Some Personal Reflections on Contemporary Economic and Scientific Indoctrination

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.

Keynes’ Liquidity Preference Trumps Debt Deflation in 1931 and 2008

I have pointed out before that the meaning of the term ‘liquidity trap’ has today become completely altered — with said alteration mainly coming from Paul Krugman’s bizarre redefinition which seems tied up with his idea about a natural rate of interest and the central bank being unable to hit this natural rate due to their coming up against the zero-lower bound.

In actual fact, a liquidity trap occurs when people rush out of assets and instead hold money. This leads to a fall in asset prices and high interest rates which then do not respond to central bank action. We encountered a liquidity trap proper very briefly in late-2008 but due to unprecedented central bank interventions we had exited this liquidity trap by early-2009.

In this post I want to spell out exactly why Keynes thought his liquidity trap idea so important. In order to understand this we must read his short paper The Consequences to the Banks of a Collapse of Money Values which he wrote in 1931 and which is included in his book Essays in Persuasion.

Before he discusses what he will later call a ‘liquidity trap’ Keynes briefly mentions the phenomenon that is now known as ‘debt deflation’. Here is what he says,

We are familiar with the idea that a change in the value of money can gravely upset the relative positions of those who possess claims to money and those who owe money. For, of course, a fall in prices, which is the same thing as a rise in the value of claims on money, means that real wealth is transferred from the debtor in favour of the creditor, so that a larger proportion of the real asset is represented by the claims of the depositor, and a smaller proportion belongs to the nominal owner of the asset who has borrowed in order to buy it. This, we all know, is one of the reasons why changes in prices are upsetting. (p93)

Keynes treats debt deflation as if it were a perfectly well-known phenomenon. Many today, however, attribute the ‘discovery’ of this theory to Irving Fisher’s 1933 paper The Debt Deflation Theory of Great Depressions. It is usually one step from there to claim that silly old Keynes ignored the implications of debt deflation.

None of this is true. Keynes is not only aware of the debt deflation theory in 1931 but he also suggests that everyone is aware of it. One can only guess from reading the above paragraph that the idea was floating around in the ether at the time and was being discussed by upset bankers and their publications. Fisher then likely picked up on this and turned it into a theory of the depression.

But Keynes thinks that the “familiar” debt deflation theory is an enormous distraction. In the above cited paper he continues,

But it is not to this familiar feature of falling prices that I wish to invite attention. It is to a further development which we can ordinarily afford to neglect but which leaps to importance when the change in the value of money is very large—when it exceeds a more or less determinate amount.

Modest fluctuations in the value of money, such as those which we have frequently experienced in the past, do not vitally concern the banks which have interposed their guarantee between the depositor and the debtor. For the banks allow beforehand for some measure of fluctuation in the value both of particular assets and of real assets in general, by requiring from the borrower what is conveniently called a “margin.” That is to say, they will only lend him money up to a certain proportion of the value of the asset which is the “security” offered by the borrower to the lender. Experience has led to the fixing of conventional percentages for the “margin” as being reasonably safe in all ordinary circumstances. The amount will, of course, vary in different cases within wide limits. But for marketable assets a “margin” of 20 per cent to 30 per cent is conventionally considered as adequate, and a “margin” of as much as 50 per cent as highly conservative. Thus provided the amount of the downward change in the money value of assets is well within these conventional figures, the direct interest of the banks is not excessive;—they owe money to their depositors on one side of their balance-sheet and are owed it on the other, and it is no vital concern of theirs just what the money is worth. (p93)

Keynes clearly understood the financial system better than Irving Fisher. He knew that while debt deflation could transfer wealth from borrowers to creditors — a point he reiterated in the General Theory — he did not think that this was a particularly important phenomenon when considering the fragility of the financial system. Rather he emphasised something which seemed to him altogether a more pressing issue.

But consider what happens when the downward change in the money value of assets within a brief period of time exceeds the amount of the conventional “margin” over a large part of the assets against which money has been borrowed. The horrible possibilities to the banks are immediately obvious. Fortunately, this is a very rare, indeed a unique event. For it had never occurred in the modern history of the world prior to the year 1931. There have been large upward movements in the money value of assets in those countries where inflation has proceeded to great lengths. But this, however disastrous in other ways, did nothing to jeopardise the position of the banks; for it increased the amount of their “margins.” There was a large downward movement in the slump of 1921, but that was from an exceptionally high level of values which had ruled for only a few months or weeks, so that only a small proportion of the banks’ loans had been based on such values and these values had not lasted long enough to be trusted. Never before has there been such a world-wide collapse over almost the whole field of the money values of real assets as we have experienced in the last two years. And, finally, during the last few months—so recently that the bankers themselves have, as yet, scarcely appreciated it—it has come to exceed in very many cases the amount of the conventional “margins.” In the language of the market the “margins” have run off. The exact details of this are not likely to come to the notice of the outsider until some special event—perhaps some almost accidental event—occurs which brings the situation to a dangerous head. For, so long as a bank is in a position to wait quietly for better times and to ignore meanwhile the fact that the security against many of its loans is no longer as good as it was when the loans were first made, nothing appears on the surface and there is no cause for panic. Nevertheless, even at this stage the underlying position is likely to have a very adverse effect on new business. For the banks, being aware that many of their advances are in fact “frozen” and involve a larger latent risk than they would voluntarily carry, become particularly anxious that the remainder of their assets should be as liquid and as free from risk as it is possible to make them. This reacts in all sorts of silent and unobserved ways on new enterprise. For it means that the banks are less willing than they would normally be to finance any project which may involve a lock-up of their resources. (p93-94)

