“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, May 21, 2011

revelatory preferances

As economists with a psychological bent have discovered, there is a problem with the way economists talk about preferences. Preferences in the neo-classic paradigm, codified by Arrow and Debreu, are invariant and logically sorted by a simple transitivity rule, so that if preference a is preferred to b and b to c, a is preferred to c. There is no test ‘in the wild’ that has ever reproduced this theorem.

However, economists generally dismiss tests in the wild as non-relevant, for, they claim, either the psychological tests that show non-transitivity are due to the special circumstances of the experiment itself, or empirical non-transitivity itself doesn’t count, because models that are transitive approximate the collective reality of markets.

There is, however, another problem with the idea of ‘choice’ as it is used in mainstream economics. It divorces consumption from what Simmel considered one of the hallmarks of modernity: the increase in both the number of links and the complexity of links that leads from means to ends. Simmel considers that money triumphs as an institution in modern society because it forms a perfect means in the midst of the tangle of means and purposes.

For the economist, revealed preferences have a certain dead-endedness – whether one buys a commodity for another end, or for itself alone makes no difference to the economic analysis of the transaction. But it is easy to see that this can’t be true. It isn’t simply that there is a difference between a company buying coal to make steel with – which, though a consumption of coal, leads to another purpose that will have a global effect on the purchase of the coal – but it is also true that satisfaction, or marginal utility, is also effected by the means-end chain.

As Simmel points out, for the individual, there is a divide between the logic of purposes, in which an overall purpose gives meaning and direction to a chain of means, and the emotional and motivational logic of means, in which means as stages in which one must act in a certain way have to be endured or enacted with a purposiveness in their own right that absorbs energy. Indeed, it is a common experience for those who finish a long task, say, writing a book or even simply an article, to feel a letdown at the end of the process, as one is simultaneously freed from exerting one’s energy and attention to the matter at hand and at the same time left with a sort of unguided and unstructured moment. The moment is not a vacation – it is a crowning, a finish, an ending. And yet it doesn’t give one anything to do.

But of course there is more to Simmel’s point than this. Much of the modern life-story is taken up with long-term projects of consumption towards some end. College students, for example, are encouraged from the very beginning to aim at some degree, which is in turn seen as the key to a job. And yet, as the degree is years off, it would be difficult to make a calculation to understand just how much time and energy one should spend on each step. Not that something like this doesn’t happen – a computer science student in an elective English literature class is very often a study in someone who has calculated exactly how little time needs to be spent on a subject that is only a lightly weighted means to his end. Of course, this student intersects with a teacher whose purpose is, in fact, exactly to teach that English literature class. Modern life is full of what we might call purposive jams – like traffic jams, they consist of people who, jostling one another, are going different places but find themselves within the limits of the same narrow situation.

The series of means is also susceptible to another contingency: polysemy. For as the steps, the means, to these longer ends are situations, they also have a multitude of affordances. The student might, by some miracle, fall in love with English literature, which would change his purposes entirely. This is a reality that doesn’t fall under revealed preferences, but quite the reverse – the preference itself is revelatory.

The adventure of modern life begins with revelatory preferences.

Wednesday, May 18, 2011

Freedom and money

And everywhere we go people be like damn where you from, where you from
I'm from moneyland
So give me some money, man



In the last post in this series, I wrote about Caillois’s sense of the morphology of the game. Whether it is the triangle of baseball, the rectangle of the football field, or the strew of different bits of plastic models under the Christmas tree, play ultimately forms a circle about itself, much like God – that archetype of the circle in which the center is nowhere and everywhere.

As I also pointed out, one of the grounds of play, in Caillois’ schema – the freedom of choosing to play – seems to have a deep connection to one of the grounds of modern capitalism in Marx’s view – free labor. The player’s choice to obey certain rules – whether scripted or spontaneous – and the laborer’s choice to sell a certain product for money – one’s ‘time – both give us moments of relative freedom, the bounds of which are determined in the system in operation.

