Economists are Hobbesians

by Henry on September 12, 2012

Brad DeLong has a post defending his claim that the actually existing microfoundations of economics are based around Lockean theories of exchange. A detailed point-by-point response below the fold [also: Cosma Shalizi ].

[BdL] First, your standard economist is not “Hobbesian”—does not enter a butcher’s shop only armed cap-a-pie and only with guards, fearing, as a Hobbesian would, that the butcher will not sell him meat for money but rather knock him unconscious, take his money, slaughter him, smoke him, and sell him as long pig. A Hobbesian does not buy and sell goods and services in mutually-beneficial Pareto-improving exchange relationships. A Hobbesian finds the biggest bad-ass in the neighborhood, and swears liege homage to that bad-ass in return for that bad-ass’s promising not to kill him. Your standard economist is, rather, a “Lockeian”—presumes that there is an underlying order of property and ownership that is largely self-enforcing, that requires only a “night watchman” to keep it stable and secure.

This really doesn’t get Hobbes right. A Hobbesian does in fact engage in the buying and selling of goods and services in mutually-beneficial Pareto-improving exchange relationships, so long as there is a sovereign power, who may free him from the “perpetual war of every man against his neighbour.”

The Liberty of a Subject, lyeth therefore only in those things, which in regulating their actions, the Soveraign hath praetermitted; such as is the Liberty to buy, and sell, and otherwise contract with one another; to choose their own aboad, their own diet, their own trade of life, and institute their children as they themselves think fit; & the like.

Brad is unhelpfully exaggerating the difference between Hobbes and Locke. The difference between them does not concern how men (they didn’t either of them consider the womenfolk so much) will transact with each other in a well ordered society – it is the underlying principles that guarantee that order. And there is an implicit assumption in Brad’s example that all this is happening in a well-ordered society, rather than a war of Alle against Alle. Brad’s appeal to the actual behavior of an imaginary economist would be rather less compelling if that economist were located e.g in. Chechnya at the height of the civil war.

[BdL] Now it is true that your standard economist is a largely-unreflective Lockeian: does not inquire why one trades rather than takes, affects the tough-guy pose that it is only the repeated-game nature of economic interactions that keep us from always winding up in the bad cell of the prisoner’s dilemma, and adopts the reductio that humans are narrowly self-interested only in material acquisition (in order to strengthen the case that the social apparatus of voluntary market exchange produces good outcomes—to make the point that even private vices produce public benefits if they are constrained by the market). But that the standard economist is a largely-unreflective Lockeian does not mean that they are a Hobbesian.

There is a disjuncture here, but it cuts in the opposite direction. The assumption of narrow self-interest is not just a rhetorical pose. It is quite basic to the ways that microeconomists model the world. It may well be that microeconomics (outside the core that is taught in Ph.D. textbooks) is relaxing the assumption of rationality in some interesting ways, but actual other-regarding preferences are (as best as I can see from my reading of the field) still at best regarded as a curiosity associated with those odd economists such as Amartya Sen, who have regrettably come to think of themselves as mere philosophers of the unworldly variety. As Cosma noted back at the time, Brad is effectively suggesting that John von Neumann’s understanding of the implications of preference functions rests on a howler. I’d not be wanting to make this claim about John von Neumann, even Dead John von Neumann, myself, without very carefully covering my arse beforehand.

This does, indeed, sit badly, with the blithe assumption of many economists that we can ignore politics and distributional questions when thinking about the world. But it cuts in a different way than Brad suggests. It suggests that the basic micro-assumptions of economists are incompatible with their Pollyannaism about how actual economic institutions come into being and work. Jack Knight puts this well in his essay “Models, Interpretations and Theories: Constructing Explanations of Institutional Emergence and Change” in (Knight and Sened, Explaining Social Institutions ).

[The assumption that actors prefer social institutions that best serve their individual interests] [c]learly … is a restrictive assumption about the possible preferences that social actors might have in the process of developing social institutions. Other motivations (such as concerns for collective welfare, justice, equality, or fairness) might enter into the decision to construct institutions. The point here is merely that the restrictive assumption of self-interest is fundamental to all of the existing explanations of the decentralized emergence of such institutions. If a proponent of one of these approaches wanted to invoke a mechanism of selection that was grounded in one of these other motivations, she would have to rethink the initial assumption upon which her analysis was based (p.119).

What Jack is doing here as I read him (and I’ve had conversations with him on just this point) is suggesting that economistically inclined people who want to explain institutions face a dilemma. On the one hand, they can stick with their rather Pollyanna-ish account of the awesome ways that institutions come into being to enhance efficiency, are morally justifiable etc. But this means that they face into the daunting theoretical challenge of explaining how entirely selfish actors consistently build fairness and efficiency enhancing institutions under circumstances that do not obviously resemble perfectly competitive markets. Or, alternatively, they can dump the microfoundations in favor of some more congenial account of why human beings are inclined to behave cooperatively. But this means that they also have to dump many of the intellectually appealing results that they have derived on the basis of these microfoundations.

Brad, in fairness, is biting the bullet, and explicitly trying to resolve the inconsistency.

Second, I do agree that I do—and other economic historians do, and Bowles and Gintis do, and McCloskey and Blaug do, and a bunch of the rest of us do—something somewhat different than what your standard economist does. But I view what I do as making the preconscious or the unconscious in “standard economics” conscious. And I would appeal not to the formal theory of the graduate textbooks, but to the actual practice of the economists I know as the test of what “standard economics” is.

He would like economists to replace their microfoundations, which stress narrow self-interest, with something more compatible with their Lockean druthers. As an aside, if he acknowledges that this is what he is doing, and that he does not think about these things the way that a standard economist does, he unambiguously owes Chris Bertram a quite comprehensive apology. Accusing someone of making an ‘elementary mistake’ for understanding the microfoundations of economics in the same way that you agree standard economists do isn’t particularly kosher, and can only be defended through very bad ‘no true Scottish Enlightenment economist’ arguments. But be that as it may – there are two problems here that Brad is not facing into.

First – that his proposed account is not particularly realistic. If we think we can trace back the institutions of economic order to the basic propensity of human beings to engage in peaceful and mutually beneficial exchange, then we are going to systematically ignore the propensity of actually-existing human beings to use every tool at their disposal in battles between unequal forces to bend institutions in ways that benefit them at the expense of others. On a couple of recent occasions, which I don’t have time to search out (feel free to link in comments), Brad has suggested that he was naive to think that Democratic and Republican technocrats had come to a rough agreement on how a well functioning economy could generate prosperity for all. It might be useful for him to consider whether the Pollyannaism-all-the-way-down account of economic and social life that he is proposing as a general framework is less, or more, likely to contribute to this kind of illusion in future. If neo-liberalism is based on a bad or non-existent theory of politics, as I’ve suggested that it is, flawed thinking about the self-sustaining nature of a self-enforcing system of fair and free exchange, thanks to its obvious benefits likely has quite a lot to do with this.

Second, it’s not consistent with Brad’s own arguments elsewhere. In a different mood, he has been inclined to argue that leftists should learn economics, exactly because of its asperity. Yet it’s just this asperity that he here proposes jettisoning. Which brings us to the rather puzzling suggestion that:

it seems to me that your standard political scientist’s conception of the standard economist as “Hobbesian” is an exercise not in interpretive understanding but rather in disciplinary line-drawing—and, perhaps, attempted disciplinary imperialism: if the core of economics can be defined to be as small as possible, that leaves more space for political scientists to play. Remember: there are real Hobbesians about. They are the international-relations realists in political science departments—not the economists in economics departments.

