2017-08-11

The Eric Tetralogy: 1: Rents and Monops

A subsaga of FTC the Fairy Tale of Capitalism

FTC provides a way to explain our circumstance.


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Eric of Pomerania 1381-1459 (Public Domain)
Long before the Old Ones, the sorcerer of strategy selected her great-nephew Eric of Pomerania to be King of Denmark, Norway and Sweden. His future held trials and adventures and triumphs, wars, the Monop shifting the benefits of trade to enhance the Firehose Up, the eventual grandeur of his kingdom, the woman he would marry, the woman he would love, his flight from the throne, and piracy. In his Wikipedia portrait, he looks as though his lunch distressed his belly, and he was known for his troublesome temper. But he could be more handsome and charming than any Hollywood hero. Pope Pius II wrote “all women were drawn to him.” 

What is the Firehose Up? What is a Monop? I’m glad you asked. Let’s start with what a Monop is, how it works, and where Monop Rents come from.

A Monop is a Monopoly or a Monopsony or a person who benefits from them. A marketplace having a single seller Monopoly has no competition among sellers. A Monopsony has no competition among buyers. 

King Eric established a long lasting Monop, so we know Monops existed. But the Tales of the Old Ones give little attention to Monops. In their minds, monops didn’t exist, except possibly as transient or trivial phenomena of no importance. There were many competing buyers and sellers who quickly undercut any advantage gained from a strong market presence. Monops couldn’t endure. 

In a trade, each of two parties gives up something they want less in exchange for something they want more. When a grocer gives up a tomato in exchange for money, the counterparty gives up money in exchange for a tomato. The buyer wants the tomato more than the money which he can’t eat, while the grocer prefers money because she has more tomatoes than she can eat, and she has many uses for money. Each party gets a benefit from the trade, the difference between the thing wanted more and the thing wanted less, a kind of profit for each party.

The manager of the only factory in a small town is the single buyer in a Monopsony. She gives up money in exchange for a Worker’s Labor. Generally, considering trades of all kinds, nothing distinguishes the buyer from the seller, except that the seller receives money. Monopoly and Monopsony have the same essential character. 

The Monop controls something scarce. The Monop can give up the scarce item in exchange. No one else can. Since the counterparty can’t get the item from anyone else, the Monop dictates the price. A Monop grocer can price the tomatoes so high that most customers choose cheap beans instead. A Monop employer can pay the employees just enough to meet immediate necessities if they get second jobs somewhere. In practice, some traders dominate their markets, participating in 60% or 80% of the transactions, with nearly the same influence they would have with 100% dominance. They have much of the same market character as Monops, and we call them Monops, too.    

Monops figure but tangentially in the Old Ones’ Tales, specifically in Ricardo’s parables of Rent. Here’s how it goes in FTC.


The farmer’s role is that of Ricardo’s Capitalist who brings investment, her own or that of her investors, and the Capitalist’s return is the profit. The farmer-Capitalist may hire Workers or perform some of the Labor role herself. For an insignificant ceremonial permit fee to the landlord, a shilling or so in Ricardo’s time, the landlord can claim the land as property, and with the fee receipt the farmer can claim permission to use the land. 

Good land becomes scarce when demand for product rises, and the best land can’t produce enough. Then farmers cultivate the second-best land. The second-best land produces less crop than the best land. Now competing landlords of the best land can collect Rent, in addition to the ceremonial fee, from competing farmers, but the second-best land gets zero Rent, just the ceremonial fee. (The farmer and landlord don’t know the future market price nor the quantity of harvest, so they agree to Rent as a fraction of crop at the time the plow hits the dirt.)

If the competing landlords ask too much Rent, then the competing farmer tenant moves cultivation from the best land to second-best land. If the profit from the second-best land equals the profit from the best land, then there’s no difference to the farmer between cultivating the best land and the second-best land. The landlord can collect Rent until the farmer comes to the point of no difference, but not more.

That is, the competing farmer will trade some portion of the crop as Rent to the landlord, until the Rent reduces the farmer’s profit from farming a unit of the best land almost to the level of the profit of farming a unit of the second-best land. In this case, the scarcity of the best land (and property rights) gives one party the ability to transfer some benefits of the trade to herself from the counterparty. The ability to shift the benefits of the trade is the key character of Rent.  

