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Wednesday, January 19, 2005

I believe that economics is indeed essential for the study of a market system, but that it is a snare and a delusion for the study of the social order that this system serves. – Robert Heilbroner

When LI was in Malinalco, my friend, M., wanted to get some tomatoes and some underpants for her little boy. We walked around the cobbled streets. It was late afternoon. M. wanted to complete our task before the sun went down, because after dark, the pedestrian in Malinalco is prone to attack from the packs of dogs that suddenly seem to materialize out of the shadows. Residents have gates to shut after dark, so they can avoid unwanted canine intrusion.

To get the underwear, we went to a few shops. None of them had the kind M. was looking for. To get the tomatoes, we didn’t go to a shop. We went to the market.

Like every Mexican village, there are some streets in the center of town upon which, every day, venders pitch their stands. Some markets are elaborate, with vendors of Barbie dolls, sunglasses, hats, and computer games pitched next to vendors of cucumbers, watermelons, corn, and tacos. Some are less elaborate. An economist, looking at these structures, might well see materialization of the purest form of market – the one to one relationship between vendor and consumer is such that prices actually reflect real dickering, supply and demand in action.

However, since Karl Polyani’s day, economists have seen something else. A recent issue of Social Research was dedicated to Robert Heilbroner, the economist who died last week. There is a nice article by Robert Dimand that compares Heilbroner’s conviction that the key to economic history is not the neo-classical market with Karl Polyani’s notion that capitalism can only be understood in the context of its managed overthrow of pre-capitalist exchange systems.

Here are the opening grafs of Dimand’s article:

IN THE OPENING PARAGRAPH OF HIS INTRODUCTION TO A COLLECTION OF debates among Marxist historians and economists over The Transition from Feudalism to Capitalism that were initiated by Dobb (1946), Rodney Hilton (1976: 9) recalled that Karl Polanyi (1948) "thought that Dobb had retained from Marx what was bad (the labour theory of value) whilst discarding what he, Polanyi, thought was Marx's "fundamental insight into the historically limited nature of market organisation.'" Beyond condescending praise of Polanyi's review for "a serious attitude to the problems of a Marxist analysis" and passing mention in the next paragraph that R. H. Tawney's review of Dobb "did not raise any of the general theoretical problems which Polanyi hinted at," Hilton (and the other contributors reprinted in the volume) proceeded to ignore Polanyi's challenge as thoroughly as any mainstream neoclassical economist could have done.

In contrast, Robert Heilbroner shared the fundamental insight that Polanyi derived from Marx, and brought it to the attention of millions of readers. Over four decades and in 11 editions of The Making of Economic Society, Heilbroner examined the replacement of socially embedded provisioning by the market as a means of organizing society and production during the Industrial Revolution, while in seven editions of The World Philosophers that spanned nearly half a century he explored the accompanying changes in how economists thought about the economy. In his vision both of how the economy had changed and how economic thought had interacted with these changes, Heilbroner stood shoulder to shoulder with Polanyi.”

One of the things philosophers have learned from Freud and Heidegger is that forgetting is a manufactured act. It is one the things that liberal philosophers can’t forgive in Freud and Heidegger. There were two, overlapping forgettings that constituted the ideological foundation of the Cold War in the American sphere. One was the forgetting of how this “replacement of socially embedded provisioning by the market as a means of organizing society and production during the Industrial Revolution” took place. This forgetting foreclosed on both the ravages of the Industrial Revolution in Europe and America, and the cost of producing free market economies in the colonial sphere. The terror famines that occurred in Ireland and India under British rule, for instance, were dropped as a subject of discussion, or – in the case of Ireland – sentimentalized. It took Mike Davis’ book, The Victorian Holocaust, to revive interest in a series of famines that, at the turn of the century (circa 1900) in England, were well known to any educated English socialist.

The other great forgetting was about the wars that bubbled up in the capitalist world, finally ending in World War I. In fact, the whole history of the Russian Revolution was systematically distorted by cutting out the crucial facts of the war on the Eastern front – the senseless slaughter of up to two million Russians. Given the shadow of that fact, the bitter Civil War between the Red and White forces could no longer be told as a morality tale in which bad Reds killed wonderfully royalist Whites. Nor could one construct the nice myth of Lenin as the father of the Gulag with quite the straightforward indignation required, if one asks about the capitalist forces in Britain and Germany and France that authored a war that decimated 8 million people. That this slaughter was crowned, in hindsight, as a war in defense of democracy -- when, of course, it was a war in defense of a particular power arrangement among capitalist states, the governing classes of which were agreed on the necessity of perpetuating white power -- was a grim joke.

