Sunday, December 5, 2010

The Role of Big Business and the State in Usurping the Provision of Social Security from Fraternal Societies and Suppressing Mutual Aid

The increased severity of America's recessions under the National Banking System, which had replaced the Jacksonian Free Banking era during the Civil War, had created a strong desire for consistent economic security during the Gilded Age. The increasingly cyclical nature of the economy, riddled with unsustainable booms that resulted in catastrophic busts, drove the poor to organize fraternal societies for mutual aid, and by 1920 over one-fourth of American males were members. These societies were similar to the order of the Freemasons but emphasized the organization's role as provider of sick benefits and social security in times of need. Due to a constant need for money, members were educated in the values of thrift and reciprocity. These societies were quite selective of their members since free riders threatened the economic viability of these organizations. In addition, aid was rationed on a case-by-case basis, and requests for benefits were often denied if the person was deemed unworthy by the elected administrators of the fraternal lodge. The benefits of fraternal society membership were not charity, which was considered degrading because it fostered dependence on others. Instead, drawing benefits in times of trouble was seen as the right of any good dues-paying member. Commercial insurance and medical societies such as the American Medical Association felt threatened by the fraternal societies' cheap insurance rates and subscription-based doctors. As a result, these interest groups lobbied government to enact legislation which increased certification requirements to minimize competition from cheaper health care alternatives. With the increased government activism during the Progressive Era and the New Deal, which mandated employer-based pensions and workmen's compensation, fraternal society membership declined. The triumph of employer-based commercial health insurance was a result of its collusion with the state. Medical societies imposed sanctions on lodge doctors and urged the government to regulate these societies out of existence, allowing employer-based insurance to corner the health care market through government privilege rather than inherent economic efficiency.

Many people justified their opposition to fraternal societies by claiming that they were financially unsound, but on closer examination they were able to adjust to economic downturns. A candidate for Attorney General accused cheap lodge insurance of being prone to failure and fraud1. While there were examples of fraternal societies which could not keep up with their benefits payments and went bankrupt2, most were able to reassess their rates and continue functioning, even during times of difficulty and demography decline. One major problem was that they promised consistently low rates that they could not deliver, and this drove members away. Fraternal societies began by assessing their insurance rates at one low cost for all members, but economic necessity forced them to adjust and adopt a system with graded rates based on age. There had been an actuarial crisis within American fraternal societies in the 1890s and 1900s, and as a result they had to use the British friendly society as a model for financial soundness. Increasing regulation of rates and increasing cash reserve requirements for fraternal societies forced them to maintain economic viability. While commercial insurance may have been more statistically sound due to its highly variable premiums and deductibles, the decline of the fraternal societies cannot easily be explained by inherent financial problems. Otherwise, the Security Benefit Association would not have been able to operate a hospital that charged a quarter of the average rate for a room3.

Medical societies were afraid that the fraternal societies' cheap rates would threaten their own ability to make money, so they sanctioned lodge doctors and launched campaigns against lodge practice to discredit and destroy these organizations. The American Medical Association, for example, blacklisted all doctors who entered into a lodge contract and denied them access to their hospitals. The fraternal societies were able to maintain such cheap rates because they paid a doctor a steady salary to provide moderate medical care to all of the members. These contract doctors could not charge nearly as much as the fee-for-service doctors, who changed their rates based on the person and procedure, but these contracts were desirable because they ensured consistent employment. Organized doctors wanted to maintain their elite status and prestige, so they claimed that the lodge doctors were untrained, overworked, and unfit to practice medicine. While lodge doctors may have graduated from apprenticeship-style proprietary schools rather than universities, they still had to receive certification to practice, which the states made increasingly difficult for them. Well organized doctors also disdained the idea that contract doctors had to be responsive to their patients' needs. As a result of their disgust for lodge contracts, the professional medical community embraced the fee-for-service method of commercial insurance. The alliance between organized medicine and commercial insurance would begin a trend of using the government's coercive power to destroy the competition that was coming from fraternal societies' insurance plans. The Ohio State Medical Society, for example, pushed through legislation which would prevent organized labor from creating health centers4.

The state began its interference into the insurance market by encouraging the purchase of employer-based commercial insurance. They did this by subsidizing these companies and mandating workmen's compensation, pensions, and other employer-based social security. In addition, businesses embraced commercial group insurance so that the workers could not provide for themselves independently of their employers, which gave them increased bargaining power. This trend reduced fraternal society membership by decreasing the need for fraternal insurance, especially during times of high employment. Due to the fact that fraternal societies would not engage in political coercion to promote their institutions, expensive commercial insurance was forced upon the workers, which removed their need for cheaper health care. Contractual medical treatment at health centers was too cheap to compete with, so businesses had the government force employer-based insurance upon the workers, removing their need for fraternal health care5.

In addition to encouraging employer-based commercial insurance, states imposed regulations and licensing requirements which made it difficult for fraternal health insurance to exist. Pennsylvania, for example, revoked the licenses of thirteen fraternal orders in 1926 due to their lapses on benefits payments and their high administrative costs6. The state courts almost always decided to take the side of organized medicine, and the medical societies were given the power to set the rules of their profession. Increasingly tight certification requirements led to a decline in the number of doctors per capita in the United States between the 1900s and the 1920s. Fraternalists charged that the government was regulating their societies in order to destroy their cheap competition. A particularly petty example was a bill that was proposed to prohibit all fraternal life insurance orders from using the US postal service. Regardless of such obvious antagonism, some fraternalists had lost much of their suspicion of interventionist legislation during the Progressive Era. Government laws prohibited certain types of insurance from being sold by fraternal societies, such as endowment insurance7. Legislation ended up mandating business-controlled programs and promoted the commercial insurance trade, and in this way businesses were able to increase their bargaining power in relation to labor by gaining control of the workers' health insurance and social security.

The final step in the decline of fraternal societies came with the state's assumption of social security responsibilities from businesses and private charities. Instead of providing subsidies to private organizations, an increasingly interventionist federal government began to take charge of providing economic security to the people. One of the primary appeals of fraternal societies in the 1930s was their provision of “cradle to the grave” protection to members. Yet by the 1940s, public assistance programs removed the need for private provision of orphanages and retirement homes. There were even examples of the federal government directly taking charge of fraternal facilities, as the government bought fraternal hospitals and often turned them into free clinics for the poor8.

In the end, the poor workers were unable to stand together on the issue of insurance provision. Instead of organizing to lobby for fraternal societies' voluntary provision of sick benefits and social security, some of the poorer labor unions endorsed compulsory, state-provided health insurance9. While this seemed to be a desirable alternative to the instability of employment-based social security, these entitlement programs legitimized the state's use of coercion. This was what allowed the states to legislate the fraternal health insurance orders out of existence by imposing stringent certification and licensing requirements which only the most privileged commercial insurance companies could pass.

Contrary to the opinions of many government officials, fraternal societies were able to deliver an enormous amount of health care and sick benefits without the danger of financial insolvency. While medical societies and members of the commercial insurance industry questioned the quality of the fraternal societies' doctors and accounting methods, these orders were able to survive through the actuarial crisis of the 1890s and 1900s through strict readjustment. Doctors were elected to their positions within fraternal societies, so there was enough competition to guarantee a proficient doctor at a low price. American fraternal societies raised their reserves and adopted the actuarial conventions of British friendly societies, which had been proven to withstand economic downturns. The fraternal societies fared quite well during the Great Depression in comparison to other businesses. Instead of being frustrated by financial difficulties, the fraternal societies' problems began with the antagonism of medical societies such as the American Medical Association. These organized doctors attempted to end the salaried contract service of lodge doctors and establish fee-for-service practice as the only legitimate payment method. This would preserve doctors' incomes and insulate them from listening to the needs and demands of their patients. Medical societies lobbied the government for stricter licensing laws so that there would be less doctors and less cheap competition. Medical societies allied with insurance companies in lobbying the government to compel employers to provide social security such as workmen's compensation and pensions. Businesses had usurped the power of providing social security, and as a result security and health insurance were tied to having employment. This was shown to be inadequate when economic downturns created unemployment and deprived Americans of economic security, and the Federal government began expanding its own role in providing social security. Ultimately, an increasingly difficult certification process as well as compulsory social security led to the decline of fraternal societies' provision of sick benefits. The prosperity and employment in America after World War II would lead people to regard fraternal insurance as superfluous, yet further unemployment as a result of the boom-bust cycle would result in a new search for more stable and diverse forms of social security.