The marketplace demand for product creates Rent. If demand for product grows to exceed the capacities of the best land and the second-best land, then the competing farmers will cultivate the third-best land. Only then can competing landlords will demand Rent on the second-best land based on the market value of product from the third-best land. Landlords do nothing to produce Rent other than collect the ceremonial fee that maintains their property rights to the Land. 

Ricardo’s parable of Rent ends here with competing landlords and farmers and no Monops. We elaborate on implications of Monops without the wisdom of the Old Ones. 

The competing landlord can’t get more Rent than the neighboring landlord for land of the same quality, for the competing farmer chooses the landlord with the lesser Rent. But a farmer with a Monop landlord has no choice. No competition from other landlords constrains the Monop landlord. The Monop can enlarge her benefit from the trade by shifting to herself some of the farmer’s benefit from the trade. 

Despite paying high Rent to the Monop landlord, the farmer must maintain her level of profit, her benefit from the trade, to continue in business, lest her investors take their Capital to other ventures. The farmer may try raising the price she asks for product in the marketplace. If buyers of product will pay sufficiently more, the farmer restores her profit by getting some of the benefit of trade from the buyers of product. The benefit of the marketplace trade shifts via the trades to the Monop landlord who collects the shifted benefit as Rent. And if the buyers of product won’t pay the higher price, then the Monop landlord can’t get more Rent, because the farmer can’t pay. Characteristic of Monop Rents, the maximum price the Monop can ask exceeds the maximum under competition. Another definition, succinct though pivoting on “dominance”, is Paul Krugman’s “monopoly rents: profits that don’t represent returns on investment, but instead reflect the value of market dominance.” 

Workers taught their children that competing buyers and sellers bring happiness for everyone. 

King Eric collected Monop Rents. Eric, with his shore batteries and ships, controlled passage of merchant vessels through the Oresund and the Denmark Straits. Eric increased the benefit of the trade to himself by reducing the benefit of the trade to the masters of the vessels. The next episode of FTC will be an author's note, after which we’ll follow with the story of the Tea Party and more about King Eric. Oh yes, and the Firehose Up.



I'm most grateful to my friends who gave me the benefits of their comments on prepublication drafts, their corrections, their advice and their encouragements. 


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Images for the Eric Tetralogy



W.D. Cooper, “Boston Tea Party”, published in “The History of North America” ( 1789, E. Newbury, London https://en.wikipedia.org/wiki/Tea_Act#/media/File:Boston_Tea_Party-Cooper.jpg, Public Domain in USA, copyright may apply in Switzerland, Mexico, Germany, Mainland China and Canada)

Nathaniel Currier, “The Destruction of Tea at Boston Harbor” (1846, Public Domain, https://commons.wikimedia.org/wiki/File:Boston_Tea_Party_Currier_colored.jpg


“Elizabeth I of England” (circa 1590, National Maritime Museum, Greenwich, England, Creative Commons Non-Commercial Share with Attribution, http://collections.rmg.co.uk/collections/objects/14154.html


“Eric VII of Denmark” (a.k.a. Eric of Pomerania, Southerly Clubs of Stockholm Sweden, Public Domain https://en.wikipedia.org/wiki/Eric_of_Pomerania#/media/File:Eric_VII_the_Pomeranian_of_Denmark_(photo_2010)_crop.jpg)


William Downman, “Flag of the British East India Company” from “Notebook” (1685, Public Domain, https://commons.wikimedia.org/w/index.php?curid=4118976)


Nicholas Hilliard, “Portrat eines Junglings unter Rosen, Robert Devereux 2nd Earl of Essex” (circa 1588, Collection of the Victoria and Albert Museum, Public Domain, Wikimedia, https://commons.wikimedia.org/wiki/File:Nicholas_Hilliard_013.jpg


“Theodore Newton Vail” (circa 1918, Library of Congress, Wikipedia, Public Domain, https://commons.wikimedia.org/wiki/File:Theodore_Newton_Vail_circa_1918_cropped.png)





Sources for the Eric Tetralogy



AT&T


AT&T, “History of AT&T” (http://www.corp.att.com/history/)

CNNMoney, “The story of Ma Bell” (Jul 9, 2001, http://money.cnn.com/2001/07/09/deals/att_history/)


