Saturday, 7 November 2020

Part VI - TOTALITARIAN ECONOMICS

 VI. EQUILIBRIUM ANALYSIS AND RATIONALITY

Economic activity is the actual process aiming at the achievement of a material interest, a value. What this value is, differs depending on the mode of production. But consideration of this “material interest” immediately raises the question of the ends or ultimate goals of human activity – which entails inevitably the exploration of human needs and motivations that are not reducible to one particular spring of human action. We have seen how the value pursued by the economic agents described by Neoclassical Theory is entirely antagonistic in that it prescribes perfect competition in the pursuit of purely “egoistic utilitarian” goals thereby eschewing completely any kind of human need or inter-est of a co-operative kind. Once it has reduced all human needs and activity to the selfish search for maximum utility, Neoclassical Theory then relegates any inquiry into the nature of this wealth to the unfathomable realm of “metaphysics”. For that reason, and quite consistently, the rationality of equilibrium analysis is internally wholly instrumental, formal and mechanical: it excludes categorically the undeniable multifariousness, diversity and indeed sociality of human “economic action” implicit in the division of social labour, and above all else it fails completely to explore the essential impact that different theorizations of human needs and specifically of economic activity would have on the consequent theorizations of the means for achieving those needs and activity!

To begin with, as we have observed repeatedly, Neoclassical Theory confines human economic activity (a) to the maximization of individual utility, and (b) to the exchange of existing individual endowments, leaving out completely the production of economic goods for exchange. Yet, as is readily evident, production is both prior to exchange in time and consequently prior also from a scientific viewpoint for the understanding of economic activity. Of course, production involves the pursuit of human needs and wants, and therefore the use of human activity or labour. It is essential to make the distinction between the notion of “labour” as an abstract activity and the very concrete materiality of human activity that is ineluctably “social” in character in the sense that it is simply impossible to imagine human activity (living labour) as separate from the activities of other humans – as if it pertained to a mythical Robinson Crusoe marooned on a remote island. The specificity of human activity as distinctly “economic” activity is that it occurs in a social context whereby the activities of individuals must be collocated in a complex network of interdependent activities carried out by many individuals – and therefore as an organic part of social labour that cannot be partitioned into aliquot parcels of an abstract entity called “labour”.

It was because of the impossibility of severing human living activity into individual portions of an abstract aggregate entity called “labour” that Emile Durkheim referred to “la division du travail social” (the division of social labour) in his great work, and not (as it is often most lamentably translated) to “the social division of labour”. “The division of labour” implies that there is one uniform and homogeneous  quantity called “labour” that is then partitioned into specialized tasks for the production of different goods. To the contrary, Durkheim insists on the indivisibility of the interdependent tasks of social labour that serve to form an organic whole. Because of this distinction, Durkheim was entirely right to invert Ferdinand Tonnies’s classification of less developed societies as “organic” (meaning “closer to nature”) and advanced industrial societies as “mechanical” (because of the preponderance of “machines”). In reality, as Durkheim surely realized, Tonnies’s classification was purely romantic and historicist in that it contrasted the old tradition of status solidarity in simpler human groupings to the more atomistic mechanical social bonds of industrial societies based on contract. (The status versus contract distinction was first raised by Henry Maine in his Ancient Law.) Against this late-romantic depiction, Durkheim rightly emphasized the fact that advanced industrial societies have a far more “organic” form of solidarity and association than the less advanced ones, precisely to the degree that advanced societies rely on social relations so complex that they are far more “organically” connected than those of simpler human groupings, which can then be said to be less interdependent or integrated, and therefore more “mechanical” in their social and economic functions!