The decline of fraternal societies has coincided with the increased prevalence of paternalistic social security provision in the “mature” economies. Fraternal provision of social security would offer smaller countries an economically sustainable method of providing for the downtrodden. Fraternal membership would be based on paying dues as well as on engaging in activities which instill good values and increase community solidarity. In order to maintain economic viability, exclusion of members who do contribute to the organization would be a necessary prerogative of the fraternal society's membership, but members should not be expelled for their specific political or religious beliefs. Fraternal societies would provide opportunities for constructive activity during people's free time, which would be essential during times of high unemployment. Unrestrained, these societies would be able to replace employers and the government as primary provider of social security. A wise society would remove all legal barriers which discourage or outlaw low-cost competition, which would create more voluntary options for health care and social security. Institutions should merely provide information about the quality of a product to possible consumers, allowing people to choose whether a product is safe or not for them. The government could provide incentives to encourage the proliferation fraternal societies and other cooperative methods of providing social security, but rewards should be systematic and based on efficiency so that subsidies were not based on political favors and privilege.

1“Politics and Insurance: Maryland Fraternal Societies to Oppose Candidate Poe,” New York Times (September 28, 1891), p. 2.

2“40 Years' Insurance Dues Bring Nothing,” New York Times (May 5, 1916), p. 19.

3David Beito, From Mutual Aid to the Welfare State (Chapel Hill: University of North Carolina Press, 200), pp. 132, 134, 136, 139, 224, 175; Jennifer Klein, For All These Rights: Business, Labor, and the Shaping of America's public-private welfare state (Princeton: Princeton University Press, 2003), p. 13.

4David Beito, From Mutual Aid, pp. 116, 119, 120, 124; Jennifer Klein, For All These Rights, pp. 13, 153, 154.

5David Beito, From Mutual Aid, pp. 205, 218; Jennifer Klein, For All These Rights, pp. 12, 13; Andrew Morris, “New Alignments: American Voluntarism and the Expansion of Welfare in the 1920s,” eds. Bernard Harris and Paul Bridgen, Charity and Mutual Aid in Europe and North America Since 1800, p. 206.

6“13 Orders Lose Insurance License,” New York Times (December 4, 1926), p. 7.

7Usually for retirement, endowment insurance would bestow a cash payment for surviving and paying dues for a certain period of time.

8David Beito, From Mutual Aid, pp. 98, 198.

9Jennifer Klein, For All These Rights, pp. 151, 3.

Woman of the Dunes: Embracing Society to Fix the Precedents which Limit Human Potential

Dissatisfaction with the modern world was a consistent motif within the works of Abe Kobo. He believed that the conventions of industrial society could not fully measure a human's value or worth, however scientific or rational they appeared. Instead, he believed that these definitions limited human potential by providing incomplete and generic stereotypes which modern man would strive to fulfill but not transcend. Believing that capitalism fostered jealousy and destroyed community solidarity by placing men on a hierarchy of worth, he found modern society to be alienating. His views led him to create characters which unsuccessfully strove for complete withdrawal from modern society due to their unwillingness to assimilate. This adheres to the Japanese Communist Party's (JCP) belief that capitalism could not be reformed from within and that a radical revolution was inevitable. His falling out with the JCP in 1962, however, led him to create Woman of the Dunes, a more hopeful story in which the main character was able to embrace society by redefining his goals and values. The main character chose to remain in the oppressive society in order to contribute to the community in ways which would garner him the respect of his peers. The main character enjoyed a freedom which was different from the complete independence which he originally strove for. Due to a belief in the plasticity of identity, Abe Kobo believed that freely accepting a burdensome society in the interest of changing it for the better could be more fulfilling than completely escaping from society. While he was disdainful of the roles that modern society constructed for men, he accepted the fact that integration into society was necessary to some extent if one wished to remold man's collective identity. While he believed that freedom was essential in allowing men to define themselves and fulfill their potential, he understood that reputation and the desire to be recognized by one's peers motivated men to act and drove them to improve society. In Woman of the Dunes, Abe Kobo cautiously endorsed integration into society to the extent that one could contribute creatively while maintaining a sense of fulfillment. His move toward hopeful acceptance of society paralleled the increased freedom of expression and choice within Japanese society which came with the departure of the American occupation force and economic independence.

From the start of his career, Abe Kobo was dissatisfied with the tasks that industrial society assigned to people, believing that they disfigured a man's identity. First of all, he believed that the industrial world compartmentalized humans in such a way that they could not find fulfillment performing their duties1. He found that the repetitious physical labor required by industrial society was dehumanizing and that it transformed people into the mere units of a collective which was at the service of a few men. The main character of Woman of the Dunes expressed his dissatisfaction with his task of endlessly shoveling sand when he stated that the work was fit for a monkey and that a rational society should utilize the people based on their skills and talents2. He felt as if he was being ruthlessly exploited by the people who were making profits from his coerced labor.

Abe Kobo believed that the mindless work provided by industrial society disfigured humans' personalities by restricting them from performing creative tasks and developing unique identities, which was unimportant according to society's measures of a man's worth3. He was mostly disenchanted with society's habit of rating men and creating divisions between them which would lead to conflict. The main character of Woman of the Dunes echoed this dissatisfaction when he described a falling out with his wife which should not have occurred based purely on society's certificates, which assured that he was a good productive citizen4. Men were driven to increase their standing in modern society, and as a result they were focused on appearing qualified and trustworthy rather than on searching for their unique role within the community. Abe Kobo expressed this in his 1974 novel The Box Man, a story of men who live in large cardboard boxes to retreat from society. One of the box men criticized people for trying to fit into society's ideal types when he said that they wear clothes and cut their hair to appear identical to one another5. European philosophy led Abe Kobo to believe that human language was incapable of completely capturing the essence of reality because it simplified the world into concepts which could be understood by humans, and as a result he rejected society's attempts to measure an individual's contribution to the social good6.

Abe Kobo believed that industrial society divided people into types and created class differences which destroyed community solidarity. He was especially upset by the strong desire for privacy and personal property which drove neighbors to conceal the bad parts of their lives from one another while making each other jealous with their possessions7. Abe Kobo concluded that the modern day crisis of man was his desire to escape from the alienation engendered by social conventions8. In The Box Man, for example, the man said that he would not need to conceal himself from society in the box if he could be free of envy and a sense of inferiority9. Similarly, the main character of Face of Another concealed his disfigured face with a mask in order to be protected from society's destructive judgments. The doctor who created this man's new face said that drinking alcohol was similar to wearing a mask in that they both provide a person the freedom to act without worrying about others' judgments10. People had such a strong desire to get drunk because it could be used as an excuse for acting however they pleased. The main character of The Box Man expressed a similar desire for insulation from outside evaluation when he described his dreams of a city of friendly hospitable strangers11. The doctor from Face of Another described a similar city in which people put on masks to change their identities so that name, position, and occupation would not matter, allowing people to live without restraint12. In these examples Abe Kobo expressed his desire for a world in which people could act freely upon their whims and fancies without the fear of a loss of reputation which could endanger their prospects.

The majority of Abe Kobo's characters could not come to terms with society yet could not escape from it, leading them to fulfill their own desires and resign from constructive activity. This came from characters' desire to escape the collective rationalities of modern society which cannot capture reality's complexity13. Due to his dissatisfaction with a society that limited human potential by assigning people menial or exploitative tasks, Abe Kobo joined the Japanese Communist Party, the only organization which strove to destroy artificial divisions between men and was consistently opposed to the militarism and ultra-nationalism of the Japanese government under Tojo. The JCP introduced Abe Kobo to European socialists and philosophers who strove to reshape the people's values by creating a rational society which was free of conflict and hierarchy. The JCP endorsed revolution and direct action such as striking and boycotting in order to bring about this new society. The JCP was skeptical of the improvements which could be achieved through gradual parliamentary reform, and as a member of the party Abe Kobo's message had to support the views of the party. His works during this period endorse the Communist notion that capitalistic society could not be reformed cooperatively from within, and the characters who attempted to cope with this society were unfruitful.

As an alternative to accepting the limitations of society, Abe Kobo explored the possibility of complete independence from society. The protagonists of Face of Another and The Box Man both adopt an outer skin in order to escape from the social constraints which limit their action14. They believed that an escape from being seen by the outside world would allow them to act freely without remorse15. The relentless pursuit for freedom, however, does not lead to constructive activity for the main characters of these works. The masked man, free from all responsibility and accountability, murdered the doctor in the film version of Face of Another16. The box man's pursuit of freedom was similarly futile, as he expressed a loneliness and a longing to rejoin society if he could be rid of envy and class conflict17. The main character of Face of Another also felt the loneliness that came with freedom18.

