PINCHAS NUMBERS CHAPTER 25.29,06,13. Zealotry and Murder

Pinchas Numbers Chapter 25                                                                           29.06.13

Zealotry and Murder

by

Howard Adelman

 

Parshat Pinchas has six distinct parts. The first part deals with the rewards for Pinchas’ zealotry by God for killing the Simeonite Prince, Zimri, and his Midianite princess, Kozbi, who was his lover after Zimri took his Midian lover into his tent right in front of Moses and the rest of the Israelites. Pinchas killed them both. That act supposedly stopped the plague running through the Israelite camp parked on the other side of Mount Peor when the Israelites were about to enter the promised land. God rewarded Pinchas, both by making Pinchas a priest but also by instructing Moses to wage war against the Midianites. The other five parts consist of the new census, the principles of dividing the land by lots and in proportion to the numbers, the issue of female inheritance that arose because of the petition by five daughters of Tzelafchad to inherit their father’s land when there were no sons and God’s acceptance of that claim, the arrangement for Joshua to succeed Moses and, finally, the detailed list of daily and additional offerings on Shabat and the other holy days.

I will comment only on Pinchas’ zealotry. The key verses are:

25 While Israel was staying in Shittim, the men began to indulge in sexual immorality with Moabite women,who invited them to the sacrifices to their gods. The people ate the sacrificial meal and bowed down before these gods.So Israel yoked themselves to the Baal of Peor. And the Lord’s anger burned against them.

The Lord said to Moses, “Take all the leaders of these people, kill them and expose them in broad daylight before the Lord, so that the Lord’s fierce anger may turn away from Israel.”

So Moses said to Israel’s judges, “Each of you must put to death those of your people who have yoked themselves to the Baal of Peor.”

Then an Israelite man brought into the camp a Midianite woman right before the eyes of Moses and the whole assembly of Israel while they were weeping at the entrance to the tent of meeting. When Phinchas, son of Eleazar, the son of Aaron, the priest, saw this, he left the assembly, took a spear in his hand and followed the Israelite into the tent. He drove the spear into both of them, right through the Israelite man and into the woman’s stomach. Then the plague against the Israelites was stopped;but those who died in the plague numbered 24,000.

10 The Lord said to Moses, 11 “Phinchas son of Eleazar, the son of Aaron, the priest, has turned my anger away from the Israelites. Since he was as zealous for my honor among them as I am, I did not put an end to them in my zeal. 12 Therefore tell him I am making my covenant of peace with him. 13 He and his descendants will have a covenant of a lasting priesthood, because he was zealous for the honor of his God and made atonement for the Israelites.”

14 The name of the Israelite who was killed with the Midianite woman was Zimri son of Salu, the leader of a Simeonite family.15 And the name of the Midianite woman who was put to death was Kozbi daughter of Zur, a tribal chief of a Midianite family.

16 The Lord said to Moses,17 “Treat the Midianites as enemies and kill them.18 They treated you as enemies when they deceived you in the Peor incident involving their sister Kozbi, the daughter of a Midianite leader, the woman who was killed when the plague came as a result of that incident.”

Two activities are conjoined – inter-ethnic intercourse between Israelite men and Midianite women – Jews are running around with shiksas – and, in the process of eating together and presumably engaging in a bacchanalian revelry at a festival involving Baal, the Israelite men were accused of bowing down to Baal. Later in the section we learn of a third event perceived as a consequence of these activities – a plague broke our among the Israelites killing 24,000, an enormous death toll, probably over 1% of the population.  The matter comes to a head, not when the men were off elsewhere cavorting with the Midianite women, but when a Simeon price brought a Midianite princess into his own tent within the Israelite camp. There is no trial. There is just a vigilante action of murder for inter-ethnic and/or inter-religious sexual act considered as an honour killing, for which Pinchas is highly rewarded by God by guaranteeing his priestly lineage forever.

Look at the causal connections. The Israelites have intercourse with Midianite women at a festival for Baal. This causes a plague. It does not say that God was the agent bringing about the plague on the Israelites, but a plague kills indiscriminately. Further, to allow one’s tribe’s daughters to cavort with the Israelite men is blamed on the evil machinations of the Midianites. Consequently, the Midianites are enemies. Consequently, those enemies ought to be murdered. Pinchas is given a rationale for his zealotry. The causal illogic, the misconstrual of moral agency conjoined with a false causal logic, and the enormous and wholly disproportion between the response, initially on the individual level and then, as we will see in subsequent readings, on the collective level, between the alleged action and the response by the other is so out of whack as to be totally disconcerting.

Instead of a tragic Romeo and Juliet story of Zimri and Kozbi, Pinchas (and God) saw only betrayal and licentiousness, sacreligious behaviour and depravity. Further, there is no due process, only vigilante action and taking the law into one’s own hand when there was no explicit law forbidding Israelite men from consorting with Midianite women. The conflict is between a warrior invading group, the Iraelites, and, by all accounts even of the Israelites, a peaceful tribe of shepherds. There is no reflection and consideration in the act, only righteous anger. What is more, though we are getting ahead of ourselves, the enslavement and genocide of the Midianites will follow. (Numbers 31)

What is this all about? Moses had a Midianite wife – Zipporah. Moses’ sister, as I argued previously, remonstrated Moses for ignoring and mistreating Zipporah in his political zealotry (and not because he married a Cush, an Ethiopian). Further, the Midianites were descended from Abraham by his concubine, Keturah (Genesis 25:1-2). But when zealotry becomes murder by a vigilante hothead, and then the hothead is pushed ahead into the priesthood and guaranteed that position for his descendents, then there is a glorification of self-righteousness over reflection, extreme passion over moderation, a political agenda trumping human intercourse. Creon, the symbol of political power, trumps family loyalty in the killing of Antigone. In this case, the situation is perceived as licentiousness when it was probably simply the ardour of love for what else could account for such imprudent behaviour by Zimri and Kozbi.

On the other hand, Moses was the hothead who killed a slave taskmaster in a fit of self-righteousness and had to flee for forty years where he was befriended by a Midianite king and given his daughter, Zipporah, to wed. And that wife ensured his child was circumcised. That wife stood up in defence of Moses. And now the Zealots would take Moses’ in-laws down. Was this indirect revenge against Moses after all the other rebellions failed, this time on the side of righteousness, this time when Moses was in his final year?   

Of course, zealotry can be rationalized, especially if it is executed on behalf of and in partnership with God. But in my reading of the biblical text, God’s wrath, sense of self-righteous worth and indifference to human suffering in such moments must always be constrained by human reason and sense of proportion. God learns through humans. But here we are left without God or men learning anything – just a celebration of totally irrational zealotry. Is God giving Pinchas a position where he can do no more harm – putting him in charge of rites and rituals rather than into politics? No, for he was Aaron’s grandson, destined for that role anyway. 

11 “Phinchas son of Eleazar, the son of Aaron, the priest, has turned my anger away from the Israelites. Since he was as zealous for my honor among them as I am, I did not put an end to them in my zeal. 12 Therefore tell him I am making my covenant of peace with him. 13 He and his descendants will have a covenant of a lasting priesthood, because he was zealous for the honor of his God and made atonement for the Israelites.” Here, Pinchas’ act becomes an act of diversion, a way to shift God’s wrath away from the Israelites. By becoming such a ferocious agent for God, Pinchas ended up as serving as a relief valve for God’s enormous wrath which made the rage of Pinchas look miniscule.  That is why he also made Pinchas and his descendents priests forever, as a sign of peace.

But at what cost? At the sacrifice of a pair of lovers? Are there not limits to appeasing such an irrational power? As we shall see, this is just the prologomena to extremism.

Strategies vs Theory and Causes

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman

Conversation – Strategies vs Theory and Causes

Chapter 11. Following My Truth                                                                

                                               

by

 

Howard Adelman

 

Why did Jeremy call the U.S. 1952 election in which Adlai Stevenson ran against General Eisenhower for president “one of the most appalling in modern American history”? (p. 325) Was it because Eisenhower’s Vice-Presidential running mate, Richard Nixon, ran such a dirty anti-communist crusade? Was it because Dwight Eisenhower himself in his famous Wisconsin election speech not only did not defend his old colleague, Secretary of State George Marshall, against Senator Joseph McCarthy’s rants against Marshall as part of a communist conspiracy, but himself engaged in outlandish anti-communist rhetoric, picking up McCarthy’s line that communists had infiltrated the nations schools, unions, media and government? In Jeremy’s biography, the depiction merely set the stage to explain why it was not a propitious time for AH to return to America.

 

Suddenly, without plans or forethought, an unexpected invitation arrived four years later inviting AH to become a research professor at YaleUniversity for all or part of the 1956-7 academic year. “As Machiavelli instructed his prince, it is equally important to seize opportunities and align the forces of virtŭ and fortuna on one’s side in order to convert an opportunity into achievement. It was with this Machiavellian esprit that Hirschman relocated once more.” (p. 327) As a research professor, he was not expected to teach but he was expected to use his time to write a book.  He wrote The Strategy of Economic Development (1958). Further, when unable to finish the book within the year – a dubious proposition to begin with aside from his decision to engage in extensive re-writes after attending a conference in Brazil – he managed to get a Rockefeller grant to extend his appointment for an extra year.

