de Grauwe says, households are larger in the South than in the North. This is true, but it turns out not to make much of a difference — converting from household wealth to wealth per capita leaves the basic pattern unchanged.

Per capita wealth in selected European countries. From de Grauwe.

Second, the survey focuses on median wealth, which ignores distribution. If we look at the mean household instead of the median one, we find Germany closer to the middle of the pack — ahead of Greece, though still behind France, Italy and Spain. The difference between the two measures results from the highly unequal distribution of wealth in Germany — the most unequal in Europe, according to the ECB survey. For the poorest quintile, median net worth is ten times higher in Greece and in Italy than in Germany, and 30 times higher in Spain.

This helps answer the question of apparent low German wealth — part of the reason the median German household is wealth-poor is because household wealth is concentrated at the top. But that just raises a new puzzle. Income distribution Germany is among the most equal in Europe. Why is the distribution of wealth so much more unequal? The puzzle deepens when we see that the other European countries with high levels of wealth inequality are France, Austria, and Finland, all of which also have relatively equal income distribution.

Another distortion pointed to by De Grauwe is that the housing bubble in southern Europe had not fully deflated in 2009, when the survey was taken — home prices were still significantly higher than a decade earlier. Since Germany never had a housing boom, this tends to depress measured wealth there. This explains some of the discrepancy, but not all of it. Using current home prices, the median Spanish household has more than triple the net wealth of the median German household; with 2002 home prices, only double. But this only moves Germany up from the lowest median household wealth in Europe, to the second lowest.

The puzzle posed by the wealth survey seems to be genuine. Even correcting for home prices and household size, the median Spanish or Italian household reports substantially more net wealth than the median German one, and the median Greek household about an equal amount. Yet Germany is, by most measures, a much richer country, with median household income of €33,000, compared with €22,000, €25,000 and €26,000 in Greece, Spain and Italy respectively. Use mean wealth instead of median, and German wealth is well above Greek and about equal to Spanish, but still below Italian — even though, again, average household income is much higher in Germany than in Italy. And the discrepancy between the median and mean raises the puzzle of why German wealth distribution is so much more uneven than German income distribution.

De Grauwe suggests one more correction: look at the total stock of fixed capital in each country, rather than household wealth. Measuring capital consistently across countries is notoriously dicey, but on his estimate, Germany and the Netherlands have as much as three times the capital per head as the southern countries. So Germany is richer in real terms than the South, as we all know; the difference is just that “a large part of German wealth is not held by households and therefore must be held by the corporate sector.” Problem solved!

Except… you know, Mitt Romney was right: corporations are people, in the sense that they are owned by people. The wealth of German corporations should also show up as the wealth of the owners of German stocks, bonds, or other claims on those corporations — which means, overwhelmingly, German households. Indeed, in mainstream economic theory, the “wealth” of the corporate sector just is the wealth of the households that own it. According to de Grauwe, the per capita value of the capital stock is more than twice as large in Germany as in Spain. Yet the average financial wealth held by a German household is only 25% higher than in Spain. So as in the case of distribution, this solution to the net-wealth puzzle just creates a new puzzle: Why is a dollar of capital in a German firm worth so much less to its ultimate owners than a dollar of capital in a Spanish or Italian firm?

And this, I think, points us toward the answer, or at least toward the right question.

The question is, what is the relationship between the level of market production in an economy, and the claims on future production represented by wealth? It’s a truism — tho often forgotten — that the market production counted in GDP is only a part of all the productive activity that takes place in society. In the same way, not all market production is capitalized into assets. Wealth in an economic sense represents only those claims on future income that are exercised by virtue of a legal title that is freely transferable, and hence has a market value.

For example, imagine two otherwise similar countries, one of which makes provision for retirement income through a pay-as-you-go public pension system, and the other of which uses some form of funded pension. The two countries may have identical levels of output and income, and retirees may receive exactly the same payments in both. But because the assets held by the pension funds show up on balance sheets while the right to future public pension payments does not, the first country will have less wealth than the second one. Again, this does not imply any difference in production, or income, or who ultimately bears the cost of supporting retirees; it is simply a question of how much of those future payments are capitalized into assets.

