|
sanity,
humanity and science
post-autistic economics review
Issue no. 29, 6 December
2004
back issues at www.paecon.net
Subscribers: 7,702
in approximately 150 countries
Subscriptions are free. To subscribe, email
"subscribe". To unsubscribe, email "unsubscribe".
To subscribe
a colleague, email "subscribe
colleague" and give their email address. Send to: pae_news@btinternet.com
In this issue:
-
Juan
Pablo Pardo-Guerra
When social physics becomes a social problem:
economics, ethics and the new order
- Mehrdad Vahabi
The Political Economy of Destructive Power
Symposium on Reorienting Economics (Part II)
Dialogue on the reform of economics with Tony
Lawson’s Reorienting Economics as focal point
- Bernard
Guerrien
Irrelevance and Ideology
- Jack Vromen
Conjectural
Revisionary Ontology
- Andrew Sayer
Feminism,
critical realism and economics:
a
response to Van Staveren
________________________________________________________________________________
When
social physics becomes a social problem:
economics, ethics and the new order
Juan Pablo Pardo-Guerra (Mexico)
In an official speech just a
few weeks ago, Inacio Lula Da Silva, the polemical and ever so intriguing
President of Brazil, threw hunger and poverty into that fashionable category
of ‘weapons of mass destruction.’ Mr. Lula’s words were uttered not in a time
of worldwide prosperity but in the midst of an international crisis of
pandemic proportions: while global resources become increasingly endangered,
the global governance system stands on the verge of collapse as some of the
most powerful nations of the world disdain collaboration over intervention,
concordance over imposition and dialogue over unilateralism. On the economic
side of this dire picture, an important sector of the world’s population has
been driven to take to the streets to manifest its discontent with the surge
in global inequality, often attributed to the malformed policies of
organizations such as the World Bank and the International Monetary Fund. In
contrast and following the long tradition of economic thought that has
permeated the West for generations, the heads of these same global
organizations blame countries like Brazil, the home of Mr. Lula, for not
adapting their domestic policies to the demands of these liberal times we
live in. If this were only an inoffensive divergence in worldviews, nothing
important would be at stake. However, at the core of this discussion lies the
fate of millions of people, from the marginalized citizens of Michael Moore’s
suburban USA to the famished refugees in Sudan. The destiny of global
security lies not only in the proliferation of weapons of mass destruction or
in the expansion of terrorist activities; the real peril lies in the
increasing gap that inexorably divides the people of our world, the rich from
the poor, the informed from the uninformed, the armed from the disarmed.
But who is to blame for the constant growth of this gap? Who is
ultimately right: the alterglobalists1 that took to the streets in
Seattle or the high management of the Bretton Woods offspring?
Concerning
the Two Chief Systems of the World
It is virtually impossible, if not political suicide, to identify a
single cause for the widening socioeconomic gap that divides our world. The
alterglobalists often blame ‘the
system’ that lies on the other side of the barricades, whilst those
who work for ‘the system’
often blame the alterglobalists for being blind to the benefits of living in
a global village. The fundamental problem here lies in the fact that, in some
sense, both parties see the world from different perspectives and
epistemological backgrounds, therefore making dialogue among them a monologue
in two voices. It is an
outspoken clash of two radically different cultures.
The economists and policy-makers who work in one of the myriad
institutions devoted to putting some order into the global economy grew up in
a world that tagged them and their jobs as eminently rational in nature; most
went to colleges where they studied the rationality behind choices; they were
taught that economics is a science, specifically a science of society; they
read Adam Smith, John Maynard Keynes, Paul Samuelson, John Stuart Mill, and
even Karl Marx. They believe they are following the right track simply
because they are implementing the very things they were taught to do.
Activists, on the other hand, grew up in a world where the premises that
economists and policy makers defended were simply not real; they saw the
demise of the economic policies of the last three decades; they’ve seen the
poverty of those affected by an uncontrolled globalization; they understood
that economics is not as scientific as it claims to be; and they know that
rationality is far from being carvings on a stone. The tools they have for
understanding the world, both learned from theory and from practice, usually
are at odds with those of mainstream economists.
There are countless examples of this philosophical divergence in the
vast literature on both activism and globalization that one can find in any
average bookstore. Take, for example, one of the central referents of many
alterglobal activists, Naomi Klein. Consider the following paragraph
extracted from a column published during the first days of the World Trade
Organization’s 2003 ministerial conference in Cancun, Mexico:
[the brutal economic model advanced by the World Trade
Organization is itself a form of war] because privatization and deregulation
kill--by pushing up prices on necessities like water and medicines and
pushing down prices on raw commodities like coffee, making small farms
unsustainable. War because those who resist and "refuse to
disappear," as the Zapatistas say, are routinely arrested, beaten and
even killed. War because when this kind of low-intensity repression fails to
clear the path to corporate liberation, the real wars begin. (Klein, 2003)
These words, even at a rhetoric level, are in sharp contrast with
those of Robert S. McNamara, former president of the World Bank, who in an
interview with New Perspectives
Quarterly mentioned:
Ninety-eight percent of the protesters are young people
who are extraordinarily highly motivated, desiring to improve the welfare of
the disadvantaged in the world, particularly in the developing countries, in
China, the Indian subcontinent or sub-Saharan Africa. But they are totally
wrong in their judgment that globalization is somehow the cause of poverty or
standing in the way of reducing poverty. They are just totally wrong
intellectually. (McNamara, 2003)
There is simply no immediate form of bridging the positions of the pro-globalists
who believe in the predictions of the theory and the in situ practitioners who live the reality of the policies. And
as countless news reports show, the combination of these two discursive
worlds generates an explosive mix: thousands of protestors, clashes with
local security enforcement agencies and—as was so terribly demonstrated
during the 2001 G8 meeting in Genoa—even fatal outcomes. But despite all,
there is a fundamentally simple way to defuse this deadly cocktail, one which
is rather well-known but seldom referred to.