 

Jeremy sets this against the backdrop of the new North American orthodoxy of development theory that I discussed in the last blog – balanced growth designed both to offset chokepoints to insure against over-production with too little demand as well as infuse capital that would be strategically distributed to ensure there were no shortages in countries with surplus labour and severe capital shortages. In contrast, Latin American economists (Roberto Campos and Alexandre Kafka) argued that growth itself produced disequilibrium and imbalances spawning both greater inequalities and inflation. Change was the problem, not inertia. These influences on AH, supplemented by Edmund Burke and Friedrich von Hayek, pushed a thesis about disequilibrium as central and the possibility of strategies to manage that disequilibrium rather than chimerical theories to do away with it. AH also picked up the notions of frustration, aggression and anxiety from Erich Fromm to add a psychological dimension to his analysis.

 

His methodological approach matched what he saw as the approach of agents in history – in particular, entrepreneurs – who tackled problems, not events, who dreamt up ways of overcoming obstacles rather than envisioning the absence of any obstacles whatsoever. Stress and tension were healthy as long as they were used to transform a situation into a creative solution rather than simply being allowed to eat away at oneself. Once again, the cunning of reason worked through paradoxes and problems to unleash new contradictions and new problems. More practically, do not start with large megaprojects like dams and ports to eliminate bottlenecks before the demand had even sufficiently developed. Rather invest in industries and agriculture, in entrepreneurs and businesses. Invest in productive people and not plans and planners. The key was creative decision making – the same creativity that invented money itself in the first place.

 

Piecemeal planning was offered in opposition to comprehensive and coherent general plans. What Jane Jacobs would offer to urban planners three years later with her classic (1961) The Death and Life of Great American Cities, Albert Hirschman was offering to the theorists of economic development on a larger scale. The same premises were at work. Instead of big planners of dams and ports, Jacobs had to contend with big planners of roads, such as Robert Moses, and huge housing estates with no eyes on the ground at street level to keep the passageways safe through the many eyes looking about.

 

In the sixties, the zeitgeist favoured writers like Hirschman and Jacobs and the revolt against liberal master builders. In the sixties, Ike might not have been given the opportunity that he had in the fifties to build his system of interstate highways that allowed the creation of suburban America, the car culture that paradoxically facilitated the eventual destruction of Detroit as a city.

 

Why was AH’s answer inadequate as Jeremy suggests through the criticisms of Amartya Sen and others at the end of the chapter? I want to use an example from a related field much more au courant today than development theory or urban planning – resource economics and the unintentional spoliation of the commons. More particularly, I want to examine Elinor Ostrom’s book, Governing the Commons, that came out just over three decades after AH wrote The Strategy of Economic Development. Ostrom’s book helped her earn her 2009 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, the Economics Nobel Prize.

 

Like AH, Ostrom loved case studies. She also loved paradoxes. Though suspicious of theory based on an inadequate collection of empirical data, she did not have a knee-jerk antithetical approach to theory in the sense of abstract modelling. Further, she suspected metaphors as dangerous. Her book begins with an explication of the tragedy of the commons as illustrated by the total depletion of the fishery off the Grand Banks (her resource, my location). State regulation not only did not prevent its destruction but exacerbated it. Would it have been destroyed without state control? Undoubtedly! The tragedy of the commons and the free rider problem illustrate that if individuals are left to pursue their own best self-interest in the use of the commons where the long term delayed costs are deterioration which is against each individual’s longer term self interest, the propensity will be to effectively destroy the commons.

This example can be illustrated all over the world and reaches tragic proportions in cases where the depletion of natural resources is exacerbated by climate change, such as in the desertification of the Sahara region. In Darfur, the human population exploded by 500% over a century and the animal population by almost double that amount at the same time as the resources to support the nomadic populations shrunk. The clash with the settled agriculturalists with whom the nomads had lived in a symbiotic relationship previously was almost inevitable. The result could not have been worse – the ethnic cleaning (sometimes misnamed a genocide) of the non-Arabic agricultural tribes to the south, the Fur, Zaghawa and Massalit tribes through an alliance of Arab nomads and the state government of Sudan.

 

Everyone’s property becomes no one’s property and the cost is the private property of others. As the users exceed the capacity of the commons to support them, the resources withdrawn will be larger than those needed to renew them. It is but an illustration of the prisoner’s dilemma where individual rational strategies lead to collective irrational outcomes that betray those same individual interests. Why? Because there will always be individuals who cannot be excluded from the general benefits available to everyone who will choose to withdraw more and contribute less. They are free riders whether they are sharing a bathroom with other students (my very mundane example in my book, The Beds of Academe arguing why domestic washrooms were preferable and much cheaper to build in residences than institutional washrooms) or sharing a huge grazing and agricultural field the size of France.

 

So the question arises of governance – how to manage a commons? The two dominant models have been state control (governance by the Leviathan) versus assigning the management to private enterprise as in the case of keeping the commons clean through waste management. There is a third model based on joint collective management by the users themselves, a cooperative versus private or state models, but it easily breaks down when subjected to strong external pressures (climate change and corrupt central governments) and internal pressures (population growth).

 

AH’s answer, as was also Ostrom’s, – the solution is situation specific. The state option presumes the state has complete or at least adequately comprehensive information, can fairly assign capacities, monitor use and has an effective justice system for sanctioning non-compliance to generate an optimum equilibrium. This utopian premise was at the heart of the weakness of balanced growth economic development theories. As AH showed, a serious error in information, unfair assignations, inadequate monitoring or meting out justice, let alone a combination of them, inevitably led to disastrous consequences, sometimes (or often) worse than if the individuals were allowed to operate in a strictly laissez-faire way.

 

What about those who say that the answer is to convert the commons to private ownership. How can this take place with grazing land already used by an excessive number of herders let alone when applied to water or fisheries? Ostrom illustrated through a number of cases how cooperative solutions often worked much better than either the laissez-faire or the state governing model. AH concurred. Better solutions were often developed through the initiatives of the users themselves based on the recognition that the information available was far from optimum, continued decisions re assigning capacity would have to be made, continuing monitoring conducted and penalties enforced for non-compliance. However, one of the problems of the cooperative model is that over time it tended to develop either into a quasi-state with all its problems (the Canadian Wheat Board for marketing Canadian wheat) or a private corporation (such as Sunkist Oranges).

 

The reality is that the solutions vary over different situations and, as situations change over time, the model solution applicable may change as the institution changes and adapts. No one type of solution is universally applicable. I recall when Fidel Castro, before he had fallen out with the United States by openly advocating communism, made a speech to the association of cooperative farmers in Cuba in 1959. In a speech that lasted almost four hours he explained how members of cooperatives are inherently selfish since they are only concerned with the well-being of the members of the cooperative and not with everyone in the country. Since the state had a shortage of seeds, he would have to allocate those seeds to state owned farms that had everyone’s interest at heart. The cooperatives voted to convert to state owned farms and, miraculously, all state farms, including the former cooperatives, were able to get seeds. Ideologues, particularly communist ideologues, are blind to their own self-contradictory positions and the evidence that falsifies their own convictions – in this case, the ability of state owned farms to adequately satisfy demand.

 

Ostram provided reams of evidence to suggest that self-organizing and self-governing forms of collective action, based on empirical findings, could, in some situations at some times, offer a more effective answer to governance of the commons. AH offered a more general thesis on the same topic about the category of development itself. Yet he never received the Nobel Prize for Economics.

An Orthogonal Development Theory

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman

Conversation – Instalment 12: An Orthogonal Development Theory

Chapter 10. Columbia Years                                                                       

                                               

by

 

Howard Adelman

                                                                         A

 

 

 

 

 

 

 

 

 

 

 

                                                           

 

   C                                                                    B                                                             D

The lines AB and CD are orthogonal to one another.

If CB and BD represent two oppositional development theories, then AB, at right angles to both theories and illustrated as perpendicular to both, makes the third theory mathematically orthogonically related to the other two theories. On p. 322, Jeremy describes AH’s thinking as so “orthogonal”. (p. 322) By explicating and clarifying the key characteristics of AH’s development “theory”, I want to show that it is indeed a theory –contrary to Hirschman’s (and Jeremy’s) protests otherwise. As Jeremy put it, AH “began to think about development in Columbia from the ground up – with a style but with no theory.” (p. 303) As AH worded it, “I looked at ‘reality’ without theoretical preconceptions of any kind.” (p. 297)

This is correct if “theory” is exclusively restricted to sets of statements or principles which are abstract and in terms of which events or actions are explained and even can be predicted. But theory also applies to principles that guide action or a set of practices by means of which judgments can be made. So although AH never had a theory of development in terms of a general abstract model, he certainly did have a theory about interpreting the phenomenal world of experience.

The problem goes back to the Greeks, and Aristotle in particular, where theoria was contrasted and seen as wholly other than practice. This is one reason his theory of health and the humours was so messed up and his theory of humours was so misleading for health practitioners for centuries. Diagnosis of disease begins with identifying four sets of key variables: a set of symptoms or indicators, anatomical location, physiological functions and an interpretation of the aetiology of the disease. The theoretical designation of a disease is then modified in each of these categories in accordance with experience and actual practice. There is no abstract model of the disease. AH developed a theory of development in precisely these terms.