This is just an analogy; I don’t think retirement savings are the story here. The story is about home ownership and the value of corporate stock.

First, home ownership. Only 44 percent of German households own their own homes, compared with 70-80 percent in Greece, Italy and Spain. Among both homeowners and non-homeowners considered separately, median household wealth is comparable in Germany and in the southern countries. It’s only the much higher proportion of home ownership that produces higher median wealth in the South. And this is especially true at the bottom end of the distribution — almost all the bottom quintile (by income) of German households are renters, whereas in Greece, Spain and Italy there is a large fraction of homeowners even at the lowest incomes. Furthermore, German renters have far more protections than elsewhere. As I understand it, German renters are sufficiently protected against both rent increases and loss of their lease that their occupancy of their home is not much less secure than that of home owners. These protections are, in a sense, a form of property right — they are a claim on the future flow of housing services in the same way that a title to a house would be. But with a critical difference: the protections from rent regulation can’t be sold, don’t show up on the household’s balance sheet, and do not get counted as wealth.

In short: The biggest reason that German household wealth is lower than than elsewhere is that less claims on the future output of the housing sector take the form of assets. Housing is just as commodified in Germany as elsewhere (I don’t think public housing is unusually important there). But it is less capitalized.

Home ownership is the biggest and clearest part of the story here, but it’s not the whole story. Correct for home ownership rates, use mean rather than median, and you find that German household wealth is comparable to household wealth in Italy or Spain. But given that GDP per capita is much higher in Germany, and the capital stock seems to be so much larger, why isn’t household wealth higher in Germany too?

One possible answer is that income produced in the corporate sector is also less capitalized in Germany.

In a recent paper with Zucman, Thomas Piketty suggests that the relationship between equity values and the real value of corporate assets depends on who exercises power over the corporation. Piketty and Zucman:

Investors who wish to take control of a corporation typically have to pay a large premium to obtain majority ownership. This mechanism might explain why Tobin’s Q tends to be structurally below 1. It can also provide an explanation for some of the cross-country variation… : the higher Tobin’s Q in Anglo-Saxon countries might be related to the fact that shareholders have more control over corporations than in Germany, France, and Japan. This would be consistent with the results of Gompers, Ishii and Metrick (2003), who find that firms with stronger shareholders rights have higher Tobin’s Q. Relatedly, the control rights valuation story may explain part of the rising trend in Tobin’s Q in rich countries. … the ”control right” or ”stakeholder” view of the firm can in principle explain why the market value of corporations is particularly low in Germany (where worker representatives have voting rights in corporate boards without any equity stake in the company). According to this ”stakeholder” view of the firm, the market value of corporations can be interpreted as the value for the owner, while the book value can be interpreted as the value for all stakeholders.

In other words, one reason household wealth is low in Germany is because German households exercise their claims on the business sector not via financial assets, but as workers.

The corporate sector is also relatively larger in Germany than in the southern countries, where small business remains widespread. 14 percent of Spanish households and 18 percent of Italian households report ownership of a business, compared with only 9 percent of German households. Again, this is a way in which lower wealth reflects a shift in claims on the social product from property ownership to labor.

It’s not a coincidence that Europe’s dominant economy has the least market wealth. The truth is, success in the world market has depended for a long time now on limiting dependence on asset markets, just as the most successful competitors within national economies are the giant corporations that suppress the market mechanism internally. Germany, as with late industrializers like Japan, Korea, and now China, has succeeded largely by ensuring that investment is not guided by market signals, but through active planning by banks and/or the state. There’s nothing new in the fact that greater real wealth in the sense of productive capacity goes hand hand with less wealth in the sense of claims on the social product capitalized into assets. Only in the poorest and most backward countries does a significant fraction of the claims of working people on the product take the form of asset ownership.

The world of small farmers and self-employed artisans isn’t one we can, or should, return to. Perhaps the world of homeowners managing their own retirement savings isn’t one we can, or should, preserve.

Work, Unemployment and Aggregate Demand

(I originally posted this as a series of comments on a 2012 post at Steve Randy Waldman’s Interfluidity. In that post, Steve suggested that we should think of redistribution under capitalism as “the poor collectively sell[ing] insurance against riot and revolution, which the rich are happy to pay for with modest quantities of efficiently produced goods.”)