Here is the liquidity trap proper. It occurs when asset values fall so far, so fast that markets then herd into liquid assets — that is, money or money substitutes — and begin to dump all the rest of their financial assets. The end result becomes a situation wherein falls in asset prices beget falls in asset prices and banks rush for money and other money substitutes. But, in classic Keynes fashion, what works for the individual does not work for everyone: when all the banks dump assets at the same time their money value drops so far that the banks themselves become insolvent.

In the discussion that follows Keynes makes crystal clear that he means basically all assets: he discusses commodity prices, stock prices, bond prices and housing prices. For him a liquidity trap occurs when money rushes out of all these asset classes and into money or money substitutes. The effect is a rising interest rate on bonds and a fall in prices on other assets.

This, of course, is precisely what we saw in 2008. But it is also what Keynes saw in 1931. The difference was that in 2008 we had a reaction from the central banks which printed massive amounts of money to prop up asset prices while in 1931 we saw extensive bank failures. Funnily enough, this policy is today associated with Milton Friedman and monetarism but it is clear that Keynes’ idea of the liquidity trap was highlighting the exact same problem.

Keynes’ liquidity trap is almost certainly a more important phenomenon than debt deflation. It is the decline in asset prices that has extensive effects on the financial sector, not the rise in the value of money per se. But that said, the liquidity trap phenomenon is not all that important with regards to shortfalls in aggregate demand.

In the other essays Keynes wrote at the beginning of the depression it is clear that while he thought the liquidity trap phenomenon precipitated the fall in confidence which led to a drying up of investment and a massive shortfall in aggregate demand, solving the liquidity trap problem and stabilising asset prices would not solve the aggregate demand problem. That is a lesson we have relearned today in the wake of 2008. Central bank interventions can certainly stabilise the financial markets — although some, like housing, respond far slower than others like bonds, the stock market or commodities — but only large increases in aggregate expenditure can reflate the economy.

An Interview With and Overview of the Work of Philip Mirowski

Some time ago I did an interview with Philip Mirowski but I never published it. The editor of the heterodox journal Filosophia de la Economia got in contact with me and asked me if they could run it. When I said that they could he also asked me to do an extended introduction.

Frankly, I think that the introduction says as much about the approach I take to such problems as it does about the approach Mirowski takes — unsurprising given that I have taken a huge inspiration from his work. Anyway, some people here might be interested in this and since Google indicates to me that it is freely accessible I’ve decided to post it here.

Pilkington-Mirowski: From Episteme to Institution

James Galbraith’s ‘The Predator State’: A Testament to Our Turbulent and Troubled Era

I’m currently rereading James Galbraith’s The Predator State and I must say that it is quite a formidable work. There is one issue that I want to tackle — namely, Galbraith’s treatment of the supply-side arguments of the 1970s and 1980s — but before I go into this the reader might indulge me in some literary criticism. I do not do this for fun but rather to bring out what I think to be the essence of the book given its historical content.

In order to do this I want to compare the book to the work of Galbraith’s father JK Galbraith — an economist who, effectively, I grew up reading in a sense. Generally this would be terribly unfair. But in this case I think it is somewhat justified because James Galbraith explicitly states that he wants to move away from writing technical policy work — which is his forte — and instead write something more general and accessible. Given that his father was the master of this particular genre some comparison can bring out the historical context rather well.

The simplest way to approach this is to pose a question: does James Galbraith succeed in producing an accessible work of economics for the lay-reader? Frankly, I don’t think he does. But this is not due to a poverty of erudition or writing ability — his style is as engaging as his father’s, albeit somewhat different. Rather it is due to the nature of the material James Galbraith is dealing with.

When JK Galbraith wrote his classics such as The Affluent Society he was expounding a vision for an economy in the ascent.In the 1950s and 1960s the structure of the US economy was rather stable and a description of system could be expounded rather simply. A policy platform could also be formulated that the lay reader and the policymaker could understand. What’s more, JK Galbraith’s Keynesian language was the political discourse of the day, so there was no problems of translation.

In contrast, The Predator State deals with a US economy in turmoil. Navigating the path of the US economy from the 1970s through to the present day is an arduous task and requires much context and theory. Particularly difficult for the lay reader would be James Galbraith’s discussion of the federal budget deficit and its relationship to the trade and private sector deficits. The picture James Galbraith presents is one in which global changes induce changes in the function of the federal deficit and other economic institutions.

