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The New Alchemy
January 23, 2002
by Ernest Partridge

When an intelligent man [in the past] expresses a view which [today] seems to us obviously absurd, we should try to understand how it ever came to seem true. This exercise of historical and psychological imagination at once enlarges the scope of our thinking, and helps us to realize how foolish many of our own cherished prejudices will seem to an age which has a different temper of mind. — Bertrand Russell

All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind. — Adam Smith, The Wealth of Nations

Suppose the model for our public policy-making and the foundation of our dominant political philosophy were an admittedly imaginary creature inhabiting an admittedly mythical environment.

Unfortunately, this approximately describes the condition of contemporary policy-making and politics in the United States. The imaginary creature is so-called "economic man," and the mythical environment is "the perfect market." The model for public policy is "cost-benefit analysis," a conceptual device that "commensurates" all values into the common denominator of "cash," thus rendering policy-analysis an applied extension of economics.

The political philosophy is "neo-conservatism" which, while it has captured the Republican Party, also holds a strong influence upon the Democratic Party. This philosophy all but asserts that whatever government can do, "the free market" can do better - as Ronald Reagan put it in his first inaugural address, "government is not the solution, government is the problem." Nobel-laureate economist Milton Friedman concurs: "There is nothing wrong with the United States that a dose of smaller and less intrusive government would not cure." With the body-politic reduced to a market-place, this line of thinking leads to a dead end bluntly expressed by Reagan's dear friend, Margaret Thatcher: "There is no such thing as society, there are individual men and women and there are families."

"Economic man" (homo economicus) is a rather weird critter. He is a complete egoist, motivated solely by the self-interested desire to "maximize his utility" - a concept variously described as "want-" or "preference satisfaction." This motivation is manifested and measured by "economic man's" willingness-to-pay for these "satisfactions" in a free market. (Given the disagreeable nature of homo economicus, feminists should take no offense at this gender-specific language). Clearly, this is not the sort of an individual that one would want as a next-door neighbor.

Homo Econ's bailiwick is a conceptual space called "the perfect market"-- a "conceptual space," since it need not be any particular "place" at all. Instead, "the perfect market" of formal economic theory is defined by the following conditions: the participants (all "economic men" of course) must be numerous and completely informed, and their transactions must be voluntary, mutually beneficial, open, without collusion, and their exchanges free of transaction costs and externalities (such as pollution of others' air and water). This model of social organization, we are told, is far superior to an established and familiar alternative arrangement; namely popular government. To the "free-market" enthusiasts, "Big Government" is anathema.

As a moment's reflection will tell us, "the perfect market" does not exist - not even remotely. Furthermore, history teaches us that "cowboy capitalists" do not really approve of free markets for themselves - only for their rivals. Driven, as economic beings, by "self-interested utility maximization," the capitalist much prefers monopoly - his monopoly. And since the "front runner" enjoys decisive advantages over the rest of the field, the natural result of "the free market" is monopoly. In a sort of inner logic that Hegel would admire, "the free market" contains within itself, the seeds of its own destruction. Evidence? Look again to history: then it was J. D. Rockefeller; now it is Bill Gates.

The remedy? Now, as before, the remedy is anti-trust legislation, which is to say "Big Government," of course! What else? The (approximately) free market is, in fact, a very fragile institution that can only survive if carefully monitored and managed by an instrument represented by and accountable to the public at large - i.e., the government. (See my, "Kill the Umpire!")

"Neo-Classical economic theory," which has put the concepts of "economic man" and "the perfect market" into the center of public policy making and political debate, claims to be a "value-free" discipline. Yet the preferred terminology of this discipline is freighted with value connotations. For example, the behavior of "economic man" (i.e., self-interested utility maximization) is described as "rational." By implication, then, the behavior of such saints and heroes as Gandhi, M. L. King, Sakharov and Mandela is "irrational." Furthermore, transactions that leave both parties "better off" are described as "efficient" and a society in which there can be no further transactions without someone being disadvantaged is described as "(Pareto) optimal." How many notice that by this account, a slave society might be "optimal" (since one cannot free the slaves without making the slave-holder "worse off"). A system requiring the well-to-do to share their wealth with the less fortunate is, by definition, "inefficient." The question of the "just distribution" of a society's resources is simply not a part of "neo-classical" economics.

“Rationality,” “efficiency” and “optimal” are value-laden words, central in the vocabulary of this allegedly “value-free” discipline.”

Clearly, "economic man" and "the perfect market" are severely truncated accounts of human nature and society, and thus very poor foundations for public policy-making, for practical politics, and for just provision for future generations. (Or so I argue in my forthcoming paper, "In Search of Sustainable Values." This brief sketch above of the make-believe "economic man" and "perfect market," along with my contention that this view of man and society is unduly influential in our political institutions, is drawn with very broad strokes and lacks the benefit of elaboration, documentation and argument. I allow myself these bold simplifications, mindful that my justifications thereof have been published elsewhere and may be found at my website, The Online Gadfly.

Even with that elaboration at hand, I would be well-advised to qualify my rhetoric just a bit.

First of all, I am not "anti-markets." The failed economic experiment in the Soviet Union proved conclusively that a centralized command economy is vastly inferior to a market-based system of pricing, distribution, innovation and quality control. Having "shopped" in both the Soviet Union and the United States, I know this from personal experience. Furthermore, because human beings in significant aspects of their lives, do, in fact, act upon economic motives, a scholarly examination of market behavior has valuable implications for numerous disciplines, including environmental studies and political science.