In Theories of Surplus Value, Marx writes:

Assume that the productivity of industry is so advanced that whereas earlier two-thirds of the population were directly engaged in material production, now it is only one-third. Previously 2/3 produced means of subsistence for 3/3; now 1/3 produce for 3/3. Previously 1/3 was net revenue (as distinct from the revenue of the labourers), now 2/3. Leaving [class] contradictions out of account, the nation would now use 1/3 of its time for direct production, where previously it needed 2/3. Equally distributed, all would have 2/3 more time for unproductive labour and leisure. But in capitalist production everything seems and in fact is contradictory… Those two-thirds of the population consist partly of the owners of profit and rent, partly of unproductive labourers (who also, owing to competition, are badly paid). The latter help the former to consume the revenue and give them in return an equivalent in services—or impose their services on them, like the political unproductive labourers. It can be supposed that—with the exception of the horde of flunkeys, the soldiers, sailors, police, lower officials and so on, mistresses, grooms, clowns and jugglers—these unproductive labourers will on the whole have a higher level of culture than the unproductive workers had previously, and in particular that ill-paid artists, musicians, lawyers, physicians, scholars, schoolmasters, inventors, etc., will also have increased in number.

A large and growing share of employment, in other words, is unnecessary from a technical standpoint. It exists because useless jobs are more conducive to social stability than either mass poverty or a social wage. The payments the majority of the population receives for not rioting or rebelling look better when they are dressed up as payment for our work as mistresses, grooms, jugglers — or as yoga instructors or economics professors. This way, people are still dependent on a boss. In a differently organized world, we could dispense with most of these jobs and take the benefits of increased productivity in some combination of shorter hours for productive workers and a shift toward more intrinsically fulfilling (craft-like) forms of productive work.

By starting from here we can think more sensibly about employment and unemployment. From a macroeconomic standpoint, all we need is that expenditure on unproductive labor changes in some rough proportion with income.

From my point of view, the essential facts about employment are (1) As long as the most socially accepted form of claim on the social product is wages for work, work will be found for people, along the lines Marx suggests. (This is not true in poor societies, where a large portion of the poor engage in subsistence labor, of either the traditional or garbage-picking variety.) And (2) In the short run, employment will rise and fall as the rich feel a smaller or a greater need for the insurance-value of financial wealth.

As soon as you being to think about employment in terms of an input of labor to a production process, you’ve taken a wrong turn. We should not try to give supply-based explanations of unemployment, i.e. to show how the allocation of some stock of productive resources by some decision makers could generate unemployment. Unemployment is strictly a phenomenon of aggregate demand.

Unemployment in advanced countries is not characterized by exogenous factor supplies and Leontief-type production functions, where some factors are exhausted leaving an excess supply of their complements.  (The implicit model that lies behind various robots-will-take-all-the-jobs stories.) Unemployment in capitalist economies involves laid-off workers and idle factories; it involves unemployed construction workers and rising homelessness; it involves idle farmworkers and apples rotting on the trees. Unemployment never develops because we need fewer people to make the stuff, but because less stuff is being made. (Again, things are different in poor countries, and in the early stages of industrialization historically.) Unemployment cannot be explained without talking about aggregate demand any more than financial crises can be explained without talking about money and credit. It exists only to the extent that income and expenditure are determined simultaneously.

Unemployment rises when planned money expenditure falls for a given expected money income. Unemployment falls when planned money expenditure rises for a given expected money income. Conditions of production have no (direct) effect one way or the other.

Recognizing that unemployment is an aggregate expenditure phenomenon, not a labor-market phenomenon, helps avoid many errors. For example:

It is natural to think of unemployed people as people not engaged in productive work. This is wrong. The two things have nothing to do with each other. Unemployed people are those whose usual or primary claim on the social product takes the form of a wage, but who are not currently receiving a wage. There are lots of people who do not receive wages but are not unemployed because they have other claims on the social product — children, retirees, students, caregivers, the institutionalized, etc. Almost all of tehse people are capable of productive work, and many are actively engaged in it — caregiving and other forms of household production are essential to society’s continued existence. At the same time, there many people who do receive wages but who are not engaged in productive work; one way to define these is as people whose employment forms part of consumption out of profits or rents.

