Adam Smith

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Challenging the Pro-Growth Market: Mark Carney’s Reith Lectures and the Need for a Radical Approach

Published by Anonymous (not verified) on Thu, 07/01/2021 - 4:34am in
By James MacGregor Palmer

“Society won’t settle for worthy statements followed by futile gestures. It won’t settle for countries announcing plans in Paris five years ago for 2.8 degrees warming, far too high, that they don’t even meet. Society won’t settle for companies that preach green but don’t manage their carbon footprints, or financial institutions who can’t tell us whether our money is on the right or wrong side of climate history.”

Mark Carney (climate crisis)

Mark Carney, coming around but still a green growther. (Image: CC BY-SA 2.0, Credit: World Economic Forum)

These are not the words of an environmental activist, Green politician, or concerned steady stater. These are the words of a neoliberal former investment banker. A former governor not only of the central bank of his native Canada but also the Bank of England.

Mark Carney is the latest “significant international thinker” to be invited to deliver the BBC’s flagship annual lecture series: The Reith Lectures. In his four-part series, entitled “How We Get What We Value,” Carney eloquently identifies many of the problems with the model on which many of the global West’s and North’s economies are based. But the solutions he proposes fall woefully short, offering more of the same when the changes we need will have to be more radical at this stage.

The Deity of the Market

Carney begins his first lecture with a story, spinning a narrative to shine a light on a fundamental truth:

At some point every North American child learns a sentimental story by an American writer, O. Henry. It tells the tale of a newlywed couple one Christmas Eve. Penniless and frantic to find a gift for her husband, Jim, Della sells her long tresses of hair and uses the proceeds to buy a chain for his beloved watch. When they are reunited for dinner in their small apartment […] she discovers that Jim has just sold his watch to buy a set of combs for her hair. He has no watch, she’s cropped her hair, and although they are left with gifts that neither can use, they realize how priceless their love really is. Now, when I first heard that story, it had its desired effect. I momentarily forgot about the hockey stick I’d been coveting and thought more about my mother’s need for new slippers. It’s in the giving that we receive.

Henry’s The Gift of the Maji, Carney laments, teaches a moral truth that has been eroded from our collective conscience as neoliberal values escape the confines of the market and seep into our social lives. Delivering his lectures in Glasgow, the birthplace of capitalism’s founder Adam Smith, Carney argues that our current economic hegemony is a far cry from what Smith envisioned. Whilst Smith warned of “the mistakes of equating money with capital and divorcing economic capital from its social partner,” we have blurred the lines between economic and social value since the rise of Thatcherism in the UK and Reaganomics in the USA. The pandemic has illustrated the ugly effects of this conflation in horrific detail. If we do not learn our lessons, the climate will be an even less forgiving teacher.

Carney provides a rather terrifying insight into just how powerful the market has become. He recounts how, upon joining the G7 in the early 2000s, he discovered an environment where “policymakers like [himself] had nothing to tell the market—they only had to listen and learn.” This mindset led to a poignant observation from Carney’s colleague Tommaso Padoa-Schioppa: “When we grant an entity infinite wisdom, we enter the realm of faith.”


Tommaso Padoa-Schioppa: “When we grant an entity infinite wisdom, we enter the realm of faith.” (Image: CC0, Credit: Stephen Jaffe)

If the market has become a deity, then it is not a benign one. When we remove the agency of policymakers and replace it with blind faith in the entity of the economy, we forget that it is an entity we constructed. It must work for us, or it does not work at all.

The Incentive of Civic Duty

The intrusion of market values into the moral sphere is the core problem that Carney identifies, and it is one of the key issues that a steady state economy would aim to set straight. However, Carney also offers insight into an interesting phenomenon that may hold the key to gaining mainstream acceptance of steady-state ideas.

Despite the increasing inference of economic value on noneconomic activities, devaluing them when there is a lack thereof, monetization of an activity can actually decrease its perceived value. Carney raises several examples. In the UK donating blood is a voluntary activity, whereas in the USA blood donors are compensated, and the former yields far greater participation. Fines for late pickups from childcare are viewed by parents as simply the financial cost of being late and not as appropriate chastisement. And in a study (which Carney sadly does not cite), children were shown to be more incentivized to raise money for charity when they were not paid for their troubles. In other words, a sense of civic duty is a powerful motivating tool. But when we allow the market to infringe upon civic life, it ascribes financial value to civic actions, and slowly we begin to see only the financial value and not the intrinsic one.

This logic can be mapped onto the climate crisis, though Carney stops short of doing so. In a consumerist society, the environment is framed as an asset to be exploited. If it is worth protecting, then we only protect our ability to extract value from it in years to come. This is a long-term financial motivation which, as Carney argues, is inherently weak and will always be superseded by the short-term financial incentive to exploit the natural world as quickly as possible, no matter the damage caused.

Advancing the steady state economy fundamentally changes the way we frame the environment, and we must begin changing that frame before we have any hope of achieving our economic goals. Framing the environment as intrinsically valuable—a social good or even a good thing in its own right rather than merely an economic good—is essential in order to incentivize people to protect it. Once we begin to see protecting our environment as a civic duty—to both the environment itself and our fellow human beings—the incentive is far greater. But in order to create this sense of civic duty, we must first redefine the lines between economic and social value.

The Solution Is Not Tinkering

Though the problems Carney identifies in his first lecture are sound, the solutions he identifies in his fourth fall short of the mark. He recalls the moment he sat in the UN General Assembly and heard Greta Thunberg stand up and address the room:

“You’ve stolen my dreams and my childhood with your empty words. And yet I am one of the lucky ones. People are suffering. People are dying. Entire ecosystems are collapsing. We are in the beginning of a mass extinction, and all you can talk about is money and fairy tales of eternal economic growth. How dare you!”

Greta Thunberg

Greta Thunberg to the Mark Carneys: “…all you can talk about is money and fairy tales of eternal economic growth.” (Image: CC BY 2.0, Credit: European Parliament)

Whilst Carney acknowledges the “power of Greta Thunberg’s message,” he refuses to accept her analysis. “The market is not the answer to everything, but it can play a critical role in solving many of humanity’s greatest challenges,” he argues. “Continued growth isn’t a fairy tale—it’s a necessity.”

Carney’s view is that net-zero carbon emissions will only be achieved by manipulating the market to favor businesses who are environmentally conscious. By forcing businesses to work toward carbon neutrality by making it more profitable for them to do so, the climate crisis could be solved whilst growth continues to soar. Mark Carney wants to have his cake and eat it too.

In making this argument, Carney completely undermines his analysis from previous lectures. What his solution amounts to is a financial incentive, the likes of which he laments the limits of earlier in the series. It is a far easier fix than initiating a fundamental hegemonic shift, but it is also far less sufficient. If financial incentives are weaker than civic ones, why would we not aim for the latter?

Carney seems to also assume that the only issue with endless growth is that it causes carbon emissions. This is far from the truth. A society centered around GDP growth can make our vehicles less efficient, our commutes more stressful, our work more time consuming, our healthcare more expensive, our family time more scarce, and our civic calling short-changed. In other words, not only the environment but our personal and social wellbeing suffers from the obsession with GDP.

When it comes to the environment, the climate crisis is not just what we’re putting into our atmosphere, it’s what we’re taking out of our ecosystem. A carbon tax would do nothing to address the exploitation of other natural resources, the destruction of habitats, and the attitude that everything on the planet is ours for the taking. To follow Carney’s lead would be to leave the clock ticking indefinitely, solving one crisis but awaiting the inevitability of the next.

The climate crisis, just like our wellbeing and inequality crises, will not be solved by economic tinkering. In identifying that the structure of our economies has a role to play, Mark Carney has come halfway to realizing what is required. Old habits die hard, but it is time for him to let go of the notion that “the market knows best.”

James MacGregor Palmer graduated from Newcastle University with a BA in Music with Politics in 2019 and is pursuing a master’s degree in International Journalism at the University of Stirling.

The post Challenging the Pro-Growth Market: Mark Carney’s Reith Lectures and the Need for a Radical Approach appeared first on Center for the Advancement of the Steady State Economy.

28 March 1979: Foucault on Locke's World Historical Conceptual Shift (XXXVII)

Published by Anonymous (not verified) on Tue, 05/01/2021 - 11:19pm in


Adam Smith

To simplify things, and somewhat arbitrarily, I will start, as from a given, with English empiricism and the theory of the subject which is in fact put to work in English empiricist philosophy, with the view that—once again, I am making a somewhat arbitrary division—the theory of the subject in English empiricism probably represents one of the most important mutations, one of the most important theoretical transformations in Western thought since the Middle Ages.

