Tag Archives: John William Miller

By George P. Brockway, originally published April 8, 1991

1991-4-8 Where Keynes and Kalecki Went Wrong Title

1983-12-26 John Maynard Keynes

EVERY NOW AND THEN a learned journal carries an article, or a think tank issues a report, that effects a significant change in academic theory. Once in a blue moon, such an article or report results in a revision of public policy.

Given the volume of material produced every year by the dozens of think tanks and scores of learned journals devoted to economics, it is no wonder that even many of their best offerings bloom to blush unseen. Neither is it surprising that the most open of professions is slow to embrace challenges to established doctrine (and hence, if you want to be mean-minded about it, to established reputations). It is doubtful that learning could proceed in the midst of incessant turmoil.

That said, the fact is that groundbreaking work does appear; moreover, its appearance must be widely discussed if learning is indeed to proceed-and if public policy is to benefit. Accordingly, I rise to salute a recent article and a recent report. The article, by Fred Block, professor of sociology (not economics) at the University of Pennsylvania and the University of California, Davis, is entitled “Bad Data Drive Out Good: the Decline of Personal Savings Revisited. It leads off the Fall 1990 issue of the Journal of Post Keynesian Economics. The report, by Robert A. Blecker, assistant professor of economics at American University, is entitled Are Americans on a Consumption Binge? The Evidence Reconsidered. It is available from the Economic Policy Institute, 1730 Rhode Island Avenue, NW, Washington’ DC 20036.

These two papers are careful empirical examinations of two claims or assumptions that have ruled American economic policy for the past 30 or 40 years, and especially for the past 10. Blecker looks at the claim that Americans are irresponsible wastrels who have starved American industry and the American government. Block looks at the related claim that personal savings in this country have fallen so low we can no longer finance our own deficits or maintain a civilized standard of public services.

Together the Blecker and Block papers destroy both claims at their roots and thus cut off the theoretical sustenance that has nourished Reaganomics and Bush Voodoo. If it is not, as a matter of empirical fact, true that Americans have been consuming at an extraordinary rate, or that they have failed to save at some expected rate, then there must be other reasons to explain the misfortunes the American economy has suffered over the past decade.

A couple of months ago I remarked on the irony that the noisy supply-siders of recent years are now noisily complaining that the current recession has been caused by the failure of the demand side to consume (“Our Austerity Recession,” NL, January 14). They can’t have it both ways – the more fools we if we let them. Nor should we continue to hang our heads in shame whenever our saving is compared with that of the Japanese and Germans. As Block shows, we’re saving more today than we did in the early postwar years when our unemployment rate was lower, our inflation rate was also lower, and our after-tax profits were higher. On the record, it is not improbable that we have been saving too much rather than too little.

Besides the empirical facts about saving, there are a couple of theories. The one you hear in urban bars, on commuter trains and within the Washington Beltway argues that if you want to make anything (the supply side), you have to have proper raw materials and tools, and you have to have enough food, clothing and shelter to keep you and your colleagues going while you’re making it. Saving all these things, in short, is necessary to production. After all, you can’t grow corn unless you’ve saved seed.

But no so fast. You can’t save seed unless you’ve already harvested it. Your ancestors had to gather seed before they could plant their first crop. That’s not a quibble, but since it sounds like one lets turn to high theory.

In college classrooms, saving equals investment, or S = I. This neat little equation, arrived at independently about 60 years ago by John Maynard Keynes and MichaI Kalecki, is fatally flawed yet has been fatefully influential. Kalecki published his work three or four years before Keynes; but because he wrote in Polish, only his countrymen and only a handful of them-knew about it until much later (minority-language advocates, please note).

Kalecki s proof, though not difficult, is too complicated to retail in this space. Approaching the problem more directly, Keynes constructed and solved a pair of simultaneous equations that go as follows: (1) National output equals consumption plus investment; (2) national output equals consumption plus saving; therefore (3) saving equals investment.

As mathematical proofs both the Keynes and the Kalecki equations are perfectly valid. The conclusion S = I, however, is flawed in a way that is particularly characteristic of mathematical reasoning.

