“I’m so bored. I hate my life.” - Britney Spears

Das Langweilige ist interessant geworden, weil das Interessante angefangen hat langweilig zu werden. – Thomas Mann

"Never for money/always for love" - The Talking Heads

Saturday, November 06, 2010

the exchange matrix

The other day, my friend M. sent me a copy of a letter that was written by an editor of a press to another person, in which the editor solicited a small essay for a line of books that would contain small, one hundred page essays on a variety of topics. M. suggested that this was definitely up my alley – and I have to agree.
So I have been thinking of carving out a small bit from my human limit project for a book to be tentatively entitled, Homo Oeconomicus: the biography of a myth. Much of what I’ve been writing lately (about the origin of the equilibrium idea in economics) would flow very easily into a book about the rise of the idea of the homo oeconomicus – the rational actor whose ectoplasmic calculations are at the center of mainstream economics. To paraphrase Paul Veyne’s book, “Did the Greeks believe their myths”, I think an essay about whether the economists believe theirs – and more importantly, how their belief has helped form the political and economic order of modernity – is worth a nice one hundred pages.

This essay would have to begin in Rouen. I’d like to start with Pascal, Boisguilbert and Fontenelle and go forward until, in the 20th and 21st century, I bump into Robert Lucas, the Ownership society and the Browne report. The essay would really be the development of a phrase of Fontenelle, who, in his Eloge de Montmort, wrote that the scientific spirit will in the end bring about the belief “that the political world as well as physics is ruled by weight, number and measurement.” The great transformation of the economic and political arrangements under capitalism, outlined by Marx and Engels in the Communist Manifesto and Karl Polanyi in the Great Transformation, took place not only in the vast recombination and recreation of everyday routines, but also in the thoughts entertained by the clerks, the policymaking intellectuals, the poets, the dissenters, the political arithmeticians, the pamphleteers and scientists, and in general the entire crowd of Burke’s “theorists”. Such is the ‘spirit’ of capitalism.

Historians have long been convinced that Adam Smith’s conjectural history is basically right Smith puts “commercial society”, or a society based on the cash nexus, at the endpoint of history. Myself, I want to dispute one of the premises of this idea, which is that we have gone from a society in which the dominant form in which the matrix of exchange occurs is barter to one in which the dominant form is money. I think this claim is made, to an extent, by engaging in a definitional tour de passe-passe, in which a system of exchanges is mysteriously expelled from economics, and is then, as mysteriously, crunched into a system of rational choice, a method by which mountains regularly give birth to mice, and all is dissolved in the triviality of a decisional form without, of course, explaining decisions at all. I take the term “exchange matrix” from Robert Cowen, who was very concerned with the fact that, in the Walrasian and neo-Walrasian schemas which are at the heart of neo-classical economics, the stripping away of the “veil of money”, which is meant to help us understand the self-regulating nature of money, is the equivalent of the claim that, in essence, money simply is a refined form of barter. D. Dillard, in The Barter Illusion, helps us to see what Cowen tries to show formally in matrix form – namely, that the idea that money is barter undergirds a completely fictitious view of firms, which premise that they exist solely for the sake of consumption. As Dillard – echoing Marx – points out, a firm’s output is ‘reconstituted as money capital” for the very good reason that firms do not exist – except on the most abstract level – to increase consumption. “What is real from the point of view of the objective of the firm is money.” As Dillard points out, “A corollary of the barter illusion is that money is neutral with regard to output and unemployment.”

All of which is one part of the illusion of the pure exchange system – that is, that barter and money are essentially the same. So the first part of understanding the myth of homo oeconomicus is to remove the illusion of the equivalence of money and barter, and the corollary illusion that, on the one hand, there is a pure barter system, and, on the other hand, that there is an equilibrium towards which markets tend.

Homo Oeconomicus, that eternal calculator of profit, operates within these larger mythical frameworks. My proposal is, firstly, to go from the mixed matrixes of the late medieval European economies up through the genesis of political arithmetic in the early modern period by looking at some plays – I’m thinking of Everyman, King Lear, the Alchemist, L’avare; secondly, to look at some analogies of the wheel – the wheel of Fortune or Nemesis, the circulation of the blood, and the circulation of money; thirdly, to examine Pascal’s meditations on the difference between reasoning and authority, against the background of Pascal’s development of a theory of probabilities based on the example of the game; fourthly, to examine the Enlightenment development of man the machine as man the calculating machine; fifthly, to go from Smith’s pin-factory to Marx’s theory of alienation, with its deep reach into how he conceives the economic sphere; sixthly, to discuss Polanyi’s double movement – that fold in the development of Capitalist culture in which the state intervenes as a guarantor (of social welfare, of banks, of farming culture, etc.); and finally, to discuss the social coordinates of individualism.

This may be too ambitious. Hey, commentors, tell me what you think!

Monday, November 01, 2010

Pascal's modernity

Ernst Coumel, in an essay on Pascal’s contribution to the theory of probability (La théorie du hasard est-elle née par hasard ? 1970), cites a Jesuit opponent of Pascal’s, one Abbe de Villars, who, in responding to Pascal’s devastating attack on casuists in Lettres écrites à un provincial, asked a very good question about Pascal’s interest in and contribution to the theory of gaming: But I had heard that you were a very great enemy of permissive Casuists: from whence, then, does it come that you not only do not condemn gambling, but that you make religion and divinity depend on a game of heads or tails?”

Coumel, in his essay, is at pains to point out that Pascal’s interest in the theory of games must have deeper reasons than that, by chance, he was the friend of Chevalier de Méré. Coumel is combating the opinion of Cournet, who wrote that it was simply by historical chance that the problems of chance in games – for instance, the problem of dividing the stakes of a game that had been interrupted – had not fallen under the purview of some ancient Alexandrian geometer. On the contrary, Coumel writes, the growth of game theory up to Von Neumann and Morgenstern characterizes a very modern development.

Modern – the word must be underlined. Surely, on the one side, there is the fact that historical circumstances were pressing in. In the seventeenth century, the de-monetized, medieval economy, with its system of in-kind exchanges – barter – was giving way to a monetized economy. As Sasan Fayazmenesh has shown in Money and Exchange, this fact can’t be interpreted as simply the substitution of a more efficient form of barter for a diffuse form – the Walrasian interpretation of money as the representative of a barter exchange fails to comprehend the multiple affordances of money. Fayazmenesh refers to Robert Clower’s analysis of money and barter as modeled by a ‘exchange matrix’, in which their functional differences come out. Clower assumes the universal exchangeability of goods for goods in the barter economy – which is a convenient assumption when mathematizing barter, but has the disadvantage of not being the case. In the whig view of the economists, of course, the monetary system is superior because it is a universal solvent in which any and all exchanges can take place. This, too, conveniently overlooks the vast number of barter exchanges and their multiple restrictions that undergird our daily lives. If I do a favor for my mother, for instance, I can’t, under normal conditions, monetize and sell my perception that I expect her eventually to do a favor for me, even if I can predict that she will, in fact, do a favor for me in the future. Our real life – with friends, co-workers, family members, lovers – is tangled in nets of in-kind and monetary exchanges, which are simply grandly overlooked by the economist.

However, it is also the case that Pascal’s France was monetizing a great number of exchanges. Colbert’s system, with its vast number of taxes, speeded up the process. And it is at this point that speculative questions arise that had no space in an in-kind economy.

Such, then, is one approach to the modernity of Pascal’s situation. But there is another sense of the modern, which Pascal himself diagnosed in the fragmentary preface to the treatise on the Vacuum.

Which I will get to in my next post.