What English empiricism introduces—let’s say, roughly, with Locke—and doubtless for the first time in Western philosophy, is a subject who is not so much defined by his freedom, or by the opposition of soul and body, or by the presence of a source or core of concupiscence marked to a greater or lesser degree by the Fall or sin, but who appears in the form of a subject of individual choices which are both irreducible and non-transferable. What do I mean by irreducible? I will take Hume’s very simple and frequently cited passage, which says: What type of question is it, and what irreducible element can you arrive at when you analyze an individual’s choices and ask why he did one thing rather than another? Well, he says: “You ask someone, ‘Why do you exercise?’ He will reply, ‘I exercise because I desire health.’ You go on to ask him, ‘Why do you desire health?’ He will reply, ‘Because I prefer health to illness.’ Then you go on to ask him, ‘Why do you prefer health to illness?’ He will reply, ‘Because illness is painful and so I don’t want to fall ill.’ And if you ask him why is illness painful, then at that point he will have the right not to answer, because the question has no meaning.” The painful or non-painful nature of the thing is in itself a reason for the choice beyond which you cannot go. The choice between painful and non-painful is a sort of irreducible that does not refer to any judgment, reasoning, or calculation. It is a sort of regressive end point in the analysis.
   Second, this type of choice is non-transferable. I do not mean that it is non-transferable in the sense that one choice could not be replaced by another. You could perfectly well say that if you prefer health to illness, you may also prefer illness to health, and then choose illness. It is also clear that you may perfectly well say: I prefer to be ill and that someone else is not. But, in any case, on what basis will this substitution of one choice for another be made? It will be made on the basis of my own preference and on the basis of the fact that I would find someone else being ill more painful, for example, than being ill myself. In the end the principle of my choice really will be my own feeling of painful or not painful, of pain and pleasure. There is Hume’s famous aphorism which says: If I am given the choice between cutting my little finger and the death of someone else, even if I am forced to cut my little finger, nothing can force me to think that cutting my little finger is preferable to the death of someone else.
    So, these are irreducible choices which are non-transferable in relation to the subject. This principle of an irreducible, non-transferable, atomistic individual choice which is unconditionally referred to the subject himself is what is called interest.

    What I think is fundamental in English empiricist philosophy—which I am treating completely superficially—is that it reveals something which absolutely did not exist before. This is the idea of a subject of interest, by which I mean a subject as the source of interest, the starting point of an interest, or the site of a mechanism of interests. For sure, there is a series of discussions on the mechanism of interest itself and what may activate it: is it self-preservation, is it the body or the soul, or is it sympathy? But this is not what is important. What is important is the appearance of interest for the first time as a form of both immediately and absolutely subjective will.--Michel Foucault, 28 March, 1979,  translated by Graham Burchell, Lecture 11, The Birth of Biopolitics, 271-273 

Because most of lecture 11 is a brilliant analysis of the history of criminology and the (sometimes overlapping) significance of Gary Becker's redefinition of homo oeconomicus, it is easy to miss how Foucault embeds his analysis in a narrative in which the least genius of the tradition, Locke, is a world-historical -- "one of the most important mutations, one of the most important theoretical transformations in Western thought since the Middle Ages"* -- figure (in Nietzsche's sense). In my last post (episode 36), I had already observed that lecture 11 is tied by Foucault to the start of the lecture series and Locke's conception of the liberal art of government.   

As an aside, it is striking how conventional Foucault's philosophical categories (e.g., 'Western thought;' 'British Empiricism;' 'Middle Ages' etc.") can be sometimes. But as we know, artistic genius in this convention is characterized by the virtuosity of playing with the given constraints. And as Foucault teaches in this very lecture (recall), that fits the definition of rational agency.

The way I understand Foucault's conceptual analysis of the empiricist agent, the subject of interest, is that he reveals the thin conceptual pre-conditions that ground the nature of homo oeconomicus that figure into the importantly different definitions of economics (say offered by Robbins ("the optimal allocation of scarce resources to alternative ends") and Becker (the "science of the systematic nature of responses to environmental variables")). Recall that inscribed in the Birth of Biopolitics, is a natural history of the changing conceptions of homo oeconomicus: (i) in the Smithian period he is the man of exchange (224); in the (ii) classical period starting with Ricardo he is man the consumer in terms of satisfaction/pursuit of needs (p. 225);+ (iii) in the neoliberal period, especially in the (recall) ORDO senses, "he is the man of enterprise and production." (147, lecture 6). And (iv) at Chicago he is also "an entrepreneur," but now, especially, "an entrepreneur of himself," who develops and produces/maintains his own human capital as a source of earnings (226), even a possible earning stream into the future (230). 

And what Foucault notices is that this agent has properties that in so far as there is agency at all, cannot conceptually be reduced to other properties (that's the irreducible element and that cannot be exchanged (or traded)--that's the non-transferable property. Now, I want to pause at this second feature. 

For, to be a subject with interest, one that at the start of liberalism is capable of trading commodities with others (and to be held accountable, etc.), requires that one is constituted by (I use Hume's phrase) elements that themselves are irreducible and that cannot be traded. (This raises interesting questions on the natural limits of economics as a totalizing science.) And so the liberal tradition is founded by a conceptual distinction between entities that can be traded (by subjects of interest) and entities that compose/constitute agents and (at least when they are doing such grounding) cannot be traded as such.* And this conceptual bifurcation between these two kinds of entities survives through the other transformations of the natural history of homo oeconomicus. What does happen is that the manner in which the subject capable of interest is conceptualized shifts. The agents of the contemporary prisoner dilemma or in an agent-based simulation do not need to have Humean impressions and ideas, etc. But they do have these two features that ground their irreducible interest.

As an aside, perhaps far from Foucault's thought, the Lockean/Humean subject of interest with its irreducible elements is a monster from the perspective of (principle of) sufficient explanation. Because in them explanation bottoms out without a proper ground. As Michael Della Rocca has shown, Hume was clearly aware of  this feature of his own theory. What this tells us is that well before the arbitrary initial conditions of natural science were treated as a standing problem for adherence to sufficient reason, the (liberal) subject with an interest was so.

Let me close with a critical observation. It is somewhat unfortunate that Foucault treats the subject of interest as 'atomistic individual.' Even leaving aside the conventional categories he is playing with, and Hume's "famous aphorism," it is kind of natural for him to use this terminology because it seems that the two elements that help constitute a subject of interest are, like Robinson Crusoe, isolatable (in modelling terms) from other subjects of interest. So, there is a sense in which what he says is unobjectionable. And, to be sure, in so far he is thinking, as he is, of Becker (and we would include the effective altruists) for whom the welfare of others (especially in the family) can contribute greatly to our individual utility, he is not unfair. 

But as is made transparent by Adam Smith, building on Hume's philosophy, our (social) feelings, even without "judgment, reasoning, or calculation" incorporate irreducibly and inescapably the (imagined or inherited) judgments or perspectives of others (in my book I call these "social feelings" or "derived passions").** That is, others are an in-eliminable part of, and help constitute, our identity. As we know (recall) J.S. Mill made this, perhaps somewhat too greedily (and without sufficient clarity), a firm foundation of his version of utilitarianism. To be sure this Smith-Mill tradition (revived by the humaneconomics of Vernon Smith and his students) is distinct from the Becker tradition. So, there is another sense in which Foucault reinforces a misleading trope about the possibilities of liberalism. It is unusual for him to do so. And it is worth keeping in mind as we explore Foucault's final arguments.


+At times (p. 147 & 175) Foucault conflates (i) & (ii). 

*To be sure, one can divide such agents temporally and model them as trading with future/past selves. 

**That this is so is no surprise because Locke, Hume, and Smith all wished to reject Hobbes' atomistic individual.

The unbanked, the post office, and fintech in the 1880s

Published by Anonymous (not verified) on Thu, 31/12/2020 - 10:54pm in


Adam Smith

"A large population of people are excluded from the financial system because they don't have bank accounts. Fintechs compete to connect them and parallel plans emanate from the government to reach the unbanked, including postal banking."

What year am I describing in the above paragraph? 

It could be 2021. But it also describes 1870s. 

It's 2021 and the U.S. still has a large population of unbanked, those who have so little money that banks would rather not serve them. An astonishing 5.4% of Americans—that's 7.1 million households—do not have bank accounts.

Financial technology companies (aka fintechs) like PayPal and Facebook's Libra have well-meaning plans to connect the American unbanked population. Government-run proposals abound too. Postal banking is probably the most popular option, but more exotic solutions like central bank digital currency (CBDC) have also been floated. But many economists are wary that these government efforts will cripple the private sector.