Georg Simmel was also attracted to social ‘morphology’ – to hubs and linkages, to circles and the social meaning of encirclement. One catches a glimpse of the idea of the ‘encircling’ institution in the Philosophy of Money. There, Simmel presses on the parallelism of three social factors in modernity: law, money, and education, the latter of which bears the guises of science, culture, and ‘intelligence’. The parallelism begins with the ‘leveling’ logic to which they are all subject. Thagt is, they operate on the principal of equalization. The law ideally views all those subject to it as equal; all commodities are equally buyable by money, even if by different amounts; and the content of intelligence is defined as such by being equally true for all who gain access to it. In modernity, then, the legitimation of hierarchy is derived from quantity rather than quality, to put it in vulgar Hegelian terms.

But this quantitative aspect is deceptive – behind the piles of money or the IQ test, there lurk social mechanisms that are certainly qualitative, disciplinary, and positional in more than quantitative terms. I have been pondering this equality in terms of the idea of the encircling institution. In the premodern landscape, the police, schools, and money were, of course, present, but they were not omnipresent. They did not have an enclosing nature. All three, however, developed in tandem with each other within the modern state, especially after the French Revolution. By this I mean that they ‘touched’ everyone. Where before – as one can see by reading, for instance, Mazzoni’s The Betrothed – great patches of Italy had literally no law enforcement at all, which was as true for England, Scotland, Massachussetts and Russia, etc. In addition, these kingdoms, city states and colonies were mainly rural, with economies that could be and was run with little reference to money as such. And, finally, there was no school system set up did not service the population as a whole of the European states (except for Holland) until the early nineteenth century. Then, in the U.S., in Prussia, and later than that in France and England, literacy, the greatest of all impositions on the Little Tradition by the Great Tradition, became theoretically mandatory. And even then, it is surprising, when one looks at the statistics, how few people were processed through higher education. A scientist in France in 1888 could well have met all the specialists in his field, or at least all those with diplomas: there was relatively few.

What is important to remember is that all three encircling institutions were put in place on a national scale by the end of the nineteenth century. One of the morphological mistakes of orthodox Marxism is to consider this a matter not of circles, but of a vertical constructs – hence, the famed structure/superstructure idea. Marx himself used this image not as a permanent heuristic but as a heuristic at hand to get to the notion of class. It is, however, certainly not indispensable, and a firmer sense of the circulation of commodities erodes that image.

I began this post with a reference to freedom. Heine, as I pointed out weeks and weeks ago, usefully analyzes freedom in terms of privacy, equality, and utopia (and here I am simplifying his simplification). Simmel takes a materialist approach to freedom that helps us understand the coupling of freedom and encirclement. Like everything Simmel writes in The Philosophy of Money, the insight tends to get buried in a very confusing style of topical presentation – a style that yearns to be aphoristic and that takes on its systematic duties as almost a punishment, which is then meted out to the reader. Myself, I understand how one can beat one’s wings against the cage of the dullest prose: but in life there is rhapsody, and there is taking out the garbage, and one should try, when possible, not to confuse the two.

In my next post, I think, or the next at least in this series, we will discuss freedom and money

Monday, May 16, 2011

Some rambling notes on entanglement




In 1991, an anthropologist, Nicholas Thomas, wrote a book entitled “Entangled Objects” in which he proposed that other dimensions of commodity exchange exist outside of what is usually analyzed in terms of production and circulation. That is, objects are entangled with other objects and situations to a degree that confounded both the theory of revealed preference and the Marxist analysis of surplus value, the latter of which held production and circulation too far apart, the former of which had forgotten production and overlapping markets altogether.