Dealbook, “Back to the Future for AT&T” (Mar 21, 2011, New York Times, https://dealbook.nytimes.com/2011/03/21/back-to-the-future-for-att)

Joseph D. Kearney, “From the Fall of the Bell System to the Telecommunications Act: Regulation of Telecommunications Under Judge Greene” (Jan 1, 1999, Marquette Law Scholarly Commons, Marquette University Law School, http://scholarship.law.marquette.edu/cgi/viewcontent.cgi?article=1503&context=facpub)


Jason Manning, “Ma Bell Breaks Up” (2000, The Eighties Club, http://eightiesclub.tripod.com/id310.htm)


New York Times, “AT&T’s History of Invention and Breakups” (Feb 13, 2016, New York Times, https://www.nytimes.com/interactive/2016/02/12/technology/att-history.html?_r=0)


Eli M. Noam, “Viewpoints: 10 Years After Bell’s Breakup; The Split-Up Worked. No, It Didn’t” (Jan 23, 1994, New York Times, http://www.nytimes.com/1994/01/23/business/viewpoints-10-years-after-bell-s-breakup-the-split-up-worked-no-it-didn-t.html)


Larry Press, “A short history of the telephone industry and regulation” (California State University, http://bpastudio.csudh.edu/fac/lpress/471/hout/telecomHistory/)


Jane Bryant Quinn, “Ma Bell’s Breakup Means Big Changes Ahead for Phone Users” (Jan 31, 1983, Washington Post,  https://www.washingtonpost.com/archive/business/1983/01/31/ma-bells-breakup-means-big-changes-ahead-for-phone-users/185c55de-505f-4f1b-98e8-e1e2bf3b67b2/?utm_term=.cfdfacfd0e32)


Tim Wu, “The Great American Information Emperors” (http://www.slate.com/articles/technology/technology/features/2010/the_great_american_information_emperors/how_theodore_vail_built_the_att_monopoly.html)


Tim Wu, “The Master Switch” (Nov 2, 2010, Knopf, http://amzn.to/2gUXtsM)




IBM


Associated Press, “U.S. dropping its long, costly antitrust suit against IBM” (Jan 9, 1982, Chicago Tribune, http://archives.chicagotribune.com/1982/01/09/page/4/article/u-s-dropping-its-long-costly-antitrust-suit-against-ibm)

G. David Garson, “Public Information Technology and E-governance: Managing the Virtual State” (2006, Jones & Bartlett Learning, https://books.google.com/books?id=OwYnTHQC4e0C&pg=PA229&lpg=PA229&dq=eu+ibm+bundling+monopoly&source=bl&ots=9CCNvs6On9&sig=ATB3jWKv_nmVlxVlxgsYoSxpXaI&hl=en&sa=X&ved=0ahUKEwjn0v6vnqLVAhWhilQKHYoyBBoQ6AEITTAH#v=onepage&q=eu%20ibm%20bundling%20monopoly&f=false)


Hagley Museum and Library, “Richard Thomas deLamarter collection of IBM antitrust suit records: Historical Note” (http://findingaids.hagley.org/xtf/view?docId=ead/1980.xml


Bob Johnson, “U.S. Drops IBM Suit” (Jan 18, 1982, Computerworld, https://books.google.com/books?id=rx3ssrOcCTkC&pg=PA6&lpg=PA6&dq=justice+drops+ibm+case&source=bl&ots=VaR4pZF0p_&sig=_u3PpzkzZbu3trTa0O_sZuxb9zE&hl=en&sa=X&ved=0ahUKEwiW7_XZnaLVAhXqwlQKHRScCkwQ6AEIPDAF#v=onepage&q=justice%20drops%20ibm%20case&f=false)


David Levy and Steve Welzer, “System Error: How the IBM Antitrust Suit Raised Computer Prices” (1985, Cato Institute, https://object.cato.org/sites/cato.org/files/serials/files/regulation/1985/9/v9n5-6.pdf)




Microsoft



James Kanter, “European Regulators Fine Microsoft” (Mar 6, 2013, New York Times, http://www.nytimes.com/2013/03/07/technology/eu-fines-microsoft-over-browser.html)

John R. Wilke and David Bank, “Microsoft Is Found to be Predatory Monopolist” (Nov 8, 1999, Wall Street Journal https://subscribe.wsj.com/microexamples/articlefiles/MicrosoftIsFoundtoBePredatoryMonopolist.doc)




