Methodology and policy prescription in economic thought: response to Mario Bunge. Parte 2

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However, there is a problem with this way of looking at things.  A profoundly influential trend within political economy, epitomised by advocates of laissez-faire such as Adam Smith and Friedrich Hayek, has postulated an invisible hand mechanism, in which order in human affairs is ‘emergent’, ‘resulting from human action but not design’ (De Vany, 1996: 427).  Perhaps the canonical statement of an invisible hand mechanism is Smith’s statement that

 

“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.  We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”  (Smith, 1976b: I.ii.2) 

In this well-known and apparently simple statement, the butcher, brewer and baker do not care about the dinners they provide, so that, in some sense, the desirable social outcome of feeding the members of society is achieved in spite of rather than because of the motives and behaviours of the food providers: the desired social outcome, that we be fed, emerges from self-seeking behaviour.  This notion of emergent order seems at odds with the proposed association between laissez-faire and methodological individualism just noted: Bunge’s typology suggests that individualists fail to recognise interrelationships and bonds between individuals, and that it is the non-individualist approaches of systemism and holism which are characterised as recognising emergence. 

 

The question therefore arises, whether invisible hand mechanisms are consistent with the individualist approach.  Haworth (1994) performs an invaluable service by addressing precisely this issue.  He identifies two ‘theses’, implicit in libertarian thought, which he defines as follows, each illustrated by a statement from a libertarian source (Haworth, 1994: 32-34).  Then the libertarians’ logical dilemma arises from the mutual incompatibility of the two theses:

 

The reducibility thesis: the fully developed market economy can be understood as the sum or aggregate of its discrete components, the individual bilateral exchanges at the micro level.  In evidence of this, Haworth cites Sir Keith Joseph: ‘Since inequality arises from the operation of innumerable preferences, it cannot be evil unless those preferences are themselves evil.’

 

The invisible hand thesis: the market is a ‘paradigmatic exemplar’ of want-satisfaction (ie, unrestricted market forces leave agents better off than any alternative economic environment) because an invisible hand transmutes our self-interested behaviour into socially desirable outcomes.  Haworth cites Mandeville as an example: ‘the grand principle that makes us social creatures, the solid basis, the life and support of all trade and employment without exception is evil’.

 

So the individualist approach, based on considering individuals in isolation and ignoring or deprecating their interrelationships, says that an entity cannot display a property or quality unless its substrate displays that property: system level properties simply reflect substrate level properties – and thereby emergence is excluded – while the job of the invisible hand is specifically to transmute a property at the substrate level into its opposite – which is therefore necessarily emergent – at the system level.  For Sir Keith the aggregate outcome cannot be ‘evil’ as long as the preferences it is based on are innocent; for Mandeville, on the contrary, the aggregate outcome cannot be good unless the preferences underpinning it are ‘evil’.  Thus Haworth is able to conclude that the libertarians cannot have it both ways: ‘libertarianism is seriously broken backed in the sense that it must abandon one of its central theses’ (Haworth, 1994: 34).

 

Howarth’s analysis can be taken further.  There are two possibilities: either we inhabit an individualistic or a non-individualistic world – either a world where an entity at one level can be understood as a congeries, an aggregate of isolated entities at a lower, substrate level, or a world where a higher level entity has to be understood as a product of the interrelationships between its component parts.  If we lived in the former, the macro level would simply reflect the micro level.  The individual would be directly social: there would be no distinct category of the social.  Individual utility maximisation would directly be social welfare maximisation: the distinction between them would be meaningless.  Likewise, macro irrationality would be just a summary of micro irrationality: unemployment would either be a product of irrational behaviour by workers, such as ‘pricing themselves out of jobs’, or it would be the product of a rational desire for leisure, and, hence, itself rational.  In general, individuals could with confidence be left to get on with it without supervision or intervention.  An individualist world would be a laissez-faire world.

 

If, on the other hand, we were to inhabit a non-individualistic world, then individualists would have a problem.  Yet this is the kind of world we actually live in.  It is fairly obvious that higher level entities are not simply aggregates of their micro components: water does not behave as an aggregate of hydrogen and oxygen; steam, liquid water, and ice do not consist of tiny gaseous, liquid and solid molecules; nor do chairs consist of hard, green, ugly or uncomfortable molecules (Haworth, 1994: 35).  All these properties emerge at higher levels.  The problem faced by the individualist is how to reconcile this fact of an obvious disjuncture between levels with the laissez-faire policy prescription.  Libertarians face severe difficulties sustaining a logically consistent policy individualism in a non-individualist world. 

 

The invisible hand is one potential solution to this problem.  Advocates of laissez-faire face a choice: either one can ignore the disjuncture between levels, and adopt a thoroughgoing individualist methodology and policy stance – this seems to be line taken by Joseph in the passage cited above, by Lucas and by Friedman – or with Hayek and Adam Smith one can  accept that disjuncture and adopt a non-individualist methodology but at the same time postulate a mechanism reconciling that methodological non-individualism with a laissez-faire policy individualism.  Such a mechanism is an invisible hand mechanism.  The invisible hand allows us to say, granted that social outcomes are not logically bound to reflect individual behaviour in an aggregative, summary manner, nevertheless a mechanism exists which ensures that in practice they do so.  The invisible hand is what allows us to think, and act, in an individualist way in a non-individualist world: it underpins individualism by tacitly conceding the opposite.  Laissez-faire is vindicated and we are inveigled into tying the visible hand behind our back, if we can be persuaded that the invisible hand will do its job instead, and do it better.