The idea of entanglement was taken up by two different economic sociologists, Daniel Miller and Michel Callon, who have clashed about just what it means. Callon, who is better known, is one of the architects of Actor Network Theory, has made field studies of fishermen and stock brokers to study markets and producers. His theory of markets, based in this research, accords a great role to what he calls the performativity of economics models – that is, economists model transactions according to theories of rational choice and then real markets are molded to adhere to the model. It is a sort of para-Dorian Gray effect, with the wickedness of the economist showing up in the way market participates in a particular market identify themselves. Miller has developed what he calls a virtual theory of markets – by which he means that transactions that are framed as exchanges in a market are so framed by the abstractions of economics, which paints a virtual picture of economic reality and works to make the latter conform to the former. Miller, unlike Callon, does not give the market framing any ontological privilege. Thus, he resists the whole idea that the market describes anything more than a locale in which commodities are exchanged. For both thinkers, the way objects are entangled in production and the symbolic realm make the neo-classical claim about the exchange of commodities unrealistic.

I find this dispute and its vocabulary interesting - naturally enough, as I am trying to understand and write about how character is shaped under capitalism. Both writers are engaged in what Mill called ethology; unlike Mill, however, both Miller and Callon think that there is an experimental dimension to economic theory, which is enacted or performed in real transfers of objects.

The polemic between Miller and Callon has crystallized around an example, introduced by Miller - a transaction that does not, as it happens, involve cowry shells: the buying of a Renault automobile.

That it is a Renault instead of a Honda or a Ford is a sign that this is, among other things, a transatlantic debate. The French car gives us a vaguely French buyer – in Miller’s example, a woman named Sophie, who accrues a profile that would make her ideal for an Oprah interview:

“So let us imagine the case of Sophie buying a Renault. What are the factors that determine Sophie’s selection of this car and the price she is prepared to pay for it?

Sophie is recently divorced and, while she has kept possession of the family house, her ex-husband kept the car. Her income is now much restricted so the Renault will be a small one. This is an important decision for her, one of the most signicant purchases she has made for a while. For one thing she is suddenly redefining her image as an individual as against being a ‘partner’ in a
relationship. So the aesthetics and the image of the car are important as a decision about her outward appearance, and many of her friends are very stylish. She is quite proud of that element of nationalism that leads her towards buying a French car, with a confidence bolstered by recent victories in football. So she is clear that she wants a Renault as opposed to say a Fiat or Toyota. Also the car
is becoming ever more important to her since her two children are growing to an age where much of her parenting consists of chauffeuring them around to friends and activities, so the car must function well to facilitate her daily responsibilities (Maxwell 2001). Also she has realized that car journeys are
actually the main time when she listens to loud music so the sound system in the car is perhaps more important than the hi-fi. in her home (Bull 2001). Sophie is also (to an admittedly rather mild degree) a bit of an environmentalist so that some of the ‘costs’ of the car, which are normally regarded as externalities, are internal to her equation. She wants an efficient engine principally to save her
own petrol costs but also she is happy that this is for the sake of the earth as well as for the sake of her budget.” [“Turning Callon Right side up” ]

I will overlook the oddly sappy terms in which Sophie’s character is described, although they have the glaze of self-help psychology – Sophie is, as E.M. Forster might put it, a thin character, and she is all the thinner for being “confident”, or ‘happy for the sake of the earth’, that her car has good gas mileage,etc. Oddly, Miller, who has done ethnographic fieldwork, seems uninterested in saying exactly what the ‘earth’ means to Sophie. However, aside from Sophie’s cartoonishness, Miller’s portrait is distinguished by a lack of noticing both the material situation in which his purchaser makes her purchase – where does Sophie live, anyway? – and a blind spot so large as to be puzzling: Sophie is not ‘purchasing’ a car, if she is a normal car buyer – she is taking out a loan.

That new cars are big ticket items for most drivers, and that they are entangled, at both ends of the market transaction (that is, the ends designated by the seller and the buyer) is, one would think, one of the primary entanglements of this transaction. It is one of the reasons that the disentanglement so doubted by Miller and so easily imagined by Callon is, realistically, not synonymous with transferring the ‘legal right’ to the object.

