Random variables and elementary particles have neither values nor intentions; they may constitute a system but surely do not make a society.--An Economic Theorist (2004).
Whenever we get a glipse of economic man he is not selfish. On the contrary he is generally hard at work saving capital chiefly for the benefit of others. (Marshall 1885: 28)
Milton Friedman and Anna Jacobson Schwartz gave A Monetary History of the Unites States an epigraph from Alfred Marshall. Friedman's engagement with Marshall was not superficial; his one serious contribution to the history of economic theory was on the Marshallian Demand Curve (1949). Friedman's famous (1953) methodology essay, "The Methodology of Positive Economics," is sprinkled with references to and quotes from Marshall. One role for Marshall in Friedman's hands was against the 'Walrasian' general equilibrium analysis associated now with names such as Arrow, Debreu, and McKenzie, among others.
One such a name, Frank Hahn, once remarked (1984) in print:
Some friends [of economic theory] in what might be called roughly, and a bit unfairly, 'Chicago' economics -- have taken the theory in practical applications a good deal more seriously than at present there is any justification for doing. Paradoxically, they are rather hostile to its abstract foundations, yet are happy to put a great deal of weight on them. (75)
The "paradox" of [A] friendship to economic theory when applied accompanied with hostility to its "abstract foundation," is said to be the "primary interest" of MA Khan's essay (2004) "Self-Interest, Self-Deception and the Ethics of Commerce." (I would give it the subtitle: "a Wittgensteinian reading of Four "False Prophets" of Cambridge Economics.") Of course, the mathematical economists, Hahn and Kahn, know that there is no formal paradox in [A]--as long as the abstract foundations (associated by Friedman with Walras) are treated as dispensable in practice. Khan also owns up to a form of [B] "self-interest," that is, [B*] "the ethics of commerce," one that somehow requires Khan [C] to "understand" himself, that is, to be philosophical. (I write "that is, to be philosophical" not because of the occurrence of the word "ethics," but rather in recognition that within theoretical economics there is no place for self-understanding, while we philosophers still pay lip-service to Socratic wisdom.) Initially, Khan leaves the relationship between [A]-[C] ambiguous; his way of self-examination passes through Marshall's (1885) Inaugural Lecture The Present Position of Economics.
Second, Khan omits Marshall's struggle with Ricardo, which runs through the lecture. Consider these five passages:
- As to their tendency to indulge in excessively abstract reasonings, that, in so far as the charge is true at all, is chiefly due to the influence of one masterful genius, who was not an Englishman, and had very little in common with the English tone of thought. The faults and the virtues of Ricardo's mind are traceable to his Semitic origin; no English economist has had a mind similar to his. (Marshall 1885: 12)
- The chief fault then in English economists at the beginning of the [nineteenth] century was not that they ignored history and statistics, but that Ricardo and his followers neglected a large group of facts and a method of studying facts which we now see to be of primary importance. They regarded man as so to speak a constant quantity, and gave themselves little trouble to study his variations...The same bent of mind that led our lawyers to impose English civil law on the Hindoos, led our economists to work out their theories on the tacit supposition that the world was made up of city men...they had not the faith, that modern economists have, in the possibility of a vast improvement in the condition of the working class (Marschall 1885: 15-7)
- Ricardo and his chief followers...did not make clear others, it was not even quite clear to themselves, that what they were building up was not universal truth, but machinery of universal application in the discovery of a certain class of truths. This is the main point on which I wish to insist to-day. (Marshall 1885: 19)
- Ricardo who added more to the theory than anyone else, was not fortunate in his choices of cases to be worked out in detail. (Marshall 1885: 32)
- ...the organon [economic theory--ES] is becoming better fitted to actual conditions. But the work requires a constructive thinker of calibre similar to Ricardo's. (Marshall 1885: 33)
Marshall's "main point" -- that economics is "not universal truth, but machinery of universal application in the discovery of a certain class of truths," -- that is, economics is an "engine" for discovery of truth appealed greatly to Friedman; in his (1953) methodology essay, Friedman writes: "Marshall took the world as it is; he sought to construct an "engine" to analyze it, not a photographic reproduction of it." (35; Friedman quotes Marshall's "engine" [Marshall tends toward using "organon"] without giving the original source!)
Marshall relies on an opposition between an English and a Semitic casts of mind, and the Semitic cast is associated with "excessively abstract reasoning." I would not use these passages as evidence that Marshall is a philo-semite, but before we recoil from Marshall's treatment, it is worth noting that Marshall wishes to make economics more Semitic not less (see, especially, 5 above). For, Marshall hopes that one day "part of this organon will no doubt be presented as a perfectly pure or abstract theory." (Marshall 1885: 26)
In historical context, to make economics more Semitic is also a move away from (metaphysical) philosophy. For, part of the point of Marshall's lecture (it concludes with this) is a plea to attract folk with a Semitic cast of mind to economics despite the fact that such a path would ordinarily have to go through the moral sciences tripos (Marshall 1885: 52). Marshall relies on the once familiar opposition between mathematical (that is, Semitic abstraction) and metaphysical sciences (associated, first, with the followers of Spinoza [recall my posts on anti-mathematics in Hume, Mandeville, and Adam Smith] and in Marshall's time with the British Idealists). Whatever we make of such distinctions, they helped create the institutional split between philosophy and economics engineered by Sidgwick and Marshall at Cambridge (recall here and here), including the creation of an economics tripos distinct from the moral sciences tripos (developments that were still in the future in 1885; within the aftermath of this development the philosophical students of Sidgwick created analytical philosophy).