Standard Oil Company


The Learning Network, “May 15, 1911 | Supreme Court Orders Standard Oil to Be Broken Up” (May 15, 2012, New York Times, https://learning.blogs.nytimes.com/2012/05/15/may-15-1911-supreme-court-orders-standard-oil-to-be-broken-up)

“Standard ogre” (Dec 23, 1999, The Economist, http://www.economist.com/node/347251)


Ida Tarbell, “The History of the Standard Oil Company” (1904, amazon.com/History-Standard-Oil-Company-Volumes/dp/1519455860https://play.google.com/store/books/details?id=zaYZAAAAYAAJ&rdid=book-zaYZAAAAYAAJ&rdot=1)




Other sources


Christian Ahlborn, David S. Evans and A. Jorge Padilla, “The antitrust dynamics of tying: a farewell to per se illegality” (2004, United States Department of Justice, https://www.justice.gov/atr/antitrust-economics-tying-farewell-se-illegality)

Magnus Bjornsson, “Ebay: A Concise Analysis” (2001, http://www.cs.brandeis.edu/~magnus/ief248a/eBay/)


Daniel Brockman, “The Fairy Tale of Capitalism: CEOs, Growth and Prosperity of Society” (Mar 31, 2017, https://daniel-brockman.blogspot.com/2017/03/ftc-ceos-growth-prosperity-society.html)


Daniel Brockman, “The Fairy Tale of Capitalism: Land and Ricardo” (Apr 27, 2017, https://daniel-brockman.blogspot.com/2017/04/FTC-Land-and-Ricardo.html)


Daniel Brockman, “The Fairy Tale of Capitalism: Managers, Professors and Engels” (Jun 12, 2017, https://daniel-brockman.blogspot.com/2017/06/ftc-managers-professors-engels.html


Daniel Brockman, “The Fairy Tale of Capitalism: The 90 Percent” (Nov 30, 2016, https://daniel-brockman.blogspot.com/2016/11/the-fairy-tale-of-capitalism-90-percent.html)


Daniel Brockman, “The Fairy Tale of Capitalism: Supercompensation, Income and The Exchange” (Apr 6, 2017, https://daniel-brockman.blogspot.com/2017/04/ftc-supercompensation-income-the-exchange.html)


Daniel Brockman, “Intellectual Property and The King of Denmark’s Rule” (Oct 11, 2016, https://daniel-brockman.blogspot.com/2016/10/intellectual-property-and-king-of.html)


The Chapel Royal, “Tallis and Byrd - Musicians of Tudor Renaissance” (2017, The Chapel Royal at Hampton Court Palace, England, http://www.chapelroyal.org/tallisbyrd.html)


Andy Conigliaro, Joshua Elman, Jeremy Schreiber, Tony Small, “The Danger of Corporate Monopolies” (1996, https://cs.stanford.edu/people/eroberts/cs201/projects/corporate-monopolies/index.html)


Financial Times, “A giant’s strength is valuable - if not used like a giant” (Nov 28, 2006, http://www.ft.com/cms/s/0/00c04180-7e86-11db-84bb-0000779e2340.html)


Independence Hall Association, “The Tea Act, 1773” (http://www.ushistory.org/declaration/related/teaact.html)


James Gipson, “Electronics Threaten NYSE Monopoly” (Nov 16, 1980, Washington Post, https://www.washingtonpost.com/archive/business/1980/11/16/electronics-threaten-nyse-monopoly/95c22fb4-90c2-47ea-9b91-d94e9dac3b14/)


Alan Greenspan, “Intellectual property rights” (Feb 27, 2004, The Federal Reserve Board, https://www.federalreserve.gov/boarddocs/speeches/2004/200402272/)


Paul Kiel, “AIG’s Spiral Downward: A Timeline” (Nov 14, 2008, ProPublica, https://www.propublica.org/article/article-aigs-downward-spiral-1114)


Paul Krugman, “Profits Without Production” (June 20, 2013, New York Times, http://www.nytimes.com/2013/06/21/opinion/krugman-profits-without-production.html)