The exposition, frankly, is too difficult for most professional economists to follow — who require some sort of static model which can be applied to any and all heterogeneous historical material. The public, who require something simpler again, would I imagine be lost completely.

This speaks to a very difficult problem that we face today: namely, that we today completely lack a coherent narrative for economic policy. As James Galbraith says in the book, this has moved macroeconomic policy in the US away from anything resembling rational discussion and toward a discourse based wholly in morality. This is where the Democratic (with a capital ‘D’) tendency to view federal budget deficits as a vice and surpluses as a virtue comes in.

Lost in the sea of chaos and change that the US economy has been tossed to and fro in since the early 1970s, it is to soothing moral lessons that policymakers turn to try to navigate the storm.

What does all this say about the contemporary political and economic scene? On this note I must give a rather pessimistic proclamation: I don’t think the policymakers will ever properly grasp what is going on. Nor do I think will the economic profession. Only a few macroeconomists will be able to figure it out and it will be difficult to have their voices heard because the language they speak — the language of dynamic institutional change — will grate so hard on the language policymakers and economists alike are used to — that is, the language of stable relationships and simple rules — that their discourse will only be heard as so much confusing babble.

This is not to say that all is hopeless. A few well-timed interventions could be the key to navigating the storm. But to expect that economists can convince policymakers of a Grand Vision that might once and for all stabilise the world economy and return it to balanced prosperity is a fantasy that is almost as misleading as the fantasy of stable relationships and simple rules. In this regard I speak to some of my Post-Keynesian colleagues whom I shall not bother to name but whose policy prescriptions have to do with international agreements on remedying trade imbalances.

Anyway, that is quite enough of that. The Predator State is truly an important historical document and it displays the powers of a truly skilled economist who is as comfortable navigating the ever-changing historical seas of our present day as he is understanding the essence and, ultimately, the contradictions of highly theoretical economic doctrines when they are applied to empirical reality. Tomorrow, however, I hope to deal with the more specific point of Galbraith’s characterisation and discussion of the supply-siders.

But why on earth won’t they let us play?

The following essay was written for The Baffler’s website. It is a response to two essays that appeared in their last issue. Since The Baffler could only run an edited version I decided to run the full-length version here. You can find the edited version, which is far more prettily decorated than this one, at this link.

“But why on earth won’t they let us play?” That is the question that many people came away with from David Graeber’s excellent piece What’s the Point If We Can’t Have Fun? in The Baffler No. 24. It is indeed an interesting question and one that I have been asking myself since I began studying and practising economics. You see, while it was ethology that Graeber was discussing in his piece, it is economics that has done the most to spread this drab and depressing view of life in the humanities.

Thomas Carlyle famously called economics the “dismal science” but the reason why he bestowed upon the discipline this title is less well-known. In his Occasional Discourse on the Negro Question he wrote of economics:

The social science – not a “gay science”, but a rueful – which finds the secret of this universe in “supply and demand”, and reduces the duty of human governors to that of letting men alone, is also wonderful. Not a “gay science”, I should say, like some we have heard of; no, a dreary, desolate and, indeed, quite abject and distressing one; what we might call, by way of eminence, the dismal science.

Carlyle had it basically correct. What makes economics so dismal is indeed that it reduces all human activity to the so-called ‘laws’ of supply and demand. What makes it so dangerous is that it tells those in power that the best policy is to simply leave people to engage in market transactions without any interference and utopia will result. While one can make a convincing case that supply and demand are extremely important facets of human activity, proceeding from there to reducing all human behaviour to market transactions is sheer nonsense. But unfortunately this is the direction that economics has taken since the turn of the 19^th century.

In modern economics this has crystallised into a formation generally known as the ‘utility-maximising agent’ or the ‘rational agent with rational expectations’. This is a sort of cyborg man with fully deterministic properties who is fed a range of numerical values and then organises these into a hierarchy which then determine how he will behave. This cyborg can then be used to explain all sorts of economic phenomena, from the purchase of muffins to how the financial sector organises itself to the effects that certain economic policies will have (yes, our cyborg can be used to justify austerity!). These days our cyborg is even applied to explain why people organise their sexual activity in the way that they do.

This move is the same as the one that Graeber complained about in the field of ethology. It is one that seeks to corner all activity and plaster on its forehead a formula or label explaining everything in terms of some sort of rationality or calculation. We should see this, like any framework of concepts that seeks to explain or judge human behaviour, as a properly moral discourse; one that prejudges what activity, animal or human, is valid and what is invalid; formulates a priori hypotheses that exclude any activities that do not fall within the constructed field of validity; and finally unleashes this whole structure upon empirical reality and dubs the result ‘science’.

