Hoisted From Comments: Duncan Foley "Fairness" to the Past (Wie Es Eigentlich Gewesen Department)

Duncan Foley writes, apropos of his history-of-economic-thought book, Adam's Fallacy:

Brad DeLong's Semi-Daily Journal: The Childish Babbling of a Say...: Just, as Brad suggested, to get things clear:

I use "Adam's Fallacy" in the book to refer to two things. First is Adam Smith's claim that the pursuit of self-interest, which is morally problematic (not necessarily immoral, but in need of examination) in most human interactions, is unambiguously a social good in the context of competitive market interactions.

Second, I take this problem as representing a deeper issue that runs through Adam Smith's writing and the work of all the political economists I discuss in the book. This is the idea that there is an economic sphere of life subject to special laws, either moral or scientific. The book makes an extended case that this "fallacy" (which is not just Adam's) runs through the history of political economy and economics.

Whether or not I actually committed all of the Follies Brad identifies I leave to readers of the book to judge.

I think the way Smith uses Say's Law reasoning to support his analysis of free trade is a fair example of the way "Adam's Fallacy" works in his discourse. The discussion links up with the chapters on Malthus and Ricardo, Marx, and Keynes.

There is a broader issue about the impact of labor productivity increases on society, which is the "destructive" aspect of Schumpeter's "creative destruction". Cost-reducing technical change may not reduce employment in the sector in which it occurs, but it can have (and has in many cases) devastating effects in other sectors and economies. It is hard to look at the polarized world economy today without acknowledging this.

I don't think the lack of a long-run trend in unemployment in and of itself can settle the question of Say's Law, at least in the form "aggregate supply in the willingness of input owners to sell their resources creates its own aggregate demand", because in the long run the aggregate supply of inputs is adjusting, along with aggregate demand. The classical and Marxian analyses of macroeconomics, in which population is endogenous, are a good example of this.

I did not, as I say in the Preface, write the book to be "fair" to Smith or Malthus or anyone else. (As far as I can tell, all these guys are doing fine without my help.) I did write it to raise questions and prompt debate about the presumptions of economic policy discourse. I'm glad Brad de Long has taken me up on this and generated this discussion.I did not, as I say in the Preface, write the book to be "fair" to Smith or Malthus or anyone else. (As far as I can tell, all these guys are doing fine without my help.) I did write it to raise questions and prompt debate about the presumptions of economic policy discourse...

Let's pick up the thread:

Foley's claim that cost-reducing technical change powered by modern capitalism is the cause of mass poverty in "the polarized world economy [of] today" was decisively answered two generations ago by Joan Robinson: "It's a terrible thing to be a worker exploited in the capitalist system. The only worse thing is to be a worker unable to find anyone to exploit you." Where wages are lowest in the world today, it is because of the absence, not the presence of industrial capitalism and the technical change it drives forward.

Moving forward, Foley on pp. 36-7--writing "Smith concludes that the national interest is best served by getting rid of tariffs.... This argument rests on several assumptions.... Smith assumes that Say's Law is operating, so that there will be no long-term unemployment of labor or capital..."--runs into trouble with Foley on page 11: "Over long periods of time, it appears that something like Say's Law does operate." You just cannot say on one page that Smith's argument that free trade is good in the long run is flawed because it assumes that Say's Law operates in the long run, and say on another page that Say's Law operates in the long run. That's just not fair.

Last, apropos of Foley's declaration that he "did not... write the book to be "fair" to Smith or Malthus or anyone else": Robert Heilbroner's The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers is eminently fair to all the writers he discusses. For that reason, I think, Heilbroner's book cannot help but do a much better job of raising questions and prompting debate about the presumptions of economic policy discourse.

Smith, Malthus, Ricardo, Marx, the marginalists, Keynes, even Hayek--these are all mighty and powerful thinkers who deserve interpreters and commentators who will treat them fairly.

Comments

[Amr Ragab]

Brad,

It is very interesting what you are saying. I was always under the impression that economists are not judges. I dont think fairness is the criteria of critical scientific inquiry here. Foley, in my opinion, takes a critical and dialectical approach towards deconstructing Smith's arguments in light of the developments that took place in capitalism over the last 230 years since Adam wrote his book.

As for unemployment and technical change, with a constant level of investment as a percent of GDP (around 6%,)the extra employment created by this investment is becoming less and less as labour productivity increases.
The fact that the USA has avoided rising unemployment rates through the influx of foreign direct investment does not make the picture brighter. FDI flowing into the USA deprives the rest of the world from the extra employment that could have been generated because the productivity there is lower. Your approach to unemployment should be more wholistic and not just focused on single industrialized economies, but i think your only criteria is total income generated rather than how it is distributed among the people of the Earth.

[Brenda Rosser]

I have to take issue with the following:

"Foley's claim that cost-reducing technical change powered by modern capitalism is the cause of mass poverty in "the polarized world economy [of] today" was decisively answered two generations ago by Joan Robinson: "It's a terrible thing to be a worker exploited in the capitalist system. The only worse thing is to be a worker unable to find anyone to exploit you." Where wages are lowest in the world today, it is because of the absence, not the presence of industrial capitalism and the technical change it drives forward..."

