Prospect: The Economic Phenomenon
2004
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.
a)
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.
Postscript
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)
and
supplementally
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.