This makes me wonder – has Brad actually read much political science that has been published in the last thirty years? It would surely be an exaggeration to say that the Hobbesian realism that Brad so deplores in international relations is drawn directly from economics, but not a very big one. When political scientists think about the Hobbesian implications of models of what self-interested rational actors can do in unconstrained environments, they are typically not doing so in order to deplore economics. They are doing so in order to steal from it. For better or worse, the influence of economic notions of narrow rationality on political science (and not just international relations) has been profound.

And while there is a better, and there is a worse, it is arguably the underlying Hobbesianism of rational actor models, rather than the diffuse proto-Lockean waft that sometimes goes along with it, that has been most useful (here, I obviously disagree with Chris). Notions of human beings as fundamentally self-interested surely understate the likelihood of cooperation. But notions of human beings as fundamentally sociable very often overstate it, in systematically unhelpful ways (here, I think that the kinds of limited sociality described by e.g. Bowles and Gintis are much more useful than the hazy contractarian fug of e.g. much of the new institutional economics). They fail to explain the very crucial ways in which politics and institutions are shaped by struggles between self interested actors, often with very unequal resources, over who gets what. This means that they provide a bad account of international politics, where self-interest plays a very important role. They also – more to the point – provide a bad account of the domestic economic politics of the United States over the last twenty years, and a bad account that has had demonstrably malign consequences, to the extent that it has been believed. If Brad wants (as I believe he does) to think seriously about where he went wrong in his political beliefs, it might be useful to re-examine these more fundamental precepts, and the precise circumstances under which an order of mutually beneficial exchanges is, and is not sustainable. I suspect that the best way of thinking about these circumstances is rather more Hobbesian (as moderated through some Galbraithian notion of countervailing power) than Brad has acknowledged in this post.

{ 74 comments }

1

MQ 09.12.12 at 10:05 pm

I’ll admit up front to not being as familiar with Hobbes as I should be. But economists strike me as extremely and problematically non-Hobbesian in the following sense — there are enormously naive about the problems of maintaining orderly, rule-governed exchange in the face of self-interest. They are too sanguine about the ability to enforce contracts and when discussing contract failure are overly attached to mechanisms like reputation in repeated interaction. They underrate the role not just of violence, but of cheating, fraud, theft, manipulation of the system for short-term looting.

To make it concrete, I can’t imagine Hobbes would have been at all surprised by what happened under Yeltsin’s privatization programs in 1990s Russia. But a whole bunch of Harvard economists seem to have been astonished. A whole lot of people died because of that naivete.

2

Matt 09.12.12 at 10:24 pm

Poor Hobbes and Locke, reduced to caricatures here. I know it’s not really the point, but it’s still a bit annoying. Both had ideas that are much more interesting that this discussion (by all parties) suggest.

3

Paul 09.12.12 at 10:38 pm

But this means that they face into the daunting theoretical challenge of explaining how entirely selfish actors consistently build fairness and efficiency enhancing institutions under circumstances that do not obviously resemble perfectly competitive markets.

My read is that economists are actually mostly are taking this option. Much of evolutionary game theory, I think, is trying to do exactly this–figuring out the contexts in which rational agents do cooperate. For example, Martin Nowak’s article:
http://www.ped.fas.harvard.edu/people/faculty/publications_nowak/NowakJTB2012.pdf
defines a host of mechanisms through which cooperation can arise in fairly minimal situations. I think most economists would point to that and say that their theory allows for instituions as well, no? So can’t you have selfish microfoundations paired with mass cooperation under some circumstances?
Second, I think you may underestimate the degree to which economists now are trying to understand and model social preferences. There have been all these experimental results since the ultimatum game that have convinced economists that social preferences do in fact exist and are worth of being modeled (Ernest Fehr, Nobel prize shortlist guy, and Matthew Rabin, supergenius come to mind). I think a lot of economists are trying to take these critiques and findings seriously and augment their theories while keeping the asperity at a maximum. I do believe over time there will be some amount of convergence. Also, this is stuff that was taught to me in graduate school at Carnegie Mellon–not exactly a bastion of heterodoxy.

4

Paul 09.12.12 at 10:45 pm

Granted, I was a not a PhD student in Econ, but Behavioral Decision Research, which was more interdisciplinary. Nonetheless, it was taught by a number of economists. I also conversed with and saw talks by economists from a wide variety of more traditional programs–many of whom were working on more behaviorally informed ideas. (Like Raj Chetty or David Labison’s work for example takes behavioral findings pretty seriously–and they are at the most traditional place you can imagine!) So I really do think that times have been changing.

5

shah8 09.12.12 at 11:05 pm

Well, Matt, it’s not their duty to be anything but caricatures. Go check out Steve R. Waldman’s take on rational astrologies and apply that thinking to what Delong is doing here. The caricature, as a representative of the hoary established and creditable thought, is what matters. This rational astrology matters because it helps perpetuate a certain political economy. That’s why economists, as a whole, do not read and apply any political economy from the last 30 years, instead, preferring something a little crustier than David Hume.

/me shrugs

Whatcha going to do? It’s not like you have any of the microphones in terms of TED talks and articles in the “serious” magazines. By the by, on the question of quietly educating herself on no-cynic serious economics and political economics, I think it would be harmonious to read Ostrom in preference to Bowles or Gintis. Or any of those late 19th/early 20th century political economists. There are great people in the last 30 years, too, like Ostrom–but like Ostrom, buried under the names of the “acceptable Left”.

6

Earwig 09.12.12 at 11:06 pm

“seem to have been astonished”

Seeming, perhaps.

Or, perhaps, more that the “whole lot of people died” part of “what happened” is focusing on matters of literally no interest to those who championed the privatization programs…

7

Patrick S. O'Donnell 09.12.12 at 11:41 pm

While perhaps not directly germane to the present discussion, we would do well to question some of the basic premises the “Hobbesianism of rational actor models,” that owes much to folks like Gregory Kavka, David Gauthier, and Jean Hampton. Too many of us come to Hobbes through Kavka et al and this probably does a deep injustice to much of Hobbes’s moral and political theory, as evidenced in two very important books by S.A. Lloyd: Ideals as Interests in Hobbes’s Leviathan: The Power of Mind over Matter (1992), and Morality in the Philosophy of Thomas Hobbes: Cases in the Law of Nature (2009). In addition, one should look at the late Perez Zagorin’s Hobbes and the Law of Nature (2009), and some of the recent work from Evan Fox-Decent, which also provides us with a rather non-standard portrait of Hobbesian political philosophy.

8

Patrick S. O'Donnell 09.13.12 at 12:32 am

I just noticed that I was, it seems and in the main, reiterating Matt’s point above, albeit only with regard to Hobbes.

9

gordon 09.13.12 at 1:06 am

It’s sort of interesting that the Wikipedia article on Rational Economic Man makes no mention of either Hobbes or Locke, instead attributing the concept to J.S.Mill. Strikes me as a pretty good article:
http://en.wikipedia.org/wiki/Rational_economic_man

For my money, instead of trying to lumber either Hobbes or Locke with the responsibility for that elegant structure of classical utility maximisation and optimality, (which neither of them ever saw or thought about) it would be more interesting to ask why we teach such different economics to beginners and specialists. How many people have come out of University with only the classical graphs in their heads (after doing maybe one semester of introductory economics), compared to those few who have specialised and know about the critiques of rational economic man and about alternative ways of deriving economic behaviour? Hey, let’s include those who did an economics unit in high school too. Why do we have such a schizophrenic discipline? Gee, it couldn’t be political, could it?