Beginning with a quote from Franz Kafka as usual, Jeremy begins his chapter on Hirschman’s work in Columbia, the country to which he went when his career in Washington was still encountering roadblocks. “You can hold yourself back from the sufferings of the world, that is something you are free to do and it accords with your nature, but perhaps this very holding back is the one suffering that you could avoid.” (p. 295) The quotes from Kafka are always very pointed, but this one I found to be particularly poignant. When Jeremy was still in high school during the seventies, he took a year off to serve as a volunteer with Canada World Youth and served that year in a very remote part of Columbia living with a poor peasant family and assisting them while, at the same time, he gained his mastery of Spanish, albeit with a Colombian accent.

While Jeremy was with the family, the mother gave birth. When the infant was very young, he contacted me from this remote part of Colombia. The infant was very ill. The family lacked the resources to travel some distance and take the infant to the nearest nursing station or infirmary. He felt helpless because the ideology of Canada World Youth ran on a doctrine of non-interference in the local situation other than providing volunteers. Infusions of wealth from outside would deform the local economy, introduce distortions and such interventions were actively prohibited by volunteers. Jeremy wanted to ask me for the money to help out but was conflicted since he felt bound by the principles he had accepted when joining Canada World Youth. He was deeply torn. The issue was clearly not the amount since it would have been a relative pittance even if the health fees were added to the travel costs. Instead of insisting on sending him the money and persuading Jeremy that, “To save one child is to save the world,” I also practiced non-intervention and did nothing. I felt terrible. He felt very much worse as he watched the infant die in front of him. I am convinced that we both acted improperly at the time. I believe, to this day, that this event scarred Jeremy, though I believe it instilled in him his first suspicions of abstract doctrine and his attraction to dealing with the present and the immediate demands of the moment. The event certainly scarred me.

Development theory has very direct consequences on the lives of ordinary families. AH arrived in a country torn by civil war (La Violencia). Jeremy characterizes AH’s years in Colombia as the best of his and Sarah’s lives, a place of adventure and cultural stimulation where Albert was intellectually reborn. The World Bank had already reinvented itself in the aftermath of the Marshall Plan as the vehicle to save the Third World from communism and ultra-ambitious state planning. Colombia was to be its first test case. AH brought a scepticism of abstract ideological formulations, an attraction to direct observation of small things and routine practices combined with the opportunity and continuity over time to make those observations, and a belief in learning by doing reinforced by Eugenio Colorni and his readings of Montaigne.

The World Bank formed a survey mission led by the Canadian-born economist from Nova Scotia, Lauchlin Currie, whom I met briefly at SimonFraserUniversity in the late sixties when I participated in developing a plan for student housing for the university. I regret that I never got to know him, especially since, in retrospect, he had developed, I believe, the theory of money similar and far more profound than the one I espoused. He also showed that he had an intimate acquaintance with cooperatives. He had attended St. of X (FrancisXavierUniversity) where he was undoubtedly infused with its Catholic teachings of social service and cooperation. Currie went to LSE and then earned his PhD at Harvard writing his thesis on banking and the money supply. He was an ardent Keynsian New Dealer adviser to FDR during WWII, a close adviser to Harry Dexter White at Bretton Woods and had been involved in the secret VENONA Project decrypting Soviet cables where he (inadvertently?) became a source to Soviet intelligence. He ran the World Bank Colombian Survey Mission from 1949 to 1953 and stayed on in Colombia when the USA refused to renew his U.S. passport.

For Currie, the object of economic planning was to raise the standard of living in Colombia and directly tackle the problem of poverty.  In one year, starting in July 1949, a team had been assembled, a comprehensive plan developed and a National Planning Institute initiated to implement the plan, The Basis of a Development Program for Colombia. The plan envisioned “aggressive and coordinated improvements on all fronts simultaneously to avoid distortions, bottlenecks, and lags.” (p. 300) The plan was based on the developmental conception of “balanced growth” and the “big push” only to have the grandiose expectations crash against “inconvenient realities”.

One of those very inconvenient realities was the clash of personalities and approaches. AH was hired as advisor to the National Planning Council. Currie, through the machinations of Emilio Toro, the Colombian member of the Board of Executive Directors of the World Bank, returned as an “adviser” to the Council so the Council now had two advisors though Hirschman was the one charged with overseeing implementation but, unlike Currie, did not have a Board member in his pocket to push his views. AH had left Washington’s skulduggery for Bogota’s. “Currie liked big plans, especially when they made administrative reform the condition for everything else; Hirschman preferred projects, even big ones – but the more specific, the better. Aligned with the Liberals, Currie tended to create animosity between the Council and the Conservative government; Hirschman eschewed partisanship and wanted to focus on problem solving.” (p. 301)

If Hirschman was burdened with the Currie-Toro duo undermining his authority and ability to act, the Council hired another outside economic adviser from Belgium, Jacques Torfs, who approached the problem of development from his own idiosyncratic abstract esoteric theory of minimizing capital-to-output ratios. In addition to rival abstract theorists posing problems, AH took seriously the principle of being an adviser to facilitate and advance local expertise and authority, while Currie believed that detachment as well as true expertise gave foreigners an advantage. AH did not have the same reverence for detachment. He preferred experience and close observation. He wanted to concentrate on what the country was doing right and not its grand pathologies. However, his proposed study on successful businesses and successful entrepreneurs and managers and their methods and means of financing never took place.

When General Rojas Pinilla’s military coup in June of 1953 quickly developed into the usual predatory military capitalism compounded by a slide in coffee prices, Colombia’s economy slipped quickly down hill. At the same time, austerism, the other end of the abstract theoretical economic spectrum, took command. Currie went off to raise prize Holstein cattle. AH determined he was now impotent. He resigned just when Senator Joseph McCarthy was at the pinnacle of his power heading the Senate Permanent Subcommittee on Investigations in 1953 and 1954. Prudently, AH went into private practice as an economic consultant in Bogota to help investors identify opportunities and solutions to problems. Opportunism (AB) had been developed as a counterpoint to both Keynesian master large scale planning and stimulus for a broad approach to balanced growth (BD) as opposed to austerism (BC), a policy advocating restrictions on money supply and reductions in deficits just when a country needed a stimulus.

Opportunism focussed on the openings for entrepreneurs, focussed on civil society initiatives rather than grand government policy of either the austerists or the Keynesians. The theory, in the second sense I specified at the beginning, stressed initiatives from the bottom rather than grand views from the top. This was precisely when Walt Whitman Rostow’s The Stages of Economic Growth: A Non-Communist Manifesto was published by Cambridge University Press and became must reading when I was an undergraduate. In spite of all Rostow’s bended intellectual knee to the uniqueness of each nation’s experience and the somewhat arbitrariness of the stages-of-growth and its limitations, his book offered a very positive law-like approach to understanding economic development that built on and went beyond Croce’s Historical Materialism and the Economics of Karl Marx in providing both a grand theory of economic development as well as a grand theory of history in terms of dialectics without Marx’s romantic revolutionary spirit. Rostow had proposed a grand theory of modernization depicting the worship of sustained long-term economic growth itself as a central part of the doctrine and the key determining forces at each stage of economic development.

Rostow’s treatise would soon be followed by Max Millikan’s 1963 volume, The Political Case for Economic Development and his 1966 even more influential book as far as I was concerned, Equity versus Productivity in Economic Development. Liberals had their antidote to Marxism and their own romantic versions of how to rescue impoverished countries from the debilitation of stagnant economic circumstances.

To a conference in October 1954 on the new theories and their implications for policy, AH brought the message that the emperor was naked and that the empirical date behind the theories were almost entirely lacking. The abstraction of balanced and comprehensive planning hit the shoals not only of a complete lack of sufficient evidence and too high a degree of abstraction, but a belief that the future was predictable and could be managed whereas AH had been too deeply steeped in the Hegelian dictum that we can only understand by looking backward. As Hegel wrote in the Preface to the Philosophy of Right, “One more word about giving instruction as to what the world ought to be. Philosophy in any case always comes on the scene too late to give it… When philosophy paints its gloomy picture then a form of life has grown old. It cannot be rejuvenated by the gloomy picture, but only understood. Only when the dusk starts to fall does the owl of Minerva spread its wings and fly.”

During this period in the philosophy of history, two major theories were in contention,. One was the positivist views inherited from Benedetto Croce of Carl Hempel who was then at Princeton. For Hempel, history should be akin to a science and explain events and actions by subsuming them under general laws that could be verified by their predictability. Opposed to the grand theories of the positivists were the theories of the verstehen school then led by the University of Toronto philosopher, William Dray, who thought that history was about re-enacting the thought processes of historical agents and, as I wrote in my PhD thesis, subsuming decisions about which actions to take under more general hypothetical imperatives to guide human conduct. Was history a subject matter for pure scientific reasoning or for hypothetical imperatives and practical normative reasoning? I, like Albert Hirschman, opted for neither. Both theories never even met the conditions of satisfying the cases each side cited. We do not explain historical actions by subsuming them under general scientific laws or subsuming them under normative imperatives. Further, we do not even explain actions or events; rather, we explain incongruencies. We deal with puzzles that face us and focus on problems not on actions abstracted from the context of the inquirer.  

Why do I call this orthogonal approach a theory when it so stridently disavows abstract modeling? Because it does not! It only disavows extending any generalization into the future without irrefutable solid evidence. In the interim, analysis can reveal patterns of contradictions and ways of resolving them, but the dialectical pattern revealed cannot be applied to futurology for the very essential dynamic of the model depends on innovation and re-inventing itself thereby creating new but unpredictable opportunities that will be taken advantage of on the ground while those actual innovations are entirely missed by the theorists rooted as they are in extrapolations from the past.