Abe Kobo seemed to contend that resigning from society robbed man of his purpose, and that the struggle for freedom was a hopeless pursuit. Most of Abe Kobo's characters encountered an overwhelming social force which had the power to control and shape everyone and everything19. The main character of Woman of the Dunes, completely parched, imagined whole cities being swallowed by the sand and realized that struggling against the tide of society was as hopeless as trying to crawl out of the sand dune he had been trapped in20. The desire to escape from this control motivated the box man and the masked man to search for a way to free themselves from these constraints, but the transformations they undergo destroyed their identity and turn them into the types21. The box man's lack of any direction led him to totally resign from constructive activity22, while the masked man's unlimited freedom drove him to seduce his wife and to satisfy his fleeting desires rather than to carry on life as a normal productive human being. Ultimately, Abe Kobo believed that man's relentless pursuit of freedom was doomed for failure23.

Instead, Abe Kobo endorsed voluntary acceptance of the limitations of society in the interest of shaping society for the better. First of all, he believed that a human's identity was easily changed and influenced by outside factors, and that a man's personality was mainly determined by the sum total of his experiences24. The main character from Face of Another had so many selves that he was confused about how he should speak and act because the mask changed his personality in a way that he could not understand. The doctor points out, for example, that his change of clothing style was the mask asserting its power over shaping the man's actions and identity. The two parallel scenes of the masked man and the bandaged man renting rooms from the landlord showed that even the most subtle differences in treatment would cause a man to act immensely different25. Abe Kobo used the main character of Face of Another to show that a person's identity was pre-determined by his experiences with outside stimuli and could therefore be changed26. He observed that the American occupying force had achieved a radical transformation of the Japanese people's values27, shifting virtue away from selfless emperor worship and toward finding individual meaning and worth. He believed that many aspects of reality could be easily changed by altering the societal norms which shape men. Due to his embrace of the idea that human nature was not innate but socially cultivated28, Abe Kobo's Woman of the Dunes endorsed man's pursuit of rejoining society in the interest of reshaping it.

While the main character of Woman of the Dunes struggled against captivity for a large portion of the story, he chose to accept his position voluntarily when he was able to create the innovative water pump. From the beginning of the story the main character was interested in pursuing work which would gain him reputation and garner the respect of his peers. The main character mentioned more than once that his true motivation for exploring the dunes was to discover a new insect and to get his name in the bug book next to that entry. The man's struggle against captivity was ironically the motivation which led him to discover meaning in his life in the dunes. He was attempting to build a crow trap in the interest of using the birds for communication with the outside world, but instead he created a device for extracting water from the sand. When the main character was given the choice to escape from his desert captivity, he chose to stay so that he could win the respect of the villagers by showing them his new invention. Once the main character realized he could pursue his dreams of fame and recognition as a resident of the dunes, he became much less eager to rejoin urban life. The main character redefined his freedom by deciding that it would be just as fulfilling to work in the desert community away from the alienating social conventions of the materialistic world29. The main character had resigned to the fact that he must live in a constraining society of some sort, and he was able to fulfill his pursuit of gaining social recognition. Ultimately, the main character accepted the fact that his disenchantment with urban society had driven him to explore the dunes, and he chose to be hopeful of his new role in the desert community rather than to strive for unlimited freedom and to resign from all productive social activity.

Abe Kobo's disdain for modern social conventions did not drive him to endorse a struggle for freedom at any cost. Rather, he encouraged humans to find a new kind of freedom in accepting social constraints and striving to improve them. Believing that man could redefine himself and reshape the world to change people's values, Abe Kobo entreated men to contribute creatively to society. While he seemed to emphasize the importance of Buddhist self-cultivation in preparing one to contribute creatively to society, Abe Kobo also embraced the notion that enlightenment and independence could not be used to help others if one unconditionally pursued freedom and withdrew from society.

1Fumiko Yamamoto, “Metamorphosis in Abe Kobo's Works,” The Journal of the Association of Teachers of Japanese (November 1980), p. 171.

2Teshigahara Hiroshi, Woman of the Dunes.

3Yamamoto, “Metamorphosis,” p. 190.

4Teshigahara Hiroshi, Woman of the Dunes.

5Abe Kobo, The Box Man (New York: Alfred A. Knopf, 1974), p. 86

6Bolton, Sublime Voices: The Fictional Science and Scientific Fiction of Abe Kobo (Cambridge: Harvard University Asia Center, 2009), p. 37-8.

7McDonald, From Book to Screen: Modern Japanese Literature in Film (Armonk: East Gate Book, 2000), p. 271.

8McDonald, From Book to Screen, p. 276.

9Abe Kobo, The Box Man, p. 90-1.

10Abe Kobo, Face of Another.

11Abe Kobo, The Box Man, p. 14.

12Abe Kobo, Face of Another.

13Christoper Bolton, Sublime Voices, p. 39.

14Keiko McDonald, From Book to Screen, p. 272.

15Kobo Abe, The Box Man, p. 16.

16Teshigahara Hiroshi, Face of Another,

17Christopher Bolton, Sublime Voices, p. 198.

18Teshigahara Hiroshi, Face of Another,

19Fumiko Yamamoto, “Metamorphosis,” p. 170

20Teshigahara Hiroshi, Woman of the Dunes.

21Fumiko Yamamoto, “Metamorphosis,” p. 190.

22Abe Kobo, The Box Man, p. 19.

23Keiko McDonald, From Book to Screen, p. 284.

24Christopher Bolton, Sublime Voices, p. 167.

25Abe Kobo, Face of Another.

26Christopher Bolton, Sublime Voices, p. 167.

27Fumiko Yamamoto, “Metamorphosis,” p. 172.

28Fumiko Yamamoto, “Metamorphosis,” p. 173.

29Teshigahara Hiroshi, Woman of the Dunes.

Sunday, November 14, 2010

Quantitative Easing and the Compromised Hegemony of the US Dollar

Obama has defended the Fed's use of quantitative easing to inject liquidity into the US economy1. This process involves the Fed creating money which is backed by no assets and using it to purchase government debt from private banks, who hopefully lend the money at low interest rates for domestic investment, creating jobs and stimulating the economy. The Fed, with a government appointed chairman and board of directors, monetizes the government's debt, and in the process the government funds its own spending with money that was created “out of thin air.” Therefore, the benefits of inflation accrue entirely in the hands of the government at the expense of the holders of the government's currency and debt, since there is an increased supply of currency in relation to the assets which back up that currency and the purchasing power of that currency goes down.

The international acceptability of the US dollar as a medium of exchange has resulted in its use as a reserve currency, an anchor currency, and even as an official currency in some countries. In addition, the US government's bonds are considered one of the most secure investments on the market. Universal ownership of US currency and debt means that these notes are backed by foreign-owned assets as well as Americans' assets, which allows the Fed to effectively mobilize the resources of non-citizens in order to make improvements inside the country. A large portion of the loss of US purchasing power is offset onto other currencies and economies, and as a result the US economy is able to realize a net gain from inflation. The removal of the US dollar's convertibility to gold has thankfully allowed for flexibility and autonomy of monetary policy in dealing with temporary crises, but if the Fed continues to rely on inflation to stimulate the economy, an increasingly vigilant and adaptive financial system will reduce the benefits of this policy. *As the international use and acceptability of US currency is a result of its stable exchange rate and the US economy's capital mobility and security, the US government must surrender some of its autonomy to manipulate its currency by removing the Fed's central banking privileges and moving to a currency that is fully backed by assets if it wishes to remain market leader as the top currency. Otherwise, increased fear of inflation will drive the international market to look for inflation protected investments or even to switch to more solidly backed reserve currencies, and the US economy will cease to benefit much from inflation.

As a result of globalization, networking, and interconnectedness, competition among currencies is increasing, and the reduced transactions costs provided by computers and the internet would allow investors to flee from the dollar quickly and efficiently in case of any lack of confidence in the stability of the exchange rate. In an ongoing process called currency deterritorialization, national currency systems have been unable to maintain a monopoly of money use within a territory2. Typically, this takes the form of currency followership, in which a country with a weak national currency adopts a stronger, more internationally acceptable national currency, such as the US dollar or the Euro. There are, however, also examples of interpenetration by complementary currencies such as elderly “caring relationship tickets” in Japan3 and business to business credit in Latin America4, which is modeled after the Swiss Wir bank. Due to the fact that "currency choice is becoming less restricted, and cross-border competition is once again becoming the rule,"5 the American government must maintain anti-inflationary monetary policy if it wishes to keep the advantages that are provided by the current universal acceptability of the US dollar.

