Article — From the May 2005 issue
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Article — From the May 2005 issue
Economics, as channeled by its popular avatars in media and politics, is the cosmology and the theodicy of our contemporary culture. More than religion itself, more than literature, more than cable television, it is economics that offers the dominant creation narrative of our society, depicting the relation of each of us to the universe we inhabit, the relation of human beings to God. And the story it tells is a marvelous one. In it an enormous multitude of strangers, all individuals, all striving alone, are nevertheless all bound together in a beautiful and natural pattern of existence: the market. This understanding of markets—not as artifacts of human civilization but as phenomena of nature—now serves as the unquestioned foundation of nearly all political and social debate. As mergers among media companies began to create monopolies on public information, ownership limits for these companies were not tightened but relaxed, because “the market” would provide its own natural limits to growth. When corporate accounting standards needed adjustment in the 1990s, such measures were cast aside because they would interfere with “market forces.” Social Security may soon fall to the same inexorable argument.
The problem is that the story told by economics simply does not conform to reality. This can be seen clearly enough in the recent, high-profile examples of the failure of free-market thinking—how media giants have continued to grow, or how loose accounting regulations have destroyed countless millions in personal wealth. But mainstream economics also fails at a more fundamental level, in the way that it models basic human behavior. The core assumption of standard economics is that humans are fundamentally individual rather than social animals. The theory holds that all economic choices are acts of authentic, unmediated selfhood, rational statements reflecting who we are and what we want in life. But in reality even our purely “economic” choices are not made on the basis of pure autonomous selfhood; all of our choices are born out of layers of experience in contact with other people. What is entirely missing from the economic view of modern life is an understanding of the social world.
This was precisely the diagnosis made five years ago by a group of French graduate students in economics, who published their dissent in an open letter that soon made minor headlines around the world. In the letter the students declared that the economic theory taught in their courses was hopelessly out of touch, absorbed in its own private model of reality. They wrote:
We wish to escape from imaginary worlds! Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered . . . does not generally answer this expectation. . . . [T]his gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors.
The discipline of economics was ill, the letter claimed, pathologically distant from the problems of real markets and real people.
The students who offered this diagnosis in 2000 were from the most prestigious rank of the French university system, the Grandes Ecoles, and for this reason their argument could not be easily dismissed. Critics who accuse economists of embracing useless theory usually find themselves accused of stupidity: of being unable to understand the elegant mathematics that proves the theory works. But the mathematical credentials of these students were impeccable. The best of a rising generation were revolting against their training, and because of this the press and public paid attention. Orthodox economists counterattacked, first in France and then internationally. Right-wing globalist Robert Solow wrote a savage editorial in Le Monde defending standard economic theory. The debate became so protracted that the French minister of education launched an inquiry.
Economics departments around the world are overwhelmingly populated by economists of one particular stripe. Within the field they are called “neoclassical” economists, and their approach to the discipline was developed over the course of the nineteenth century. According to the neoclassical school, people make choices based on a rational calculation of what will serve them best. The term for this is “utility maximization.” The theory holds that every time a person buys something, sells something, quits a job, or invests, he is making a rational decision about what will be most useful to him, what will provide him “maximum utility.” “Utility” can be pleasure (as in, “Which of these Disney cruises will make me happiest?”) or security (as in, “Which 401(k) will let me retire before age eighty-five?”) or self-satisfaction (as in, “How much will I put in the offering plate at church?”). If you bought a Ginsu knife at 3:00 a.m., a neoclassical economist will tell you that, at that time, you calculated that this purchase would optimize your resources. Neoclassical economics tends to downplay the importance of human institutions, seeing instead a system of flows and exchanges that are governed by an inherent equilibrium. Predicated on the belief that markets operate in a scientifically knowable fashion, it sees them as self-regulating mathematical miracles, as delicate ecosystems best left alone.
If there is a whiff of creationism around this idea, it is no accident. By the time the term “economics” first emerged, in the 1870s, it was evangelical Christianity that had done the most to spur the field on toward its pres ent scientific self-certainty.
