Archive for the ‘Psychology’ Category

money crank illuminati

I’ve been asking myself that question rather a lot in the past two weeks. This is because I have had two separate commissions for pieces of writing that require me jump down the rabbit hole into the land of the money cranks. One piece is for a magazine and is about gold bugs and their ilk. The other is for an encyclopedia and deals with the Real Bills Doctrine.

To be frank, the Real Bills stuff is actually in some ways worse than the gold bug stuff. Whereas the gold bug stuff is pretty straight-forward and basically in line with the quantity theory, the Real Bills stuff is all over the place. The basic “insight” is simple — that is, money-loans backed by assets that yield real income will not cause inflation — but the various and almost never-ending articulations and re-articulations become ever more murky and confused the digger you deep.

So, what then constitutes a money crank? Well, first of all let’s run through a few names and try to decide if they are money cranks. I will be doing this more so from intuition at this stage rather than by appeal to argument. I will try to build an argument around the intuitive examples I give thereafter.

Was Irving Fisher, founder of the famous Quantity Equation, a money crank? I don’t think so. Was John Maynard Keynes in his Treatise on Money a money crank? Again, I think not. Were Milton Friedman and Anna Schwarz money cranks when they wrote their A Monetary History of the United States, 1867–1960? I would answer in the negative. What about Nicholas Kaldor in The New Monetarism and Joan Robinson in The Rate of Interest and Other Essays? Again, no. The MMT economists? I think not. Finally, what about David Graeber in his book Debt: The First 5,000 Years? Nope, I really don’t think so.

As the reader can appreciate that list contains a number of people with different opinions and different backgrounds. Most are trained economists, for example, but Graeber is an anthropologist and largely an autodidact on monetary theory. It also contains some people that I strongly disagree with on monetary matters, like Friedman and Schwarz. I wanted to include all of these to show that the criteria for what constitutes a money crank should have nothing to do with (a) academic background or (b) whether I disagree with the theories or not.

Now, let’s list some people who I do consider money cranks. Murray Rothbard is, I believe, a money crank. But he is of a more softcore variety. On the left is Silvio Gesell, albeit he is of a more softcore variety. Antal Fekete is what I would consider a hardcore money crank. What about media figures like Peter Schiff and Marc Faber? I don’t believe that these two constitute money cranks. Rather I think that they draw upon the stories spun by money cranks to sell their respective products — whether that be themselves as media figures or financial positions managed by their companies. They are better seen as ‘pop money cranks’ who spread the heavily condensed Gospel to the masses in the form of soundbites.

So, what are the commonalities that go to make a person a money crank? If I must summarise I think it would be as follows: in order for someone to be a money crank they must meet one of two criteria. One such criteria is that their analysis of money must be tied up with strongly normative views of how the money system should function. Now, obviously most monetary theorists will have some normative views about how the system should operate, but I think that we can draw a distinction between, say, the view of Friedman that central banks should stick to monetary targets and, say, the views of Rothbard.

We can get a clearer idea of the divergence by quoting from both writers. The chapter headings of Rothbard’s work What Has the Government Done to Our Money? are instructive in this regard (as is the title of the work itself). These include:

Government Meddling With Money


The Monetary Breakdown of the West

The content is quite in keeping with the titles too. In the subsection entitled Government and Money Rothbard writes,

Furthermore, government meddling with money has not only brought untold tyranny into the world; it has also brought chaos and not order. It has fragmented the peaceful, productive world market and shattered it into a thousand pieces, with trade and investment hobbled and hampered by myriad restrictions, controls, artificial rates, currency breakdowns, etc. It has helped bring about wars by transforming a world of peaceful intercourse into a jungle of warring currency blocs.

Now compare this to some of Friedman’s writings on the desirability of his monetary policy rules. The following is from his paper The Role of Monetary Policy,

By setting itself a steady course and keeping to it, the monetary authority could make a major contribution to promoting economic stability. By making that course one of steady but moderate growth in the quantity of money, it would make a major contribution to avoidance of either inflation or deflation of prices. Other forces would still affect the economy, require change and adjustment, and disturb the even tenor of our ways. But steady monetary growth would provide a monetary climate favorable to the effective operation of those basic forces of enterprise, ingenuity, invention, hard work, and thrift that are the true springs of economic growth. That is the most that we can ask from monetary policy at our present stage of knowledge. But that much and it is a great deal-is clearly within our reach. (p17)

Note carefully the difference in tone. Rothbard gives off an impression that this is all quite personal. Someone has, in a very real sense, done him an injustice… personally. Terms like “meddling” and “tyranny” are thrown around to show that all the ills of the world are tied up with the money system. This highlights something of interest. Whereas in, say, Marx we find a similarly agitated tone, we do not find this tied to something occurring in the money system. That is why Rothbard is a money crank and Marx is not. Marx’s ire is primarily political, Rothbard’s is primarily tied to the money system — for Rothbard politics and the money system cannot be separated.

For Friedman, however, there is no indication that the money system gets him hot and bothered. For him it is just a means to an end. He has set goals in mind for society — goals that are largely in keeping with the economic consensus — and the money system is merely a means to bring about these goals. Whereas one can imagine Rothbard foaming at the mouth and genuinely affronted by a Federal Reserve open market purchase, one cannot imagine the same to be true for Friedman.

This criteria may be outlined as such: a money crank is a person who views the money system from a position in which they have substantial emotional investment.

Rothbard, however, is tame in comparison to a writer like Fekete. In his poorly written work The Gold Standard Manifesto: “Dismal Monetary Science” he writes,

Governments and academia have utterly failed in discharging their sacred duty to provide a serene environment for the search for and dissemination of truth regarding economics in general and monetary science in particular. This failure has to do, first and foremost, with the incestuous financing of research ever since the Federal Reserve System was launched in the United States in 1913… Under the gold standard government bonds were the instrument to which widows and orphans could safely entrust their savings. Under the regime of irredeemable currency they are the instrument whereby special interest fleeces the rest of society.

Or again,

Unknown to the public, at the end of the day the shill is obliged to hand over her gains to the casino owner, alias the United States Treasury. There is nothing open about what is euphemistically called ‘open market operations’. It is a conspiratorial operation. It has come about through unlawful delegation of power without imposing countervailing responsibilities. It was never authorized by the Federal Reserve Act of 1913. It defies the principle of checks and balances. It is immoral. It is a formula to corrupt and ultimately to destroy the Republic.

Such passages are pretty off-the-wall. The money system is portrayed as a vast conspiracy set up to defraud widows and orphans. Here we see that Fekete is far more hardcore than Rothbard. Whereas both agree that the government “meddles” with money and this is undesirable and leads to some sort of personal injury, Fekete goes one step further and portrays the system as an organised conspiracy set up against the vulnerable. Let us now turn to the second criteria that a person can meet to be considered a money crank.

This criteria is often, but not always, tied to the first. It is: the idea that all of society’s ills can be solved merely by reorganising the money system. Often the proposed changes must be extremely complex and little thought is typically given as to how really existing social institutions — which arose less by design than by necessity — will integrate the proposed changes. This, I think, is why Gesell falls into the category of money crank.

I cannot quote it at length here but the interested reader should have a look at the section of his work The Natural Economic Order entitled Description of Free Money. There you can see a highly complex exposition of how the money system should be changed to liberate mankind. The problem with such expositions are twofold. First, as already mentioned, it is well-nigh impossible to redesign institutions that have arisen organically — the money system is one of such systems. Second, the idea that the Grand Plan would work out just as it did on the back of the author’s envelope is deranged. No one seriously interested in economic policy could rationally believe such a thing. Plans only work when they are highly simplified — and even then they will have enormous unforeseen consequences.

