Commentary on Political Economy

Saturday 19 March 2016

Mises and Hayek: Economic Science As Language-Game

The remainder of this chapter will study the process whereby Hayek’s and Robbins’s conception of “the science of choice’ proceeds from certain assumptions (individualism, historical institutions seen as rigid ossified structures, scarcity or ‘rarete’’, competition) which allow it to be distinguished from pure engineering and yet permit the selection of a “box of tools” that turn it into a “technique” that purports ‘to describe’ social reality but in fact prescribes social action and shapes it decisively.

It is the combination of “in-dividualism” (recall Hobbes – in von Clausewitz’s perspective, if war is the continuation of politics by other means this is only because politics is incipient war) and “scarcity”, as the expression of the antagonism of self-interested in-dividuals, that make the theory particularly powerful strategically for capital. By adopting these assumptions, Robbins’s formal categorization of “praxeology” – which (Napoleoni) is the encapsulation of the fundamental assumptions of neoclassical theory – completely overlooks the fact that these notions of “individualist competition” and of “scarcity” are not “scientific” categories but in fact are themselves determined by “political” conditions that go from the ‘Trennung’ to the selection of production technologies, consumption schedules and income distribution (Napoleoni points this last element out in reference to Pareto optimality, which cannot encompass this parameter, at p. 46) which are not “given data” (Hayek pointed this out by reference to general equilibrium and “competition” – also covered by Sraffa and Robinson later) because they are not “exogenously/independently” determined but are endogenous variables to “the science of choice”, thereby destroying their “scientificity”.

As Napoleoni notes, Robbins’s aim was to turn “economics” into a “technique” in a fashion similar to engineering, but this is not possible because of the fallacy of misplaced concreteness (invoked by Hayek against “scientism”) because “individuals” and “scarcity” are themselves social constructs. Above all, Robbins’s definition of an “economic” problem leaves out the act of “exchange”, that is, the institution of private property and the artificial calculation of “individual labours” against the division of “social labour”, which are fundamental to a “market” economy and without which it would be entirely consistent with a “planned” economy. It is the “choice” implied by “the science of choice” that, once it is seen as “conflict”, destroys the “scientific” pretensions of the Robbinsian epistemological definition of economics. It follows that the “goal-neutrality” and “means-neutrality” of “the science of choice” is anything but neutral but in fact disguises clear ideological-political choices that reveal its strategic-political character largely dependent on “prices” determined through equilibrium analysis.

We can now see (what remains a mystery to Cacciari, p44) why Schumpeter as well as Hayek had to cling “desperately” to equilibrium analysis even though they were aware of these “apories” (simultaneity and perfect competition in Hayek, endogeneity of technology and organization as well as “finance-capitalist” nature of ‘Statik’ analysis in Schumpeter where ‘Dynamik/Krisis’ become the differentia specifica of capitalism). Without equilibrium analysis, both Hayek and Schumpeter were aware that their attempts “to distil” the core of (scientific) “economic analysis” in isolation from the “Marxian” factors (relegated by Schumpeter to “economic sociology”) would come to naught. The theory was evidently un-historical (cf. Napoleoni – who also neglects to emphasise its internal inconsistency) and Schumpeter sought to improve on this score without relinquishing the Machian presuppositions and yet introducing Nietzschean notions that give it far greater political realism and “honesty”/bluntness.

Thus, “praxeology” becomes a Wittgensteinian “language-game” that limits the scope of human action forcing it into a straitjacket. We seek to outline the epistemological foundations of this construct (also discussing Nietzsche’s Frammenti Postumi) and to highlight its Kafkaesque “violence” (recall Arendt and Cacciari’s references). Interestingly, Cacciari uses the word “inexorable” to describe the functional instrumentality of the kind of “language game” erected by Hayek-Robbins.

As we noted, Wittgenstein had already reached the epistemological limits of the project of establishing the logical foundations of mathematics and then also the development of a non-metaphysical “language-game” aspiring to scientific status. This was the failure of Machism as well (recall also Lenin’s intervention discussed by Cacciari). Relativity and quantum theory will put paid to these velleities, whilst Husserl and Heidegger will perform similar tasks in philosophy/phenomenology (cf. Logische Untersuchungen and “The Problems of Phenomenology”, respectively).