My great teacher, John William Miller (author of The Paradox of Cause and four other books I recommend to you), was fond of quoting Touchstone: “Much virtue in if.” Keynes’ first and second propositions would be clearer reading: (1) If national output equals consumption plus investment, and (2) if national output equals consumption plus saving….

Keynes was well aware of the virtue in if and devoted many pages of his great book to defining his terms so that his propositions made sense. But no more than Homer was he exempt from nodding, and here he did nod, with dire consequences. In these instances he is correct only in “real” terms, that is, only if he is talking about goods and services and is specifically excluding money and any of the legal instruments possible in a money economy. But we do live in a money economy (as Keynes knew more profoundly than his predecessors and most of his successors), and our society would collapse if we tried to live without money.

In another passage Keynes gives “investment” a portmanteau definition that is misleading in a different respect. He writes, “In popular usage it is common to mean by [investment] the purchase of an asset, old or new, by an individual or a corporation. Occasionally, the term might be restricted to the purchase of an asset on the Stock Exchange ….” Again Keynes nods. A share of stock or a bond is not an investment in the same way that a machine purchased with the proceeds of that share or bond is an investment. The machine is a producer’s good; it makes other goods. The share or bond makes nothing; it is not an economic good at all, it is a legal asset.

Keynes had some fun writing about stock speculators who made (or lost) money guessing what other speculators were going to do, and he implied that the New York Stock Exchange is a casino (which it isn’t). Still, he had little trouble believing that the exchanges were reasonably efficient ways of evaluating business enterprises. Although he was pre-eminently the analyst of a money economy, he did not quite see that a bull market continues to rise only with continuing infusions of money that is thereby denied to the producing economy (or what he called the industrial circulation).

In short, the conclusion of his (and Kalecki’s) exercise should have been: Saving equals investment plus speculation.

THE CORRECTION is clearly necessary if the elements of the equation are to be quantified in terms of money. Once one has money, it is obvious that one can hide it under one’s mattress. Hidden money is certainly saved, and just as certainly it is not invested. Hoarding (which Keynes called liquidity preference) may be done for a great variety of reasons, but all of them amount to speculating that the future will be more propitious for investing or consuming than is the present.

More important than hoarding is the money that flows into a bull market. While that influx of money may be said to be “invested” in the market, it has only tangential effects on the enterprises whose shares are traded. Practically all the activity on every exchange is speculation, and most of it is in search of capital gains (see “Why Speculation Will Undo Reaganomics,” NL, September 7, 1981). Similarly, investing in land is frequently speculation. The saving for which the Japanese are famous is sunk in real estate to such an extent that you could buy all the land in the 50 United States for less than you would have to pay for the land of Japan (even though it is smaller than Montana).

The high price of real estate does not make Japan a better place to live, of course, or even a richer country. But it needs to be said that speculating doesn’t make any country a better place to live. And it is crucial to insist that saving equals investment plus speculation. Policies that are supposed to encourage saving, such as many advanced in the U.S. this past half century, are worse than useless when what is encouraged is speculation rather than investment.

The Block and Blecker papers underscore this point. They prove that we have not been on a consumption binge, and that we have not imprudently failed to save. Since our interest rate has unquestionably been too high for our industries, since we have unquestionably used money borrowed abroad to finance a large part of our deficits, since those deficits are unquestionably used to excuse our failures in education and medical care and the general welfare, we must now look beyond the false answers of high consumption and low saving to find the explanation not only for the current recession but for the shameful general performance of our economy.

I’ll give you a couple of hints. Try looking at (1) the increasing share of our income that is diverted to speculation, and (2) at the increasing polarization of our society.

 The New Leader

Originally published October 6, 1986

BERYL W. SPRINKEL has given up on monetarism, at least for now. He said as much in a speech recently and stirred some excitement because of who he is. Not only is he the possessor of the most striking public name since Orval Faubus ; he is the chairman of the Council of Economic Advisers and presumably talks things over with President Reagan, so what he says may foreshadow a shift in Administration policy.

