Prospect: The Economic Phenomenon
What unites economists is their willingness to acknowledge that there is an economic phenomenon. The classic ways of addressing the phenomenon have been exercises in legitimation—so much so as to be preposterous. Let me digress briefly at the outset to characterize the main schools of legitimation.
Neoclassical economics speaks for the bourgeoisie. The general equilibrium model makes the famously unrealistic convexity assumptions in order to be able to prove that an instantaneous market-clearing traders’ equilibrium exists. The conclusion, for example, is that an unrestrained private enterprise economy is the best of all possible worlds. There are four tenets of Neoclassical general equilibrium which I reject at the outset.
1.) The achievement of market equilibrium is painless.
2.) There is no intent except that of spontaneous individual actors, no “higher manipulation.”
3.) Money does not exist.
4.) Fraud is economically unimportant; suspect industries (lending, alcohol, gambling) are unimportant.
As to Marx’s partisanship, Marx was engaged in the invention of a constituency, a constituency to which he himself did not belong. Whose interests were served by invoking him as an authority? It proved to be up for grabs—Marxism ended as an ideology for peasants of color in underdeveloped countries.
If we must speak of Sraffa (the savior of the Seventies who is not heard of so much today) he was the economist who thought that elbow-shaped isoquants were an acceptable replacement for the world revolution (?). And yet, elbow-shaped isoquants are a special case well-known in Neoclassical operations research. Sraffa’s followers probably believe that if Neoclassical economics were discarded, something of the physical economy would be left. But in an important sense, nothing would be left—see below.
We come to our announced topic, the economic phenomenon. Modern society exhibits a vast development of technology, and correlatively, a vast advance in the scope and channels of social administration—and correlatively, a vast increase in the complexity and scope of production, transport, and consumption of use-values. The latter make up the physical economy. It might be thought of as technology or engineering by someone for whom economics begins with commodification. However, its sociality makes it very different from engineering in the usual sense. At any rate, just this physical economy warrants a discipline which describes it, measures it, ponders its manifold dynamics. The discipline would be quantitative and network-conscious because the subject-matter itself is.
But then there is something else. The entire phenomenon is commodified. All use-values are property. Delivery of a use-value typically means an exchange of property for an equivalent in an auction. Its paradigm, then, is the trade; everybody all the time is engaged in trade. (But the emphasis which Neoclassical economics puts on the trader’s autonomous choice is ideological.) As for production, its paradigm is the industrialist and factories. (Not the household or school, which, in a less ideological perspective, would not have to be separated in conception from production.) Work is sold to an owner by workers. Workers spend most of their time working—and that is what a physical perspective would see—but all that commodity economics sees is the very small amount of time the worker spends making the wage bargain with the employer.
The circumstance that the vast system is steered, or at least locally steered, by trades is mind-boggling. (But not so mind-boggling if we remember that in reality, equilibration is not painless.)
Beyond that there is financialization. Money, borrowing, and the secondary market in IOUs. Green pieces of paper are treated as use-values. Wealth is a vast pyramid of debt. Wealth becomes a vast financial illusion. The relation between the physical world and the world of fictions is inverted. The availability of loans comes to control the possibility of economic activity at all. A constitutive illusion called inflation becomes an urgent concern. What is this at all? How has human survival become dependent on the stipulation and transmission of trillionfold illusions? To that has to be added the unique phenomenon of taxation. And that returns us to the institutional side of it, because the state acts as guarantor of property and contracts (for example)—in the broadest senses. Another institutional fact: the state has made the interest rate a policy variable. That is an incredible development, a cancellation of laissez-faire from above.
It is entirely quantitative—and the physical is interwoven with the fictitious (prices and money). One of the goals of the discipline has to be to account for this vast network of quantified phenomena, all human-made.
But that is only the beginning, because there are so many dimensions to it. Economies have overarching behavioral principles. In this society, engineering is not a neutral discipline; it is inseparable from Neoclassical economics. In a certain sense, if Neoclassical economics were discarded, nothing of the physical economy would be left. Even physics is inseparable from Neoclassical economics: the action principle. Engineers maximize several physical goals simultaneously—how? By adding them together with “weights”—prices, in effect—to get objective functions. No engineer knows how to design an automobile without commodification. No engineer can discuss capital construction without interest rates.
Another dimension. Determined attempts have been made by “radical economists” to show that some activities consist in the “cheating” of one group by another, in the guise of a “fair trade.” Capitalist exploitation; imperialist exploitation. I write about that—I don’t blame people for suspecting that there is such a thing as a “windfall to the capitalist role,” for example—but the received arguments of this nature such as Marx’s labor-power—well, they haven’t convinced.
Two questions of the greatest breadth may be asked. Let us take the speculative question first.
