by Sanjay Perera
[Preamble: This essay is the final of three parts, the first being — “A critique of Capital (1): The problem with economics” and the second being “A critique of Capital (2): The metaphysics of economics“.]
F. Transcendent economy and reflective equilibrium
We return to the idea of general equilibrium and the transcendent nature of it espoused by economists and the problems ensuing from this. Another normative aspect to this for economists, in terms of what good a state of equilibrium can produce is highlighted by the so-called Pareto criterion. This criterion states:
[T]he efficiency of an allocation is maximum when it is impossible to increase one economic magnitude without decreasing another. In the specific case of social welfare, Pareto’s criterion takes on the well-known formulation according to which a certain economic configuration is optimal when it is impossible to improve the welfare of an individual without worsening that of another (Screpanti and Zamagni 226).
This goes beyond the Walrasian claim of the best possible situation arising from his idea of equilibrium and its ensuing allocation of resources which assumes perfect competition. Pareto’s optimality is the culmination of economic equilibrium as it is supposed to prove the “superiority of competitive markets with respect to other market structures” and Pareto’s social optimum asserts that it is “an allocation that cannot be modified in order to increase the welfare of everybody” (Screpanti and Zamagni 226). So a serious circularity is embedded here in that perfect competition and markets produce optimal results and if there are no optimal results it is because the conditions are not perfect.
But therein lies the rub: The conditions are never perfect.
By using the Kantian perspective, we discover that Pareto’s optimality is a synthetic idea that when taken seriously is not only given an edge of transcendence (primitive ontology) — but it can be downright intolerant and unfair to those who do need help. This situation may be hardly desirable as it can be used to institutionalize the most unjust conditions under the pretext that is upsets a ‘balance’ which puts out of his comfort zone a prime capitalist when giving succor to someone who is merely part of the Marxian reserve army of the unemployed. It is a means of maintaining ‘balance’ to ensure the continuity of egregious social injustices in the form of a capitalist paradigm: In which stability means maintaining said unjust conditions (or the status quo) to guarantee the comfort zone and superiority of the elites.
Any attempt to improve the lot of anyone else that upsets the capitalist’s theoretical model of Pareto optimality is quickly zeroed in as upsetting ‘balance’-‘equilibrium’ and ends up perversely as: A source of ‘unfairness’ and ‘injustice’ for it disallows the most advantaged to continue prospering by trying to reduce actual injustice towards those least advantaged and disadvantaged.
More importantly, we need to examine the move away from what is in effect a static system of sustaining what is wrong to a different equilibrium of adjustments to help produce a just and fair society: Enter John Rawls. With his notion of ‘reflective equilibrium’ (RE), Rawls gives us a way of justifying a political conception of justice for a well-ordered liberal democratic state. This also would help us to further develop socio-economic ideas of justice as well. Such thinking is not only humane but can put in effect a workable and useful way of doing things for everyone’s good (as opposed to the fantastical notions of Walrasian and Paretian equilibrium).
To put it in non-technical language, RE in its basic form allows for a decision or judgment to be derived from our principles of what is right (a moral conception is implied) for a particular situation: Which also allows for the adjustments of our principles to rationalize our judgements. This not only helps us “justify our convictions of social justice” but it provides a “standpoint from which we can best interpret moral relationships” (Rawls 18-19).
As an example, we may have principles which state taking of life under any circumstance is wrong so that our judgement with regards to abortion is to speak up against it. However, in trying to work out a system that enhances agreement and reasonableness in the public sphere to produce a policy on abortion acceptable to most as far as possible, we might make exceptions in allowing it: As in the case of sexual assault or incest. This would entail an adjustment of our principles on unconditional disapproval for the taking of life. And this would also be the underlying way of adjustment for a political conception of what taking of life is that can be socially acceptable in the public context. In turn, this provides the basis of Rawls’s political constructivism in creating a ground-up system that is just and fair for all. It would also be underwritten by a Kantian moral constructivism as Kant’s moral thinking is arguably the most powerful influence on Rawls’s key ideas.
