Thursday, June 26, 2014

Cooley and the Gang

Crying about ‘regulation’ is quite popular among industry leaders and politicians. Yet, compared to the restrictions faced by medieval merchants, they’ve got it quite easy indeed.

Want to sell meat or other types of food? The plant or factory where it’s processed needs to be inspected (at least sometimes). Want to refine oil? Got to keep emissions beneath standard allowances.

If that seems overly onerous to you, consider the following:

In the year 805, Charlemagne demanded:
"Be it decreed that it is of importance that none should transact business at night in gold vessels, silver vessels, slaves, gems, horses, and animals, except for food and fodder necessary for those making a journey. But let everyone transact his business by day in the presence of all and before witnesses"[i].
Or this ‘Farmer’s Law’, a regulation from the 7th or 8th century:
“A shareholder’s portion in nine bundles, the grantor’s one: he who divides outside these limits is accursed[ii].”
Imagine that ratio applied to a modern wage!

Another aspect of regulation is to ensure that the economic activity of one libertarian does not damage either the economic activity or the quality of life of another libertarian. That’s why there are limits to what kind of industrial waste can be dumped in a river, and how much. 

Such rules, as you can see, have been around for centuries. While it’s true these rules didn’t speak of mercury, for instance, because industry hadn’t evolved technologically enough for people to understand the harmful aspects of such harsh chemicals, nor did they possess the ability to detect them in the first place.

But our ancestors clearly understood that one person’s activity can impact another:
“If the water which comes to the mill leaves dry cultivated plots or vineyards, let him make the damage good; if not, let the mill be idle[iii].”
Today, we call this the 'Tragedy of the Commons'.

Regulation in Times Past

Politicians, particularly those acolytes of Randian neuroses, enjoy denying those less fortunate the benefit of public assistance, and will often cite, as justification for their pettiness, tradition. The following is from the ‘Capitulary of Charlemagne (AD 764-814) and discusses the rights and obligations of the Imperial Estates:
“That good care be taken of all those who belong to us, and that they be not reduced to pauperism by any one.”
Can you hear the murmuring coming from Galt's Gulch?

Obligations of the Ruling Class

Centuries ago, men knew the importance of treating workers right. In the age of serfdom, the Lords of the manor took it upon themselves to see that their serfs were well taken care of, and instructed their stewards to consult with the serfs on a regular basis:
“Let each steward frequently hold audiences in his district and do justice and see to it that our serfs live rightly.”
Failure of Leadership

The weak character of Louis the Pious (AD 814-840) permitted holders of benefices possessions hereditary and allowed immunity from certain taxes. The weak character of too many of our elected officials has allowed the same thing to occur in the modern era. Pressure groups demanding continually lowering tax rates are a prime example. Another is when other groups (sometimes comprised of the same people) strong-arming the EPA into allowing greater amounts of pollutants into the environment.

Distribution of Taxes
“As to the coloni…the steward sees to it that each gives according to what he has…”
Isn’t that wealth redistribution? Shouldn’t a tax be fixed at the lowest possible rate? Damn socialists!

Minimum Wages

There are those, like Charles and David Koch, who wish there to be no minimum wage at all. Even our crude ancestors knew better. An account given in Walter of Henley’s Husbandry[iv] lists various acts of labor and the wage to be paid accordingly.

Foreshadowing the Earned Income Tax Credit by nearly 1400 years, we have Pope Gregory’s standard price for grain:
“We have learned that the serfs of the Church are grievously burdened in the matter of prices of grain, so that the purchase price fixed for them is not observed in time of plenty. And it is our desire that the standard purchase price be observed in their regard at all times according to the official prices, whether the harvest be great or small.
Imagine that! A guaranteed income for a standard amount of output.

Worker Organization

The Count of Holland, Theodore, decreed in AD 1200 that:
“our townsmen of Dortrecht may enjoy in their own right the following freedom in the said town, namely, that it is permitted to no one in Dortrecht to cut cloth for retail sale except to those who are designated by this trade, being called cutters of cloth…”
Apparently, unions (gilds, or Hanse) were good enough for royalty, but not good enough for American businessmen. Grants of gilds to tanners, fishermen, cordwainers, carpenters, butchers, weavers, goldsmiths, barbers, and shearers were all acknowledged. Calm down, Grover, it was a long time ago.