This will not always be the case, however, if America enacts policies which decrease confidence in the value of the dollar and upset the international community enough to evoke a reaction, as consistent inflationary monetary policy would cause a flight from the US dollar. The German finance minister and other foreign leaders have rebuked America for its policy of quantitative easing, calling it currency manipulation6. This is a problem due to the fact that “no government can afford to ignore the preferences of market actors when reckoning how to finance its expenditures."7 While Fed Chairman Ben Bernanke has assured the international community that he will not let US inflation rise above normal levels, there are still doubts about whether inflation can be capped at 2% if it becomes a tool that the government relies on to fund its spending8. America must not inflate the money supply if it wishes to control a top currency, which requires low inflation and capital certainty9.

There have already been market signals indicating doubt regarding the stability of the US dollar's exchange rate. Some investors believe that there will be so much inflation that they have begun to buy Treasury Inflation-Protected Securities (TRIPS) at a negative rate of return10. The increased responsiveness of financial markets has decreased the benefits of inflation, as "changes in central-bank policy are almost immediately priced by exchange rates and interest rates"11.

In addition to financial tools which protect investments from inflation, fractional reserve banking has also diminished the government's revenue from inflation. The private banks use their leverage to create much more bank credit than what was added to the currency supply, and as a result inflation benefits private banks the most, which have the choice not to lend the money domestically or to simply increase their currency reserves, resulting in a liquidity trap. One possible policy option is for the US government to significantly raise the reserve requirements for banks, allowing it to gain more revenue from inflation, but such a sweeping reform would be difficult for banks to implement since they have such low reserve requirements at the moment12.

In order for the US dollar to remain the top reserve currency, and for the US government to retain the advantages of being market leader, the US dollar must be fully backed by some sort of asset13. It is wise to reject a return to gold convertibility since this would severely limit the amount of money, credit, and trade (in the absence of free banking), yet there must be some sort of collateral that secures the US dollar note if it wishes to maintain a stable exchange rate and international acceptability. This structural change would involve severely limiting the Fed's flexibility in directing monetary policy, but it would allow the US government to retain the advantages of being top currency.

In the long run, it is possible that the government's currency manipulation would drive financial markets to a supranational or de-nationalized currency14. Increased financial instability and uncertainty among nation states might increase the demand for a noninflationary reserve currency, which would be provided by a privately-issued currency that is fully backed by assets. From the perspective of international investors, it would be a wise policy to reduce reliance on the US dollar, which has the potential to be inflated and manipulated without sufficient restrictions. There is already a proposal for a “trade reference currency” called the Terra that is backed by a basket of the twelve most traded products and can be converted by request15. This would ensure a stable exchange rate and international acceptability with sufficient market penetration. Whether the markets go to a privately-issued or a nationally-issued currency, flight is the inevitable result of abusive monetary policy.

Increasing deterritorialization and competition among currencies will force governments to maintain a noninflationary monetary policy if they wish to retain their currency's international acceptability. Currency regionalization has often been proposed, but the international financial market needs an increased number of currencies rather than currency contraction to maintain flexibility. The reduced transactions costs of economies of scale do not reduce the need for increased currency competition, which prevents inflation and manipulation by currency providers16. Regionalization is unwise on a global scale because it would result in the centralization of currency control, and such a monopoly or oligopoly would allow for increased private gain at the public's expense.

As a result of the US government's policy of increasing the money supply, the international community should recognize the downsides of centralized currency control and increase its use of complementary currencies, providing competition which would deprive the US government of its hegemonic privileges and force it to maintain a stricter monetary policy. For the US dollar to remain market leader in the increasingly globalized world, the creation of US currency must be accompanied by a corresponding increase of goods and services in the US economy. Barring a major change in the basis of the US dollar, international actors should search for a more secure reserve currency. Instead of amassing US dollars to provide liquidity, international actors should encourage free banking and private issuance of money and credit. Governments should remove the legal tender privileges from their currencies and begin accepting alternative currencies in the payment of taxes. Public receivability of complementary currency, as is being experimented with in Uruguay, will increase currency competition, which is already accelerating rapidly as a result of digitalization. A larger number of acceptable currencies will provide macroeconomic flexibility and reduce reliance on the US dollar so that crises in the US economy do not universally restrict lending and damage purchasing power.

1Neil Irwin, “Obama defends Federal Reserve's $600 billion bid to boost economic recovery,” The Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2010/11/08/AR2010110806587.html, 2010).

2Benjamin J. Cohen, The Future of Money (New Jersey: Princeton University Press, 2004), 8.

3Bernard Lietaer, “Complementary Currencies in Japan Today,” International Journal of Community Currency Research, Vol. 8 (http://www.lietaer.com/2010/01/complementary-currencies-in-japan-today/, 2010), 5.

4Bernard Lietaer, “Commercial Credit Circuit (C3)” (http://www.lietaer.com/2010/01/commercial-credit-system-a-financial-innovation-2008/, 2010), 1.

5Benjamin J. Cohen, The Future of Money, 8.

6Howard Schneider and William Branigin, “As Obama arrives in Seoul, Fed decision clouds G-20 debate,” Washington Post (http://www.washingtonpost.com/wp-dyn/content/article/2010/11/09/AR2010110907512.html, 2010).

7Benjamin J. Cohen, The Future of Money, 22.

8Neil Irwin, “After big move, Fed looks in the mirror,” Washignton Post (http://www.washingtonpost.com/wp-dyn/content/article/2010/11/06/AR2010110604006.html, 2010).

9Benjamin J. Cohen, The Future of Money, 67.

10Christine Hauser, “In bond frenzy, investors bet on inflation,” The New York Times (http://www.nytimes.com/2010/10/26/business/26bond.html?_r=1&ref=todayspaper, 2010).

11Jeffrey Rogers Hummel, “Government's diminishing benefits from inflation,” The Freeman (http://www.thefreemanonline.org/featured/government%E2%80%99s-diminishing-benefits-from-inflation/, 2010).

12Jeffrey Rogers Hummel, “Government's diminishing benefits from inflation.”

13Clarence B. Carson, “Built-in pressures to inflation,” The Freeman (http://www.thefreemanonline.org/featured/built-in-pressures-to-inflation/, 1976).

14Benjamin J. Cohen, The Future of Money, 30.

15Bernard Lietaer, “The Terra TRC White Paper” (http://www.lietaer.com/2010/01/terra/, 2010), 5.

16Benjamin J. Cohen, The Future of Money, 51.

Friday, September 3, 2010

Political Spectrum: Redefining Right and Left

I find it quite confusing that most political spectra put varying levels of economic freedom on the left/right axis, and put varying levels of political freedom on the up/down axis. If an individual is not free from institutional coercion, then his economic freedom is transient and is entirely at the discretion of the political authority. For example, while most people feel a strong sense of economic freedom in the US, eminent domain laws allow the state to buy your property even if you choose not to sell it. This political spectrum, based on the policy recommendations and the desired ideals of each thinker, divides varying levels of economic concentration on the left/right axis, and divides varying levels of political concentration on the up/down axis. This is quite an important difference: while political equality is much more important and allows individuals and groups to voluntarily choose which societies to be a part of, the left/right axis simply measures personal opinions on what should be considered a public good and what should be considered a private good that can be bought, sold, or passed on through inheritance.

At the top of the spectrum lie totalitarian states in which all of the decision-making power of the nation lies in the hands of a small group of people. I chose red to represent the flags of statists such as Mao Zedong, Josef Stalin, and Adolf Hitler, in addition to the fact that red symbolizes aggression, as military force is the only method of maintaining such centralized authority. At the bottom of the spectrum lie (small-l) libertarians, who believe in the sovereignty of the individual to choose his associates and to make voluntary federations with other groups. I chose the black flag of anarchism to represent these thinkers, who are against institutional coercion.

At the right of the spectrum lie strong supporters of turning all land and goods into private property. At the left of the spectrum lie supporters of turning land and goods into public property that cannot be bought or sold by individuals. I chose gold for the right and green for the left to represent the historical struggle against the gold standard. Under the gold standard, the richest merchants were able to collaborate and control the supply of gold, allowing them to control the money supply and manipulate the value of the currency. The adoption of the greenback prevented this artificial scarcity of credit, and was an important victory in spite of the fact that many see this transition as the cause of recessions and financial crises (which is actually a result of the manipulative centralized control of the legal tender).

