The History of Economic Thought Vol. 50(2008 - 2009) No. 2

Ricardo on Poverty
His Vision of a Market Society

Katsuyshoi Watarai

Released: August 05, 2010

P1-20

Ricardo's main theme was the distribution of the national product through the process of economic development, but he did not neglect the problem of poverty. He accepted Malthus's conclusions on the effects of the Poor Laws to increase poverty by stimulating population growth, and on the necessity of their repeal. In Principles, he expressed fear that the poor rates might absorb the whole surplus of the economy, because he thought the poor rates would fall on profits, which would depress the rate of real wages by retarding capital accumulation, causing more poverty. He wished to repeal the Poor Laws to establish ‘fair and free competition’ in the labour market which would improve living conditions for labourers. At the same time he recognised the need of gradual and cautious steps for their repeal, for people had formed habits of life under their influence. He showed his view on poverty in more detail in his correspondence with Huches Trower on savings banks. He saw savings banks as an important means to inculcate in the mind of the labourers prudence and spirit of independence, which he thought were essential for the repeal of the Poor Laws. For Ricardo, private charity must provide for the poverty remaining after their abolition, thus contributing to self-reliance of labourers. Transparency was important for all public activities. He did not regard combinations among labourers as interference in ‘fair and free competition.’ I will try to form an idea of his vision of the market society which he sought to establish, taking into consideration his proposal for parliamentary reform of extending franchise to all substantial householders including labourers, his conviction on sacredness of private property, his plan of a national bank to stabilise the value of money, in addition to his thoughts on poverty and its relief.

William Kapp's Theory of Science Integration and Substantive Rationality
Reconstruction of the “Social Cost Theory” from a Human Sciences Perspective

Takuji Yamane

Released: August 05, 2010

P21-37

By exploring a theory of human sciences that is the basis of Karl William Kapp's concept of institutional economics, this paper aims to clarify the originality of his social cost theory. The difference between the so-called external dis-economy theory, which is part of mainstream economics, and Kapp's social cost theory is a disagreement about rationality. The former assumes that entrepreneurial behavior to maximize profit is simply rational. Therefore, the cause of social loss, such as environmental disruption is not attributed to the entrepreneurial behavior per se, but is attributed to externalities called “exceptional cases.”
On the other hand, in Kapp's social cost theory, irrational human actors are assumed. Kapp, who lived through Nazi oppression, and who was inspired by the methodology of psychologist Erich Fromm, sought to explain human irrationality by people's self-deceptive behaviors. In the background of conscious corporate desire for money and profit are the wholly unconscious human needs for stability, continuity, power, and social approval. And the fulfillment of these needs might be pursued even at the price of one's existence or well-being. For Kapp, social cost is a socio-pathological phenomenon generated collectively by enterprisers who, in their conscious minds, firmly believe themselves to be “sane.” While mainstream economics might define rationality solely from the perspective of monetary desire, Kapp takes unconscious needs into consideration as well as conscious needs, and seeks to define rationality within a comprehensive structure of human need, including biological and cultural needs. This is what is called substantive rationality. In order to develop this standard, Kapp's theory had to integrate economics with other social sciences, and even with the natural sciences.

American Unemployment Insurance Schemes of the 1910s
J. R. Commons, J. B. Andrews, and I. M. Rubinow

Ken Kato

Released: August 05, 2010

P38-55

In the early 20th century before the New Deal, a change took place in labor relations in the United States which was substantial enough to cause chronic unemployment. The purpose of this paper is to examine American thinking on social security during the 1910s, particularly the specific issue of what type of unemployment insurance was needed in the United States and, from a historical standpoint, to compare American ideas with those of European countries during the same period. The focus here is on two daring plans: the prevention of unemployment and the compensation for unemployment.
Through labor legislation, John R. Commons and John B. Andrews devised a plan to make both employer and employee responsible for creating a reserve to be used for unemployment compensation. They found a system for unemployment insurance funds that was maintained and administered by only a few progressive firms which was worth emulating. They recognized the significance of these firms' method and sought to have other employers compelled to adopt the bold new ideas by introducing them through labor legislation. Afterwards, their plan was called the “Wisconsin plan.”
I. M. Rubinow's scheme was designed to improve the living standard of workers and channel public subsidies into an unemployment insurance fund. His design for unemployment insurance was based on statistical data on the unemployment rate and workingmen's wages. Rubinow believed that the problem of unemployment could be solved by instituting compulsory unemployment insurance, which would be, in effect, a partial redistribution of wealth through government intervention. Later, Rubinow's ideas would become the theoretical core of the Ohio plan.
In short, the features of those schemes of Rubinow's and Commons and Andrews's differed in the range of intervention to the system design by the government, but each pointed out the necessity of compulsory insurance, respectively. On examining the specific historical context, I argue that the New Deal social programs of the 1930s were not the result of attempts first initiated to handle the myriad of problems arising at a time of mass unemployment during the Great Depression; rather, they had origins which had developed from the controversy and debate on institutional social security and unemployment insurance that ran through the economic discourse of the 1910s and that, in fact, paved the way to the fruition of those systems in the future.

Pigou's Early Opposition to Protective Tariffs and the Three Propositions of Welfare Economics

Takashi Yamamoto

Released: August 05, 2010

P56-73

Because Pigou had developed an economic theory and policy around the problem of welfare, in this paper I devote particular attention to the theoretical basis for Pigou's initial opposition to the protective tariff. My purpose is to clarify how the theory behind his criticism contributes to an understanding of Pigou's economics. The three main points may be summarized as follows.
First, Pigou already had an established interest in the relation between national dividend (income) and welfare when he formulated his criticism of protective tariffs, and he recognized that national dividend and welfare would increase and decrease by the same direction. He backed his objection to protective tariffs with a close examination of how they would operate to raise or reduce the national dividend. The significance of these ideas becomes clearer when it is shown that, at that time, Pigou had, quietly, formed the theoretical directionality that later would emerge in his welfare economics.
Second, Pigou's discussion of the influence of protective tariffs on labor, employment, and unemployment considers the problem of industrial fluctuation and stability in annual income and how industrial fluctuation determined incomes of the poor. He recognized, in other words, the relation of protective tariffs to the “third proposition of welfare economics.” In this, Pigou seems to demonstrate an understanding of the basis of unemployment and business cycle theory of later years.
Third, Pigou did not object in principle to protective tariffs and protection. Rather, he tried to deal with the question of protective tariffs and protection by considering the stage of development of a nation's economy and society.

A Survey of Progressive Economic Thought in Interwar Britain
Strengths and Gaps

Alan Booth

Released: August 05, 2010

P74-88

This paper looks at debates on the opposition to British government economic policy in the interwar years. It concentrates on the views emanating from the leading representatives of British industry and commerce and notes in the historiography a tendency to contrast a stream of progressive ideas in the 1920s with a more conservative approach in the following decade. This paper suggests that the contrasts may have been overstated and focuses on preliminary investigations into the series of lectures organised by B. Seebohm Rowntree throughout the interwar period. The article suggests that there were many continuities in business thought during the period, and that the main contribution of business to the ‘planning debates’ of both interwar decades was in the consolidation and systematisation of domestic and American ideas on management, especially the management of labour. The tendency to view participation of business leaders as contributions to economic policy, narrowly defined, is potentially misleading but our view of the scale of the planning debate of the 1930s needs to be revised to include significant changes in management theory.