Commentary on Political Economy


Recasting the Theory of the Capitalist Economy: from Adam Smith to Friedrich Nietzsche
Introduction to the problematic of Joseph Belbruno's first book on Nietzsche.
Thursday, 30 June 2011
Quite frequently, we read comments to our pieces with the objection that this is all “philosophy” but not “economics”. So it may be instructive for all our friends to read a piece of analysis, or theory, illustrating just how crucial philosophical analysis is to economic theory. We start with the expression “Greed is good”. Now, this expression (taken from a well-known Hollywood movie starring Michael Douglas) is intended as more than just an oxymoron or a paradox. It is meant to say this: - that the self-interested quest for the accumulation of wealth is “good” because it maximises the social wealth for every member of society. According to Vilfredo Pareto, such a quest is optimal when no-one is disadvantaged by it (Pareto optimality).
But if self-interest is to optimise the wealth of society as a whole in such a way that no-one is left the worse for it, then this can happen either by accident (a mere co-incidence) or else because there is some “thing”, some “aspect” of greed that intrinsically (necessarily) leads to the “good” of Pareto optimality.

Yet, when we look more closely into the concept of “greed” there are no qualities or attributes that we can see that would either necessarily or coincidentally lead to the “good” of all members of society. And it is easy to see why: - because it is logically impossible to argue that actions that are dictated by “self-interest”, the interest of one’s self, must also coincide with or lead to “the common interest”, the “good” of society.

The reason why Adam Smith, in theorising the perfectly competitive market exchange economy, felt compelled to attribute the “self-regulating market mechanism” to an “invisible hand” was precisely that he could not see how “logically” he could argue that (to quote from Mandeville) “private vices” can lead to “publick (sic) benefits”. Adam Smith was an excellent thinker: he knew that “competition” in and of itself would lead inexorably to “the abolition of competition” – for the simple reason that the greatest aim of “competition” is, precisely, to eliminate the competition! Thus, in “postulating” the existence of a “guiding invisible hand”, Smith was implicitly admitting that without “divine guidance”, without an “invisible mind or God”, a “hidden God” or “Deus absconditus”, the market mechanism could not possibly lead to the “good” of society. In other words, without a “pre-established harmony” decreed by a “benevolent God” there could be no “free market exchange” that would “optimise” or even “maximise” the “good” of society, as a whole or individually.

Quite obviously, the postulate of an “invisible hand”, if rejected, necessitated the development of an alternative theory to the one advanced by Smith. But even if accepted, this theory led to one further problem. Let us suppose that there is indeed a “hidden God” who ensures the smooth optimal operation of the market mechanism and economy. The next question we must answer is “how” and “why” such a God would be interested in ensuring the achievement of such a goal. In other words, even admitting that we can agree on what is “good” for both society and the individuals in it, it will still be impossible to see, first of all, “why” such a God would wish to ensure that this “good” can be achieved; and, secondly, it will be impossible to explain “how” such an omniscient and omnipotent God can “physically” intervene and interfere with human and mundane affairs!

This is exactly the question that Nietzsche posed himself after he had joined Schopenhauer in rejecting and refuting the existence and above all the “notion” of such a “benevolent”, pro-vidential God. How Nietzsche went about the task of replacing the entire “theory” and rationale of Classical and Neoclassical economic theories is the subject of my first book called “Umwertung: On Nietzsche’s Trans-valuation of All Values”. Excerpts from this book will soon appear in our Archives on this website. Cheers to all.