The constructivism generated via RE is the antidote to the artificial ideas of economic equilibrium sanitized of humanity – optimal or otherwise. As Rawls points out, Pareto optimality is merely economic efficiency; it is underpinned by a utilitarianism that does not assist in the welfare of the least advantaged in society — never mind the disadvantaged (Rawls 58). This is put across well in A theory of justice:
Of course, the fact that a situation is one of equilibrium, even a stable one, does not entail that it is right or just. It only means that given men’s estimate of their position, they act effectively to preserve it. Clearly a balance of hatred and hostility may be a stable equilibrium; each may think that any feasible change will be worse. The best that each can do for himself may be a condition of lesser injustice rather than of greater good. The moral assessment of equilibrium situations depends upon the background circumstances which determine them…For while the theory of price…tries to account for the movements of the market by assumptions about the actual tendencies at work…[b]y contrast…the aim is to characterize this situation so that the principles that would be chosen…are acceptable from a moral point of view…[The RE position] is a state of affairs in which the parties are equally represented as moral persons and the outcome is not conditioned by arbitrary contingencies or the relative balance of social forces.
…Justice as fairness is a theory of our moral sentiments as manifested by our considered judgments in reflective equilibrium (Rawls 103-104).
It must also be remembered that many of the ideas in A theory of justice took shape during a period of great conflict such as the ongoing Cold War, the American civil rights movement, and the Vietnam war. So it is difficult to deny Rawls’s ideas on RE pierces through the injustice of Pareto optimality just as it would see through the disingenuous notion of political ‘balance’ promoted by the US internationally: For instance, in foreign policy based on ‘balance of power’ and the politico-military viciousness of ‘mutually assured destruction’. Such ideas only underscore the inefficacy, injustice and danger enshrined by so-called equilibrium when formulated in a way that is akin to dancing on a sabre’s edge (‘balance of power’) or living under a sword of Damocles (‘mutually assured destruction’). There is certainly no moral centre underlying these bizarre notions; it is rather the moral emptiness of sheer expedience that is labeled – ‘equilibrium’. The driving force here is the constant fear of destruction.
Back to the economic context: Rawls is saying that the expedient balancing of forces/elements of production in a situation is an artificial one that presupposes a utilitarianism that undermines a moral conception of societal well-being. In other words, we have the situation where a field like economics is devoid of moral efficacy when its purpose is the removal of human agency by stripping people down into self-interested automatons. This is in contradistinction to the moral function/strength of humans in trying to initiate a just and fair society as expressed via RE in constructing a social framework reflecting the highest interests of all concerned (for instance, without the primacy of the profit motive/monetary gain determining things).
So, there is none of the expedient surrender of policy-making to social vagaries and then seeing what supports the greatest convenience for the greatest number; this only gives stability to wealth creation by the elites for themselves: For what neoclassical economic-capitalist paradise could subsist otherwise? In fact, the moral force of our beings and the societies we can create always undermine neoclassical/utilitarian forces.
To try and understand this a little better, let us look at the idea of the ‘economy’ itself. While politics may seem to change sometimes due to electoral choices and can affect economic structures, the nature of economic theory itself is left unchallenged. Which brings us then to what is this thing called the ‘economy’. The concept of the ‘economy’ itself is synthetic. But this notion is afforded metaphysical status and regarded as a thing-in-itself. It is a transcendental notion that has been made transcendent. Let us explain. The concept of the ‘economy’ has been applied to our society and conveniently used to subsume all life forms. No one in political office can avoid discussing the ‘economy’; they treat it as if it is an ineluctable way to analyze everything as it seems a necessity of the world and existence. The world, society and each individual are forced into being seen through the so-called economic lens. So the ‘economy’ and its accompanying ideas are that which is enforced blithely upon everyone qua national policy and rules of governance.
Many of us have the apparent choice in deciding to participate within a society’s political framework, for instance, to try and change it; or leave a country we are unhappy with to go elsewhere to be in a socio-political system that seems to better suit us. And in so-called democratic systems people are allowed to exercise their votes as political participants and in the process help shape politically the kind of society they want: At least that is the impression clung to still by many.
However, although one can use the vote or some form of protest to express dissatisfaction politically, it does seem that often we are unable to vote out effectively an economic system. The politics may seem to change, and the economic system may appear to undergo some tweaks but essentially it remains the same. What this means is that some may be able to politically influence economic structures (through voting, running for office etc), but the nature of economic theory itself and the cover it provides in maintaining the status quo – remains unchallenged. In other words, an ‘economy’ — what it is, should be, and how it is managed — is often left to so-called economists and such ‘experts’ (and the technocrats influenced by them).