While there is no relationship between people’s capability for and/or engagement in useful work, on the one hand, and employment, on the other, there is a close link between aggregate expenditure and employment, simply because a very large fraction of expenditure takes the form directly or indirectly of wages, and aggregate wages adjust mainly on the extensive rather than the intensive margin. So when we see people unemployed, we should never ask, why does the production of society’s desired outputs no longer require their labor input? That is a nonsense question that will lead nowhere but confusion. Instead we should ask, why has there been a fall in planned expenditure?


Going beyond the 2012 conversation, two further thoughts:

1. The tendency to talk about unemployment in terms of why some peoples’ labor is no longer needed for production, is symptomatic of a larger confusion. This is the confusion of imagining money claims and payments as a more or less transparent representation of physical and social realities, as opposed to a distinct system that rests on but is substantially independent from underlying social and biological existence. Baseball requires human beings who can throw, hit and run; but the rules of baseball are not simply shorthand for people’s general activity of throwing, hitting and running. Needless to say, economics education assiduously cultivates the mixing-up of the money game with the substrate upon which it is played.

2. It’s natural to think of productive and unproductive labor as two distinct kinds of employment, or at least as opposite poles on a well-defined continuum. Marx usually writes this way. But I don’t think this is right, or at least it becomes less valid as the division of labor becomes more extensive and as productive activity becomes more directly social and involves more coordination of activities widely separated in space and time, and more dependent on the accumulation of scientific and technical knowledge.

Today our collective productive and creative activity requires the compliance of a very large number of people, both active and passive. This post will never be read by anyone if I don’t keep on typing. It will also never be read if the various tasks aren’t performed that are required to operate the servers where this blog is hosted, my internet connection and yours, the various nodes between our computers, the utilities that supply electricity to all the above, and so on. It would not be read if someone hadn’t assembled the computers, and transported and sold them to us; and if someone hadn’t developed the required technologies, step by step as far back as you want to go. It would not be read, or at least not by anyone except me and a few friends, if various people hadn’t linked to this blog over the years, and shared it on social media; and more broadly, if the development of blogs hadn’t gotten people into the habit of reading posts like this. Also, the post won’t be read if someone breaks into my house before before I finish writing it, and steals my laptop or smashes it with a hammer.

All of these steps are necessary to the production of a blog post. Some of them we recognize as “labor” entitled to wages, like whoever is watching the dials at Ravenswood. Some we definitely don’t, like the all-important not-stealing and not-smashing steps. And the status of some, like linking and sharing,  is being renegotiated. Again, a factory only runs if the workers choose to show up rather than stay home in bed; we reserve a share of the factory’s output to reward them for making that choice. It also only runs if passersby choose not to throw bricks through the windows; we don’t reserve any share of the output for them. But if we were going to write down the physical requirements for production to take place, the two choices would enter equivalently.

In a context where a large part of the conditions of production appear as tangible goods with physically rival uses; where the knowledge required for production was not itself produced for the market; where patterns of consumption are stable; where the division of labor is limited; where most cooperation takes the form of arms-length exchanges of goods rather than active coordination of productive activity; where production does not involve large commitments of fixed capital that are vulnerable to disruption; then the idea that there are distinct identifiable factors of production might not be too big a distortion of reality. In that context, splitting claims on the social product into shares attributable to each “factor” is not too disruptive; if anything, it can be a great catalyst for the development of productive capacities. But as the development of capitalism transforms and extends the division of labor, it becomes more and more difficult to separate out which activities that are contributing to a particular production process. So terms like productivity or productive labor lose touch with social reality.

You can find this argument in chapters 13-14 and 32 of Capital Volume 1. The brief discussion in chapter 32 is especially interesting, since Marx makes it clear that it is precisely this process that will bring capitalism to an end — not a fall in the rate of profit, which is never mentioned, nor a violent overthrow, which is explicitly rejected. But that thought will have to wait for another time.

What Comes Before Capital?