I will explain my rationale for the placement of each thinker in order to clear up any confusion ahead of time. While Stalin and Mao have traditionally been seen in a similar vein as Communists who collectivized all property, I believe that the methods they implemented are radically different. Under Stalin, all property was owned by the Communist Party, with a membership determined by Stalin's own individual authority, so in effect the entire resources of the nation were under the control of one man. On the other hand, Mao began his revolution by disenfranchising the large landowners and giving the land to the peasants to run communally. In addition, Mao's policies prevented economic concentration by keeping the people perpetually impoverished, whereas Stalin's CCCP was known to provide large economic incentives based on loyalty and rank within the party hierarchy. While Mao Zedong said himself that "political power grows out of a barrel of a gun," he is a rare individual who did not use this power to reward loyalty with unequal economic incentives.

To determine whether a thinker lies slightly to the left or slightly to the right of center, I examined his views on intellectual property rights and his rhetoric regarding the artificial scarcity of credit or land. While Rothbard disdained patent law and Hayek recommended a re-evaluation of copyright law, Konkin and the agorists were against both of these statist constructs.

While Adam Smith may not have had the foresight to predict the importance of intellectual property law, he recognized the dangers of corporate manipulation of government policy, stating that "whenever the legislature attempts to regulate the differences between the masters and their workmen, its counsellors are always the masters." In addition, he seemed to sympathize with the labor theory of value, and while he may have recognized that price was not accurately determined by the labor theory, he also recognized that monopoly privilege rather than the rarity of the material in the product may have a stronger effect on raising prices above their labor cost. As a result, the true value of a product might lie in the labor put into its production rather than in the scarcity of some raw material required in its production; this is not accurately reflected in price in light of the incentive to artificially decrease competition and supply, raising prices and profits to the benefit of owners.

While Benjamin Tucker still believed in the legitimacy of contract and private property, he lies to the left of the rest because of his belief that all forms of usury, including interest, rent, profit, and patent, were unjust, and his fundamental belief that enough free market competition would cause a product's price to approximate its production cost. While the removal of copyright laws would result in an increased level of income equality, recognition of the economic incentive to make goods and credit artificially scarce might help us to pave the way to a society in which the laborer is not a renter of the means of production, but merely a renter of credit, which will create a society in which the laborer receives the entirety of his production.

Friday, March 19, 2010

Kaiho Seiryō: Radicalizing Ogyū Sorai for the Benefit of Commoner Existence

Kaiho Seiryō (1755-1817), a samurai intellectual taught under Ogyū Sorai's classical Confucian learning, did not abandon his Confucian philosophy and completely embrace the economic thought of the merchants after traveling the country and recognizing the power of self-interest in generating creative problem-solving and creating new wealth. Rather, he synthesized these two ways of thinking and in so doing brought together the values and objectives of the merchant and samurai classes.

Many scholars focus on the radical discontinuity of Seiryō’s thought with the traditional Confucian precept of renouncing profit. While Sorai believed that the merchants were the thieves of the of the wealth that was created by the farmers, Seiryō believed that the merchants' labor simply relied more on intellectual creativity than physical labor and that they made their profits legitimately, as they were providing an essential service. As he recognized that there was the potential for merchant abuse through the establishment of monopoly and oligopoly, Seiryō encouraged the government to become a merchant itself, buying and selling products based on profit, based on the greatest need and demand for that product. Instead of focusing on the predatory merchants, Seiryō focused on Sorai's observations about the parasitic samurai, who were living luxuriously without working much, often providing only guard duty.

Upon closer observation, however, Seiryō’s objectives and the practical means through which to achieve them were quite similar to Sorai’s. Sorai and Seiryō wrote for the same goal of guaranteeing comfort and peace to all, and they both agreed that the most effective means to this end would be maintaining social order and ensuring material comfort through proper government. As they both believed in principle and an inner human nature that was unchangeable, they encouraged government to alter itself to be non-coercive toward its people and to give rank based on merit in order to increase prosperity and fully manifest the population’s inner virtue.

The key difference between Sorai and Seiryō, however, was that Sorai strongly doubted the ability of humans to correctly identify this cosmic principle apart from the historical norms of their day. Denying the ability of an individual to calculate objective truths for his own self-benefit, Sorai followed the conventional Confucian belief that altruistic self-sacrifice to the community would be in the individual's long-term interest, even if he could not understand how. Sorai encouraged the government to actively discourage the self-interested way of thinking of the merchants, as nobody could recognize the ultimate rewards of obedience and selfless contribution to the whole. Observing the manipulative relationships established by the merchants and believing that the rest of the people were too ignorant to avoid such relationships, Sorai doubted that one’s own economic profit coincided completely with the profit of society as a whole, relying on government intervention to punish self-interested pursuits that were at the expense of others.

Seiryō, understanding that the incredible wealth accrued by the merchants was not an unjust result of the unrestrained economy but resulted from their self-serving ingenuity, believed that if the government could structure society and education in such a way as to force the commoners to work for their own profit, they would eventually learn to avoid all exploitative relationships, which would inevitably result in the maximization of society’s profit. Believing that individuals could attain right judgment, Seiryō expanded upon Sorai’s ideas of reforming government and hiring talent outside of status by encouraging a completely voluntary and market-based society based on mutual benefit and rational selection. To validate this proposal, Seiryō had to trust the commoners to make economic decisions in their own long-term interest through careful calculation.

Sorai, writing to samurai intellectuals during the decadent Genroku period, emphasized the importance of changing the luxurious habits of the samurai class, which would allow the virtuous example of the ruler to diffuse to the people below. This could be achieved through slow reform and change, which would allow people to be utilized based on their inner virtue but would not create any social disorder or insecurity regarding one’s position, which would hinder prosperity. Sorai also mentioned the necessity of material comfort in ensuring social order and prosperity, recommending that the government take an active role in managing finances. Seiryō encouraged this type of budgeting and profit calculation even among the commoners, believing it would lead to the ultimate kokueki goal of increasing products and wealth in the domain, regardless of where it was distributed. Seiryō, writing to the merchants and commoners as well, emphasized the importance of personal effort and creative problem-solving in discovering new methods to create wealth, observing that the merchants and commoners were leading this practical development due to their self-interested motivations. Seiryō believed that channeling the power of this profit motivation rather than smothering it could effectively lead to the full manifestation of the people’s inner virtue and ingenuity and ultimately a leveling of status between states and within society, as unjust social arrangements would cease to form if everyone correctly understood the means to their long-term spiritual and material comfort, and were given the freedom to choose this course. Seiryō utilized Sorai’s ideas of non-coercive benevolent government to call for a radical and proactive reform of society, believing that government guidance could channel the incentive-driven nature of humans for the benefit of society.

Principle

First of all, Sorai accepted the general concept of an underlying cosmic principle that determined human nature regardless of historical circumstances. He made this clear when he stated that “Principle is in all things”[1]. Seiryō shared this belief, stating that “In the first place, Heaven and Earth conform to principle”[2]. Najita had incorrectly determined that Seiryō held a belief in cosmic principle independently of Sorai when he stated that “To Kaiho [Seiryō] norms were not simply of the social world, but were anchored to a cosmic, universal, principle, ri, a concept, basic to Neo-Confucianism, which Ogyū [Sorai] and Dazai [Shundai] had rejected”[3]. This was a misunderstanding which stemmed from Sorai’s belief that “the idea of ‘universal principle’ has no form and thus is not a fixed norm”[4]. While still believing in a universal principle and an inborn human nature that influenced social norms, he merely denied that this principle set out a fixed way to live and govern for everybody regardless of time, place, and circumstance.

In actuality, Sorai did believe that a cosmic principle altered the social norms of the day, merely rejecting the Neo-Confucianist claims that one could become sufficiently unbiased enough to separate and evaluate this principle apart from one’s circumstances. Sorai believed that because “Each person determines what should be observed and excludes what is not necessary…they observe the same object in different ways”[5]. As a result of this doubt, along with his belief that “Only the [Ancient] Sages, in short, are capable of investigating the principle in things”[6], Sorai relied heavily on a government modeled on the Ancient Sages’ example to guide the people toward prosperity by acting in their best interests, regardless of the people’s own short-sighted desires.