All governments that claim to be democratic or full-fledged democracies (though democracies can be authoritarian as proven by America) have assumed neoclassical economic principles as gospel truth; they also try to enact them qua policy. Economics and the idea of the ‘economy’ is not only assumed as holy writ and remain unchallenged, they are inflicted on us mercilessly. The state apparatus is there to ensure compliance to economic theory.
Why is this so? Why are institutions of higher learning not producing curricula and students who challenge this and help come up with alternative economic ideas that are being tested out in so-called democracies? Why is public funding not invested in coming up with alternatives to economics as we know it, and replacing outmoded economic theories with new thinking and vibrant ideas? Why is the mainstream media bashing out the same drum-beat of taking for granted and discussing as if it is a fixed and eternal truth that ‘economics’ and the ‘economy’ are that which is not open to being questioned and challenged? When will we realize that the ‘economy’ is something man-made and seductively believed in as an irrevocable truth?
Where are the alternative, non-mainstream and contrarian voices – whoever they may be – who can sensibly and humanely discuss why we should be challenging the very idea of the ‘economy’ itself. It is this notion of the ‘economy’ itself that is used to impose economic theories that are inherently capitalistic and which have kept us in thrall through the modern era in a system of political gridlock, international conflict and impoverishment of the majority of human beings. It is the idea of the ‘economy’ that is endangering the natural environment of the planet itself. It is nothing but an idea – like the notion of ‘democracy’ thrown about in conversation by many today – that has become a chain-and-ball on the ankle, and a manacle around the neck of so many of us.
We are like the characters in Book 7 of Plato’s Republic, which contains the ever-relevant “allegory of the cave”. Like the masses, many who think themselves intellectuals are also chained by their necks and forced to watch the flickering shadows on the cave wall just as they think that what is seen is real: Of course, this is illusory (see the video clip at the end of this essay). So much theoretical constructs have been taken for real, and worse, metaphysically true and therefore – transcendent. So it is unsurprising that we are stuck into thinking and acting out the dogmatism of self-destruction that only keeps in public eye, ear and mind those voices that propagate self-referencing and self-affirming neoclassical ideas (while carefully obliterating, and keeping at bay, those with alternative ones).
The ‘economy’ is rendered as that which is essentially true and transcendent as it is imposed on us via education and all the institutions of state. There is nothing extant to challenge the notion of why we use the term ‘economy’ other than the blind assumption that we use that term and that we are employed/enslaved within a discourse and society that bandies economic concepts that are taken as divine edicts. The fact that you cannot challenge and ask why the system of production and manipulation of Capital cannot be termed a set-up for enslavement and forced labour and be given a proper hearing, investigation and transparency in the public arena — is testament to the claim that the economy is taken as true and real and ever-existing; a thing-in-itself that cannot be discarded or replaced.
It is not argued here that the term ‘economy’ has no value at all nor that we can live without some notion of an ‘economy’ that implies a way of providing essential commodities for us. What is being questioned is why the term ‘economy’ is used in a transcendent sense that enshrines and institutionalizes the violence of Capital. We hope to develop in subsequent pieces what a replacement for the current ‘economy’ might be like. In that instance, the term would be just that: A placeholder and reference point for ideas that are subject to change and evolution for the highest good of all life and the planet itself. So one instance for such a replacement term would be ‘Just production and distribution’ which emphasizes a process rather than an entity. Moreover, the moral drive underpinning such a system-process is of paramount significance. This alone makes such an endeavour diametrically opposed to the economic theories and notion of ‘the economy’ in the world today.
The fact is as we live it today: The economy is but a tool of management and control and Capital is its weapon of choice in enacting this. With the many subterfuges that have been imposed on humanity, economic theory under the guise of being scientific is one of the greatest of scams (fighting for first place with banking). Why should anyone believe an economist any more than a fortune-teller with a crystal ball under a circus tent? You might as well unconditionally believe a politician (and his Tarot cards in the form of ‘talking points’ prepared by sycophantic assistants).
