Walras, Responsibility, and the Minimum Wage: Further notes on the political consequences of naturalism

In an earlier post, I noted that I'd like to investigate how (if at all) Walras reconciles his view that human beings are persons and not things, and therefore that they cannot be adequately understood in terms of the "blind and inelcutable" forces of nature, with the view that the project of political economy ought to be to create a science of economics modeled on the natural sciences. I'll return to that in a separate post. I want to say a bit more here about the stakes behind that question.

To the present day, arguments about our economic system often revolve around what is "natural" and what is "artificial."  I'll quote again here Congressman Paul on the question of minimum wage legislation:

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.

The claim, as I noted before, is an ontological one.  The laws of the market are here regarded as ontologically equivalent to the laws of gravity.  The question I want to return to here is the political implications of this kind of ontology. More specifically, I want to turn to the connection between a naturalist ontology and responsibility.

In the contemporary debate over the minimum wage, there is much disagreement over whether an increase would cause unemployment. Many economists say it would, and many disagree. However, for present purposes, I do not address the empirical question. Instead, I am interested here in the grammatical-logico form of the statement "the minimum wage causes unemployment," regardless of whether that statement is true or false.  The logic behind this claim is typically as follows (simplified): employers are profit-maximizing.  In accordance with such profit-maximizing behavior, they have downward-sloping labor-demand curves, determined by labor's diminishing marginal product. The supply curve for labor is upward sloping (higher wages induce workers to trade away more leisure for labor).  The equilibrium wage is determined by the intersection of the downward-sloping labor-demand and upward-sloping labor-supply curves. Hence, any minimum wage (price floor) above the equilibrium wage creates an increase in labor supply, and a decrease in labor-demanded -- hence, a glut in the labor-supply, or, otherwise put, unemployment.

Note, though, that critical to the above logic is that decisions by all actors in this narrative are naturalized other than the very first decision, i.e. the decision to institute a minimum wage.  Employers' profit-maximization behavior is a given.  It is therefore not subject to question.  Employers can therefore not be held accountable or responsible for such behavior.  It would be, as Congressman Paul would say, like holding gravity accountable for dropping you when you fall.

To use Walras' taxonomy, the decision to institute a minimum wage is a decision by persons (in this case, the "persons" being policymakers, legislators, etc).  But the decision to have a downward-sloping labor-demand curve is a decision by a thing. In that sense, it is a very curious kind of decision. Because the behavior of employers in this story is naturalized, then, although they appear to be persons, they are, fact (on account of this naturalized interpretation) things. The decisions that ground the neoclassical system, because they are naturalized, become no real decisions at all.

Unsurprising, then, employers they are never held responsible for the consequences of their actions in the  labor market -- whether it is poverty wages, or firing workers in the face of an imposed minimum wage (if, indeed, this is what they do -- again, I am leaving this particular empirical question aside).  Walras is himself quite clear that responsibility is a property that only attaches to persons and not to things.

Since a thing is neither a self-conscious or self-directing, it is not responsible for the pursuit of its ends or or the fulfillment of its destiny. Being just as incapable of evil as it is of good, it is always innocent and can be likened to a pure mechanism.  In this respect animals do not differ from minerals and plants: an animal's instinct is blind and ineluctable force like any other natural force.  A person, on the other hand, just because he is conscious of himself and master of himself, is charged with responsibility for the pursuit of his ends, and the fulfillment of his destiny.  If he succeeds, he has merit; if not, he takes blame. (Elements, 62)

Note here that the responsibility Walras speaks of is both factual and moral. If economic behavior is naturalized, then such behavior is "likened to a mechanism" -- as such, actors in the economic system are "just as incapable of evil as of good" and hence are "always innocent."  Again, no wonder that any deleterious consequences of the imposition of a minimum wage are ascribed to the minimum wage itself and not to the actors in the market, since they are not, in fact, actors at all. They are not taking action.  They are, rather, mere mechanism. On the other hand, the initial act to institute a minimum wage is interpreted as an act taken by persons (and not things).  Therefore, it is that action that is held accountable for subsequent unemployment, and not the actions of the employers themselves. Such are the consequences of a naturalist interpretation of the economy.

And this is at least part (I take it) of Walras' motive for cautioning us against the construction of a naturalist economics -- namely, to preserve a space for moral accountability.  Whether his own aspirations to use the natural sciences as a model for a science of economics undermine his own attempt to keep the world of persons and of things separate is a question that remains to be answered.

