The Dismal Science vs. CommunityBy Mark T. Mitchell for FRONT PORCH REPUBLIC
RINGOES, NJ. In 1944 two very different but related books were published. The first was F.A. Hayek’s The Road to Serfdom. In a world that seemed to be succumbing to the socialist ideal, where planned economies represented a glorious future, where the turmoil of the market would be replaced by the peace of a directed economy, Hayek’s was a lonely voice warning that a command economy would necessarily entail the loss of freedom. With the demise of the Soviet Union and the apparent victory of market capitalism, Hayek’s views appeared to be vindicated. The second book painted a very different picture. In The Great Transformation, Karl Polanyi argued that a self-regulating market was a utopian fantasy. Polanyi, an economic historian, attempted to show that a market economy required a market society where all things were reducible to market terms. With this homogenization of reality, the very things that once provided a cushion against market forces were absorbed into the market. Where Hayek worried that socialism would jeopardize freedom, Polanyi worried that market forces themselves would erode the social and cultural contexts that made freedom possible.
The current economic trials besetting the global economy provide a good opportunity to consider some of the basic questions raised by Hayek and Polanyi. There are, of course, those who argue that our troubles are the result of government meddling in the market and recovery will best be achieved if the government stays its hand and allows the forces of the market to correct the effects of governmental mischief. On the other hand, there are those (and these seem to be in the majority) who argue that unregulated market forces led to the abuses that have made necessary increased regulatory oversight as well as significant federal intervention into financial markets and certain business sectors. So sixty years later, we find ourselves facing the same questions Hayek and Polanyi grappled with in 1944: are unfettered markets good or are they harmful?
In his recent book, The Dismal Science: How Thinking Like an Economist Undermines Community, Harvard economist Stephen A. Marglin enters this discussion, albeit elliptically, by putting to question the nature of his own discipline: could it be that economists, when they are thinking like economists, bring at least as much smoke as light? Could it be that the academic discipline itself, when faithfully practiced, blinds the practitioner to crucial verities and thereby produces what are at best half-truths? Could it be that thinking like an economist actually undermines community? Marglin’s account is not flattering to economics and is sure to ruffle the feathers of plenty of economists. His thesis: “over the past four hundred years, the ideology of economics has fostered both the self-interested individual and the market system, and has undermined, and continues to undermine, the community” (1, italics added).
Economics has, according to Marglin, become an ideology, a self-contained worldview with its own set of values as well as a particular epistemology and ontology. In short, modern economics is not simply a means by which exchanges can be described or even a set of tools that ensure optimal efficiency of market transactions. The ideology of economics is a way of seeing the world. It forces reality into a preconceived structure and subsequently deigns to rule this truncated world with all the authority of science. The modern discipline of economics is, among other things, imperialistic in its aims and destructive in its consequences. This unhealthy development would not have surprised Lord Copleston, Provost of Oxford’s Oriel College, who in the early 19th century balked at the establishment of a chair of political economy precisely because that discipline is “so prone to usurp the rest.”
Marglin shares many of the concerns voiced by Polanyi. “The market bears a large share of the responsibility for eroding…community, for undermining the centrality of community in our lives.” The term “market” of course, can mean a variety of things, and Marglin takes care to define exactly how he intends to use this word.
By ‘market’ I mean something different from the variety of markets that have been with us since time out of mind and exist in virtually all societies….I mean with Karl Polanyi a self-regulating market system, a world in which markets collectively allocate resources, set prices, determine the distribution of income—in short, a system in which markets provide for our needs and wants and from which we derive our sustenance. And something more: a system that not only regulates itself but also regulated ourselves, a process that shapes and forms people whose relationships with one another are circumscribed and reduced by the market (2).
Marglin is not, though, unaware of the many ways that markets make the world better. Markets have fueled innovation in medicine, and people are healthier for it; markets have made possible better production, and distribution of food and hunger has been abated; and labor-saving devices have relieved people from many grueling and dangerous jobs. He does not dispute these good things. He does, though, take issue with those in his field—and if Marglin is correct this is most economists—who applaud the benefits of markets without admitting the dark side of the same dynamic force. There is, it seems, an implicit faith underlying the economist’s creed.