In short, I do not assert that a study of markets and economic theory should count for nothing. Instead, I protest that they should not count for everything. Homo economicus is an ingredient of our nature that we would be well advised to study. But our lives consist of much more than buying and selling. We also love and we sacrifice, and we have goals and concerns that transcend our self-interest. And we seek, both personally and collectively, truth, justice, virtue, and personal excellence - none of which can appropriately be bought or sold in markets.

Consider, truth - the primary value of the scholar and scientist. An authentic scholar will say, "show me your evidence, and if it is well-founded and your argument is sound, then you will convince me." Never will he, qua scholar, say, "how much are you willing to pay to have me believe you?" Similarly, judges and juries ideally decide their verdicts on the weight of evidence. A purchased verdict is not only invalid; it is quite properly regarded as a crime. And even classical economists, when they publish their theories, offer arguments, not bids.

Furthermore, love, friendship and loyalty that is bought is less valuable than that which is given freely. Mark Sagoff makes the point with his characteristic wit and eloquence: "A civilized person might climb the highest mountain, swim the deepest river, or cross the hottest desert for love, sweet love. He might do anything, indeed, except be willing to pay for it."

Among the severest critics of neoclassical economics are economists. These include Herman Daly, Nicholas Georgescu-Roegen, Kenneth Boulding and Amartya Sen, all of whom possess a clear view of the limitations of their discipline. Indeed, my quarrel is less with economists than with politicians and policy-makers who have skimmed easy formulas and simplistic generalizations off the top of the neo-classical economist theory, and put them to work in behalf of their special political and economic interests.

Even so, my dissenting economist friends, whom I admire enormously, report that there is in fact a dominating "orthodoxy" of neo-classical thought in the discipline of theoretical economics, and that this orthodoxy has had enormous influence upon both public policy and politics.

I can validate their report with my own experience. Often, when I have mentioned the names of such mavericks as Boulding, Georgescu-Roegen and Daly to orthodox economist colleagues, I find that I have evoked stares of disbelief or even condescension, such as one might expect from Jerry Falwell upon hearing the name of Charles Darwin. The chief offense of the heretics, its seems, is that they have allowed the elegance of their formal theories to become contaminated by compelling facts of biology and physics. Meanwhile, the true believers read with admiration the pronouncements of economists such as Julian Simon, who confidently assert that the omnipotence of the free-market and the omniscience of future entrepreneurs can overcome trivial physical constraints such as the second law of thermodynamics. (See my "Perilous Optimism."

I once heard Paul Ehrlich remark that if an engineer proposed to design an aircraft for an exponentially expanding crew, he would rightly be regarded as mad. Yet when an economist proposes an economic model that posits perpetually expanding population and resource consumption, he is regarded as eligible for the Nobel Prize for economics.

So why is neo-classical economics so influential?

Not, I submit, because of supporting evidence, experimental validation, or clear and verifiable application to "the real world." The dominance of "neo-class," I believe, is due far more to "the sociology of belief."

First of all, neo-classical economics is what Nietzsche called a "master morality." It is an ideology that is nurtured, sponsored, and in the service of, wealth and power. Thus the hostility to government of neo-class economics, and the neo-conservative politics which embraces it, is no mystery. Popular government , by enforcing "equal justice under law," is empowered to protect the weak from the strong. (Read your Constitution!) . Such solicitude toward the weak and the poor has no place in a "master morality."

To the contrary, wealth and power prefer to regard society as a market-place of "customers" with consumer preferences, rather than a polity of citizens with inalienable rights. The privileged believe it far better to apportion power to wealth (i.e., the willingness and ability to pay - "let the market decide"), than to relinquish power to a principle of "one-person, one-vote.") With government "off our backs," writes Milton Friedman, free-market conservatism leaves us "free to choose." But this is a "freedom" apportioned to wealth and power - a "liberty" (for some) obtained at the price of lost equality and fraternity (for the rest of us). (See my "With Liberty for Some" []).

Secondly, "neo-classical economics" proves, once again, the rule that "nothing succeeds like success." Senior professors, pundits, and "think-tank scholars," the High Priests of the reigning ideology, edit the scholarly journals, and determine appointments, promotions and tenure (on the basis, largely, of publications in the self-same journals). And how did these elites obtain their seniority? Return to the beginning of the paragraph - da capo, perpetuo moto. As the careers of such courageous dissenters as Herman Daly will testify, the punishment meted out by the priesthood upon the heretics can be brutal.

Finally, "neo-class" suggests a seductive simplicity, clarity and determinateness for politicians and policy-makers seeking answers and disinclined to ponder disquieting "philosophical" questions. (Much more about this "seductive simplicity" in the first section of "... Sustainable Values").

Looking back through history, we wonder how it is possible that intelligent and educated people once accepted uncritically such notions as astrology, judicial trial-by-combat, the demon-possession theory of disease, and alchemy. Today, more and more sophisticated observers of society and politics are wondering how homo economicus, a creature bereft of sympathy, humanity, and noble aspiration, and "the perfect market," a "place" devoid of any social contacts more elevated than market transactions - has come to be regarded by our political elites as the foundation of a just political order.

I suspect, and devoutly hope, that in the near-future neo-classical economic theory will be regarded as the "alchemy" of our age. And intelligent men and women will wonder how it was possible that anyone could ever have believed such nonsense.

Ernest Partridge is a consultant, writer and lecturer in the field of Environmental Ethics, and a Research Philosopher at the University of California, Riverside. He publishes the website, "The Online Gadfly."

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