So, let’s state this criteria in no uncertain terms: a person who believe that all, or the vast majority of, social ills are caused by the current money system and thus can be solved by implementing an imaginary money system that they have designed can be safely considered a money crank.

Anyway, I doubt that the above is completely comprehensive. But I think it lays down a few general observations that might help in distinguishing between monetary theorists and money cranks. Of course, as with most of these things there may be some that fall outside of the criteria here laid down who are nevertheless money cranks. In that regard, the reader can only but trust their own judgment.

Finally, I would say that we should not think that money cranks have nothing to offer. I am sure that right-wingers can find suggestive insights in Fekete’s work and I think that the left can find a few in Gesell’s work (in the General Theory Keynes certainly thought so). This is because of these writers almost monomaniacal focus on the money system. Most monetary theorists, as I have said, view the money system as a means to an end and thus they do not obsess over it any more than they need to. Money cranks do, however, and that can often lead them to generate minor insights that conventional money theorists miss. But a crank is still a crank. And that should be at the forefront of peoples’ mind when approaching the works of any money crank. Because it is far easier to fall down the rabbit hole than it is to crawl back out.

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mans world

Some time ago I made a remark that the bias toward mathematical modelling in economics might have to do with the male bias of the discipline. More specifically, I argued that models provided a stand-in for the economist’s own person — their ‘I’, as it were. I then went on to write,

Males in contemporary society have a far greater need to assert themselves as static ‘Is’ than females. An attack on models can easily be taken as an attack on one’s masculinity while, more radical still, an attack on modelling in general can be taken as an attack on contemporary representations of masculinity.

I got quite a few comments on this. They were all positive, all from men and all sort of said “oh, I’d never thought of that before — it makes quite a bit of sense”. Well, today I’m going to lay out the argument of the essay that I referenced. It is entitled Explaining Modern Economics (as a Microcosm of Society) and it is by Vinca Bigo.

One or two things before I begin. The essay contains quite a bit of psychoanalytical theory. Nothing too controversial, mostly object relations stuff. But I know that some people will roll their eyes and think that both the author and I are engaged in psychobabble. In other cases I might be inclined to agree. People are all too often ready to use psychological pseudoscience to simply beat up on others — I cringe whenever I hear of particular social groups being designated as ‘narcissistic’ or ‘psychopathic’. But I don’t think that is what Bigo is doing here.

Rather she is trying to understand why (mostly male) economists try to conceive of the world in what can only be described as a fantasmatic way. After all, what is a fantasy if not an act of imagining into being a world or elements of a world that have no real existence? And what is economic modelling if not this? What Bigo is trying to grasp is what emotional needs such fantasies satisfy and why these emotional needs are disproportionately found in males.

Bigo starts off by describing the idea of separation in object relations theory. It runs something like this: when human beings are babies they find it difficult to distinguish between themselves and the external world. This is extremely obvious in that human babies do not even have very sufficient control over their own limbs. Thus, the limits that I perceive on the boundaries of what is me and what is not me — that is, the boundaries between what my mind has control over and what it doesn’t — is not at all clear to human babies.

For this reason human babies psychologically perceive their primary caregiver — usually the mother — as being part of themselves; i.e. as being a component of the world over which they control. They cry for food. Food appears. They cry because they soil themselves. The feeling of being soiled disappears.

When the baby begins to become aware that a separation must take place and that the primary caregiver is actually a different person than themselves — i.e. a foreign Other — anxiety ensues. This is known in object relations theory as ‘separation anxiety’ and although it is a rather unpleasant part of the maturation process it is absolutely essential to the formation of a coherent personality. Indeed, think of the popular cultures jokes about people who never truly navigate this separation — I think here, specifically, of the character Buster in the television show Arrested Development, but this is certainly a comedy archetype.

Bigo notes that as the baby matures it often finds what are known as ‘transitional objects’. That is, objects of affection — like teddy bears or beloved rugs — that allow the child to feel like they have some control over something resembling a primary caregiver. In psychoanalytical theory such objects are manifestations of defences against anxiety. This is all quite normal so far as development goes but there are cases in which children develop fantasy reactions against such anxiety. Fantasies of omnipotence — especially concerned with the predicting of the future — are, as Bigo notes, quite common in this regard.

Anyway, Bigo goes on to apply this to the modellers. She claims that their rejection of non-modelling economics is a sort of rejection of the Other and their desire for depiction is a defence against an anxiety associated with Uncertainty. This is where I disagree with Bigo. I don’t think that there is anything particularly pathological going on here — although I think that the underlying issues are pretty much in line with what she is talking about.

She thinks that mathematical modelling is about excluding non-mathematical approaches. I think that this is only secondary. The primary reason it is so importance is because it reestablishes a relationship of total control. Much like in the case of a transitional object, a mathematical model builds a little world, a closed system, over which the modeller is omnipotent. What results therefrom is first and foremost a fantasy of control.

Again, this is not pathological per se. After all, something similar is going on when adults play with model trains sets or engage in stamp collection. These activities are in no way pathological provided they are not causing the person psychological pain — as might happen if the person became overly obsessive about stamp collection. But they are activities that probably have their roots in some sort of transitional object relation.

The problem that I would highlight is not with the psychology but rather with the economics; the economists tend to treat these little fantasies as representing reality. This is especially obvious when they apply them directly to data using macroeconometric regression techniques. This is an epistemological error bordering, frankly, on socially-sanctioned delusion.

But what about the gender question? Well this is where I fully agree with Bigo’s conclusions and will let her state her position herself as she summarises it better than I could.

Anxiety resulting from the processes of separation of the sort described above affects most, if not all, of us to varying degrees. But there is a systematic tendency for it to be experienced more starkly by boys, and ultimately by men. Gender identities are formed mostly out of family relations. Typically, the mother–child relation is the earliest most important one. Clearly,there is an asymmetry, as (usually) girls are cared for by adults of the same gender, whereas boys are not. This bears crucially on the processes of separation, or of coming to recognise and accept differences. Boys react and develop by registering their difference from the mother, and the emphasis becomes precisely that of (a sense of) separateness. This process is said to involve a degree of necessary differentiation and rejection (also involving splitting), as well as desire and/or envy.

Girls, on the other hand, in identifying with the same sex carer, will tend to develop a more relational way of being, seeking continuity over rupture. They react by perceiving sameness, and the emphasis becomes that of interdependence (association or relationality), rather than independence. Conversely, mothers are close to their infant sons, but they view their male children as different (both physically/bodily and socially, and in many ways of which they are not easily conscious), and do not share with them the same sense of ‘oneness’ that they experience with their daughters. (pp18-19)

I think that this is basically correct and explains a lot about the different (generic) psychological profiles about the average man and the average woman (exceptions are not sins, of course!). But men are far more sensitive about maintaining control over the world in a very narrow manner than women. They tend to be worse at seeing things in different and nuanced ways. And they have a marked tendency to try to provide totalising explanations so as to feel a sense of oneness and omnipotence with the world around them**.

This is, of course, where modelling in general and macroeconometric modelling in particular come in. They provide the tools to construct such fantasies of oneness and completeness. After all, a closed model has no uncertainty, nothing that is not fully understood and articulated and when it is applied econometrically the game becomes to get the highest score (t-statistic or R-squared or whatever) and thus — please note the potential double-meaning here — the closest ‘fit’ with the real world. That such an enterprise should produce nothing of genuine relevance is entirely besides the point because the point is to construct a fantasy world, not to engage with the real one.