The Hayek-Robbins pro-ject does not seek to go beyond Machism because its “self-understanding” is in reality/effectively to develop “tools” that can serve as the foundations of a “Science of Choice”. What Wittgenstein (and Nietzsche before him) show is that this is im-possible. Thus Hayek remains a prisoner of the Wiener-Kreis position, seeking if not a Neo-Kantian correspondence of logic with reality, at least a Machian phenomenological correspondence with truth, an “explorative” procedure a’ la Tarski or Carnap, allowing a growing approximation or refinement of logical analysis to reach scientific truth. Popper’s definition of “scientificity” of course is “empirically” antithetical to this, preferring the experimental road to science (contra Hayek).

But Mises remained the “fundamentalist”. The misguidedness here as in Hayek to a lesser extent is in failing to understand that the “rules” to be “distilled” from the reality of capitalist social relations of production do not and cannot correspond to reality because the reality is in a different dimension, a multi-verse that is worlds removed from the one encompassed by the “rules”. This is so not only in an epistemological sense, as Godel (but also Russell and Cantor with their ‘paradoxes’) showed, because the “rules” cannot “explain” their “truth”, the “causality” of the events they “measure” and “relate”; but also because, as Wittgenstein showed, there is no (Kantian) truth.

And this is why it is possible to attribute Kantian foundations to Mises (“Kant is metaphysics!” we can hear Neurath cry out) in the “introspective/individual” rationality of “human action” representing the Ratio of the transcendental subject. Misesian appraisement stands for the “freedom” of the Kantian Subject which remains “exogenous” to the economic system: it simultaneously “re-equilibrates” the system of exchange described by marginal utility, pushing it toward an “equilibrium” thanks to the “logic” of its rationality; but then it makes the attainment of this “equilibrium” impossible because the “choice” of the transcendental subject cannot be subordinated to the “phenomenal” link of causality, of empiricism.

Here the Planlosigkeit of “choice”, the Kantian “freedom” of the Subject, is what rescues “homo agens” from the “non-action” of the “end-state”, of equilibrium. The market mechanism, therefore, whilst it is analyzable “scientifically” through “logic”, must retain for Mises the freedom of “choice” that restitutes the Subject to the centre of the system of exchange: the exchange cannot be one of “equivalents”; exchange must involve conflict, “competition”.

The “socialist” attempts to transform “the logic of choice” into a “Plan” would remove this subjective element, this “appraisement”, this conflict, as would the Hayekian emphasis on “co-ordination”. These are Neo-Kantian moralistic elements that Hayek-Robbins seek to supplant with Machian observational/empiricist ones evocative of the logical positivism of the Wiener Kreis, (tending toward equilibrium but generating the “utilization of knowledge” or “learning” that would evolve the system) – notions Mises despised because they would lead to a “scientistic determinism” incompatible with “action” and “choice”. Schumpeter will retain the Kantian moment with the notion of “Innovation”, exogenous to the system, and supplement it with Marxist antagonistic “evolutionary” notions.

Mises instead always turns “calculation” into “appraisement” by supplementing the “exchange” with “competition”. (For Kant’s influence on Mises, see Long’s, and also Boettke’s recent piece, “Witt., Austrian School and Logic of Action”. But Long ably re-establishes the Mises-Hayek link with Wittgenstein. See also Festre’; and the “Husserl vs. Schlick” article. Note also Kaufer’s article on Heidegger and Logic, re Frege-Husserl-Carnap.)

Cf. and discuss “The False Prison” which rightly teases out the “Schopenhauerian” origins of the Tractatus (ch 1 – “Wide-Angle View”.) whilst justly circumscribing the Kantian rapport.