Callon, describing Sophie, is drawn into his opponent Miller’s description:

“As Miller rightly points out, the discussion at the end of which Sophie may take out her chequebook could not take place if the car market had not been strictly framed. Imagine the same scene if, in their interaction, Sophie and the salesman had to take into account its effects on traffic jams, climate change, exploitation of workers in countries of the South working for car manufacturers, the victims of road accidents, etc. My argument on framing and overflowing is all about that. For the transaction to take place we have to exclude from the market frame all these elements that are not to be taken into account, at least for the moment. This specific case shows us that there is nothing eternal about this framing and that
it can be challenged at any time. Probably not by Sophie or her salesman who are absorbed by the future transaction and have other cats to kill, but by actors who feel concerned by these overflowings. This brings to mind Illich and his generalized calculation, who takes into account what Sophie and her salesman refuse to take into account and that leads to the following striking result: once all the externalities have been internalized, the speed of a car is slower than that of a cyclist (Dupuy and Robert 1976). This massive framing that is well known and controversial does not sort out problems of entanglement for once and for all. On
the contrary! It produces a stage on which the process of entanglement-disentanglement can be managed by the agents engaged in the transaction. Once rid of global warming, traffic As Miller rightly points out, the discussion at the end of which Sophie may take out her chequebook could not take place if the car market had not been strictly framed. Imagine the same scene if, in their interaction, Sophie and the salesman had to take into account its effects on traffic jams, climate change, exploitation of workers in countries of the South working for car manufacturers, the victims of road accidents, etc. My argument on framing
and overflowing is all about that. For the transaction to take place we have to exclude from the market frame all these elements that are not to be taken into account, at least for the moment. This specific case shows us that there is nothing eternal about this framing and that it can be challenged at any time. Probably not by Sophie or her salesman who are absorbed by the future transaction and have other cats to kill, but by actors who feel concerned by these overflowings. This brings to mind Illich and his generalized calculation, who takes into account what Sophie and her salesman refuse to take into account and that leads to the following striking result: once all the externalities have been internalized, the speed of a car is slower than that of a cyclist (Dupuy and Robert 1976). This massive framing that is well known and controversial does not sort out problems of entanglement for once and for all. On the contrary! It produces a stage on which the process of entanglement-disentanglement can be managed by the agents engaged in the transaction. Once rid of global warming, traffic
congestion, problems of urban tolls or road safety, our two heroes can focus on the
qualification of the car that Sophie is (maybe) going to buy and on the process of that car’s
particular attachment to her world. This process of attachment, that I have called
singularization, comprises the operations described by Miller. Once it has been achieved (assuming it is achieved) and Sophie has made up her mind, the market transaction can take place. As noted elsewhere, the object of the transaction may be a service, irrespective of how ‘immaterial’ it may seem. For example in Sophie’s case the sale may include a leasing contract or after-sales services. But since all that is specified and qualified, salespersons and buyers are quits once the transaction has been completed. In other words– and this is where Thomas is so valuable— the disentanglement of the car from the seller’s complicated and
heterogeneous world is accomplished. And this is because the goods are detached and
reattached that the two agencies become quits: the two processes are strongly intertwined. In other words it is quite impossible to separate the two issues of the embeddedness and of the alienation of (commercial) goods.”

Callon’s borrowing of the term agencement from Deleuze is one way to grasp the fact that choice or consumption is only one dimension of the economy – production is the other. Marx and the classical economists knew this well; the neo-classicals have erected an entire science on forgetting it. Yet Callon, too, envisions a checkbook and the alienation of property, as though Sophie were buying a steak. The checkbook brings into this transaction a bank; it should also bring into this transaction the seller’s terms, which will certainly include an interest rate. Callon mentions the lender's terms, but doesn't seem to understand that alienation here is a highly conditioned term. Sophie operates, as we all do, in a world in which purchase is not a matter of being endowed with a supply of funds equal to one’s desire for goods, but rather in a world in which one’s continuing supply of income makes one suitable for funds flowing from other parties – banks, credit card companies, the automaker’s own lending unit – which in turn leads to secondary transactions – the bundling of loans into larger financial products that can be sold amongst parties in such derivative markets – and so on. At the time Callon published his refutation of Miller, in 2005, there was something like 300 trillion dollars of derivates contracts being traded “out there” . The entanglement of supposedly separate markets impinged, virtually, on every big ticket transaction. If Sophie were living in Dublin and buying a Range Rover, in 2011 the taxes she paid would be going to pay off bad bets made by bad Irish banks who had plunged into the credit markets that, at some point, serviced the big ticket purchases of people like Sophie – as well as the small credit card purchases.