10

david 09.13.12 at 1:34 am

Paul:

“There have been all these experimental results since the ultimatum game that have convinced economists that social preferences do in fact exist and are worth of being modeled”

This reads something like what people will say when deniers finally admit what’s happening with the climate. It took “experimental results” (and yes I know the experiments) to be convinced? A pat on the head seems like the right response.

11

Bruce Wilder 09.13.12 at 2:01 am

I sometimes wonder if the participants in these little fights think they are taking place in front of an audience of Sunday School teachers, who are going to be especially impressed by conflicting claims concerning human nature, which center on whether the other side is positing a greater and more despicable selfishness than their own side, and contrasting rebuttals, concerning which is the greater and more naive Pollyanna or whether political scientists are the real purveyors of selfishness in its nastiest forms.

MQ @ 1 nails it, and “it” isn’t selfishness, per se. Economists are, indeed, “naive” and “overly sanguine”, but it isn’t the assumption of a selfish nature that gets them into this trouble. It is the assuming away the problem. Characteristically forgetting that Hobbes had a sovereign. Being “largely-unreflective”, not Lockeian. Taking “perfect competition” as an ideal, when “perfect competition” is defined as the assumption of no strategic behavior or awareness.

Brad DeLong gives away the game when he defends the assumption of selfishness as a reductio with this parathetical: “(in order to strengthen the case that the social apparatus of voluntary market exchange produces good outcomes—to make the point that even private vices produce public benefits if they are constrained by the market)” Excuse me. “by”!?? Shouldn’t Brad have written “to”? As in “constrained to the market” (presumably “by” some force or institution). Brad’s formulation is practically immaculate conception leading to virgin birth, and all held on faith alone.

Economists love the idea of the market as emergent and self-enforcing mechanism, and many economists especially a love a rich and greedy — but not too greedy to endow a university chair — man. So, yes, there’s a rhetorical trail, from the canonical tally of “market failures” to public choice, in which the imagined “1st best” virgin land of the market, emergent from sea of chaos, starts out relatively efficient, and is only soiled with suboptimality and inefficiency and economic rents, by the messiness of state intervention, which leaves us in the misery of a 2nd best world of damnable socialism. (Oh yeah, and raising the minimum wage by half a buck is going to be hell on minimum wage workers.)

I don’t know what selection mechanisms, if any, may act sort out the evolution of political and economic institutions, but I know there are selection mechanisms that keep alive some really bad ideas and faulty thinking in economics.

12

Henry 09.13.12 at 2:20 am

Patrick – fair enough – for ‘Lockean’ and ‘Hobbesian,’ read ‘convinced that a society based on mutually contracting among individuals will be attractive and self-sustaining because of the sociable willingness of individuals to engage in mutually beneficial exchange,’ and ‘convinced that individuals’ selfishness will lead them to behave in a variety of pathological ways in the absence of coercion’ respectively. I think that the ‘Lockean’ formulation here is better captured under Albert Hirschman’s heading of ‘doux-commerce.’

13

Harold 09.13.12 at 2:25 am

Don’t anthropologists connect altruistic religions (or, if you will, friendly to strangers religions) like Buddhism and Christianity to the rise of trade? I seem to have heard that somewhere — though of course there was trade in the Bronze Age also.

14

Paul 09.13.12 at 2:27 am

david–
I’m not denying that it’s a bit boneheaded of them to not acknowledge alternative sources of evidence before (I didn’t do an Econ PhD for a reason). I’m just saying that there is more nuance in current economic discourse than the above would indicate. Also defenders of the economic orthodoxy would argue that their boneheadedness stems from the fact that the rational choice apparatus is mathematically very tractable and has all sorts of useful applications–hard to convince a bunch of math geeks to give up on the formalism that allows them to apply their trade (what was that Mencken quote about people’s salaries?). Of course I think one might make a fairly reasonable counter-argument about the performativity of markets and that the microeconomic apparatus is much less useful than is given credit for. I think a super staunch proponent of the orthodoxy would point to market design (like matching market for doctors) as evidence of the utility of microtheory in designing real world institutions. Weird to be in a position of economists as I’m generally annoyed by the very things I’m pointing to–but just trying to make the best version of their argument until they show up to do so themselves…

15

Henry 09.13.12 at 2:34 am

Paul – fair enough on the Fehr-Gachter stuff, which I surely should have mentioned, but I think it’s more acknowledged than incorporated, if that distinction makes sense.

16

js. 09.13.12 at 2:37 am

A Hobbesian finds the biggest bad-ass in the neighborhood, and swears liege homage to that bad-ass in return for that bad-ass’s promising not to kill him.

This is flat-out embarrassing. Not only does the Hobbesian, as Henry points out, engage in Pareto-improving exchange relationships given a sovereign, the Hobbesian rationally chooses to empower—more precisely, authorize—a sovereign so that he can engage in such relationships. (Now, if I really wanted to get on my hobby-horse, I would point out that a Hobbesian, or a sufficient number of Hobbesian, could if they so decided choose to authorize a democratic sovereign, which if you were to think about it, might end up looking a lot like a Rousseauian sovereign…. But that might just be derailing the thread.)

17

shah8 09.13.12 at 3:08 am

Which brings us to the question:

Can a thread truly be derailed, as per the meaning of derailed, in a sense distinct from the personalities participating in said thread?

18

LFC 09.13.12 at 3:09 am

I was going to make this point at BdL’s but didn’t, so I’ll make it here instead: there are not, I think, that many ‘Hobbesian’ IR realists in US pol sci depts — there’s Mearsheimer (in his theoretical guise) and a few others and that’s I think about it.
So while you’re of course right about the influence of economics on political science, the people you link to (Schelling, Slantchev, Morrow, even Waltz though he’s the most debatable) don’t, IMO, support your statement that “It would surely be an exaggeration to say that the Hobbesian realism that Brad so deplores in international relations is drawn directly from economics, but not a very big one.”

With the (possible) exception of Waltz (whose major work was published more than 30 years ago), the IR ‘realism’ which derives from economics is not all that Hobbesian: Schelling and Slantchev and Morrow (though I’m not v. familiar with the work of the latter two) are basically doing sophisticated versions of game theory, and think that under certain conditions ‘cooperation under anarchy’ is possible.

By contrast, those relatively few true ‘Hobbesian’ realists who are alive and writing, like Mearsheimer in Tragedy of Great Power Politics, don’t owe much to economics or game theory. They believe in a few simple (and simplistic) propositions (not game-theoretical ones for the most part) and derive everything from them. Mearsheimer wrote, as late as 2000, that the seizure and conquest of land is the supreme objective in a world of territorial states [!!]. I don’t think Slantchev et al would say that, they’re just not interested in those kinds of (archaic) pronouncements. When I brought up Mearsheimer recently at Phil Arena’s blog, he basically dismissed M. as not that influential, not cited much in the ‘top journals’ etc. The mathematical, statistical and other sorts of modelers are v. influenced by economics, to be sure, but they just aren’t all that committed to a starkly ‘conflictual’ view of the world. Or such is my impression. [But I will yield, of course, to people more familiar w/ the technical modeling lit. than I am (I can't even read most of it).]