** I do not want to be seen here as engaging in crude male-bashing of the kind so often found in feminist circles; indeed typical female psychological development leads to its own blindspots and shortcomings — it’s rather difficult to be perfect, thank you very much! What I’m really trying to point to is that in economics these male psychological blindspots have, in a sense, gone completely mad and gotten completely carried away with themselves. Some of this may be due to the tendency to exclude women from the discipline, but I think that is more so an effect than a cause; most of it is probably more so due to the status economics holds in society. Without going into too much detail, economics is something of a Totem in contemporary society and Totems tend to be obsessively and ridiculously masculine endeavors.

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wrong or right ethical question

In a recent post Lord Keynes raises the question of the so-called ‘law’ of diminishing marginal utility. The ‘law’ states that we will derive ever diminishing satisfaction from the acquisition of a good or service. Lord Keynes notes that this is true for some goods — like washing machines — but may not true of others. He gives a number of examples — such as addictive arcade games and drugs — that seem to defy the ‘law’.

I think that it is interesting to note that all the examples he gives might be considered in some way to be ‘pathologies’. I don’t mean that they would be taken to be pathologies by marginalist economic theory — although they undoubtedly would — but rather that they would generally be taken to be pathologies in the most widest of senses; they would be manifestations of psychological, sociological and, ultimately, moral pathologies.

Actually, I would argue that it is the latter which is at the root of all this: such activities are properly seen, in any social discipline, as simply moral pathologies — this despite the fact that this term may be left out and replaced with other codewords (‘socially destructive’, ‘psychologically destructive’ and so on). At base, however, is a moral judgement: such activities are bad for either the individual, society or both. That is a moral judgement.

Viewed in this light the so-called ‘law’ of diminishing marginal utility is actually somewhat of a moral imperative. It does not so much tell us what we do but rather what we, at some level, should do. We can highlight this clearly by returning to the washing machine example.

Imagine for a moment that someone suffering from what we would consider to be a psychological disorder — perhaps some combination of OCD and hoarding — was obsessed with collecting broken washing machines. Imagine that they took them regularly from the dump and brought them home and filled their house and gardens with these objects. Although I am making up the washing machine example, this is a very real phenomenon and was dealt with in this psychological training film.

Now people suffering from this disorder clearly do not adhere to the ‘law’ of diminishing marginal utility. But what makes this a disorder? I would argue that the term ‘disorder’ here is moral in tone. I would argue that it is based on what we consider normal or good as a society. In short, I would say that when we apply the term we are in effect saying: “You are not engaged in activity that constitutes the Good Life”.

I do not want to diminish the fact that people suffering from such disorders are made unhappy by them. But what I am saying is that if these activities were looked upon as culturally normal and everyone did them then they would not be considered disorders and would not cause people pain. The determinants of what does and does not constitute normal behavior is ultimately a rather arbitrary function of what is considered normal by a given society. What may be pathological in one society may be the path to the Good Life in another.

Perhaps the best recent example of this is the case of homosexuality in the 20th century. Although Freud and the early psychoanalysts had rather progressive views on homosexuality, later psychology pathologised it in the same manner it had been pathologised in the 19th century. The first two editions of the Diagnostic and Statistics Manual (DSM), which is used by working psychologists and psychiatrists as a guide to diagnosis, listed homosexuality as a sexual deviation. In these years most of those working in the mental health professions would have seen it as their duty to ‘cure’ homosexuals by helping them lead ‘normal’ lives.

Homosexuality was removed from the DSM in the early 1970s. Why? Because psychologists and psychiatrists had found new evidence indicating that it was not a sexual deviation? No. The fact is that culture was changing and the DSM was trying to get in line with changing social norms. Nowadays if a homosexual walked into a mental health clinic you can be sure that the attendant psychologist would be far more concerned that they might be repressing their sexuality rather than practicing it!

The point is that what was once considered to be a deviant behavior is now seen by many as being, for people with such urges, the path to the Good Life. Nothing has changed about the behavior at all. Nor has anything changed about the evidence (or lack thereof) that homosexuality is either ‘normal’ or ‘pathological’. Rather society has changed and has integrated homosexual behavior largely into the mainstream.

Now that we understand how normativity broadly works in the so-called social sciences let us turn to a notion that goes right back to the ancients and that relates to marginalist microeconomics is a most immediate way.

In Western societies — and indeed, I would think in most — the idea of temperance is an important one. We can find this in writings of the early Greek philosophers. In their writings on ethics these philosophers tried to teach regimes of behavior that would lead to ‘eudaimonia’ which translates as (economists take note) ‘welfare’. A key component of reaching a state of eudaimonia was moderation or temperance. Another key component was in using Reason to moderate and organise one’s existence — the similarity to the rational agents of modern economics is no coincidence, as these are part of similar intellectual projects.

(For an extensive discussion of ancient regimes of normative ethics I encourage the reader to pick up Volume II and Volume III of Michel Foucault’s excellent The History of Sexuality which, despite the titles, go far beyond simply dealing with sexuality).

This was an extremely extensive intellectual and ethical tradition that encompassed most of Western philosophical thought in the following millenia. But there was another tradition that existed all the way back to ancient times.

In the 19th century Friedrich Nietzsche distinguished the two. The first tradition — that which championed Reason, eudaimonia and so forth and which ran from Plato through Aristotle to Bentham and Hegel — Nietzsche termed the ‘Appollonian’ tradition, after Appollo, the Greek god of Reason. The second tradition — which represented excess and intoxication and ran from the Greek tragedies like Antigone through the German Romantics to Freud — Nietzsche termed the ‘Dionysian’ tradition, after Dionysus, the Greek god of wine.

Nietzsche argued that this excessive element in culture — which would be termed the ‘passions’ in philosophies like those of Spinoza and Hume or ‘drives’ in Freud — was not only always present in culture but was required for culture to move forward and thrive. It was this excessive element that gave Western culture its dynamism; its tendency to break boundaries; and to champion the newly discovered.

Without getting too deeply into this, however, I think that the reader can now appreciate that what is contained in the ‘law’ of diminishing marginal utility is deeply tied up with certain notions of ethics, morality and what is the ‘right’ and ‘wrong’ way to live one’s life. My point here would be threefold:

(1) When discussing human behavior and social organisation the moment we begin to speak of ‘normal’ behavior we are implicitly designating other behaviors as ‘pathological’. This is ultimately a moral judgement.

(2) The notion of ‘normal’ behavior relies on its obverse. If there were not ‘pathological’ behavior the idea of ‘normal’ behavior would be semantically meaningless. Thus, the idea of ‘normal’ behavior cannot exist without the existence of ‘pathological’ behavior. This means that any ‘laws’ that seek to establish norms for behavior actually undermine themselves as their norms rely, by definition, on cases that do not fit into these norms.

(3) Human activity always contains both Appollonian and Dionysian aspects. Innovation and entrepreneurship, for example, are Dionysian behaviors that involve taking incalculable risks buttressed by ‘animal spirits’** while the calculations of profit and loss utilised in carrying them out are Appollonian. In trying to suppress the Dionysian aspects of human existence — which I would argue is the function of marginalist microeconomics — we only succeed in remaining ignorant of a key component of human culture and psychology.