“Maria of Mecklenburg”, (Geni.com, retrieved Jul 21, 2017 from https://www.geni.com/people/Maria-of-Mecklenburg-af-Mecklenburg/6000000001009244901)


Andrea Renda, “Catch Me if You Can! The Microsoft Saga and the Sorrows of Old Antitrust” (2004, Erasmus Law and Economics Review, http://www.eler.org/include/getdoc.php?id=4&article=1&mode=pdf)


Rick Santelli, “We’re thinking of having a Chicago Tea Party in July” (Feb 19, 2009,  CNBC video, https://youtu.be/FLLC8ER9a54?t=2m8s, for Santelli's full statement https://youtu.be/FLLC8ER9a54 )


Rosemary Sgroi, “Monopolies in Elizabethan Parliaments” (1917, http://www.historyofparliamentonline.org/periods/tudors/monopolies-elizabethan-parliaments)


Laura Shin, “Why McDonald's Employee Budget Has Everyone Up In Arms” (Jul 18, 2013, Forbes, https://www.forbes.com/sites/laurashin/2013/07/18/why-mcdonalds-employee-budget-has-everyone-up-in-arms/#5e592aa15216)


Lisa Trei, “Intellectual property the next big thing, Greenspan predicts” (Mar 3, 2004, Stanford Report, Stanford University, http://news.stanford.edu/news/2004/march3/greenspan-33.html)


Wikipedia, “Boston Tea Party” (1917, https://en.wikipedia.org/wiki/Boston_Tea_Party)


Wikipedia, “Robert Devereux, 2nd Earl of Essex” (1917, https://en.wikipedia.org/wiki/Robert_Devereux,_2nd_Earl_of_Essex)


Wikipedia, “Samuel Adams” (1917, https://en.wikipedia.org/wiki/Samuel_Adams)


Wikipedia, “Tea Act” (1917, https://en.wikipedia.org/wiki/Tea_Act)





2017-06-12

The Fairy Tale of Capitalism: Managers, Professors and Engels


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The motifs of FTC the Fairy Tale of Capitalism give hope and value to many people.



Friedrich Engels 1820-1895 (Wikipedia)
Once upon a time, a German boy dropped out of high school. His father sent the boy to Bremen to take a job we of modern times would call an intern office clerk in a commercial business. He read the philosopher Hegel in his spare time and wrote newspaper articles. His mother begged him to stop writing such scandalous ideas. His name was Friedrich Engels, the “forgotten” Old One. At 21, he joined the army which ordered him to Berlin. Thus began his adventure. He would shake the world. The aftershocks continue even in our modern times.  

In his spare time, the young man attended university classes but never got a degree. He hung out with a group called the “Young Hegelians”. He wrote controversial articles. The editor of a political newspaper published the articles.

Engels wasn’t in Berlin long. He went to Manchester in Lancashire, England to work with his father’s partner in the Manchester office of the family business, a thread factory in that city. At the time, Manchester and the surrounding Lancashire County were the world’s manufacturing center. The city was the throbbing innovative edge of the most advanced technologies, using steam and water to power spindles and looms for manufacture of textiles. The city also hosted an array of other industries as well. It was full of factories, each employing several hundred workers, a way of working made possible by powered machinery. Manchester was a boom town.

Engels took great interest in the lives and working conditions of the factory Workers. He went down from the company office to get to know them. He visited them on the job. He wandered the streets at all hours, ate and drank with the workers, and learned their ways. He took copious notes. To his German editor, he sent several articles which he subsequently collected into the book “The Condition of the Working Class in England , both a detailed economic history and a polemic.

Engels wrote “Conditionin the style which the times favored. You may recognize this style from your reading his contemporary Charles Dickens. Long strings of words form sentences that cascade over two or three pages.

Engels documented the utter poverty in which many Workers died from starvation and disease. The Workers typically shared a bed of rags with six or eight comrades in a leaky house without furniture. He saw children, women and men working 70 or 80 hours per week for wages of pennies. He read reports of doctors, police and government agencies describing the illnesses of Workers living in squalor. In the factories, strained working postures and dangerous equipment injured Workers. Bad light and detailed work blinded makers of lace and fine threads. If they survived, infirmities often disabled them for work. They sometimes lived to 40 or 50 years of age.

