Orthodox bourgeois economic theory is impaled by the
horns of its dyadic antinomies: equilibrium and history, prices and value,
static and dynamic, exchange and development, circular flow and evolution,
mechanism and transformation, organization and innovation, finance and
enterprise, rent-seeking and investment, order and spontaneity.
The best bourgeois economic science has to offer is
to define itself as “a box of tools”. (The phrase and the instrumentalist
conception, followed later by Schumpeter and Robinson, belongs to E. Mach: “La
science peut etre consideree comme une sorte de collection d’instruments nous permettant de completer par la pensee
des faits…ou de limiter le plus possible notre attente [Kirchoff’s ‘description’]…Les
faits ne sont pas force’s de suivre
nos pense’es…”, La Connaissance et l’Erreur, at pp.376-7.) A stethoscope, a
thermometer, a microscope: these are all potentially medical tools. But
they tell us little about medical science. And they tell us absolutely
nothing about “health”. Disease is only the object of medical science;
but health is its true objective. Yet, even before we can address health as an
objective, we need to establish what we mean by “health”, and what we intend
this health to be – how and why “health” came to mean what it does today and
what we wish it to be tomorrow. This
includes an understanding of how we have come to have the present state of
health and how we wish to pursue it in future – we need to understand “the
present as history” (Lukacs, Hegel, Marx).
The problem with equilibrium analysis is even worse
than that of medical analysis in that it reduces economic “science” to “logic”
– literally, to ana-lysis
(retrospective examination, autopsy
or anatomy), that is to say, to the
formal mathematical equivalence of all its elements,
which leads to the meaningless paralysis of tautology. At least, with
medical tools, we have an indication of their ultimate aim by inquiring about
their practical use, their purpose. But equilibrium analysis is a purely
mathematical tool that tells us absolutely nothing about its ultimate purpose.
In economics, prices are the observable object; wealth is the objective. But
wealth has many definitions – wellbeing, welfare, happiness, value. Value is
the objective of capitalist economic activity. Production is the instrument
that leads capitalists to value when products are sold at a given price. Prices
are the observable rates of exchange that allow capitalists to turn the
goods that the production process has valorized so that they may realize
their value by means of their sale to purchasers. The aim of capitalist
economic activity is to maximise the valorization and realization of value. The
subject-matter that we need to penetrate, then, is this value that
“economic science” leaves entirely to metaphysics! So that we may understand
capitalism we need to identify what constitutes value, not as a “thing” but as
a human reality with a specific political history.
To be sure, our approach to the critique of orthodox
bourgeois economics was implicit in the very title of Adam Smith’s foundational
exposition of political economy: An Inquiry On the Nature and Causes of the
Wealth of Nations. Smith quite insightfully addressed “the nature” as well
as “the causes” of “wealth” – not just its “measurement” or “pricing”! Furthermore,
he implied that “wealth” could not be confined to “individuals” but that it
concerned “nations” above all! Still, Classical and Neoclassical Political
Economy from Adam Smith to Leon Walras is founded on the axiomatic static
equilibrium of market exchange. The idea is that there exists an economic
science that can lead to the equal exchange between atomistic self-interested
individuals by means of which their “endowments” can be priced so as to
maximize their individual wealth. Yet, this static-stationary, axiomatic-analytical,
anatomical and objective schema of bourgeois equilibrium economic theory clashes
most violently with the empirically evident instability of the
capitalist economy and its equally violent convulsive crises - and, worse
still, its transformations intended not just in the sense of quantitative growth (Wachstum) but
actual qualitative evolution (Entwicklung), with its meta-morphoses
and mutations, with its trans-crescence – and therefore with its
“indeterminateness of prices” (Schumpeter)!