“The wealth of those societies in which the capitalist mode of production prevails, presents itself as an immense accumulation of commodities.'”

Everyone knows that line. If your intellectual formation is like mine, it has approximately the same status as “In the beginning God created the heavens and the earth.”

The rabbis, I’m told, used to like to point out that in Hebrew the first letter of “In the beginning…” looks like a box with three sides, and only one opening. This was to convey the message, don’t ask what happened before, or what might be happening somewhere else. The only story we care about starts here.

We all have our rabbis. But we keep asking anyway, what comes before? What comes before that first sentence of Capital, what’s happening elsewhere? What form does wealth (claims on the good life) take in societies where the capitalist mode of production doesn’t prevail? And apart from how it appears, or presents itself, what can we say about what it really is?

I think the biggest problem with how people read Capital is, they don’t take the subtitle seriously: It really is a “critique of political economy.” There’s an overarching irony, the whole thing is written under the sign of the hypothetical. (In general, I think this irony is one of the most important, and hardest, things that students have to learn in any field.) The whole book is written to show that even if everything Ricardo said was true, capitalism would still be an unjust and inhumane (and unstable, though that doesn’t come til later) economic system. But that’s not the same as saying that everything Ricardo says really is true. In my opinion — people I respect disagree — everything Marx says about the Labor Theory of Value is preceded by an implicit “even if…” It shouldn’t be interpreted as a set of positive claims about the world.

So what does Marx positively believe? For this, I think we have to turn to the early writings. I know these are deep waters, on which I am innocently paddling about in my little water wings. But in my opinion, the Economic and Philosophic Manuscripts of 1844 are the essential “before” to Capital.

In Capital, exploitation is defined in terms of the share of the product (already quantifiable; the transformation of the infinitely heterogeneous content of human activity into a mass of commodities has already taken place) to which claims accrue as a result of wage labor. But in the Manuscripts, he says

A forcing-up of wages (disregarding all other difficulties, including the fact that it would only be by force, too, that the higher wages, being an anomaly, could be maintained) would … be nothing but better payment for the slave, and would not conquer either for the worker or for labour their human status and dignity.

Or equivalently, “The alienation of the product of labour merely summarizes the alienation in the work activity itself.” What’s important is exhausting one’s creative powers on alien ends. How many channels you have on tv afterward doesn’t matter.

Alienated labor means (to take various of Marx’s definitions):  “the work is external to the worker”; the worker “does not fulfill himself in his work”; the worker “does not develop freely his mental and physical energies”; “work is not voluntary, but imposed, forced labour”; work “is not the satisfaction of a need, but a means for satisfying other needs”; the worker “does not belong to himself but to another person.” This is the non-quantifiable fact about life under life under capitalism for which questions about the distribution of commodities are a stand-in. Everything that happens in Capital, happens after this.

Selfish Masters, Selfless Servants

Via Mike the Mad Biologist, a Confucian parable for the financial crisis:

Mencius replied, “Why must your Majesty use that word ‘profit?’ What I am provided with, are counsels to benevolence and righteousness, and these are my only topics.
“If your Majesty say, ‘What is to be done to profit my kingdom?’ the great officers will say, ‘What is to be done to profit our families?’ and the inferior officers and the common people will say, ‘What is to be done to profit our persons?’ Superiors and inferiors will try to snatch this profit the one from the other, and the kingdom will be endangered….

Indeed, there are deep contradictions hidden in that word “profit.” Reminds me of a classic article on corporate governance, Bruce Greenwood’s Enronitis: Why Good Corporations Go Bad.