Beyond that, I think that people should be very well aware of the fact that microeconomics is an ethical doctrine –  as are many aspects of the so-called social sciences — and it should be judged accordingly. By positing it as a ‘science’ we are only engaged in ethical dogmatism — that is, we are giving its ethical proclamations a dimension of Absolute Truth which they simply do not possess. That is why so many are fooled by its form. Marginalist microeconomists convince themselves that they are engaged in ‘science’ when really all they are doing is applying a dogmatic ethical framework to the material they study. They are, rather humorously, priests who do not know that they are priests.


** The clever reader will note here that Keynes’ theory of financial markets and investment are eminently Dionysian. Indeed, I think that a Dionysian tone resonates in all of Keynes’ work — and I think that his writings on probability should properly be seen as an attempt to insert Dionysian considerations into the all too Appollonian discipline of mathematical philosophy. Whereas economics before Keynes was based on the hokey Appollonian doctrine that the virtue of rational saving was what led to economic growth, Keynes turned this on its head and showed that such saving could be socially destructive and that economic growth was dependent on the Dionysian actions of investors taking action in the face of an unknown future.

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I thought that the discussion in this clip from about 7.40 on was extremely interesting. Watson discusses how introductory textbooks — particularly Greg Mankiw’s — ask students to suspend their disbelief in the models that they are being taught. The idea, as Watson says, is to start getting them more and more comfortable with the formal framework — what Mankiw calls “thinking like an economist”.

This, I think, is precisely what an education in mainstream economics is really all about. In a piece I wrote entitled The Ideology to End All Ideologies I wrote,

Marginalism, and consequently modern microeconomics, is all about the ordering of one’s behaviour. It is, like any rigid metaphysical system of morals handed down from on high, about organising one’s desire. What marginalism seeks to do, at a very basic level, is to give a person a rigid worldview that is completely metaphysical and unreal in nature from which they can derive a manner in which they should act and behave.

That is precisely what Watson is referring to in the above clip — and that is precisely what Mankiw means when he asks students to suspend disbelief and start “thinking like an economist”.

What Mankiw and others do is very similar to what Scholastic theologians used to do in the Middle Ages. They would teach doctrines that did not seem at face to have very much to do with reality. But they would cover for this by invoking the supposed fact that these doctrines were a source of Truth because they came from some sort of Divine Beyond. Now that the appeal to Divinity has lost its edge the economists, our modern day theologians, make appeals to something called Science.

In the Western world most of us have been taught from birth — in school but also on television and in popular media — that Science is something sacrosanct and has an access to something called Truth. The effect this has on the vast majority of people is that anything that is labelled ‘science’ — and anything that appears to have certain characteristic formal properties (mostly mathematical) — is then thought of as having some sort of authority.

This shuts down critical thinking just as quickly as any appeal to Divinity in the Middle Ages — for the faith in and reverence for this thing called Science is just as strong today as was the faith in and reverence for Divinity in times past.

The psychology behind this needs to be studied in more detail. Here I can only really give an example from my own life and experience.

I recall when I was about maybe 15 or 16 years old. I was raised Roman Catholic but had not believed in those doctrines for at least 3 or 4 years. When I was in my mid-teens, however, certain questions about who I was and how I should behave and how the world should be organised came to the fore in my mind. I remember thinking clearly that Science must be the answer.

At the time this seemed so obvious as to not beg any questions but now that I look back on it I think that it was the product of years of indoctrination — indoctrination that was far more pervasive and far more penetrating than anything that had come out of the Catholic Church. Science was everywhere. It was in every newspaper article, on every television show and it was always portrayed as having access to some sort of Truth.

(I should also say that I think that the moral structure handed down by the Catholic Church — one which Science does not even pretend to provide — probably has more bearing on how I view politics, human psychology, social problems and proper conduct than anything that Science has ever provided me with. And I would even dare to say, given that Science tries to avoid value judgements, that the same is probably true for the vast majority of people born in this century or last — despite whatever Creation myths they may tell themselves about how they generated their morality ex nihilo or derived them from principles of Science or Enlightenment…).

In my teenage mind I just knew that Science must have answers to my questions. Of course, I did not know what these answers were. For example, it sounds rather nice that science could facilitate the organisation of society — and in my 15 year old mind that was an Absolute Truth — but what that actually means is now, I must admit, very very unclear. I suppose it meant something like “applying the principles of science to social problems will yield results”. But that simply begs the questions as to what these ‘principles of science’ actually are.

It is out of this void that nonsense emerges. I can see that quite clearly now. It is out of an almost identical impulse that Samuelson wrote his famous textbook. And it is just one or two steps from there to Mankiw asking us to “think like economists”.

The rather ironic thing about this is that I think most scientists would quickly suspect that there is something fishy about economics. I think that this is because it lays bare the claim to social authority they have in rather naked form. Mainstream economics is so perverse in its reasoning that it would make most scientists recoil in horror. But the unfortunate fact is that they get their authority from the very same source as the economists.

Yes, modern mainstream economics is far less true — with a small ‘t’ — than, say, certain physical laws that are used daily to tackle engineering problems. But nevertheless those who expound these physical laws do not, as many suppose, have access to any Truths — with capital ‘Ts’. Indeed, many of the physical laws that science actually utilises today are open to doubt or even falsified at the higher levels of the discipline.

Perhaps modern mainstream economics is in the decline today. Then again, perhaps it is not. But there will always be some other wacko, quack-science waiting to fill the gap. And whatever shape it takes it will take advantage of the pretense to Truth on which science today rests in order to declare itself the Rosetta Stone with which we can decode the Meaning of Life. People will then be asked — as they are in any cult or swindle — to suspend their belief and try to see the world through a new lens which will then come to colour every perception they receive and every interpretation they make. That is how you generate a priest caste in an era when religion has lost it’s authority.

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In her excellent book Economic Philosophy (available as a PDF here) Joan Robinson undertakes an extensive discussion of marginal utility theory. Here I will be more so interested in her technical criticisms. But before going into these it should be noted that Robinson characterises the impetus of marginal utility theory in a way many might find unusual.

Basically, she claims that it is a revolutionary leftist doctrine. The reason she makes this claim is because if we apply the law of diminishing returns to income it soon becomes clear that radical egalitarianism — indeed, some sort of socialism or communism — is the best manner in which to maximise the utility of society as a whole. Robinson points out that the early marginalists — many of whom, like Walras, were socialists — recognised this full well. She quotes Alfred Marshall in this regard,

Next we must take account of the fact that a stronger incentive will be required to induce a person to pay a given price for anything if he is poor than if he is rich. A shilling is the measure of less pleasure, or satisfaction of any kind, to a rich man than to a poor one. A rich man in doubt whether to spend a shilling on a single cigar, is weighing against one another smaller pleasures than a poor man, who is doubting whether to spend a shilling on a supply of tobacco that will last him for a month. The clerk with £100 a-year will walk to business in a much heavier rain than the clerk with £300 a-year; for the cost of a ride by tram or omnibus measures a greater benefit to the poorer man than to the richer. If the poorer man spends the money, he will suffer more from the want of it afterwards than the richer would. The benefit that is measured in the poorer man’s mind by the cost is greater than that measured by it in the richer man’s mind. (pp52-53)

She also points out that Wicksell — another socialist — considered marginalist economics to be a “thoroughly revolutionary program”. I think Robinson is correct. Marginalist doctrines fit market socialist or market communist societies better than they do capitalist ones. That today’s marginalist economists think otherwise is merely indicative of their extreme lack of imagination: there are no Marshalls or Wicksells among today’s oh-so vapid marginalists.