Monetarism has had the great tactical advantage of massaging the egos of the wealthy, and especially of conservative bankers who serve the wealthy. It has as many definitions as it has definers, but all of them are based on the Quantity Theory of Money, a very old idea that treats money as simply another commodity. It then seems plausible to say that at any given moment a country has a certain quantity of money and a certain price level, at which, for example, a subscription to THE NEW LEADER costs $24 (and is a bargain).  Suppose that at midnight tonight President Reagan or Federal Reserve Chairman Paul A. Volcker or the Sugar Plum Fairy decreed that every dollar you have is hereafter worth two dollars. Would you now be able to buy two subscriptions, sending one to an intellectually needy friend?

Not likely. The first order of business at 275 Seventh Avenue tomorrow morning would be to raise the subscription price to $48. The same thing would happen throughout the economy, so that, subject to considerable slippage because of existing contracts, doubling the quantity of money would merely double the prices of goods and services.

The plausibility of the theory was great in the days when money appeared to be merely a physical object-gold, silver, seashells, or whatnot. But money never was merely a physical object (for reasons, I refer you to my book Economics: What Went Wrong and Why), and it certainly is not now. It is, as the late Professor John William Miller said in The Midworld, a functioning object. That is, it is an object, all right -a piece of metal, a piece of paper, a blip on a computer screen-but what matters is how it functions, not its physical composition. It is not simply another commodity; it is a standard or a control, as is, say, language or a yardstick. A language functions whether it is embodied in sound waves or marks on paper, and a yardstick functions whether it is made of maple or stainless steel. Of course, it doesn’t much matter what a hammer is made of, either, but a hammer is merely a useful tool (glue, or nuts and bolts, could do the job as well as nailing), while nothing can be built-space cannot be organized-without some measuring object.

This may sound pretty metaphysical, and it is, but I’m afraid we must go a step further in that direction. The Quantity Theory will acknowledge that, as a practical matter, it is difficult-indeed impossible-to count the amount of money a nation has. The very existence of the different quantities – M-l, M-2, M-3, and the rest – underlines the point. On the other hand, it is also impossible, as a practical matter, to count the number of electrons in a burst of energy. With electrons, however, it is possible to say that there is a definite number (despite our not knowing precisely what it is), that the number stands in some definite relation (which may also be unknown) to something else, and that therefore we can construct equations capable of yielding reliable predictions.

The trouble with money is that there is not ever a definite amount of it, just as there is not ever a definite number of thoughts expressed in language. Like language, money doesn’t even exist except as it is functioning. “If the coin be lockt up in chests,” wrote David Hume, ‘” tis the same thing with regard to prices as if it were annihilated.” What is true of coin is surely true of credit, the fundamental form of money.

This truth reveals itself in two consequences, one theoretical and one practical. The theoretical consequence is that the attempt to state the Quantity Theory in an equation (MV = PY) results in a sterile tautology. In words, the equation says that the quantity of money (M) times the velocity of its circulation (V) is equal to the general price level (P) times the goods produced (Y). For a fuller explanation I must again refer you to my book; but for present purposes it is enough to see that MV’=PY essentially says that the amount of money paid for goods is equal to the sum of the prices charged for them – which is not much to say.

Practical trouble comes when the attempt is made to use MV =PY as a guide to public policy. If your purpose is to increase production, you look at the equation and decide that all you need to do is to increase the money supply or speed up its circulation, at the same time holding the price level down. On the basis of historical studies that made his reputation, Professor Milton Friedman concluded that the economy could not sustain a steady growth faster than 3-4 per cent a year, that therefore the money supply should be expanded at that rate, and that any faster rate would be inflationary.

From Jimmy Carter’s appointment of Federal Reserve Board Chairman Volcker in 1979 until Beryl Sprinkel’s speech this summer, Milton Friedman was the guru of American economic policy (he is still a guru in GreatiBritain). These seven years have not been an unruffled calm. At the start, the prime rate jumped from just under 10 per cent to 15 per cent, and continued upward until it hit 21.5 per cent after the 1980 election. The inflation rate followed (note the emphasis, which we may examine another day), reaching about 13.5 per cent at the end of Volcker’ s first year in office. Then we had the deliberate depression of 1981-83, driving unemployment from a little over 6 million in 1979 to almost 12 million in 1983. Since that time we’ve had something called “recovery,” punctuated by happenings called “growth corrections,” with unemployment still over 8 million, even counting part-time dishwashers as employed.