The Workers, or “proletarians”, in the textile factories of Manchester had no, or very little, property from which to get income. Engels included the petite bourgeoisie, the people who owned small shops selling modest goods, among the proletarians.  Their lack of property distinguished them from the bourgeoisie, the capitalists who owned property, among whom he included the nobility. To sustain their lives, the proletarians had only their Labor. The wages of Labor sufficed to sustain their lives for at most the next few days.

Technical innovation enabled lower product prices, because the new methods could produce much more product with the same quantity of Labor. People who wove cloth by hand in their cottages fell on bad times. They couldn’t sell their product at the low prices of machine-made goods. The cottage weavers moved to Lancashire to find work in the factories.

Samuel Compton's Spinning Mule (circa 1779), image by Pezzab
The owners of property, the bourgeoisie or middle class, as Engels called them, began to receive orders for manufactured goods from distant markets, colonies and other countries where buyers couldn’t get similar goods so cheaply from local sources. To meet demand, they would activate idle factory capacity, hiring Labor from the “unemployed reserve” to operate the machines. As orders continued, owners invested Capital to buy the latest versions of automated spinning machines and hired more Labor from the reserve.

Orders grew in size and number. Commerce boomed. Workers were a bit more scarce during short periods of the boom. To to entice them to fill the last vacancies in the factory, the bourgeois owner offered a little more pay for short periods. The Workers liked the modestly improved diet and housing the higher wages made available. The slightly better pay brought more Workers to the factories of the bourgeoisie. The factory owner called for additional production in anticipation of future orders, which continued to arrive for a few years. Bourgeois neighbors, encouraged by the example of the successful factory, set up their own factories, too. Times were good.

It came to pass that production outpaced the slowing stream of buyers’ orders. Overproduction resulted in glut of product. Factory owners reduced prices to clear unsold inventories. They dismissed some Workers and reduced hours of operation. The money Workers got from wages fell even below the cost of sustenance. In some cases, the owners ceased operation and closed the factory.

The bad times returned. Discharged Workers joined the “unemployed reserve”. Having no wages, they had no means to pay for rent and food. Landlords evicted many. Starvation and disease reduced the numbers of the “unemployed reserve”. New orders for goods didn’t cease entirely, but sank to low levels easily met by remaining inventories and the production from remaining factories.

A new machine would lower the cost of making product, often by more advanced automation requiring fewer Workers for operation. Initially, the owners had higher rates of profit with the new machines, even while the lower prices of product attracted more orders. A new period of good times began.

We aren’t certain Engels knew the works of Sismondi who wrote an early description of episodic economic crises. Engels traced the repetition of boom and bust in the factories of Manchester and figured it to recur every ten years plus or minus a few years. Later Economists also considered these fluctuations. A widely shared consensus view developed during the time of the Great Wars, and the Professors began singing the song “The Business Cycle Goes Up and Down”.

The Professors, and we mean the Business School Professors, studied the Tales of the unintelligible Economists. The Professors interpreted the Tales and composed their understandings in the more marketable form of songs. Some of the Professors were themselves Economists, but that’s another story.

Sir Richard Arkwright 1732-1792,
one of Lancashire's early capitalists.
Portrait by Mather Brown.
The Professors performed their songs in the business schools for the students who listened carefully so they could become Managers or Professors or Economists. Some of the students would become Supercompensated CEOs and would donate large amounts of money to their favorite business schools to employ Professors. Thus, in the songs, the CEOs were Ingenious Innovative Job Creators, great leaders, and the vital sina qua non of the Society. The Professors published their songs in the journals. Hoping for tenure, many also composed long chansons de geste (or sagas) which they published as books, not uncommonly sold to students at high prices. Few of the published chansons were ever sung at all except for a selected stanza or two. None were ever sung in their entirety.