19

Paul 09.13.12 at 3:10 am

Henry–
Yeah, maybe so. I’ve definitely seen cases where behavioral evidence is acknowledged, then promptly ignored. It certainly hasn’t quite penetrated down to the level of undergrad textbooks yet (I think Robert Frank’s is one notable exception) but I really do think that is changing. To give another example, all this new developmental economics being practiced in the field (Duflo is another econ darling at the moment) is based on modifying the rational choice models in light of specific contextual behavioral data. Economics is totally coming around on this point. I mean, even Gary Becker is studying happiness! (in a really weird rational choice framework, but still)

I guess my deeper worry is a mirror of your “no true scotsman” argument–how many “real” economists taking these ideas seriously do you need?

20

Matt 09.13.12 at 4:09 am

“…it would be more interesting to ask why we teach such different economics to beginners and specialists. How many people have come out of University with only the classical graphs in their heads (after doing maybe one semester of introductory economics), compared to those few who have specialised and know about the critiques of rational economic man and about alternative ways of deriving economic behaviour? Hey, let’s include those who did an economics unit in high school too. Why do we have such a schizophrenic discipline? Gee, it couldn’t be political, could it”

The obvious, but useless answer here seems to me to be the same reason that a first-year Chemistry lecturer (or high school teacher) might teach her students things that were ‘not strictly true’, or rather ‘useful but entirely false, according to the best current understanding of things': the actual and most up-to-date distinctions rest on a complicated logic that may not even be clear if you don’t understand the wrong-but-useful theoretic that preceded it. For example, much of this argument about Lockean/Hobbesian/other basis of economics only really makes sense if A) you know who these figures are and the distinction their names are standing in for B) you know what’s at stake. The comments about “Well, actually, there are much more nuanced readings of Hobbes etc.” only really reinforce this point.

Of course, the counterargument is that “no one ever made a political decision because their understanding of ionic bonding was basically incorrect”. This seems to make the problem more… complicated, though.

21

Henry 09.13.12 at 4:34 am

LFC – depends on what you mean by Hobbesian. If you mean, as BdL means I think, ‘entirely selfish rational actors, who only respond to rules when it is in their direct self interest to do so, then they’re ubiquitous in the literature. Brad’s bit about “the tough-guy pose that it is only the repeated-game nature of economic interactions that keep us from always winding up in the bad cell of the prisoner’s dilemma” does not describe Mearsheimer (who doesn’t buy into game theory), but it does describe the mainstream position on e.g. international cooperation held by people who are manifestly not structural realists. From this perspective (and again, apologies to the political theorists), these are all shadings of Hobbesians, with people like Mearsheimer taking an especially dour perspective. And Mearsheimer’s ‘tragedy of great power politics’ is a spin on Waltz, which is in turn a spin on a particular take on the lessons of microeconomic theory.

22

Henry 09.13.12 at 4:37 am

Or short version – under BdL’s definition of Hobbesianism, ‘cooperation under anarchy’ is clearly possible for Hobbesians – but only when it stems from indefinitely iterated games and the like rather than any innately sociable propensity to engage in fruitful exchange.

23

gordon 09.13.12 at 4:38 am

Matt (at 20) – But lots of people, I think, are getting away with fraudulent political statements because so many people have only a basic (and wrong) understanding of economics.

24

shah8 09.13.12 at 4:55 am

You know what, I fail to see why Hobbes has much to do with any of this, other than the pleasing Tory notes. Again, why are we talking about 17th century philosophers? Aren’t we only talking about 17th century philosophers because the crudeness of the framework serves to frame the conversation in a way friendly to one party? I mean seriously, isn’t this thread like a bunch of family practice doctors talking about surgery from a fundamental Galen perspective? Or slightly less ludicrously, a Copernician focus on astronomy at an astrology seminar? Come on, where can this conversation actually go, guys?

25

shah8 09.13.12 at 5:31 am

Wait, you know what, again? I’m sleepy drunk, and Henry’s comment 21-22 threw me for a loop. I went back and followed the Shazli link at top, and I don’t feel quite as clueless about the real nature of this conversation.

26

Chris Bertram 09.13.12 at 5:37 am

Anyone minded to follow this back to my original post:

http://crookedtimber.org/2010/09/08/getting-the-microfoundations-right-some-comments-and-a-bleg/

will see that my suggestion there (made in an entirely non-aggressive and unpolemical manner) was that we should stop relying on 17th century philosophers for our account of motivation and pay more attention to empirical psychologists such as Michael Tomasello instead. (I also nod towards Gintis’s project of unifying economics, sociology and psychology.) I didn’t even single out economics, referring to “the foundations of microeconomics, rational choice theory and, indeed, in much contemporary and historical political philosophy.”

27

John Quiggin 09.13.12 at 6:08 am

An orthogonal point to all this: In general people who like rational actor theories at one level say (ev psych) tend to like them at all levels (Econ 101, IR etc). But this makes no sense. Hardnosed pursuit of self-interest at one level implies perfect effective altruism at lower levels and anarchy at higher levels.
http://crookedtimber.org/2004/04/04/selfish-genes-selfish-individuals-or-selfish-nations/

Hobbes solves the problem by supposing total submission of individual self-interest to the Leviathan of the state, so that each collective Leviathan can engage in a war of all against all at the international level. But this supposes that, once and for all, “men do perform their contracts given”. Rational individuals would switch sides whenever it was advantageous to do so, and that would make the idea of the nation-state as a unitary actor untenable.

28

Patrick S. O'Donnell 09.13.12 at 6:10 am

Chris,

The references to Sharon Lloyd’s books above were intended to provide a source of at least one compelling argument as to why the putative “Hobbesian picture of human nature that lurks at the foundations of microeconomics, rational choice theory and, indeed, in much contemporary and historical political philosophy” (what she terms the ‘standard philosphical interpretation’), is not one accurately or fairly attributed to Hobbes at all (e.g., Hobbes was NOT a ‘psychological egoist’). While I did not go into detail about Hobbes’s conception of human nature, I introduced Lloyd’s first book in three posts, here: http://ratiojuris.blogspot.com/2010/01/moral-political-philosophy-of-thomas.html
here: http://ratiojuris.blogspot.com/2010/01/moral-political-philosophy-of-thomas_28.html
and here: http://ratiojuris.blogspot.com/2010/01/moral-political-philosophy-of-thomas_29.html

I should be reviewing here second book at Concurring Opinions soon but one should certainly read the second chapter: “Moral Judges: Human Nature and Motivation,” 56-94.

29

Patrick S. O'Donnell 09.13.12 at 6:24 am

For John Quiggin:

I would recommend Larry May’s discussion of Hobbes and international law in his book, Crimes Against Humanity: A Normative Account (2005), one conclusion of which states that a “Hobbesian position on international law would support a systematic set of laws of nature that can be derived from the two-pronged principle: Seek peace where you can, and otherwise be ready to resort to war.” May, along with others of late, notes that Hobbes blurs the distinction between postivist and natural law theories. And while the laws of nature bind only in conscience (in foro interno), “they do still bind, and can form the basis for a restraint of violence, even in the international arena.”

30

gordon 09.13.12 at 7:23 am

Shah8 (at 25) points us back to the Shalizi link in the post. That’s a notice of an interesting-sounding paper called “Equilibrium in the Jungle”. It’s no doubt fun to make a model like that one, but it appears to be another model of self-interested individual behaviour. I wonder why there are so many such models when we know that humans live in groups with group rules governing behaviour and so far as we know have always lived in such groups.