Perhaps the biggest obstacle that prevents these two rather distant
worlds from establishing a steady dialogue can be traced back to the way in
which economists are trained. I have chosen economists as the focal point of
this assessment for they, in general, occupy positions that give them a more
formal and official validation than that given to alternative social
movements. Focusing our attention on economists is therefore following the
track of political power and the channels that have a higher impact on the
construction of history. But to understand and change the practice of
economists one first has to comprehend their trade and this in turn requires
understanding the complex web on which the modern economic discourse was
built.
Building the ivory tower
Economics has suffered a series of dramatic changes over the last 200
years. From emerging as one of the strongest arms of moral philosophy, it has
now come to resemble a formal, axiomatic dictum tailored with the patterns of
physics and mathematics rather than with those of sociology and culture
studies. In some sense, economics became an embodiment of the positive dream
of a “social physics,” a discipline capable of finding the general laws that
rule our societies and our lives (Comte, [1830] 2003). This is not at all
coincidental. As Philip Mirowski (1989) showed, the development of modern
economics was closely linked to the evolution of 19th century
mechanics, a deterministic and materialistic vein of thought that remains
entrenched in the very fabric of many sciences.
With the dawn of the 20th century, economics became ever so
mathematical. The fast advancements in the formalization of mathematics along
with developments such as the game-theoretical construction of Von Neumann
and Morgenstern set the stage for a new economic discourse designed to fit
the many industrial, social and political convergences of the 20th
Century. The original moral character of economics consequently became
enclosed by a sea of mathematical concepts, from Arrow and Debreu’s theory of
value, to Stiglitz’s asymmetric information. Very few escaped the
mathematization of the discipline; most of the survivors were old school
economists of the type of Frederick Hayek and, to some extent, John Maynard
Keynes. But today, decades after Bretton Woods and the institutionalization
of economics as the basis of the world order, it is rare to find an economist
who conceives mathematical formality only as a limited tool and not as the
core of modern economic theory.
In the process of merging economics and mathematics two fundamental
things were left behind. On a theoretical level, and repeating to some degree
the path taken by physics, systemic complexity became something that could
not be handled within the
mainstream theory. Economic systems, just as ideal gases, were now seen as
regulated by a small set of rules (utility maximization, cost minimization,
benefit maximization, informational efficiency, general equilibrium and so
forth) all of which were immutable, additive and universal. Even today, in a
time where complexity studies have been present in academic circles for
decades in areas such as technological innovation and financial economics,
standard texts such as Hal Varian’s Intermediate
Microeconomics (1999) still contain deeply reductionist ideas such as the
one quoted below:
Economics
is based on the construction of models of social phenomena. By a model, we
understand a simplified representation of reality. […] The power of a model
comes from the suppression of irrelevant details, which allows the economist
to focus on the essential characteristics of the economic reality which he
tries to comprehend.
Furthermore, and on a purely discursive level, the association between
economics and mathematics allowed for a quick dissociation from ethical
discussions. What had originally been in words of Kenneth Boulding a ‘moral
science’ transmuted, due to the force of positivist influences, into a ‘hard
science’ (Averly, 1999). Along with compacting complexity, this shift in
worldviews allowed economists to isolate themselves from ethical issues
through the same arguments of universality and value-independence that
granted physicists a certain degree of immunity when they were involved in
questionable research programs. One can still find amongst many mathematical
economists the same arguments of beauty and cognitive purity that were seen
in the physics community during the development of atomic weapons in the Cold
War. From the time economics became fortified with the tag of ‘being
scientific’, the global economic agenda was set beyond the boundaries of
ethics, from a domain were the only acceptable dictums were those of the
factual laws of our societies.
Living in a pluricultural
world
We now start to see a familiar terrain. The ‘ethics and science’
debate is part of an important tradition that criticises the administration
of scientific resources and the consequences of research on our lives and the
future in general. However, and for the most part, this debate has been
concentrated on the role of hard sciences. Physicists are seen as the
creators of nuclear weapons; chemists are seen as the developers of mustard
gas and other deadly agents; and biologists and biochemists are associated to
a vast array of bioweapons that pose a great danger to all of humankind. But
rarely does anyone mention the other ‘weapons of mass destruction,’ namely
poverty and hunger, overall far more critical than any of the weapons used so
far in armed conflict. If we are to blame economics for this construct, then
how should we confront the challenge of the ‘ethics of economics’?
The answer is not necessarily simple, though as a first step we could
think of using the same strategies as the ones used in other disciplines
(such as physics) but adapted to a primordially social context. This can be
done by means of two different though not contradictory paths:
1.
By
strengthening the debate on the theoretical limits of economics and the
impossibility of existing mathematical techniques to describe with no
uncertainty or loss of complex phenomena, therefore opening an avenue for an
‘economic precautionary principle’.
2.
By eroding
the division between theory and practice in such a way that ethics becomes a
necessary tool for coping with complex economic issues. In this sense,
cultural environments should be thought of as the key element in the ethical
debate: is it ethical to export economic structures to regions of the planet
that have a different cultural background? How do we deal with inequality
from an ethical perspective? This is, in itself, an educational pathway, one
that is not present in most of the current curricula in economics.
The reason for establishing these two paths is simple. Firstly, they
both have a certain degree of appeal that might draw important groups of
non-economists into the debate, for example activists, politicians and the
general public. Hence, it is important to see that, if incorporated into the
educational process of economists and policy-makers, ethics could potentially
serve as a bridge between the two worlds in which our planet is divided.
Additionally, ethics serves as a conveyer of the local needs of a specific
population, being capable of translating the local reality onto a variety of
perspectives. This results in a better communication between groups, one that
might help alleviate the problems of a vast sector of the world’s population.