Apart from the question of whether naturalized decision-makers can be held responsible for the consequences of their actions, there is at lease one other reason why the "naturalistic" claim has force.  The natural/artificial distinction has, I would argue, a kind of implicit poetics.  That which is artificial is regarded as a kind of distortion or corruption of that which is natural, while only that which is natural remains "pure."    With this kind of poetics in the background (operating perhaps in the unconscious, whether the individual or the collective,  or implicit in social discourse as a form of ideology) little more needs to be said when arguing that one might be tampering with nature.   Indeed, warnings against such "tampering" is generally sufficient to communicate that an attempt to change that which is natural will in some sense backfire. Our good intentions led us (as policymakers, etc.) to institute a minimum wage.  But this evinced nothing more than a kind of foolishness, because, as everyone knows (and evidently we forgot), there is an old saw about good intentions and the pavement on the road to hell.  And this road-to-hell logic is a common meme in standard neoclassical accounts.  For example, Paul Krugman, in his introductory micreconomics text, entitles his chapter on price floors and price ceilings "The Market Strikes Back."  Even without an explicit analogy to nature (although it is curious that we would explicitly invoke the market as empire -- was it a conscious decisison?), the message is clear.  Mess with the natural laws of the market (supply and demand), and the market will "strike back" at you.  In the case of a price ceiling set below the equilibrium market price,  it creates a shortage. In the case of a price floor -- as in our minimum wage example above -- it creates a glut. The market has struck back.  Don't mess with nature.  But of course, as noted above, it only becomes possible to hang responsibility for that outcome on the initial decision to create the so-called "artificial" price only if we naturalize all other actions in the narrative of the market-response to that initial decision.   As such, all subsequent decisions are no real decisions at all.

Let me try then, for a moment, to sum up, between this post and the last, what I think might be at stake in the question of a naturalized economics.  First, as indicated previously, there is the question of whether human decisions are products of free will, or, rather, are "blind, inelcutable" consequences of the forces of nature.  That is, the question here is whether human history is simply a particular variety, as Walras says, of natural history. Second, there is the question, as indicated above, regarding whether human beings can be held responsible for the consequences of their (economic) actions.  If, indeed, we are mere things and not persons (products of natural history), then responsibility does not attach to us, and we are instead more properly "likened to pure mechanism." And, third, whether the market, insofar as it is natural, must of necessity "strike back" in some way if we try to change it.

We may explore these issues further in upcoming posts.

Revisiting Walras and Naturalism

I have recently gone back to a project I last looked at over a year ago, namely, the question of Walras' understanding of the ontological status of the social sciences in general, and economics in particular.  The question, more specifically, was whether Walras regarded the economic phenomena under investigation as akin to "natural" phenomena.  The question, for Walras, is a complicated one.  On the one hand, Walras is entirely committed to the notion that human beings occupy a moral universe -- that we are beings with free will and endowed with reason.  As such, as we are not mere things , but rather persons.  Walras sets out his person/thing distinction as follows:

The fact that man's will is cognitive and free makes it possible to divide every entity in the universe into two great classes: persons and things. Whatsoever is not conscious of itself and not master of itself is a thing. Whatsoever is conscious of itself and master of itself is a person. Man, being both self-conscious and self-directed, is a person.  Man alone is a person; minerals, plants, and animals are things. (Elements of Pure Economics, 62)

Ultimately, argues Walras, because human beings are persons, and not mere things, they cannot be analyzed simply as one would the objects of a natural science.   Natural phenomena (the world of things) and human phenomena (the world of persons) are ontologically distinct:

...we may divide the facts of our universe into two categories: those which result from the play of the blind and ineluctable forces of nature, and those which result from the exercise of the human will, a force that is free and cognitive (Id., 61)

Because human beings are persons, and not things, we cannot, argues Walras, study human beings in the same manner as we would natural phenomena.  The essential difference, he argues, is that  natural forces are "blind and ineluctable" -- i.e., they are not subject to change.  Facts that result from the human will, on the other hand, can be changed. Precisely because the nature of human will is such that it permits mastery of one's actions, those actions can vary or can be directed.  "...the human will, being free and cognitive, at least up to a certain point is capable of receiving advice, of having such and such a course of action prescribed to it, and of being directed." (Id. 61-62, emphasis added)

It would therefore appear that Walras is committed to avoiding any naturalistic implications in his construction of political economy, insofar as it would threaten to make persons into things, and risk analyzing that which is changeable or capable of being directed as though it were inexorable or  "ineluctable"