Could it be in order to defend classical economics? If you like the efficiency and optimality of the classical equilibrium outcome, you might want to persuade people to abandon their immemorial group affiliations and act like individuals. But then, of course, the whole classical economic project becomes normative, not explanatory. That has, I need hardly say, strong political implications, implications which are much facilitated by the way economics is currently taught at the introductory level.

In the post, Henry refers to “limited sociality” as inviting some kind of individual self-seeking back into explanation of the world. Maybe that could be a defense of the classical project. But it wouldn’t help in defending the classical project against its own internal problems. Keynesians, for example, point to the failure of Say’s Law, and other problems more familiar to specialists also exist – there is something about a requirement for futures markets in everything over an infinite time horizon, I believe. But few people other than professional economists (and not all of them) know about these internal problems, so “limited sociality” could easily, in non-specialist discourse, become a way of defending classical economics as a real explanatory theory.

One way or another, as either normative or explanatory theory, our very poor teaching of economics at the lower levels has large political implications. I sort of doubt that this is accidental.

31

Phil 09.13.12 at 7:48 am

As js. says, deLong’s Hobbes is embarrassingly strawman-ish – all you need to keep in mind is that Hobbes, no less than Smith (although in a different style!), was writing about how contemporary societies came about, and he certainly didn’t carry a big stick every time he went to the butcher’s. (Although he did lock his doors when he went out – as do you, gentle reader (see Leviathan, ch. 13).)

Which isn’t a trivial point – it gets, I think, to the real indispensability of Hobbes. (I’ve found that Leviathan is like a moving mountain from an Arabian Nights story – every time I think I’ve got way beyond it, I look up and there it is again.) Order certainly exists – self-interested agents do freely contract with one another producing end-states that leave them all better off – but it’s an order that rests on law (property law not least). And the law rests on sovereign power.

32

Phil 09.13.12 at 7:55 am

gordon – I think the point of the “Jungle” paper is precisely to criticise economic models based on self-interested individual behaviour, by demonstrating that a really horrible system can nevertheless produce a canonically ‘good’ outcome.

May, along with others of late, notes that Hobbes blurs the distinction between postivist and natural law theories.

Hmm. Hobbes was the original positivist, surely – there is no law prior to the institution of the sovereign, only the ius naturale of the state of nature (which is ‘law’ as in ‘law of the jungle’) – and once there is a sovereign the law is whatever he says it is, subject only to the original covenant to maintain social peace. Or is that (the covenant) where natural law gets in?

33

Michael Harris 09.13.12 at 8:15 am

34

Alex 09.13.12 at 9:18 am

Quiggs’s point at 27 is really excellent. Levels of analysis are such a powerful concept, but one that gets no respect intellectually. Further, as glosses of Dawkins go, it is actually his argument that interpersonal altruism (not interpersonal selfishness!) is a consequence of genetic anarchy.

I would add that history shows Quiggs-on-Hobbes-and-Dawk is right. 17th and 18th century warfare was marked by people changing sides all the damn time. The English Civil War, Hobbes and Locke’s formative source, was full of people who were on one side and then on the other and then back on the first. There were a *lot* of parliamentarians who were a bit unrevolutionary and revolutionaries who didn’t like the parliamentary side much, and quite a lot of royalist defectors. And the fate of the Commonwealth was basically that a lot of parliamentarians decided it was advantageous to flip back. In fact, the extreme violence of the ECW and the 30 Years’ War can be explained by just how easy it was to flip – the combatants were trying to force people to take sides and stick to them. The European crises of the 17th century gave us the Vicar of Bray and Mother Courage as well as Leviathan and the contract.

35

Alex 09.13.12 at 9:22 am

Also, the jungle paper suggests to me that it may be possible to have a working economic equilibrium in any system. We know since Oskar Lange that a central planning system can theoretically converge onto an equally good equilibrium as a market. We reckon a cybernetic one might do the same given enough processing power.

It may actually be the case that any and all economic systems have at least a theoretical possibility of arriving at stable equilibrium. This would mean completely re-designing economics, but then as we all know economics as an intellectual project is completely perfect!

36

Peter T 09.13.12 at 10:41 am

gordon @38 makes a good point. We now know that people’s brains are formed by interaction with other people – not quite all the way down, but certainly down to some very basic levels of structure. This means there is no such thing as “individual interests”: your understanding of your interests is always of your interests qua yourself as some group-derived facet of your identity – as woman, academic, honest person or whatever. If you just do what you feel like without reference to your social self then you’re a sociopath, and probably a psychopath. This understanding undercuts both contractarianism and utilitarianism – leaves them without foundation in human reality.

37

Kevin Donoghue 09.13.12 at 11:07 am

Humans are primates. Economics and other social sciences will be on a sounder footing when we have models with representative agents as interesting as Titus (1974-2009):

http://en.wikipedia.org/wiki/Titus_gorilla

38

GiT 09.13.12 at 11:16 am

Another good book on unsettling the rational actor model of Hobbes is Samantha Frost’s recent “Lessons from a Materialist Thinker.”

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GiT 09.13.12 at 11:23 am

“Could it be in order to defend classical economics? If you like the efficiency and optimality of the classical equilibrium outcome, you might want to persuade people to abandon their immemorial group affiliations and act like individuals. But then, of course, the whole classical economic project becomes normative, not explanatory. That has, I need hardly say, strong political implications, implications which are much facilitated by the way economics is currently taught at the introductory level.”

And in *this* respect, economics would actually be quite Hobbesian, as that is arguably what Hobbes was doing (set aside your silly tribal religious beliefs and notions of the “legitimate” sovereign and just coordinate on whoever holds the most power at the time, for God’s sake!).

40

philofra 09.13.12 at 12:53 pm

At least the world is more Lockean than Hobbian.

41

Barry 09.13.12 at 12:55 pm

Earwig: “Or, perhaps, more that the “whole lot of people died” part of “what happened” is focusing on matters of literally no interest to those who championed the privatization programs”

Considering that part of the looting was done by at least one Harvard econ professor who remains in good standing in the profession, and then was bribed out of trouble by a second Harvard econ professor who remains in good standing in the profession, perhaps a more accurate position is that the Harvard Econ group was part of the looting.

Which is relevant to the post and thread because it showed just what they consider to be acceptable behavior when Leviathan is temporarily out of commission.

42

LFC 09.13.12 at 1:23 pm

Henry @21-22
ok, I take the point.

I’d only add that while ‘entirely selfish rational actors, who only respond to rules when it is in their direct self-interest to do so’ (i.e. BdL’s definition of ‘Hobbesian’) are doubtless found in a lot of IR work, my understanding is that ‘rational-actor models’ do not need to contain assumptions about selfishness and lack of sociability (though they often do); the only assumption they require is that actors have preferences that won’t ‘cycle': see here. But this gets us off onto something of a tangent that I’m not competent to discuss anyway.

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Jay Ulfelder 09.13.12 at 1:38 pm

Arguments over whether human beings are really X or Y (e.g., selfish or altruistic) strike me as missing the larger point, which is that human beings are tremendously *diverse*—genetically, culturally, and even within individuals over time (i.e., longitudinally). I suspect this diversity causes very different institutions to emerge than ones we’d expect to see if everyone had similar attributes and impulses. So, if we’re going to try to build models with realistic micro-foundations, we should think about including psychopaths, saints, and everything in between.