Secondly, they open new areas of research and expand the current
possibilities of theoretical studies. Though complete awareness of our social
universe is impossible, such a shift in views might create the need for new
methodologies and analytical techniques not considered in the past. This is,
in itself, an immensely valuable expansion of economic theory.
Independently of the choice, it
is important to remember that ethics has the potential of being the ideal
communication scheme across cultures and borders, including between the
advocates and the opponents of the current economic model. Therefore, it is
important to incorporate the ‘ethics and economics’ discussion into the
‘ethics and science’ debate.
A final note
How does all this affect the
Post-Autistic Economics Movement? For one, it opens the possibility of
collaborating with a whole new set of movements, that is to say, with those
involved in the study of ethics and science. But more importantly, it
presents itself as a concise policy recommendation: economics cannot be
without ethics if our real objective is to help the world evolve into a
better, more equal state, and not to perpetuate the divide that segregates
our citizens, keeping them eternally confronted.
Note
References
Averly, J. 1999. An introduction to economics as a moral
science. The Independent Institute.
Comte, A. 2003. 1830. La filosofia positiva. Mexcio: Editorial Porrua.
Klein,
N. 2003. Free trade is war. The
Nation, September 11 2003
McNamara, R. 2003. New Perspectives Quarterly, vol. 7, September, 2001
Mirowski, P. 1989. More
heat than light. Cambridge: Cambridge University Press.
Varian, H. 1999. Microeconomia
intermedia. Barcelona: Antoni Bosch.
___________________________
SUGGESTED CITATION:
Juan Pablo Pardo-Guerra, “When
social physics becomes a social problem: economics, ethics and the new order”, post-autistic economics review, issue no. 29, 6 December 2004, article 1, http://www.btinternet.com/~pae_news/review/issue29.htm
________________________________________________________________________________
The Political Economy of Destructive Power
Mehrdad Vahabi (Université Paris 8, France)
1. Destructive power: a new field of study
From its inception, Political Economy has been interested in analysing the
value that agents, individually or collectively, can produce or exchange at
national or international levels. According to Say, Political Economy has to
be “confined to the science which treats of wealth” and “unfolds the manner in which wealth
is produced, distributed, and consumed” (Jean-Baptiste Say, [1821] 1964, p.
xv). The main object of Political Economy is thus the productive power
of human beings. But what about their destructive power? This latter
question is not less important than the traditional central question of Political Economy, since it is easier
to destroy than to create. In fact, we are able to destroy
a hundred or even thousand times more than what we can create.
The creative power of an ordinary
healthy high-school graduate may amount to no more than four or five thousand
dollars of value per year. This creative
or positive economic power refers to the graduate’s capacity to
produce or to exchange. But that
is not the only economic power that he possesses. As an extortionist, for example, he can destroy a hundred
times more. Futhermore,
extortion can be used by a criminal, a brigand, or a revolutionary. Whatever
the extortionist’s motive, it is destructive
power, the power to destroy use values or exchange values, that he uses.
Is the question how much can an agent destroy irrelevant to Political Economy? Neoclassical economists
say that it is.
Neoclassical economics rejected social disequilibrium and conflict,
and assumed a sustainable harmony among individual agents through a market
economy. Consequently, revolutions or radical conflicts undermining the
social system are considered to be “unnatural” or irrational, and thus
treated as actions resulting from passions and emotions and not from reason.
Since by definition Neoclassical economics was the study of “rational
behaviour”, the study of this type of irrational behaviour was, as Pareto
urged, delegated to sociology, politics, psychology and history. Of course,
Pareto ([1902] 1966) acknowledges that “The efforts of men are utilized in
two different ways: they are directed to the production or transformation of
economic goods, or else to the appropriation of goods produced by others”.
However, since the appropriative activity does not come within the scope of
free choice, it can not under the Neoclassical view concern the economist.
It is true that elementary textbooks frequently introduce the
production possibilities frontier between “guns” and “butter” (as Samuelson’s
favourite example describes the optimal allocation of resources in his Economics, 1948) to illustrate the
nature of the economic problem and the concept of opportunity cost. It is
noteworthy, however, that they never consider the question of how “guns”
might be used in a destructive
manner to appropriate resources from neighbouring peoples or states, and thus
push out the production possibilities frontiers of the society.
I propose an alternative approach to Political Economy, one that
considers both the creative and the destructive power of human
beings. This requires that a new
field of study, namely destructive power, be explored by economists.
This field consists not of fragmented and specialized studies regarding the
military sector, criminal activities or the economics of warfare. Instead it
embraces the destructive power of human beings in all its diverse
forms. Federating existing fragmented studies will not achieve a general
comprehension of destructive power, because these studies are based on
standard and inappropriate economic assumptions and methods, such as
maximizing and rationality behaviour, and individual cost/benefit analysis. In this paper I am going to explain
what I mean, in an economic context, by destructive power.
2. Definition of destructive power
To understand destructive power, we must distinguish between
destruction as an integral part of “creation” (or what Hegel calls “specific,
limited or definite negation”) and destruction as the antithesis of creation
(or what Hegel calls “abstract negation”, [1807]1977, pp. 359-60, 567-68).
2.1 Destruction as an integral part of creation
In a sense, destruction can
be considered as the very act of creation,
since all production involves what might be called “destructive
transformation”, like wheat being ground into flour, or flour baked into
bread (Boulding, 1989, p. 239). To produce a chair, we need to use, consume,
and thus destroy wood, and the destruction
of wood in a particular way leads to the construction of the chair. Final
consumption can also be viewed as a form of destruction. Destroying a product
through consumption is the counter part of creating utility. In this sense,
destruction is part of creation.