None of this is new. Concerns over the unbanked, fintech, and a government participation in the payment system were all present back in England in the 1880s. Since I enjoy when the past resurfaces in the present, I'll tell the story.


Britain in the 1870s had a very sophisticated chequing system. Because banks were the only way for people to access cheques, and banks preferred to limit accounts to rich people and wealthy merchants, the poor and middle class were often left out. 

Luckily, the 1870s version of fintech came to the rescue. The PayPal of the day was something called the Cheque Bank. Established in 1873, the Cheque Bank—like PayPal today—was a bank-on-top-of-a- bank. What do I mean by this?

PayPal is a customer of Wells Fargo, a large commercial bank. Wells Fargo provides PayPal with banking and payments services. PayPal in turn passes these services on to PayPal account holders, folks who might not otherwise qualify as customers of Wells Fargo or, if they could, prefer the way PayPal rebundles underlying Wells Fargo services.

Stock certificate for the Cheque Bank, Limited

The Cheque Bank operated on the same principles. It opened accounts at bank branches all across United Kingdom and overseas. Like PayPal, it passed through underlying banking services to its unbanked customers. The Cheque Bank's main product was cheques, which today might seem quaint. But back then they were cutting edge.

Anyone could buy a book of Cheque Bank cheques at a stationer or cigar store, the Cheque Bank redepositing the cash it received with its bankers. The customer could then spend those cheques at stores, send them to family via the mail, or hold them as a form of saving in lieu of cash (which was always at risk of being stolen). People who accepted a Cheque Bank cheque as payment could promptly take the document to any bank and cash it.

Much like PayPal does today, the Cheque Bank held 100% reserves. That is, for every $1 in cheques it issued, it kept $1 locked up with its bankers. And so its cheques were considered to be as safe as cash. Put differently, regular banks engage in both lending and payments. But fintechs like PayPal and the Cheque Bank don't lend at all. They deposit all of their assets at an underlying bank and focus on offering the payments side of the banking business to their customers.

The Cheque Bank attracted the attention of William Stanley Jevons, one of the most important economists of the day and still very much a household name among economists today. Jevons was one of three economists (along with Carl Menger and Leon Walras) to discover the principle of marginal utility, a key economic principal which had eluded even Adam Smith. 

In his 1875 book Money and the Mechanism of Exchange, Jevons devotes a full chapter to the Cheque Bank, describing it as a "very ingenious attempt" to "extend the area of banking to the masses." Here is what one of the Cheque Bank's cheques looks like:

1899 cheque issued by the Cheque Bank [source]

The cheques could only be filled to an amount printed on the document, writes Jevons. So the above cheque, which had been purchased for £5, could be written out for anything up to £5, although in this particular case the cheque writer (H.L. Stevens) chose the sum of 3 pounds 3 shillings. 

Jevons isn't the only notable economist to write about the Cheque Bank. It also pops up over a hundred years later in economist Edward S. Prescott's work, who describes it as a "highly interesting experiment in extending the use of checks to the lower and middle classes." Prescott suggests that the ability to write a specific amount on the face of one of these cheques would have greatly facilitated payments through the postal service since there was no need for change. Unlike a regular cheque, which also offered this flexibility, the recipient of one of the Cheque Bank's cheques needn't worry about it bouncing.

Jevons was excited by the Cheque Bank. But he was not a fan of a subsequent competing payments innovation, the postal order.

The British Post Office, owned by the government, had long been engaged in the business of transmitting money orders, unofficially since 1792 and officially since 1838. A customer would walk into any money order office, put down, say, £2 and 2 shillings, and get a £2 2s money order. The recipient's name was then written on the order. It could then be sent via post to a distant office, upon which the recipient could take the money order to the counter to be cashed. The officer would first confirm the payment by referring to a separate letter of advice. This letter, sent from post office to post office, served an an extra layer of security against fraud. Only then would the £2 and 2 shillings be paid out.

The problem, according to then Postmaster General Henry Fawcett, is that the money order wasn't very useful to people who only wanted to send small amounts. "If a boy wanted to send his mother the first shilling he had saved, he would have to pay twopence for the order and a penny for postage," wrote Fawcett. In other words, to send a 12 penny (i.e. one shilling) money order, three pennies—a massive 25%—had to be sacrificed in fees. (A shilling in 1880 was worth around US$8 today.) And so it would have been an expensive payments option for the poor.

Prior to his appointment as Postmaster General in 1880, Fawcett had been both parliamentarian and the first professor of political economy at Cambridge. And while he wasn't as illustrious an economist as Jevons (he hasn't left us any bits of economic theory), Fawcett did write what was one of the popular textbooks of the day.

But if Fawcett wasn't going to change the study of economics, he did intend to change the payments system. As Postmaster General, Fawcett proposed complementing the money order with a new product called a postal note, or postal order. (The postal order had been earlier conceived of by George Chetwynd, the Receiver and Accountant General of the Post office). Like the cheques issued by the Cheque Bank founded just seven years before, postal orders would have a fixed denomination printed on them. These increments were to start at 1 shilling and go up to 20 shillings (US$8 to US$160 in 2019 dollars).

By contrast the post office's traditional payment product, the money order, was open-faced and had no denomination. Because postal orders would be issued in smaller amounts, the Post Office needn't bother sending separate letters of advice as a security measure, which meant that they would be far cheaper to process. And so the fees could be lower for postal orders than money orders, broadening the pool of customers.

In an 1880 essay, William Stanley Jevons blasted the idea of postal orders, which hadn't yet received legislative assent. Singling out Fawcett, Jevons wrote:

"The fact of course is that not only from the time of Adam Smith, but from a much earlier date, it has always been recognized that a Government is not really a suitable body to enter upon the business of banking. It is with regret that we must see in this year 1880 the names of so great a financier as Mr. Gladstone, and so sound an economist as Professor Fawcett, given to schemes which are radically vicious and opposed to the teachings of economic science and economic experience."

So that lays out the cast of characters in 1880. It includes exclusionary banks, hoards of unbanked, a set of opposed economists in Jevons and Fawcett, fintechs like the Cheque Bank, and a post office on the verge of issuing a novel product; postal orders.

2020 seems very much like 1880. To help connect the large population of American unbanked to the financial system, a number of modern day Fawcetts (Morgan Ricks, Mehrsa Baradaran, Rohan Grey) have floated public payments solutions including a return of postal banking, central bank digital currency (CBDC), or central bank-accounts-for-all.

Our modern day equivalents to the Cheque Bank includes non-banks such as prepaid debit card issuers Walmart and Netspend, both of which are trying to reach unbanked Americans. Online wallet companies like PayPal and Chime are also in the mix. And stablecoin issuers such as Facebook's upcoming Libra project talk a big game when it comes to financial inclusion. To round things out you've got your modern day Jevonses; economists who don't buy the idea that the government should get into banking (Larry White, George Selgin, Diego Zuluaga).

So how did things end up in 1880? Despite opposition from Jevons and the Economist, Fawcett's postal order dream came to fruition. After receiving legislative approval, the world's first postal orders were issued in 1881:

Postal orders would go on to become very popular. They largely displaced money orders, except for large amounts. Other postal systems including that of New Zealand, Canada, Australia, and the U.S. would go on to copy the idea. The UK's modern day incarnation of the post, the Post Office, still offers a version of the product.

And what about the Cheque Bank? Digging through old documents, Edward Prescott discovered that the Cheque Bank failed in the late 1890s. According to liquidation proceedings reported in the Banker’s Magazine, it was plagued by forgery problems and increased competition for less wealthy depositors from banks. Perhaps the emergence of the postal order also played a part.

I'm not invoking the 1880s as a prediction of what will occur in the 2020s. Rather, it fascinates me because it reveals how old these payments dilemmas are. The same tensions between public and private payments were present then as they are now. And it's also interesting to see how economists have always been engaged in questions of financial inclusion. Not just Fawcett but Jevons too, who we know primarily for his work on monetary theory. 

And over a hundred years later, Edward Prescott delved into the topic, too. In a 1999 paper (which mentions the Cheque Bank), Prescott discusses the idea of opening up an inexpensive type of bank account called an Electronic Transfer Account (ETA) so that all Americans, particularly the unbanked, might receive Federal benefit payments digitally. (Prescott was skeptical that ETAs might work out. The program, introduced in 1999, was discontinued in 2018 and has been replaced with a prepaid debit card program.)

In closing, the topic of how to help the unbanked is a complicated one with many moving parts. Which is why we should explore how things played out in different times. Perhaps history can get us to see the debate in a new light.