And yet, at the same time,  Walras was also passionate in his project of modeling a science of economics upon the natural sciences.  He was especially influenced (as were so many in the 19 century) by the Newtonian revolution, and was inspired to create a science of economics modeled precisely on the methods of Newtonian mechanics.   Walras wrote of his own inspiration in reading physicist Louis Poinsot's Element de Statique: "I opened the Statique of Poinsot one evening...and that theory of equilibrium achieved through the linking and unlinking of forces and of connected elements seemed to me so luminous and and so straightforward that I read half of it in one sitting. The next day, I finished off the second half." (Letter of 1853, quoted by Donald Walker in Walrasian Economics). William Jaffe and other Walras scholars have argued that he took  "...the conception and framework for his equations of general equilibrium...from the second chapter..." of Poinsot's Elements, entitled "On conditions of equilibrium expressed by means of equations." (See Ingrao and Israel, "The Invisible Hand" p 88) The inspiration thus drawn carried him to embark on the creation of:

...a new science: the science of economic forces analogous to the science of astronomical forces. I cite astronomy because it is in fact the type of science like which, sooner or later, the theory of social wealth ought to become.  In both there are natural facts, in the sense that they remain superior to social conventions and that they impose themselves on the human will; laws equally natural and consequently necessary, some of principle importance, few in number, the others secondary, quite numerous, varied and complex; facts and laws suitable for an extensive and fruitful application of calculus and mathematical formulas. The analogy is complete and striking (Letter, 1862 as quoted by Walker)

"The pure theory of economics," Walras claimed triumphantly "is a science which resembles the physico-mathematical sciences in every respect."

 On the surface, this seems like a contradiction, and a rather blatant one at that.  It is mistaken, says Walras, to analyze human economic relations deterministically.  "Determinism" said Walras, "is metaphysics, not science." (Eurves Diverses, as quoted by Donald Walker in "Walrasian Economics") Walras' commitment to a robust conception of a human free will (as master over itself) precludes any adoption of a deterministic worldview.  And yet, says Walras, the system of simultaneous equations that describes a market system as a determinate equilibrium outcome.  That is, the equilibrium result is determined by the initial conditions, as represented in the system of equations. How to reconcile the use of a deterministic system with the resolve not to view human beings determinstically?  Similarly,  how to model a science of economics on the natural sciences when human beings are persons and not things? How could one and the same person champion the ontologically distinct character of human beings as existing over and above mere natural forces, in virtue of their reason and free will, and then commit himself to creating a science of economics modeled on the natural sciences?

I defer an answer to that question here. I attempted to address it here and here.  At the time, I found myself (at best) unconvinced that he had, in fact, resolved it.  I'd like to give it another shot.  For now, I want to say what I think is at stake in the question (Again, I attempted to address the stakes of this question elsewhere as well, but it's reasonable to give it a go again here as well.)

Walras himself is quite clear on the subject of the stakes behind a question such as this.  At the outset of Elements, he criticizes Jean Babtiste Say for his definition of political economy. Say argues that "...the aim of political economy is to show the ways in which wealth is produced, distributed and consumed." (JB Say, quoted by Walras in Elements 54).  Where Walras takes issue with Say is the suggestion that "...the production, distribution and consumption of wealth take place, if not spontaneously, at least in a manner somehow independent of the will of man, and as though political economy consisted entirely of a simple exposition of this manner of production, distribution and consumption." (Elements 54). As we have seen above, Walras is insistent upon the unique and singular ontological status of the human will, and wants a political economy that acknowledges its being as transcendent of nature, at least in the sense that it need not obey "blind, ineluctable" forces.  Say, argues Walras, is therefore mistaken in overlooking this ontological distinction. Further, and most significantly, this oversight (if indeed it is that, and not a rhetorical move) supports a particular political argument. In particular, it allowed Say and other advocates of laissez-faire and opponents of socialism to argue that a laissez-faire system was natural and, hence, inevitable, or "ineluctable."  Arguing in favor of "laissez-faire, laissez-passer" on the grounds of inevitability permits Say and other advocates to avoid arguing in its favor either on pragmatic grounds or on moral/ethical grounds.