Just like equilibrium analysis later, Smith’s
theorization of market capitalism left no space at all for the “co-ordination”
of the actions of what are axiomatically atomic in-dividual market agents –
which is why, just as Leibniz needed a divine “pre-established harmony” to
co-ordinate his “windowless monads”, he needed the “invisible hand” to
co-ordinate the actions of his “windowless”, “monadic” market agents. Indeed,
to the degree that, in contrast to Smith’s deus ex machina, Marx thought
to have identified “the laws of motion” of capitalist society, if not of human
history in its entirety, he left very little room for that human freedom that
Smith’s fatalistic “Invisible Hand” still allowed. Hannah Arendt summarizes
this insight superbly:
"The conception of
political economy as primarily a 'science' dates only
from Adam Smith" and
was unknown not only to antiquity and the Middle Ages,
but also to canonist
doctrine, the first "complete and economic doctrine" which
"differed from modern
economics in being an 'art' rather than a 'science' "
(W. J. Ashley, op. cit., pp. 379 ff.). Classical
economics assumed that man, in so
far as he is an active being,
acts exclusively from self-interest and is driven by
only one desire, the desire
for acquisition. Adam Smith's introduction of an
"invisible hand to
promote an end which was no part of [anybody's] intention"
proves that even this
minimum of action with its uniform motivation still contains
too much unpredictable
initiative for the establishment of a science. Marx
developed classical
economics further by substituting group or class interests for
individual and personal
interests and by reducing these class interests to two major
classes, capitalists and
workers, so that he was left with one conflict, where
classical economics had
seen a multitude of contradictory conflicts. The reason
why the Marxian economic
system is more consistent and coherent, and therefore
apparently so much more
"scientific" than those of his predecessors, lies
primarily in the
construction of "socialized man," who is even less an acting being
than the "economic man" of liberal economics. (At footnote 35,
ibid.)
Still, Arendt misses the point that Smith needed the
Invisible Hand above all because of his axiomatic assumption that the only end
his agents were allowed to pursue was unlimited self-interest – which is why
they could not (axiomatically!) “promote an end [the maximization of every
individual’s self-interest]” or indeed any mutually beneficial end at all! Far
from resulting in any welfare-maximizing equilibrium, a market composed of
self-interested individuals could result only in the Hobbesian “war of all
against all”! General equilibrium analysis will later dispense with the requirement of economic co-ordination, without
thereby resolving it, by postulating
the “syn-chronicity” of all “actions” in market exchange – by eliminating any
real time.
Up until Adam Smith set out to formalize the
operation or functioning of “the market”, economics had not existed as a
“science” separate from theories of society or indeed of “the body politic”.
Yet in this very separation of
“economic science” from other aspects of social life and from its history lies
the fatal flaw of this “science”, because once its methodology leads it to
exclude non-economic social forces as
“exogenous factors” or as “externalities”, then it becomes a “closed system” of
pure logico-mathematical formulae in which “economic facts” are completely deprived
of all sociological and environmental content. Consequently, “economic science”
is incapable of explaining historical change, including the transformation of
economic reality itself, totally extruding thus the very “positive empirical
experience” on which so-called “economic science” is supposedly founded. Every
science must consist of a combination of theory and facts: theory without facts
is empty, and facts without theory are blind. But the “facts” that “economic
science” pretends to theorise as “objective givens” are the very violent
reality that the capitalist bourgeoisie has already imposed on human society! Bourgeois
economic science therefore pretends merely “to observe empirically” its
misdeeds or “facts” as “data”, as “given”, and then to dress them up as “human
nature” that gives rise to “natural human rights”. This miserable combination
of scientific positivism and ethical jusnaturalism is the very essence of
bourgeois economic science. Hannah Arendt saw this clearly, with characteristic
perspicacity:
It is the same conformism, the assumption
that men behave and {p42} do not act with respect to each other,
that lies at the root of the modern science of economics,
whose birth coincided with the rise of society and
which, together with its chief technical tool, statistics, became the social
science par excellence. Economics—until the modern age a not too important part of ethics and politics and
based on the assumption that men act with respect to their
economic activities as they act in every other respect—could achieve a scientific character only when men had become social beings and
unanimously followed certain patterns of behavior, so that
those who did not keep the rules could be considered to
be asocial or abnormal.