When evangelical Christianity first grew into a powerful movement, between 1800 and 1850, studies of wealth and trade were called “political economy.” The two books at the center of this new learning were Adam Smith’s Wealth of Nations (1776) and David Ricardo’s Principles of Political Economy and Taxation (1817). This was the period of the industrial transformation of Britain, a time of rapid urban growth and rapidly fluctuating markets. These books offered explanations of how societies become wealthy and how they can stay that way. They made the accelerated pace of urban life and industrial workshops seem understandable as part of a program that modern history would follow. But by the 1820s, a number of Smith’s and Ricardo’s ideas had become difficult for the growing merchant and investor class to accept. For Smith, the pursuit of wealth was a grotesque personal error, a misunderstanding of human happiness. In his first book, The Theory of Moral Sentiments (1759), Smith argued that the acquisition of money brings no good in itself; it seems attractive only because of the mistaken belief that fine possessions draw the admiration of others. Smith welcomed acquisitiveness only because he concluded—in a proposition carried through to Wealth of Nations—that this pursuit of “baubles and trinkets” would ultimately enrich society as a whole. As the wealthy bought gold pickle forks and paid servants to herd their pet peacocks, the servants and the goldsmiths would benefit. It was on this dubious foundation that Smith built his case for freedom of trade.
By the 1820s and ’30s, this foundation had become increasingly troubling to free-trade advocates, who sought, in their study of political economy, not just an explanation of rapid change but a moral justification for their own wealth and for the outlandish sufferings endured by the new industrial poor. Smith, who scoffed at personal riches, offered no comfort here. In The Wealth of Nations, the shrewd man of business was not a hero but a hapless bystander. Ricardo’s work offered different but similarly troubling problems. Working from a basic analysis of the profits of land ownership, Ricardo concluded that the interests of different groups within an economy—owners, investors, renters, laborers—would always be in conflict with one another. Ricardo’s credibility with the capitalists was unquestionable: he was not a philosopher like Adam Smith but a successful stockbroker who had retired young on his earnings. But his view of capitalism made it seem that a harmonious society was a thing of the past: class conflict was part of the modern world, and the gentle old England of squire and farmer was over.
The group that bridled most against these pessimistic elements of Smith and Ricardo was the evangelicals. These were middle-class reformers who wanted to reshape Protestant doctrine. For them it was unthinkable that capitalism led to class conflict, for that would mean that God had created a world at war with itself. The evangelicals believed in a providential God, one who built a logical and orderly universe, and they saw the new industrial economy as a fulfillment of God’s plan. The free market, they believed, was a perfectly designed instrument to reward good Christian behavior and to punish and humiliate the unrepentant.
At the center of this early evangelical doctrine was the idea of original sin: we were all born stained by corruption and fleshly desire, and the true purpose of earthly life was to redeem this. The trials of economic life—the sweat of hard labor, the fear of poverty, the self-denial involved in saving—were earthly tests of sinfulness and virtue. While evangelicals believed salvation was ultimately possible only through conversion and faith, they saw the pain of earthly life as means of atonement for original sin. These were the people that writers like Dickens detested. The extreme among them urged mortification of the flesh and would scold anyone who took pleasure in food, drink, or good company. Moreover, they regarded poverty as part of a divine program. Evangelicals interpreted the mental anguish of poverty and debt, and the physical agony of hunger or cold, as natural spurs to prick the conscience of sinners. They believed that the suffering of the poor would provoke remorse, reflection, and ultimately the conversion that would change their fate. In other words, poor people were poor for a reason, and helping them out of poverty would endanger their mortal souls. It was the evangelicals who began to see the business mogul as an heroic figure, his wealth a triumph of righteous will. The stockbroker, who to Adam Smith had been a suspicious and somewhat twisted character, was for nineteenth-century evangelicals a spiritual victor.
 The definitive source here is Boyd Hilton’s masterful book The Age of Atonement: The Influence of Evangelicalism on Social and Economic Thought, 1785–1865.
By the 1820s evangelicals were a dominant force in British economic policy. As Peter Gray notes in his book Famine, Land, and Politics, evangelical Anglicans held significant positions in government, and they applied their understanding of earthly life as atonement for sin in direct ways. Their first major impact was in dismantling the old parish-based system of aiding the poor and aging, a policy battle that resulted in the Poor Law Amendment of 1834. Traditionally, people who could not work or support themselves, including orphans and the disabled, had been helped by local parish organizations. It had been a joint responsibility of church and state to prevent the starvation and avoidable suffering of people who had no way to earn a living.