During these seven years Friedman has steadily complained that his religion was hardly being tried, and that Volcker was a false prophet. For though Volcker’s policy has been to stop worrying about the interest rate and instead to control the money supply, he never has come close to bringing the yearly increase of M-1 or M-2 down to 4 percent. Consequently, Friedman has been in the comfortable position of taking credit for whatever has turned out well, while disowning whatever has gone wrong.

IN FAIRNESS, Friedman’s gospel has been more modest than that of his followers – a not unusual situation in the history of religions. He argues that because government does not handle money as well as profit-seeking individuals, it should do the barest minimum and should be constitutionally required to balance its budget. His argument in favor of a fixed rate of expansion in the money supply is basically that discretionary control by the Federal Reserve Board has been so awful, almost anything would be an improvement.

Nevertheless, the reasoning behind a low fixed rate of expansion is based on MV = PY: If the money supply expands faster than production, the price level must rise. If, however, the price level remains constant, a monetary expansion would necessarily expand production. For a considerable period now the price level has remained constant, or as near as doesn’t matter, while the money supply has been increasing twice or three times as fast as Friedman recommends. If the professor had his theory right, we should be experiencing the biggest boom in history. It seems the boom isn’t happening or about to happen, so Sprinkel has given up on monetarism.

What went wrong? Well, I’ll tell you: The monetarists have their metaphysics wrong. Money is not a commodity, it is a functioning object. You can’t count it; you use it to do your counting. Since you can’t count it, you can’t fit it into an equation. Beryl Sprinkel is gradually waking up to this fact-and, presumably, his boss is too.

Now, that’s dandy; better late than never, and all that. Except the awakening comes after a night that has destroyed forever the livelihood of millions of older men and women, and has condemned millions of younger men and women to a lifetime of hanging around street corners. It has made a few rich people very rich, and many poor people poorer than ever. It has deliberately stagnated the economy, with the result that in five and a half years the actual GNP has run roughly a trillion dollars less than potential GNP. Simultaneously, another trillion dollars has been taken out of the civilian economy by heating up the arms race. Finally, as a third trillion dollars has flowed into the stock markets, the rate of investment in productive enterprise has fallen.

So they goofed. So who’s perfect? The trouble is, none of this grief was necessary. As early as a speech Knut Wicksell made on April 14, 1898, it has been clear that banks don’t create money, business does. The textbooks continue to say banks create money by making loans, but Wicksell showed the initiative comes from businesses that want to borrow, not from banks that want to lend. Writers as various as Hayek and Keynes developed the idea, and businessmen have always known in their hearts that it is true. Only a fool or a knave borrows money simply because a bank wants to lend it[1]. The banking system can stifle an active economy with high interest rates, but it takes more than low rates to breathe life into a dormant economy.

What does it take? Good morale. Keynes talked of “animal spirits”; unfortunately the expression has the flavor of a biologically determined force that could be let loose if you changed your breakfast cereal. The neoclassical “Keynesians” (who try to press Keynes back into the mold of a classical economist) emphasize incentives to investment, like tax credits; regardless of the incentives, though, investment has languished.

Friedman has permitted himself the observation that rather than money, “The real wealth of a society depends much more on the kind of institutional structure it has, on the abilities, initiative, driving force of its people, on investment potentialities, on technology on all of these things.” Yet he would forbid corporations to concern themselves with the moral consequences of their business, to engage in unpaid public service, or to exercise charity. What is left? The naked bottom line. And what is the naked bottom line? Greed.

Morale is related to, but different from, morals. Greedy people are not necessarily immoral, just as self-sacrificing people are not necessarily moral. But the morale of greedy people is bad. Their universe is ungracious, ungenerous, constricted, pessimistic, often cynical.

As it happens, greedy people are in the ascendance in America today, and the fact of the matter is that the economy has gone just about as far as it can go on the greed standard. The economy is stagnant because its rewards are outrageously skewed in favor of those who already have more than they know what to do with[2].