Once we understand that it is behind these altars that our modern day clergy stand the question becomes: what is the source of this grim religion? It is tempting to think that, perhaps, this has something to do with capitalism. In such a narrative this rationalising view of Nature grows in the soil of a system of economic organisation that reduces everything to mere calculation. The discipline of economics would be seen as the mirror image of this economic system which then seeps into to veins of biological sciences like ethology and genetics poisoning them. In this narrative thinkers like Richard Dawkins are nothing but the naïve dupes of the bourgeoisie; their discourse is nothing but the ideological outgrowth of the objective social situation in which they find themselves.

Personally, I was never satisfied with such a solution to the puzzle. There were simply too many pieces that did not fit. It might surprise the reader to know that modern economics is built on theoretical foundations that more so resemble a centrally planned communist economy than a capitalist one. It might also surprise the reader to know that modern economics typically assumes that income is distributed in a uniform fashion and that profits are an ephemeral phenomenon that quickly disappear. No, modern economics is far from the mirror image of capitalism that many suppose it to be.

The problem is better viewed from the point-of-view of the rationalising tendency itself. This tendency does not arise due to any particular form of social organisation, rather it is deeply embedded in what might be termed the ‘Enlightenment project’ and ultimately stems from what many will find a rather unusual source: namely, anatomy. Before we dig down to the roots, however, let us first examine the branches.

Ghost and the Machine

Graeber was entirely correct in his intuition that the truth of the matter was in some way connected to the field of ethology, the field that studies the behaviour of animals. The Enlightenment view of animals is rather instructive in this regard but in order to properly understand it we must compare it with the Enlightenment view of human beings. These views are best approached through the philosophy of René Descartes.

Descartes believed that human beings consisted of two separate components or ‘substances’. One of these was the body and the other was the mind. The body was simply a machine, a mechanism wholly subject to deterministic laws. This view of the body was derived from the medical innovations that had sprung up around the work of the English physician William Harvey. Harvey had described how blood was pumped around the body by the heart. The description is obviously mechanical and it led other investigators to further describe the body in terms of mechanism. The mind for Descartes was something wholly different. It was not subject to deterministic mechanistic laws. Rather it existed in a different sphere altogether and had a certain degree of independence. This view is generally known today as mind-body dualism.

For Descartes animals did not have souls and so they could be viewed as mechanical bodies pure and simple. In this view they were simply more complex versions of the crude automatons that contemporary tinkerers constructed in their workshops. Descartes makes this view quite explicit in a letter written in 1649:

It seems reasonable, since art copies nature, and men can make various automata which move without thought, that nature should produce its own automata, much more splendid than artificial ones. These natural automata are the animals.

Animals were viewed by Descartes as little automatons, robots with veins and muscles rather than pulleys and springs. The only reason that human beings were safe from this fate was because they possessed a mind independent of the materiality of the body. Viewed merely in terms of their material body human beings would indeed be, like animals, mere automata.

There were others who wanted to take Descartes’ mechanistic philosophy much further. Thomas Hobbes, for example, insisted that all of human action was determined by some sort of mechanical action – what he refers to as ‘matter in motion’. In the introduction to his Leviathan published in 1651 he writes:

All which qualities called sensible are in the object that causeth them but so many several motions of the matter, by which it presseth our organs diversely. Neither in us that are pressed are they anything else but diverse motions (for motion produceth nothing but motion).

More extreme still was Julien Offray de La Mettrie who drew directly on Descartes dualism and pushing it to its logical extremes. In 1748 he published L’homme Machine (Man a Machine) in which he wrote: “Let us then conclude boldly that man is a machine, and that in the whole universe there is but a single substance differently modified.” While few were willing to go as far as La Mettrie in his own time it was clear that this was the way in which science leaned afterwards. In 1978 Karl Popper observed that “in spite of the victory of the new quantum theory, and the conversion of so many physicists to indeterminism de La Mettrie’s doctrine that man is a machine has perhaps more defenders than before among physicists, biologists and philosophers; especially in the form of the thesis that man is a computer.”

It is the admixture of these two philosophies that we see across the sciences today. Where human activity can be described in simple terms of ‘matter in motion’ – as in the discourse of neurology where activity, mood and motive are ascribed to the firing of neurons and the ebb and flow of chemicals in the brain – we see a sort of Hobbesian or Mettriean mechanistic materialism. But where this pure materialism runs into obstacles and we need recourses to some sort of quasi-psychological explanation we get a modified variant of Cartesian dualism but one which modifies Descartes original version by largely rejecting the autonomy of the mind and trying to establish as much determinism as possible.

In this modified version of Cartesian dualism we see the mind of Descartes being replaced by a modernised version of the automata: namely, as Popper said in the quote above, the computer. Thus we move from seeing animals and the human body in terms of simplistic little robots built in early modern era workshops to seeing human psychology, the reproduction of genes and a whole host of other phenomena in terms of a calculating computer system. The brain or the genes are the mechanistic materialistic hardware and the rationalising agent is the software. Is it any wonder that the end result cannot engage in play? After all, computers and robots do not play and once we accept the metaphorical view that we ourselves are simply advanced computers and robots how many steps is it until we conclude that we too cannot – or perhaps more accurately: should not – engage in anything resembling play?