As Sorai believed that the underlying principle that determined human nature had been most accurately understood by the Ancient Sages, he thought that the correct Way to govern and to maintain peace was fundamentally unchanged from the time of the Ancient Sages. This Way of governance held that “there is no such thing as the Way apart from rites, music, law-enforcement, and political administration”[7]. As a result of his conception of principle, however, Sorai did not encourage an exact replication of the Ancient Sages’ methods but accepted that the specific means of conveying these regulations to the people had to be formed around the biases and inner natures of the people. Seiryō also encouraged the government to guide the people in these ways. While Seiryō’s disdain for ancient rituals and customs seemed to depart from Sorai’s devoutness to the ancients, in actuality they both supported changing these rituals in order to express a clear message to the people.

Living in Accord with the Mean and Inner Virtue

These government institutions were meant to bring out the people’s inborn and unchangeable nature. According to Sorai and Seiryō, “One’s inborn nature is endowed by Heaven and produced by one’s own father and mother”[8]. They believed that this human nature was biological and therefore unmovable. Government could not change a human’s natural inclinations, “nor can an individual through intense personal cultivation fundamentally alter his virtue from one thing to another”[9]. Due to the fact that a person’s nature was determined at birth and could not be changed, they believed that the government’s “forcing people to be what they are not is most unreasonable”[10]. They believed that the government had to allow the people to pursue their talents based on the individual’s own motivation to attain comfort. In this way, the people would be obedient to the benevolent government.

Both Sorai and Seiryō also believed that the government had to bring out the potential strength of the people in order to ensure material wealth and ultimately social order and contentment. Sorai believed that “A system that destroys ‘evil’ in accordance with a simplified concept of the ‘good,’ but which cares not for the littlest human virtue is to be deemed ineffectual”[11]. Sorai and Seiryō both believed that channeling the people’s inner virtue was necessary for a harmonious, comfortable, and prosperous society. Seiryō believed that government had to create the circumstances in which “those both above and below will not suffer…To pursue the middle way is the principle of Heaven”[12]. To pursue the middle way meant to live and govern according to the mean. Sorai stated that “The so-called mean is the virtue that defines one’s inner nature”[13]. Essentially, they believed that living within the mean meant to live in accord with one’s inner nature. As motivation and work ethic were derived from one’s inner virtues and could not be extracted coercively, “The objective in each person, Sorai therefore insisted, was to identify with his own heaven-given nature and work consistently toward realizing the potential within it”[14].

If the government could non-coercively bring out the people’s inner virtue, this virtue would become manifest in actual performance and achievement. Sorai reiterated the inseparability of virtue and actual practice by stating that “Virtue means achievement”[15]. Clearly, if one’s inner virtue was pursued, virtuous action would inevitably result, and therefore one could measure the value of an individual in society based on his actual contribution and work. Seiryō took this concept to its extreme by adopting the belief that “Work was synonymous with benevolence or humanness and was shaped by the knowledge of precision.”[16].

As Seiryō equated work with inner virtue and benevolence, he was able to evaluate a human’s worth based on his actual actions, yet this would only hold true under a non-coercive and benevolent government. For Seiryō, the mean “was not about self and inner goodness but about how humans realized specific objectives in everyday practice”[17]. Seiryō expressed his sentiments when he stated that “[Someone who has got enough food while aimlessly enjoying himself from morning to evening eats without any reason for him to be able to do so”[18]. A human did not have value simply because he was a human. Ansart observed that “Seiryō has clearly no notion of a human dignity that would be attached to all biological humans by virtue of their physical constitution and independently of the practical skills they could display”[19]. Humans were judged solely based on their contribution to social relationships. The amount of virtue that one possessed, which could be translated into actual achievement, would determine the value of a person’s work in the marketplace.

This only held true, however, when the configuration of society and government was correct and allowed for freedom in choosing one’s work based on inner virtue. If this were true, a person’s value could be measured based on their contribution to society as a whole. Seiryō had determined that the value of a human was the measure of his inner virtue, which could become manifest through action in a properly configured society. This contradicts Ansart, who stated that “for Seiryō, being able to become a merchandise—and preferably a pricy one—could well be, the Son of Heaven excepted, the hallmark of humanity”[20]. This would only hold true for Seiryō in a perfectly managed society, yet it was a relatively accurate conclusion as society generally operated under just principles.

The Mutability of Position and Status

Yet Sorai and Seiryō were both interested in making government completely just and benevolent, which involved assigning work based on inner nature. To achieve this, both believed in the flexibility of status constraints in hiring talented people, as one’s skill in a task was based on one’s inner virtue. Sorai stated that “A court’s lacking talented individuals willing to serve…results from the court’s not employing them. It is understandable that in ages wanting in good people, the worthy and talented sink into the lower ranks or are lost among the general population”[21]. Sorai acknowledged that even a commoner’s talent should be utilized if his work potential was unmatched among the samurai. Sorai believed that “the able must be promoted and the inept demoted”[22] to keep the talent within the government, which would legitimize government rule. As “the prince extends downward his virtue to the vast populace”[23], getting the right people to work for the government would be beneficial to the people as they would adopt the leaders’ virtuous examples.

Seiryō also expressed the idea that position and status should be based on performance, stating “That someone has distinguished himself in a certain office means that this office suited his personality and wisdom well. To rob him of this place where he fitted in well and move him to a place he is not at all used to, is a bungling [way of doing things]”[24]. Seiryō took this even further in his idea of assigning rank based on one’s wealth, which would force the rich to use their resources in service to the government. While Seiryō may have radicalized Sorai’s idea of assigning position based on talent, it was wrong to conclude that “he ends up rejecting two millenniums [sic] of Confucian tradition that viewed social relationships as an immutable given, in which humans were inserted at birth and where they found all the actions, goods and practices they had to do, own and perform”[25]. Ansart failed to recognize that competing philosophies had already shaken many Confucianists’ belief in the rigidity of status even by the time of Sorai, and in Sorai’s practical advice for government he encouraged the promotion of talent for the sake of efficiency.

Rational Government Reform

In this way, Sorai began the pervasive trend of disregarding status considerations in hiring talent and reforming government, which would create a strong and benevolent government that utilized its people according to their inner virtue through accountability and competition. Sorai and Seiryō both recognized that the government had to adapt its laws and regulations to changing circumstances, but they disagreed on the extent of the reforms that were necessary. While Sorai thought that government should make slight adjustments to its rule, such as hiring talent outside of status, he emphasized that the short-sightedness of contemporary rulers meant that reform should be pursued slowly if at all. Sorai also discouraged radical change or reform because he understood that the people’s sense of security in their place in society was paramount to social harmony and prosperity. “People are comfortable with what they are used to”[26]. Sorai understood that new policies would be feared by the people, and he believed this fear would prevent the people from focusing completely on their work. Ultimately, Sorai believed that extensive reform was never necessary because institutions of the past had been upheld due to the wisdom of previous rulers, stating that “Your changing the old laws and creating new ones in this province passed on to you by your ancestors would be an abuse of your freedom. You would not be revering your ancestors”[27].

Sorai and Seiryō both agreed that the government had to be proactive in order to bring out the people’s inner virtue. Seiryō emphasized the importance of putting all members of society to work when he stated that “If it ever eventuates that a territory’s people all put their hands and feet to work [in order to] earn their clothing and food, a country cannot but prosper considerably”[28]. As the samurai class produced the least, consumed the most, and put the biggest strain on domain finances, Seiryō’s first goal was to transform the samurai into “entrepreneurs actively involved in mobilizing the resources of their territories to raise the welfare of all”[29]. Seiryō believed that the government could operate as a large investment company that used its wealth to buy cheap abundant commodities and sell expensive scarce commodities, which would not only reinforce material fulfillment but would also prevent the merchants from overly profiting due to unjust business practices, such as monopoly and price-fixing. This was an outgrowth of one of Sorai’s recommendations, which “urged the bakufu to requisition all goods…directly from producers”[30]. Instead of encouraging government monopsony due to an extreme hatred of the merchant class, Seiryō merely wanted government to provide an alternative to manipulative merchant relationships if it could be profitable. Seiryō gives another practical example of putting the samurai to work in his proposal to create the “Privy Council Award,” which would force the samurai to craft weapons and would reward them based on their performance[31].