Merry Christmas and a Happy New Year!

P.S. If you're interested in learning more about Jevons's thinking on payments, he was a big champion of the idea of creating an international coin standard. I wrote about it here. Think of it as a proto-version of the Euro. Jevons came up with a "tidy English solution" for fitting Britain into this proposed international coin union. The project never came to fruition.

28 March 1979: Foucault's Rational Choice Analysis of Science (XXXVI)

Published by Anonymous (not verified) on Fri, 25/12/2020 - 5:13am in


Adam Smith

In the end, is not economics the analysis of forms of rational conduct and does not all rational conduct, whatever it may be, fall under something like economic analysis? Is not a rational conduct, like that which consists in formal reasoning, an economic conduct in the sense we have just defined, that is to say, the optimal allocation of scarce resources to alternative ends, since formal reasoning consists in deploying certain scarce resources—a symbolic system, a set of axioms, rules of construction, and not just any symbolic system or any rules of construction, but just some—to be used to optimal effect for a determinate and alternative end, in this case a true rather than a false conclusion which we try to reach by the best possible allocation of scarce resources? So, if it comes to it, we do not see why we would not define any rational conduct or behavior whatsoever as the possible object of economic analysis.
   In truth, this already extremely extensive definition is not even the only one, and Becker, for example—the most radical of the American neoliberals, if you like—says that it is still not sufficient, that the object of economic analysis can be extended even beyond rational conduct as defined and understood in the way I have just described, and that economic laws and economic analysis can perfectly well be applied to non-rational conduct, that is to say, to conduct which does not seek at all, or, at any rate, not only to optimize the allocation of scarce resources to a determinate end. Becker says: Basically, economic analysis can perfectly well find its points of anchorage and effectiveness if an individual’s conduct answers to the single clause that the conduct in question reacts to reality in a nonrandom way. That is to say, any conduct which responds systematically to modifications in the variables of the environment, in other words, any conduct, as Becker says, which “accepts reality,” must be susceptible to economic analysis. Homo oeconomicus is someone who accepts reality. Rational conduct is any conduct which is sensitive to modifications in the variables of the environment and which responds to this in a non-random way, in a systematic way, and economics can therefore be defined as the science of the systematic nature of responses to environmental variables.
   This is a colossal definition, which obviously economists are far from endorsing, but it has a certain interest. It has a practical interest, if you like, inasmuch as if you define the object of economic analysis as the set of systematic responses to the variables of the environment, then you can see the possibility of integrating within economics a set of techniques, those called behavioral techniques, which are currently in fashion in the United States. You find these methods in their purest, most rigorous, strictest or aberrant forms, as you wish, in Skinner, and precisely they do not consist in analyzing the meaning of different kinds of conduct, but simply in seeing how, through mechanisms of reinforcement, a given play of stimuli entail responses whose systematic nature can be observed and on the basis of which other variables of behavior can be introduced. In fact, all these behavioral techniques show how psychology understood in these terms can enter the definition of economics given by Becker. There is little literature on these behavioral techniques in France. In Castel’s last book, The Psychiatric Society, there is a chapter on behavioral techniques and you will see how this is precisely the implementation, within a given situation—in this case, a hospital, a psychiatric clinic—of methods which are both experimental and involve a specifically economic analysis of behavior.
    Today though, I would like to emphasize a different aspect. This is that Becker’s definition, which, again, although it is not recognized by the average economist, or even by the majority of them, nonetheless, despite its isolated character, enables us to highlight a paradox, because homo oeconomicus as he appears in the eighteenth century—I will come back to this shortly—basically functions as what could be called an intangible element with regard to the exercise of power. Homo oeconomicus is someone who pursues his own interest, and whose interest is such that it converges spontaneously with the interest of others. From the point of view of a theory of government, homo oeconomicus is the person who must be let alone. With regard to homo oeconomicus, one must laisser-faire; he is the subject or object of laissez-faire. And now, in Becker’s definition which I have just given, homo oeconomicus, that is to say, the person who accepts reality or who responds systematically to modifications in the variables of the environment, appears precisely as someone manageable, someone who responds systematically to systematic modifications artificially introduced into the environment. Homo oeconomicus is someone who is eminently governable.--Michel Foucault, 28 March, 1979,  translated by Graham Burchell, Lecture 11, The Birth of Biopolitics,  269-270 (emphasis added)

At the start of the eleventh lecture, Foucault says he wants to go back to the starting point of the year, which (via Freud and Walpole) was (recall) on the liberal art of governing. This is a bit disappointing because he ended the tenth lecture with hints of a new kind of governmental practice. But before we have time to reflect on this, he turns, quickly, to the nature of (what I have been calling following Talcott Parsons) 'economic imperialism. This is odd because it is the topic (recall) he had introduced at the start of the previous lecture. Foucault quickly name-checks Mises Human Action (268) as the fount of neoliberalism, and then goes on to reveal that he has been reading back-issues of the Journal of Political Economy (hereafter: JPE) the house-organ of the The University of Chicago's economics department, from the years 1960–1970, and recommends a "series of articles" from 1962 by "Becker, Kirzner, and others." (268)*

It is by no means obvious what the liberal art of government and the shifting definitions of homo oeconomicus have in common. But, amazingly, by the end of the lecture it is completely clear. To give away the punchline (and to look ahead to some future posts), in Foucault's hands (and this is already clear in what I quote above), Becker's very redefinition of homo oeconimicus effectively betrays the original achievement of liberalism, which consists in not just "limiting the sovereign’s power," but "stripping the sovereign of power" by revealing an "essential, fundamental, and major incapacity of the sovereign, that is to say, an inability to master the totality of the economic field," (292); and the betrayal is, in a certain sense, as Foucault argues during the eleventh lecture, a return to physiocracy. In Foucault's telling Becker throws away the very achievement of Adam Smith, and creates a subject capable of being (to use the phrase Foucault had introduced in lecture 9) programmed, nudged, and shaped by a knowing sovereign.

But just before Foucault explains the significance of the shift from the Robbins definition of economics ("the optimal allocation of scarce resources to alternative ends") to the Becker definition (the "science of the systematic nature of responses to environmental variables"),** he (that is Foucault) inserts a new analysis of the nature of science. Foucault does this in the first paragraph in the passage quoted above this post.

Now critics of the Robbins definition (itself indebted to Max Weber) tend to notice that it turns economics into a kind of engineering; for the ends are given, and act as constraints on an optimization problem. And since the Robbins definition is topic neutral (neither the resources, nor the ends, nor the implied agent/allocators(s) have to be trading or using money, etc.) it is no surprise that economic analysis so constituted can be applied across many different domains (and economic imperialism is out of the gates). Of course, the critics will see in the Robbins definition a paradigmatic case of instrumental rationality.   

But if one looks at the Robbins definition, as it were, 'formally,' even the pinnacle of substantive rationality -- the inferring of true conclusions from, say, a set of axioms, can be treated, or, better yet, modelled as an instance of it. One is reminded here of Leibniz thinking of the "divine perfection" in terms of God as a perfect geometer in the Discourse of Metaphysics: "He who acts perfectly is like an excellent Geometer who knows how to find the best construction for a problem." (par. 5; Clarke is also tempted by this language.)+ 

So, economic analysis can be applied legitimately to God's choices and to scientific reasoning. Of course, and to be sure, while in God the context of construction/choice and context of justification coincide, one need not claim this about ordinary scientists. So, Foucault, is not here proposing to apply economic analysis to most scientific activity -- what I call 'public choice philosophy of science' of the sort Gordon Tullock and, at Chicago, George Stigler pioneered (and made mature by Sandra Peart and David Levy, now familiar within philosophy in the burgeoning Zollman school of philosophy of science [e.g., O'Connor Weatherall; Kofi Bright, etc.]). To be sure Foucault is not ruling it out. (I follows trivially from what he says.) 

But rather, he is making the more audacious point that economic analysis is a way of conceptualizing disciplined scientific speech speaking the truth (when its claims are justified). And this is a kind of existence proof for the claim that "any rational conduct or behavior whatsoever" is "the possible object of economic analysis" with economic analysis understood in the sense of Robbins' definition. So, economic analysis might be philosophical speech, that is, capable of analyzing itself if and only if it generates "true conclusions." 