In sum, AH did have a theory of development, one not based on either supposedly scientific laws of explanation and prediction nor on empathetic re-enactment to reveal the moral imperatives governing agent’s choices and actions. The theory, loosely referred to as Opportunism or, more awkwardly, Possibilism, had the following characteristics.

1. Focus on problems or incongruencies;

2. Use detailed case studies and focus on acute observation of fine details and distinctions;

3. Establish concrete and routine practices that can be continued over time to test efficaciousness – learn by doing;

4. Try to locate and identify initiatives that will be game changers;

5. Bureaucracy, whether in a state or a private firm, inherently wears blinders;

6. Evaluations of development projects should not simply be about cost-effect studies but about assumptions, capacities, priorities and unintended as well as intended effects.

Both right wing monetarism and the stress on entrepreneurs, and left wing or liberal Keynesians stressing wide scale government economic interventions in bad economic time, are both correct, but monetarism must give up its vision of an ideal balancing point in a system at equilibrium, when, by its nature as an innovative enterprise, it is inherently unstable, and Keynesians must not allow stimulus and intervention to be transmogrified into “permanent revolution” and continuing governance (as distinct from regulation). AH provided the most important antidote to the excesses of both theories when applied to development.  

McCarthyism and Mindblindness – Chapter 9. The Biography of a File

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman

Conversation – Instalment 11: McCarthyism and Mondblindness

Chapter 9. The Biography of a File                                                                                                       

by

Howard Adelman

The question for Albert Hirschman was NOT to be or not to be, but to know or not to know. The story of Plato’s cave begins with the shadows on the cave wall. The shadow is the darkened area where the light from a source behind a living person tied to a log in a fixed position is then projected on the wall of a cave. The person in Plato’s story takes those shadows produced by the obstruction of the real person to be themselves real. Note the following. The person on the log is opaque; the light does not pass through him or her as he or she blocks the light. The shadow we see is the light that is blocked but we do not see either the person blocking the light and certainly not into the person.  

This is the realm of spooks. This is the realm of images taken to be real. This is the realm of opinion taken to be as valuable as truth. This is the realm of rumours and gossip and half and quarter-truths. This is the realm of the FBI file that haunted Hirschman but which Hirschman only barely recognized as possibly existing and inhibiting his employment in any significant role in the OSS during WWII and in Washington after the war. The difference was that Hirschman was not chained to the log. He could have turned around. He could have sought out the source of the beam of light shining upon him and radically distorting who he was. As Jeremy writes:

From 1943 to 1966, a shadow trailed Albert Hirschman. But unlike most shadows, this was one he never saw. Hirschman did suspect that some invisible force was at work; some things in his life were too unfathomable. He did not understand why the OSS did not make more of his intelligence skills and preferred to employ him as a mere interpreter; he tended to explain this away as the bureaucratic ineptitude of armies or large organizations., in part because he had less and less affection for them. But there were times when his career ran into inexplicable roadblocks. 

I want to suggest a different description than the one Jeremy offers. The shadow was not behind him but in front of him. He could see the shadow that seemed to precede him wherever he went in those years. The blockage was NOT invisible but he preferred to account for it in terms of bureaucracy rather than assigning it to the malignant forces apparent everywhere in America in those years. McCarthyism was the BIG STORY, certainly by the early fifties though it had already reared its ugly head in the FBI and during WWII. Why would he believe himself to be immune? What was occurring was not at all unfathomable and was not simply seen clearly only in hindsight. The seemingly inexplicable was explicable if only he dared to look, inquire and investigate. There were plenty of clues.

Was it the fear of the insecure stateless person that inhibited him? Did Albert Hirschman and Hannah Arendt share a kind of mindblindness, an unwillingness to attribute deliberate beliefs, desires and intentions, in Albert’s case, to American officials, in Hannah Arendt’s case, to Adolph Eichmann? Why would they want or be willing to make pervasive evil, though certainly of very different and incomparable degrees, banal? Did the reasons have the same general source because both always remained deeply loyal to German culture even as they severed their loyalty to the German state? Both had developed a new loyalty to America but had not developed a deep passion for the culture of America. Neither could read its whimsical variations.

Jeremy goes in an opposite direction than I would and gives an inanimate bureaucratic file a life of its own “independent of the person about whom it purportedly reported, in part because it was so inaccurate, a likeness of someone else.” (p. 285) Jeremy opined: “The file remains nonetheless a sad portrait about the power of innuendo and paranoia that governed some people’s lives for many years.” But it wasn’t just the power of innuendo. It was the power of deliberate and conscious malevolence. And, in Albert’s case certainly, it was not a matter of too much paranoia, but too little following up on suspicion. And if we are talking about the McCarthyites, there is a big difference between manipulating paranoia for political purposes – which both Hitler and McCarthy did – and irrationally feeling persecuted. There is a difference between feeding and capitalizing on a paranoia you helped develop about the omnipresence of communists as you transgressed every single constitutional protection versus crediting paranoia with the reason for Hirschman’s ill-treatment. 

I had, and probably still have, a very thick file of information on my activities when I was young collected by the RCMP. I know of the information because I could watch as it was collected by unmistakeable RCMP officers at demonstrations and marches in which I participated as a youthful activist. I also know of the file because, when I was an undergraduate, Professor McCurdy in the Philosophy Department invited me in to his office to speak to him. He told me in confidence that he had been asked to come down to the offices of the RCMP and was queried about me and my beliefs. He told me that the file on me that the RCMP had opened on their desk was at least 5-6 inches thick. Later, I was one of the organizers of the Praxis Corporation, a research institute concerned with spreading democracy beyond politics and into civil society. The offices were raided, the building was torched and copies of material in the files appeared on the desk of Peter Worthington, the editor of The Sun. In the McDonald Inquiry into the activities of the RCMP, we learned that the Mounties had broken into our offices and burned down our building. (Cf. pt. 5, C/Superintendant S.V.P. Chisolm to A/Commissioner M.S. Sexsmith, 27 June 1977; ibid, ‘Praxis Corp.,’ 26 February 1971; ibid, pt. 2, ‘Praxis Corporation,’ 15 April 1971; ibid., ‘Praxis Corporation – Toronto,’ Memorandum of Sergeant W. Ormshaw, 8 June 1971.) 

We too had not been suspicious enough of the misbehaviour of government agencies. To this day I have no reason to believe my life was misdirected for periods because of it as had been the case with Albert Hirschman. On the other hand, I do recognize that a similar tendency to read the best into government activities did blind me to a degree to the ill use that officials could make with collected material. I, in fact, used to joke all the time that if I was ever worthy of a biography – which I am not – at least the RCMP would have done the work of accumulating the needed research material for some future scholar. Perhaps there is a correlation between AH’s recognition of his own potential importance and the added degree that he contributed to his own mindblindness. Further, AH was important enough that he needed a security clearance; I never reached that status.   

Jeremy is to be credited with getting and studying the file and showing how, even though the overwhelming evidence clearly pointed against either fascist or communist sympathies, activism alone and its extent in Germany, Spain and Italy was sufficient to set off alarms. And one did not even have to be an activist. One merely had to be active – in the case of Harry Dexter White – in believing (correctly or incorrectly) one could work with mutual benefit with the USSR. One could have the wrong beliefs, the wrong contacts, the wrong actions. Witch hunts do not require evidence, only suspicions, even if those suspicions were based on actions and activism in cooperation with ardent anti-fascists and anti-communists like Eugenio Colorni. Action and activism as well as reasoned conviction were all grounds for suspicion. It did not help that the investigators were so ignorant or so error prone with regard to local politics that they would confuse anti-communist socialists with their enemies, the communists. Allegations and suspicions were sufficient to taint a career.  Finally, in 1966, AH was allowed to have his own voice to answer these unchallenged allegations, but even then, Jeremy reveals, he left out of his account his actions in Spain. This suggests that he did indeed have a strong sense of the source of a stain on his file. Only then, with the added testimonials on his behalf, was AH finally given a clean bill of political health and no longer regarded as a potentially contagious agent. 

Chapter 8. Worldly Philosopher – The Anthill: Repressed versus Joyful Capital

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman
Conversation – Instalment 9B: The Paradoxes of Economic Recovery
Chapter 8. The Anthill: Repressed versus Joyful Capital
Part II

by

Howard Adelman

My own theory of money began with my graduate course on political theory that I took with C.B. Macpherson. Brough’s book on Possessive Individualism had just appeared. In it he had argued that there was a contradiction between the state of nature as depicted in The Second Treatise on Government which was all peaceful and without conflict and the subsequent state of conflict depicted afterwards as the precursor for the social contract. After money was invented, hoarding, scarcity and conflict resulted and turned the state of nature into a state of war necessitating developing a social contract.

In my first paper for Brough, I argued that he had misread John Locke. The invention of money was not something like a deus ex machina that took place at the beginning of his story (rather than the end of the book) that turned humans into accumulators and protectors of their property. In Locke, men were possessive individualists from the get go. The world was peaceful and the laws of the state of nature dictated there was enough and sufficient for all because there was no mechanism for creating shortages. However, the drive to accumulate private property was so great that it impelled the creation of money. Suddenly, the products of one’s labours could be represented by a token that meant wealth could be accumulated. Humans were not restricted to hunting and gathering only what they could consume. The result – wealth accumulation, scarcity and a war of all against all – at least, according to John Locke – had been made possible.