Seiryō believed that the ruling class would never become productive unless it was required of them. He expressed this when he observed that the samurai believed that “they are called forth since it is their due to be called forth…one has to cultivate [the retainers] in such a way that they have lively hearts”[32]. Sorai generally trusted the higher authorities to act in the people’s best interests, and emphasized that the people should have faith that the government was acting in their best interests for the sake of social order. Seiryō recognized that an exploitative relationship would inevitably result unless there was a pressing need for government officials to work in the long-term interests of the people. Seiryō proposed that “It would be better if…one received [something] after knowing the reason [why it was given]”[33] in order to cultivate the belief that rewards and privileges were not given for hereditary reasons regardless of one’s performance. Otherwise, “Heaven will afflict [this person] with atrophy”[34]. Seiryō believed that it was human nature to be lazy and unproductive unless acquiring merit and skill was necessary to guarantee their comfort[35].

In addition, Seiryō also emphasized the effectiveness of channeling humans’ naturally self-interested biases in order to stimulate production, which could be achieved by allowing them to keep their products and profit from them. Seiryō believed that “If the people do not reap profit, their interests will not be aroused…if the people are not interested, not many things will be produced”[36]. Seiryō, addressing himself to merchants and commoners, believed that the foundations of government rested on channeling the incredible power of profit motivation for the benefit of society. He believed that “leaving the people what they had produced and [still] amassing enough money, was a skilful [method] of raising profit”[37]. If everyone acted in their own self-interest and learned strategies through observation and active reason, there would be a leveling of wealth between states and among the social classes because manipulative relationships which unjustly distribute wealth would be avoided.

To bring out the most inner strength, Seiryō believed that the government had to create institutions which would allow the commoners to work for their own just profit. As he believed that “An association [of mutual trust] is a method of saving and earning money”[38], he encouraged the government to set up these institutions for the people. These cooperatives would allow the commoners to constructively take an interest in their profit by “calling on merchant leaders to mobilize and manage them”[39]. Originally, the ko’s primary function was to be security for the members, but Seiryō believed that it could also be a profit-making institution and a source of credit for its members. The ko was to be an alliance of commoner capital with the merchants’ savvy in investing and profit-raising. Organizing these would allow the commoners to work for their own profit while still focusing on their jobs. If the commoners could be organized correctly, far-sighted plans for their long-term profit could be formulated by merchant leaders, which would lead to an increased motivation to work among the commoners if they could see the effects of increased effort on their wealth and material comfort.

While the government had to give the people a certain amount of freedom of choice in determining their actions, neither Sorai nor Seiryō believed that getting rid of government would be in the interest of society. Sorai stated that “because the general population is stupid…the people will not realize that an order or regulation is ‘for their benefit’ until much later”[40]. Sorai emphasized that the people’s lack of wisdom prevented them from seeing beyond immediate desire and comfort. Seiryō also doubted that the majority of people would make decisions in the interest of their long-term profit, so government had to be there to force them to in some cases. As “What is praised by the people often are laws that will cause them trouble eventually”[41], a self-regulating society would not take long term concerns into account. For the government, “allowing them [the people] to do as they please…is lesser benevolence only…it is good that the people work”[42]. Government was necessary to ensure that the people maintained a good work ethic, or else luxurious habits would increase and prosperity could not be sustained.

Order could be maintained regardless of selfish profit motivation if a society’s laws and institutions tied self-profit and material comfort directly to one’s contribution to the social good, which could usually be determined based on an individual’s contribution of new products and wealth. Seiryō reasoned that if the state punished crime correctly and consistently, it would no longer be profitable to commit crime, so crime would disappear; otherwise, “the realm would turn into willfulness and lose its [harmonious] order”[43]. Seiryō disdained the samurai’s disrespect of the law because it engendered disrespect for the law among the commoners, stating that “to borrow money from a merchant house and not to return it is very shameful”[44]. If a government did not punish according to the law, it showed that the laws were fundamentally unjust. Taking from Legalism, if the punishments were overly harsh, it would discourage crime even more. This is an essential difference with Sorai, who believed in a government that would deal with criminals through compromise based on the specific circumstances. Sorai believed that “if laws are merely examined and never enforced and if those who enforce them are bad, laws will not be of any use whatsoever”[45]. Sorai believed that law could not be formulated perfectly, and as a result he tied the effectiveness of law directly to the benevolence of the ministers. He believed that if laws were overly harsh and rigid, the people would be fearful, and “If you encourage the people to be fearful, the laws will stand no chance of being implemented”[46]. He also believed that “people do not become very involved with their work and worry chiefly about hiding things from their superiors. And it is precisely because people are so cautious that their talent does not appear”[47]. With too harsh of laws, the fear of the people would stifle their inner talent and virtue. Nevertheless, they both agreed that the laws had to allow for the free pursuit of the people’s inner motivations and virtue.

Kokueki Thought

While it could be said that Seiryō “stood the Confucian verities on their heads and turned the proper management of profit into a public activity of the highest order”[48], when examining the sphere of government administration, his idea that a primary goal of government should be the bolstering of material wealth echoed the practical teachings of Sorai. Sorai expressed his utmost concern with economics when he stated that “The fundamental policy in governing the state and the world should first of all be to increase the wealth”[49]. Ultimately, Sorai encouraged material prosperity in the interest of social order and peace, observing that “It is clear in every case in history that the transition from a state of peaceful rule to one of civil war has come about because of the impoverishment of society, and for this reason the basis of all government consists in ensuring before all else that the country shall have ample wealth”[50]. Another idea that reinforced Sorai’s ultimate praise of profit was the observation that “The most vigorous denunciations of the pursuit of profit were invariably accompanied by the perception that virtue would, ultimately, be rewarded”[51]. Yet, because the people could not see objective truth or measure the effects of their actions on actual profit, “Making profit a priority” would not lead to “profound and far-sighted conceptions”[52], and would ultimately harm the material prosperity of the realm. In his utmost concern for material and economic issues, Sorai was a progenitor of kokueki morality, which held the maximization of net wealth as the primary pursuit of all members of society.

This maximization of wealth, which partly relied on the development of practical work skills, primarily relied on social order and cooperation, as Sorai had believed. Seiryō expressed his complete belief in kokueki when he stated that “It does not make any difference if those below profit [from it] or those above. One should be aware that to [make] the ground yield a lot of products is the strategy of bringing prosperity to the state”[53]. Yet this material wealth was closely tied to social harmony, and “many emphasized that without the guiding force of morality all the wealth in the world would not rule a country”[54]. Seiryō agreed, as the luxurious habits of well-off people took away from their work ethic, making them less valuable. For kokueki thinkers, however, morality was tied only to its actual effects on productivity. Seiryō justified this ultimate goal of material profit by stating that “this is an age, in which [people] in other countries immediately will start [making a profit] and [thus] cause a loss for one’s own country”[55]. He believed that losses should be avoided if it was possible. As “Real profit leads the world, says Seiryō”[56], having an interest in profit would be the only way for states to ensure the contentment of the populace, as the people would be envious if there were others who had more wealth and an easier way of life.

While Sorai may not have agreed with kokueki morality’s ultimate goal of the maximization of wealth within the domain, he believed that consistent wealth could only be acquired through social harmony, cooperation, and the discouragement of selfish profit motivation, which would guarantee the smooth and efficient operation of established techniques and procedures. Seiryō, on the other hand, believed that profit motivation should be encouraged because it engendered an ambitious spirit that allowed for creative problem solving and the development of new techniques that increased wealth and efficiency in an original way.

Seiryō recognized that if people always pursued what was in their self-interest in creating and maintaining relationships, there would be an increased accountability on both sides of the relationship and both parties would recognize the obligations that they needed to fulfill. For Seiryō, “profit will not come as the happy by-product of virtuous, non-profit seeking, attitude. Profit will only come from careful, self-interested calculations”[57]. Only through calculation and freedom to act in one’s self interest could mutually beneficial relationships be maintained in business as well as in politics. Seiryō believed that this unqualified selflessness was immoral because it led to a lack of accountability which ultimately led to “parasitic” relationships or “fruitless effort”[58] that lowered productivity.

Self-Cultivation in Viewing Objective Principles

Seiryō, however, believing in the accurate calculation and measurability of the objective world, endorsed the Buddhist concept that one could achieve correct judgment through self-cultivation and could therefore calculate real, long-term profit. Seiryō inherited this idea from “the Chu Hsi [Neo-Confucian] concept of ‘investigating the principles of particulars to comprehend the principles of the universe’”[59]. One could understand cosmic principle through observation and experimentation within the actual world, but first a person had to transcend the biases of his position in society and history. For one “To gain objectivity, Seiryō reasoned, one first must leave one’s place of birth and upbringing, then also one’s status, and finally one’s very self”[60]. He emphasized the importance of eclectic experience and understanding others’ perspectives in attaining this objective perspective.