In a similar way, innovative activity can be considered as creative destruction, as Schumpeter
referred to the process of capitalist development (Schumpeter, 1951, chapter
vii). This kind of destruction is the direct outcome of innovation, namely
the destruction of old products,
past processes of manufacturing and archaic forms of organisation through the
introduction of new products, ways of producing, and organisational methods.
The process of learning is also a kind of self-destruction, namely the reshaping of our knowledge
framework, the rearrangement or reconstruction of our data and mental
representations, and through which biases can be removed or replaced by new
ones. Science can be defined as a form of destruction,
or a process of permanent destruction of certain ideas, concepts, or
paradigms. The negation of past knowledge is mental destruction, which like material destruction,
may give birth to the construction of something new, in this case new
knowledge.
The accumulation of capital involves concentration and centralisation
of different forms of capital (such as industrial, financial, or commercial
capital) which results in the elimination of small property owners. Property
rights are not limited to holding
things for oneself, since through
capitalist development, they result in withholding
things from others (Commons, [1924] 1995, pp. 53-54). Thus this process of
capital accumulation generates bankruptcy,
i.e. the destruction of certain firms and the creation of new firms, job destruction and job
creation, as well as mergers and acquisitions in financial markets with
their direct consequences in terms of value
creation and value destruction.
Competition as a natural selection mechanism of capitalism brings into play
forces necessary to weed out elements which can hinder capitalist
development. Budget, monetary and financial constraints provide economic
sanctions through which competition exerts its full power as a selection
mechanism. In all these cases, destruction is an integral part of the
creative process. Overconsumption and overproduction are part and parcel of
economic crisis. Karl Marx clearly speaks of the “destruction of capital”
through crises (Marx, Part II, [1861-3]1978, pp. 495-96) and distinguishes
two different meanings of capital
destruction during crises, namely destruction
of real capital (use-value and
exchange value) and destruction of capital defined as depreciation of exchange values.
Destruction of capital through crises constitutes a necessary moment of the
capitalist reproduction process. In this respect, destruction of values is an
integral part of value-creation. Nonetheless, the destructive power of crises is a “spontaneous” or an “unintended”
destruction which does not result from strategic decisions of individuals or
social groups.
2.2 Destruction as the antithesis of creation
To differentiate destruction from creation, we have to focus on abstract destruction, for which
destruction is not just a moment of the creative process, but constitutes a
moment in itself: it means destruction for the sake of destruction.
This is what Boulding refers to as “the dark side of destructive power”,
which goes back a long way, as shown in the story of Cain and Abel (1989, p.
22). This brings us once again to threat
power which is different from creative
power. The remainder of this paper will focus on this particular sense of
destruction and destructive power rather than on destruction as an
integral part of creation.
Strictly speaking, destructive power is threat power that may lead to
the destruction of use or exchange values or even human beings and nature.
This instrumental definition of destructive power is free of value
judgments. I do not necessarily consider a destructive action to be a “bad”
or Mephistophelian one. By the same token, a creative action is not
necessarily a “good” action. In other words, my distinction between
destruction and creation, as well as destructive and creative value is not
based on an ethical criterion. It
does not mean that the ethical or legitimising aspects of any recourse to
destructive or creative power are denied, it simply implies that in this
definition, the value has a purely instrumental
character, and does not contain a judgmental
value.
Moreover, destructive power should not be reduced to violence
(revolution, civil war and war, terrorism, hostage taking or other criminal
type of activities). It also includes non violent activities (strikes,
demonstrations, or deliberate exclusion). Among different non-violent forms
of destructive power, exclusion plays a key role. Exclusion is the supreme
mechanism available to a dominant institution (academic, religious,
political, economical or cultural) or a social group, caste, or nation,
enabling it to exert its destructive power against opponents.
Destructive power is both physical and moral or spiritual. The
earliest civilisations were allegedly based on priesthoods. Priests
established social rules and threatened disobedient people with social
exclusion or divine punishments. Non-believers were told they would be
punished by preternatural powers and should expect to endure excruciating
pains after their death by going to an awful place like hell, while believers
were promised a blissful life in a beautiful place like paradise. Moral destructive power can be carried
out through moral threat. However, there exist other forms of this power that
cannot be reduced to moral threat. For instance, gossip is not a moral
threat. But it can spread scandals against certain targeted people, put them down,
exclude them from collective action or groups, and even morally lynch them.
If in gossip, destroying one’s reputation is not necessarily based on the
truth, in blackmailing, the non-revelation of the truth can be a source of
power.
Lying and historical forgery are other forms of destructive power that
can destroy individual or collective memory or identity. This sort of
behaviour cannot be reduced to a situation of asymmetrical information. It
may be deployed by a dominant group that tries to impose its “truth” by every
means, including destroying facts, historical forgery and excluding
non-believers. As Napoleon justly remarked: “What is history but a fable
agreed upon”.
Finally, destructive power can be individual or social.
When a child “cries” or “breaks things” and throws a tantrum to impose
her/his desire on its parents, s/he is using her/his individual destructive
power. But the power of a community to exclude or to sanction is its social
destructive power. Destructive power has a strong integrative power. Its
importance in social integration is such that the etymology of “society”
gives credence to the idea that “society” was historically perceived as a military alliance. Let us examine the
etymology of “society”. It derives from the Latin word societas. This elaborated socius,
meaning a non-Roman ally, a group willing to follow Rome in War. Such a term
is common in Indo-European languages, deriving from the root sekw, meaning “fellow”. It denotes an
asymmetrical alliance, society as a loose confederation of stratified
allies.” (Mann, 1986, p. 14). The recourse to destructive power is not only a
symptom of crisis or disequilibrium, but a constant dimension of collective
action.
3. Two different functions of destructive power
Destructive power has two different functions: appropriative and rule-producing.