For this reason Robinson’s criticisms of marginalism should not be read as being politically motivated. Indeed, criticisms of marginalism should be insulated from all politics. The simple fact is that marginalism is wrong not because it leads to right-wing politics — this simply isn’t true — but because it is a logical mess. This is where Robinson’s more technical criticisms come into play.

First she lays of what the term ‘utility’ means to marginalists. In doing so she quotes Marshall once again.

Utility is taken to be correlative to Desire or Want. (p48)

Actually it is slightly more complicated than this because, as Robinson points out, utility is also tied up with satisfaction. If we agree that we should have economic agents maximise utility then we assume that their Desires or Wants are leading to some sort of satisfaction. If we did not implicitly think this then the principle of utility maximisation would not be socially desirable. Robinson raises the examples of the drug addict and children who dislike school; are we really to say that these people should be allowed maximise their utility? Presumably not.

These are interesting points — although I’m sure that marginalists could concoct a scheme to reintegrate such anomalies into their vacuous framework — but this is not the key problem with marginalism for Robinson. In order to highlight this problem she again quotes Marshall to make clear the marginalist position.

There is however an implicit condition in [the law of diminishing utility] which should be made clear. It is that we do not suppose time to be allowed for any alteration in the character or tastes of the man himself. It is therefore no exception to the law that the more good music a man hears, the stronger his taste for it likely becomes; that avarice and ambition are insatiable; or that the virtue of cleanliness and the vice of drunkenness alike grow on what they feed upon. (p50 — My Emphasis)

Robinson might equally well have quoted Samuelson who in his famous textbook Economics wrote,

What is assumed is that consumers are fairly consistent in their tastes and actions – that they do not flail around in unpredictable ways, making themselves miserable by persistent errors of judgement or arithmetic. (p78)

Robinson doesn’t let the marginalists get away with this rather obvious blunder. She is quick to point out that this condition, one which is absolutely essential for marginalism to function, turns the theory into vacuous babble.

We can observes the reaction of an individual to two different sets of prices only at two different times. How can we tell what part of the difference in his purchases is due to the difference in prices and what part to the change in his preferences that has taken place meanwhile? There is certainly no presumption that his character has not changed, for soap and whisky are not the only goods whose use affects tastes. Practically everything develops either an inertia of habit or a desire for change. (p51)

This is a damning indictment of marginalist theory. It means that, in a very real sense, the framework cannot be applied to empirical material. Because it necessarily assumes fixed preferences it cannot deal with changes in these preferences. And due to this it cannot conceive, in experimental settings, of how much consumer activity responds to price fluctuations simply because it does not — and, indeed, cannot — assign any numerical value to preferences that are in a constant state of flux. Robinson continues,

We have got one equation for two unknowns. Unless we can get some independent evidence about preferences the experiment is no good. But it was the experiment that we were supposed to rely on to observe the preferences. (p51)

Let me just restate what Robinson has just pointed out so that people are crystal clear on this point. Marginalist doctrine claims that we cannot measure utility directly. We know of a person’s utility only due to the fact that they buy something — this is called ‘revealed preferences‘ in the literature. So, we only know the cause — i.e. the utility of a purchase — by the effect it produces — i.e. the actual purchase that is made by the consumer. If we consider preferences as being fixed then this makes some sense. But if we allow that preferences fluctuate the whole edifice falls apart because now we cannot be sure to what extent consumer decisions have changed due to price changes and to what extent they have changed due to a change in preferences.

My feeling is that if this was pointed out to, for example, Marshall or Samuelson they would have conceded the problem to undermine marginal utility theory as they had sharp minds and actually understood the structure of theories that they were dealing with. Most marginalists today, who tend to be exceptionally poor at basic logic, cannot understand this criticism at all. They convince themselves that they can integrate changing preferences blissfully unaware that if they do so the entire framework collapses because it becomes impossible to determine which change in consumer behavior emanates from the changed preferences and which change emanates from price changes.

In reality the theory of marginal utility is entirely without substance. All it provides is a set of puzzles that would-be economists spend vast amounts of time trying to solve. The theory of marginal utility is not, despite appearances, an economic theory. At best it is a parlor game played by economists; at worst it is a doctrine which seeks to morally shape the minds of men.

What’s worse today, since the so-called microfoundations critiques (another doctrine that is internally logically inconsistent), economics is using utility nonsense even in the sphere of macroeconomics. Meanwhile, figures like Gary Becker are attempting to colonise other social sciences with these incoherent dogmas. Unfortunately, Robinson didn’t see just how polluting the marginalist doctrines could possibly be.

Addendum: I have written extensively on marginal utility theory before. Here are what I consider to be the most important things I have written — I list them in order of importance.

The Ideology to End All Ideologies — A Response to Corey Robin on Nietzsche, Hayek, Mises and Marginalism, Naked Capitalism, May 13th 2013

Marginal Utility Theory as a Blueprint for Social Control, Naked Capitalism, October 3rd 2011

Confessions of a Non-Utilitarian Shopper, Naked Capitalism, October 7th 2011

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The other day I wrote a post that was about some awful load of nonsense that was coming from behavioural economics under the self-contradictory name of ‘libertarian paternalism’. Since then I’ve been looking into behavioural economics in some detail and what I’ve found, rather predictably, is no less awful.

You see, while behavioural economics has done the profession an enormous service in pointing out the obvious — i.e. that perfectly optimised utility functions are rubbish — it has nevertheless sought to maintain intact the utility calculus framework, albeit in a more experimental guise. Thus behavioural economics continues to chase the ends of rainbows for pots of gold of various kinds.

Given that measures of ‘objective happiness’ based on well-ordered, timeless preferences is obvious nonsense, it is nevertheless interesting to investigate in some detail how the behavioural economists go about constructing these. What you find when you look into it is all sorts of moral judgements slipped in under the radar. I take as my example Daniel Kahneman’s chapter ‘Objective Happiness’ in the book Well-Being: Foundations of Hedonic Psychology.

Okay, so here’s how the basic framework functions. The behavioural economist approaches an experimental subject in the process of undergoing a state of pleasure or pain. In the chapter Kahneman gives the example of a patient undergoing a colonoscopy.

Now, the researcher then gives the patient a scale of one to ten and tells them that they should register how painful (or pleasurable) their experience is. The researcher must also recognise that the intervals may not be homogenous. So, for example, the pain-interval from 1 – 2 may not quantify as much pain as the pain-interval from 8-9. This is remedied, somewhat vaguely, by a ‘knowledgeable observer’ who re-orders the intervals to capture this dynamic. Kahneman does not give precise details of how this is done rendering even his basic framework suspect.

It is not arbitrary that the venture should begin to look fragile and shaky even at this point. Let us imagine, for example, that a person can realistically convey the pain they are feeling using a scale of one to ten — I am somewhat skeptical of this, but let us nevertheless pretend as if it were the case. Now imagine that a person must calculate that, for example, one minute of pain at Level 7 is equivalent to two minutes of pain at Level 6.

I would say that anyone who finds this remotely convincing is fooling themselves because the whole things sounds appealingly neat and tidy. But regardless, let us ignore these scruples and continue along.

The next oddity that arises in the Kahneman framework is the slipping in of various moral judgements. Take his ‘principle of temporal integration’, for example. This, he writes, is “consistent with the intuition that it is imprudent to seek short and intense pleasures that are paid for by prolonged mild distress” (p6). Note even the language applied here: it is ‘imprudent’. This is Victorian morality at its purest, passing itself off as an abstract principle.