I could close with the fate of that lovely sentence hanging in the balance. But I want to note two things here: first, there is a sense in which Foucault agrees with the Frankfurt's school's claim that under capitalism even science becomes conceived as a species of instrumental rationality. But he is not critical of it. He explicitly grants that all rational action can be modelled by economic analysis in this sense. And so, second, he rejects the distinction between instrumental and substantive rationality. For, while Foucault need not accept the much stronger claim that no other form of analysis, no other grid of intelligibility, is possible (he is clearly a pluralist about such matters [Robbins' definition "is not even the only one"]), he does not accept here the possibility that something is a species of rational agency and not capable of falling under the Robbins definition.++ 

And with that, I conclude my seventh full year of solo blogging and will take my customary winter break; I wish you happy holidays my dear reader!

*For the aficionados, JPE  was then edited by Harry G. Johnson and Robert Mundell. Interestingly, there were both Canadians and played central roles in international affairs. One doesn't tend to think of Mundell (who has an important role to play in the history of the Euro) as Chicago economist. Johnson, by contrast, is crucial to any serious account of Chicago economics and the fate of global neo-liberalism. For Kirzner, in the context of the passage quoted above (recall this post which kind of belongs to the present series.)

**Before I started this present series, I analyzed Foucault's treatment of the Becker definition twice before (here in 2014 (no XXXIV) and here (no XXXV).

+It is a bit surprising that Leibniz, Bernoulli and Euler go unmentioned by Foucault (since Bernoulli and Euler are so important to twentieth century mathematical economics; but Foucault clearly had little time for Paul Samuelson).

++That is not trivial because it would rule out, say, Al-Ghazali, Spinozistic or Deleuzian intuition.

The worldly philosophers go to Washington: Episode 3, Farmers and Merchants

Published by Anonymous (not verified) on Thu, 24/12/2020 - 11:30am in


Adam Smith

Economics without Gaps: on Ibn Khaldun and non-Western traditions in the history of ideas

Published by Anonymous (not verified) on Tue, 15/12/2020 - 10:00pm in

Ibn Khaldun, Arab scholar
A piece* from a few years ago, has again become somewhat popular and it has been making the rounds. It suggests that the Arab scholar Ibn Khaldun developed the ideas of classical political economics in the late XIV century, about half a millennia before Adam Smith, often seen as the father of classical economics, and of modern economics. Some would suggest that Khaldun was the real father of economics (or stepfather in the first essay on top). To a great extent, the discussion of the role of non-western scholars tries to show that an Eurocentric bias has dominated the history of economic thought. This discussion goes hand in hand with the notion that the Rise of the West and the so-called Great Divergence are relatively recent phenomena.

There are many elements in that assessment that are correct. Schumpeter's massive History of Economic Analysis does mention Khaldun in passing on his discussion of historical sociology, but he also argues that between the ideas of classical antiquity and scholastic thinking there was a great gap.** In his words: "So far as our subject is concerned we may safely leap over 500 years to the epoch of St. Thomas Aquinas (1225–74), whose Summa Theologica is in the history of thought what the south-western spire of the Cathedral of Chartres is in the history of architecture." There is little recognition of the role of Arab scholars in maintaining and expanding the knowledge of classical antiquity in almost all fields. And in the field that eventually would be associated with political economy, Khaldun's Muqaddimah, or Introduction (or Prolegomena), does indeed provide significant progress over the work of classical antiquity.

His work essentially deals with the cyclical rise and fall of caliphates, and analyzes the material conditions for these historical circumstances. Robert Irwin in his intellectual biography of Khaldun, reminds us that: “Arnold Toynbee, who produced a twelve-volume study of the rise and fall of civilizations, described Ibn Khaldun’s theoretical treatise on history, the Muqaddima, as 'undoubtedly the greatest work of its kind that has ever been created by any mind in any time or place'.”

However, while all of that is correct, and should lead to a more encompassing understanding of the role of non-western economic thinking, it is also important to bear in mind what was the contribution of Ibn Khaldun, how it fits in the history of ideas, and also in what sense classical political economy authors have an original theoretical framework. That tradition, it is worth noticing starts really with Sir William Petty, not Smith, as noted by whom I would suggest is the first serious historian of economic ideas, Karl Marx, in his Theories of Surplus Value. Furthermore, it is important to be careful and avoid the normal confusion of seeing Adam Smith as the father of modern, meaning marginalist (or neoclassical), economics. As a general principle, I would also be critical of the notion that the history of economic ideas is the repository of old versions of modern economic theory, that have to be deciphered and understood in modern guise. It was exactly this kind of thinking that led many marginalists, like Alfred Marshall, to suggest that they were expanding on the ideas of classical authors like David Ricardo, when in fact they were subverting them.***

I would suggest that there are two important differences between Ibn Khaldun and the Anglo-French tradition of the surplus approach, associated with the Petty-Cantillon-Quesnay-Smith-Ricardo (and I would add Marx; on the first three that form the basis for the work of the surplus approach see this chapter by Tony Aspromourgos) line of evolution. First, while Khaldun is interested in the cyclical rise and fall of civilizations, associated to the sedentary, urban, mercantile caliphates bordered by nomadic, desert populations, Smith developed at the same time and independently from Turgot (on that see Ronald Meek), a linear four stage theory of economic development, from hunting (and gathering), to pastoral, then agricultural, and finally commercial societies, which is the term he used for societies like the England of the time, were manufacturing activities and financial relations were significantly developed. These ideas would lead to Marx's materialist conception of history based on the notion of modes of production, evolving from ancient slavery and feudalism to capitalism.

It seems that while a perception that, what we now call, the social sciences are historical in nature was clearly in Khaldun's writings, the conception of history, and the scope of the analysis was different than the one in Smith. The reason is not only related to the fact that Khaldun was writing in the Middle Ages, before the rise of capitalism, but also, and more importantly it seems, Khaldun was looking at the specific circumstances of Arab societies, even if there were universal lessons in his analysis. The evolution from hunter-gathering to agriculture and to manufacturing are more universal. Further, Marx's conception of modes of production emphasizes the method and the social relations of production by which surplus is extracted from workers. Command and coercion in the context of slave and feudal societies, and market relations in the case of capitalism.

The second difference is related to the notion of surplus, and the source of value. It is true that there was a notion of a surplus beyond what is needed for survival in Khaldun's work, and that it allowed in his view for crafts and division of labor, or specialization, as would be discussed by classical authors much later. And there was also a clear sense that labor was the source of value, and that a producer must cover the costs of production. Some have argued that one can see the labor theory of value (LTV) in Khaldun's writings. However, it is clear that the conception of profits and of prices in Khaldun was not in conformity with the LTV.

He argues in chapter 5 of the Muqaddimah that: "Commerce is a natural way of making profits. However, most of its practices and methods are tricky and designed to obtain the (profit) margin between purchase prices and sales prices. This surplus makes it possible to earn a profit." In other words, the surplus results from selling at a higher price than purchased in the process of exchange. Profits were not a residual obtained in the process of production for Khaldun, after the conditions for reproduction of society, in particular the subsistence of the labor force, was obtained. This is, of course, the whole point of classical political economy. The understanding of the objective, material conditions for the reproduction of society. Profits were obtained in the process of production, and that would allow to understand accumulation, since the surplus was the basis for economic growth. Accumulation and not the cyclical fluctuations of civilizations were at the center of classical political economy analysis, reflecting, perhaps, the dynamic nature of capitalist societies.

These differences suggest that Khaldun was, most likely, an important source for scholastic, and mercantilist/cameralist authors to which classical authors were to some extent responding in their own writings. Mercantilists authors also thought in terms of profits in the process of exchange, which was to some extent to be expected in pre-capitalist societies with a large mercantile sector. These were essentially agrarian societies, and the transformation of the structure of production was not yet significant.  Recognizing the role of Arab scholars in preserving the texts and the knowledge of ancient scholars, and their ability to move beyond the ancients is crucial for the proper understanding of the evolution of economic ideas. But it is important understand their actual contributions to avoid more confusion in the history of ideas.


* In this piece it is suggested that the history of thought textbooks by Screpanti and Zamagni and by Roncaglia are mainstream texts, and put in the same category with Blaug's book. That is of course a misconception. The former differentiate between classical and marginalist traditions, and do not argue for the continuity, as Blaug does, and can be seen as clearly heterodox in nature.

** Spengler (1964) is the classic study on Khaldun by western historians of economic thought. Although his essay is careful about Khaldun's contribution it might give to much credence to the notion that the "economic literature of Islam can be traced to the Economics of Bryson", for the ancient Greek philosopher. 

** It is worth noticing that the piece cited at the beginning suggests that Khaldun is a precursor of Smith, presumably because of the division of labor, but without a distinction of productive and unproductive activities, but also of Alfred Marshall. We are told that Khaldun "analyzed markets which arise based on the division of labor and examined market forces in a simple didactic way which is very similar to the attitude of Alfred Marshall. The invention of supply and demand analysis wasn’t invented in the 19th century: the islamic scholar also described the relationship of demand and supply." Supply and demand forces were well-known before Khaldun. Marginalism suggested that long-term prices, what Smith called natural prices, were determined by those forces.