Although these functions are inextricable, I treat them separately for
theoretical clarity. For example, the war of the Bush administration against
Iraq is being waged to pirate Iraq’s petrol and to control its economy. In
this sense, war as a form of destructive power has an appropriative function. But this colonialist war also has a rule-producing effect, since the
United States tries to establish its sovereignty over Iraq, its hegemony in the
Middle East, and perhaps to draw a new map for the whole region in
co-operation with Israel. These two different functions are present in other
forms of destructive power. A revolution is for changing rules, but it also
has an appropriative aspect. In the case of strikes, the appropriative function is straightforward, since their targets
are usually to increase salary, reduce working hours and so on. Nevertheless,
strikes also decide on the way an enterprise should be run. For workers’
trade unions, striking is a very strong means that allows them to negotiate
with employers concerning workers’ participation in the management. Even the
right to strike is an important political question that involves the rule-producing function of destructive
power. Criminal activity, as another form of destructive power, has both
types of function. Its pirating or appropriative
function is obvious, but it has a more enduring effect, namely a
destabilising or rule-disturbing effect
which implies disorder, anarchy, and insecurity.
3.1 Destructive power in its appropriative function
The difference between these two functions is crucial. Destructive
power in its appropriative function
is a means, whereas in its rule-producing
function, it is an end in itself. In the former case, destructive power can
be defined as an alternative means of reallocating resources. It can be
dubbed “rent-seeking”, “predation”, “appropriative” and be integrated in a
rational expectation or general equilibrium model of individual agents
choosing between creative and destructive activities in accordance with their
private costs and benefits. In a
perfect world of fully informed agents with no randomness, and devoid of
radical uncertainty, it can be shown that the appropriative function of destructive power may be realised with
no real destruction or violence (See Grossman and Kim, 1995, 1996). All
strands of the Neoclassical approach, such as rational conflict theory,
general equilibrium models of violence, and socio-political instability
models of new political economy lead to this result. Money neutrality in a general equilibrium model of creative
activity is analogous to violence
neutrality in a general equilibrium model of appropriative activity. In
both cases, money and violence are considered to be the means to achieve a
particular end. In Neoclassical theory, money neutrality is related to the
role of money as a means of commodity circulation, or fiat money. By the same token, violence neutrality is related to
the role of destructive power as a means of appropriation. In both cases,
money and violence disappear in equilibrium. Agents are regarded as
self-interested and calculating individuals endowed with ex ante rationality and maximising behaviour.
3.2 Destructive power in its rule-producing function
Destructive power in its rule-producing
function resembles money as a store of
wealth. Money in its function as a store of wealth is required for its
own sake, for its liquidity and can
be regarded as an end in itself. What determines the liquidity preference of people? “Our desire to hold Money as a
store of wealth is a barometer of the degree of our distrust of our own
calculations and conventions concerning the future […] The possession of
actual money lulls our disquietude; and the premium which we require to make
us part with money is the measure of the degree of our disquietude.” (Keynes,
1937, p. 216). Uncertainty about conventional judgements resulting from a
multitude of agents’ anticipation about the state of the market in the
future, and their distrust about their own calculations are the sources of liquidity preference. Money can serve
as an insurance against uncertainty because of its social or universal
value. Liquidity preference is thus
decided not by individual agents
but by conventional judgements, which are formed through a social process. In this process, the
dominant opinion of the leading deciders in financial markets determines the social norm.
Destructive power in its rule-producing
function is most likely required for its own sake, since it is the foundation
of law or legal order. Destructive power as the last resort to maintain a
desired order can overcome or mitigate our distrust about the possible
violations of order by others. While the appropriative
function of destructive power may be dealt with in an individualistic
framework, the rule-producing
function of this power can only be grasped in a social context. Keynes’s
famous phrase “in the long run, we are all dead” reveals an important aspect
of economic reasoning. Any individual is concerned first and foremost by
economic interests during her/his personal lifetime. Individuals do not
behave as species or dynasties with regard to their short-term economic
interests. However, it is true that in war as well as revolutionary action
“individualism is the first to disappear” (Fanon, 1968, p. 47). In such
cases, one can observe a kind of group coherence which is more deeply felt
and shared by large masses of people and shows a much stronger, but less
enduring, attachment than all other varieties of private or civil friendship.
Individual self-consciousness thus turns into a collective consciousness and
the immortality of the species takes the centre stage of our experience.
Nonetheless, it is not only in wars, revolutions, or other violent forms of
action implying death that we are confronted with this sort of behaviour. In
almost all protestations undermining the existing order, individuals become
conscious of their role as part of a species or a dynasty. Broadly speaking,
if economic reasoning leads to Keynes’s motto that “in the long run, we are
all dead”, political reasoning results in the opposite motto “in the long
run, we are all alive”. The time horizon of economic reasoning is different
from that of political reasoning.
Destructive power in its appropriative
function follows economic or private
reasoning, whereas destructive power in its rule-producing function complies with political, social groups’
(classes) or public reasoning. This
explains why the appropriative function
of destructive power is consistent with an individualistic Neoclassical
framework, while the rule-producing
function of this power is in contradiction with such an approach.
Conclusion
Integrating both functions of destructive power into Political Economy
is a new challenge for economists who think that economics should extend its
traditional frontiers as a science of creative power of human beings. My
objective is to bring together the question of sovereignty with that of
property, which is more in tune with what Adam Smith (1776) considered to be
the main concern of Political Economy: “The great object of the political
economy of every country is to increase the riches and power of
that country”. In doing so, I must emphasise that my intentions are free from
economic imperialism for two reasons. First, I do not find the application of
the present standard assumptions of economic analysis such as rationality and
optimisation appropriate for my goal. Second, the integration of destructive
power in economic analysis requires economics to come closer to other social
sciences, such as philosophy, political science, psychology, sociology, and
military science. Nevertheless, I think that in analysing the value of destructive power economists have something to say, since they
have been dealing mainly with the issue of value over the last three
centuries. As a student of social science, I have tried elsewhere (Vahabi,
2004), to take advantage of all social sciences that are relevant to my
subject in order to contribute to the Political
Economy of destructive power. This effort comes within the scope of an
approach that regards Political Economy as a discourse both on the creative
and destructive power of human beings.
