Wednesday, August 29, 2012

Naturalism and Economics: What Is At Stake?

In previous posts (here and here), I examined whether Walras was committed to naturalism in economic thought.   I concluded that he is hopelessly contradictory on the subject.    But I never articulated what I think is at stake in the question generally.  It might be useful to do so here.

As I noted in my previous post, Walras believes that, when government fixes the price of a commodity, it “substitutes an artificial price for a natural one.”    This, of course, is precisely the kind of language surrounds the question of government “intervention” in the market.  That is, the discussion of government regulation of markets is framed around the opposition artificial/natural, such that market processes are deemed “natural,” and regulation of the market is deemed “artificial.” 

To take just one example.  During Congressional debates over proposals to raise the minimum wage, Ron Paul, in voicing his opposition to the bill, argued:

Raising living standards for all Americans is an admirable goal. However, to believe that Congress can raise the standard of living for working Americans by simply forcing employers to pay their employees a higher wage is equivalent to claiming that Congress can repeal gravity by passing a law saying humans shall have the ability to fly.

So the laws of the market are akin to the law of gravity.  It is as impossible to repeal the one as it is another.   We thus have an explicit ontological statement, where the nature of economic laws is equivalent to the nature of social laws.  

This kind of ontological commitment (not to say fetishisization of the natural sciences) infects, I dare say, nearly the whole of the economics as a discipline.  It finds its voice, for example, in the best selling introductory textbook by Gregory Mankiw, who is unabashed in comparing economics to physics (as noted by my friend and colleague Daniel MacDonald at anti-Mankiw. )  The whole discipline is, indeed, riddled with physics envy.  And, like envy of all kinds, this sort of envy is not harmless. * It finds its way into political discourse.    

This is all to convey that my interest in whether Walras viewed market processes as “natural” or “artificial” is not, in my view, a mere academic one.  It goes to the heart of the ideological function of neoclassical thought.   To the extent that market or capitalist processes  (but the two are not the same – that conflation has been explored elsewhere) are deemed “natural,” then any thought of changing them is futile.  Political action in opposition to destructive forces of the market is (as Ron Paul, or Walras, would say) like fighting gravity.    It’s pointless.  So why bother? 

This, in my view, is one of the essential ideological functions of an introductory microeconomics class.   It seems almost a religious requirement to make the second or third chapter of an introductory micro textbook a kind of moral allegory about price controls.  Create a price ceiling below equilibrium, and you cause a commodity shortage.  So rent control is a bad idea.   Create a price floor above equilibrium, and you cause a commodity surplus.  So the minimum wage is a bad idea. 

Note that these conclusions can only be reached if the market is natural.    The process by which employers lower their demand for labor (assuming they do – I am setting aside the empirical question for now) must be a natural one, i.e., akin to gravity.  The reasoning (familiar to intro students) is that the decision rule for profit maximization for a firm is to hire labor up to the point where the marginal revenue product equals the wage (hence the downward-sloping demand curve for labor).   If a minimum wage is imposed, then firms demand a lesser quantity of labor.  But if each step of this process is natural, inexorable, and unchangeable, then it is pointless to imagine a different form of economic organization.   It is pointless to imagine an economic system that is not based on profit so long as the profit-motive falls on the “natural” side of the natural/artificial frame.  So the commitment to market-as-natural is not, I believe, an innocuous one. (Proudhon, in response to the naturalist turn in political economy, leveled at its practitioners the charge of fatalism.  The charge is no less accurate today.)

Though I referenced Walras above, I should add that the commitment to the market-as-natural frame is not by any means limited to Walras, or even merely to the neoclassical school.   It goes back to the classical political economists as well.   For example, John Locke claimed that "...economic relations are similar to natural phenomena." Locke argued for this on the ground that the laws of human nature "... are like the laws that govern the movements of the planets." Similarly, JS Mill argued that "...the methods of physical science [are] the proper method for political economy."  Mill appealed to the same grounds as Locke, namely, the universality of human nature -- a nature no less a part of the natural world than any other object of the natural sciences, and, as such, no less amenable to its methods: "The science of human nature now falls far short of the exactness realized in human astronomy; but there is no reason that it should not be as much of a science as Tidology is, or as astronomy was when its calculations had only mastered the main phenomena but not its perturbations."

Returning to the neoclassical universe, Jevons follows Mill's reasoning to the letter, arguing that there could be such a thing as a a science of human nature, and that political economy would be an essential part of this science: "I think Mr. Mill is right in arguing that [political economy] is an instance of the Concrete Deductive Method.  A few of the simplest principles concerning the nature of the human mind must be taken as its first starting point, just as the vast theories of mechanical science are predicated upon a very few simple laws of motion."  The analogy is explicit: the laws of the human mind are akin to the laws of motion, and the theoreoms of political economy ought to be deduced from these laws in the same way that the theories of "mechanical science" are deduced from elementary "laws." 

[I should perhaps add here that Walras' commitment to the market-as-natural frame seems less predicated on an explicit notion of laws of human nature than the other authors referenced.  As noted above, and in previous posts, the laws of value of exchange were, for Walras, "natural" because "scarcity" and "usefulness" were the two determinants of value, and each of these determinants is "natural."  The relationship of the human mind to these determinants were not rendered explicit -- although one might think there would need to be an implicit relation if indeed value-in-exchange were to be regarded as "natural."  This is yet another tension in Walras, which perhaps can be taken up elsewhere] 


 I should stress that I do not mean to say that any of these authors intended for political economy and economics to have the ideological effect of portraying political action as futile.    Their motivations were varied and complex. In large measure they wished to put the social sciences (or, in earlier vernacular, the “moral sciences”) on the same kind of secure footing as was the natural sciences (or, at least, the natural sciences gave the appearance of security – whether it had as much security as appeared is another question.)  The “physics envy” was (and remains) very powerful.

Further exploration of this relation between the natural and social sciences will be taken up elsewhere. 
*f/n MacDonald argues that analogies per se are fatal to good science, which more properly rests on deductive reasoning.  I disagree.  I think it is impossible to excommunicate analogy (or, more properly, metaphor) from the field of reasoning.  But that is another matter.

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