Anatomy of the Mind

But what generated these machine metaphors? Why did writers in the early modern period begin comparing human beings and animals to primitive robots and crude mechanical inventions? This is where a rather unusual source comes into play: that of dissection and anatomy.

While it is true that we find the seeds of mechanistic philosophy in Ancient Greece – among the Stoics and the followers of Democritus in particular – these theories only really began their ascent to hegemony in the early modern period with the rise of Cartesian dualism and mechanistic materialism. The reason this occurred was because of the new view of man that was becoming popular at the time. Rather than view man as a subject, as a holistic organism endowed with an irreducible soul that permeated the whole body, the early moderns began to view man as an object analogous to those that could be constructed and deconstructed by their own hands in their workshops.

For the dualists the body-as-object was clearly being viewed by the mind-as-subject, it is less clear what or whom is viewing the body-as-object for the mechanistic materialists like La Mettrie. In the early modern period it seems that this abstract gaze viewing the body-as-object was a God that exists outside the knowable universe but as this doctrine became more popular in the 19^th and 20^th centuries so too did atheism. In this period it was assumed that the body-as-object exists in a sort of clockwork universe but it is not at all clear under what gaze this universe falls. It seems that scientists and thinkers in this era basically took over the earlier view that there is a God that gazes upon the material objects of the universe but then denied this to themselves and proclaimed atheism. One can only recall Jacques Lacan’s pithy phrase: “God never died, He just went unconscious.”

But all these oddities and seeming contradictions aside, the question remains as to why this view became popular. If we trace the metaphors carefully it seems that it arises out of the increased popularity of dissection and anatomy during the early modern period. Up until the 13^th century the dissection of human bodies was taboo among almost every culture. But beginning in the 13^th century – under sanction by the Christian Church whose theological doctrines were indifferent to it – dissection became increasingly acceptable and public dissections became commonplace.

Dissection allowed philosophers and scientists to conceive of the human body in a completely new way. Prior to this the human body was viewed as a Whole and it was taboo to turn this Whole into Parts by cutting it up. Dissection meant that operations could be performed on the human body in precisely the same way they were performed on machinery. A scientist could take the whole thing apart to see its inner working is they so wished. Put somewhat differently: the body became not a vessel of another human being considered as a Whole Subject but rather an object that could be tampered with by the enquiring scientist. The analogy with automata then becomes a rather obvious one. Because automata were designed to mimic human form they became at once a copy and a metaphor for the human body. Consider this striking statement by the great enthusiast of human dissection Leonardo Da Vinci:

Though human ingenuity may make various inventions, it will never devise any inventions more beautiful, nor more simple, nor more to the purpose than Nature does; because in her inventions nothing is wanting, and nothing is superfluous, and she needs no counterpoise when she makes limbs proper for motion in the bodies of animals.

This paragraph is taken from the sections of Da Vinci’s notebooks that deal with dissection and human anatomy. In it he is reflecting on the status of the human body and drawing analogies to the inventions he created in his workshop. Already in the Renaissance when educated writing on human dissection was only beginning we have attempts to equate the human body with machines.

The dissecting scientists knife gave rise to this new view of the body-as-object and from there it was only a small step to say that the body was merely a machine made up of working parts that fitted together in such a manner as could be fully and completely understood – ‘matter in motion’, to use Hobbes’ phrase. As we have already seen Descartes’ dualism placed a limit on this by considering the mind as a separate and irreducible entity but once the computer came along it was easy to break through this limit by assuming that the mind was analogous to these new machines. This is, in a very real way, where we stand today.

Dazed and Confused

In the issue of the Baffler in which Graber’s piece appeared there was also a response from Barbara Ehrenreich; a scientist, who put forward an optimistic view of modern science. Ehrenreich was somewhat aware that the stifling theories Graeber described were tied up with dissection and anatomy, going so far as to write that there was a ‘necrophilic’ tendency in modern biology and that “in order to understand something you had to kill it”. She was also clearly aware that many scientists today ‘hedge’ when they are confronted with humans, meaning that they adopted a sort of half-hearted dualism and claimed that humans have free will or something similar. But she concedes that the long-term trend was to reduce this spark of life to a ‘flicker’ and all but smother the human being in the all-encroaching deterministic discourse of science.

Ehrenreich then claimed that science is changing, that it was entering a new phase that was open to a less mechanistic view of life. She claimed that this is not due to any philosophical reflection but due to a proliferation of new empirical evidence. Such proclamations will appear suspect to anyone interested in the history of science. New evidence does not just appear out of nowhere. Metanarratives in science limit what evidence can and cannot be investigated. All this new evidence that Ehrenreich cites is actually just the product of a perceptible shift in the field of enquiry. While this shift does not signify a conscious attempt by scientists to switch paradigm based on philosophical reflection, it does indicate that the metadiscourse of science has mutated.

