Thursday, April 2, 2015

Competing Visions in Economics as a Social Science: A Primer


The following was posted here - I had originally written it for students in one of my intermediate courses:

Economics (indeed every discipline of the social sciences) has never been, and never will be, value-free. Social scientists have always relied, and will continue to rely, on sets of elaborate positions, perceptions, and views about the ultimate nature of reality; essentially, it is the reliance on preconceived notions of how the world works, and how it should work, when analyzing manifest phenomena. Aspects of conscientiousness precede investigation and thus one cannot separate the knowing mind from the object inquiry. What constitutes a fact perceives the observation and hence the conception of what is determined as socially significant; the mind is active in constructing and determining the lens through which observation deciphers what of social phenomena is worthy of factuality.

All theorizing is based on first order principles (Lawson, 1989). Thus, what underlie all theories of human behavior are general apperceptions and ideological convictions of the relationship between the individual and society. They are epistemological foundations-what Joseph Schumpeter labeled as 'preanalytical visions'-which dictate modes of examination and inquisition. Hence, different pre-analytical visions predispose the focusing on different social and economic problems and lead to entirely different attitudes towards social settings and human actions within those settings. Preanalytical visions have pertinent implications for normative assessments of the human condition.

The neoclassical, or mainstream, if you will, preanalytical conception of the human being is that of the single-minded seeker of maximum utility (pleasure with respect to cost-benefit analysis and bounded rationality). This perspective perceives that the nature of individual preference orderings, with respect to consumption, is taken as given (more like taken for granted) and primary, without regard to agency and the social institutions and processes within which likes and dislikes are formed. The surrounding within which individual actions take place is conceived as an endless array of opportunity costs for the attainment of constrained optimization.

Categorical positions such as class, gender, and race are systematically negated in favor of centering attention on the (rather fictitious) assumption that society is based upon isolated exchangers/producers maximizing pleasure with initial endowments given by the Malthusian notion of the natural lottery of life. The only way in which human sociality appears is in individual needs for other entities with whom to exchange. In this sense, all economic theory is exchange theory.

Neoclassical economics determines the value of a commodity on the basis of utility derived from it. The more utility that one derives from consuming a commodity, the higher would be its value. Utilitarianism is the underpinning of the theory, which holds this value to be the true value despite the fact that pleasure, is an entirely subjective feeling that varies from consumer to consumer. The theory holds that when commodity A is exchanged for commodity B, the ratio in which the exchange occurs is determined by marginal utility (MU) derived by consuming the last units of commodity A and B. The crucial point is that the origin of value lies essentially in the institution of the market since this is the arena where isolated individual exchanges occur. Hence, the successful functioning of markets reveals how the values of commodities reflect their true values because free market exchanges are seen as complete contracts.

This ideation of utilitarianism does not question the social origins of conscious human desires. The Benthamite dictum that nature places mankind under the governance of two sovereign masters-pain and pleasure-reigns supreme. The issue of whether or not desires are exclusively metaphysically given is completely ignored. Human beings are simply assumed to be sophisticated calculating maximizers of utility. Hence, it is understood that exertions of work by individuals are never undertaken without the promise (with respect to consumption) of greater pleasure or the avoidance of greater pain (Hunt, 2001: 132). Differing social and cultural contexts make no difference whatsoever.

In this sense, neoclassical economics rests on the notion that Robison Crusoe is the natural, universal, pervasive unalterable characteristic of all human beings in all societies. The aim is to demonstrate how the competitive capitalist economy automatically obtains efficient situations in which it is impossible to make one person better off without necessarily making someone else worse off whereby unique organizations of production, exchange and distribution lead to maximum attainable social welfare.

Situations of conflict are defined away; situations where improving the lot of one unit is not opposed by other naturally antagonistic units are rare within this view. Since the level of analysis is on rational calculating individual units and not social units, how can changes that might make some better off without making others worse be discerned? It precludes the scientific evaluation of the degree to which existing desires reflect underlying universal human needs and the particular sets of social institutions that enhance the necessary capabilities for which these human needs can be met.

In addition, the most essential differentiating feature of capitalism-private property-is viewed as eternal, universal, and inherently just. It absolves capitalism of all the exploitation that is undertaken to produce and make profits. Total income of society is produced and distributed simply by some sort of 'natural law'. Thus, if workers have appropriate moral virtues and exercise responsibility, jurisprudence, self-control, and unremitting hard work, they can easily become entrepreneurs and accumulate capital.

Heterodox economics, on the other hand, examines the welfare of human beings through a lens that accentuates and exhibits interconnections. Within this preanalytical vision, it is appropriate to speak of systems of human behavior and visualize modes of productions that govern how human beings relate each other at historically specific times in the process of extracting from nature the means for human survival.