The Enron problem is … the predictable result of too strong of a share-centered view of the public corporation… Corporate law demands that managers simultaneously be selfless servants and selfish masters. On the one hand, it directs managers to be faithful agents, setting aside their own interests entirely in order to act only on behalf of their principals, the shares. On the other hand, in the service of this extreme altruism, they must ruthlessly exploit everyone around them, projecting on to the shares an extreme selfishness that takes no account of any interests but the shares themselves. Having maximally exploited their fellow human corporate participants, managers are then expected to selflessly hand over their gains…

Altruism and rationally self-interested exploitation are extreme and radically opposed positions, psychologically and politically. … For managers, one easy resolution of these tensions is a simple, cynical selfishness in which managers see themselves as entitled, and perhaps even required, to exploit shareholders as ruthlessly as they understand the law to require them to exploit everyone else. …

Internally, the share-centered paradigm is just as self-destructive. Corporations succeed because they are not markets and do not follow market norms of behavior. Rather, they operate under fiduciary norms as a matter of law and team norms as a matter of sociology. However, the share-centered paradigm of corporate law teaches managers to treat employees as outsiders and tools to corporate ends with no intrinsic value. Just as managers are unlikely to learn simultaneously to be selfish maximizers and selfless altruists, they are unlikely to be simultaneously cooperative team players and self-interested defectors. Thus, the share-centered view undermines the prerequisite to operating the firm in the interests of shareholders. …

Managers constructing the firm as a tool to the end of share value maximization treat the people with whom they work as means, not ends. …they learn as part of their ordinary life to break ordinary social solidarity. Learning to exploit ruthlessly is surprisingly difficult. … But cynicism can be learned, and managers subjected to the powerful incentives of the share value maximization principle do eventually learn it. … This training, however, surely creates cynics, not faithful agents. … A manager whose lived experience is a pretense of selflessness (with respect to employees, customers and business partners) covering real disinterested exploitation (on behalf of shares) is unlikely to suddenly see himself as “in a position in which thought of self was to be renounced, however hard the abnegation” and voluntarily hand over these hard-won gains of competitive practice to his principal. If you can properly lie to your subordinates, why not lie to your superior as well? … In the end, the cynicism of the share value maximization view must eat itself alive.

Something like Enronitis was clearly involved in the financial crisis. Indeed, some of the most famous controversies around the crisis hinge precisely on disputes about whether a transaction was between the parties linked by a fiduciary duty, or was an arm’s-length one where predatory behavior was expected, and even a moral duty. You can get yourself out of legal trouble, as Goldman has in the case of the Paulson trade, by establishing that you were on the war-of-all-against-all side of the line; but obviously, a system where predatory and trust-based relationships are expected to exist side by side, or even to overlap, is not likely to be a sustainable one. (Of course if the goal of our rentier elite is simply to stripmine the postwar social compromise, then sustainability is moot.) Friedman’s idea that a corporation’s duty is “to make as much money as possible while con­forming to the basic rules of the society” isn’t coherent psychologically or logically, since it demands that management regard certain norms as absolutely binding and others as absolutely non-binding, without any reliable way of saying which is which.

Greenwood is talking about the “corporation as polis.” But the same point applies to the polis as polis.

It may not be the benevolence that makes the butcher, baker or brewer hand over the beef, bread or beer. But it is benevolence– or at least something other than self-interest — that ensures that it’s not full of E. coli. And if you say, well, it’s just their self-interest in avoiding the penalties of the law, that begs the question of why the authorities enforce the law. Or as Hume famously observed,

as FORCE is always on the side of the governed, the governors have nothing to support them but opinion. It is therefore, on opinion only that government is founded; and this maxim extends to the most despotic and most military governments, as well as to the most free and most popular. The soldan of EGYPT, or the emperor of ROME, might drive his harmless subjects, like brute beasts, against their sentiments and inclination: But he must, at least, have led his mamalukes, or prætorian bands, like men, by their opinion.

Boris Groys develops a similar line of thought in The Communist Postscript:

The theory of Marxism-Lenisnism is ambivalent in its understanding of language, as it is in most matters. On the one hand, everyone who knows this theory has learnt that the dominant language is always the language of the dominant classes. On the other hand, they have learnt too that an idea that has gripped the masses becomes a material force, and that on this basis Marxism itself is (or will be) victorious because it is correct.

This is a particular instance of Groys’ broader argument about the inherent power of rational speech:

The listener or reader of an evident statement can of course willfully decide to contradict the  compelling effect of this statement… But someone who adopts such a counter-evident position does not really believe it himself. Those who do not accept what is logically evident become internally divided, and this division weakens them in comparison to those who accept and affirm the evidence. The acceptance of logical evidence makes one stronger; to reject it, conversely, makes one weaker.