The paper not only criticized Brough for imposing a contradiction on Locke when there was none. It argued that the primary doctrine in economics and politics was not the labour theory of value wherein humans inserted their labour into nature and what was given in nature combined with the labour to extract it and convert what is given into an artefact gave value to what was produced. Money was supposed to represent that value. Marx would inherit the same flawed idea of a labour theory of value via Ricardo and John Stuart Mill and add the theory of expropriation and exploitation of the worker. Instead, my paper suggested that value was not a product of mixing raw labour with the given material universe and converting it into artefacts, but was only present when it could be symbolized by abstract tokens – money – to which the collectivity directly or indirectly agreed to assign a value.

Beyond re-reading Locke in this light as not being self-contradictory, this implied the following:
a) possessive individualism in Locke was inherent and not a by-product of the invention of money;
b) value was itself a by-product of convention of the group and not an arithmetic calculation of labour expenditure invested into the natural world;
c) Two simultaneous and somewhat paradoxical actions had to take place to lead to a social contract: i) the desire to use one’s labour to change the given world; and ii) a society among whom agreement could be made how to represent the value of those goods through an abstraction deemed to be money.

Further, analysis suggested that Milton Friedman’s monetarism was correct in emphasizing the importance of the government as representing the social contract in governing the money supply as the most crucial input that could influence economic productivity over time. Setting aside his right wing economic ideology and his belief in “equilibrium” between growth in productivity and demand as the key measure for determining the money supply, the recognition that an abstraction, like money, was absolutely crucial to economic growth was foundational. The problem that remained was twofold. First, what was being measured was difficult since entrepreneurs with their ingenuity kept creating new debt instruments that effectively expanded the money supply when the government was not yet in a position to count it let alone regulate it. This happened with the last financial crisis in 2007 with the innovations of swaps, credit-defaults, securitization and tranching with respect to residential mortgage securities.

Without both the individual self-interest and the communal concurrence to create a convention, there would be no economic development. A social contract was a precondition of any economic system and not a product of violent conflict because of the absence of a social contract. What was the nature of that money and how did one determine its value? The nature of money could be any token – beads, gold, a national currency, personal debt, derivatives, future values of the sale of tulip bulbs. Societies did not determine the value of money through governments alone; markets, trade, exchanges were crucial contributors. But on what basis?

I was asked to give a paper at the John F. Kennedy School at Harvard at the beginning of the seventies. They wanted to use the techniques we used to develop student co-op housing to rebuild the slums in the northern cities then overwhelmingly occupied by the American Black population. From Halifax to Los Angeles we had shown how student housing could be built – mostly co-ops – without an initial infusion of capital by the owners. At the time, we built a total of about $100 million worth of student housing over a 3-4 year period (about $200 billion in value in today’s property values).

When I arrived at Harvard, I entered an overflowing room with graduate students and very renowned economists and faculty members. I was overwhelmed as I gave a talk called, “Joyful Capital”. The talk itself was a total bust – no one was in the least interested in my weird economic theory. The audience wanted to know technically how what we had done had been accomplished and became very animated in the question period. They ended up enthused. I left depressed.

The theory was not complicated. It argued that the token used for money was an abstraction based not primarily on past production where money supply had to be balanced with productivity but much more on an estimate of future possibility. Value was rooted more in hope and possibilities than in actualities, though a past record could enhance the strength given to that hope. The issue was one of faith – faith in what you could do and not primarily in what you had done. Never did this become as clear as in the .com revolution where enormous values were given to companies with relatively little track record. It was subsequently repeated in the American housing bubble of the twenty-first century based on the forms of mortgage derivatives and tranches in the United States and in the European state debt crisis. (My explanation for that crisis based on a fuller elaboration of this theory of money can be found in a paper that I gave in Scotland in 2009 and that was published in an edited collection the following year: “Trust and Transparency: The Need for Early Warning,” in Iain MacNeil and Justin O’Brien (eds.) The Future of Financial Regulation, Oxford: Hart Publishing, Ch. 18, 322-336.)

Let me recapitulate the theory.

First, on value, instead of emphasizing labour as the crucial input, stress was placed on technology and innovation through not only improving efficiencies, productivity and quality, but the most fundamental innovation of all, creating tools to represent future risk, that is, innovations that expand the money supply well beyond the amount of money printed or regulated by the state. That does not mean the value is independent of anything underlying it in the tradition of the theories of Thorstein Veblen and Jacques Ellul and that there is no reality referent whatsoever and that appearances alone determine value whereby an elite consciously distracts the public with endless superficial entertainments in a compelling cornucopia of illusory visions complemented by a plausible simulacrum of justice, equality of opportunity and good governance to foster a sense of identity in a celebrity consuming culture where outward appearance is seen as providing meaning in wearing the right labels and driving a “cool” car.

Thus, while rejecting the labour theory of value and the concept of money as an artifact that represents the value of labour beneath and past accumulated productivity, on one end of the spectrum, and the concept of money as the ultimate simulacrum, the tool in terms of which the values of all other simulacrums are denominated freed up from any connection to past productivity but representing only the degree of faith in the amount of future wealth that can and will be created, I have held the view that money is a force in its own right when it is freed up from any natural measure, such as a gold standard, and is, in fact, the most fundamental innovation of all connecting past accumulated value with future faith in the preservation and enhancement of that value. That is why any effort to balance the money supply with productivity gains is doomed to failure and why the money supply will continually be indirectly expanded to facilitate those productivity gains.
Joseph Schumpeter was an advocate of Werner Sombart’s thesis of creative destruction (Cf. Schumpeter, J.A. (1911; 1961 The theory of economic development: an inquiry into profits, capital, credit, interest, and the business cycle. See also Alan Greenspan (2007) The Age of Turbulence: Adventures of a New World and Thomas K. McCraw (2007) Prophet of Innovation: Joseph Schumpeter and Creative Destruction), that is, that radical innovation is the essence of capitalism that transforms and leaves behind the old order. Thus, the key player is the entrepreneur and innovator, in German, the Unternehmergeist, the entrepreneurial spirit that AH celebrated. Innovation is the key in the formula of the creative destructive process of capitalism. For innovation not only adds new wealth but has to make up for the diminishing returns of capital and labour invested in nature to produce artifacts. Capital (diminishing returns) + Labour (diminishing returns) + Innovation (greater than the diminishing returns of capital and labour) together produce a positive sum game.

This is the theory of Joyful Capital with the destructive aspect bracketed. Money in its various forms is thus the object of eminent possession given universality for its omnipotence as the ultimate pimp, the procurer between real needs and imagined ones mediating not only between one’s personal aspirations and real circumstances but relations with others. The last crisis was not, as Alan Greenberg, former head of the Federal Reserve, opined, a savings crisis – too much money chasing too few opportunities. Nor was it a debt crisis and a failure to prime the pump in a timely fashion through increased government spending. The sages from both ends of the spectrum said that the problem that turned a crisis into a catastrophe was not too much debt or not enough debt fostered by an increase in the money supply to prevent the crisis from spinning out of control.

Paul Krugman and Robin Wells (“Our Giant Banking Crisis – What to Expect, LVII:8, 13 May 2010, 113) provided another answer. The issue is not the amount of debt but the ability to repay it. The problem was not the rate of increase in debt but the slow rate of growth to repay the debt. Debt had to be aligned with productivity. Greed facilitated by creativity develops new instruments for expanding credit beyond the established instruments and regulations provided the foundation for the financial crisis that exploded.

Lack of regulation played a role in the financial crisis, not because the capitalist system is intolerant of regulation, but because the system of regulation is always playing catch up with the new creative forms of abstractly representing wealth and credit. In other words, the reason the risks are not recognized is because we currently rely on regulatory mechanisms that are designed for what has happened in the past. These mechanisms can only catch up to the destructive potential of creativity when the damage is done and the dangers recognized. Further, regulatory mechanisms are inherently incapable of recognizing systemic problems especially when we are increasingly incapable of measuring productivity gains.

For example, examine the productivity benefits of computers; they are grossly overestimated. Computers may perform a variety of tasks, but only do the old tasks faster rather than in any particularly new or efficient manner. That advantage is often offset by the fact that the mastery of computers requires time, the scarcest complementary human input. Further, the ´´productivity-revenues´´ are hidden by data; the ratios for input and output, and, therefore, the revenue benefits, are almost impossible to parse, particularly in the service sector. The net benefit of the incorporation of computers into the productivity process may not even be noticeable because their introduction will accelerate the diminishing returns of capital and labour resulting in losses in other divisions/departments of the company. The mis-measurement and displacement factors are compounded by a third element – the time lag. Productivity gains of computers are realized only after a lag period because complementary forms of capital investment must be developed to allow computers to be used to their full potential. For even if computers increase productivity by 50%, in the time lag for their introduction, the capital input may offset the benefit in the short run. Finally, even several decades into the information revolution, we do not have the data to either confirm or falsify any of these hypotheses. So it is not surprising that, in this “veil of ignorance”, managers mis-manage and cannot determine when and where to invest capital in communications technology. In the end, there may be a systemic problem: we lack the measures for calculating the increases in productivity due to computers, especially if the productivity gains are reflected in quality changes and new products.