I quote below from Walras at length:

What has proved so pleasing and at the same time so misleading to economists in this definition [as set out by Say] is precisely its characterization of political economy as a natural science pure and simple. Such a point of view was particularly useful to them in their controversy with the socialists. Every proposal to reorganize production, every proposal to redistribute property was rejected a priori and practically without discussion, not on the grounds that such plans were contrary to economic well-being or to social justice but simply because they were artificial arrangements designed to replace what was natural. [emphasis added]  ...Such an attitude led Proudhon to hurl the epithet fatalistic at this school of economists. (Elements 55-56)

Walras then goes on to argue against this sort of naturalist argument, on the grounds of the ontologically distinct status of the human will:

Unfortunately, convenient as this point of view is [regarding the natural status laissez-faire], it is mistaken. If men were nothing more than a superior species of animal, like bees that live and work together instinctively,  then, to be sure, the description and explanation of social phenomena in general and of the production, distribution and consumption of wealth in particular would be a natural science.  Indeed, it would be a branch of natural history, viz, the natural history of man, a sequel to the natural history of bees. But this is not the case at all. Man is a creature endowed with reason and freedom, and possessed of a capacity for initiative and progress. (Elements, 55)

Refusal to acknowledge this characteristic of man (i.e., man as person), and of the will, allows for the "convenient" refutation of socialist positions on the grounds that such positions advocate that which is "artificial" and not "natural."  But Walras argues that those sorts of justifications are illegitimate:

 In the production and distribution of wealth, and generally in all matters pertaining to the social organization,  man has the choice between better and worse and tends more to choose the better part.  Thus man has progressed from a system of guilds, trade regulation and price-fixing to a system of freedom of industry and trade, i.e., to a system of laissez-faire, laissez-passer; he progressed from slavery to serfdom and from serfdom to the wage-system. The superiority of the later forms lies not in their greater naturalness (both old and new are artificial, the newer forms more so than the old, since they came into existence by supplanting the old); but rather in their closer conformity with material well-being and justice. The proof of such conformity is the only justification for adhering to a policy of laissez-faire, laissez-passer. Moreover, socialistic forms of organization should be rejected if it can be shown that they are inconsistent with material well-being and justice. (Id)

Walras' analysis remains relevant today, I believe, insofar as the kinds of "fatalistic" arguments, as identified by Prodhoun, remain alive and well in contemporary political discourse regarding the subject of  "the economy."  Such fatalism raises its head in, for example, debates over the minimum wage.   We may look for example at the following argument made by Congressman Ron Paul, on the floor of the House of Representatives, against a bill proposing an increase in the minimum wage:

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.

Note here how Congressman Paul's argument is an ontological one-- i.e., that the laws of the market are ontologically equivalent to the laws of gravity. The one is as natural as the other.  Note further that the political implications of such a position are precisely the same as those described by Walras in his time. That is, it entitles the advocate of the naturalistic position to argue in favor of laissez faire on the grounds that it natural, and thereby avoid arguments based on considerations of "material well-being or justice."

We shall have more to say about the political consequences of the fatalism behind this naturalism in another post.  First, a reminder here that the question ultimately to be explored is whether Walras wishes to endorse this sort of naturalistic argument, or whether he would rather refute it.   It may depend on which Walras we are examining --  the one arguing for the ontologically distinct status of persons, as apart from things, or the one committed to a natural science model of economics. Ample evidence is given of the both the former and latter Walras above. To give the reader a bit more evidence of the latter here, I'll quote briefly Walras on the question of value in exchange.  Value in exchange (or, in Marxian terms, exchange-value), argues Walras, is a natural property of commodities.  He takes the price of wheat as an example:

"Wheat is worth 24 francs a hectolitre."  We observe, first of all, that this fact partakes of the character of a natural phenomenon.  This particular value of wheat, in terms of money, that is to say, this price of wheat, does not result from either the will of the buyer or the will of the seller or from any agreement between the two. ....Thus any value in exchange, once established, partakes of the character of a natural phenomenon, natural in its origins, natural in its manifestations, and natural in its essence.

This is the makings of Walras modeling of an economic science on the natural sciences, analogous, as he says, to "astronomy."  Value in exchange (in the market) is thoroughly natural, and we are thus justified in treating our examination of it as we would any natural phenomenon, i.e., via the methods of the natural sciences.  Again, then, the question arises, what precisely is Walras position the naturalist turn in economics? How to simultaneously defend the claim that the market-system is an "artificial" institution, while the laws thereof are "equally natural" to the laws of astronomy, comprised of "natural facts" that remain "superior to any social convention"?

I'll turn to this question in another post.