Abstract
In this essay, my point of departure is Bernard Hodgson’s analysis of neo-classical economic theory and his demonstration that neo-classical economic thought is already a branch of normative theory. I undertake to broaden the demonstration by showing that other contemporary conceptions of economics are also irreducibly normative. The essay begins with an overview of Hodgson’s argument strategy, and a discussion of his thesis that economics is a moral science. This illustrates in what way moral presuppositions are at play as core principles that both positivist and normativist economics take for granted. My strategy is to show that alternative conceptions of economics, in particular Schumpeterian accounts of evolution/innovation, and orthodox versions of ecological economics, share with classical and neo-classical economics normative assumptions about the common good, extending Hodgson’s thesis to one about moral science. For then these assumptions (both moral and scientific) commit economics to unworkable notions of social and environmental optimization that ignore the pure historical contingency of physical, economic, social and cultural conditions. It is concluded that the relationship between facts and values must be fundamentally retheorized.
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Notes
Readers will recognize here the cognate distinction found in the sociological writings of Max Weber between goal rationality and value rationality. Also, see Milton Friedman’s essays on positive economics (1953).
The notion of action itself becomes problematized, in the context of a post-ontological conception of subjectivity. A normative economics must eventually address this issue.
Dennis Badeen’s contribution to this issue discusses this aspect of Hodgson’s strategy in depth.
For my own project it will be necessary to expand the context to include environmental as well as social problematizations.
This metaphor is important in a fundamental way for my thesis. It helps to understand in what way the models for—in this case, of rational choice theory—are what I have called elsewhere the mathematical simulacrum (Holdsworth 2006). These are models which are not copies of any original, as indeed models always are in model theory when model theory is understood as a branch of logic.
I borrow this language from Otway and Winterfeldt (1982), whose work on industrial risk assessment points out that, understood this way, the preference axioms are strongly prescriptive (i.e. normative in their sense) insofar as we violate them on pain of being irrational simpliciter, in much the same sense that logic is taken to be strongly prescriptive for all rational reasoners.
Conceptions of competition vary across neo-classical theory and alternative frameworks, such as Schumpeterian economics.
It is the implausibility of some of these axioms that had rendered neo-classical theory increasingly suspect prior to the work of von Neumann and Morgenstern and Hayek. My version of the conditions is taken from Answers.com; http://www.answers.com/topic/perfect-competition (accessed 24/03/2010). This source includes an informal and extensive list of the specific—and in most cases highly implausible—conditions that Pareto theory would require.
For neo-classical theory, it is a linear flow from land to social application.
These metaphors became popular during the presidency of Ronald Reagan, articulated by his advisors as the “trickle-down” principle.
This is the principle significance of von Neumann and Morgenstern. These axioms, although not entirely unproblematic, are a much more plausible set of conditions in the sense that one can imagine a human decision-maker with the cognitive skills required to conduce his or her choices to these conditions.
Another significant consequence of von Neumann and Morgenstern’s work is that we arrive at a game-theoretic interpretation of Pareto optimality as a zero-sum relationship between parties to market transaction. This explains why the accumulation of capital or the production of new wealth is necessary for neo-classical economics. The relationship with nature must be other than zero-sum.
For an analysis of the interpretation of the relevance of philosophies of the good (such as utilitarianism) and conceptions of the right (such as Kantian deontology) in the context of neo-classical economics, see Shionoya (2004).
There is therefore already a divergence of normative assumptions between neo-classical theory and Schumpeterian approaches. Nonetheless, even though they disagree about normative individualism, there is a shared political value framework that can still be called liberal, having to do with the valorization of markets as the sites of innovation. The issue now hinges on who the players are within the competitive system.
At this point we run the risk of becoming entangled within a complex array of methodological issues about the limits of validity of metaphoric appropriations across disciplinary practices. The theoretical biologist Stephan Jay Gould (Prindle 2006), celebrated for his theory of punctuated equilibrium in biological evolution, represents the extreme view that theoretical appropriations across scientific domains is always illegitimate. Here I simply adopt the view that processes of production are not metaphorically, but literally, processes of material transformation, and that, for this reason alone, Georgescu-Roegen is justified in his insistence that an adequate theoretical economics must take seriously the consequence that processes of production have thermodynamic (specifically negentropic) effects.
The phrase “negative entropy,” now shortened to “negentropy,” was coined by Erwin Schroedinger in What is Life? (1992). Strictly speaking, the negentropy is the entropy exported to the environment in the production of a more complex structure.
One argument that could be made in support of Rawls (assuming that his defence of the difference principle were to become generally accepted by liberal theorists) is that once a redistribution of endowments in the present is achieved that corrects for the injustice of the original distribution, a neo-liberal market system, supplemented by supply-side driven growth if necessary, would be (in and of itself) an otherwise ethically neutral system of natural liberty. But this just displaces the problem to one of political ethics since, even if the process is incremental, practical questions of conflict resolution would be overwhelming.
Some writers make a clear distinction between environmental and ecological economics. Doing so is critical to work being planned by Dennis Badeen, one of the contributors to this issue.
The post humus paper of Professor Hodgson included in this issue is clear about maintaining resource allocation as a factor within neo-classical theory. Thus equilibrium requires a balance, not only between producers and consumers, but amongst producers, consumers and resource holders. However, resource holders are accounted for in classical and neo-classical theory in terms of endowment, not in terms of environmental availability, just as demand fails to be accounted for in terms of need.
These arise as iso-profit curves in the functional relation between wages and rates of profit.
For those familiar with the historical and philosophical writings of Michel Foucault, this language will be familiar. To be sure, what I am saying is that the political economy of a historical period can be understood as a discursive as well as non-discursive formation. There are two readings of Foucault that influence what I am saying. One is found in Rudi Visker’s important study of Foucault in which a central thesis concerns the historical role continuities play within historical transformations between major periods of epistemic stability (Visker 1991). Typically, the principles that remain stable across such transformations are normative ones—principles that characterize the general moral system of values within culture. These too can change, but only if non-moral aspects of the epistemic formation are stabilized. The second reading of Foucault that is influencing my interpretation is that of Gilles Deleuze (1988), especially his reading of the role of the statement within Foucault’s archaeological method. This latter is important to resist the problematically dismissive readings of Foucault that understand epistemic formations as purely discursive. Not only the articulations (that which can be expressed), but the visibilities (those non-discursive structures that can be witnessed) are at play.
This is Latour’s image!
This is why we must turn to the insights of post-metaphysical philosophy and social theory to come to terms with the problems of normative economics, a running theme throughout the footnotes of this essay.
Seen this way, there arises an enormous task for philosophical ethics, to articulate what can be called an ethics of contingency. There are, to be sure, a variety of philosophical projects that move in the direction of such an ethics: Deleuze (1990) and the ethics of the event; Foucault (2005) and the hermeneutics of the subject; Latour (2004), and his notion of the new non-humans.
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An early version of this paper was read at the Memorial Conference for Bernard Hodgson, held at Trent University in the Spring of 2010. It was originally titled “Why Pareto Optimality Makes Economics a Moral Science: Reflections on Bernard Hodgson’s Normative Philosophy”.
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Holdsworth, D.G. Economics and the Limits of Optimization: Steps Towards Extending Bernard Hodgson’s Moral Science . J Bus Ethics 108, 37–48 (2012). https://doi.org/10.1007/s10551-011-1085-5
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DOI: https://doi.org/10.1007/s10551-011-1085-5