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Matt 09.13.12 at 2:09 pm

Hobbes solves the problem by supposing total submission of individual self-interest to the Leviathan of the state, so that each collective Leviathan can engage in a war of all against all at the international level.

As Patrick notes, this isn’t really Hobbes’s view at all. He says very little about international relations (it wasn’t his main interest) but what he does say indicates that he sees quite clearly that the relationship between states is importantly different from the relationship between individuals in his state of nature, even though in both cases there is no sovereign. In a way you can see Hobbes providing reasons to reject IR “Realism” here, since he notices that states don’t have the same interests, fears, limits, dangers, etc. that individuals do, so it doesn’t make sense to treat them like big individuals in the state of nature. I’d agree with Quiggin’s bigger point about application of self-interested views at different levels, but again, Hobbes himself had a much more interesting and useful view than those who invoke him hear seem to understand.

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Shane Taylor 09.13.12 at 2:33 pm

Henry said, “there is an implicit assumption in Brad’s example that all this is happening in a well-ordered society.” The assumption was more explicit in a post Brad DeLong made on doux commerce. DeLong said Adam Smith’s “self-interested and calculating market agents are sociable ones: they exchange, and perhaps they cheat–they don’t kill, rape, burn, and steal. Which is odd, given that fifty years before Smith was born not far from his house there were lots of people who saw others not as potential partners in acts of mutually-beneficial commerce but instead as either (i) clan allies, (ii) clan enemies to be killed, or (iii) strangers to be robbed.” That is the end of the post. As has already been suggested, DeLong’s posts are often far more reflective than most of the instruction in economics I ever received. In this post, for example, he lingered on the political problem of order. And shrugged.

Economics, as I was originally taught the subject, begins where this political problem ends. Hence Bowles’s fondness for this Abba Lerner quote: “An economic transaction is a solved political problem. . . . Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain.” Within such a domain, there is no compelling need to identify any mechanisms that could establish order out of internecine chaos. This might partially account for why talk of “government intervention” so often excludes the establishment and maintenance of order.

46

LFC 09.13.12 at 2:42 pm

Matt @43
There’s that famous passage in ch.13 of Leviathan where he says that states are like gladiators, in a posture of war, but because states “uphold thereby the industry of their subjects, there does not follow from it that misery which accompanies the liberty of particular men.” So the ‘state of war’ at the int’l level is not the same as the state of nature among individuals, but that passage is still enough for Hobbes to get his place in the IR Realist ‘tradition’. No doubt unfair to pluck out one chapter and rest an evaluation on that, but by now it’s too firmly entrenched in the textbooks to change, I would think.

47

Matt 09.13.12 at 3:06 pm

LFC- yes, I know. I teach Hobbes regularly in a “foundations of international law” class, as well as having taught the social contract theorists more generally. It’s exactly the fact that the SoN at the international level is _unlike_ that at the individual level (largely, but not completely, because the nature of the _actors_ is very different- Hobbes thinks that fear of sudden death is one of our main motivators, but that isn’t true in anything close to the same way for states, as he realizes) that makes the idea of applying his thought directly to the international realm, as IR “realists” purport to do, more than a bit odd. (I have a paper, even, where I spend a lot of time on this stuff.)

48

LFC 09.13.12 at 3:16 pm

Matt,
But the IR ‘realists’ don’t think, for the most part, that the life of states is solitary, poor, nasty, brutish and short. The IR realists (again, for the most part) recognize that the SoN at the int’l level is different from the individual level. What they take from ch13 is the stuff about mutual suspicion, the posture of armed gladiators, war not consisting in actual fighting but the constant possibility of it, etc.

49

Matt 09.13.12 at 3:30 pm

What I took you to be talking about, LFC, and what I see, is the imposition of the psychology that Hobbes attributes to individuals in the SoN (or a cartoon version of it, more often) to states in the international realm by IR realists. Some, at least, do that. But that’s wrong, for reasons Hobbes would have been happy to see, I’m sure, if he spent more than a few sentences on the issue. (He wasn’t even really addressing the issue there, either, just making a sort of illustration.) But for Hobbes, the psychology is paramount for explaining everything else.

50

Brad DeLong 09.13.12 at 3:30 pm

Re: “t would surely be an exaggeration to say that the Hobbesian realism that Brad so deplores in international relations is drawn directly from economics”.

Yes. It would surely be an exaggeration to say so.

51

Kevin Donoghue 09.13.12 at 3:53 pm

From Brad’s comments:

Robert Waldmann: I’d say the chasm between “unreflective Lockean” and “reflective Lockean” is broad and deep enough that you just conceded that Cosma Shalizi is totally 100% right.

BDL: [Touché...]

So I’m wondering what’s left to argue about? (Forget about the apology to Chris Bertram, that’s about as likely as a eulogy for Noam Chomsky.)

52

Henry 09.13.12 at 4:50 pm

Brad – if you look at the international security literature, which is where people talk about self-interested actors in anarchy the most, it largely falls into two categories (1) Footnotes to Kenneth Waltz – whose basic theoretical insight is very explicitly taken from microeconomics, and analogies to how market actors are constrained by competition. (2) Footnotes to Thomas Schelling. Whose Nobel Prize, last time I looked, was not awarded in Hobbesian theory. The latter, as LFC effectively suggests above, has greatly outpaced the former in recent years thanks to people like Jim Fearon. The other main branch of international relations, international political economy, is entirely dominated by economist wannabes. This is Known.

Kevin – not sure that you disagree with this, but whether an apology is likely forthcoming has no necessary connection to whether it is warranted. And if it _is_ warranted, then it is worth pointing this out in public, repeatedly if needs be. Consider this an exercise in Why Oh Why Can’t We Have Bloggers Who Behave Towards Others As They Expect Others To Behave if you like.

53

Dan Nexon 09.13.12 at 5:25 pm

Henry (@52) but Waltz’s use of the “firm analogy” is rather limited: a point about anarchy operating like market constraints and a point about oligopolistic competition. He’s much more indebted to sociologists and anthropologists when it comes to the architecture and analytics of his approach, as Stacie Goddard and I argued some years ago in the European Journal of International Relations (EJIR).

But Waltz is undoubtedly Hobbesian: the absence of a common authority prevents a division of labor and therefore limits the number of social roles available in international politics.

54

js. 09.13.12 at 5:52 pm

Phil:

there is no law prior to the institution of the sovereign, only the ius naturale of the state of nature (which is ‘law’ as in ‘law of the jungle’)

The `jus naturale’ is a right for Hobbes, but he thinks there is also a lex naturalis, a law of nature. And the sovereign, e.g., can violate the law of nature (cf. chap. 21). So, yes, the received view of Hobbes as the original positivist—which certainly exists—is probably an oversimplification. (Sorry a bit off-topic.)

55

Henry 09.13.12 at 6:15 pm

Dan – I recognize what you are saying – but I equally think concentrating too much on Parsons, whom Waltz doesn’t really reference as best as I can recall, may lead one to overcompensate by focusing too little on Adam Smith, whom he does (see esp. p.89-90, which I think is very important for his argument), and other microeconomics. Certainly, you can argue that it’s a reading of Smith which is _inflected_ by structural functionalism, but it is, unequivocally, a reading of Smith.

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Actio 09.13.12 at 6:23 pm

#36 Peter T: “… your understanding of your interests is always of your interests qua yourself as some group-derived facet of your identity … This understanding undercuts … utilitarianism …”
What? First, if the hedons keep flowing the hedonistic utilitarian abides. Second, evidence that downplay individual interest claims should only strengthen utilitarianism over deontology.