In our modern age, the Professors’ repertoire includes songs ranging from the classic “Led by the Invisible Hand” to the recent hit “Quantitative Ease”, still popular at this writing. As a historical note, there is a list of songs, believed to be an all-time greatest hits list, compiled, we think, by a Professor “Captain” Ed Murphy of Caltech in Pasadena, California circa 1965. Per legend and rumor, at Edwards Air Force Base in California during the great wars, after a scientific experiment performed by his assistant, a Dr. Stapp, Murphy articulated the well-known natural law “If anything can go wrong, it will.” A rumored many times photocopied one-page biography bore his portrait. Unfortunately, due to a fire that destroyed department records, we know nothing more of Professor Murphy. Here is the list of songs from Murphy's list:

“...High Plateau” [Song not recognized. Initial part of the paper is burned away.]
“Growth of GDP”
“Corporations Serve the Interests of the Shareholders”
“Mark to Market”
“Led by the Invisible Hand”
“Inelastic Supply Blues”
“Total Quality Control”
“Looking for my Marginal Return”
“Debits on the Left”

But we digress. People who wanted to be Managers learned many of the songs (at least long enough to take the exam). Managers oversee the planning and operation of Firms and the direction of Workers. Peter Drucker https://smile.amazon.com/dp/0061345016, a highly esteemed Professor and composer of dozens of chansons, taught that the main job of a Manager was to choose, according to candidates’ best capabilities, the subordinates who could best do the job. The notion of Management originated early in the period of the Great Wars. Before then, there were overseers and Workers. In our modern times, four kinds of Managers have evolved.

Supervisors - Managers who manage Workers directly.

Directors - Managers of Managers. Not to be confused with the members of the Board of Directors.

Executives - A small subset of Managers, typically no more than a half-dozen per Firm. The Executives have authority over all the other Managers of the Firm.

Chief Executive Officer or CEO - Equivalent to President. The most highly ranked Manager in the Firm. The CEO can tell any of the Workers or other Managers what to do.

In Engels’ Manchester, each factory had a single manager, similar to a modern CEO, usually the owner or a relative of the owner. The only other kind of manager in the factory was the overseer, something like our modern Supervisor.

Thomas High's Spinning Jenny circa 1764
Ricardo said the value of Labor equaled the cost of subsistence. The capitalist collected the full price of the product, less the rent paid for the Land and the wages paid to Labor. The capitalist’s profit captured the value of changes in price of product. The rent on Land depended on its usefulness relative to other tracts of Land. The wages of Labor tended toward the value of necessities to sustain the Workers’ human lives, which seldom changed much. Wages and rent didn’t vary with the price of the product. If a high product price or lower cost of production occurred, neither rent nor wages would increase, but the additional value would go to Capital.

Engels saw that, at the factories of Lancashire, in the course of a business cycle, to maintain or improve their profits, the bourgeoisie would seek to reduce wages or to get more Labor for a given wage. In “Condition, Engels diagnosed the private ownership of property, lying at the core of the “factory system” or “capitalist system”, as the cause of the Workers’ distress. Since higher wages reduced Capital’s profit, Engels saw the interests of the Workers in direct opposition to the interests of the bourgeoisie. He saw that the state served the bourgeoisie who sustained and directed the state. The Workers interacted with the state only when imprisoned or beaten by the police. Engels predicted that the bourgeoisie would accord Workers no improvement of their condition, and that the Workers would, with certainty, wrest control from the bourgeoisie by violent revolt, for they had no other recourse.

Violent Workers’ revolt to effect change in the treatment of Workers wasn’t a new idea with Engels. Perhaps he had heard of the Merthyr Rising of 1831 or the Newport Rising of 1839. In any case, his writings usually mentioned violent revolt.

Engels’ Berlin editor was the Old One Karl Marx. In our story, FTC the Fairy Tale of Capitalism, these two great villains threatened the Society. The two young villians had hit it off from the start. “Conditionwas first published by Marx in a series of articles subsequently compiled as a book in 1845. Four years later, they collaborated to produce “Manifesto of the Communist Party.

“A spectre is haunting Europe”, they wrote.  The “Manifesto” encouraged Workers worldwide to overthrow the bourgeoisie with violent revolution.

“The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries unite!”

And capitalists worldwide did tremble and oppose the Communists. Engels, the scion of a bourgeois capitalist, had called out his foe. In decades to follow, capitalists, monarchies and empires fell to revolutionaries quoting Marx and Engels. In various regions of the world, some form of collective ownership of the means of production replaced the private property of the bourgeoisie.

In 1867, Engels and Marx published their collaboration, the immense book “Capital, identifying Louis Blanc’s notion of “Capitalism” as the current phase of the evolution of civilization. The Old Ones Adam Smith and David Ricardo simply described the economic system of private property and free exchange by which the world worked. Engels and Marx said there was an alternative. They called the existing system “Capitalism” and said “Communism” was an alternate and “inevitable” successor system.