Polyani and Heilbroner, however, were exceptions to the Cold War rule. They would notice, about those markets, the use of public space – and often the use of ‘borrowed’ electricity. They would notice that the margins of profit were not derived from the rational bickering between seller and consumer – but often on quite seemingly irrational prejudices on both sides that indicate different regimes of values. They would note the tie between adults and children as laborers, and they would not homogenize them indiscriminately into a quantifiable labor unit – because this quantification would lead to predictive distortions when trying to analyze the reproduction of the labor system embodied in these markets. They would question the gauge of efficiency in the role of these markets – something M. and I discovered in our odyssey in search of underwear, here.

These issues were Heilbroner’s specialty. In the same issue of Social Research there is an exemplary Heilbroner piece, Economics as Universal Science, which quietly mocks those who, like Gary Becker or certain members of the Chicago School, claim that economics can act as the master-science for studying human behavior (plus, of course, a thrilling dose of sociobiology).

Heilbroner starts off by asking where we locate economies, if they have such modeling force in telling us about human behavior. His own premise goes like this:

“I shall undertake this task by starting from the premise that the continuity of society requires structured ways of assuring social order. These ways range from the routines and habits of daily life to formal institutions of law and order. In referring to this spectrum I shall use the term "sociological" as a portmanteau term that covers the order-bestowing influences of private life, of which incomparably the most important are the pressures of socialization exerted by parents on their offspring--pressures that teach children how to fulfill the roles expected of them in adult life. The second term, "political," I use in the conventional sense of the institutional means by which some group or class within society can enforce its will over other groups or classes. The definition of these terms is less important than my intention to describe a protective canopy of behavior-shaping arrangements, part informal and private, part formal and public, that protects the community from actions that would threaten its continued existence.

“Both the sociological and political elements in this canopy are fundamentally concerned with an aspect of social order and coherence that is usually referred to only obliquely. This aspect is the general state of obedience or acquiescence without which the armature of rights and privileges that defines any social order could be retained only by force and overt repression. With his customary candor, Adam Smith called this necessary aspect of society "subordination": "Civil government," he wrote, "suppose[s] a certain subordination." We shall return many times to this theme, but the challenge it raises should now be clear. It is the disconcerting idea that economics is socialization or
subordination in disguise.”

Heilbroner sees, however, that the ‘imperial” economist, as he calls him, can give two responses to the placement of the socius at the center of society. One is that the socius is actually a network of decisions, and hence of choices. Economics is the science that is going to rationalize that hodge-podge of choices by gauging it according to an optimal model that follows a simple rule: all choices are motivated by the perception of an advantage. It doesn’t matter if the perception is wrong, or distorted, or ignores long term advantages, etc. What matters is the logic of advantage.

The other answer, Heilbroner thinks, is to make economics the study of the division of labor that lies at the heart of the social order. Thus, subordination can again be wrapped into economics.

Heilbroner’s consideration of these options in the light of what Polyani calls the Great Transformation – the emergence of an international, hegemonic capitalist system in the last two hundred some years – is more insightful than the guff one usually gets from economists. Here are two more grafs to chew on:

"Economics thereby takes the economic system to be the living model of capitalism, containing within its categories and conceptions everything that is essential for its comprehension. It is here that economics betrays its fatal limitations as a universal science, and its knavish consequences as an imperial doctrine.

"The first such consequence is that economics itself appears as a neutral rather than a charged explanation system for capitalism. This becomes apparent in many ways. A term of great importance such as "efficiency," for example, is regarded as a quasi-engineering criterion, rather than one whose unspoken purpose is to maximize production as a profit-making--not a purely engineering--endeavor. Similar unnoticed sociopolitical meanings cling to other such terms, including "production" itself, which is counted in the national income accounts only insofar as it results in commodities, not use-values. In much the same fashion, the fundamental unit of the economic system is taken to be the rational maximizing "individual." The economic system is thus conceived as a society of hermits, not as an order of groups and classes.

"This concealment of a social order is most clearly evidenced when we notice the manner in which economics rationalizes functional income distribution. Marx wrote scathingly of Monsieur le Capital and Madame la Terre, each entitled to receive a reward for the contributions each has made to the social product, but modern economics has forgotten the fetishisms that Marx exposed. Of even greater importance, it has no explanation for, or interest in, the curious fact that the reward paid as net profit, which goes only to owners of capital, gives them only a "residual" claim on output, after all factors, including capital, have been paid their marginal products. In view of the repeated demonstrations of economics that the tendency of the market system is to eliminate such residuals as mere transient imperfections of the system, one must be a sociologist or political theorist to explain why owners of capital seem so eager to protect these dubious claims. Thus the manner in which the market supports the class structure of capitalism is a matter before which economics is silent--indeed, a matter of which it is, in some sense, unaware."

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