Commentary on Political Economy

Wednesday 3 August 2011

This is an excerpt from a draft chapter from Krisis, a large work we are preparing on the "Exegesis and Critique of Capitalism", of which the "Nietzsche-book" was supposed to be only a chapter! Ciao.


Wealth and Political Economy

Smith’s “nature and causes” refers precisely to this “diachronic” dimension analysis or theory dealing with “the origins” of the present reality – not just in an “evenementiel” sequence (a list of events or facts), but in “practical” terms that “explain” this present reality in a way that makes us conscious agents of its present transformation and creation or “making” (cf. Thompson’s “The Making of the English Working Class”, in this double meaning of conscious politico-institutional ‘erecting’ in the face of antagonistic social relations). This aspect we will examine in connection with Hegel and Marx. To ask about “the nature of wealth” invites us to question its “meaning”, to find out “of what” it consists, what is its “substance”. And to ask about “the causes” of wealth invites us to enquire about its “origins”, about its “source”, about its “efficient cause”.

Already, by asking these related questions, Smith is intimating that “wealth” is not a “fixed amount”; that it is not a fixed quantity already in existence and immutable so that all that can take place between its “owners” is a simple “exchange”. Nor is Smith confining his enquiry to the mere “horizontal” growth of “wealth” through the simple expansion of the national population or the annexation of foreign territories and their wealth.

Smith is enquiring therefore about “the creation” or “pro-duction” (leading forth, creation, making) of wealth. And his answer to these questions is of two contrasting orders: on one hand, he suggests that “wealth” is created through the amount of “labour” that goes in the pro-duction of goods and services; on the other hand, he suggests that this wealth is created instead through the “exchange” of goods and services between self-interested individuals who can then “specialize” in their employment and therefore be more “pro-ductive” so that “wealth” expands.

But in both cases, Smith never abandons the belief that the “exchange” between individuals is an “equal exchange” because the competitive (leveling) forces of the free market mechanism will ensure that any “inequality” of exchange will be “leveled out” through the price mechanism. So not only does the market price mechanism ensure “equal exchange”, but also it leads to the expansion of wealth through the efficient allocation of individual resources for production.

Market And Social Osmosis

Two doubts arise at this stage: First, what exactly do we mean by “in-dividual”? Here the whole “empiricist” conception of reality (social and metaphysical) from Hobbes to Schopenhauer comes to the fore and is brought into question. Note that the “individual as a “physical unit of political decision-making” may have some relevance/force, but not as an economic unit where it seems entirely arbitrary.

Second, if individuals are truly “self-interested”, how can they “exchange” anything? How are their activities, their individual labours “co-ordinated”? Let us assume that these individuals are seeking to maximize their “utility” through exchange. Obviously, they will seek to derive from the “exchange” as much personal utility as they can by minimizing the amount of “endowments/utility” that they exchange with other self-interested individuals. But given that each good and service that these individuals exchange with one another contains “at equilibrium” a given “level” of “utility” (not “quantity” because utilities are incommensurable except in terms of objectified relative prices), it can then be argued that the individuals are not necessarily seeking to maximize “utility” but rather any number of “quantities” (including those in inverse proportion, as with “labour”, which has a “disutility”). Thus, we can see that “utility” is a purely “metaphysical” entity or substance that simply does not explain why “exchange” takes place: we may as well replace it with “labour” or any other “good or service”.

So now we can see that if we assume that the market economy involves “equal or equivalent exchange”, then everything within it is “equivalent” and the selection of a particular “substance” that lies “behind” the exchange, from “utility” to “labour”, is just a “metaphysical” entity that tells us absolutely nothing about the market economy and does not “explain” in causal terms the “nature” of “wealth” or indeed its “causes”. (Myrdal, below, seems to make the same point about the “tautology of circular definitions”. But he is wrong in branding this circularity “meaningless”, as we will show with Wittgenstein.)

Furthermore, here we are assuming that all these “exchanges” are happening “simultaneously” or “synchronically” and that all individuals know fully the “utilities/endowments” of everyone else. Even the Walrasian process of “tatonnement” (“groping”), or auctioneering, assumes that exchange ratios are fixed “simultaneously”, because there is simply no way of moving from one “intertemporal” fixing of prices to the next without having before us all the information needed to attain equilibrium! In other words, though utility maximization may be proposed as the “purpose” behind the process of market activity, it is not a purpose that can effectively serve as a price-discovery entity driving the process of exchange toward equilibrium – because market exchange is “blind” outside of equilibrium and, as established above, “empty” (“purposeless” or a “non-action state” as Mises dubbed it) once we assume that we have attained it. (Hayek makes similar points about the “timelessness” of equilibrium and its “omniscience” [“happening in a single mind”].)

But if instead we see these “exchanges” taking place over time, there can be no guarantee that the exchanges would lead the market price mechanism “to converge” toward “equilibrium”. For it is just as likely, if not indeed more likely, that the “self-interested” behaviour of individuals would lead the mechanism “to diverge” from equilibrium over time. Imagine, for instance, the existence of “opportunistic” behaviour whereby some individuals concealed the extent of their “endowments” so as to be able to exchange the lesser amount for a greater quantum of “utility” from other individuals, and so forth. Eventually, “competition” among self-interested individuals would not lead to “convergent price discovery” and therefore to “equilibrium” but rather to the opposite of “competition”, that is, to “monopoly”.

So therefore this “exchange” theory of the market economy does not even tell us how “competition” in its “pure” form at “equilibrium” can ever lead to “equilibrium” and “co-ordination” at all, rather than its opposite, either monopoly or indeed “chaos”. This is why, once Adam Smith took the “equilibrium” approach to the market economy not as one where “wealth” is pro-duced but where it is merely “exchanged” he had to assume or posit the existence of “com-petition” as a convergent force, and therefore had to invoke a “deus ex machina”, an “invisible hand” or a “deus absconditus”, a “hidden god” or “hidden rationality” (ratio abscondita) that “guided” the market economy to “self-regulation” and “co-ordination” – an unconscious, involuntary, “spontaneous” Plan that turned the “self-interest” of “individuals” into “enlightened self-interest”.

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