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Schabas on Economics and the Engineering Mentality June 15, 2011

Posted by Will Thomas in EWP Book Club.
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The central argument of Margaret Schabas’s The Natural Origins of Economics (2005) is that, over the course of the 19th century, economic thought abandoned links to natural science and began to concentrate on the object of “the economy” which was perceived as being purely social in character.  In a previous post, I observed that Schabas makes the argument well, but that it remained unclear that nature was ever central to economic thought, and thus it was unclear why a shift away from nature should be a key concern in assembling a history of economics.

I think the best case to be made is that Enlightenment-era political economy attempted to establish explanations for a diverse set of perceived phenomena, which would attribute them to the interplay of basic processes.  As Chris’s posts on this blog illustrate so nicely, this project continued through the 19th century in literatures spanning political economy, history, ethnography, and biology.  However, the analysis of constrained but precisely defined economic phenomena as products of patterns of human thought and choice branched off from this project in a process playing out from David Ricardo (1772-1823), to the analyses of Léon Walras (1834-1910) and William Stanley Jevons* (1842-1924), to the revolt of the social science of Max Weber and others (1864-1920) against the German “Historical School”.  What Schabas calls the “denaturalization of the economic order” is certainly a part of that process, but it is far from its defining characteristic.

Schabas does not go into great depth about her reasons for placing the question of nature at the center of her story, but she does offer some brief hints.  She argues that economists’ portraits of the economy as social rather than natural corresponds to their belief in its artificiality, and thus the prospects of engineering it (158):

A concept of the economy that is severed from nature also lends itself to human control.  A central motif of postwar economics is the ability to stabilize the economy via manipulations of the interest rate and the money supply.  In short, many economists under the sway of Keynes believed that they could engineer the economy.  A quick perusal of most macroeconomics textbooks of the 1970s and 1980s makes evident the strong commitment to ‘stabilization policy.’  Which ‘tools’ to use are disputed, but not the overriding goal of stability….  The rhetoric is very much like that of civil engineers….  Macroeconomists convey a similar degree of confidence in achieving a national economy that couples low inflation and low unemployment with a healthy degree of economic growth.  The laissez-faire stance of the Enlightenment has given way to one of engineering.  Only with time will we be able to judge who had a deeper command of the path to human flourishing.  [End of Book]

There is no question that there are important links between engineering and economics.  In a paper I published in 2009†, which compares Jay Forrester’s work in what he called “Industrial Dynamics” to work in business cycle economics and operations research, I note the Harvard Keynesian Richard Goodwin’s (1913-1996) eagerness in 1951 to show a compatibility between the normativity of Keynesian economics and the descriptive language of servo engineering, which actually portrays the trained economist as a part of the economic mechanism:

The Council of [Economic] Advisers is an ‘error-detecting device’ and reports on the deviation between desired course and actual course.  The Congress amplifies this signal into some large-scale input of the creation or destruction of purchasing power.

Cyborgs!  But what of them?

By linking nature-grounded Enlightenment economics with specifically laissez-faire policies — going so far as to lump monetarism with Keynesian economics as part of the post-natural engineering mentality — Schabas appears to draw a surprisingly stark line between all the normative recommendations of modern economics and a radical liberatarian alternative, which would suppose the futility of any such recommendations.

It’s a really strange way to end a book.  The problem of economic governance and the futility thereof — what exactly cannot be engineered, and what can, to what extent, and how — is a deep concern of twentieth-century economic thought.  In the 1930s and ’40s, Marxist advocates of economic planning were often criticized for having an engineering mindset, which subordinated human individuality to the rationalized economic plan.  Monetarists like Milton Friedman would portray Keynesian fiscal policy as subject to similar intellectual flaws, channeling money away from the open markets that could make more productive use of it.  Though the literature is famously divisive, I would still argue that even the contemplation of what kinds of governance can be productive to be one of the great accomplishments of twentieth-century economic thought.

Schabas doesn’t actually suggest there is any reason to believe that all the thought associated with denaturalization and the engineering mentality is, in fact, futile (though words like “confidence” hint at a certain wariness).  But, in any event, this twist at the end does put “nature” in a strange place as something that renders economic phenomena as unamenable to intervention, which doesn’t seem to follow from the historical analysis.

I would be hesitant to suppose that the presence or absence of “nature” in economic thought was any sort of crucial determinant in any era of whether or not “the economy” or particular economic and political phenomena were viewed as politically tractable.  We need to be careful about these things, not least because this is a particularly opportune time to think deeply about the history of what has been viewed as tractable and intractable, and why.