Following Durkheimian and Marxian lines, and in explicit repudiation of Tonnies’s romantic historicism, Max Weber moved away emphatically from the exaltation and mythology of ancient “community” as against modern “society” (cf. F. Tonnies, Community and Society) toward the sociological classification and analysis of complex industrial capitalist societies. (It is wrong, then, to view the Weberian Entzauberung [disenchantment] as a nostalgic longing for a past “enchanted” era; quite to the contrary, Weber was pointing to the inevitable rationalization of the life-world that obtains in advanced societies.) This Weberian avulsion from and revulsion to the nostalgic elevation of traditional societies extended also to the methodological individualism of Neoclassical economic theory, as Weber’s historically specific works show conclusively. Despite this, however, and possibly blinded by his close association with Neoclassical circles, Weber failed to detect how Neoclassical theory wrongly confined the ends and goals of human economic activity to the mere pursuit and maximization of egoistic utility.

It is this one-dimensionality of Neoclassical equilibrium analysis that vitiates ab initio its scientific enterprise. Internally, the equilibrium schema of analysis is entirely tautological – its results are implicit in its axiomatic assumptions, which is why Hayek dubbed it “the pure logic of choice”. Thus, the rationality of Neoclassical theory is a purely instrumental or purposive rationality because it excludes value or substantive rationality categorically from the sphere of analysis – by positing individualism defined as atomistic self-interest (with no possibility of co-operation) as a methodological postulate. From a strictly scientific standpoint, this pre-possessing, pre-judgemental (indeed, pre-varicating) approach irrevocably vitiates the Neoclassical undertaking by assuming, indeed postulating, what it was supposed to prove – the exclusivity of atomistic egoism or individual utilitarian self-interest as the only human end or pursuit or goal!

The intransigent, uncritical, unscientific positing of individual self-interest as the only rational end or goal postulated by Neoclassical Theory means that the purposive or instrumental rationality prescribed in its equilibrium analysis is itself scientifically unfounded! For equilibrium analysis to be able to lay claim to scientific rationality, it must be able to show not just the rationality of the means adopted in pursuing economic ends or goals but also the substantive rationality of those ends or goals! By circumscribing and reducing human economic activity to the maximization of individual utility, Neoclassical theory turns possessive individualism into the exclusive end or goal of human activity to the exclusion of social labour and co-operation – a methodological postulate that (from Aristotle’s definition of human beings as zoa politika to Thomas Aquinas’s animal sociale, to Adam Ferguson’s Essay on Civil Society, and indeed to Adam Smith’s Theory of Moral Sentiments, without even mentioning Marx and Durkheim!) has been shown to be historically quite blatantly and demonstrably false. By so reducing human economic activity to the pursuit of narrow individual goals, Neoclassical Theory is unable to consider alternative ends or goals that may be pursued more efficiently – more economically! – in combination with a broader and more efficient variety of  technical means.

Technische Arbeit ist nicht schlechtweg eine Arbeit um der Arbeit willen, sondern im wesentlichen Sinne ein Arbeiten an der Arbeit.

 

Interestingly, Max Weber penetrated this insight with the help of the philosopher Friedrich Gottl who first drew his attention to the distinction between wirtschaftlicher Arbeit, that is, economic labour or activity, or social labour understood as a social relation, in pursuit of a value or end or goal; and technische Arbeit, the work that goes into devising technical means for the pursuit of that value or end or goal – essentially a distinction between economic activity and the technical-scientific activity that must precede it - engineering. Engineering is intellectual foreworkgeistige Vorarbeit (another phrase adapted by Weber for his Munich lectures on “Politics and Science as Vocation”) – that studies the physical processes involved in obtaining a physical outcome. Economics takes into account the profitability of such an undertaking and therefore diverts “technical-scientific activity” into properly “economic activity”. For Gottl, economic labour is the purposeful activity (wirthschaftlicher Arbeit) to acquire or satisfy an economic benefit or need, - the motivation or end or goal of that activity. Technik refers instead to the actual means adopted for the acquisition of that interest or value. Economic theory draws the connection between economic labour as motivation, and the means (tools and economic organization) to achieve its goal in terms of cost of production and profitability. Economic labour can include the development of techniques or means for the acquisition of value (intellectual labour).