Consider the following example. Lawrence Summers—currently the head of President Obama’s National Economic Council—for a time served as Chief Economist of the World Bank. While in that position he sent an internal memo to a colleague arguing that the World Bank should encourage poor countries to sell space for western pollution. “A given amount of health-impairing pollution should be done in the country with the lowest cost, which will be the country with the lowest wages. I think the economic logic behind dumping a load of toxic waste in the lowest-wage country is impeccable and we should face up to that.” The Economist got hold of the memo and, while acknowledging that the language was “crass,” went on to admit that “on the economics his points are hard to answer” (37). If “economic logic” leads to the obvious conclusion that it is good for developing countries voluntarily to assume the “health-impairing” toxic waste of developed countries, then perhaps there is something wrong with economic logic. Could it be that it is blind to important facets of reality?
Or consider the concept of a free market in labor described in idealized form by Frank Knight:
Every member of the society is to act as an individual only, in entire independence of all other persons. To complete his independence he must be free from social wants, prejudices, preferences, or repulsions, or any values which are not completely manifested in market dealing. Exchange of finished goods is the only form of relation between individuals, or at least there is no other form which influences economic conduct. And in exchanges between individuals, no interest of persons not parties to the exchange are to be concerned, either for good or ill.
While Knight’s description is admittedly idealized, Ludwig von Mises makes the same point which, he argues, holds true in “the real world.” If workers “did not act as trade unionists, but reduced their demands and changed their locations and occupations according to the requirements of the labour market, they could eventually find work.” Indeed, that might be true, but it is the economist’s constricted view of reality that makes it impossible for him to acknowledge that something good might be lost in this world of nomadic wage-seekers. Wendell Berry defines community in a way that clarifies the issue: “By community, I mean the commonwealth and common interests, commonly understood, of people living together in a place and wishing to continue to do so. To put it another way, community is a locally understood interdependence of local people, local culture, local economy, and local nature.” If, as Berry suggests, a healthy community consists of placed people who depend on each other and expect to share a future together, then it is precisely community that falls victim to the economist’s reductionism.
According to Marglin, the ideology of economics posits a truncated philosophical anthropology—the individualistic consumer; it posits an inadequate theory of knowledge—rationalism; and it posits a false conception of community—the nation.
In adopting a particularly extreme form of individualism, in abstracting knowledge from context, in limiting community to the nation, and in positing boundless consumption as the goal of life, economics offers us no way of thinking about the human relationships that are the heart and soul of community other than as instrumental to the individual pursuit of happiness. Economics takes very much to heart the famous dictum of the nineteenth-century physicist Lord Kelvin that we know only what we can measure. Indeed, economics takes the dictum a step further, from epistemology to ontology: what we can’t measure—entities like community—doesn’t exist (9).
Before going further, we should seek out Marglin’s definition of community, for the word has been much used in recent decades, and many shades of meanings have emerged. According to Marglin, “the distinctive feature of community is that it provides a kind of social glue, binding people together in relationships that give form and flavor to life” (20). Communities, unlike associations, are central to who we are, for they “create a common future for their members and remember a common past” (28). Furthermore, community includes the natural world. But seeing the natural world as part of one’s community is polar opposite of seeing nature “as an input into a calculus of the self-interested individual’s utility.” Giving voice to a conception of the natural world that is more akin to Wendell Berry than Milton Friedman, Marglin continues: “A community extending to animals and plants, fields and rocks, rivers and mountains, a community extending backward in time to the ancestors and forward to generations yet unborn, will find the language of trade-offs and opportunity costs as alien as the calculating self-interested individual will find the idea of responsibility and ethical obligation” (50). In this context, the “economic logic” of selling the right to pollute one’s own community is unthinkable.
It is thinkable, though, when we conceive of the maximizing individual as the only legitimate player, or when we conceive of the nation as the only community that matters. If individuals are the primary unit of analysis, and if individuals are concerned only with maximizing their own interests, then surly a business owner could see the economic logic of acquiring toxic waste for a profit (so long as it is not stored in his backyard). At the same time, the nation can agree to sell pollution rights because the nation per se will profit. Perhaps, though, there are goods that cannot be calculated in economic terms. Perhaps there are future consequences that, while they can be intuited, cannot be clearly factored into a rational calculus.This problem of knowledge is at the heart of Marglin’s book. According to Marglin, modern economics is modern precisely because it partakes of the basic assumptions of the modern project. Central to this project is what Marglin terms “the homogenization of knowledge.” This is not an unfamiliar story. With the various changes that occurred in early modern Europe, including the Cartesian revolution and the new science espoused by the likes of Francis Bacon, a prejudice was formed in favor of knowledge that was completely explicit, rational, and verifiable. Marglin calls this “algorithmic knowledge.” Algorithmic knowledge prides itself on being rational and moving in clear steps from premises to conclusion. It is analytic in that it seeks to break a problem down into its constitutive parts and grasp those parts clearly and distinctly (to borrow the terminology of Descartes). Subject matter that does not yield to this particular methodology stands outside the purview of knowledge and, for all intents and purposes, outside the realm of reality. The so-called fact-value distinction comes into play in this context, for facts are those things that can be grasped by algorithmic knowledge while values are merely subjective preferences. The value of community, then, drops off the radar of the economist who, due to his philosophical commitments, finds himself capable of speaking only in terms of efficiency, for efficiency can, in fact, be measured and what can be measured and analyzed is what is real.