According to the monetarist theory, these people should be putting their extra money into stepping up production, for the ultimate benefit of all. But they are not fools. Twenty-two per cent of the nation’s industrial capacity is already standing unused: What would be the sense of producing more things no one can buy? So the extra money goes into speculation, an activity that incidentally increases the cost of capital and further inhibits enterprise.

It would be pretty to think that, in giving up monetarism, the Administration will reverse itself and try to rationalize the distribution of income, thus incidentally increasing demand. But the probability is otherwise. Our morale has been so corrupted by the ideal of private greed that it will no doubt be decades before we enjoy again the eagerness with which we once faced the world.

The New Leader

[1] Editor’s note – or, based on the sub-prime lending bubble of the late 2000’s, an individual borrower as greedy as the Wall Street market makers intent on collateralizing fraudulent loans

[2] Editor’s italics…  sounds far too familiar in 2012

Originally published March 8, 1982

MY HEAD is spinning-which is not surprising, for I have been reading a circular argument. If you read much economics, you encounter a good many circular arguments. This one is a dandy.

I refer you to the “Annual Report of the Council of Economic Advisers.” It is said to be a document of 357 pages, but all I know of it is what was printed in the New York Times, which is enough. In the section headlined “Why Deficits Matter” we find the following:

“Financing a budget deficit may draw on private saving and foreign capital inflows that otherwise would be available to the private sector …. Weak and marginal borrowers may be ‘rationed’ out of the market by higher interest rates unless saving flows are adequate…. During a recession-as now exists-the borrowing requirements of business and consumers tend to be relatively small. At such a time a given deficit can be financed with less pressure on interest rates than during a period of growth…. Much of the Administration’s tax program is designed to increase the private saving of the nation. As a consequence, both public and private borrowing will be accommodated more easily.”

What (if anything) is being said here? Restating the argument, it goes like this: First, the Administration’s tax cuts are a net addition to an already existing deficit. Second, government borrowing will have to go up to cover the raised deficit. Third, there will be no trouble with the increased borrowing, provided the recession continues (or deepens)-and the people who receive the tax cuts lend the money back to the government.

In short, at the end of the circular maneuver-assuming it works as it is intended to-the recession will be just what it was, and sizable transfer payments will have been made to people judged not to need them. In fact, they have been chosen to get the money precisely because they don’t need it. Also (incidentally) the deficit will be increased, and interest at 14 per cent or so will have to be paid on that. It adds up to real money, and it’s crazy, no matter how you look at it.

Let’s imagine (as I’ve remarked before, economists have to have good imaginations) that we had a Republican administration that knew something about finance. It would occur to such an imaginary administration that it would be simpler to keep the tax money it has, instead of returning part of it to rich people in the hope that they will lend it back to the government. Not only simpler but, of course, cheaper. Not only cheaper but, of course, less disruptive of the economy. Not only less disruptive of the economy but, of course, more equitable.

I don’t know what I’d do if I were a supply-side economist (my imagination isn’t lively enough for that). The supply-sider’s game plan is to put money into the hands of producers, who will invest it in new plant, which will eventually improve our productivity and make possible a higher standard of living for us all. He’d have to be blind not to see that, in general, producers are richer than other people. Thus to get money to them, he cuts taxes for the rich rather than for the poor or even for the middle class. He’s playing for the trickle down. Fair enough.

He recognizes that when taxes are cut faster than expenditures, the Federal deficit (not to mention the state and local deficits) rises. The Laffer Curve doesn’t say there won’t be an initial deficit rise; it merely promises, as President Hoover did, that prosperity is around the corner. So Jack Kemp isn’t worried about the deficit; he’s going for the long ball.

Nevertheless, the deficits have to be monetized or funded. Monetizing the debt means just printing money to pay the bills, and supply-siders are afraid to do that. The deficits therefore have to be funded. That is, bonds have to be issued to cover them. But one doesn’t simply issue bonds, one sells them. To.whom? Why, naturally, to the rich. No one else has the money to buy them. Unfortunately, the money the rich use to buy the bonds is the money they were supposed to invest on the supply side.