The Poor Law nationalized and monopolized poverty administration. It forbade cash payments to any poor citizen and mandated that his only recourse be the local workhouse. Workhouses became orphanages, insane asylums, nursing homes, public hospitals, and factories for the able-bodied. Protests over the conditions in these prison-like facilities, particularly the conditions for children, mounted throughout the 1830s. But it did not surprise the evangelicals to learn that life in the workhouses was miserable. These early faith-based initiatives regarded poverty as a divinely sanctioned payment plan for a sinful life. This first anti-poverty program in the first industrial economy was not designed to alleviate suffering, nor to reduce the number of poor children in future generations. Poverty was not understood as a problem to be fixed. It was a spiritual condition. Work-houses weren’t supposed to help children prepare for life; they were supposed to save their souls.
Looking back two centuries at these early debates, it is clear that a pure free-market ideology can be logically sustained only if it is based in a fiery religious conviction. The contradictions involved are otherwise simply too powerful. The premise of the unpleasant workhouse program was that it would create incentives to work. But the program also acknowledged that there were multitudes of people who were either unable to work or unable to find jobs. The founding assumption of the program was that the market would take care of itself and all of us in the process. But the program also had to embrace the very opposite assumption: that there were many people whom the market could not accommodate, and so some way must be found to warehouse them. The market is a complete solution, the market is a partial solution—both statements were affirmed at the same time. And the only way to hold together these incommensurable views is through a leap of faith.
Victorian evangelicals took a similar approach to the crisis in Ireland between 1845 and 1850—the Great Hunger, what came to be known as the potato famine. In office at the time of the first reports of starvation, the Tory administration of Robert Peel responded with a program of food supports, importing yellow cornmeal from the United States and selling it cheaply to wholesalers. Corn was an unfamiliar grain in Ireland, but it provided a cheap food source. In 1846, however, a Whig government headed by Lord Russell succeeded Peel and quickly dismantled the relief program. Russell and most of his central staff were fervent evangelicals, and they regarded the cornmeal program as an artificial intervention into the free market. Charles Trevelyan, assistant secretary of the treasury, called the program a “monstrous centralization” and argued that it would simply perpetuate the problems of the Irish poor. Trevelyan viewed the potato-dependent economy as the result of Irish backwardness and self-indulgence. This crisis seemed to offer the opportunity for the Irish to atone. With Russell’s backing, Trevelyan stopped the supply of food. He argued that the fear of starvation would ultimately be useful in modernizing Irish agriculture: it would force the poor off land that could no longer support them. The cheap labor they would provide in towns and cities would stimulate manufacturing, and the now depopulated countryside could be used for more profitable cattle farming. He wrote that his plan would “stimulate the industry of the people” and “augment the productive powers of the soil.”
There was no manufacturing boom. Roughly a million people died; another million emigrated. The population of Ireland dropped by nearly one quarter in the space of a decade. It remains one of the most striking illustrations of the incapacity of markets to run themselves. When government corn supplements stopped, and food prices rose, private charities and workhouses were overwhelmed, and families starved by the sides of roads. When British leadership put its faith in the natural balance of an open market to create the best outcome, the result was disaster. Evangelicals like Trevelyan didn’t look smart and pious after the famine; they looked blind to human reality and desperately cruel. Their brand of political economy, grounded in evangelical doctrine, went into retreat and lost influence.
The phrase “political economy” itself began to connote a cruel disregard for human suffering. And so a generation later, when the next phase of capitalist boosterism emerged, the term “political economy” was simply junked. The new field was called “economics.” What had got the political economists into trouble a generation before was the perception, from a public dominated by Dickens readers, that “political economy” was mostly about politics—about imposing a zealous ideology of the market. Economics was devised, instead, as a science, a field of objective knowledge with iron mathematical laws. Remodeling economics along the lines of physics insulated the new discipline from any charges filed on moral or sentimental grounds. William Stanley Jevons made this case in 1871, comparing the “Theory of Economy” to “the science of Statical Mechanics” (i.e., physics) and arguing that “the Laws of Exchange” in the marketplace “resemble the Laws of Equilibrium.”
The comparison with physics is particularly instructive. The laws of Newtonian mechanics, like any basic laws of science, depend on the assumption of ideal conditions—e.g., the frictionless plane. In conceiving their discipline as a search for mathematical laws, economists have abstracted to their own ideal conditions, which for the most part consist of an utterly denuded vision of man himself. What they consider “friction” is the better part of what makes us human: our interactions with one another, our irrational desires. Today we often think of science and religion as standing in opposition, but the “scientific” turn made by Jevons and his fellows only served to enshrine the faith of their evangelical predecessors. The evangelicals believed that the market was a divine system, guided by spiritual laws. The “scientific” economists saw the market as a natural system, a principle of equilibrium produced in the balance of individual souls.