 

It is obvious therefore that whereas engineering is a scientific relation between “things” – the technical components of a plan -, economics is a relation between people, because it relates to the relative advantage obtained by one economic agent over another in the delivery of an economic plan. By so distinguishing this Dualismus of economic and engineering activity, Gottl exposed the nefarious tendency of Neoclassical Theory to reduce economic activity to the science of engineering by seeking to find a univocal physical quantifiable relation between human economic needs or ends and their technical realization! (See, for the briefest account, F. Gottl, Die wirthschaftliche Charakter der technischen Arbeit. On the Gottl’s influence on Weber, see T. Morikawa, Handeln, Welt und Wissenschaft.)

 

Gottl contended in his piece that Technik is the means through which our actions become successful, defining Wirtschaft and Technik as, respectively, “ordered action directed to the satisfaction of needs,” and “the orderly execution of this action.”169 He then relates technical and economic rationality, and general and specific utility, to productivity and efficiency (Wirtschaftlichkeit), proceeding from one distinction to another as if logically, but without actually developing his argument in any clear direction. Nonetheless, in chapter 2 Weber takes up Gottl’s distinction between Wirtschaft and Technik, the distinction turning on the relationship between means and ends, and the degree of rationality of an action. Following on from chapter 1, the “meaning” of an action is the subjectively intended

 

169 Friedrich von Gottl-­Ottlilienfeld, “Wirtschaft und Technik,” in Grundriss der Sozialökonomik. Erstes Buch: Grundlagen der Wirtschaft. Abt. II: Die natürlichen und technischen Beziehungen der Wirtschaft (Tübingen: J. C. B. Mohr [Paul Siebeck], 1914), p. 208.

Introduction to Max Weber’s Economy and Society 55

 

meaning; hence, at the beginning of chapter 2 an “economically oriented” action is intentionally oriented to satisfying a desire for utilities. The rationality of this action arises from the degree to which the action takes account of the purpose for which means are employed; it is a measure of the planful orientation of the actor….

Hence, here again, Weber picks up a distinction that Gottl had opened up but had not developed logically—and then embeds it in his account of rational economic action. Weber states in chapter 2, §1.4, “not every action which is rational in its means should be called ‘rational economic action.’” He seeks here to limit the conception of Technik to the medium through which an action is executed and separate it from “economy,” which constantly implies a relationship between means and end—ambiguously so, in normal usage, since it means both action aimed at satisfying a need [Gottl’s “economic activity”] and the form in which that action is executed, “the well-­known principle of ‘least force.’” It is this latter form of action that Weber calls “the measure of rationality of a technique.” (K. Tribe, Introduction to M. Weber, Economy and Society, pp.54-5.)

 

From an economic standpoint, then, the rationality of an action depends on its ability to generate the greatest advantage in terms of “wealth” with the “least force” applied on other economic agents. From this embryonic distinction theorized by Gottl, Weber went on to develop his famous dichotomy of Wert-Rationalitat (worth or value rationality – the selection of only those means consistent with a selected value or end or goal – the end does not justify the means; the end takes primacy over the means) and Zweck-Rationalitat (purposive rationality – the selection of available means or existing techniques to achieve a variety of possible and realistic but not absolute values or ends or goals – the end justifies the means so long as both the end and the means are realistic and “least force” is employed to achieve the end).

 

 

4. Whoever acts in a purposively rational manner orients their action to the purpose, means, and associated consequences of an act, and so rationally

Basic Sociological Concepts 103 Economy and Society

weighs the relation of means to ends, that of the ends to the associated consequences, and that of the various possible ends to each other; hence, action that is neither affective (especially not emotional) nor traditional. The decision between competing and conflicting aims and consequences can in this way be oriented value-­rationally; in this case, only the means are selected by purposively rational criteria. Alternatively, the individual can deal with competing and conflicting aims without resorting to value rationality, taking “dictates” and “demands” simply as given subjective feelings of need arranged on a scale that is consciously balanced according to their urgency, orienting action so that they will, as far as is possible, be satisfied in this sequence (the principle of “marginal utility”). Hence, there are many ways in which the value rational orientation of action can relate to purposive rationality. (M. Weber, EandS, p.102-3.)