Try as he will, the supply-sider can’t get money into the hands of producers. This is not because of the conspicuous consumption of the rich or the notorious perversity of Wall Street. Even when everyone is doing his best to cooperate, the scheme can’t work. The supply-sider’s tax cuts go to the rich, all right; but the recipients have to lend the money right back to the government to cover the deficits. No more money becomes available for productive investment than there was before the game started.

Actually, even less is available, because the pressure of the deficits pushes up interest rates. This doesn’t have to happen, yet it will happen as long as the Federal Reserve Board clings to its monetarist doctrine of restricting the money supply (if it could only figure out what money is). You may be sure that the Fed will depress both the supply side and the demand side if it can. The resulting high interest rates will increase the cost of government borrowing and add to the deficits in what is now a pretty tight upward spiral. But that’s not the end.

High interest rates inhibit investment. Businesses that used to borrow money to expand in the good old-fashioned capitalist way can’t afford to pay 15-20 per cent for their money and have to cut back in order to survive.

Hence the supply-side tax cuts, with the best will in the world, will reduce the amount of money available for investment. You will note that I say” available,” because I don’t for a minute believe much of that tax windfall would go into productive investment even if it could. Almost all of it is earmarked for speculation. No goods will be produced as a result of it, nor any services rendered. But the rich will be richer.

TO SHOW what I mean about speculation, let me call your attention to some figures the Times printed a couple of weeks ago about Merrill Lynch, Treasury Secretary Regan‘s old firm and, breeding apart, the very model of a modern “investment” house. It turns out that by far the biggest part of Merrill Lynch’s income comes from interest its clients pay on margin accounts. Margin accounts are nothing if they are not speculations, and interest on them is 45.4 per cent of Merrill Lynch’s income. Next we have commissions, which amount to 22.8 per cent of their income, and the transactions the commissions were earned on were also speculations, buying and selling securities, without a penny of all those billions going into new productive enterprise.

Then comes “investment banking,” 8.6 per cent of income. That sounds more like it. Well, it sounds more like it until you hear what the small print says. Then you learn that “investment banking” includes “municipal and corporate underwriting and merger and acquisition advice.” Of this, the only part (and we don’t know how large it is) that might concern productive investment is the corporate underwriting, but even that is unlikely, coming in close conjunction, as it does, with “merger and acquisition advice.” Was Merrill Lynch involved in the $3 billion US Steel borrowed to buy Marathon Oil, or the $4 billion DuPont borrowed to buy Conoco? I don’t know, but I do know that transactions like that are speculations, not productive investments. No more oil is refined- no more anything is produced- as a result of them.

Yet this is the sort of thing-and the only sort of thing-that is encouraged by the supply-side tax breaks. Don’t get me wrong. I’m in favor of producers; after all, I’m sort of one myself. The late Professor John William Miller used to say that an entrepreneur is an economic surd: there’s no accounting for him, but you don’t have any economic activity at all unless some willful character says that, come hell or high water, there’s going to be this here-now business. Such types should be encouraged. I’m willing to believe that at least some supply-siders want to encourage them. But I’m here to declare that Reaganomics is going to encourage only those whose principal activity is clipping coupons.

Let me, as the fellow said, make myself perfectly clear. I’m not arguing against a deficit or against tax cuts, or for them. All I’m saying is that unless the government is running a surplus, there is no way for tax cuts to be a direct stimulus to productive investment [editor’s bolding]. Tax cuts can be an indirect stimulus: By giving some people more money to buy things, they can eventuate in producers producing more. But that is the demand side, not the supply side.

To be sure, Reaganomics has its demand side: the military buildup. Because of its specialized nature, this is not the most efficient stimulus the economy could have; it produces comparatively few jobs for a buck. Moreover, it cannot continue to stimulate the economy even as much as it does unless the arms race speeds up. (That may rate as a suitably dismal thought.)

If you really want to stimulate the demand side (which you really ought to want to do), you will give tax breaks to people who will spend their windfalls, not “save” them. In short, you will start cutting taxes at the bottom (Social Security taxes, for example) and work tentatively upward. This is the precise contrary of Reaganomics, but it makes precise sense.