Regulations Regarding Transportation
"The highway should be wide enough for two wagons to meet and pass there, and for herdsmen to be able to make contact, with their goads at full length, and for sixteen knights, armed, to ride side by side. That is called a royal highway which is always open, which no one can close or divert with walls he has erected, which leads into a city or fortress or castle or royal town"[v].
Repairing Infrastructure
"For the repair of the city wall and bridge the reeve called up 1 man from each hide in the shire. The lord of any man whose man did not come paid a fine of 40s to the king and the earl; this forfeiture was over and above the farm"[vi].

To hear some speak about the size of government, particularly that of the federal government and its vast bureaucracy, one might get the impression that regulation is a new invention of government, created by people within the government to justify their existences. There may be some truth to that statement, but it’s certainly not anything new, and most often there’s a good reason for it.

Below is a description of ‘men of credit’, whose purpose was to witness various sales, a precursor ‘consumer rights division’:

"men of credit"
"We perhaps see here an early expression of the concept of probi homines as a distinct group within urban society. The requirement for credible witnesses to commercial transactions can be traced as far back as a Kentish law of the seventh century. King Edmund had, in the 940s, recognized the chief officer of a town (portireva) as one empowered to witness sales of cattle, but a law of Edgar (ca.963/63), again with cattle particularly in mind, had required each borough and rural hundred to designate a body of standing witnesses – 36 for larger towns and 12 for smaller ones – before two or three of whom every commercial transaction had to be made. Upon appointment to this role (or, in the time of Canute, in the course of individual trials), witnesses were to swear never to lie about any transaction they witnessed nor give any hearsay evidence. Purchasers were instructed to inform their neighbours, upon returning home, of the names of witnesses to their purchases"[vii].
The More We Know

In our modern age, regulations have become more technical because our knowledge has increased, and we now know much more than our predecessors did about the dangers of, say, improper food handling. And because we harness forms of energy not available to merchants in medieval times, like electricity, our regulations by necessity require that they address those concerns.

Modern regulations are more technical because modern technology is more...well, technical, including our legal technologies. The language of regulations has become so much more precise because so have our legal definitions, of negligence, for instance.

This is, apparently, something that Tea Party 'thought-leader' and Wisconsin Senator Ron Johnson fails to grasp. In the video below, we see him giving an interview with Laurie Rice of the Atlas Society in which Ron discusses the trauma of how his company was forced to acquire UL approval for a newly purchased machine:

Johnson isn't able to say who exactly required the UL approval. For all we know, it could have been his own insurance company. But he does allude to it perhaps being a state entity, yet we just don’t know.

What I find most troubling is that the good senator and supposed business leader never gives thought as to why the machine would need this certification in the first place. Even worse, he seems to have not been aware of the requirement until after the machine was installed. Could it be that it was needed to determine if the device met current best practices of machine design: mechanical, electrical, hydraulic, and pneumatic – not just for the safety of the operator, but for the safety of the machine itself, to make certain that the builder met all the criteria as specified in the build contract? You know, to make sure that Ron got his money's worth?

He does mention the cost of the machine: $2.5 million. Its obvious Mr. Johnson is more concerned with the costs of purchasing the machine than whether or not his employees will be harmed in its operation, or that the builder didn't subcontract the work out to someone working out of his garage.

Never mind all that. What gets me is that testing the machine seems to never have occurred to him, as if it simply didn’t matter. Johnson thought that the required testing was extraneous, frivolous. He mentions the cost of the testing - $70,000 – because of his intellectual myopia, that’s the limit of his vision.

This self-proclaimed 'leader' fails in basic operations management. Good leaders know that no problem was ever solved by running away from it and pretending it didn't exist or wasting time seeking blame.

All Johnson can see is an artificial hoop – a regulation - set up by government to make his life harder – to put a damper on his ability to profit. The government, he laments, is forever stripping away the rights of individuals and interfering with his property rights. Like the proverbial frog in a pot of slowly heating water. So, that's two things he's wrong about.