Is an economy possible at an advanced technical level which treats property and behavioral imperatives entirely differently? (The question of communism, collectivism, abolition of profit-maximization and prices.) We do not speak of a mere policy, reversible after the next election or change of dictator, but of the accession to a higher civilization.
Pursuant to this question, certain fundamental observations about capitalism come to the forefront. Property rights do not inhere in the human condition. Private property is appropriation. (Who owns people, who owns the air, who owns time?) Then, to posit relative efficiency as an economy-wide goal is ideological posturing. (It describes no economic system, certainly not capitalism.) From a communist vantage-point, then, market equilibrium is an equilibrium of force and fraud. All prices are invidious constructs (more so than IQs, for example).
Most of my work in economics has explored this subject-matter—has been concerned to theorize the economics of a higher civilization. But clearly this subject-matter is not the order of the day, not remotely. It is far in advance of a political program. Moreover, the question of whether a higher civilization is “good” has to be treated cautiously. It could be, for example, that in a higher civilization nobody would own a stock of jewels as a store of wealth. (How about a slave to fan you in hot weather?) Some people will always consider that a deprivation. We are abstracting from what I would call anachronistic privilege; we ask whether we can imagine anything that would be coherent and feasible. We are competing not with Gerard Debreu but with Freeman Dyson.
Our second question is down-to-earth. What is the economic phenomenon in our time, what is its measure, what are its behavioral patterns, how does it change in the large? In recent years I have done more work on this question, all preliminary. Let me say at the outset that to idealize the free market mathematically in order to prove the existence of an equilibrium which is also optimum is ideological trash. My research excludes any such exercise.
One side of a descriptive investigation would be to delineate actual system flows. Physical input-output models, or linear models with joint products and depreciation, give a foretaste of the apparatus required. Because of capital wear etc., such modeling already goes far beyond any lay discourse on the economy. The utilization of the modeling apparatus cannot be dictated by Walrasian idealization to secure ideological results. When there is unemployment, for example, the researcher must register it without being argumentative or coy.
Then the pecuniary magnitudes which are operative in the economy need to be tracked. Empirical prices, interest rates, money supplies, volume of debt, etc. Again, there are various realities which embarrass the ideologues which must be registered without being argumentative or coy. The state sets the governing interest rate (abolishing the free market at the core). Then—it is normal for markets to be rigged. The analysis of price-determination in markets would look nothing like the Neoclassical model.
There certainly are phenomena of demand in market behavior. Substitute and complementary products can be observed; one can attempt to test elasticities of demand statistically (if one is willing to accept results that belie Neoclassical theory). On the other hand, the deduction of demand for coffee or rice from the autonomous psyche is ideological nonsense.
As for pecuniary indices which governments have created for administrative purposes, such as “inflation” or GNP, whether economics need to recognize them even as an operative fiction is an open question.
I am sneaking up on a critical
analysis of the existing economy by making qualitative studies of this or that
piece of commercial activity.
What businessmen actually do. (Enron
etc. etc.) It can never be spoken about
in school for obvious reasons: the
Establishment and the criminals are one and the same.
b) Special sectors, such as lending, i.e. interest as income. Although Neoclassical economics legitimates lending at interest, economic institutions continue to treat lending as highly suspect. The possibility of economic activity at all is dependent on a line of business which continues to be highly suspect, like selling addictive drugs.
There is a tradition in which academic economists advocate various adaptations of socialism. We may look back at:
Oskar Lange, On the Economic Theory of Socialism
Barone, “Ministry of Production,” in F. von Hayek, Collectivist Economic Planning.
Janos Kornai, Mathematical Planning of Structural Decisions
Kornai and Lipták, “Two-Level Planning,” Econometrica, 1965, 141 — for which see Dantzig and Wolfe, “The Decomposition Algorithm for Linear Programs,” Econometrica, 1961, 767.
Janos Kornai, in Malinvaud, ed., Activity Analysis in the Theory of Growth and Planning
That the economists are academic typically means that they espouse the Walrasian project—maximization, efficiency, optimality (and the underlying rationale of intrinsic prices). They want socialism to simulate, via shadow prices etc., the operations of a private enterprise economy (already proved to be optimal under convex assumptions). In each generation, new names come to the fore in quasi-Walrasian socialist discourse. Today we may mention:
R. Hahnel [American U.] and M. Albert, multiple publications
John Roemer [Yale], A Future for Socialism (1994)
Joseph Stiglitz [Columbia], Whither Socialism? (1994)
Pat Devine [Manchester U.], course on comparative systems
No Walrasian adaptation of socialism needs extended comment from us. The “assistance” rendered to socialism by Lange, Lerner, Horvath, Kornai, and others too numerous to name was fulfilled when “socialism” collapsed c. 1990. Kornai’s personal odyssey from pseudo-socialist technocrat in Hungary to evangelist for private enterprise at Harvard—or the feeble dénouement of Roemer’s Debreuist Marxism—says it all.