The New Leader

Originally published February 23, 1981

Dear Editor

Foreign Policy

I agree with George P. Brockway’s conclusion that “policies like the human rights program are precisely what is needed, while unleashing the CIA will damage us severely” (“Foreign Policy in a Bipolar World,” NL, January 12). But it seems a gross exaggeration to attribute the decline of Eurocommunism or the survival of Spain and Portugal outside the Russian orbit to former President Carter’s human rights program and the Helsinki Final Act. While it may be easier to arrange “for our enemies to have enemies” than to increase the number of our friends, there is little evidence that this can be achieved by trumpeting the human rights cause. To direct human rights policies” more toward making the USSR mistrusted than toward making ourselves beloved or feared,” depreciates their value.

The best argument for a human rights program is not that it makes enemies for the Soviet Union and friends for the U.S. Human rights are intrinsically good, like international economic prosperity and the absence of world war. They are invaluable, not only because we like them, or because they are the foundation of American independence (“the objective of American foreign policy”), but because the more human rights prevail abroad, the easier it will be to preserve them here.

In the many regions that are critical for our foreign policy-the Middle East, Africa, Central America, Eastern Europe, South Asia-human rights are endangered not only, or even primarily, by threats of Soviet subversion or penetration. The greater danger is that human rights in these crucial areas are imperiled by economic and social disequilibrium. A credible human rights program cannot be separated from concern about and involvement in efforts to achieve more equitable social and economic systems in the destabilized regions.

President Carter’s human rights program was so selective that it seemed deceitful to many in the Third World. It was too obviously a propaganda weapon aimed at discrediting the USSR by focusing on Communist betrayal of freedom, while giving little if any attention to identical or even worse violations by regimes that were supposedly our friends-Iran, China, Korea, the Philippines, and others frequently cited by Amnesty International. Are Arabs, Indians, Latinos, and those to whom the Voice of America sends news about our human rights concerns supposed to take protestations about Soviet dissidents seriously when they fail to hear of our concern about their dissidents?

Carter’s human rights program also failed to link the rights of free speech, free press, free assembly, and free political organization with the rights to work, eat and grow old with dignity and security. In much of Africa, the Middle East, Asia, and Latin America it will be difficult, perhaps impossible, to achieve the first category of rights without the second. A credible human rights program cannot be selective; it must demonstrate concern for the rights of all, and must also seek the right to survive with dignity as well as to protest the misdeeds of oppressive government. Otherwise, the foreign policy advocated by Brockway will be perceived by most of the Third World and much of the rest of the world as mere rhetoric.

Binghamton, N. Y.


Professor of Political Science State University of New York


George P. Brockway’s article is full of provocative statements. Many of them I agree with, but not all of them can be logically advocated at the same time. I most certainly agree that promoting human rights is not merely moralizing, that this can serve a number of important foreign policy goals. For example, because the Carter Administration took human rights seriously in Latin America, our diplomatic and economic interests were advanced. As a number of countries successfully navigated the difficult transition from authoritarian to democratic rule (Dominican Republic, Ecuador, Peru), we were able to construct a series of close working relationships which immensely improved our diplomatic strength. With the United States no longer identified as a close collaborator of every dictator, American businessmen found a friendlier environment; in Latin America, no major investment disputes developed over the last four years.

I also agree that the United States too often places great stake in the momentary political posture of Third World governments. Treating the world as a zero-sum game, where the “loss” of any state is automatically a gain for the Soviets, the United States has squandered great energy and resources in trying to control the domestic politics of an innumerable number of developing nations. Yet the inherent economic and military importance of these nations, more often than not, is marginal to any reasonable definition of United States interests. Moreover, even if a nationalist government should come to power, whether of the Right or the Left, the chances are very great that it would still want to participate in the international economic system. It would want to trade with U.S. firms and to borrow from U.S. banks, and have no choice but to pay the interest rates established in the London money markets. Very few leaders in the developing world consider either autarky or the Soviet-led COMECON as an alternative to the Western economy. Indeed, even Communist countries-from Hungary to China are anxious to increase their participation in what has become a global economic system.