(H. Arendt, The Human Condition, pp. 41-2)
So, this is the very first purpose of orthodox
bourgeois economic analysis – to frame human activity into statistically
measurable formal mathematical categories that can be related in a purposeful
manner. Equilibrium analysis sets up a framework (Entwurf) that
serves to obliterate history from economic theory, to consign to oblivion the
present as history, to conceal how present society is itself not a
natural or spontaneous, objectively-given “fact”, but is much rather the result
of a historical process of political antagonism whose intrinsic and inherent
conflictuality needs to be examined and explained. Equilibrium analysis does
this by entirely avoiding the subject-matter of the exchanges it
describes and classifies for the purpose of statistical measurement – in other
words, by concealing the concept of “value” and consequently the process of “accumulation”
of value that is the real political goal of the capitalist class. A major
corollary of paramount importance is that by concealing the meaning and reality
of “value”, equilibrium analysis also entirely avoids the all-important
question of whether “demand” and “supply” may not be “objective data” but
rather results of the capitalist social relations of production that an
exploration of the meaning and reality of “value” would disclose!
The con-fusion
of science and logic in the sphere of economic analysis was evident already in
Adam Smith’s theorization of market capitalism. Smith’s “invisible hand” was a
necessary Eskamotage or deus absconditus (hidden god) because the circularity of his
reasoning reduced science to logic - to a tautology in fact: prices are determined
by value which is determined by the quantity of labour, whose price is
determined by the market which determines prices which determine value. But if
prices determine value and value determines prices, we have the perfect vicious
circle – a tautology. The problem lies in the definition of “market”: if indeed
the “market” is made up of entirely self-interested atomistic individuals, then
it is impossible to see how such in-dividuals could ever reach the “agreement”
that is indispensable to determine “prices”! In other words, “the rules of
market competition” have to be set or agreed upon by market agents even before
market competition takes place. But this is impossible by definition, because
any restriction on the “self-interest” of market agents turns the entire
exercise into a meaningless tautology.
If we read Walrasian equilibrium to show how a real
economy functions, that is to say, how the independent decisions of individual
market agents can be co-ordinated by
“the market”, then it is entirely tautological because, as Hayek showed, “its conclusions are implicit in its
assumptions”. If instead we take it at face value, made up as it is of a
series of simultaneous equations, as a simple functional plan or classification
of an economy, then it is not tautological but purely classificatory or
illustrative. Equilibrium analysis, as a mathematical tool, as pure tautology,
as a “closed system”, cannot disclose a purpose. It is meaningless.
But this does not mean that it does not serve a purpose – ideological,
political – in the hands of the bourgeoisie! Gunnar Myrdal insightfully seized
on the meaninglessness of equilibrium analysis, in The Political Element in the Development of Economic Theory. Like
all economics theoreticians after him, however, Myrdal totally failed to see
the purpose or political element behind the tautologous schema of equilibrium analysis – a “political element” that was to
be the very object of his study! Similarly, in his review of Comte and Mach in Knowledge and Human Interests, Jurgen
Habermas emphasises one aspect of positivism as his crucial objection to it -
namely, that positivism as a philosophy of science is incapable of
understanding and explaining the “historical evolution” of “science” itself. We
partly agree with Habermas; but this can only serve as an “internal” critique
of positivism in terms of its internal consistency, whereas as we will discuss
more fully below this type of criticism of positivist methods entirely misses
the point about their “external” real practical political effectuality! In
short, Habermas criticizes positivism in the name of “science”, when in fact
bourgeois “science” is a real political practice that cannot be “contradicted”
in purely “scientific” terms! “Science” simply does not have the politically-independent
epistemological status that Habermas’s neo-Kantism assigns to it – as Max Weber
showed conclusively, although only obliquely (cf. “Science as Vocation”).