 

 

For Weber, there are two orders of rationality: (a) value rationality, which refers to the means selected to achieve a given fixed, absolute value or end – an ideal; and (b) purposive rationality, which refers to selecting possible values or ends among many, subject to the existence and availability of  efficient (“least effort or force”) means. Purposive rationality refers to the combination of possible ends and available means using “the least force” (the most efficient method) to maximize the end selected out of many realistic, as opposed to absolute, values or ends. Thus, for purposive rationality, “the end justifies the means” because it is prepared to subordinate or even sacrifice the values that motivate the quest for the end to the efficient economic use of available means when these infringe against the “primacy” or “idealism” of the end. By contrast, value rationality champions the end in its willingness to sacrifice or eschew more efficient expeditious means for its attainment in order to preserve its ideal purity, its absoluteness. Purposive rationality is willing to compromise the end and value rationality is ready to sacrifice the means. Clearly, then, by adopting this analytical framework for the sociological assessment of “rational action”, Weber is inhabiting a half-way house between a neo-Kantian critical-scientific definition and a purely historicist- hermeneutical and relativist one.

 

As Tribe puts it,

 

Whether an action is rational or not then relates to the social, or if you like, institutional, context of the action; there are no inherently rational means, simply activity seeking to meet certain ends whose rationality derives from the manner in which means are selected to achieve desired ends. Where Gottl limited himself to philosophical phraseology, Weber used this idea to develop an idea of social technology: the organisation and management of social action, (ibid, p.55).

 

 

In Neoclassical Theory, individual utility is the motivation for economic action or labour, and the market exchange mechanism or pricing system are the means (Technik) utilized to maximize this individual utility. The Value rationality of Neoclassical Theory is the combination of utility, as this one single individual end or goal, and the market mechanism used for its attainment. No other options are available. In the above excerpt, Weber clearly implies that “marginal utility” itself is rational to the degree that it is not aimed at a fixed absolute end or goal to which all available means must be subordinated. Quite apart from the internal contradiction of this combination – the fact that individual utility is inconsistent with the Technik of perfect competition and therefore requires an “auctioneer” -, what Weber neglects to consider is also that because in Neoclassical Theory “marginal utility” is an axiomatic postulate, a pre-meditated, fixed value or end, not one that is adjusted or re-dimensioned with regard to the combination of alternative possible ends and available means for its achievement, “marginal utility” itself is irrational – again, because the ends of economic activity – those of utilitarian individual self-interest - are thereby inalterably fixed, made absolute, beforehand, ab initio (they become “absolute values”) - and therefore are bound to be irrational from the viewpoint of purposive rationality because the value rationality of Neoclassical equilibrium fails to consider by axiom alternative means – means other than individual utility - for the maximization of individual utility – much more so, as Weber himself observes, the more “absolute” or “unconditional” this self-interest becomes!

 

Postulates that fix utility in (a) individual atomistic and (b) egoistic selfish terms become rationally and scientifically questionable from the viewpoint of the combination of value rationality and purposive rationality. Not only, but also, as we just pointed out, to postulate methodologically with Neoclassical Theory – without rational proof or historical and sociological investigation - that an economy or economic activity (Gottl’s wirthschaftliche Arbeit) is conducted most efficiently by atomistic egoistic individuals is to prejudge the entire substance and direction of economic analysis; it is to debase and relinquish any and all claims on the part of  Neoclassical Theory to scientificity!

 

Hence, we can turn Weber’s own assertion against his own assessment of the supposed “rationality” of marginal utility theory for the simple reason that Neoclassical Theory, without any proof, makes utility axiomatically “unconditional”:

 

From the perspective of purposive rationality, however, value rationality must always be irrational, the more so when action is governed by absolute values. For the more that action elevates such absolute values, the less it reflects on the consequence of such action, and the more unconditional do considerations of inner disposition, beauty, the absolute good, and absolute duty become.

 

Interestingly, in a different major methodological study quoted below, Weber applied this principle to syndicalism and its “ends” as ethico-metaphysical, whilst evidently in the quotation above he fails to apply it equally to the metaphysics of “marginal utility”!