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Dan Nexon 09.13.12 at 9:45 pm

@55. You don’t need Parsons, you can just go to his key citations: S.F. Nadel, Radcliffe-Brown, etc. I’ll note that in his seminar, he starts out by talking about the physiocrats, which is a whole different cup of tea.

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Dan Nexon 09.13.12 at 9:49 pm

@57 messed that up. What I meant to write was “talking about the physiocrats, which puts an interesting spin on the Smith argument. But that’s a whole different cup of tea.”

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Kevin Donoghue 09.13.12 at 10:22 pm

Henry, FWIW there’s no doubt in my mind that Brad DeLong’s criticism of Chris Bertram was off the wall. But to refer back to my earlier comment (with banjaxed link), Titus the Gorilla would have reacted in a roughly analogous way to an intruder on his patch, so I really don’t fault BDL too much on that score. Maybe I should hold professors to a higher standard, but I am old and cynical and I don’t.

Best to add that I am breaking my rule which normally inhibits me from commenting when I’m just home from the pub, so it’s possible I won’t be prepared to defend this viewpoint in the morning.

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Bruce Wilder 09.14.12 at 12:02 am

I’ve tried to work my way back thru some of the earlier, referenced posts and papers, but I still find myself having to leap over the same yawning gap.

On one side of this gap is the acknowledged tendency of economists, in their obsession with modeling market exchange in mathematically tractable, deductive modes, to simply ignore institutional foundations, micro or otherwise — what MQ@1 was referring to, when he said (correctly, imho) that economists are “enormously naive about the problems of maintaining orderly, rule-governed exchange in the face of self-interest.”

On the other side of the gap is this preaching about human nature: humans are less rational and less consistently selfish than home economicus, etc. Therefore . . . actually, there never seems to be a predicate.

The gap seems to me so wide as to be incommensurable. I do not say this in defense of the economists and the studied unrealism of neoclassical economics, which seems absurd to me, judged on its own purported standards and merits, even when one doesn’t consider the corruption of purpose.

gordon @ 30 Rather than “normative”, I think you might mean “prescriptive”. Economics is not at its core about human nature, per se, (somewhat contra Smith), but about a human problem: cooperation to achieve efficiency in the production and distribution of material goods in the face of scare resources and limited knowledge. (Granting that economists tend to distort or slight the limited knowledge part.) The economy is an instrument for solving a problem of material welfare , and a lot of economic theory is about focusing narrowly on identifying ideal means of rational calculation in service of solving that problem in various contexts. For reasons that I would think would be obvious, to the extent economists succeed, they prescribe; economics, like law and science, has been a tool of Enlightenment rationalization.

I understand that economists, in the implied morality of their prescribing pedagogy, might be getting more than a little extreme. I still don’t see the bridge, though, to the methodological and epistemological shortcomings, referenced by MQ@1

Alex @ 34: “The English Civil War, Hobbes and Locke’s formative source, was full of people who were on one side and then on the other and then back on the first.”

It is often really hard to figure out what all the factional motives, loyalties and goals might have been, so it is not necessarily fair to suggest some easy treachery, when people might have been rank-ordering individually strictly-consistent loyalties in a 7+ sided version of rock, scissors, paper . . . Charles I found himself on both sides of a war between his two kingdoms of England and Scotland — was he betraying himself? which self?

Hobbes’ thorough-going rationalism made him vulnerable to charges of blasphemy, heresy and atheism, in his own day. But, eventually, the importance of commercial interests and conflict/cooperation with the Dutch would outweigh the irrational interest in religious questions, and in the conduct of the state, and politics would become regular in its patterns.

Authority (and hierarchy) are behind a curtain in neoclassical economics. I don’t know that economists are Hobbesian; I don’t know what they are — they never pull back that curtain, or even explain why they put up a curtain, in the first place.

I’m not sure why we find ourselves going back to the 17th and 18th century philosophers, but it is there that the economists and political philosophers first lost track of authority and hierarchy, in the struggles to loose the grip of feudal arbitrariness and tradition, and adopt rationalized reforms and/or utopian ideals.

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John Goodwin 09.14.12 at 1:37 am

It is perhaps helpful to remember that the original Latin meaning of the word we English ‘Liberty’ is a marketplace where goods may be sold. The opposite of a Liberty is an Earldom, and the meaning of the term is, in its original acceptation, territorial. See Carlyle’s Past and Present, for a 12th century dispute between the abbot of St Edmundsbury and the Duke of Norfolk, over collecting fees for the market transactions at the local ‘Liberty’.

This meaning of the word is lost in contemporary English, but may have been well known to Hobbes, who lived much closer to the time, and spoke the language of the Magna Charta.

62

Peter T 09.14.12 at 6:46 am

actio @56 – I should have said “undercuts utilitarian individualism”. As JQ pointed out, it’s a level of analysis issue, and with humans it is clear that the individual is not the relevant unit at any but the most primal levels.

63

Metatone 09.14.12 at 10:40 am

@Alex – 35

I like this, but it feels like there are two issues here with your intriguing thought.

1) Seems like our current system is less likely to reach and stay in equilibrium in practice than advertised by current economists.

2) We can ignore (1) but I think it’s very important to question the assumption of “automatically reaching optimum equilibrium” as that seems to be the key sleight of hand in current economics.

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tomslee 09.14.12 at 4:59 pm

Surely the word “exchange” covers a multitude of actions, with different connotations and entered into in different spirits, which economists lump together for the sake of convenience.

When the US Department of Defense puts out a contract for white T Shirts and has a 30-page spec, then it’s fair to say that both sides are relying on the force of law to make the other do what they say, no more and no less. When I hand back a cauliflower at a market because it has a black patch in it there is no resorting to spec, it’s a far more Lockeian interaction wrapped up in all kinds of cultural expectations about what people expect when they buy a cauliflower.

I found Stiglitz’s recent piece on tax avoidance refreshing. The explicit contract might be that people pay the minimum of what they have to, but “Democracies rely on a spirit of trust and co-operation in paying taxes. If every individual devoted as much energy and resources as the rich do to avoiding their fair share of taxes, the tax system either would collapse, or would have to be replaced by a far more intrusive and coercive scheme.”

Looked at in any kind of detail, there is no unitary, essential act of “exchange” to enter into in Hobbesian or Lockeian fashion.

65

tomslee 09.14.12 at 5:07 pm

Just to ramble on a bit further: we do seem to get into problems when we mistake one for another. The Stiglitz tax-paying contract is one. The relationship between ourselves and the financial industry is another: for years they promoted the picture of a Lockeian exchange, bound up in common goals and partnership and fellow-feeling, but it turned out that, caveat emptor!, we shouldn’t have thought of them as advisors at all. Also, we are heading into a Hobbesian world: buying a book was pretty simple, but licensing a digital product involves entering into a detailed Hobbesian contract bound about with threats and cautions.

66

Random Lurker 09.14.12 at 10:01 pm

After one day of hard thinking, that sucked energy ad productivity out of me, thus contributing to the crisis of Italy, the EU, and ultimately the world as we know it, I made up my mind on a semi-coherent comment on this thread.

For first, economics as we know it implies property rights. Property rights have to be granted by some law, if we think of positive law we go Hobbesian, while if we think of natural law we go Lockean, plus a lot of possible shades in between; however, this is not important for economic theory, since it just usually takes for granted that the “rule of law” already exists.