Thomas Cooley, a pre-Rand Randian, considered to be an expert in administrative law, wrote:

“The laws pf property are in themselves regulations, and the rules which give remedies for the invasion of rights are what render civilization and orderly society possible.”
It’s worth mentioning that Cooley was no lilly-livered left-leaning liberal. He mistrusted governmental economic regulation yet he opposed the ‘arrogance of wealth’. He also felt that laborers and such only needed laws that ensured “Free Speech, Free Schools, Free Trade and Free Labor”[viii].

It is law itself which creates private property in the first place. In Cooley’s words:
“If industry creates, it is the law which preserves.”
“Indeed, every item of individual property, real or personal, every kind of business, every movement of the living person where he may come in contact with others, the conduct of the living and the disposal of the dead, are all brought within the control of regulations established by the state, or by customs which the state adopts, and which thus become its regulations. Men cannot escape from these if they would, and they would fall back into a state of savagery if they could and did[ix].”
Cooley goes on to caution us against capricious and excessive regulations and the importance in establishing limits and to whom the authority to establish regulations lie: there can be too many authorities stabling regulations, that would pit neighbor against neighbor, each creating their own regulation to achieve an unfair personal advantage.

“Today the unpopular interest may be the professional or mercantile class, tomorrow it may be corporations, and the day following the laborers upon railroads or in mines. Security can only be found in general principles, and the same general principle that will protect one must protect all.”
We know Mr. Johnson would have liked to forego the testing required to establish that the machine was designed properly, conforming to known ‘best practices'. Without such testing, any Joe could throw together a Rube Goldberg contraption and sell it on the market to unsuspecting folks not as smart or savvy as the good Senator.

While the argument against regulation is almost always that of the ‘nanny’ state encroaching on the liberties of individuals, what it’s really about is money. What opponents of regulation (law) really seek is to remove any legal encumbrances to profit, something like complaining about the obstacles that banks throw up against walking in and then away from the bank with a bag of money.

The larger problem with regulation, as with any other type of law (though it could easily be argued that all laws are regulatory) is that they don’t evolve symmetrically along with society – in fact, they can’t - before there can be a prohibition against a thing, the thing needs to first exist.

Because our technology evolves at a faster rate than we can fully assimilate it into our daily lives, there will always be lag time between the offense and its remedy. This we know, and it’s also the reason why regulations have become ‘busy’ and may seem to some to be far-reaching – they are attempting to foresee the future and possible future problems.

Johnson, and many others, cry juris privati – that their private rights are being trampled, ignoring, most often, Cooley’s determination of the four types of business that are "affected with a public interest" and thus subject to some form of regulation.

Johnson and his cronies, it seems, think that the country was founded so that business owners could do as they pleased, that the government would step aside if found to be in the way at all. They forget, or maybe never understood, that the country was founded by “We, the People”, plain and simple. Apparently, not plain or simple enough for the good Senator from Wisconsin to grasp readily.

Even 'primitive' people of yore understood the need for regulations. Yet, here we have good ‘ol Ron, now a U.S. Senator, who fails to think long-term even for a relatively small expenditure, when compared to line items on the U.S. Federal budget, as his 2.5 million dollar machine, proposing a moratorium on regulations, because he doesn't understand the need.

Even Cooley knew that poor working conditions (like those that arise from improperly designed and tested machinery) and low wages were antagonistic to long-term profits and the health of a firm. He also felt that employers had a moral responsibility to their workers. Yet, he was ever-weary that the government was to be the instrument, feeling that the moneyed-class would subvert whatever remedy that government came up with for their own benefit. 

In that regard, he accurately predicted the American political landscape of the early 21st century, and someone like Sen. Ron Johnson.

[ii] “A Sourcebook for Medieval Economic History”. Roy C. Cave and Herbert H. Coulson. The Bruce Publishing Co., Milwaukee, 1936
[iii] Ibid.
[vi] Ibid.
[vii] Ibid.
[viii] Carrington, Paul D. “Law and Economics in the Creation of Federal Administrative Law: Thomas Cooley, Elder to the Republic” Iowa Law Review (1998) 363-390.
[ix] Cooley, Thomas M. "Limits to State Control of Private Business." Princeton Rev. 1 (1878): 233-71.