Of course, in reality people engage in such ‘imprudent’ activities all the time; when they drink too much alcohol, for example, or when they play hazardous sports. But the behavioural economic Moral Majority does not want to hear about any of this. These activities, after all, violate the sacred principle of temporal integration!

The entire utility calculus then falls prey to what we might call, to rename the ‘principle of temporal integration’ in a likewise pretentious fashion, the tyranny of the average. What we find is that Kahneman thinks that we need to homogenise human experience in order to properly understand the ‘utility’ that it leads to. Extremes of pleasure are avoided in favour of a sort of numbing ‘happiness’.

Again, we’re on moral terrain here. This sounds much like the old Victorian cant that we need to lead a moderate existence and to engage in temperance so forth. I must be clear: if some people wish to lead boring lives where decisions are made based on some sort of ‘smoothing’ of pleasures over time, that is their prerogative. But I would plead with these people: keep it to yourselves and don’t attempt to impose it on others wearing your lab coat as a priest wears his collar.

If humanity had engaged in such ‘moderation’, in such ‘temporal integration’ it is likely that we would not be where we are today. Would Copernicus and Galileo have decided to make the pronouncements they did — extreme pronouncements at the time — regarding the motion of the earth if they had adhered to the principle of temporal integration? Of course not. They would have undertaken a quick utility calculus and decided that they would gain more ‘utility’ by burning their work. The same could be said of the great explorers, like Columbus, or a whole host of others who took risks and went against the grain.

Real working psychologists know this too. You don’t advertise a product saying that it will provide you with a maximum of temporally integrated utility. No, you advertise it saying that it will whisk you off on some exciting adventure of some sort. What this shows us is that this is how human desire is actually structured. When faced with ‘smoothing utility across time’ and going on an adventure the majority of the population choose the adventure. What gives the likes of Kahneman the right to say that he is correct and the majority of the population are wrong? After all, this is an arbitrary judgement on his part and seems to me to stem from his particular preferences and opinions.

Behavioural economics is nothing but Victorian morality passed down, through figures like Edgeworth, to the modern age. What is laughed at in the works of the Victorian moralists is codified into foreboding and difficult to understand terminology in behavioural economics. But it is all the same thing. It is a program that seeks to domesticate mankind and destroy what the vast majority of people hold dear.

And what is the great irony of this program? Namely, that it will be rejected by the marketplace. Where the behaviourists’ ideas may find practitioners in the more authoritarian halls of government the marketplace will continue to sell dreams of breaking boundaries, pushing extremities and engaging in short-term pleasures. This will put the behaviourists in a somewhat awkward position because, believing as they do that markets are basically a good means to allocate resources, they will find themselves hard pushed to explain why people are engaged in all sorts of naughtiness therein. But perhaps that is when the mask will slip off and oxymoronic doublethink terms like ‘libertarian paternalism’ will creep in.

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One peculiar aspect of modern marginalist economics is its obsession with equilibrium. I was recently re-listening to an excellent lecture given by Joan Robinson in Stanford in 1974 entitled ‘What is Wrong With Neoclassical Economics?‘. The entire lecture is about the inability of marginalist economics, which is obsessed with equilibrium positions, to deal with historical time. I would add to this that even a dynamical economics that used differential equations would also be unable to incorporate historical time — the simple fact is that mathematics cannot be used to do history and economics done correctly and with any relevance to the real world is basically an applied historical methodology.

Now, what really struck me was the Q&A section at the end of the lecture. The sheer amount of hostility — outrage even — directed at what Robinson had just said was astonishing. Her complaints seemed to strike a chord with a lot of the economists in the room. “But you can’t fault the logical consistency of the models!” said one, with an obvious tone of distress in his voice (around the 21 minute mark of the second half of the lecture).

It was the question of another that really hit home for me though. “How is it possible,” he asks around 22.30 minute mark in the second half of the lecture, “that a decentralised system in which individual decision-makers communicate only through the market and only through price signals, how might it be possible for such a system to produce a coherent result?”

What a strange question, I thought to myself. Robinson just spent over an hour telling them that such an approach — an approach that sought an equilibrium result in material that was historical by nature — was completely inadequate to the material that economics deals with. Also from what Robinson had just said surely the person asking this question would understand that she was saying that such a framework — where “individual decision-makers communicate only through the market and only through price signals” — is a completely inadequate way to understand an historical process like the actual formation of exchange relationships at any given moment in time.

No one in the audience could really refute what Robinson was saying either — or at least no one tried. (This is something I often encounter when criticising marginalist methodology, by the way; supporters don’t really engage; they either accept what you’re saying and then pretend you never said it or they babble incoherently about how there is no alternative framework). So, what thought process could lead someone to simply ignore what she had said and continue to pose the naive question of equilibrium? And then it struck me: the question that the interlocutor was asking was not logically based, rather it was emotionally based.

You see, the notion of equilibrium — of a “coherent result”, of an answer, a solution, a True State of the Universe — is a well-recognised mythic construct among anthropologists and social historians. They have noted how, in many different contexts, human beings try to form narratives about the universe with which to guide their lives which give them such results. To take one of the most interesting examples consider the following quote from Roy Porter’s fantastic history of medicine The Greatest Benefit to Mankind: A Medical History of Humanity from Antiquity to Present,

In traditional medicine, as I have said, health is a state of precarious balance — being threatened, toppled and restored — between the body, the universe and society. More important than curing is the aim of preventing imbalance from occurring in the first place. Equilibrium is to be achieved by avoiding excess and pursuing moderation. Prevention lies in living in accord with nature, in harmony with the seasons and elements and the supernatural powers that haunt the landscape: purge the body in spring to clean it of its corrupt humors, in summer avoid activities or foods that are too heating. (p39)

One also finds slightly more advanced articulations of such concepts in early Hippocratic medicine as well as in elite medieval medicine. But, as Porter notes, the same concepts could be found in extremely primitive folk medicine — among tribes-people and in early villages. Thus we can only conclude that such ideas arise from some deep, unconscious strata of the human mind.

What significance does this idea of equilibrium have? Why is it a concept which we so readily wish to apply to those things that we identify with — whether the human body or society at large? It seems to me that it provides a sort of emotional comfort. Robinson’s interlocutor wanted a “solution”. He was clearly disorientated by the chaos of the economic world as he saw it and wanted a solution on a blackboard that would bring order to this chaos. Nothing could be more of an affront to how he conceived the world than to be told that his methodology could not even begin grasp the material he was trying to digest.

Equilibrium in economics, as in folk medicine, is a fantasy construction — and a rather primitive one at that. It is the mark of a mind that cannot process anything complex and relatively disordered. But if the Q&A section of Robinson’s lecture shows anything it is that the vast majority of the time people with the temperament needed to become mathematical marginalist economists actually do not have the capacity to do real economic work. That is a very sad state of affairs. But it also puts us in that strange position where we must recognise that the very form that economics took after World War II is leading the discipline to interminable ruin.

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Well, it seems that the Fed has finally decided to initiate the much talked about ‘taper’ of the QE program. The proposed taper will wind down asset purchases by $10bn a month. That means that they won’t actually stop or reverse purchases, rather they will just slow the rate at which they make said purchases.

For those who don’t follow the financial news tapering has been talked about on literally a daily basis in the press. And yet it is widely assumed to make no difference to most markets, as can be seen by the stock market rally that accompanied the Fed’s announcement.