This was at its simplest the basis for the last financial crisis. The specifics are just an elaboration. The first step was put in place in the early eighties with the institutionalizing of the “swap” by Salmon Brothers that involved trading obligations and rewards without the necessity to transfer the underlying security itself. When Jamie Dimon, CEO of J.P. Morgan, held his intense brainstorming session in 1994 with his “mafia” beside a pool in Boca Raton, swaps had grown into a twelve trillion dollar business. In their quest for new tools and new sources of profit in what had become a highly competitive business, the team came up with the idea of swapping the risk rather than the interest rate obligations of loans. Instead of arranging a loan to secure the debt, secure the risk itself requiring a fraction of the amount of the loan itself thereby drastically reducing the cash that needed to be held in reserve and enormously increasing the credit supply. The mechanism came to be known as the “credit-default swap”.

The third step in the development of this new mechanism of increasing the money-supply and the amount of credit available was based on securitization, bundling together different debts and, based on the law of averages, selling the risk of the bundled securities rather than that of a single loan, thereby ostensibly reducing the risk if a single loan failed. The fourth invention involved “tranching,” that is dividing the bundled securities into different slices and paying interest according to the degree of risk of that slice of the bundled securities. Safer tranches paid less interest and highly risky tranches paid higher interest. In this fourth step, an offshore company, a “Special Purposes Vehicle” to handle all the transactions involved in the tranching of these credit-default swaps, was created. The fifth step involved getting the rating agencies to go along with the risk analysis of this new mechanism called CDOs, synthetic “collateralized debt obligations”, which Moodys did for J.P. Morgan in 1997. However, the real large profits could only come when the whole process was streamlined and industrialized. This was the sixth and absolutely necessary step accomplished when a simple algorithm was created to calculate the risk.

Felix Salmon in 2009 branded this as the “Recipe for Disaster: The Formula that Killed Wall Street”. (Wired Magazine, 23 February 2009) David Li was the creator of applying the Gaussian copula function to financial risk applications.

Based on his research work at the University of Waterloo on loss modelling applied to insurance (after he graduated and when he was already a partner in J.P. Morgan’s Risk Metrics unit), he adapted the formula in 2000 to enable a new generation of risk-based securities to be leveraged. (See David Li (2000 “On Default Correlation: A Copula Function Approach,” The Journal of Fixed Income, March 2000, 43-51.) As Cathal Kelly wrote in The Toronto Star (“Meet the Canadian whose big idea felled Wall Street,” 18 March, A01, A17), “Li’s model sidestepped the problem of trying to correlate all the variables that determine risk. Instead it based its assumptions of the historic dips and swells of the market itself. In essence, Li used the past to map the future.” (My bold)

In the formula, the correlation “P” of disparate variants, where each variant has a maximum correlation of 100% or >1, is a multiple standard normal cumulative distribution function multiplied by these variable risks combined in a common formula, but one not based on independent assessments of risk but on historical patterns. The algorithm linked and correlated different disparate risks, that is, formulated a multivariant distribution (a copula) representing different degrees of interconnectedness to estimate probabilities of future occurrences of a bundled group of separate risk items based on traditional patterns. The bundling was supposed to reduce risk because of linking different degrees of risk. The formula explicitly did not reduce risk of any single occurrence and was not applicable where risks were systemic and applied to the whole system. By 2005, Li warned that the model was limited in its application for it could not predict what would happen in extreme economic environments. (Mark Whitehouse, “Slice of Risk,” Wall Street Journal, 12 September 2005) Nor did it predict that the formula itself was a crucial component in creating that extreme environment.

When Jamie Dimon and his “mafia” invented the “credit-default swap” in 1993, Felix Rohatyn warned derivatives were “financial hydrogen bombs built on personal computers by 26-year-olds with MBAs”. Ten years later, an economist at the bank for International Settlement, Claudio Borio, assisted by the acute analysis of data of Bill White, challenged the belief that financial innovation was an unadulterated good. Ignoring these warnings and the accumulating black clouds, the European Securitisation Forum at its annual meeting entitled, “Global Asset Backed Securitisation: Towards a New Dawn!” on 11 June 2007 in Barcelona celebrated the most profitable year in history for investment banks. The next day, Bear Stearns began to unravel and was eventually bought at a bargain price by JP Morgan Chase. Jamie Dimon, the CEO, fifteen years after the pool party where his team came up with the idea of the credit-default swap, held another party at the World Economic Forum in Davos, Switzerland, not to celebrate the fifteenth anniversary of that revolutionary innovation, but to hail the hundredth anniversary of J. Pierpont Morgan as the savior of the financial system in 1907.
I have argued since the sixties that entrepreneurship depends on playful creativity to try to see how to use existing rules in new ways to provide for future capital growth and accumulation rooted in our creative playful imagination. But the system has to be managed in terms of a recognizable set of rules so outsiders can trust the players. After a bubble of confidence bursts, the key and central problem remains how to restore faith in our material god, in this case, the very lifeblood and circulatory basis of the system itself, the financial sector. As Albert Hirschman argued, the core rules may be simple but their application to specific situations at specific times and places varies. The propensity of any entrepreneur will be to adapt the rules to favour his or her own style of play. When the mathematical model developed is a positivist one based on extending past experience into the future without taking into account the fact that the new model itself, let alone other new factors, confront principles of indeterminacy and the effects of cumulative chance factors to alter or even inverse previous patterns, we challenge fate.

A system had been created with an enormous range but one which did not and could not take into account systemic failure when batches of credit default swaps could themselves be combined into collateralized debt obligations (CDOs) without the necessity of purchasing bonds at all. Based on historic patterns, investors were betting on a group of players winning at a casino and banks were selling and trading these CDOs and significantly increasing their sources of profit. The insurance system had been turned into a lottery and the lottery became an item for investment, but an item that did not include the possibility of the casino burning down or the workers in the casino going on strike. Further, rating companies no longer had to do their homework but began to rely on the formula.

Thus, there is an inherent tension between the referee obligated to uphold the existing rules and the entrepreneur driven to adapt and alter rules to facilitate play. There never will be or can be a stable set of fixed rules, for the very nature of entrepreneurship as creative play will mean challenging and adapting the rules themselves. There will always be a tension between ensuring the rules are not utilized for either nefarious purposes or for products and ideas that are beyond the elasticity of the system to handle. But there is also a need to adjust rules to allow for creativity and new situations.

Instalment 9: The Paradoxes of Economic Recovery

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman

Conversation – Instalment 9: The Paradoxes of Economic Recovery

Chapter 8. The Anthill: Repressed versus Joyful Capital                        

Part I

                                               

by

 

Howard Adelman

 

Back to economics, seeking a job and onto Washington. AH had just served in the OSS, even if not given any significant assignments. His book, National Power and the Structure of Foreign Trade, had just been published. There was a dire need for economists with experience in international trade. Why would he not be snapped up? The World Bank, the IMF, the work on the Marshall Plan for the Department of Trade, the OSS and the State Department all needed his intelligence and experience. Further, Albert still had the rest of his leave from his Rockefeller grant to tide him over.

 

As Jeremy records the tale, as he relocated from California with hep from Sarah’s parents, Albert’s skills as a superb networker were of no avail. Promises and warm receptions were followed by terse rejections, long silences or lame excuses at the same time as he was trying to help the rest of his family in Europe with “care packages”. George Jaszi, his close friend from LSE days who was then working for Averell Harriman at the Commerce Department, emerged as his saviour. But the Clearing Office for Foreign Transactions was dull routine work with little in the way of intellectual rewards. He was saved a second time by his colleague from California, Alexander (Shura) Gerschenkron, who offered Albert a research job in the Federal Reserve Board.

 

It did not take long for Albert to make his mark. He covered Western Europe and showed how the French economy was in a bind. Robert Schuman, the French Minister of Finance, could not devalue to improve France’s gaping trade deficit for that would make imports more expensive and heighten the pressures on inflation. This paradox stood in stark contrast to the economic religious belief that markets were self-correcting. Then the Republicans took office just when the European economic crisis took a further nose dive compounded by the coldest and snowiest winter since 1813-14 that began its unremitting grip in the second week of January 1947. At the time, I was nine years old. I recall being in grade five. Miss Chapman was my teacher in KingEdwardPublic School. My memory is that we spent a good deal of our class time collecting items and knitting woollen gloves and socks (yes, I learned to knit) to ship to the people in Britain.

 

Hirschman was asked to write a report on the crisis for the Federal Reserve Bulletin. After collecting data on rationing, price controls, the banking collapse (familiar?), mounting inflation, falling production and deteriorating trade balances, he showed how the policies that France, Britain and Italy were adopting – quotas, tariffs, foreign exchange controls and protection measures – were only making the crisis worse. They could not import what they needed and could not export to earn the monies to pay for imports. Interventions by Paris and Rome only accelerated inflation and compounded the problem. The left led strikes that further paralyzed the economy.

 

Thus the title of the chapter and the reference to AH’s metaphor of the disrupted anthill where the ameliorative effects of rebuilding infrastructure had been exhausted without any further elasticity to give the economy lift off so that the ants were left idle. The crisis was one of trade needed to stimulate production but autarky and bilateral deals had replaced the efforts to move trade towards a more open system. Perhaps the creativity had to be exerted on the system itself.