This makes it all the more interesting that economists model a market – rather than the tangle of markets that actually exist – and insist on a highly unrealistic notion of the individual revealing preferences in these simple to disentangle, recognizable markets, when of course they are operating in ways they are not sure of in markets that they cannot overview to make purchases that they ‘prefer’ due to the existential structures in which they are embedded. To trust, then, that they reveal a preference, here, is like understanding the Pickett’s charge at Gettysburg by assuming that a number of soldiers from a number of Southern states had decided, on their own, that it was a good time to take a stroll across a Pennsylvania meadow.

I’ve been pondering the issue of entanglement because I am pondering the way in which the entanglements of circulation and production in capitalism have, over the nineteenth and twentieth century, shaped certain ‘ideal types’. One of the characteristics of those types is that they have learned to navigate the hyperconnectivity of capitalism. But they have not learned, even on the level of economics, to understand it.
Take someone who is supposedly much more sophisticated than Sophie: Larry Summers.

I was struck by one of Summer’s responses in the brief interview with him in the NYT Sunday magazine.

You have been cast as the heavy in documentaries like “Inside Job” and on “Frontline” for sowing the seeds of the economic crisis during the Clinton administration. You were against regulating derivatives and in support of repealing the Glass-Steagall Act, which significantly relaxed how banks do business. Did they miss the mark by casting you in this light?
"Oh, these are much more complicated issues than those kinds of movies can suggest. Canada, for example, is generally pointed to as a major regulatory success. But it’s got universal banking that goes considerably beyond the Glass-Steagall reforms that happened in the United States. The major accidents in the United States — Bear Stearns, Lehman, Fannie and Freddie — had nothing to do with Glass-Steagall. Did we 10 years ago foresee everything that happened with respect to derivatives? Absolutely not."
Summer’s is right that these are complicated issues. Unfortunately, he doesn’t understand their complication. The question that is posed, here, is: is there an entanglement between deregulating banks and allowing them to expand their services in all directions so that any crisis they experience will be violently transmitted through the economy and deregulating mortgage markets and derivatives so that they will be free to make riskier investments? And behind this, the larger question: why even have banks if the capital they mobilize is invested, incestuously, in a pyramid of bets about the capital they mobilize? Does this create a perverse incentive to keep the financial services sector from investing in longer range projects – thus creating a huge barrier to long term Research and Development by making it an unattractive investment?
Summers, of course, might have some inkling of these things. But he really can’t connect two things that are modularly separated by his models. Over here we have the separation between investment banks and commercial banks, and over here we have a market in financial instruments that, on the consumer end, deregulates the process of mortgage lending, and, on the other end, creates unregulated opportunities for derivatives of ‘real’ financial instruments to be traded back and forth for profit, but no real social gain. Every economist gets trained, through modeling, to bracket and separate factors that the economist knows, in reality, are interrelated. This is done, firstly, in order to build and make models work. But somewhere along the way, they begin to think that these separations and divisions actually reflect reality. Hence, their policymaking is always done on the principle that the economy is a modular system, without any thought about the fact that it is also a highly interconnected system. Summers simply can’t think through the proposition that he was the architect of a malign coupling – big banks, stinking financial instruments – and thus reverts to the logic of analogy beloved by those pushing bad policy. Analogy pushing has evidently moved on from the glory days, in which our occupation of Iraq was just like occupying Germany after WWII. It is now an excuse for turning a blind eye to the essential and massive dysfunction of financial markets. And this, in turn, manufactures a bigger blind eye, in which our supposedly ‘neo-liberal’ government, virtuously shunning central planning and ‘industrial policy’, actually operates a very intense industrial policy that is centered on promoting financial services. This would be an excellent policy if the U.S. were one of the Channel Islands, but not if we’re not. We are not.