Poor Richard Goes to London: The Economic Ideas of Benjamin Franklin

Published by Anonymous (not verified) on Sun, 13/12/2020 - 9:07am in


Adam Smith

Another episode of my podcast on The Worldly Philosophers Go to Washington: From Alexander Hamilton to Janet Yellen. The ideas of early classical political economists and their influence in America are analyzed in this episode. The role of Sir William Petty’s ideas in the development of Benjamin Franklin’s early policy proposals is discussed. It is noted how Franklin had a firm grasp of the main economic theories of his time, even before some of these ideas were fully developed in Europe, by the Physiocrats and Adam Smith. In fact, some of Franklin’s original ideas influenced European political economists. The notion that the influence of economics is a recent phenomenon cannot be supported by the evidence.

21 March 1979: Foucault Returns to Ordoliberalism (XXXII)

Published by Anonymous (not verified) on Thu, 10/12/2020 - 12:10am in


Adam Smith, Hayek

Let’s go back to the theme of German liberalism, or ordoliberalism. You recall that in this conception—of Eucken, Röpke, Müller-Armack, and others—the market was defined as a principle of economic regulation indispensable to the formation of prices and so to the consistent development of the economic process. What was the government’s task in relation to this principle of the market as the indispensable regulating function of the economy? It was to organize a society, to establish what they call a Gesellschaftspolitik such that these fragile competitive mechanisms of the market can function to the full and in accordance with their specific structure. Such a Gesellschaftspolitik was therefore orientated towards the formation of a market. It was a policy that had to take charge of social processes and take them into account in order to make room for a market mechanism within them. But what did this policy of society, this Gesellschaftspolitik have to consist in for it to succeed in constituting a market space in which competitive mechanisms could really function despite their intrinsic fragility? It consisted in a number of objectives which I have talked about, such as, for example, avoiding centralization, encouraging medium sized enterprises, support for what they call non-proletarian enterprises, that is to say, broadly, craft enterprises, small businesses, etcetera, increasing access to property ownership, trying to replace the social insurance of risk with individual insurance, and also regulating all the multiple problems of the environment.
Obviously, this Gesellschaftspolitik includes a number of ambiguities and raises a number of questions. There is the question, for example, of its purely optative and “light” character in comparison with the heavy and far more real processes of the economy. There is also the fact that it entails a weight, a field, an extraordinarily large number of interventions which raise the question of whether they do in fact correspond to the principle that they must not act directly on the economic process but only intervene in favor of the economic process. In short, there are a number of questions and ambiguities, but I would like to emphasize the following: in this idea of a Gesellschaftspolitik there is what I would call an economic-ethical ambiguity around the notion of enterprise itself, because what does it mean to conduct a Gesellschaftspolitik in the sense this is given by Röpke, Rüstow, and Müller-Armack? On one side it means generalizing the “enterprise” form within the social body or social fabric; it means taking this social fabric and arranging things so that it can be broken down, subdivided, and reduced, not according to the grain of individuals, but according to the grain of enterprises. The individual’s life must be lodged, not within a framework of a big enterprise like the firm or, if it comes to it, the state, but within the framework of a multiplicity of diverse enterprises connected up to and entangled with each other, enterprises which are in some way ready to hand for the individual, sufficiently limited in their scale for the individual’s actions, decisions, and choices to have meaningful and perceptible effects, and numerous enough for him not to be dependent on one alone. And finally, the individual’s life itself—with his relationships to his private property, for example, with his family, household, insurance, and retirement—must make him into a sort of permanent and multiple enterprise. So this way of giving a new form to society according to the model of the enterprise, or of enterprises, and down to the fine grain of its texture, is an aspect of the German ordoliberals’ Gesellschaftspolitik.
What is the function of this generalization of the “enterprise” form? On the one hand, of course, it involves extending the economic model of supply and demand and of investment-costs-profit so as to make it a model of social relations and of existence itself, a form of relationship of the individual to himself, time, those around him, the group, and the family. So, it involves extending this economic model. On the other hand, the ordoliberal idea of making the enterprise the universally generalized social model functions in their analysis or program as a support to what they designate as the reconstruction of a set of what could be called “warm” moral and cultural values which are presented precisely as antithetical to the “cold” mechanism of competition. The enterprise schema involves acting so that the individual, to use the classical and fashionable terminology of their time, is not alienated from his work environment, from the time of his life, from his household, his family, and from the natural environment. It is a matter of reconstructing concrete points of anchorage around the individual which form what Rüstow called the Vitalpolitik. The return to the enterprise is therefore at once an economic policy or a policy of the economization of the entire social field, of an extension of the economy to the entire social field, but at the same time a policy which presents itself or seeks to be a kind of Vitalpolitik with the function of compensating for what is cold, impassive, calculating, rational, and mechanical in the strictly economic game of competition.
The enterprise society imagined by the ordoliberals is therefore a society for the market and a society against the market, a society oriented towards the market and a society that compensates for the effects of the market in the realm of values and existence. This is what Rüstow said in the Walter Lippmann colloquium I have talked about: “We have to organize the economy of the social body according to the rules of the market economy, but the fact remains that we still have to satisfy new and heightened needs for integration." This is the Vitalpolitik. A bit later, Röpke said: “Competition is a principle of order in the domain of the market economy, but it is not a principle on which it would be possible to erect the whole of society. Morally and sociologically, competition is a principle that dissolves more than it unifies.” So, while establishing a policy such that competition can function economically, it is necessary to organize “a political and moral framework,” Röpke says. What will this political and moral framework comprise? First, it requires a state that can maintain itself above the different competing groups and enterprises. This political and moral framework must ensure “a community which is not fragmented,” and guarantee cooperation between men who are “naturally rooted and socially integrated.”-Michel Foucault, 21 March, 1979,  translated by Graham Burchell, Lecture 10, The Birth of Biopolitics, 240-243

The quoted passage, really a mini-essay, is Foucault's attempt to set up one side of the comparison between the German Ordos and the Chicago-school variants of neo-liberalism. In broad outlines Foucault is summarizing his earlier interpretation of the ORDOs, and we may see in this, just sound pedagogic repetition. Even so, this return to Freiburg, and the earlier Lippmann colloquium, also allows Foucault to be more precise in his own analysis and to deepen his treatment of the relationship between the Ordos' conception of Gesellschaftspolitik and their approach to Vitalpolitick. Foucault had touched on this, briefly, in his sixth lecture on 14 February (see p. 148). But clearly he felt the inadequacy of his earlier treatment. So, the repetition is not merely restatement, but also needed improvement in light of, I submit, the larger theme of the lecture course (that is the liberal art of government in relation to biopolitics).

And the key point Foucault wishes to make is that in one crucial respect, or at least a major theme in, the ORDOS' thinking is that it is not centered on let's say context-free, individual choice at all. But rather on embedding individuals into, and constructing the preconditions for, what we may call umwelts suitable to the needs and scale of humans. (We may call this the Protagoras commitment in Ordoliberalism.) The point then is to create environmental/social conditions such that meaningful choice is possible. And one way meaningfulness is operationalized by the ORDOs is by the circumstance of meaningful feedback mechanisms between choices (as causes) and their effects ('the individual’s actions, decisions, and choices to have meaningful and perceptible effects,").

In addition to creating the conditions of meaningful choice -- which echoes Adam Smith's conception of liberty --, the ORDOS favor, second, social circumstances in which the individual cannot be dominated by large businesses (and other institutions). That is to say, it must be possible to have meaningful exit options in the market place and other important social orders.

Somewhat surprisingly, and as I noted in commenting on lecture 5 (of 7 February), Foucault does not remind the audience that this second circumstance echoes and reinforces the ORDOS' political understanding of the, quoting now (recall) Mestmäcker, "restraining power" purpose and mechanisms of anti-trust policy, which is designed to prevent concentration of political power, and rent-seeking, by corporations and other favored social institutions through vigilant promotion of competition in the market place. 

That is to say, the commercial enterprise is supposed to be vulnerable to exit from below and horizontally from competitors. In both cases the independent state has responsibility to create these umwelt conditions. Foucault is right to wonder to what degree one can expect the state to have the will and competence to get this program right. 

Now, for those habituated in reading political thinkers of the past in terms of 'left' and 'right' (etc.), there is no doubt that the vitalpolitik of the ORDOS has distinctly illiberal socially conservative overtones connected to corporatist, even catholic traditions of social thought. And in light of the American experience of the conservative-libertarian alliance over (the policing of) family values, so ably documented (recall here; here) by Melinda Cooper.