Brockway is also correct, in my opinion, to argue that an aggressive foreign policy, perhaps resorting at times to covert action, can too often be counterproductive. The Soviets and Cubans were active in Angola before South Africa invaded in 1975, but there is no doubt that the Cuban presence was legitimized in the eyes of most Africans by the South African invasion and the CIA presence. Even when covert operations succeed for the moment, the future can bring disaster. In Central America, an active CIA has helped maintain conservative, generally military governments for decades. But now Somoza is gone and El Salvador today-or Guatemala tomorrow-faces a powerful insurgency that views the United States as the major source of succor for their oppressive governments. Iranians remember all too well our long collaboration with the Shah and his secret police, SAVAK.

In arguing that the Soviets will often find that client states cost more than they are worth, Brockway offers a useful corrective to those who present each Soviet “gain” as a trauma for the West. The Soviets are undoubtedly finding their foreign obligations to be a major drain on their limited resources, and must be wondering whether an expansionist foreign policy is really in their interests. Nevertheless, I am not sure that the United States can be quite as relaxed about Soviet activities in the Third World as Brockway seems to suggest. Especially when Soviet actions take a military form, we ought to register loud disapproval. If we are to establish “rules of the game” for superpower activity in the Third World, constraints must be placed on both the Soviets and on us with regard to the use of force in there. If the Soviets do not desist, the pressure will continue to mount for the United States to respond in kind. Yes, our interest should be in seeing that Third World states are independent states, not clients of any superpower. As Algeria recently demonstrated in helping to gain release of the U.S. hostages held by Iran, genuinely independent countries can often be more useful than “loyal” allies who enjoy little respect in the world and have essentially passive foreign policies.

Yet this formula for genuine nonalignment is not consistent with Brockway’s view that we live in a bipolar world. In a bipolar world, it becomes extremely difficult for relatively weak states to avoid seeking the protection of one of the two superpowers. Each superpower logically sees the disengagement of any country from its sphere of influence as a “loss,” a weakening of its alliance system. Each superpower will therefore struggle, using various means, to maintain its friends in power around the globe.

Fortunately, today we live not in a bipolar nor even in a multipolar world, but a poleless one. Power has become so diffuse that many states have accrued significant quantities of it. Countries such as Mexico, Brazil, Argentina, Nigeria, Libya, Iraq, and India have enough power to try to maneuver international events in accordance with their national interests. Smaller powers in their areas recognize the presence of the regional “influentials,” and must· adjust to this. In the past, we mistakenly imagined that we could manipulate these regional “hegemons” to do our bidding. In fact, they have proven capable of defining their own foreign policies in the light of their perceived national interests. Their policies have sometimes converged with ours, but frequently have not.

A poleless world is infinitely more difficult for the superpowers to manipulate. Either superpower that tries to control events in the Third World today is bound to face frustration and disappointment. For that very reason, if the United States maintains a sense of proportion and keeps its eyes on its true interests, the Third World will be seen as a less threatening place.

Washington, D. C.


Resident Associate Carnegie Endowment for International Peace

 George P. Brockway replies:

 I full agree with Richard Feinberg that we should “register a loud disapproval” when Soviet actions in the Third World take a military turn, and I expect that he agrees with me that our disapproval should itself seldom take a military or even a quasi-military turn.

My fundamental differences from Don Peretz would, however, require volumes to elucidate, though the particular policies we would support are probably very close. In brief, he believes that some things are “intrinsically good,” while I find that the intrinsic goods he mentions are often in conflict. Forty years ago the “intrinsic” good of human rights was in conflict with the “intrinsic” good of the absence of world war. Was one more intrinsic that the other? The inability of “political science” to answer such questions produces the very “unstable amalgam of moralizing and Realpolitik” that I mention in my article.

An aphoristic summary of the position of my article may be found in the concluding words of a forthcoming volume on The Philosophy of History by the late Professor John William Miller: “History does not show men good or bad; it operates by assuming that they are moral-that is, agents. Good, in history, can mean only the perpetuation of those critical processes that define the moral.”

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