What follows in Ehrenreich’s piece is then a rather shaky and incoherent attempt at grounding this new phase that scientific development has entered. The scientific world she writes has “been re-animated” but not “re-enchanted”, modern scientists are definitively not dealing with “gods or spirits or vitalistic forces”. Reading such passages one wonders if Ehrenreich bothered to pick up a dictionary and look up what ‘animus’, the root of ‘animated’, actually means. But etymological slips aside, it is clear that her attempts to ground this new phase in science is, from a history of thought perspective, a hodge-podge of half-understood terms and philosophical evasions.

I do not mean to pick on Ehrenreich. These problems plague not only the sciences today but also the philosophical profession. They are leading to the proliferation of new terms that signify old ideas but simultaneously disavow them. For example, in order to evade the fact that contemporary mind-body philosophy has fallen into the old dualism philosophers today rename what used to be called ‘substance’ into something called ‘property’. When you pick away at this supposed difference it is clear that they are one and the same idea and all that has happened is that the words have been changed. Why? Because by changing the words modern philosophers repress – in an almost Freudian fashion – the real nature of the problems which they are far from equipped to deal with.

I suppose the reader is now expecting that I put forward an alternative and reconcile these problems. I shall not do this here, however. Not because this is impossible or because I don’t think that there is an immediate solution to such problems – I do and it rests in the rejection of both dualism and materialism in favour of Berkeleyian idealism – but because I do not think that this debate will evolve because philosophers and scientists make speculative arguments amongst themselves. Rather I think that we are currently in the process of a massive conceptual shift that is taking place across the scientific community which is likely the product of large-scale cultural change.

The public today is quite sceptical of modern science – and with good reason. So-called experts feed them absurdities every day that are completely divorced from their experiences (one only has to think of economics to see the most obvious manifestation of this). And while some scientists are battening down the hatches and adopting elitist postures, others are changing their conceptual co-ordinates. Will they finally get it right? Can they form a truly coherent narrative that will replace the dualism and materialism of old? I do not know although there are some hints that this is taking place, as the great Hegelian philosopher Alexander Kojève recognised it would almost a century ago, in the higher echelons of the physics profession.

How can we speed this process along? I think the first step is reintegrate science and the humanities. The division of labour in modern industrial economies have separated these in a most violent manner. The most obvious manifestation of this in recent times was that ghastly embarrassment, on both sides, that has since become known as the ‘Sokal controversy’. So, reconciliation might be a start.

Further than this, I do not believe that you can engineer such a paradigm shift but merely manage it. I would advise those making proclamations on such issues to try to straddle the boundaries themselves rather than picking sides. Those on the side of the humanities have an awful tendency to reduce scientific discourse to general cultural discourse, while those in the scientific community have an equally awful tendency to tell themselves that modern science has transcended all those Big Questions that philosophy has been dealing with for millennia. Some humility on both sides would go a long way. Perhaps this would cool the tensions and deflate the egos somewhat… perhaps.

The general question then becomes: can science and culture ever truly meet in the middle? Can scientists recognise how limited their role in society actually is and come to appreciate that they are not the Masters of the Universe that almost every scientist seems to, from childhood, think themselves to be? At the same time can culture recognise that while science cannot provide us with answers to the Big Questions it is nevertheless, when done properly and unpretentiously, an extremely progressive force?

These are but questions and only posterity can answer them. But I would ask the reader to consider that, in contrast to what the mechanist priests would have them believe, we do not live in a deterministic universe and that consequently we create our own posterity. I would counsel that everyone march into the future somewhat humbled by the indeterminacy that we all necessarily face and not seek answers from the philosophical and scientific snake oil salesmen that spring up from the seeds of uncertainty that have been cast into this strange world of ours.

Palley’s Critique of MMT: Post Keynesian or neo-Keynesian?

So, Tom Palley has a new criticism out of MMT. Frankly, I’m not hugely concerned with the critique itself. The criticisms are old and I don’t think that Palley will convince anyone of the ills of MMT that are not already convinced (it’s that type of paper…).

What I have been wondering, however, is what to make of the substance of the paper itself. What I mean is: is this a Post-Keynesian critique of MMT? Or is it something else? I’m not sure that I want to answer that question just yet. For now I’m content to raise it.

What might this something else be? Well, let’s just peruse some of the features of the paper that stood out to me. First is the implied assertion that any economic work that does not use “simultaneous equation models with dynamic adjustment mechanisms attached” are not doing “professional” economic work.

For the last seventy years the language of macroeconomics has been small scale simultaneous equation models with dynamic adjustment mechanisms attached to explore issues of stability. Proponents of MMT have a professional obligation to provide such a model to help understand and assess the logic and originality of their claims. (p2)

Well, that seems to me to disqualify a good deal of Post Keynesian work to the dustbin of history. I suppose the General Theory itself does not fall under Palley’s criteria, given that it is over 70 years old, but certainly most of the work done by the Cambridge Keynesians would not meet Palley’s “professional” standards. Indeed, Joan Robinson and Nicholas Kaldor — both of whom severely criticised static equilibrium based modelling, which is exactly what Palley is referring to — would be seen as having attacked basic professional standards in economics.