However, I think that the point is not so much economic theory, but the “economic man”, rationally self-interested, that looks more Hobbesian than Lockean.
Here, however, there is a logical trick, since the “rational self interest” really refers to two very different schemes of thought, or algorithms:
1) The first agorithm regards the choiche between two values expressed in the same unit of measure: we know that, if rational actor A can obtain an apple for 9$ or for 10$, he will choose to pay 9$ (the opposite when he sells).
This is a predictive algorithm: we know what will A do, just from the price of the various apples, before that A acts.
2) but A will also have to choose between options that are not clearly denominated in the same unity of measure. For example, A might have to choose between an apple at 9$ and an orange at 11$. We cannot predict what will A do, because this is a comparation of apples and oranges. Thus, we trust that A knows what is better for him, and if he chooses the orange we will desume that he values oranges more than apples.
This is not at all a predictive algorithm, in facts we obtain the (supposed) value of stuff from the actions of A, and not the opposite. In facts, this is an algorithm that we use to estimate the “value” of different consumption goods.

When we say that the Homo Economicus is rationally self interested, we usually mean both 1 and 2, but the most important part of the definition is 2 (since 1 is really banal).
Thus we are not really applying a certain scale of value (either Hobbesian or lockean or whatever) tho the Homo Economicus, rather we are deducing the values from his choices. In other words the concept of the “rational self interest” of the H.E. is more a black box that is useful for theories than a real assertion.
In this sense, the “rational self interest” isn’t really self interest but just a collection of revealed preferencies. For example, if A donates 10$ to his church instead than buyng an apple or an orange, we can just assume that it is in his “rational self interest”. If we really are cynic we can say that he is buying a clean soul or the respect of his peers, but this isn’t really supported by economic theory, because it is an istance of the algorithm 2, that is non predictive. It is a bit like social darwinism: it looks somehow similar to Darwinism, but in fact isn’t supported by it.

That said,I don’t understand what De Long wants to say when he says that economists are Lockean and not Hobbesian; apparently this makes economist look good, but in reality is a tragedy:
If economsts are Hobbesians, even if people act Lockean economics (as a technology to improve the life of the people) will work, but if economists are Lockean, but people in reality act Hobbesian, we are funked.

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Bruce Wilder 09.14.12 at 10:11 pm

tomslee @ 64

Certainly, the economists like to wave their hands over the customs of a farmer’s market, and, as you imply, surmise “cultural expectations about what people expect”, and imagine, without really knowing, that those cultural expectations are endogenous products of the market, itself (or The Market, itself), and not the artifacts of politics and political authority.

If you really went looking for it, I imagine one could find all kinds of political history and laws undergirding the sale of cauliflower — including liability principles, weights and measures, sanitary practices, licenses, etc., all with a history of political fights.

The neoliberal economists, as Brad DeLong does, can blow some vague smoke about repeated transactions being equivalent of a repeated game, but it is just blowing smoke, trying to obscure that markets only come into existence, when there’s a political and legal infrastructure, within which the cultural expectations can form and stabilize. There’s no real theoretical defense for neoliberal laissez-faire; it is just a corrupt rationalization for looting and cheating.

DeLong’s neoliberal nonsense is not even a fair or accurate reporting of advanced economic theory; it would be contradicted by everyone from James Buchanan to Martin Shubik.

tomslee @ 65

I don’t know what’s “Hobbesian” about it. It is a rentier’s kleptocracy in action, just the special case of disinvestment in the public goods infrastructure of an equitable rule of law, amidst a general disinvestment in public goods and social insurance, all aimed at widening the scope for earning returns on purely financial wealth: usury and other forms of financial exploitation.

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engels 09.15.12 at 3:29 am

And if [an apology[ is warranted, then it is worth pointing this out in public, repeatedly if needs be.

I make exactly this point in the preamble to my annual Open Letter to the Guy Who Spilled My Beer in 1997…

69

Shane Taylor 09.15.12 at 12:04 pm

Abba Lerner’s point deserves greater elaboration:

“Thousands of habits of behavior and of enforced laws had to be developed over millennia to establish the nature and the minutiae of property rights before we could have buying and selling, instead of each man just taking what he wanted if only he was strong enough. Basically, what needed to be done was to disentangle sets of rights from the buzzing chaos of the universe and designate each such set of rights as a commodity that an individual (or a group) could exchange for another set of rights. We have got so used to such groups of rights that we tend to think of them as simple “things,” but every “thing” is a set of rights. [....]

“Each set of rights begins as a conflict about what somebody is doing or wants to do which affects others. Some of the others are pleased and some object. With or without a fight, there is a settlement or compromise in which the rights are defined. Those who benefit from the activity gain the approval of those who object by giving them something to get them to agree. What I want particularly to stress is that the solution is essentially the transformation of the conflict from a political problem to an economic transaction. An economic transaction is a solved political problem.”

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Shane Taylor 09.15.12 at 12:08 pm

Source for the excerpt I just posted:

http://www.jstor.org/stable/1821551

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Phil (not Phil) 09.16.12 at 12:55 pm

This is a bit off topic, but tangentially related. I’m wondering if anyone can recommend a good critical-analytic book on law and economics. It seems to me that the criticisms given above and within the comments thread give an implicit analysis of the micro foundations of l & e, but am looking for something more explicit.

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Chris Bertram 09.18.12 at 10:26 am

Oh dear. There’s a response of sorts on another website from someone who appears not to have read (or anyway not to have understood) the following passage from from Leviathan ch. 14.

If a covenant be made wherein neither of the parties perform presently, but trust one another, in the condition of mere nature (which is a condition of war of every man against every man) upon any reasonable suspicion, it is void: but if there be a common power set over them both, with right and force sufficient to compel performance, it is not void. For he that performeth first has no assurance the other will perform after, because the bonds of words are too weak to bridle men’s ambition, avarice, anger, and other passions, without the fear of some coercive power; which in the condition of mere nature, where all men are equal, and judges of the justness of their own fears, cannot possibly be supposed. And therefore he which performeth first does but betray himself to his enemy, contrary to the right he can never abandon of defending his life and means of living. But in a civil estate, where there a power set up to constrain those that would otherwise violate their faith, that fear is no more reasonable; and for that cause, he which by the covenant is to perform first is obliged so to do.

“Hobbesians”, in other words, believe that the state has the the role of providing incentives (and disincentives) such that the assurance problem is solved and people are able to engage in mutually beneficial exchange. Economists are Hobbesians in this sense because of their relentless focus on adjusting the incentives facing rational individuals in order get them to move to Pareto-superior outcomes.

(Apologies to those who believe this conveys a misleading impression of the historical Hobbes.)

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Phil 09.18.12 at 10:48 am

I think that’s a bit of a leap – I don’t think (although I’m open to correction) that Hobbes said much about the fine-tuning of the common power set over them both, with right and force sufficient to compel performance; to the extent that he did, policy-oriented criminologists and situational crime prevention people might be a better contemporary parallel than economists. It’s an interesting way of thinking about economics, though.

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Chris Bertram 09.18.12 at 11:03 am

Phil: I didn’t say economists were the only “Hobbesians” just that adjusting the incentives facing rational actors is the characteristic Hobbesian m.o, and that (conventional) economists exemplify it. Policy-oriented criminologists may well be members of the tribe too. (The relevant, non-Hobbesian, contrast is theories that appeal to (and transform) the internal motivations of intrinsically social creatures rather than taking the internal psychology as basically given and adjusting the costs and benefits.)

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