Note
1. Contact address:
Mehrdad.vahabi@wanadoo.fr. This article draws extensively on a book I have
recently published: Mehrdad Vahabi, The Political Economy of Destructive
Power (Edward Elgar, 2004).
References
Boulding, K.E., 1989, Three faces of power, Newbury Park, London, New Delhi, Sage
Publications.
Commons, J.R., [1924] 1995, Legal Foundations of Capitalism, New Brunswick and London,
Transaction Publishers.
Fanon, F., 1968, The Wretched of the Earth, New York, Grove Press edition.
Grossman H., and Kim M., 1995, "Swords or
Plowshares? A Theory of the
Security of Claims to
Property," Journal of Political Economy, vol.
103, pp. 1275-88.
Grossman, H., and Kim M., 1996, "Predation
and Production", in Garfinkel M. and Skaperdas (eds.),
The Political Economy of Conflict and Appropriation, Cambridge University
Press, Cambridge.
Hegel, G.W.F., [1807] 1977, Phenomenology of Spirit, translated by A.V. Miller with Analysis
of the Text
and Forward by J.N.
Findlay, F.B.A., F.A.A.A.S., Oxford, Clarendon Press.
Hirschman,
A.O., 1970, Exit, Voice, and Loyalty,
Cambridge Mass., Cambridge University Press.
Keynes, J.M., 1937, “The General Theory of Employment,” The Quarterly Journal of Economics, February,
pp. 209-223.
Mann,
M., 1986, The Sources of Social Power,
vol. 1, A history of power from the beginning
to A.D. 1760,
Cambridge, Cambridge University Press.
Marx,
K. [1861-63] 1978, Theories of
Surplus-Value, 3 parts, Moscow, Progress Publishers.
Pareto,
Vilfredo, [1902] 1966, Les Systèmes d’Economie Politique, in Finer S.E. (ed.), Vilfredo Pareto
Sociological
Writings, New York, Praeger.
Say,
J.B., [1821] 1964, A Treatise on Political Economy or the
Production, Distribution and Consumption
of Wealth, New York, Claxton, Remsen & Haffelfinger.
Schumpeter,
J.A., 1951, Capitalism, Socialism, and
Democracy, London, George Allen and Unwin Ltd.
Smith,
Adam, [1776]1961, An Inquiry into the Nature and Causes of the Wealth of Nations,
London,
Methuen.
Vahabi,
M., 2004, The Political Economy of Destructive Power, Cheltenham, UK;
Northampton, MA, USA,
Edward Elgar.
___________________________
SUGGESTED CITATION:
Mehrdad Vahabi, “The Political Economy of
Destructive Power”, post-autistic economics review,
issue no. 29, 6 December 2004, article 2, http://www.btinternet.com/~pae_news/review/issue29.htm
_________________________________________________________________________________
Symposium on Reorienting
Economics
Irrelevance
and Ideology
Bernard Guerrien (Université Paris 1, France)
There are plenty of interesting
ideas in Lawson’s book about how economic theory and practice need to be
“reoriented”. I agree with him that economics must start from observation of
the world where we live. I must say, however, that I do not see why Lawson
needs the special word “ontology” to designate an “enquiry into (or a theory of)
the nature of being or existence” (p. xv). Nor am I convinced by his
“evolutionary explanation” – in Darwinian terms – of the “mathematising
tendency” in economics (Chapter 10)1. But I do not want to discuss
these complex subjects here. I am only going to consider Lawson’s main
criticism of neoclassical economics: its “lack of realism”. I think that it is not the appropriate objection: all theories lack realism, as they
take into consideration only some aspects of reality. Everyone agrees on
this, even neoclassical economists. The real problem with neoclassical theory
is not its’ “lack of realism” but
the “ideology” (a word Lawson never uses) that it smuggles in and carries
with it.
Lack of realism and homo
oeconomicus
If economics needs to be “reoriented”,
it is because its present orientation is wrong. What precisely is wrong with
its orientation? If you read Lawson’s book, it is wrong partly because of the
assumption about man that it adopts. Man is assumed to be “rational”,
“omniscient”, “selfish without limit” and so on. For example, in the section
called “Fictions”, in the first chapter about modern economics, Lawson
writes:
Assumptions abound even
to the effect that individuals possess perfect foresight (or, only slightly
weaker, have rational expectations), or are selfish without limit, or are
omniscient, or live for ever (p. 18).
Or, to quote him again :
Just as a class of assumptions, such as
rationality or total greed, always appear in order to render the human agent
atomistic, a further set of assumptions, like a given number of agents or
three goods and two periods, are always in place serving to fix the
boundaries of the analysis, to isolate the set of atoms on which the analysis
focuses. (p. 19).
According to Lawson then, the
fundamental “lack of realism” consists in considering individuals as “atoms”,
and as “isolated”:
The reasons for the fictitious nature of modern
economics, then, are clear. To the extent that human beings as well as
society are, in reality, complex, evolving and open, a methodology which
necessitates that the subject-matter addressed is everywhere atomistic and
isolated is likely very often to throw up accounts of human individual and
collective behaviour that are fictitious and rather superficial, to say the least
(p. 19).