 

The central concern of the really consistent syndicalist must be

to preserve in himself certain attitudes which seem to him to be

absolutely valuable and sacred, as well as to induce them in others,

whenever possible. The ultimate aim of his actions which are, indeed,

doomed in advance to absolute failure, is to give him the subjective

certainty that his attitudes are "genuine," i.e., have the power of "proving"

themselves in action and of showing that they are not mere swagger.

For this purpose, such actions are perhaps the only means. Aside

from that — if it is consistent — its kingdom, like that of every

"absolute value" ethics, is not of this world. It can be shown strictly

"scientifically" that this conception of his ideal is the only internally

consistent one and cannot be refuted by external "facts." I think

that a service is thereby rendered to the proponents as well as the

opponents of syndicalism — one which they can rightly demand of

science…. The task of an ethically neutral science in the analysis of

syndicalism is completed when it has reduced the syndicalistic standpoint

to its most rational and internally consistent form and has empirically

investigated the pre-conditions for its existence and its practical

consequences. Whether one should or should not be a syndicalist can never

be proved without reference to very definite metaphysical premises which

are never

THE MEANING OF "ETHICAL NEUTRALITY" 25

       demonstrable by science. (pp.24-5)

 

Last but not least, the axiomatic – “metaphysical”! - intransigence of marginal utility theory in fixing utility as its end or goal for scientific analysis, and in devising its means (the market mechanism regulated by an auctioneer), infringes against the “relativity” of purposive rationality that Weber himself emphasized earlier:

 

Hence, there are many ways in which the value rational orientation of action can relate to purposive rationality.

 

The contradiction here in Weber’s conceptual sociological framework between rationality (which is surely a value to be sought) and relativism (which denies any such preference) is all too palpable! In the absence of a scientific standard with which to judge the rationality or less of a given combination of ends and means, the entire basis of Weber’s sociological framework simply collapses. (On all this, cf. Leo Strauss’s trenchant and devastating critique of Weber’s relativist doctrine of Verstehen and wert-frei [value-free] sociology – a hermeneutic mixture of neo-Kantism and historicism - in Natural Law and History.)

 

Despite its unquestionable profundity, perceptiveness and usefulness, Weber’s confused approach to the methodology of social science and to the question of deontological rationality can be unjumbled by locating the original source of this confusion, which is pointedly illustrated in this enlighteningly revealing passage:

 

Just as the proposition 2 X 2 = 4 is true in itself for purely logical reasons and not on the basis of practical considerations of a psychic, historical, or sociological nature, scientific truth in general does not allow itself to be determined by any external criteria such as economic utility, political efficiency, etc. All told, no value, including that of science, "understands itself empirically”. The purpose of science is indefinite research and the progress of knowledge for itself; its results are true only by the logical standards of our thinking. It can certainly be put at the service of economic, political, medical, technical and other interests, but the value of each of these purposes is imposed on it from the outside: it is in no way justified by science itself. There's more. From a strictly empirical point of view, the value of pure science understood as research for itself remains problematic and questionable. (First Essay on the Theory of Science, in J. Freund, p.51)

 

Here clearly Weber agrees with our initial analysis (see the beginning of “Totalitarian Economics”) that “from an empirical [practical] viewpoint” science “does not [and cannot] understand itself” – because its very being a human “activity” means that its direction or orientation is subject to human needs and wants – which means in turn that “it can be put to the service of various human interests”. Apart from its “direction” or “orientation”, however, Weber is right to claim that the results of scientific research already undertaken are “generally” not subject to moral or other influences. But Weber makes the mistake of equating mathematics with science as “neutral tools” – because whereas logico-mathematics is a conventional tool, science is emphatically not – because science always applies real material hypothetical concepts to pure logico-mathematical conventions, so that even its “objective findings” are practically charged to the extent that they are believed to be “true”! Logico-mathematics is an empty vessel of pure convention, but experimental science is a practical hypothesis!

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