Much as political, intellectual, and cultural historians are doing much to illuminate how cultural resentment became a voting issue, historians could do a great deal of work to illuminate, for example, how unemployment ceased to be an issue in political discourse, despite the extraordinarily high levels of it with which we now live.  Under the Keynesian consensus, state pursuit of full employment was, at mid-century, at the heart of politics.  We know that inflation and dissatisfaction with state-run industries helped undermine this view.  But there is still a great deal of work to be done in political and cultural history, in business history and the history of technology, as well as the history of economics as a science, before we can have anything other than facile explanations relating to the hypnotic power of “neoliberal” ideology to tell us how state intervention came to be seen, even by many on the left, and even in times of enormous economic lethargy, as a dangerously unnatural way of addressing shortfalls in business investment and the plight of the unemployed.

*Jevons was the subject of Schabas’ 1990 book, A World Ruled by Number: William Stanley Jevons and the Rise of Mathematical Economics.

†William Thomas and Lambert Williams, “Epistemologies of Non-Forecasting Simulations, Part I: Industrial Dynamics and Management Pedagogy at MIT” Science in Context 22 (2009): 245-270.

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Comments»

1. Juan - June 19, 2011

Great stuff Will. Shooting off from you last paragraph, I want to ask you something: do you know what the historical origins of the concept of the political “centre” are? Does it have a long history or is something that only surfaced relatively recently? It seems directly relevant to the question of why the debate has shifted on unemployment; taking America as an example, Obama has made a great deal of moving to meet the Republicans at the “centre”, which sometimes means making compromises that are painful to his progressive base. Looking closer to home Blair was recently reported to have said to Ed Miliband to “fight from the centre”. Why is this rhetoric so common nowadays?

2. Will Thomas - June 20, 2011

Thanks Juan. That’s a great question and, since I’m not a historian of politics, it’s not one I’m well equipped to answer in more than a facile manner! I read a little about this in Bill Clinton’s autobiography, where talks about “third way” sentiment to the 1970s. I think it’s fair to say that it’s also attached to the politics of cultural resentment through ideas like Nixon’s vaunted “silent majority”.

In the previous period of polarity, the 1930s, with Marxism and fascism in the mix, one would think some concept of the “center” would also apply, but my impression is that “liberal democracy” simply stands as a separate model, rather than as a central point on a spectrum — I could be wrong about that, though. It is possible it appears in this earlier period in places without 2 or 2.5 party systems, like Weimar Germany, France, and pre/post-fascist Italy.

I think the rhetoric is common, simply because it is easy to portray oneself as preferable to competitors, if one can portray the other side as taken by a dangerous radical agenda. In American politics, Democrats could long be portrayed as opposed to a sort of demure, sensible conservatism. Centrist, “third way” rhetoric was an attempt to defuse that image, although there does seem to be some renewed attempt to more actively portray Republicans as radicals. This is always dicey, because so long as people associate both themselves and the Republican Party with sensible conservatism, that can be alienating. Ultimately, though, if you can make a clear case, it could pay off.

As I say, though, that’s just me offering a few off-the-cuff political opinions, rather than drawing on any serious research. So, I would very much like to see some more intensive historical work on the development of the idea of the center — it may well exist now, and I just don’t know about it.

Juan - June 21, 2011

Thanks Will. Another thought: since you talk of a “Keynesian consensus” in the post war period, couldn’t we now talk of a “neo-liberal” one? Maybe it’s a facile way of understanding recent history, but as a shorthand for understanding current political trends I think it’s useful. Or do you think neo-liberalism doesn’t play that big a role in shaping the political climate?

Will Thomas - June 22, 2011

I’ve always been wary of the term “consensus”, and you can chalk my use of “Keynesian consensus” up to laziness here. It’s probably better to say that Keynes was influential in that, before monetarism, it did seem to be accepted by influential economists and politicians that it was the responsibility of the government to use fiscal policy to achieve full employment.

Similarly, we can certainly say that neo-liberal ideas have been influential across political divides in applying market concepts to new areas, and in pushing for deregulation, say, with the repeal of Glass-Steagall in the US. At the same time, whatever its effect on the political climate, we do have to keep track of the fact that despite political pressure government regulations (however scaled back) and social welfare programs remain an important part of what the government does and what the parties of the left advocate for — and what many on the right continue to see as a consensus yet to be broken up! So, I would hesitate to speak of consensus here.