 

AH provided a landmark report. Ease the bottlenecks to trade and the path to recovery was open. AH had provided the hidden hand behind the Marshall Plan.  But the Washington bureaucracy was itself an anthill with underemployed and misemployed and misdirected workers. Meanwhile, the communists were threatening takeovers in Czechoslovakia, Italy and Paris through the ballot box. Hirschman hoped that the crisis was deep enough to provoke change without being so deep that the system collapsed.

 

The new initiative came from the top with the European Recovery Program better known as the Marshall Plan which Secretary of State George Marshall put in place in April 1948 with bipartisan support and the leadership of George Kennan and William Clayton from the State Department. When the austerists prevailed – as in Italy – matters only became worse.  The American plan launched Europe away from the brink of disaster towards recovery. In preparing the draft for Congressional approval, AH was drafted to join the MIT economist, Richard Bissell, who at been at LSE just before AH and who was born, incidentally, in Mark Twain’s old home in Hartford, Connecticut, giving him by osmosis a spirit of adventure rather than a propensity to tie down the hatches and take cover. Inject working capital and watch the paralyzed financial sector throw off its lethargy and tackle the chronic balance of payments problem. A more open trade system would accompany and follow the change. The domestic plan of 2008 in the USA was not fundamentally different.

 

However, to work it required European initiatives to lift exchange controls and bilateral barter deals and accords in favour of regional cooperation. The Organization for European Economic Cooperation (OEEC) became the institutional tool. Though Hirschman’s plan for a central bank and a unified currency was prophetic, it was also politically well ahead of its time as a measure to tackle the immediate convertibility crisis. The foremost initiative was to make the European currencies transferable and convertible thereby establishing the foundations of regionalism and multilateralism that would form the foundation for the European Economic Community and eventually the Euro. This was accomplished through the 1950 European Payments Union (EPU), effectively, a federally controlled common clearing system. (See James Ransom “‘A Little Marshall Plan’: Britain and the Formation of the European Payments Union,” The International History Review 32:3, Sept. 2010, 437-454. I will later return to why I believe this monetary reform was the crucial key and not the trade regime established, however important that was as well.) Europe, however, was ready for a trading federation based on a monetary proto quasi-union. The revolution was as significant as the overthrow of mercantilism in Europe.

 

The political window was, however, closing with the rise of the Republicans to power, the rise of the Communists in China, the consolidation of communist controls in Eastern Europe and a plethora of Soviet spies flushed out into the daylight. Paranoia would once again rule the roost fostering defensive rather than creative responses. The North Koreans were on the march. The brains trust that had been assembled began to desert the ship of state now caught in an ice jam with respect to development policy.   

 

The result sparked an even greater depression than the one that AH had suffered in Algeria and in Italy. He could not stand being an under-utilized ant and crept back to his classic books and self-isolation. One catalyst was the death by heart attack of Harry Dexter White, one of the standard bearers of Bretton Woods (see Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order), who had been the founding director of the IMF. He died three days after being summoned before HUAC to face charges of passing secrets to the Soviet Union. (See R. Bruce Craig’s book, Treasonable Doubts.) The political and economic repressives had retaken the citadels of power and influence. Arthur Marger, with his orthodox economic doctrines, became the new head of The Fed. AH’s ideas could not even get a hearing.  When he sought to go elsewhere in Washington, it was now apparent that some item in his file blocked all movement there. When he sought to go to Paris, a review of his security clearance was initiated. He learned that the Loyalty Review Board of the Civil Service Commission would not approve his transfer on security grounds and he was advised to leave the civil service voluntarily. He was now without a paycheque.

 

In the next blog I will deal with the haunting security file and AH’s opting to go to Colombia. In part 2 of this blog, I want to discuss a theory of money and why the EPU was so important.

Eichmann versus Dosler: Arendt versus Hirschman

Worldly Philosopher: The Odyssey of Albert O. Hirschman by Jeremy Adelman

Conversation – Instalment 8: Eichmann versus Dosler: Arendt versus Hirschman

Chapter 7. The Last Battle: Freedom and Interpretation                        

                                               

by

 

Howard Adelman

 

Why did Albert Hirschman immediately enlist in the US army after PearlHarbour? Two months after PearlHarbour one might say is not immediate. However, as Jeremy explained, AH was suffering from a serious bout of pneumonia at the time and then had to have a tonsillectomy. Jeremy has argued thus far that Albert was determined to prove Hamlet wrong, that action could be integrated with thought, that he was bent on praxis. Moreover, there was a self-interest motive. Serving in the American armed forces would secure his American citizenship even if that tactic proved useless for getting French citizenship when he joined the French army. The latter failed because France failed. This was highly unlikely to happen in the case of America.

 

Isn’t the self-interest motive sufficient as an explanation? Why add on the anti-Hamlet thesis? Is that not overdetermination? I think by this point it is. Hirschman had proven over and over again that reflection did not have to produce immobility. That is just who he was. He believed in acting when the situation demanded it, when he could act and when he could do so in a useful way. He had enormous expertise in languages, economics and detailed knowledge that would be of enormous use to the allied cause. The delays in enlistment were clearly not attributable to him but to a fire, to a reclassification of married recruits and for inexplicable “occupational reasons”. When he was still frustrated after he contacted the OSS and the Board of Economic Warfare directly, he enrolled in the infantry. So much for putting thought together with action as a private, especially when he kept being denied leave in basic training because he could not tie his boots properly!

 

Cass Susstein in his NYRB’s review of Jeremy’s book, “An Original Thinker in Our Time” (23 May 2013) endorses Jeremy’s Hamlet thesis.

 

As Jeremy Adelman shows in his astonishing and moving biography, Hirschman sought, in his early twenties and long before becoming a writer, to “prove Hamlet wrong.” In Shakespeare’s account, Hamlet is immobilized and defeated by doubt. Hirschman was a great believer in doubt—he never doubted it—and he certainly doubted his own convictions. At a conference designed to celebrate the thirtieth anniversary of his first book, who else would take the opportunity to show that one of his own central arguments was wrong? Who else would publish an essay in The American Economic Review exploring the “overproduction of opinionated opinion,” questioning the value of having strong opinions, and emphasizing the importance of doubting one’s opinions and even one’s tastes? Hirschman thought that strong opinions, as such, “might be dangerous to the health of our democracy,” because they are an obstacle to mutual understanding and constructive problem-solving. Writing in 1989, he was not speaking of the current political culture, but he might as well have been. In seeking to prove Hamlet wrong, Hirschman was suggesting that doubt could be a source not of paralysis and death but of creativity and self-renewal. One of his last books, published when he was about eighty, is called A Propensity to Self-Subversion. In the title essay, Hirschman celebrates skepticism about his own theories and ideas, and he captures not only the insight but also the pleasure, even the joy, that can come from learning that one had it wrong.

 

I think the Hamlet thesis is overstretched here by Jeremy. In fact, in this situation I think that AH acted very Hamlet-like. What do the rest of you think?

 

From Jeremy’s own detailed account the overwhelming anxieties seemed to be about AH’s citizenship. Luckily, the army spotted his lack of fitness for combat and his excellent skills that got him reassigned to the Army’s Specialized Training Program. Ironically, when he was not being proactive, he was shoved in the direction that could better use his skills. He was then appropriately assigned to the OSS. Would he be assigned to help plan actions behind enemy line given his language skills and enormous range of contacts with dissidents? Would he be assigned to the Research and Analysis Branch along with other ex-European intellectuals? While Sarah became pregnant and gave birth to their first child, Katia, Albert was assigned to being in limbo, much to his great frustration, and detailed to translation services in Algeria. Why did he not catch on then that something was amiss so that he could confront the situation and deal with it directly? Instead, Hamlet-like, he pondered and stalled, filled his time with chess and repressed his frustrations, complained and requested meaningful work, but to no avail. He managed to make contact with a couple of economists, Albert Camus and primarily Italian ex-pats who were working on a post-bellum federated Europe united by trade and commerce.

 

Then the devastating news came that Eugenio had been shot and killed just before the Americans liberated Rome. This was the deepest loss of his life, deeper than the death of his own father. His shell grew thicker. He seemed to have developed a form of depression that immobilized him further, though interesting Italian contacts – Carlo Levi, the Rosselli brothers – and the stimulation of Italy with all its rich culture served as an important antidote. It didn’t help that he was living the life of Joseph K and reading Franz Kafka’s The Castle at the time and later, reading Kierkegaard, or that he shared his grief over Rugenio’s death with Saba, the bookseller and poet from Trieste, who was even more depressed.

 

Then he received a reprieve. He was called to the Italian front to translate for Italians who had crossed over to the allied side who could provide intelligence about the situation of the retreating Germans. He obviously knew something was wrong concerning the limited use of him by the U.S. armed forces. As he wrote to Sarah, “The obstacle presented in Africa has perhaps not been entirely lifted, but it has at least been turned.” As Jeremy himself wrote, “By this point, Hirschman already had a sense that some invisible impediment stood in the way of his being entrusted with the more serious intelligence work he craved.” But, AH was fooling himself when he expressed the belief that the situation had turned. This is where “hope” becomes the enemy to facing the truth. This is where hope, rather than despair, can turn one into a different kind of Hamlet.