That, of course, raises the question of the place of historical time and uncertainty in Palley’s critique. Since the “professional” criteria he requires obviously eliminate historical time and uncertainty any Post Keynesian writing that integrates these — to my mind this encompasses all true Post Keynesian writing — also falls to this critique.

Honestly, I wouldn’t have even bothered making this point if it weren’t for the content of the rest of the paper. I probably would have chalked it up to an unthought remark made in the midst of a heated critique. But what the rest of the paper pushes raises even more questions about from what standpoint it is criticising MMT.

Throughout the paper Palley seems extremely sympathetic to the ISLM framework. This will appear strange to Post Keynesians who are aware how unpopular this framework is among their kin. Joan Robinson provided extensive critiques of the IS-curve, endogenous money theory indicates that the LM-curve should be flat (although Palley seems to indicate that all the old Keynesians knew this anyway) and John Hicks famously rejected the framework because it didn’t incorporate time and uncertainty. To me, one of the defining features of Post Keynesian economics is the rejection of the ISLM curve.

Next Palley introduces his theory of inflation and it is… the Phillips Curve. According to Wikipedia the two defining features of neo-Keynesianism or the neoclassical-synthesis — the foes of the Cambridge Keynesians from the 1950s through to the 1970s — are, you guessed it, the ISLM and the Phillips Curve. I think that’s a fairly accurate representation too.

In his discussion of the Phillips Curve, which he supports, Palley claims that leading MMT economist Bill Mitchell “is… a strong advocate of the traditional Phillips curve” (p13). As evidence of this he links to this blog Mitchell wrote in response to Palley’s last critique. But in this blog Mitchell explicitly states that MMT seeks to circumvent the Phillips Curve. He writes that the MMT framework is “a way of interrupting the dynamics that underpin the Phillips curve”. So, there is some contradiction here. Clearly Mitchel is not the “strong advocate” of the Phillips Curve that Palley thinks.

But the real confusion comes when Palley claims that he and the other MMT critics are “adopting traditional Phillips curve theory” and that this theory indicates that “lower equilibrium unemployment is always associated with higher equilibrium inflation” (p13). However, in the paper that he wrote in 1994 which he cites to buttress his claims that the Phillips Curve is correct Palley wrote:

[T]he model showed that inflation is determined by the rate of aggregate nominal demand growth, and not by the rate of unemployment as claimed in the neo-Keynesian Phillips Curve literature. (p116)

So, which is it? Is this a trade-off between inflation and unemployment that Palley is referring to? Or is it a trade-off between inflation and aggregate nominal demand growth? Because it seems to me that there is a very large difference indeed.

In the specific case under scrutiny it is clear that the MMT Job Guarantee program would certainly cause unemployment to fall. But it would not clearly cause aggregate nominal demand to grow. Certainly, there would be a once-off upward adjustment in aggregate nominal demand as people shifted from the dole onto the Job Guarantee but this demand would not continue to grow provided the JG wage remained stable.

But I feel that we are getting too far off track here into the specifics of the debate. What Palley seems to be offering in the paper is defence of the ISLM and the Phillips Curve against MMT. He also appears to be claiming that proper macroeconomic work should be done using static economic models and that any work that is not done in this way is not “professional”. So, the question that I wish to raise here is, given all of this, is Palley’s critique Post Keynesian or is it neo-Keynesian? I genuinely do not know.

Joan Robinson’s Critique of Marginal Utility Theory

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

Control Freaks: Stafford Beer and Salvador Allende’s Fantasy Economy

Some time ago I wrote a post on marginalist microeconomics that included a brief discussion of how it might inspire certain absurd attempts at control in an economy. In that post I was generally concerned with policymakers and managers trying to control peoples’ behaviors at a micro-level.

What I was getting at was that marginalist microeconomics provides a dark, deterministic vision of how man behaves and this is a perfect fit for authoritarian micro-structures of social and economic organisation — I should add: authoritarian micro-structures that are designed to fail as they have no basis in reality.

Obviously, being a Keynesian I have far more sympathy for macro-level approaches to economic management. I especially like such approaches when they incorporate maximum freedom for individuals to get on with their day-to-day lives — with sensible regulations in place, of course.

But it should not be thought that the specter of authoritarian control that lurks behind marginalist micro cannot exist in macro-level approaches. Indeed, I would argue that when such tendencies assert themselves in macro-level approaches they are signs of something even more ominous. Whereas micro-level authoritarian nonsense may lead to small-scale dysfunctionality, macro-level authoritarian nonsense may lead to large-scale dysfunctionality.

An interesting example of such authoritarianism applied at a macro-level are the theories of the operations researcher and management guru Stafford Beer as they were applied in Chile during the reign of the Marxist president Salvador Allende.