Starting with an analytical framework that invokes recognition of specific modes of production, we have the capacity elucidate the underlying processes that actually govern how the products of labor are distributed and how labor in general is assigned to specific technical processes. From this perspective, we can visualize historically specific modes of political power gives us the means that detail the apparent characteristics of social decision-making and the ordering of rights, privileges and responsibilities.

In contrast to utilitarianism of neoclassical economics, heterodox economics understands human beings distinctly as producers and focuses on the fact that the starting point of any theory is the recognition that that in all societies the process of production can be reduced to series of human exertions. It is ascertained that humans, unlike animals, generally cannot survive without exerting effort transforming natural environments into more suitable living spaces. Where utilitarianism sees humans in individualistic terms where there is no difference between exchanging with nature and exchanging with other human beings, heterodox economics sees human beings as cooperative social beings dependent on each other for human survival.

Since capitalism directs production solely for the impersonal institution of the market, interdependent labor is indirectly social. To illustrate this, Karl Marx noted:
Under the rural patriarchal system of production, when spinner and weaver lived under the same roof-the women of the family spinning and the men weaving, say for the requirements of the family-yarn and linen were social products, and spinning and weaving social labor within the framework of the family. But their social character did not appear in the form of yarn becoming a universal character exchanged for linen as a universal equivalent, i.e., of two products exchanging for each other as equal and equally valid expressions of the same universal labor time [as it w would be the case under capitalism]. On the contrary, the product of labor bore the specific social imprint of the family relationship with its naturally evolved division of labor. Or let us take the services and dues in kind of the Middle Ages. It was the distinct labor of the individual in its original form, the particular features of his labor and not its universal aspect that formed the social ties at that time. Or finally let us take communal labor in its spontaneously evolved form as we find it among all civilized nations at the dawn of their history. In this case the social character of labor is evidently not affected by the labor of the individual assuming the abstract form of universal labor…The communal system on which this mode of production is based prevents the labor of an individual from becoming private labor and his product the private product of a individual; it causes individual labor to appear rather as the direct function of a member of the social organization (cited in Hunt, 1991).
In addition,
As a general rule, articles of utility become commodities only because they are products of the labor of private individuals or groups of individuals who carry on their work independently of each other [in capitalism]. The sum total of the entire labor of these private individuals forms the aggregate labor of society. Since the producers do not come into social contact with each other until they exchange their products, the specific social character of each producer's labor does not show itself except in the act of exchange. In other words, the labor of the individual asserts itself as a part of the labor of society, only by means of the relations which the act of exchange establishes directly between the products, and indirectly, through them, between the producers. To the latter, therefore, the relations connecting the labor of one individual with that of the rest appear, not as direct social relations between individuals at work, but as…social relations between things (cited in Hunt, 1991).
Heterodox economics exposes the true nature of social organization under capitalism that leads to extraordinarily pernicious effects on workers. The capitalist market systematically prevents many from developing real conscious desires that reflect potentialities for self-realization and self-appreciation, i.e. become "emotionally, intellectually, esthetically developed human beings" (Hunt, 2002:242). Human senses are shaped and refined through working and transforming nature into useful things. It is through one's relations with what one produces that an individual achieves pleasure and satisfaction. Through visible direct interdependent social production, recognitions of one's ability, dexterity, and talent are palpable. Under capitalism, however, the scenario is quite different:
The bourgeoisie, wherever it has got the upper hand, has put an end to all […] idyllic relations. It has pitilessly torn asunder the motley […] ties […], and has left remaining no other nexus between man and man than naked self-interest, than callous cash payment. It has drowned the most heavenly ecstasies of religious fervor, of chivalrous enthusiasm, of philosophical sentimentalism, in the icy water of egoistical calculation. It has resolved personal worth into exchange value (cited in Hunt, 2002: 242).
This social organization of production is not oriented to human needs and aspirations, but rather by profit calculations estimated by legally protected extortionists (capitalists, or the bourgeoisie). The effects are total and degradation and total dehumanization of working-class people where they are reduced to nothing but disconnected brutes engaged in simple animal functions, not developing freely their physical and mental capacities. Capitalism, as such, is the accumulation of wealth at one pole, and the accumulation of misery, agony of toil, slavery, ignorance, brutality, and mental degradation at the opposite pole (Cited in Hunt, 2002: 244).

Heterodox economic analysis make it apparent whether or not society meets basic human needs and are translated into realized conscious desires for higher stages of human development. It shows that with a materialist approach to the study how humans relate to each other and organize to produce what is necessary for survival one can justifiably assert whether certain systems of human behavior do, in fact, generate the conditions for social harmony.