 

My personal surprise was to learn that it was only in Italy that he was really influenced by Hayek and not at LSE when he was a student there. The account of Cancogni’s short story eulogy to the black market had to lift his spirit. It must have reminded him of his work with the refugees in Marseilles. The birth of Katia, however, broke through his gloom and he shifted his focus back to the future. He was ready to give up on America and contemplated settling back in Italy to focus on participating in creating the new Europe.

 

The chapter ends with AH’s very disquieting reunion with his mother after thirteen very long and eventful years of separation, with a very different type of reunion with Ursula and her daughters in Rome, but not before Jeremy provided an account of Albert’s service as a translator for General Anton Dostler, the German General who had followed Hitler’s dictate to shoot enemy soldiers caught committing sabotage behind the lines. Dostler had committed an unequivocal war crime. Two officers and thirteen enlisted men had been captured in a mission that went awry. All fifteen were shot. Jeremy sent me a youtube from the trial:  http://www.youtube.com/watch?v=FMQCpUlqCiE&feature=youtu.be. Like the Eichmann trial in 1961 where Hannah Arendt served as a very different kind of interpreter, this was also “a showcase trial”. AH had to be a literal translator; Hannah Arendt’s reports on the trial became sensations in themselves given her interpretation of Eichmann in terms of her concept of the “banality of evil” when he committed his genocidal crimes and her accusations against Jews for failing to offer resistance and against the Jewish Councils for cooperating in the genocidal mechanistic process.

 

General Dostler had been captured through the normal surrender of German soldiers and officers. Adolf Eichmann had been living in Argentina under the assumed name of Ricardo Klement and in May 1960 was captured by Israeli Security agents and spirited back to Israel without any effort at legal extradition. Dostler’s five day trial was about war crimes, crimes that were already well established in international law; the Eichmann months long ordeal was about a crime of genocide that only was defined as a particular crime after WWII, though the crime still fell under international humanitarian law. Both trials began with challenges to the right of the party in question – the USA on behalf of the allies and Israel that did not even exist at the time the crime was committed – to hold a trial, the later on behalf of the Jewish people rather than just a state.

 

The proper authority for Dostler’s trial under international law was not the U.S. Military Commission in Rome but a proper military court martial. In both trials, a major defence rested on the plaintiff pleading that he was required to follow orders, in this case, from the highest authority in the land, Hitler himself. However, in the Dostler case, the prosecutors had evidence that junior German military officers resisted carrying out such orders. In both trials, the 15 victims of Dostler and the millions gassed in Auschwitz, the victims never enjoyed the privileges of a trial, translators and defence attorneys. The defense argued the American soldiers could be confused with partisans given that they were Italian-Americans fluent in Italian, but the prosecution exhumed the uniforms and offered witnesses to confirm that there could be no mistake that the captives were identified as American soldiers. Both trials were exposed to the full glare of international media and were at least as much about educating the postwar public about the criminality of the Nazi regime as about a legal trial of a particular individual for the crimes each committed. Both trials were about the historical record for posterity even more than about actions in the past.

 

One very important difference is that AH lacked any individual voice as an interpreter whereas the voice of Hannah Arendt and her explication of Eichmann’s actions as “banal” and her condemnations of the Jüdenrats and of Jewish behaviour more generally threatened to become the central subject matter rather than the genocide itself. Hirschman, in fact, spoke more than any other formal official at the trial and, in his asides with Dostler, almost appeared as his collaborator based on visual perceptions. Hannah Arendt, though just a spectator and reporter at the trial, used her own words to interpret the “meaning” of the trial and not just the words used. Her language and employment of “les mots justes” became an integral legacy of Eichmann’s trial for her judgment of the trial itself threatened to sidetrack the subject of the trial itself. Albert Hirschman “trembled through James’ order that General Dostler was to be shot to death by musketry.” (p. 247) Hannah Arendt, in contrast, fulminated and barely concealed her contempt for the prosecutor, Gideon Hausner, and his deliberate effort to make the trial an historical event in itself and not just a criminal trial of a particular individual.

 

“A U.S. firing squad executed Dostler in the Aversa Stockade in the morning of December 1. He was the first German general charged, tried, sentenced, and executed by the Allies for a war crime.” (p. 147) Adolf Eichmann was found guilty by a civilian court, sentenced to death by hanging on 1 June 1962, the first and only use of the death penalty by Israel. Dostler’s body was interned in the war cemetery of Pomezia, Italy. Adolf Eichmann’s body was cremated and his ashes spread at sea outside of Israeli territorial waters lest the soil of Israel itself be forever contaminated.

 

The two trials succeeded in their intended effect, not only in bringing two criminals to justice, but, in the case of Dostler, educating the world that the German army had been co-opted in its criminal actions by the Nazi regime. In the Eichmann trial, the atrocities against the Jews now became part of public consciousness. Testimony by ghetto fighters such as Zivia Lubetkin – in contrast to Hannah Arendt’s emphasis – brought out the stories of Jewish efforts at resistance. (Hannah Arendt missed many days of the trial and may not have heard that testimony.) Most importantly, and so different from the Dostler trial, the Eichmann trial brought a degree of closure for many of the survivors of the genocide and began the process of freeing up the squelched and self repressed voices of Holocaust victims. The Eichmann trial brought together a psychological exit with the freeing of the voices, something Hannah Arendt showed herself to be entirely insensitive to at the time.

 

In reflection after many years, particularly after my work and publications on the Rwanda genocide, I am surprised that I was so taken by Hannah Arendt’s thesis at the time. My enchantment with Hannah Arendt had much more to do with my subjective exit from Judaism and rejection of Zionism at the time than any detached analysis of the trial in comparison to Hannah Arendt’s account of it. Just think of her claims. Hannah Arendt questioned whether Eichmann incorporated the “intention” to exterminate the Jewish people in carrying out his actions and, therefore, raised the question of whether he could be held “criminally” responsible. In her contention that Eichmann acted as a bureaucratic automaton, she questioned whether he gave any real thought or reflection about what he did. Of course, her sense of “reflection” and “self-consciousness” fell so far outside legal discourse as to be ludicrous had it not had such a powerful effect in branding Eichmann’s actions as banal. If his actions were banal, then so were Dostler’s and probably 99% of the Nazis who committed atrocities. In the name of her own egocentric and misguided notion of thinking and reflection she would probably have found Eichmann not guilty of the crime of genocide though certainly guilty of another crime. Further, in her analysis of a totalitarian state, no one in fact could really have intentions, including Dostler, though I wonder what she would have said about the soldiers who resisted the orders to kill the captured U.S. soldiers, especially Alexander zu Dohna-Schlobitten who refused to sign the execution order and was subsequently dishonourably discharged from the Wehrmacht for insubordination. For Arendt, actions without thought were banal but agreeing to obey an immoral order does not take place without thought in the normal meaning of the word as one reflects on one’s career, one’s ambitions and one’s ethical universe.

 

The actions were without thought only in the most esoteric sense of thought. Further, contrary to AH’s notion of the integration of thought and action through praxis, Arendt still remained enamoured with Heidegger’s notion that reflection and acute self-consciousness to form one’s self-identity was, or, at least, should be, the objective of all action as part of an individual’s self-interpretation of him or herself. The notion of who he or she is or ought to become was, for Heidegger, and his disciple in this case, Hannah Arendt, a notion that gives “meaning” to why you are living and what it means to be alive. “Practical” did not have such an abstract, utopian and egocentric narcissistic meaning for Hirschman. 

 

Secondly, for Hannah Arendt the point of a trial should not have been the emphasis on the uniqueness of the Holocaust, but on its universal process of dehumanizing the Other. But Dostler dehumanized the U.S. military soldiers. The essential characteristic of a genocide is not simply dehumanizing the Other, but claiming that the Other was an Object and not an agent, but an Object that was a threat to oneself, an Object characterized as a threat in such a way that the Other was portrayed as non-human and beastly. Further, the non-human qualities were so significant and so dangerous that anyone who allegedly carried those seeds had to be exterminated. The fact that genocide becomes routinized and acceptable, and that it was implemented without moral revulsion or political indignation as described in Judith Butler’s defence of the notion of the banality of evil characterization, may characterize genocide, but also serves as an apt description of Mafia murders, the killing of Mexicans by drug cartels and the elimination of suspected informers or “snitches” by penitentiary inmates.

 

Further, Arendt believed in universal jurisdiction and opposed national courts for dealing with such crimes, and would, presumably, have opposed using the U.S. Military Commission in Rome. However, the International Criminal Tribune for Rwanda has managed by the end of 2012 to complete only 38 cases, in which 10 ended in acquittals and, literally, at the cost of billions of dollars. Justice was indeed served, but only for the very few and not without its own record of corrupt practices. In contrast, the national courts in Rwanda managed the trials of over a hundred thousand and created the unique Gacaca court system that wove together justice and reconciliation. In Arusha, the international trial of the central mastermind of the Rwanda genocide, Jean Paul Bagosara, served only justice. Further, it started in 2007 and was only completed in 2012 largely ignored by the international media thereby missing the role of public education that Arendt deplored but that were so integral to both the Dostler and the Eichmann trials.

 

I will not go on to comment on the injustice of the charges of complicity against the organized Jewish community that Hannah Arendt made that were so lacking in empathy and understanding, or the false charges of lack of resistance, all notions that I personally embraced when reading Hannah Arendt in the early sixties. Suffice it to say, Albert Hirschman stands as a humane and thoughtful counterpoint to Hannah Arendt whom Albert helped to rescue when he was in Marseilles.