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Saturday, January 22, 2011

the bourgeois economists and the equilibrium

The figure of the homo economicus is first used in economics as a model for building a truly mathematized ‘social physics’ in the 1890s, which is also the decade in which Freud laid the foundation of psychoanalysis. These may seem like coincident moments in the intellectual history of two disciplines, but I wonder…

The marginalist ‘advance’ towards an economics that imitated the models of physics – that is, the breakthrough to the kind of ‘social physics’dreamt of by Bagehot - divorced value from production in order to grasp what, from the marginalist point of view, was the outstanding feature of the modern economy – the price system. It is a well known story: in economics, it is the age in which the insights of the classical economists were finally systematized as a science by leaving aside the labour theory of value. The theory, not being able to provide a direct explanation of prices, was, according to Jevons, Walras and Menger, incoherent. In its place, the marginalists advanced the idea of demand as the great mover of the system. Demand, however, or tastes, a subjective quality, could be appropriated by the mathematician in terms of units of utility – which would no longer be tied to the old 18th century psychology of pleasure and pain, laid out discretely like Newton’s corpuscles. Instead, one would use Newtonian calculus, the mathematics of limits, to produce a description of demand as a curve tending towards indifference.

At the same time, Freud was producing an image of the consciousness led by the demands of the libido – in a code that did not possess an endogenous no.

Let me leave the coincidence there to fester a bit. What we also see, in this era – the era of the great depression for the workers, and the gilded age for the rich, from the 1880s-1890s – is a further advance in the remove from production – that is, the creation of ever more links populated by circulation agents – and, at the same time, the technological spread of the aesthetic domain through gramophones, photographs, and the beginning of moving pictures.

These are the circumstances into which homo economicus was formally born.

These are also the circumstances in which the idea of the equilibrium is seized as the entry point for understanding the economy, what Schumpeter called the “Magna Carta of economic theory as an autonomous science.” To find the conditions, or equations, of equilibrium is to find the ideal moment in which the economy reveals itself as a totality. In Schumpeter’s words, it is the moment in which the static and the dynamic dimensions of the economy interlock – which is to economics what the synchronic and diachronic are to Saussurian linguistics.

Equilibrium gets us over a fundamental antinomy in bourgeois economics: the antinomy between the individual, who is theoretically the foundation to which all social practices reduce, and the aggregate, which is what, in actuality, economics always studies. Though the economic agent’s tastes are subjective, the formal elements in which those tastes are expressed are objective – they have a systematic form. That form comes out using Walras’s method, which pares away blocking contingencies to get to the structure of the ideal equilibrium between those tastes and the supply of goods and services – an equilibrium that is continually displaced. As Pareto puts it in the Course on Political Economics: “The principle object of our study is economic equilibrium. We will soon see that this equilibrium results from the opposition which exists between the tastes of men and the obstacles to their satisfaction. Our study thus comprehends thee distinct parts: the study of tastes; the study of the obstacle; and the study of the way in which these two elements combine in order to arrive at an equilibrium.”

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