When Tom DeLay or Michael Powell mentions “the market,” he is referring to this imagined place, where equilibrium rules, consumers get what they want, and the fairest outcomes occur spontaneously. U.S. policy debate, both in Congress and in the press, proceeds today as if the neoclassical theory of the free market were incontrovertible, endorsed by science and ordained by God. But markets are not spontaneous features of nature; they are creations of human civilization, like, for example, skating rinks. A right-wing “complexity theorist” will tell you that the regular circulation of skaters around the rink, dodging small children, quietly adjusting speed and direction, is a spontaneous natural order, a glorious fractal image of human totality. But that orderly, pleasurable pattern on the ice comes from a series of human acts and interventions: the sign on the gate that says “stay to the right,” the manager who kicks out the rowdy teenagers. Economies exist because human beings create them. The claim that markets are products of higher-order law, products of nature or of divine will, simply lends legitimacy to one particularly extreme view of politics and society.
Because the neoclassical theory emphasizes calculations made by individuals, it tends not to focus on the impact of external and social factors like advertising, education, research funding, or lobbying. Consumer behavior, for an orthodox economist, is a kind of perfect free expression. But as any twenty-three-year-old marketing intern, or any six-year-old child, can tell you, buying things is not just about the rational processing of information. The Happy Meal isn’t about satisfying hunger; it’s about the plastic toy. Houses aren’t for shelter, they are for lifestyles. Automobiles aren’t transport, they’re image projectors. Diamonds aren’t ornaments, they are forever. We buy things partly based on who we are, but at the same time we believe that buying things makes us who we are and might make us into someone different.
Critical voices within economics have been making this complaint at least as far back as Thorstein Veblen, the late nineteenth-century economist best known for his theory of “conspicuous consumption.” In The Theory of the Leisure Class, and in a series of essays in the 1890s, Veblen showed that patterns of consumption and work broadly conform to the boundaries set by class and culture. Neoclassical economists acknowledge that the wealthy sometimes buy things just to show off, but they insist that regular people under normal circumstances buy only what they intrinsically desire. Veblen saw that it was impossible to understand individual economic choices without understanding the world in which those choices were made.
A helpful, if disquieting, example comes by way of the twentieth-
century anthropologist Marshall Sahlins, who, in his book Culture and Practical Reason, points out that the entire structure of U.S. agriculture “would change overnight if we ate dogs.” What Sahlins means is that the powerful social prohibition against using pets as protein will always condition consumer choices. American children and teens do not decide individually that they will for all their lives spare American dogs from the abattoir. This choice is made for them by the historical world into which they are born. They are no more free to eat dog than they are to wear buckskins to basketball practice. As economist Anne Mayhew recently observed, even consumers at the bottom of the wage scale, with absolutely no discretionary income, choose the necessities of life with a common-sense awareness of how their choices will be perceived by neighbors, family, and the wider social world.
“Post-autistic economics” (PAE) is the name now taken by those few economists who hope to rescue the discipline from the neoclassical model; the name is an homage to the dissident French students, whose manifesto called the standard model “autistic.” It is a hilariously apt (albeit mildly offensive) diagnosis, and it could be just as well applied to Homo economicus himself, the economic actor envisioned by the neoclassical theory, who performs dazzling calculations of utility maximization despite being entirely unable to communicate with his fellow man. Not all PAE economists oppose the premises of the dominant neoclassical school, but they all agree that neoclassical theory cannot stand on its own. In other words, they agree that economics must begin to recognize the social—what the dissident economist Edward Fullbrook calls “intersubjectivity”—and, in the process, give up its pretense to scientific completeness.
Until it does, generations of college students will continue to have their worldviews irreparably distorted by basic economics courses, whose right-wing ideology hides behind a cloak of science. The first evangelicals fought for free trade because they thought it would encourage virtuous behavior, but two centuries of capitalism have taught a different lesson, many times over. The wages of sin are often, and notoriously, a private jet and a wicked stock-option package. The wages of hard moral choice are often $5.15 an hour. Free markets don’t promote public virtue; they promote private interest. In this way they are neither “free” (that is, independent of human influence) nor uniformly helpful in promoting freedom. Market trends are not truly indicative of the kind of society that Americans wish to create for their children. Consumer demand—for gated homes, exurban sprawl, or fluorescent-dyed sugar titration kits called cereal—does not reflect democratic political choice. If indeed economics is this society’s most authoritative version of its own story, ours is a notoriously unreliable narrator.