Similarly, the decisionmaker who acts on norms consistently is stronger, in the long run, than the Enronitic manager whose honest service to “shareholder value” requires dishonest, strictly instrumental treatment of workers, customers, regulators, and the rest of humanity.

All of which is another way of saying that, despite the fantasies of libertarians, and cynics, that it’s self-interest all the way down, we can’t dispense with intrinsic motivation, analytically or in practice.

UPDATE: Added Groys quote. Had intended to include it in the original post, but I’d lent the book to someone…

The Wheels of Justice Do Grind Slow

I’ve had only had one job that paid minimum wage (or minimum plus 50 cents, as I recall.) That was as a bookstore clerk at Shakespeare & Company on the Upper West Side in the mid-90s.

The 85th St. bookstore was the flagship of the Shakespeare operation, which at that time included four Shakespeare and Co stores, two or three Murder Inks, and I think one or two other literary bookstores. It was generously, maybe from a strict business standpoint, overgenerously, staffed. We did spend a lot of time reshelving.

What’s memorable about the place is how everybody there was a book person. Some of us wanted to write fiction, some essays, some plays (that was kind of the store’s thing). Some wanted to work at publishers, some — for serious — were into the printing and bookbinding side of things. Most of of us wanted to write book reviews; some — well me, at least — left to edit the book review section of a marginal left-wing magazine. The book culture of the place was smoothly continuous from those of us behind the registers to the buyers to the mysterious owners upstairs. When publishers’ representatives came by we all met them, as a matter of course: they were selling to the store. I remember one of them spinning out this mystery novel she was going to write about a serial killer knocking off Granta‘s best young American novelists one by one; it seemed like a pretty good joke.

They used to have contests, beginning of the week, pick a book, whoever sells the most of it wins, well, I don’t remember what the prize was. Anyway I took it seriously; books I thought people ought to read. Oh hey, you’re interested in history, do you know Eric Hobsbawm? Oh, Jared Diamond, sure, but you know Plagues and Peoples covered a lot of that same ground? It was a point of pride.

And we hated shoplifters. There was one fellow who was a regular — he was obviously getting instructions on what specific resaleable books to steal. One time we’d had enough — it so depressing when two hours before closing there’s no one in the store except the professional shoplifters — and when he made his run for it we didn’t just accept the alarm-went-off;-oh-well as always. We took off after him. Why? it wasn’t our money. But we did: we caught him: or rather, like a lizard’s tail, we caught his bag, full of stolen books and hypodermics.

I first encountered the word “snarky” working at that bookstore. It was in a New York Magazine article about what was wrong with us, what was wrong with independent bookstores in general, why chains were the future. People wanted an antiseptic book purchasing environment, not all those book people telling them what to read. Whatever, we thought, all separately wondering how to incorporate “snark” into our new novel. But we should have seen the writing on the wall.

When the Barnes & Noble opened at 66th St., that was bad. When the next one opened at 82nd and Broadway, that was the end. This was not long after I started; surrendering, they had a going-out-of-business sale. And that was even worse. There was a brief false summer as the locals — our former customers! — picked over the stock that was suddenly attractive at 40% off; but as soon as the owners unwisely tried to reopen at full price those same customers tripped over each other rushing back to the lattes at Barnes & Nobles.

For the record, I suspect that if the Shakespeare & Co. guys could have competed with Barnes and Nobles at their scale, they would happily have done so. They weren’t doing it for the sake of small. Still, what matters is that you can get the books you want, and there it’s all progress, right? From your point of view as a consumer, probably, sure. I’m prepared to argue that you lose something when there are no more bookstore clerks like me, trying to sell you on William H. McNeill. On the scale of things it’s a small loss, but it’s a retreat from the world as it should be.

I don’t know if Shakespeare hired us because no one but book people would work for what they would pay, or because they had some vague idea that their clerks would rise to manage their little empire or simply because they were book people themselves. But hire book people they did. Within their world, you could imagine that it was a natural progression from clerking at a bookstore, to buying for a bookstore, to editing novels, to writing novels. As in a civilized world it will be.

Which is all to say: Fuck you, Barnes & Noble. I hope all of your stores close.