Friday, 2 October 2020

ALGORITHMIC CAPITALISM: The Control of Growth and the Growth of Control


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).


The formal equivalence of all axiomatic market agents in equilibrium analysis means that they are left without a “purpose” once the “frozen” state of equilibrium is reached. In other words, equilibrium is a state of complete in-action, given that at equilibrium market agents no longer have any need or space to change their decisions. At equilibrium there is and there can be no “market” because all “decisions” and all “plans” have already been exhausted semaphorically, logically, in line with the mathematical demand and supply schedules and functions for the “endowments” attributed to market agents. At the hands of positivism and empiricism, the Statik of equilibrium theory contradicts the Dynamik of capitalist reality: hence, equilibrium expels history, stasis stymies metabole, necessity chains freedom. How then to reconcile these irreconcilable opposites? How to evade and escape these antinomies and apories? Schumpeter offers an apparent and insidious way out:


But despite this we have shown that [a subjective] element is present in the economy, which cannot be explained by objective conditions, and we have put it in a precise relationship to those objective conditions. (Theorie, Chapter 7)


Thus, Schumpeter’s dyadic combination of Statik and Dynamik offers a Windelbandian riposte to Arendt’s implicit condemnation of “algorithmic” or “nomothetic” mass society where little space is left for “idiographic” human action, for the “rare deeds”. That is why orthodox bourgeois economic science must make a voluntaristic, decisionist “leap” to bridge the Scheidung, the chasm between the Statik and the Dynamik. This gap between present Being and Becoming (the present as history) can be surreptitiously bridged by orthodox economic science by means of an Ent-scheidung, a de-cision, a leap of will.

The task of “science”, then, is not to jettison Arendt’s “rare deeds” – the Individualitat of the entrepreneurial Spirit: it is rather to marry (again, decision as reconciliation, Ent-scheidung!) logic with nomothetic observations about the operation of “the social process” and then place these “objective conditions….in a precise [logico-mathematical] relationship” with the equally necessary idiographic “subjective element”, the “leadership” role of human agency. There is no paradox here: the subjective element that leads or initiates the “transformation” of the economic system must act within the boundaries of the objective conditions specified by logic and science. This necessity is what gives the phenomenon of capitalist trans-formation its mechanical or procedural character: it is the mechanism to which is applied the subjective element, the engine or “source of energy” (dynamis), that will enact the trans-formation (whence we obtain Schumpeter’s Veranderungs-mechanismus) that is essential to the Innovations-prozess.


The “freedom” of the leader, of the entrepreneur, who leads this mechanism and this process is not an abstract concept: individual freedom operates within the objective conditions imposed by the “free-doms” of every other individual agent involved in economic activity. The subjective trans-formation of the capitalist economic system takes place within the boundaries and limits imposed by the specific historical “institutional framework” – Entwurf (frame) - of this economic system. In different spheres, the Untehnemer-geist of Schumpeter’s economic science mirrors and parallels the Leitender-geist that animates the bureaucratic machinery (Beamtetum) of Weber’s politics: the Spirit (Geist) of capitalism animates the capitalist factory (Betrieb) and its bureaucratic State.


The evident aim of Schumpeter’s Dynamik and of all later bourgeois “economic dynamics” (from Hicks’s Value and Capital, to Harrod’s A Theory of Economic Dynamics, to Robinson’s The Accumulation of Capital) is to processualize the mathematical Schema of the Statik so as to give it a practical historical and institutional dimension in real time. And the aim behind this aim is to conceal the political antagonism implicit in the notion of “value”, together with the systematic “accumulation of value” which is the intrinsic goal of capitalist industry, by presenting the established order of capitalist society together with its “supply and demand” – human needs – as objectively given immutable realities. This was also the essential aim of Hayek’s catallaxy or “spontaneous order” – which is clearly an oxymoron, because any “order” worthy of the name must be in contravention of any “spontaneity” worthy of its name! And it was certainly the purpose of the New Institutional Economics, which we shall examine next.

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