Sunday, February 9, 2014

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.

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