3. Juan - July 8, 2011

Some further thoughts – You talk of the constant battle between the new right and the left, and I wonder if this dialectic isn’t actually confined to a specific place, namely the US of A. The Republican party in particular seems to fit your bill of frustrated conservatism constantly trying to break down the liberal consensus. However, I wonder what the picture looks like once we step out of the mire of American politics and look at other strands of “neo-liberal” thought, namely here in the UK and the continent. Mirowski has done some good work on this, and I think one of the main points you can take from scholarship into neo-liberalism is that it doesn’t fit into a neat “left-right” divide. For example, when I was talking about the “center ground” concept, which I didn’t express very well, I was trying to think of the “triangulation” idea from the 90’s supposedly used by the “new” left represented by Clinton and Blair. An article on Blair on the Guardian today drives home the point for me:

http://www.guardian.co.uk/politics/2011/jul/08/tony-blair-new-labour-gordon-brown

Note Blair’s odd repudiation of “ideology” while putting across an ideological line. This chimes with what you said about making the other guy look weird, but I think there’s something else that was at work that hasn’t been fully explained yet. Why do we have to follow the “third way”? It would be nice to find out, and the answer may not necessarily lie with “neo-liberalism”.

4. Will Thomas - July 9, 2011

Yes, I think when we talk about the idea of “the center” as a political force, the cultural identification is fairly peculiar to America, because of the success in identifying cultural radicalism with the Democratic Party (hence the importance ascribed to Clinton’s “Sister Souljah moment” in solidifying his centrist credentials).

When and how economic “centrism” became an international political force is a good question, which I think we could link to when there was a major enough split between parties for one to credibly accuse the other of radicalism. I’m not sure this has ever happened in America to the extent that economic centrism has ever escaped from cultural centrism (i.e., in America economic centrism was closely linked to skepticism about the power of labor unions and welfare politics, which could both be framed in terms of the cultural politics of “special interests”, but the Democratic Party has ever strongly advocated, say, nationalization of industry). In Britain, on the other hand, I think socialist Labour and Thatcherism were sufficiently poles apart enough for economic “centrism” to seem like a political alternative that could be forcefully articulated. (I have no substantial knowledge of the recent politics of the Continent.)

I gather, though, that you’re more interested in “the center” as a governing principle where the question is, is the governing principle separable from the political force? Is Blair’s (and Clinton’s) “pick and choose” separate from the political strategy of “triangulation”, and, if not, is triangulation in policy explicitly informed by neoliberal ideology?

I am sufficiently convinced that there are enough coherently expressed policy positions out there to suppose that an interest in fostering market growth is not simply a half-way submission to neoliberal ideology. I was reading an interview with Lawrence Summers recently, who would be a good example of a neoliberal-influenced person on the left. Summers remarked that he felt like Paul Krugman was simply something of a contrarian, because he used to criticize Clinton adviser Robert Reich from the right.

Now Krugman, of course, is a key champion at the moment of Keynesian insights, but, at the same time, his Keynesianism is very explicitly tied to the fact that monetary policy is constrained by the fact that interest rates have reached the zero lower bound. So, are we to read Krugman’s appreciation of markets as a submission to neoliberalism? Or is neoliberalism only linked to taking a particular view of the politics of regulating financial markets in particular, and, if so, isn’t that an awfully narrow definition of something that is supposed to have such a pervasive influence on 21st-century thought?

I have no doubt that the isolation (rather than mere privileging) of the market as the sole legitimate source of economic benefit is a product of a peculiar strain of economic thought, which we can label neoliberal. Further, I would agree with Mirowski that the form of many policies (for example, intellectual property laws that encourage monetization of pretty much everything) are built around these ideas. Further, I would say that government reaction to the current crisis indeed does show submission to neoliberal thought that only business can generate legitimate growth, therefore government needs to do everything it can to reduce taxes, present and future (the latter by avoiding debt).

But, I don’t think we must look to neoliberalism to understand center-left figures’ interest in market mechanisms. I do believe there is room for coherent governing principles that take markets seriously, without somehow taking their cues from a particular ideology of markets. I would argue that the importance of markets is inherited from history of parties of the left that have never actually abandoned markets (particularly in America, to an extent in Britain). That said, I would acknowledge that a lack of political momentum behind center-left ideas in the last 10-15 years has crippled their necessary extension in the current moment of crisis, allowing the ideas behind how to recover from a crisis to come pretty much solely from the neoliberal right.


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