The previous paragraph is not an aside for two reasons:
First, Marshall has a vision of the "social role" of "the theorist:" "not simply to put out computations of rates of return to education but to focus his gifts on curriculum development, on giving the right spin to human motivation, his as well of those he theorizes," (quoting Khan 2004 summarizing Marshall). The theorist has a role to play in what "ought to be taught" both to future generations of economic theorists as well as to the businessmen (who are (a) going to be populated with Cambridge "University men" and (b) users of economic theory) and other members of the public.
As Khan's essay makes clear, Marshall's moral and practical defense of economic theory requires that public opinion is put inside economic theory: "In order to preserve what is essential in the benefits of free competition...they [the young economists like Marshall] look to the extension of the new force of public opinion as a means of eliminating much of the evil effects of competition, while retaining its good effects." (I am quoting Khan, who is quoting Marshall's 1890 address on "Some Aspects of Competition.")
The historic irony is that Marshall identifies economic theory ("Marshall's science") more narrowly with the skilled reasoning about the measurements of motives by way of monetary exchange. As he puts it while adopting the language of possible worlds (see also here):
The outward form of economic has been shaped by its connection with material wealth. But it is becoming clear that the true philosophic raison d'être of the theory is that it supplies a machinery to aid us in reasoning about those motives of human action which are measurable. In the world in which we live, money as representing general purchasing power, is so much the best measure of motives that no other can compete with it. But this is, so yo speak, an accident, and perhaps an accident that is not found in other worlds than ours. (Marshall 1885: 22)
And, in fact, this is the science that Marshall identifies not with the great achievements of Ricardo, but with that other non-Englishman, Adam Smith (whose Scottishness is never named by Marshall):
[Adam Smith's] chief work was to indicate the manner in which value measures human motive. Possibly the full drift of what he was doing was not seen by him, certainly it was not perceived by many of his followers who approached economics from the point of view of business rather than of philosophy...the best economic work which came after the Wealth of Nations is distinguished from that which went before, by a clearer insight into the balancing and weighing, by means of money, of the desire for the possession of a thing on the one hand, and other of all the various efforts and self-denials which directly and indirectly contribute towaards making it. Important as had been the steps that others had taken in his direction, the advance made by him was so great that he really opened out thuis new point of view, and by so doing he made an epoch. (Marshall 1885: 20; see also on Mill 28)
So, Marshall treats Smith as the founder of Marshall's science even though that Dutch-Englishman, Mandeville, would be an equally worthy name to associate with the opening of the epoch (as Khan footnotes). Oddly enough, Marshall, who was a great reader of Smith, refuses to acknowledge that in the Wealth of Nations, Smith recognizes the existence of two currencies along side each other: money and approbation (admiration):
To excel in any profession, in which but few arrive at mediocrity, is the most decisive mark of what is called genius or superior talents. The publick admiration which attends upon such distinguished abilities, makes always a part of their reward; a greater or smaller in proportion as it is higher or lower in degree. It makes a considerable part of athat reward gin the profession of physick; a still greater perhaps in that of law; in poetry and philosophy it makes almost the whole. (Wealth of Nations; a note about terminology the economist is a "philosopher" in Smith)
So, to put the first point half-seriously-playfully, half-anachronistically, Smith's Marshallian science has (the varities of) public opinion inside the organon while Marshall is struggling to find a place for it. So, within Marshall's narrative of scientific progress (with earlier theorists -- in addition to Smith, Mill is treated to similar praise -- not fully aware of the "full drift" of their own insights), those of us that come later can discern what we would call "Kuhn-loss." Now, unlike Smith, Marshall and his theorist-heirs have no theory about justified admiration (or less demanding, justified legal sanction.) (This is not to claim that we ought to embrace Smith's theory.) So, when Marshall and more contemporary theorists make judgments about what ought to be taught to their most theoretically inclined and most practically inclined students, they have no scientific standard to do so. Absent such a standard we can assume, human nature being what it is, that it is primarily the self-interest (narrowly understood) of the upper-reaches of the economics profession that constrains its decisions on what to teach, even if the economists will understand their own judgments as being driven by the requirements of scientific progress.
Second, Khan's turn to philosophy can now be better understood. Khan's self-examination does not result in any truths. Rather it results in a question (if not "stutter"): "How is one to foster an optimal blend of competition and cooperation in society and in theorizing about that society, to control self-interest and to acknowledge the possibility of self-deception, to prevent one particular picture overshadowing the composite, putting the analyst and the analyzed, the theorist and theorized, on the same plane of existence so that an ethics of theorizing, rather than a narrative of self-serving or group-serving domination, can emerge?"
In 2004 Khan's was an untimely question; economics was in the middle of its great bull run taking credit for the great moderation and, in the process, becoming the technocratic elite in which we put our blind trust. (Recall that in 2004 the most powerful economist of the next decade, Bernanke, stated "improved monetary policy has likely made an important contribution not only to the reduced volatility of inflation (which is not particularly controversial) but to the reduced volatility of output as well," (see here).)
I have gone on too long, so I will pass over for now Marshall's sense of the limitations of economic science (and how this sense gets transformed in Friedman's and Khan's not quite opposing, but also not quite agreeing hands), that is, when "silence" is demanded from the economist-as-engineer (cf. this post). Rather I close with the observation that it is Marshall (and not his critics) that calls attention to the "bent of mind" that both "led our lawyers to impose English civil law on the Hindoos" and "our economists to work out their theories on the tacit supposition that the world was made up of city men." This "bent" is identified with the idea that man is a regarded "so to speak" as a "constant quantity." Marshall tactfully leaves the military violence that precedes and accompanies the lawyer's imposition silent. In the gaps of his "stutter," Khan's essay tactfully points at the often legal violence that precedes and accompanies the policy-economist's actions.