Sunday, January 17, 2010

Review Commentary No. 4: Milgate and Stimson's "After Adam Smith"

After Adam Smith: a century of transformation in politics and political economy, Princeton University Press, Princeton, ISBN 978-0-691-14037-7

The idea of civil society – the sovereign at the top, the Church alongside, then those distinguished by rank and privilege within the realm of the sovereign’s grace and favour, and men of letters somewhat ambiguously within their sight and often in their service, and the vast bulk of the populations in degrees of servitude and inferiority – began to give way to another view among some men of letters, writing of a separate phenomenon found in the new political economy of the 18th century, that noticeably was emerging, of by intrusion and not invitation, as a rival centre of authority in ideas to the existing order.

Milgate and Stimson trace these developments through Smith, Ricardo, Marx and the new Marginalists of the 1870s. Whereas, the early classical school embedded the individual into society’s class structure – landlords, labourers, and owners of stock – the new school, post the late 19th century, elevated the actors in society as individuals, not as members of classes. In Marx, the individual was virtually absorbed in favour of the State; in Jevons, Menger, and company, classes were abolished in favour of autonomous individuals maximising total utilities. (Thank you to Paul Walker for correcting my silly error.)

Ricardo saw class structure as the dominant characteristic – the proprietor of the land, the owner of stock, and the labourers, sharing the rewards the produce of the earth in different proportions, regulated by ‘laws’ of political economy, not by the sovereign’s will. In Ricardo’s formulation, the quantity of labour necessary for the production of commodities, given a subsistence wage sufficient to purchase the ‘food necessaries, and conveniences’ of life, inversely determined the rate of profits. Thus, setting the labourers and the capitalists into mutual zero-sum conflict.

These relationships were the primary focus of political economy under Ricardo’s influential dominance of the discipline until J. S. Mill

Once the idea that the market and its ‘laws’ were autonomous, the belief that, like Newtonian gravity, they should not, for good purpose, be interfered with, placed the weakest class of labourers at a disadvantage. Innovation in machinery was profitable for proprietors, but disadvantageous for labourers; the poor laws, though founded for benevolent reasons by misguided legislators, made the rich poorer and thereby the poor poorer to no advantage than before such policies were introduced; and the free market-driven free trade with other countries was good for domestic consumers, and for capitalists enabled to pay lower wages because of cheaper food for labourers, but not so good, albeit in the ‘short term’, for labourers.

With the neoclassical school, the focus of the discipline shifted; it became more abstract, divorced from the real world to that of the ‘allocation of scarce resources to competing ends’, with any illustrative ‘stories’, or parables, shunted into the homely world of ‘Robinson Crusoe’ and ‘Man Friday’.

Men like Marshall kept one foot in reality by describing people going about the ‘ordinary business of life’; but once formalism was introduced, simply as an illustrative device, it eventually took over: algebra, calculus, and geometry graduated from appendices to the main text.

Milgate and Stimson’s account of these transitions is informative. Accepting the distribution of wealth as a ‘given’ prior to the exchange relationships, slips into discussing ‘factor prices’ devoid of their politics within the ambit of ‘positive’ science, making any intrusion of ‘normative’ values ‘unscientific’.

Our authors point out that one consequence of this transformation from the visions of Smith, and the classical political economists, to the abstract, perfect, worlds of modern economics, was to distance the subject from politics and values. ‘Equity’, say Milgate and Stimson, gave way to concerns about ‘efficiency’ (p72). This approach had some utility in fusing economics with an apparent predilection for scientific authority, thus separating itself and its practitioners from ‘wooly minded’ social so-called sciences, like politics, sociology, and history. At best, what is, became the norm, and all else was regarded as imperfections and deviations.

For neoclassical economists, positive economics and political life are separable; for classical economists they are interdependent. This is not a trivial difference. In support of which, Milgate and Stimson assert that this was problem picked up by Jeremy Bentham, who in his “Writings on the Poor Laws”, all but “accuses Smith of failing to distinguish between the necessity of what might be termed the ‘hand of government’ in practical affairs and the role of an ‘invisible hand’ on the systematic account of the operation of the market”.

Though the point is well made, I was not aware that Bentham had ever mentioned Smith’suse to the metaphor of an invisible hand, and I suspect the reference is a modern interpolation. From such authoritative authors myths grow.*

The authors close their chapter with an account of James Buchanan’s work on contemporary constitutional economics, in what amounts to a step towards joining the polity into the realm of economics by “returning to Smith’s project which (Buchanan) identifies as constitutional political economy, suitably update of course in a modified language of public choice”.

[In the next commentary we move onto the economy s machine.]

* Modern quips abound and project backwards by joining past figures in collusive, but false, associations. For example, Richard McIntyre (2003), penned the line: “Neo-classical theory is really an arranged marriage between Adam Smith’s invisible hand and Jeremy Bentham’s utilitarianism.”

In Richard MacIntyre, 2000. ‘Globalism, Human Rights and the Problems of Individualism, A review of George F. De Marino of Global Economy, Global Justice: Theoretical Objections and Policy Alternatives to Neoliberalism,’ New York, Routledge

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2 Comments:

Blogger Paul Walker said...

"autonomous individuals maximising personal marginal utilities."

Why would you want to maximise the slope of the utility function? Wouldn't that require consuming near to zero goods and services? Assuming a concave utility function. And I was not aware that Jevons and Menger assumed people would. I would have thought people would maximise total utility.

2:59 a.m.  
Blogger Gavin Kennedy said...

Paul

You are, of course, right and I have corrected my statement, though I could still improve it - equalising their marginal utilities?

The main point Milgate and Stimson make is that autonomous individuals replace classes as the focus of the analysis.

Gavin

8:56 a.m.  

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