 

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Smith and Hayek tacitly recognise a non-individualistic world by invoking invisible hand mechanisms.  Smith and Hayek are methodologically very distant from the crudely individualistic methodology of Lucas and Friedman.  Compare the standpoints of Hayek and Friedman.  For Friedman, economics is based on the study of ‘a number of independent households a collection of Robinson Crusoes’ (Friedman, 1962: 13).  For Hayek, on the contrary, ‘individuals are merely the foci in the network of relationships’ (Hayek, 1979: 59).  So Hayek subscribes to a very clearly non-individualistic, and Friedman to an equally clearly individualistic methodology. Yet they still both endorse the same basic framework for policy of laissez-faire.   

For Smith the invisible hand is literally the hand of an omniscient and omnipotent deity desiring nothing other than the maximisation of human welfare: 

“all the inhabitants of the universe, the meanest as well as the greatest, are under the immediate care and protection of that great, benevolent, and all-wise being, who directs all the movements of nature; and who is determined, by his own unalterable perfections, to maintain in it, at all times, the greatest possible quantity of happiness.”  (Smith, 1976a: VI.ii.3.1)   

Smith’s standpoint is spelled out in detail in Denis (1999); for a contrary view, however, see Pack (1995). 

 

For Hayek, writing in a more secular age, the invisible hand mechanism takes the form of an evolutionary process, specifically the group selection theory of VC Wynne-Edwards (Hayek, 1967: 70).  Richard Dawkins criticises succinctly the group selectionist argument endorsed by Hayek:

 

“A group, such as a species or a population within a species, whose individual members are prepared to sacrifice themselves for the welfare of the group, may be less likely to go extinct than a rival group whose individual members place their own selfish interests first.  Therefore the world becomes populated mainly by groups consisting of self-sacrificing individuals.  This is the theory of ‘group selection’ [expressed] in a famous book by V.C. Wynne-Edwards … [But if] there is just one selfish rebel, prepared to exploit the altruism of the rest, then he, by definition, is more likely than they are to survive and have children.  Each of these children will tend to inherit his selfish traits.  After several generations of natural selection, the ‘altruistic group’ will be over-run by selfish individuals, and will be indistinguishable from the selfish group.” (Dawkins, 1989: 7-8) 

The point is, not that it is impossible for behaviour which leads to desirable consequences for the group to emerge, but that such behaviour needs to be underpinned by individual incentives.  The theory of group selection – whether in a biological or social context – suggests that processes will be selected for when they lead to desirable collective outcomes.  But it does not provide any mechanism linking those desirable processes to individual interests.  The question, why individuals should act in the manner required by the theory, is left unanswered.  For a contrary view of Hayek’s evolutionary theory, however, see Whitman (1998). 

 

The alternative to both of these laissez-faire approaches is to combine recognition of the non-individualist nature of the world we live in with acceptance that there is no invisible hand.  In this view, rational individual self-seeking behaviour is by no means the necessary and sufficient micro substrate for the desirability of social outcomes.  Rather, behaviour must be directly social if desirable social outcomes are to be obtained.  According to Keynes, for example, egotistical activity uncoordinated by the state may lead to inefficient outcomes.  The price system aggregates rational individual actions but the aggregate is an unintended outcome as far as those individuals are concerned.  There is no particular reason why unintended outcomes should necessarily be desirable and often they are not.  Individuals take responsibility for maximising their own welfare, given what everyone else is doing, but society as a whole has to take responsibility for organising the aggregate outcome if undesirable aggregate outcomes are to be avoided:

 

“There is no design but our own … the invisible hand is merely our own bleeding feet moving through pain and loss to an uncertain … destination.”  (Keynes, 1981: 471)

 

 

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The laissez-faire policy prescription does, indeed, embody a policy individualism.  However, there is more than one way of sustaining that standpoint methodologically.  One can suppose that the world truly is individualist in relevant ways and that supposed macro-level pathology is simply the summation of micro-level behaviour which may or may not be pathological.  Laissez-faire is an individualist policy prescription in the sense that it issues from an individualist methodological standpoint.  Or one can accept that the world is non-individualistic and hence that macro-level pathologies might in principle be emergent at the macro level, but at the same time postulate the existence of an invisible hand mechanism which ensures that the individualist policy prescription of laissez-faire is nevertheless valid. 

 

In substance Bunge’s article is a significant contribution to our understanding of the methodology of economics – perhaps best embodied in his bold injunction to ‘see agency through Weber’s microscope, and structure through Marx’s telescope’ (154).  The argument of the article, however, can be developed in an important respect.  The pronouncements of Friedman, Lucas and Sir Keith fit Bunge’s suggested pattern linking laissez-faire policies to individualist methodological presuppositions.  But to lump non-individualist writers such as Smith and Hayek in with them, would both be mistaken and allow us to ignore the fundamentally ideological  role of invisible hand mechanisms in allowing economists to retain some approximation to efficiency as their default notion of how the capitalist economy actually works

The Journal of Socio-Economics 32 (2), 219-226.  Andy Denis

Una respuesta to “Methodology and policy prescription in economic thought: response to Mario Bunge. Parte 2”

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