This emphasis on cultivating oneself as a way to see truth allowed Seiryō to claim that cosmic principle could be understood through actual practice and active reasoning, but this method of examining the real world to practically solve problems had already been endorsed by Sorai. In the 1700s, as “Ethics were seen increasingly in terms of their function in the present”[61], both samurai and commoners began looking for practical methods to solve their own specific problems. This movement had begun with Sorai, who emphasized practice and the examination of the real world due to his disdain for the concept of trying to comprehend heavenly principles that were outside of the material world. In light of this, Sorai emphasized the importance of studying “what is [sein]” before one could study “what ought to be [sollen]”[62]. Sorai and Seiryō both believed in examining the institutions of the past and the present to have a reasonable basis in predicting and altering the future for the benefit of society, yet Seiryō emphasized the importance of positive change in altering society’s course.

All Relationships, Even in Politics, should be Voluntary

Due to their beliefs that people should be utilized according to their talent, it was only natural that neither of them believed in the continual legitimacy of a political regime based simply on its historical existence, instead believing that only benevolent governments would be continually stable and ordered. Seiryō believed that “political systems were not sacrosanct, but were made and could therefore be unmade. This pragmatic perception of politics was derived from the ideas of Ogyū Sorai”[63]. Seiryō expressed this when he stated that “the [relationship between] lord and retainer [is based on] the ways of the market from ancient times”[64]. Even though Seiryō did not undermine Tokugawa authority explicitly, he advanced this way of thinking because “From contending that [the relation of] lord and retainer is not [based on] selling and buying a lot of parasitism and fruitless efforts have resulted”[65]. Seiryō believed that if humans could rationally select all of their relationships, unjust profits could never be extracted. Radicalizing the idea that the government had to respect the people’s inner motivations to rule benevolently, Seiryō believed that under benevolent government all relationships would be voluntary contracts that were free of forceful coercion, even between leader and subject.

Conclusion

Seiryō believed in the pursuit of self interest because he believed that this was the most effective means of increasing the wealth of the realm. He had adopted the kokueki thought of the merchants which posited that the government’s primary pursuit should be the maximization of products in the realm, as material comfort was the first requirement in maintaining social harmony. This was the foundation of the morality of such thinkers as Ninomiya Sontoku, although Seiryō’s advice was almost exclusively directed toward government in his Keiko-dan. Writing from the perspective of his samurai upbringing and his Sorai School learning, he emphasized the critical role of government in providing the examples and institutions which would influence the dispositions of the lower populace. While Sorai emphasized the destructive and parasitic effects of self-profit mentality, Seiryō emphasized the creative and productive power of profit motivation. Seiryō believed that the government could channel this energy properly for the benefit of society through far-sighted investment and regulation which would not allow self-profit to be had at the expense of others and the community. However, he still recognized that self-profit was not tied directly to the benefit of others and the community without the existence of accountability and trust within relationships and the society. As a result, Seiryō thought that government could be beneficial if it prevented parasitic relationships from developing. Believing that parasitic relationships usually resulted from the inability of one of the parties to freely enter an agreement based on his own rational thought, Seiryō believed that a benevolent government had to decrease the number of forcefully coerced relationships within society. By stating that the movements of the natural marketplace operated under Confucian moral laws, the highest and lowest classes of society could strive for the same personal goal of self-gain without fear that their own profit would be at the expense of the collective.


[1] Ogyū Sorai, Benmei 2, in Tokugawa Political Writings, ed. Tetsuo Najita (Cambridge: Cambridge University Press, 1998), 133.

[2] Kaiho Seiryō, “Talks about Teachings of the Past. Translation of the First Part of Kaiho Seiryō’s Keiko dan with a Short Introduction,” in Japonica Humboldtiana Band 1, trans. Michael Kinski (Wiesbaden: Harrassowitz Verlag, 1997), 162.

[3] Tetsuo Najita and Irwin Scheiner, ed, Japanese Thought in the Tokugawa Period, 1600-1868 (Chicago: University of Chicago Press, 1978), 24.

[4] Ogyū Sorai, Benmei 2, 22.

[5] Ogyū Sorai, Benmei 2, 132.

[6] Ogyū Sorai, Benmei 2, 132.

[7] Ogyū Sorai, Seidan, in Early Modern Japan, Conrad Totman (Berkeley: University of California Press, 1993), 285.

[8] Ogyū Sorai, Responsals, 76.

[9] Tetsuo Najita, Tokugawa Political Writings, xxii

[10] Ogyū Sorai, Responsals, 76.

[11] Tetsuo Najita, Tokugawa Political Writings (Cambridge: Cambridge University Press, 1998), xxv.

[12] Kaiho Seiryō, Keiko dan 1, 166.

[13] Ogyū Sorai, Benmei 1, 110.

[14] Tetsuo Najita, Tokugawa Political Writings, xxxv.

[15] Ogyū Sorai, Bendo, xxiii.

[16] Tetsuo Najita, Ordinary Economies in Japan: A Historical Perspective, 1750-1950 (Berkeley: University of California Press, 2009), 55.

[17] Tetsuo Najita, Ordinary Economies, 53.

[18] Kaiho Seiryō, Keiko dan 1, 164.

[19] Olivier Ansart, “Human Being,” 82.

[20] Olivier Ansart, “Human Being,” 79.

[21] Ogyū Sorai, Responsals, 57.

[22] Conrad Totman, Early Modern Japan (Berkeley: University of California Press, 1993), 289.

[23] Ogyū Sorai, Benmei 1, 112.

[24] Kaiho Seiryō, Keiko dan 3, 136.

[25] Olivier Ansart, “Human Being,” 79-80.

[26] Ogyū Sorai, Responsals, 70.

[27] Ogyū Sorai, Responsals, 69.

[28] Kaiho Seiryō, Keiko dan 2, 98-9.

[29] Michael Kinski, Introduction to Keiko dan 2, 65.

[30] Conrad Totman, Early Modern Japan, 289.

[31] Kaiho Seiryō, Keiko dan 3, 116-8.

[32] Kaiho Seiryō, Keiko dan 3, 127.

[33] Kaiho Seiryō, Keiko dan 3, 106.

[34] Kaiho Seiryō, Keiko dan 3, 124.

[35] Kaiho Seiryō, Keiko dan 3, 129.

[36] Kaiho Seiryō, Keiko dan 2, 87.

[37] Kaiho Seiryō, Keiko dan 2, 74.

[38] Kaiho Seiryō, Keiko dan 2, 89.

[39] Tetsuo Najita, Ordinary Economies, 78.

[40] Ogyū Sorai, Responsals, 74.

[41] Kaiho Seiryō, Keiko dan 1, 169.

[42] Kaiho Seiryō, Keiko dan 1, 167.

[43] Kaiho Seiryō, Keiko dan 1, 165.

[44] Kaiho Seiryō, Keiko dan 1, 191.

[45] Ogyū Sorai, Responsals, 55.

[46] Ogyū Sorai, Responsals, 72.

[47] Ogyū Sorai, Responsals, 58.

[48] Luke Roberts, Mercantilism in a Japanese Domain (Cambridge: Cambridge University Press, 1998), 200.

[49] Ogyū, Sorai, Seidan, in Studies in the Intellectual History of Tokugawa Japan, by Masao Maruyama (Tokyo: University of Tokyo Press, 1974), 131.

[50] Ogyū, Sorai, Seidan, in Early Modern Japan, by Conrad Totman (Berkeley: University of California Press, 1993), 287.

[51] Olivier Ansart, “Human Being,” 76.

[52] Ogyū Sorai, Responsals, 68.

[53] Kaiho Seiryō, Keiko dan 1, 168.

[54] Luke Roberts, Mercantilism, 148.

[55] Kaiho Seiryō, Keiko dan 2, 114.

[56] Olivier Ansart, “Human Being,” 78.

[57] Olivier Ansart, “Human Being,” 77.

[58] Kaiho Seiryō, Keiko dan 1, 160.

[59] Masao Maruyama, Intellectual History, 13.

[60] Tetsuo Najita, Ordinary Economies, 51.

[61] Tetsuo Najita, Japanese Thought, 21.

[62] Masao Maruyama, Intellectual History, 76.

[63] Tetsuo Najita, Japanese Thought, 17.

[64] Kaiho Seiryō, Keiko dan 1, 160.

[65] Kaiho Seiryō, Keiko dan 1, 160.