This precise point, however, was not lost on the far
more perspicacious and insightful intellect of a Hannah Arendt:
The laws of statistics are
valid only where large numbers or
long periods are involved,
and acts or events can statistically
appear only as deviations
or fluctuations. The justification of statistics
is that deeds and events
are rare occurrences in everyday
life and in history. Yet
the meaningfulness of everyday relationships
is disclosed not in
everyday life but in rare deeds, just as the
significance of a
historical period shows itself only in the few
events that illuminate it.
The application of the law of large numbers
and long periods to
politics or history signifies nothing less
than the wilful
obliteration of their very subject matter, and it is
a hopeless enterprise to
search for meaning in politics or signifi-[43]-
cance in history when
everything that is not everyday behavior
or automatic trends has
been ruled out as immaterial.
However, since the laws of statistics
are perfectly valid where
we deal with large numbers,
it is obvious that every increase in
population means an
increased validity and a marked decrease of
"deviation."
Politically, this means that the larger the population
in any given body politic,
the more likely it will be the social
rather than the political
that constitutes the public realm. The
Greeks, whose city-state
was the most individualistic and least
conformable body politic
known to us, were quite aware of the
fact that the polis, with its emphasis on action
and speech, could
survive only if the number
of citizens remained restricted. Large
numbers of people, crowded
together, develop an almost irresistible
inclination toward
despotism, be this the despotism of a
person or of majority rule;
and although statistics, that is, the
mathematical treatment of
reality, was unknown prior to the
modern age, the social
phenomena which make such treatment
possible—great numbers,
accounting for conformism, behaviorism,
and automatism in human affairs—were precisely those
traits
which, in Greek
self-understanding, distinguished the Persian
civilization from their
own.
The unfortunate truth about
behaviorism and the validity of its
"laws" is that
the more people there are, the more likely they are
to behave and the less
likely to tolerate non-behavior. Statistically,
this will be shown in the
leveling out of fluctuation. In reality,
deeds will have less and
less chance to stem the tide of behavior,
and events will more and
more lose their significance, that is,
their capacity to
illuminate historical time. Statistical uniformity
is by no means a harmless
scientific ideal; it is the no longer
secret political ideal of a
society which, entirely submerged in the
routine of everyday living,
is at peace with the scientific outlook
inherent in its very existence. (pp.42-3)
The point Arendt is making is that in and of itself
statistics – entirely like Equilibrium Analysis - does not eliminate the human
ability to act, but it may surely be utilized for the purpose of inducing human
submission to the established order – to the present reality – once the present
is no longer seen as history, as the result of human action and it is mistaken
instead for an immutable objective reality.
Of
course, the practical social results of Equilibrium Analysis, whether classical
or neoclassical, can be catastrophic, because the presumed automatism of “the
self-regulating market” will tear the social fabric apart, as this extract from
Polanyi’s The Great Transformation illustrates:
Our thesis is that the idea of a
self-adjusting market implied a stark utopia. Such an institution
could not exist for any length of
time without annihilating the human and natural substance of
society; it would have physically
destroyed man and transformed his surroundings into a
wilderness. Inevitably, society took
measures to protect itself, but whatever measures it took
impaired the self-regulation of the
market, disorganized industrial life, and thus endangered
society in yet another way. It was
this dilemma which forced the development of the market
system into a definite groove and
finally disrupted the social organization based upon it.
Such an explanation of one of the
deepest crises in man's history must appear all too simple.
Nothing could seem more inept than
the attempt to reduce a civilization, its substance and ethos,
to a hard and fast number of
institutions; to select one of them as fundamental and proceed to
argue the inevitable self-destruction
of civilization on account of some technical quality of its
economic organization. Civilizations,
like life itself, spring from the interaction of a great
number of independent factors which
are not, as a rule, reducible to circumscribed institutions.
To trace the
institutional mechanism of the downfall of a civilization may well appear as a
hopeless endeavor. Yet it is this we are undertaking. In doing so we are consciously adjusting
our aim to the extreme singularity of the subject matter. For the civilization
of the nineteenth century was unique precisely in that it centered on a
definite institutional mechanism. (pp.7-8).
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