The problem with this objection
is that a neoclassical theorist would agree with it. He would argue that he
is considering only a special aspect of human behaviour: the fact that people try to pay less (rather than
more) for a given good, or try to get more satisfaction (rather than less)
from given resources. They then try to derive or to “deduce” (to use a word
that Lawson doesn’t like)
certain ceteris paribus
consequences from this assumption.
Actually, almost all
economists, classical, neoclassical or others, agree that humans are not
completely selfish, or greedy; but they say that this is not the aspect of
human behaviour they are reasoning about. It is the other aspect they are
focussing on, and who can deny that self love exists? Even Marx supposes that
the capitalists’ motive is profit2, and that workers try to get a
better life. This is all that is meant when neoclassical theorists assume
that people are rational.
On the other hand, neoclassical
theorists do not assume that people
are ‘omniscient’, because this would be nonsense (consequences of my
decisions depend of others’ decisions which depend, at least partly, of my
decision3). Sometimes, not often, they suppose that people have an
infinite life. This is an approximation that can be accepted: in general,
when we take a decision concerning present and future, we do not think about
death (we suppose that we will still live a long time). This is
‘unrealistic’, for sure, but not enough to say that the theory is irrelevant,
or without interest.
Actually, the main problem with
“modern economics” (neoclassical theory) does not stem from the type of man
(the infamous homo œconomicus) that
it supposes, but from the type of “social structures” that are supposed or
implied. The problem with these social structures is not exactly that they lack realism but that they are totally irrelevant.
“Modern economics” and social structures
Tony Lawson also insists on the
importance of what he call “social systems”, or “social structures”, or “structured
processes of interaction” (p. 43), and he is right in doing so: human
(rational) action can be determined – for logical
reasons – only if rules and context are unambiguously defined. One of his
main objections to “modern economics” is that it is “atomistic” – that people
take their (optimal) decisions in an “isolated” way; it would seem then that
for Lawson, no “social structures” are implied in neoclassical models (one
more example of their “lack of realism”). But social structures are implied, and it is a pity that
Lawson never mentions them, as they are the real Achilles’ heel of
neoclassical economics – and, more generally, of methodological
individualism. This is because it is not enough to say that people are
rational, and that they “optimise”. Even in the simplest model - bargaining -
it is supposed (as a minimal requirement) that people don’t use force (that
trade is voluntary). But bargaining results depend on a lot of factors, such
as bargainers’ psychology, resources, impatience, etc.. To obtain a
determinate result (or prediction), more “social structure” is needed.
Consider the neoclassical benchmark model, perfect competition. It supposes a
very special and strange “social structure”: households and firms are obliged to “take” prices, given by an
auctioneer, and to inform him of their supplies and demands at these prices;
they are not allowed to bargain and
trade directly among each other, even if the auctioneer has found equilibrium
prices. Now, one could say that this model “lacks realism”. But, wouldn’t it
be more appropriate to say that it describes a completely different kind of
reality, or social structure – that it describes not a market but a
centralised economy, with specific rules and institutions?
Neoclassical economists (and,
unhappily, almost all heterodox economists) never present perfect competition in this manner: they speak, as
Lawson does, of “atoms”, “many agents”, and so on. They prefer to discuss the lack of realism of homo œconomicus rather than about the
total irrelevance of the social structures implicitly assumed in their models.
What about ideology ?
Lawson also discusses
econometrics, especially the “Lucas critique”. But here again, the problem is not with econometrics – or the
“realism” of its statistical assumptions;
it is with the “social structure” that Lucas and others suppose, in their
models, as they reduce the whole economy to a “representative” agent’s choice
– or to a “young” choice in an overlapping generations model. This obviously
is nonsense, as it is also to
discuss econometric tests about these models (even if you obtain R² =
0,99999). The same can be said about “Real Business Cycle” and “Computable
General Equilibrium” models. The question is, again: how such intelligent
people can propose – and endlessly study – such stupid models? I only see one reason for that: ideology (intuitive beliefs which
render them blind). Here, the belief
alluded to is that “market mechanisms” (whatever that may
mean) produce “efficient” results – if you abstract from “frictions”,
“failures”, etc. (ignoring these “imperfections” being, for neoclassical
theorists, the principal reason of “lack of realism”). As there is a strong
link between competitive equilibrium (that is, with auctioneer, etc.) and
efficient states – link given by the two Welfare Theorems –, then competitive
equilibrium must be identified with
“perfect market” (as both are supposed to be efficient). In some books
(especially those on growth, in the “macro” mood – as those of Romer and
Barro & Sala-I-Martins), perfect competition and an “omniscient”
“representative agent” (or planner) choice are presented as giving the same
results. How can a normal person make any sense of this ?
Identifying the real reasons why the standard, dominant theory is totally irrelevant is an unavoidable first step, before proposing
some other – completely different – alternative theory, whatever theory one
may wish to propose. For that, you do not need complicated “methodological”
or “epistemological” or “ontological” debates.
Notes
1. Quite
curiously, Lawson refers to Richard Dawkins’ theory of evolution, which seems
to be inspired, at least partly, by neoclassical theory (the title of
Dawkins’ popular book is The Selfish
Gene, and sometimes he writes that genes have “utility functions” ).
2. Bourdieu does the same thing but with an enlarged vision of capital (which
includes “culture” and networks)
3. The only interesting aspect of game theory is that it insists on this
point: even when there is common knowledge about players’ characteristics and
the rules of the game (issues, payoffs, etc.) – that is, “omniscience” –,
each rational player’s decision depends on his beliefs about others players’ decisions.
Reference
Lawson, Tony. (2003) Reorienting Economics, London: Routledge.