It may be stated that Marx and Engels have their theories too, but whatever their faults they have a moral drive underlying their words, and they have always tried to liberate people from standard economic notions and systems that place humans and the environment at the periphery of things. They also aim to free us from the slavery to Capital: This alone places them in the category of freedom fighters, despite their ideas being hijacked and tragically turned into what may be termed twentieth century ‘communism’.
But coming back to Rawls: There is another aspect to RE that gives it strength which is also reflective of natural laws as well. For instance, it can be argued that there is much in the process of RE that mimics how nature works in the sense of attaining ecological balance. There is almost a homeostatic quality to how RE functions that makes it a natural fit for humans and our social/natural environment: This would provide a base from which ground-up ideas are formulated as part of the process of a political conception of justice and adds an organicity to it.
The nature of water is a good example when we consider some of its natural self-adjusting aspects which can even be regarded as a form of intelligence. For instance, note how water has the remarkable characteristics of being flexible, all encompassing, and possessing miscibility; it also has that special ability miscalled an ‘anomaly’. Water’s so-called ‘anomaly’ is this: That it reaches its maximum density as it approaches 4 degrees Celsius. This characteristic allows for the surface of large bodies of water like lakes etc to freeze, while keeping that below in liquid form circulating within its internal convection which also allows fish to live within frozen lakes. This is a process supportive of life.
Similarly, RE also has life-affirming and mimicking qualities congruent to the dynamics of nature. In fact, RE and formulating public policies generated from a political conception of justice would, in many instances, have much of the defining characteristics of water: Its flexibility, encompassing nature and social miscibility through forging an overlapping consensus in reaching decisions by people for the highest good of all. And it is not surprising that water is used through the ages as a symbol and metaphor for enunciating spiritual truths and promulgating moral analogies that reflect such truths.
So it can be said that RE is a moral equilibrium expressed as a socio-economic-political equilibrium that is also reflective of an ecological equilibrium. This form of a natural/organic precipitation of equilibrium is in contradistinction to the subreption and counter life-affirming one represented by transcendent equilibrium: Or, the equilibrium of Walras and Pareto.
Looking at things from an overall perspective, we can say that with what is discussed here (building on invaluable ideas from Kant and Rawls) we have a basis for working towards a moral economy. This may be quite a shocker to many. To place the terms ‘moral’ and ‘economy’ side-by-side can even be traumatic for some. This would then be a primer to formulating ideas for the activity/process of Just production and distribution. It is this move towards a moral economy strengthened through Kantian-Rawlsian constructivism and ideas from revolutionary constructivism that could provide us the foundations for a new socio-economic paradigm as will be examined subsequently.
[Note: This completes the entire essay which is available as one piece — “A critique of Capital: The struggle toward a moral economy“.]
1. The moral imperative underlying the Marxian critique is also reflected in this article by Yvon Quiniou : “To desire to make capitalism moral is in reality to demand its suppression” which appeared in Truthout. This moral drive is non-existent in capitalism.
2. Also of interest is this piece by Michael Heinrich in Monthly Review: “Crisis theory, the law of the tendency of the profit rate to fall, and Marx’s studies in the 1870s“. As Heinrich points out some of Marx’s later work, that has not been fully translated into English, reveals that he planned to discuss the influence of banks and interest-bearing capital in the context of the credit system (and by implication the role of the state in this). His observations were meant to develop on how the credit system plays a role in generating crises. It is indeed this in which Marx is, once again, prescient as evinced by events of the 20th century to the present.
1. George, Donald A.R. “Consolations for the economist: the future of economic orthodoxy.” Issues in heterodox economics (Ed. D.A.R. George). Blackwell Publishing: Oxford, 2008.
2. Bichler, Shimshon and Nitzan, Jonathan. “Capital as power”.
3. Lipsey, Richard G. An introduction to positive economics (Fifth ed.). Weidenfeld and Nicolson: London,1980.
4. Rawls, John. A theory of justice (revised ed.). Harvard University Press: Cambridge, Massachusetts, 2003.
5. Screpanti, Ernesto and Zamagni, Stefano. An outline of the history of economic thought (2nd ed.). Trans. David Field and Lynn Kirby. OUP: Oxford, 2005.
The writer is the editor of Philosophers for Change
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