First a note on Beer. Beer was an Englishman and an eccentric. His work carries an obscurantist air about it. It is basically a series of metaphors describing social organisation as a sort of system. There is very little actual substance to the work — indeed, much of it is fairly dull — but it gains its colour through its metaphors. One moment social organisation will be described using the metaphor of the nervous system; the next it will be described using cybernetics metaphors.

These metaphors blend into one another almost seamlessly in Beer’s work, leading the reader to think that some sort of truth is being uncovered about reality rather than the proliferation of metaphors that is actually taking place. Here is an example of a Beer system.

As we can see this one is based on the human nervous system. What Beer is doing here is something very powerful. He has effectively — although perhaps not consciously — realised that all sciences operate on metaphor to a greater or lesser degree. And that what passes for insight in many sciences (especially social sciences) is, in actual fact, often just the effect of metaphor. What Beer did masterfully was crank his metaphor-machine all the way up and produce streams of metaphor that give off the illusion of illumination but really say nothing at all.

In 1971 Beer was contacted by Fernando Flores, an employee of the Chilean Production Development Corporation. Flores wanted Beer to come to Chile and deploy his theories in order to create a decentralised socialist economy. Beer agreed and went to Chile.

The results were absurd. I won’t go into much detail here but this short film gives an overview of how the project, entitled Cybersyn, worked. I especially like the image of the politicians sitting in the Star Trek chairs looking at graphs that were being created by humans and then projected onto the fake computer screens around them.

The project was a complete farce. As the filmmaker notes the “control room” from which policymakers were supposed to ensure that the economy was functioning had no ability to give outputs — it was just a place to sit and watch. The Cybersyn program really had very little control ability at all, rather it gave policymakers the illusion of omniscience. And why did they need such an illusion? Simple. Because the maniacal economic policies enacted by the Allende government were tearing the country apart.

During the first year of his presidency Allende had loosened monetary policy substantially and this had been accompanied by largely positive effects. He had also, however, overseen an attempt at mass redistribution of income through raising wages. The policy was not, however, accompanied by an increase in the capacity of the economy to supply the massive amounts of consumer goods that such a redistribution would require. As the government expended its foreign exchange reserves within months the economy quickly went into hyperinflation as can be seen in the following graph.

Whereas moderate inflation can actually help a developing country grow, such hyperinflation was absolutely disastrous. GDP per capita quickly sank into the ground as the social chaos unleashed by Allende’s mad economic strategy was unleashed.

Meanwhile, however, Beer and his colleagues were constructing their Sci-Fi fantasy; the Star Trek control room was even soon to be moved to the presidential palace. The motivations were obvious. Beer was a showman, not a real policymaker and what Allende and his government wanted was some sort of fantasy space where they could go to ignore the real effects that their insane macroeconomic policies were actually having on Chilean society.

The policymakers needed Beer’s control room to give them a sort of simulacrum of power. They even got an opportunity to test it out when they used the information from Cybersyn to overcome strikes that were taking place across the country. They did this by using the various Telex machines scattered around the country to find out where resources were required due to the strikes. One wonders if they could have just picked up the phone.

Where the marginalist doctrines might provide a blueprint for micro-level catastrophes, Beer’s fantasy world was effectively deployed as a sort of fairground for policymakers whose real life policies were sending a country to ruin. But both are based on the same impulse: the impulse to control; the impulse to know what makes people act as they do; the impulse to become God and create the world anew. The great German philosopher Johann Georg Hamann often said that man’s greatest sin was his desire to become God and that it was this sin that would lead to man’s self-destruction. How right he was.

Moar Scotland: Are They Dependent on Rising Oil Prices?

Sorry folks! No new blog posts today on how crap economic theory is and so forth. I’m still working on getting the Gradualis blog off its feet.

But for those of you interested in Scottish independence we have a post up today showing just how sensitive Scotland’s trade balance is to quantity and, most especially, price fluctuations in the oil markets.

Scotland’s Dependence on Rising Oil and Gas Prices: A Question of Macroeconomic Stability

This is the key issue surrounding Scottish independence from a macroeconomic perspective. It is obvious that they cannot keep oil and gas export revenues growing at pace with GDP forever. At which point, the trade balance will begin to deteriorate. The question moving forward is how they should manage this — and what sort of monetary framework is most appropriate to such potential macroeconomic volatility.

Scottish Sectoral Balances

The Scottish government yesterday released key statistics that allow us to calculate the sectoral balances of the country. I have done so for our emerging think tank Gradualis and have posted the results on the Gradualis blog.

Scottish Sectoral Balances

As can be seen from the discussion on the blog the Scottish economy is extremely reliant on the income generated from oil and gas exports. If these are denied to Scotland after independence the Scottish economy would likely collapse.

In my opinion the two graphs linked to in the above post are the most fundamental when considering the question of Scottish independence.

If you want to comment on the post please do so at the Gradualis blog as we are trying to generate interest and traffic for it before we formally launch the think tank. Thanks!