There are two things that are particularly odd about all the tapering talk — two things that are tied up with one another. The first is that there is talk at all. If tapering evidently makes rather little difference to the markets and the economy then why do the press and financial analysts talk about it endlessly? The answer to this is rather simple: it is the nature of the press and wider society to talk about people and institutions that are perceived to wield power.

Human beings have a fascination with power, prestige and hierarchy. People basically exist within a system of symbols and these symbols are hierarchically organised — these symbols may be rather obvious, as in the case of the King’s throne and crown, or they may be more subtle, as in the case of Bernanke’s ‘Chairman’ title, but no matter what form they take they always operate in the same fashion.

The people living in such symbolic systems must reinforce them by constantly introducing and reintroducing them in day-to-day discourse; if the King’s subjects stopped talking about the King he would lose his power rather quickly. Authority must be given constant support in and through daily discourse. The Marxist philosopher Louis Althusser claimed that Blaise Pascal once said of religious belief: “Kneel down, move your lips in prayer, and you will believe”. I have never been able to source this quote but regardless of whether Pascal said it or not the logic is perfectly true. It is through the perpetuation of the discourse of power and authority that power and authority are enforced and reinforced.

Our modern day press basically functions in the same way; to a very large extent the press is an institution that reinforces the power dynamics of broader society by constantly introducing and reintroducing the names and titles of those in power. This is why, for example, politicians can basically make stuff up and the press will report it in an acritical way: such statements are not subject to verification because they have a different ‘truth value’ to normal statements in that it is their very utterance from a position of authority that lends them weight.

The second thing that was rather odd about all the tapering talk was the constant reference to the supposed fact that it had never been done before, that we were entering uncharted waters and that it was hard to predict what effect such tapering might have. This was just complete and utter rubbish.

In actual fact, as I noted on FT Alphaville back in April, a far more extreme version of tapering was undertaken by the Japanese central bank (JCB) in early 2006. In this period the central bank didn’t just slow the rate of purchases as the Fed are now doing but instead shrank their balance sheet. And what were the effects? I cannot find any serious effects in the data.

As I noted in that post there was no obvious correlation between QE and inflation or the exchange rate or GDP growth. The shrinking of the JCB’s balance sheet also appears to have had no effect on the stock market which continued to rally until the onset of the financial crisis in late-2007/early-2008.

So, why is no one reporting on this? Surely this should be a worthy news item. Given that barrels upon barrels of ink that are expended daily reflecting on the significance of the taper surely the press should be interested in considering a far more substantial move away from QE. Not really. That would be the equivalent of revealing that the emperor has no clothes.

Imagine if every day Bernanke was asked by the press something like: “Chairman, the Japanese central bank reversed their QE program in 2005-2006 and it appears not to have had very much effect on the economy or the market. Isn’t it reasonable to assume that your far less substantial tapering program will not make any difference?” Bernanke, being a rational person, would have to agree and this would then shut down the whole dog and pony show. The press would have nothing to report on, the power structure would not be reinforced and the tedious chatter that constitutes the markets would crawl to a stop.

It’s not just that power and hierarchy are reliant upon discourse but also that discourse is reliant upon power and hierarchy. Without power and hierarchy people would have to think for themselves — a terrifying prospect. It’s far, far easier for people to fall back on handed down truths — even if these handed down truths are not truths in the factual sense. As a wise man once said: “Welcome to the human race.”

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Victoria Chick published an interesting paper in the journal Economic Thought on the World Economic Association website entitled Economics and the Good Life: Keynes and Schumacher. In it she explores what both men thought that the end goal of economics should be. As she says in the paper she finds rather a lot of overlap but also some differences in approach. I will here run through both of these here.

Both men share the ideal of bringing economic life closer to how they think that people should live. Broadly speaking both think that people should engage in less stultifying work and spend more time doing things that will provide some sort of inner contentment or enjoyment. The manner in which this might be achieved and the form that, consequently, this should take are thought different by the two thinkers, however.

Keynes is more of an optimist about the capitalist system. He thinks that if we let it run its course and continue to accumulate capital we will eventually reach a point of “capital satiety” where no more capital need be accumulated and resources can be directed to other ends. The economy will then reach a sort of steady-state where accumulation stops, people work less and time is devoted to more satisfying ends. Keynes has what seem to be in retrospect some rather unusual ideas about when this state will be reached, at one point suggesting that it will come about in the mid-1960s!

Schumacher is more pessimistic about the system. He believes that the system itself encourages traits which both Keynes and he find unseemly, immoral even; think here of greed, envy and all those other Evils. In one passage Schumacher is particularly clear about this,

The modern economy is propelled by a frenzy of greed and indulges in an orgy of envy, and these are not accidental features but the very causes of its expansionist success. (p38)

For Schumacher, as for Keynes, it was greed, envy and the desire to ‘get one up’ on others that drove the system. But where Keynes said that we should simply let it run its course, Schumacher said that the whole thing needed to be restructured. He believed that, for example, rather than cutting down on working hours, as Keynes suggested, that we change the nature of work itself; make it less stultifying, smaller-scale and have those who engage in it actually stake some of themselves in it.

These are nice ideas, certainly. They are also, as Chick hints at toward the end of her article, clearly at odds with much marginalist doctrine which tends to consider wants as insatiable, the drive for profits as a de facto social good and work a burden. Here I will take what I think to be a somewhat unpopular stance, however, and say that I think both men envisage something that probably cannot be done; that is: they seek to change human nature.

Today I believe that we in the West largely live in an era of what Keynes would have considered capital satiety. Indeed, overproduction seems to be one of our key problems (together with income inequality, which seems to be overproduction’s not-so-strange bedfellow). Yet we have not reached Keynes’ nirvana and people have not tried to incorporate Schumacher’s conception of the good life into their daily routine on any large-scale. Why is this?

Sure, we can play Marxist and blame Capitalism-in-the-abstract. “Oh, capital is impelling us forward and we cannot stop the train,” we might say in a Marxian mood. But that is not an explanation. Keynes and Schumacher were more incisive than Marx because they were not materialists. They recognised that Capital is not a real agent, rather it is the product of human psychological traits; ones that many find repulsive. Marx’s genius was that he, like many religious prophets before him, externalised Evil — what the theologians called ‘Sin’, Marx called ‘Capital’. (Indeed, his major work could easily have been entitled ‘das Sünde’ rather than ‘das Kapital’ without the work losing much meaning).

Marx’s dictum about the capitalist class, that “they don’t know it, but they are doing it”, is straight from the Bible. (“Father, forgive them, for they do not know what they are doing.” Luke 23:34). This is not a coincidence. Jesus thought that those who had nailed him to the cross were being driven by Sin and required forgiveness; Marx thought that those who accumulated capital on the backs of others were being driven by Capital and required emancipation. The terms ‘Capital’ and ‘Sin’ are here structurally identical; they externalise negative psychological or ontological traits of human beings and give them context in a larger interpretive system (i.e. Marxism and Christianity).

Again, Keynes and Schumacher were more honest; they recognised psychological or ontological traits for what they are. So, again, because with Keynes and Schumacher we can shed our metaphysical baggage and ask the question straight: why do people continue engaging in the capital Sin of sinful Capital accumulation long after it is necessary? Here is a thought: because human beings can be rather unpleasant creatures. They love power, they are inhabited by envy, they have an innate drive to control and their wants are so insatiable that they will create new desires any time the old ones are met.

Some religious and metaphysical systems attempt to control these drives, but they are probably doomed to fail because these are drives proper. They are innate in our species. I am not saying that such drives are ‘biological’ — that word means little to me in this context — rather I am saying that they are ontological truths of our being-human. To try to banish them from our constitution is like trying to banish murder from our population; it cannot be done, regardless of what some social reformers may have thought.