I don't think this is how Foucault is reading them. But in the lecture he has a strange reticence to explain what the political purpose of their vitalpolitick is. So what follows is a bit speculative, but it is informed by Foucault's analysis of the ORDOS response (in lecture 5 and here) to liberal defeat in the 1930s. And, what I want to claim is that the justification for their vitalpolitik shares, and to some degree anticipates, Hannah Arendt's analysis that totalitarianism was made possible by, to simplify greatly, the mechanisms of alienation and isolation, reinforcing a stifling loneliness or solitude (personal and spiritual) characteristic of modernity. And on this picture totalitarianism is a kind of gigantic rein of the false that becomes a coping mechanism for this fragile existence.*

So, that's to say, the ORDOS choices becomes fully explicable if we see them not just as addressing the problem of how to design countervailing institutions that allow the individual to make meaningful choices and prevent corporate rent-seeking, but also, and primarily, as grounded in their analysis of, and a response to, the rise of totalitarianism. And while I do not want to ignore the ways in which the ORDOS are indebted to Marxist ideas of alienation and Republican ideals about non-domination, we cannot understand their analysis if we remove from it the lived reality of the democratic victory not just of caesarianism, but totalitarianism.

And so, while strictly speaking, Foucault is not wrong to say that the "enterprise society imagined by the ordoliberals is therefore a society for the market and a society against the market, a society oriented towards the market and a society that compensates for the effects of the market in the realm of values and existence;" what gives the ORDOS project its urgency and also its political salience, is the specter of totalitarianism.  The point of the “warm” moral and cultural values is not just to put a humane face on Homo Oeconomicus, but it is to prevent, to create inoculation against (viz., the road to serfdom) the rise of Hitlerism, which is what happens in the dissolution effectuated by wrongly directed, that is, monopolistic competition.

I should stop here. To offer this interpretation of the ORDOS is not to ignore the down-side risks of and instabilities (Foucault's "ambiguities") in their approach. But it is to note that Foucault's comparison between the ORDOS and Chicago is hampered by the fact that the latter, but not the former, take, as Foucault himself noted (recall) in lecture 9, the survival of liberal political life for granted. And while Foucault is clearly indifferent to that, we cannot afford that luxury.



*Walter Lippmann had come very close to grasping this point already in Public Opinion, and it is lurking in various places in the The Good Society, which gave raise to the Lippmann colloquium. But in the latter work, he decides, or so I claim, to make liberalism itself a kind of spiritual enterprise.

David Hume's unusual (Lockean) argument for free trade

Published by Anonymous (not verified) on Wed, 09/12/2020 - 7:22am in

Nothing is more usual, among states which have made some advances in commerce, than to look on the progress of their neighbours with a suspicious eye, to consider all trading states as their rivals, and to suppose that it is impossible for any of them to flourish, but at their expence. In opposition to this narrow and malignant opinion, I will venture to assert, that the encrease of riches and commerce in any one nation, instead of hurting, commonly promotes the riches and commerce of all its neighbours; and that a state can scarcely carry its trade and industry very far, where all the surrounding states are buried in ignorance, sloth, and barbarism.

It is obvious, that the domestic industry of a people cannot be hurt by the greatest prosperity of their neighbours; and as this branch of commerce is undoubtedly the most important in any extensive kingdom, we are so far removed from all reason of jealousy. But I go farther, and observe, that where an open communication is preserved among nations, it is impossible but the domestic industry of every one must receive an encrease from the improvements of the others. Compare the situation of Great Britain at present, with what it was two centuries ago. All the arts both of agriculture and manufactures were then extremely rude and imperfect. Every improvement, which we have since made, has arisen from our imitation of foreigners; and we ought so far to esteem it happy, that they had previously made advances in arts and ingenuity. But this intercourse is still upheld to our great advantage: Notwithstanding the advanced state of our manufactures, we daily adopt, in every art, the inventions and improvements of our neighbours.--David Hume "Of the Jealousy of Trade"

Of the Jealousy of Trade presents itself as a companion piece to "Of the Balance of Trade," and is easily overshadowed by it. That's a shame because Hume's particular argument is still timely, as I look at the news reporting on Brexit talks. Unlike the more familiar Smithian ('absolute advantage') and Ricardian ('comparative advantage') arguments,* Hume's here is focused on what we may call the epistemic effects (or positive externalities) of trade. I assume this is familiar in the literature, but I had not noticed it before.

For Hume trade exposes us to innovations of others and induces imitation, learning, and what he calls "emulation" from them. And the effect of this is enhanced technology and productivity ("we daily adopt, in every art, the inventions and improvements"). I don't want to overstate the originality of Hume's argument not just because I may be unfamiliar with relevant contemporary authors, but also because it is pretty clear that Hume is extending an important argument by Locke.

Recall that in Locke's art of government (in sections 41-42 of the chapter 5 of "Two Treatises") and in his (1695) "Further Considerations Concerning Raising the Value of Money," Locke advocates for policies that would grow the population and simultaneously grow their skill/productivity. This argument was noticed and emphasized by Toland in his argument for Jewish emancipation (recall). And, in fact, Hume' echoes one of Locke's key arguments. Hume writes, shortly after the passage quoted above, "But if our neighbours have no art or cultivation, they cannot take them; because they will have nothing to give in exchange. In this respect, states are in the same condition as individuals."

In section 43, of Chapter of the Two Treatises, Locke had made the same conceptual point in terms of the American Indian being unable to benefit from the same amount of labor in land as the European because he lacked wealthy neighbors. Locke's point here is often missed because scholars and critics are more focused on debates about his labor theory of value and to what degree these passages support colonialism. But it would be very surprising if Hume had not noticed the point. After all, this is treated as axiomatic by Hume in this essay ("it is obvious, that the domestic industry of a people cannot be hurt by the greatest prosperity of their neighbours;").

I do not mean to ignore the significance of pro-European free trade argument ("a British subject, I pray for the flourishing commerce of Germany, Spain, Italy, and even France itself") lodged at the end of  the little essay. But I have already discussed it in the context of Foucault's arguments of 24 January 1979, lecture 3, The Birth of Biopolitics. 54-6.


*To be sure later in the essay Hume articulates a version of the absolute advantage argument; and an argument from portfolio-management/risk spreading due to trade diversification.