___________________________
SUGGESTED CITATION:
Bernard Guerrien, “Irrelevance and Ideology ”, post-autistic
economics review, issue no. 29, 6 December 2004,
article 3, http://www.btinternet.com/~pae_news/review/issue29.htm
________________________________________________________________________________
Symposium on Reorienting
Economics
Conjectural
Revisionary Ontology1
Jack Vromen (Erasmas University
Rotterdam, Netherlands)
Mainstream
economists also aim at identifying underlying mechanisms
Tony Lawson (1997, 2003) has
both been cherished and chastised for his characterization of mainstream
economics as being positivist in methodological orientation, as dealing with
closed instead of open systems, as aiming to represent event regularities (of
the form “whenever event x then event y”) instead of underlying causal
structures and mechanisms and as exemplifying a mathematical-deductivist
style of theorizing and modelling.2 Lately, in a reply to Reiss
(2004), however, Lawson states that he never held that mainstream economists
are only interested in event regularities. Nor did he ever assert that
neoclassical economists ignore or deny the existence of underlying causal
mechanisms. Lawson asserts that he never questioned that mainstream economists
entertain broader visions of economic reality consistent with the causalist
ontology that he himself accepts. What he rather always held, Lawson argues,
is that their preferred mathematical-deductivist style of theorizing cannot
possibly do justice to such broader visions: “ … the prior attachment to
certain sorts of mathematical methods imposes an (often unnoticed) ontology
mostly inconsistent with those visions” (Lawson 2004, 337).
What I like about this argument
is that it gets a possible misunderstanding that mainstream economics denies
the existence of underlying causal mechanisms out of the way. What I disagree
with, however, is the presumption that adherence to a
mathematical-deductivist style of modelling imposes a ‘flat’, non-layered
empiricist ontology. I think this presumption is simply wrong. Of course, if
one accepts Lawson’s understanding of deductivism as a type of explanation in
which regularities of the form ‘whenever event x then event y’ are a
necessary condition (Lawson 2003, 5), the rightness of the presumption
follows by definition. But if by ‘deductivism’ is meant (as I think it often
is) a strong preference for a particular type of inferences from axioms and
assumptions, then the presumption seems unwarranted. One can insist that a theory
should be axiomatized, that axioms (or postulates, or first principles)
should be at the basis of any theory and that all of its hypotheses should be
deducible from them, for example, and yet maintain that what the axioms and
theorems are (or should be) about are underlying causal mechanisms rather
than observable regularities.
As far as I can see there is
nothing in the Bourbaki-type, set-theoretic ethos that long dominated
economics that prevents theorists from trying to represent underlying causal
mechanisms and from exploring their consequences. What is more, many
mainstream economists arguably aimed at doing precisely this. A case can even
be made that Friedman, taken by many to be the spokesman of a non-realist
orientation in economics par excellence, professed his belief in a
layered ontology: “A fundamental hypothesis of science is that appearances
are deceptive and that there is a way of looking at or interpreting or
organizing the evidence that will reveal superficially disconnected and diverse
phenomena to be manifestations of a more fundamental and relatively simple
structure” (Friedman 1953, 33). Elsewhere Friedman argues that economic
theory should concentrate on such an underlying fundamental structure, on
“common and crucial elements”, and abstract from other elements and factors
in “explaining” phenomena (ibid., 14). Precisely because economists in
their theories abstract from non-common and non-crucial, but nonetheless
actually occurring disturbing factors should the regularities or tendencies
that their theories predict not be expected to be empirically observable
event regularities. Yet if the elements that their theories do concentrate on
are really crucial, the regularities predicted should somehow be discernable
in observed empirical data.3 This depiction of Friedman of what
economic theory does and does not do and what it can and cannot aspire to is
not some credo of “Official Methodology” that is alien to what practising
mainstream economists actually do. It seems that in his own contributions to
economic theory Friedman set out to do exactly this: to identify and specify
crucial underlying structures and mechanisms.
This is not to say that what
underlying structures and mechanisms economists believe to be actually
working in ‘the real world’ can be readily read off from their theories and
models. Sometimes the structures and mechanisms that they believe in are
explicitly theorized and modelled. But at other times their assumptions and
hypotheses do not reveal their ontological beliefs. Again Friedman (1953) is
exemplary. Friedman famously argued that assumptions of economic theory
should not be taken too literally. In particular, economic theory is not
committed to the belief that economic agents actually go through the
deliberations and calculations that economic theory’s behavioural assumptions
seem to ascribe to them. Economic theory is only committed to the belief that
economic agents behave as if they actually went through these
deliberations and calculations. For example, business men need not actually
base their decisions on a comparison of marginal costs and revenues, as is
assumed in neoclassical theory of the firm. As long as their actual behaviour
is consistent with this assumption, is the theory applicable. At this juncture
one might rightly wonder what then are the actually operating underlying
mechanisms that make economic agents behave the way they do, if they are not
the deliberations and calculations ascribed to them that make them do so. At
some point in his essay Friedman suggests that it is something like ‘natural
selection’ in competitive markets that leads business men to behave as if
they increase production until the point where marginal costs equal marginal
revenues (see Vromen 1995 for a more detailed discussion).
What this shows, to repeat, is
that the particular beliefs that economists entertain about underlying
mechanisms in the real world need not be readily discernable from the
assumptions and hypotheses in their theories. Even theorists such as Friedman
who argue that the actual determinants of behaviour are irrelevant (as long
as the behaviour actually displayed is consistent with the assumptions made)
happen to entertain particular beliefs about underlying mechanisms in the
real world. This raises the question why such economists do not see a need to
model their beliefs explicitly. Why does Friedman not model competitive
‘market selection’, for example, if he believes that that provides the key to
understanding industry behaviour? As I take it, here we come across one of
the main differences between how mainstream economists and how Lawson think
how a multi-layered real world should be tackled theoretically. The real
difference is not that their adherence to mathematical-deductivism forecloses
mainstream economics to focus on underlying mechanisms, whereas Lawson
insists that focusing on underlying mechanisms is exactly what a satisfactory
|