When efficiency is elevated to the status of the one universal economic value, conclusions emerge that seem strange to anyone who has not learned to think like an economist. Mandeville’s famously industrious bees seemed to prove that private vice could actually lead to public benefit. This sentiment is a far cry from the ideas of personal responsibility, self-control, and stewardship, virtues necessary for sustaining a healthy community.
The titan of twentieth-century economics, John Maynard Keynes, in a 1930 essay titled “Economic Possibilities for our Grandchildren” argued that under the steady hand of economic progress the problem of scarcity might one day be solved. Until that auspicious day, though, we must continue to pursue economic growth. And to accomplish this, “we must pretend…that fair is foul and foul is fair; for foul is useful and fair is not” (205). Eventually, Keynes admitted, we may one day be able to order our lives according to “the most sure and certain principles of religion and traditional virtue” but that time is still far off (204). We must act in ways that most efficiently promote economic growth, and that means we must organize our lives according to self-interest and greed. According to Keynes, then, instead of sacrificing our material good for our posterity, we must sacrifice our souls in the dim hope that our grandchildren will have the luxury of being virtuous. Clearly something has run amiss.
According to Marglin, these are precisely the kinds of problems we should expect to encounter when we fail to admit forms of knowledge other than algorithmic knowledge. For Marglin, the legitimacy of what he terms “experiential knowledge” is denied by the modern economist. Experiential knowledge is knowledge based on intuition, authority, tradition, and the like. Notions such as these will not impress the modern rationalist who rejects appeals to authority and demands that all knowledge be explicitly accounted for. Yet, “in a world of uncertainty, in our world, we rely on convention, authority, and intuition—on our own, but even more so, on the community’s experience. When economics erases community, it at the same time erases, or at least marginalizes, an important source of the knowledge that individuals need to navigate an uncertain world” (116). In short, Marglin argues that community is an important source of experiential knowledge, but the modern economist denies the validity of experiential knowledge in favor of algorithmic knowledge. Thus, the community becomes invisible to the economist as a source of knowledge. The rational, calculating, maximizing individual becomes the prime unit of analysis precisely because such a creature (not a human being) can be grasped in purely algorithmic terms. In the process, virtues more robust than minimal demands to tell the truth and honor contracts grow dim. Efficiency is the handmaid of growth, and economic growth is the unquestioned good to which economics bows. Thus value of community is lost in the rush to promote growth. But, in the words of the economist E.F. Schumacher, “the idea that there could be pathological growth, unhealthy growth, disruptive or destructive growth, is to [the modern economist] a perverse idea which must not be allowed to surface.” Such questions can only be answered by considering non-algorithmic knowledge. We must, as Schumacher puts it, learn to think in terms of quality and not merely in terms of quantity.
To the extent that Marglin shows how thinking like an economist is harmful to community, this is an important book. At the same time, his epistemological analysis is not original. Those who have read Röpke, Oakeshott, or Schumacher will find this somewhat familiar territory. But perhaps his accusation of epistemological reductionism will be news to Marglin’s fellow economists. And herein lies the book’s best feature: it is a serious critique of the fundamental assumptions of modern economics written by a member of the guild. It is an insider’s look at a science that has overextended itself and in so doing has separated itself from the complex world of human beings. Schumacher, expressed some of the same criticisms of his own discipline: “Every science is beneficial within its proper limits, but becomes evil and destructive as soon as it transgresses them.” Marglin’s is a call for limits. It is a call for the reformation of economics. He is challenging his fellow economists to engage in the painful task of self-reflection and to consider how something as powerful and useful as economics has become a harmful, as well as a dismal, science. May his voice be heard.
A version of this article was previously published at www.firstprinciplesjournal.org