In hindsight, it is nearly impossible (if not completely impossible) to formulate egalitarian economic and social policies based on neoclassical ontology and epistemology. Perspectives that only consider market exchange, with a reductionist sense of human desire, systematically disregard the social nature of production; in the final instance, they effectively negate clear understandings of the totality of socioeconomic inequity (Campbell, 2010).

***NOTE - This neither covers the social nature of money nor the heterodox Post-Keynesian/Sraffian perspective, which are quite pertinent; as such, it is worthwhile for the student to refer to the following:

Aspromourgos, Tony. 1960. “Sraffa’s System in Relation to Some Main Currents in Unorthodox Economics.” Pp. 2–4 in Conference on Sraffa’s Production of Commodities by Means of Commodities, vol. 2010. Retrieved September 21, 2014 (http://host.uniroma3.it/eventi/sraffaconference2010/abstracts/pp_aspromourgos2.pdf).

Bellino, Enrico. 2004. “On Sraffa’s Standard Commodity.” Cambridge Journal of Economics 28(1):121–32.

Bellofiore, R. 1989. "A Monetary Labor Theory of Value." Review of Radical Political Economics 21(1-2):1-25.

Bortis, Heinrich. 2002. “Piero Sraffa and the Revival of Classical Political Economy.” Journal of Economic Studies 29(1):74–89.

Bortis, Heinrich. 2003. “Keynes and the Classics: Notes on the Monetary Theory of Production.” Modern Theories of Money: The nature and role of money in capitalist economies 411–75.

Hein, Eckhard. 2006. "Money, Interest and Capital Accumulation in Karl Marx's Economics: A Monetary Interpretation and Some Similarities to Post-Keynesian Approaches *." The European Journal of the History of Economic Thought 13(1):113-40.

Hein, E. 2008. "Marxian and Post-Keynesian Theory-Similarities and Differences Part 2: Monetary Analysis in Marx and Similarities to Post-Keynesian Approaches." Berlin, Germany. Retrieved June 9, 2014 ( http://www.boeckler.de/pdf/v_2008_07_27_hein_lecture.pdf).

Ingham, G. 1996. "Money Is a Social Relation." Review of Social Economy 54(4):507-29.

Ingham, G. 1996. "Some Recent Changes in the Relationship between Economics and Sociology."Cambridge Journal of Economics 20(2):243-75.

Ingham, G. 1999. "Capitalism, Money and Banking: A Critique of Recent Historical Sociology." The British Journal of Sociology 50(1):76-96.

Kurz, Heinz D. and Neri Salvadori. 1998. Understanding “Classical” Economics Studies in Long-Period Theory. London; New York: Routledge.

Kurz, Heinz D. and Neri Salvadori. 2005. “Representing the Production and Circulation of Commodities in Material Terms: On Sraffa’s Objectivism.” Review of Political Economy 17(3):413–41.

Screpanti, Ernesto and Stefano Zamagni. 2005. An Outline of the History of Economic Thought. Oxford; New York: Oxford University Press.

Signorino, Rodolfo. 2005. “Piero Sraffa’s Lectures on the Advanced Theory of Value 1928–31 and the Rediscovery of the Classical Approach.” Review of Political Economy 17(3):359–80.

Sinha, Ajit. 2002. “Reading Sraffa: The Philosophical Underpinnings of Production of Commodities by Means of Commodities.” Retrieved April 2, 2015 (http://www.gipe.ac.in/pdfs/working%20papers/wp2.pdf).

Vianello, Fernando. 1985. “The Pace of Accumulation.” Political Economy: Studies in the Suplus Approach 1(1):69–88.


Works Cited:

Arge, R. C. and E.K. Hunt. 1971. "Environmental Pollution, Externalities, and Conventional Economic Wisdom: A Critique." Envtl. Aff. 1:266.

Campbell, Al. 2010. "Marx and Engels' Vision of a Better Society." Forum for Social Economics39(3):269-78.

Foley, Duncan. 2004. "Rationality and Ideology in Economics." Social Research: An International Quarterly 71(2):329-42.

Hunt, E. K. 2005. "The Normative Foundations of Social Theory: An Essay on the Criteria Defining Social Economics." Review of Social Economy 63(3):423-45.

Hunt, E.K. 2002. History of Economic Thought. 2nd Ed., Armonk, NY: M.E Sharpe.

Hunt, E.K. 1991."The Role of Value Theory in the History of Thought," in Hunt, E.K and Rajani K. Kanth.Explorations in Political Economy. Savage, MD: Rowman & Littlefield Publishers, Inc.

Hunt, E. K. 1983. "Joan Robinson and the Labour Theory of Value." Cambridge Journal of Economics7:331-42.

Lawson, Tony. 1989. "Abstraction, Tendencies and Stylised Facts: A Realist Approach to Economic Analysis." Cambridge Journal of Economics 13:59-78.

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