Indeed, Wittgenstein moved further away from Machism and well toward Nietzsche after the failure of the Tractatus in that “later” he came to see the hopelessness of “founding” logic and mathematics “outside” (even phenomenologically – see Husserl’s concepts of “apodictic transcendence”) of their “self-referential” consistency, effectiveness or instrumentality which is the “inexorability” of the rules of language games. As Cacciari brilliantly expounds, the “rules” are “effective” because once they apply to a “reality” they encapsulate it or “circumscribe” it – they possess or permeate it ineluctably and totally: “the law always catches (raggiunge sempre) the guilty” …. because the law has no meaning without the guilty or guilt (Kafka) and without co-action or the State to enforce it (v. Bobbio on Kelsen). And this “always” is not just a statement of infallibility: it is a statement of im-possibility (non c’e’ possibilita’ di grazia – Cacciari). (Wittgenstein – if you think outside of the rules of chess, you are not playing the game. Therefore, pace Humpty Dumpty, I cannot choose to make a word mean whatever I choose. There is no choice in a language-game where words are governed by rules. To think outside the rules is im-possible.)

What Mises and Hayek (Schumpeter as well with his insistence on the Machian/Walrasian schema) do not understand is that the “efficacy” of “the logic of action” lies entirely in its first having “appropriated” reality. Logic does not describe or contain or refer to “reality”; logic has no “truth”, no “meaning”, it tells us nothing new but it renders visible: it is only ineluctable, it is only “inexorable” because it is tautological (Wittgenstein). Once we define money or rent and “utility” in a certain way – once we define “supply” and “demand” - once the “rules” of the game are set – the conclusions are inescapable and the consequences inexorable. But this is not because “reality” conforms to the “theory”: there is no theory – there is a language game! The hypothesis is not “falsifiable” – hence Hayek had to disagree with Popper about this as a condition of “scientificity”, although he also disagreed with Mises on the aprioricity of economic theory. There is only a “game” whose inexorability is hidden only by the fact that it does not “initially” encompass all reality as “given data” (Hayek)…. but it does so sequentially by approximation or “perfection” (Tarski).

Indeed, Hayek was the first to perceive (no, actually Walras and Pareto did too) that general equilibrium was flawed in the sense that it encompassed “simultaneously” the “totality” of events: it was, in Loasby’s words, a “closed system” that was completely and utterly “totalitarian” – Kafkaesque. But Hayek failed to see that this was the “destiny” of his “Pure Logic of Action”. Once the “reality” of its field of operation was “given” metaphysically (by positing scarcity-dependent ‘utility’, for instance, or ‘rarete’’), then the conclusions would follow “inexorably”. Hayek does not perceive this “inexorability” (his cousin Wittgenstein did) except perhaps in the case of “the impossibility of a socialist economy”, where Hayek could intuit the “extremity” of Mises’s arguments. Yet he believed that it was possible to proceed “by approximations” (like Tarski, but without the latter’s awareness of the impossibility of establishing the truth of logical propositions, but only the effectiveness of the rules in a given game).

Similarly with the concept of “competition”: Hayek showed how hopelessly aporetic this was. Loasby (‘Econ&Ev’, pp21-2) approves of Demsetz’s recasting of the concept as “perfect decentralization” and relates how Hahn regards general equilibrium as leading to intellectual death, as does Debreu – no improvements in knowledge are possible. He then proceeds unperturbed with “evolutionary/institutional” approaches that, as we will soon see (‘Demsetz’ below), are doomed by their limits! And Metcalfe refers to Hayek’s critique of “competition” in “equilibrium” theory as “devastating” (‘Ev Econ and Cr Destr’, p.15). But he still examines the implications of Hicksian growing returns to scale – as if these did not provide a perfect illustration of the “closed system” approach, though one that at least “formally” contradicts the assumptions of equilibrium analysis in favour of an “open-ended” Schumpeterian approach in the sense of Langlois (‘Analytical Review’)!

(My argument here is, see next section, that the “open-endedness” is only “formalistic” or “contemplative” [cf Lukacs] and therefore either aporetic or re-enclosable in the “closed system” model, at its “theoretical” best, or lapsing into a vulgar “practical empiricism” at worst. Indeed, it is this last “strategic use” [or ideological, but we prefer the other term to stress the “political usefulness” of ideology as against the “idealistic/impractical” connotations of the latter] that gives these “theories” any “relevance” at all! Pareto and Schump [CS&D] have something to say about these notions of “ideology”, too – cf Bobbio in our ‘Scientism’.)

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