What’s more people, to a far larger extent than I think is generally recognised, often love the things they claim to hate. The person who complains about the ten hours they spent at work before going back to the office for another ten hour shift are no different from the smoker who says that they want to quit as they light up their twelfth cigarette of the day. Such activities are a deep part of their being and the complaints only accentuate the ‘pleasure-in-pain’ dimension of the activity.

Does this mean that everything is hopeless? No, I would not say that. There are good traits in humans also and these should be encouraged. The property developer will destroy the nature reserve to build cheap apartments if he is not stopped, make no doubt about that, and there is every chance that he can be stopped. Income inequality and overproduction are outgrowths of very negative traits in people — namely, envy and insatiability respectively — but they can be curbed; we know how to do this, it is just a matter of being given a chance to do so by having people recognise them for what they are: destructive outcomes of negative ontological traits.

But it seems to me that shooting for the moon and imagining, as Keynes and Schumacher did, that there is some end-point, some nirvana, when all is right with the world and the dark-side of Man subsides is altogether naive. (Don’t even talk to me about Marx and his religious doctrines!). Maybe others will disagree, but I still think that they’re fighting against the unstoppable tide of human nature. Perhaps, even, good things will get done because some seek out Utopia. But I’m still convinced that energy is better focused on particular goals.

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I’m currently rereading George Berkeley’s A Treatise Concerning the Principles of Human Knowledge as a friend of mine and I are considering writing a short book on Berkeley in the near future. In it we are hoping to discuss all of Berkeley’s work, including the little known fact that Berkeley was something of a Chartalist and advocated something very similar to Keynesian full employment policies. I’m hoping to also show that Berkeley’s Chartalism — which first and foremost views money as a mere symbol — is tied to his immaterialist philosophy that holds that material substance does not exist. I will return to this point at the end of this post.

The version of the Treatise that I am reading has an excellent critical introduction by the philosopher Jonathan Dancey. (I say this not because I agree with all the criticisms that Dancey raises in the introduction, many of which strike me as being deeply confused, but because as a survey of the work is it most useful).  In the introduction Dancey discusses many aspects of Berkeley’s thought but there is one that I here want to focus on; namely, Berkeley’s critiques of Locke’s abstract notion of General Ideas. Dancey points out that a key component of Locke’s argument for General Ideas was communicability. If there were no General Ideas, Locke said, then your and my understanding of, for example, the term ‘city’ would be different.

Why? Because your understanding of the term ‘city’ would be merely a collection of all the individual cities that you have ever seen while mine would be a collection of all the individual cities that I have ever seen. Thus, if you have only seen Paris and London and I have only seen Tokyo and Sydney our conceptions of cities will be entirely different. This means that proper communication cannot take place in that when you and I hear ‘city’ we will understand different things by the term.

To avoid this Locke posited General Ideas. So, for Locke, the term ‘city’ contains something beyond Particular cities. It contains an abstraction that we all recognise as ‘city’. Berkeley denies this. He says that if we examine our own thoughts carefully it will be clear that any time we try to grasp at the General Idea of a city we will always encounter in our own imaginations merely particular experiences of certain cities. This is what might be called Berkeley’s ‘radical empiricist’ position. Dancey writes,

[Berkeley] holds that a perfectly non-abstract idea, the idea of a particular man, can stand for all men whatever; and he also, more contentiously, holds that thought does not require the constant occurrence of ideas in the thinker’s mind, and that therefore communication does not require the speaker to raise a matching idea in the hearer’s mind . (p32)

This is a very interesting argument that I don’t think is often recognised in the philosophy of Berkeley. It implies that communication does not occur in human’s in the same way, for example, that communication takes place in computers. To put that another way: for Berkeley human communication is always imperfect. When I say or write certain words they call to mind different ideas in your mind as they do in mine.

This is actually a very similar argument to that made by the French psychoanalyst Jacques Lacan. Lacan started with the basic unit of semiotics; that is, the sign. The sign is made up of a signifier and a signified. So, for example, the word ‘tree’ calls to mind the object that we know to be a tree. The word ‘tree’ is the signifier and the object tree is the signified. Here is a diagrammatic representation,


Semioticians usually assumed that there was a firm relationship between the signifier and the signified. Lacan, however, always held that there was always a sort of slippage of meaning. In this, Lacan was following in Berkeley’s wake but was, I think, more radical. For Berkeley the signifier and the signified only slip when communication is taking place between two people that have different particular experiences of, say, trees. But for Lacan this slippage takes place within the single mind.

Think in this regard of a slip of the tongue. In Freudian psychoanalysis a slip of the tongue indicates a fundamental truth about our desire. Yet for the person making the slip they usually claim that it was an error and insist that they meant something else. Thus their signifier is intended not to signal the signified that would be assumed if we interpret what they say literally but rather a different signified that, perhaps, has a similar phonetic make-up.

(Take the example of ‘tree’. A man might say in a slip of the tongue that he always liked the muscle cars that came from the ‘Big Tree’ US auto-manufacturers. The Freudian would then detect a whole host of phallic references in this slip given its context but the man would insist that his signifier, ‘tree’, did not refer to a large wooden object but rather to the number ‘three’. Thus, his signifier referred to a different signifier and not to the signified usually designated it).

I think that Berkeley’s radical empiricism is leading in this direction. His rejection of General Ideas makes clear that people do not think in the mechanistic way that contemporary science and Enlightenment thought often conceive of them as thinking. Rather meaning is far more open to interpretation and really depends on our own personal experiences; not to even mention the fact that communication is a very haphazard phenomenon that often breaks down. In his introduction to the Treatise Berkeley writes,

[T]here is no such thing as one precise and definite signification annexed to any general name, they all signifying indifferently a great number of particular ideas.

Later on, however, Berkeley takes a position even closer to that of the post-structuralists. Dancey summarises this as such,

The physical world is a genuinely linguistic system, whose elements are variously combined and concatenated in much the sort of way that letters and words are, so that they should be capable of carrying detailed messages. Just as a limited number of letters can be used to create an infinite variety of messages, so a limited number of physical elements can be combined for the same purpose. (p52)

Here Berkeley gives language a certain primacy in that he sees the world as being a giant mass of signifiers which we try to interpret as best we can. At a crude level dark clouds, for example, signify rain, while at a more complex level unemployment, for example, signifies a deficiency of effective demand. It is in and through the linguistic systems that we construct that we understand why one idea or event might lead to another and the more precisely our linguistic systems align with empirical experience the more useful they will prove to be and the better we can organise our actions for our desired ends (whether that be carrying an umbrella to avoid getting wet or engaging in fiscal stimulus to keep output and employment at desired levels).

This is, of course, a far cry from the ‘realist’ ontology usually associated with Post-Keynesian economics which holds that there are actual causes existing in something like an external material world. Rather it is more constructivist in that we actively participate in constituting these causes.

The example of fiat money — which Berkeley advocated — is instructive in this regard. If we agree with Chartalism that “taxes drive money” it should be clear that such a relationship does not truly exist “out there” but is rather a construction constituted in and through communicative language — you and I live under a state which subjects us to taxes which in turn dictates what we use as money; but this relationship is nothing material or existing “out there”, rather it is a contract entered into by each of us which can potentially be broken at any time. Examined properly it will quickly become clear that all the relationships that we deal with in economics, grounded as they are in some constructed accounting framework or other, are of some similar nature.

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