In our Fairy Tale of Capitalism, no good comes from Communism, and it threatens the Society. Capitalists adopted the term “Capitalism” to describe themselves, their adherents, and the Old Ones Adam Smith and David Ricardo (who had never heard of Capitalism). Communists, said the Capitalists, were all those who challenged Capitalism, and by challenging Capitalism, they threatened the civilization on which Society depended.

Marx and Engels challenged Capitalism. They predicted a violent proletarian revolution (though Engels wrote in his preface to the 1886 English edition of “Capitalthat England might effect the revolution peacefully). Communism is the evil menace in FTC that the CEOs and Aristocracy feel called to conquer.

Notably, Engels and Marx articulated an idea that was then novel but seems quite natural in our modern times: that history has an economic basis. They said innovations in economic means of production shape social systems and the trajectory of history. But that’s another story.  


“Causes of Civil War are also, that the Wealth of the Nation is in too few mens hands, and that no certain means are provided to keep all men from a necessity either to beg, or steal, or be Souldiers.”
-- William Petty 1623-1687




I wish to thank my several good friends who read prepublication drafts and offered corrections and advice.

FTC Ring: Previous | Next


Images

Image: [Public domain] Sir Richard Arkwright (1732-1792) portrait by Mather Brown (1790, Wikipedia)

Image: [Creative Commons Attribution-Share Alike license] Samuel Compton’s Spinning Mule (circa 1779, image by Pezzab, Wikimedia)

Image: [Public Domain] Friedrich Engels 1820-1895 (Wikipedia)

Image: [Public Domain] Thomas Highs’ spinning jenny (circa 1764, Wikipedia), published in Edward Baines, “History of the Cotton Manufacture in Great Britain” (1835)


Sources

Daniel Brockman, “CEOs, Growth and Prosperity of Society” (Mar 31, 2017, https://daniel-brockman.blogspot.com/2017/03/ftc-ceos-growth-prosperity-society.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Land and Ricardo” (Apr 27, 2017, https://daniel-brockman.blogspot.com/2017/04/FTC-Land-and-Ricardo.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Supercompensation, Income and the Exchange” (Apr 6, 2017, https://daniel-brockman.blogspot.com/2017/04/ftc-supercompensation-income-the-exchange.html)

Daniel Brockman, “The Fairy Tale of Capitalism: Workers, GDP and Economists” (Mar 17, 2017, https://daniel-brockman.blogspot.com/2017/03/the-fairy-tale-of-capitalism-workers.html)

Peter Drucker, “The Essential Drucker” (2001, https://smile.amazon.com/dp/0061345016)

Friedrich Engels, “The Condition of the Working Class in England” (1845, http://amzn.to/2snelK9)

Friedrich Engels, Paul Sweezy (tr), “The Principles of Communism” (1847, Creative Commons Attribution-ShareAlike 2.0 license, https://www.marxists.org/archive/marx/works/1847/11/prin-com.htm)

Andrew Hill, “The management revolution” (Jun 12, 2013, Financial Times, https://www.ft.com/content/25def0a6-d352-11e2-b3ff-00144feab7de)

Mark Hulbert, “New CEO is Ford’s Hail Mary pass” (May 23, 2017, Marketwatch, http://www.marketwatch.com/story/new-ceo-is-fords-hail-mary-pass-2017-05-23)

Karl Marx, Friedrich Engels, Samuel Moore (tr),  “Capital: Critique of Political Economy” (1867, http://amzn.to/2sEPAsr)

Karl Marx, Friedrich Engels, Samuel Moore (tr), “Manifesto of the Communist Party” (1848, Marx/Engels Internet Archive, Creative Commons Attribution-ShareAlike license, https://www.marxists.org/archive/marx/works/1848/communist-manifesto/index.htm)

Pedro Schwartz, "Capitalism and Its Names" (Nov 7, 2016, Library of Economics and Liberty http://www.econlib.org/library/Columns/y2016/Schwartzcapitalism.html)

"J.C.L. Simonde de Sismondi” (Biography.com https://www.biography.com/people/jcl-simonde-de-sismondi-37535)

Note: We regret we have mislaid our note citing the source of our information regarding Professor “Captain” Ed Murphy.