14 March 1979: Foucault on the Neo-Liberal Criticism of Ricardo and Marx (XXIX)

Published by Anonymous (not verified) on Fri, 27/11/2020 - 1:30am in


Adam Smith, Hayek

[T]he American neo-liberals say this: It is strange that classical political economy has always solemnly declared that the production of goods depends on three factors—land, capital, and labor—while leaving the third unexplored. It has remained, in a way, a blank sheet on which the economists have written nothing. Of course, we can say that Adam Smith’s economics does begin with a reflection on labor, inasmuch as for Smith the division of labor and its specification is the key which enabled him to construct his economic analysis. But apart from this sort of first step, this first opening, and since that moment, classical political economy has never analyzed labor itself, or rather it has constantly striven to neutralize it, and to do this by reducing it exclusively to the factor of time. This is what Ricardo did when, wishing to analyze the nature of the increase of labor, the labor factor, he only ever defined this increase in a quantitative way according to the temporal variable. That is to say, he thought that the increase or change of labor, the growth of the labor factor, could be nothing other than the presence of an additional number of workers on the market, that is to say, the possibility of employing more hours of labor thus made available to capital. Consequently there is a neutralization of the nature itself of labor, to the advantage of this single quantitative variable of hours of work and time, and basically classical economics never got out of this Ricardian reduction of the problem of labor to the simple analysis of the quantitative variable of time. And then we find an analysis, or rather non-analysis of labor in Keynes which is not so different or any more developed than Ricardo’s analysis. What is labor according to Keynes? It is a factor of production, a productive factor, but which in itself is passive and only finds employment, activity, and actuality thanks to a certain rate of investment, and on condition clearly that this is sufficiently high. Starting from this criticism of classical economics and its analysis of labor, the problem for the neo-liberals is basically that of trying to introduce labor into the field of economic analysis. A number of them attempted this, the first being Theodore Schultz, who published a number of articles in the years 1950–1960 the result of which was a book published in 1971 with the title Investment in Human Capital. More or less at the same time, Gary Becker published a book with the same title, and then there is a third text by Mincer, which is quite fundamental and more concrete and precise than the others, on the school and wages, which appeared in 1975.
In truth, the charge made by neo-liberalism that classical economics forgets labor and has never subjected it to economic analysis may seem strange when we think that, even if it is true that Ricardo entirely reduced the analysis of labor to the analysis of the quantitative variable of time, on the other hand there was someone called Marx who ... and so on. Fine. The neo-liberals practically never argue with Marx for reasons that we may think are to do with economic snobbery, it’s not important. But if they took the trouble to argue with Marx I think it is quite easy to see what they could say [about] his analysis. They would say: It is quite true that Marx makes labor the linchpin, one of the essential linchpins, of his analysis. But what does he do when he analyzes labor? What is it that he shows the worker sells? Not his labor, but his labor power. He sells his labor power for a certain time against a wage established on the basis of a given situation of the market corresponding to the balance between the supply and demand of labor power. And the work performed by the worker is work that creates a value, part of which is extorted from him. Marx clearly sees in this process the very mechanics or logic of capitalism. And in what does this logic consist? Well, it consists in the fact that the labor in all this is “abstract,” that is to say, the concrete labor transformed into labor power, measured by time, put on the market and paid by wages, is not concrete labor; it is labor that has been cut off from its human reality, from all its qualitative variables, and precisely—this is indeed, in fact, what Marx shows—the logic of capital reduces labor to labor power and time. It makes it a commodity and reduces it to the effects of value produced. Now, say the neo-liberals—and this is precisely where their criticism departs from the criticism made by Marx—what is responsible for this “abstraction.” For Marx, capitalism itself is responsible; it is the fault of the logic of capital and of its historical reality. Whereas the neo-liberals say: The abstraction of labor, which actually only appears through the variable of time, is not the product of real capitalism, [but] of the economic theory that has been constructed of capitalist production. Abstraction is not the result of the real mechanics of economic processes; it derives from the way in which these processes have been reflected in classical economics. And it is precisely because classical economics was not able to take on this analysis of labor in its concrete specification and qualitative modulations, it is because it left this blank page, gap or vacuum in its theory, that a whole philosophy, anthropology, and politics, of which Marx is precisely the representative, rushed in. Consequently, we should not continue with this, in a way, realist criticism made by Marx, accusing real capitalism of having made real labor abstract; we should undertake a theoretical criticism of the way in which labor itself became abstract in economic discourse. And, the neoliberals say, if economists see labor in such an abstract way, if they fail to grasp its specification, its qualitative modulations, and the economic effects of these modulations, it is basically because classical economists only ever envisaged the object of economics as processes of capital, of investment, of the machine, of the product, and so on. Michel Foucault, 14 March, 1979,  translated by Graham Burchell, Lecture 9, The Birth of Biopolitics, 219-222. [emphasis added)

For readers familiar with Foucault's Birth of Biopolitics, it may be thought strange I have resisted plunging into his account of the relationship between genetics, development, and human capital theory which are at the heart of Lecture 9. For what seemed like a "bit of science fiction" (227) has finally arrived and will become more salient in the aftermath of the pandemic and asymmetric response(s) to unfolding climate change. (I don't wish to avoid it, but in re-reading Foucault I am always struck by moves that seem recurrently timely.) Rather, I return to material I partially quoted and skipped last time.  Today, I focus on his rational reconstruction of a historical debate that can help us situate a lot of debates about neoliberalism.

Foucault is very clear that from the perspective of Chicago economics (the American neo-liberalism of Schultz, Becker, and Mincer), the classical economics that comes out of Ricardo is a garden path (or degenerative research program). When it comes to the implied anthropology of capitalism, and, especially the significance of human capital in it, Chicago is closer to the earlier Adam Smith in some respects than Ricardo and other classical and neo-classical economists. This is why George Stigler is often quoted as saying "it's all in Adam Smith." 

As an aside, what I have said in the previous paragraph is clearly not true of Milton Friedman who was very much inspired by Marshall. But Friedman does not figure in Focuault's analysis of Chicago at all, and, unlike Stigler, also cannot be simply assimilated to it. To the point jokingly, despite the importance of (recall) Simons to Foucault's narrative, in Foucault's hands Friedman is not a characteristic (Chicago school) neoliberal.*

But as Foucault notes (225), by building on (recall) the Robbins definition of economics (as optimization under given constraints and in light of scarcity), Chicago also re-establishes the significance of a utilitarian homo oeconomicus who maximizes utility or Max U (in McCloskeys' memorable phrase). And this echoes the Benthamite (so-called English radical) tradition (recall lecture, p. 41) that merged with classical economics in the wake of Ricardo and James Mill. That is to say, a major sub-theme of Foucault's whole lecture series on the Birth of Biopolitics is a kind of natural history of the changing conceptualizations of homo oeconomicus: (i) in the classical period starting with Ricardo he is the man of exchange or man the consumer in terms of satisfaction/pursuit of needs (p. 225); (ii) in the neoliberal period, especially in the (recall) ORDO senses, "he is the man of enterprise and production." (147, lecture 6) And (iii) at Chicago he is also "an entrepreneur," but now, especially, "an entrepreneur of himself," who develops and produces/maintains his own human capital as a source of earnings (226), even a possible earning stream into the future (230). The previous sentence simplifies in a crucial way: because as the Chicago program develops, as Foucault shows in the remainder of the lecture, it starts to be able to calculate the contribution of the family, culture, schooling, and (yes) genetics into the constitution of this auto-entrepreneur.

And so, what Chicago does, on Foucault's account, is to merge this re-invented utilitarian homo oeconomicus with a kind pre-Ricardian Smithian sensibility about human nature. And, to look ahead a bit beyond Foucault, this synthesis turns out to be both fertile and unstable as the experimental and behavioral psychologists explore the Smithian sensibility and see how at odds it is with the given utilitarian framework. (This previous sentence is most manifest in the work of Vernon Smith and his school, who understands himself as returning to the Smithian tradition.)

Now, recall that the distinct element of the ORDO response to Marxism is, in part, to say that even if the Marxists are right that monopoly is inevitable under the logic of pure capitalism, society -- and especially an independent state -- can prevent this outcome by an expansive understanding of anti-trust law whose twin aims are to prevent economic monopolies and to prevent rent-seeking behavior from would be powerful economic agents. (I am not claiming that is the whole story.) By contrast, one effect of the Chicago critique of Ricardian classical economics is, as Foucault notes, that it simultaneously can accept the Marxist critique of Ricardo/classical economics and de-fang its significance so much that it can practically ignore it.**

And the way it defangs it, on Foucault's creative account, is by way of a (implicit--since this is all Foucault's rational reconstruction) genealogy of error (this is the highlighted part above) in which the Marxist critique of capitalism is itself shaped by the classical elements, which it understands as ideology, it has inherited. And both classical economists and their marxist critics look at large scale processes that make value a kind of abstraction (even though they disagree over the source and nature of this abstraction.) And in response, the neo-liberals change the topic: and focus on "what they call
substitutable choices, that is to say, the study and analysis of the way in which scarce means are allocated to competing ends, that is to say, to alternative ends which cannot be superimposed on each other." (222) And rather than explaining (the source of) value, or thereby the exploitation of a class, the focus now becomes "how the person who works uses the means available to him." (223)

The effect of this, as I noted last week, is an important moral pay-off. In the Chicago neo-liberal approach, there is a methodological and epistemological perspective that takes the "point of view of the worker and, for the first time, ensure that the worker is not present in the economic analysis as an object—the object of supply and demand in the form of labor power—but as an active economic subject." (223) That is to, the Chicago school manages to bring its tools into line with important moral and political commitments of liberalism. 

To put the point in previous paragraph in moral and rhetorical terms. The utilitarianism of the radical tradition has a tendency to treat economic agents as means. But in the neo-liberal Chicago school economic individuals are treated as agents with their own distinctive aims. And so the scientist can take their choices seriously as choices and the moralist, society, or policy-maker can hold them accountable for their choices. That this shift in perspective also generates serious moral and political problems once policy aims to program/nudge it is evident.  But in the short term it has the rhetorical advantage that when the Marxist says 'exploitation,' and has to invoke a whole conceptual structure to explain why, the neo-liberal says 'choices' and can respectfully point at what we do. And, perhaps unexpectedly, this rhetorical move turned out to be attractive not just to the traditional economic right, but also politically to all those (but now I am echoing Melinda Cooper here; and here) who wished to emancipate from the hegemony of the 'traditional' wage-earning family structure.


*By Foucault's lights, Friedman is surely also not an Ordo or Austrian neoliberal. But see here.

**Whether this has to with snobbery, the after-effects of McCarthy, or the more plausible sense that engaging with Marx was best left to mathematical erudites like Samuelson (1971), I leave for another time.