We're living in a time where millions of people are being forced into 'poverty' by the privatisation and piratisation of the world's forests. And, in Foley's economic terminology this can be seen as a 'cost-redu cing technical change'. It can also be seen as an institutional change whereby Governments around the world have abandoned ethical obligations to protect their populations from violence.

I note Joan Robinson's comments were limited to 'workers' in (presumably) industrial settings. But 'workers' in Australia are also being impoverished, not through their workplace but through the loss of viability of their living environment.

Again, the need to define terms. What is 'poverty'. The Millenium Ecosystem Assessment spelt it out very clearly. Our ecosphere actively alleviates poverty when it is left intact.

For more info go to: www.wrm.org.uy

[andres]

Sorry Brad. This cannot stand, and you need to seriously rethink your reaction to Foley.

Here's Foley, again:

"Cost-reducing technical change may not reduce employment in the sector in which it occurs, but it can have (and has in many cases) devastating effects in other sectors and economies. It is hard to look at the polarized world economy today without acknowledging this."

How do you go from this statement to your

"Foley's claim that cost-reducing technical change powered by modern capitalism is the cause of mass poverty in "the polarized world economy [of] today" was decisively answered two generations ago..."

??

How is it possible to claim that "devastating effects in other sectors and economies" is the same thing as "the cause of mass poverty in the 'polarized world economy [of] today'"?

Either I'm reading wrong, or you're attributing to Foley a claim he absolutely has not made. No one, and especially not Marx, was/is stupid enough to claim that increased productivity/mechanization is the cause of world poverty (though it might be the cause of other social problems that have been examined more by sociology than economics). What I imagine Foley is arguing is that there needs to be some non-market mechanism for compensating those people whose livelihoods are put in jeopardy by technical change, as otherwise the Say's law mechanism reemploying resources previously used in outmoded technologies may operate too slowly to prevent the resulting social conflict from negating the benefits of productivity gains for a substantial period of time.

Also there's this:

"Heilbroner's The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers is eminently fair to all the writers [[he discusses]]. For that reason, I think, Heilbroner's book cannot help but do a much better job of raising questions and prompting debate about the presumptions of economic policy discourse."

My brackets. Though Worldly Philosophers is fantastically well-written, it is actually unfair by omission. Conservatives will argue that it is biased because it omits discussion of Milton Friedman and Hayek, while I would argue that it is biased because it omits discussion of environmental problems created by growth and the need of economic development to adapt to this problem--Schumacher and possibly Georgescu-Roegen should lso be included.

In spite of his denial, I think Foley does unconsciously try to be fair to the worldly philosophers he writes on; a fair review does not mean a review that is free of criticism.

[derek]

"It's a terrible thing to be a worker exploited in the capitalist system. The only worse thing is to be a worker unable to find anyone to exploit you."

Do you imagine that these unemployed workers spring like dragon's teeth out of the ground, or are grown, like potatoes, requiring no work until the day they suddenly become available as cheap labor for a global employer? Those people all had work, until they didn't, and it's usually the global employer who "made them available" by the simple act of destroying their livelihood.

A good summary of this is a film called, if I recall right "This Is A Short Film About Nuts". It gives case after case of third world countries doing a fairly good job of keeping their people prosperous growing nuts, until the World bank and IMF came along and told them they had better go "free trade" if they knew what was good for them. Whereupon the local economy collapses and they have to take the global corporations' generous offer of work, which just happens along at the right time.

The last case study was a contrast: a national nut industry that was well protected and prosperous. The U.S. peanut industry. No Global Free Trade for the Americans, no sir!

It's an evil scam, and you would be recognise it as one in a second if the perpetrators had Italian names and were operating in the criminal underworld of an American city. Martin Scorcese's film "Goodfellas" is a perfect portrait of global commerce, except that they sometimes went to jail.

[derek]

On Adam Smith, I think he was so charmed by learning that some simple economic systems work to increase prosperity for the community by the selfishness of individuals that he hypothesized that this always happens. Libertarian economists have been saying it ever since, especially when paid by corporations to say it.

But it's a bit like observing that some real numbers are the ratio of two integers and being so delighted by this that you declare there are no numbers that cannot be expressed as a ratio. Some early mathematicians would have liked to do just that, they were so disturbed by the idea of "irrational" numbers, as they called them. But the fact is that in the real world, there are infinitely more irrational numbers than rational ones. Eppur si muove.

[Jonathan]

From Ken Arrow's blurb on the back of the book "[Foley] contends that economic thinking has been dominated by fallacious attempts to separate positive analysis from moral judgment."

This seems hardly a controversial statement. Never mind the debate about Say's law. Even if full employment held, there is little doubt that there are winners and losers from the self-interested pursuit of trade or technological change. In trade this result is enshrined as the Stolper Samuelson Theorem, but a similar result can be easily demonstrated for the effects of labor-saving technological change.

Aren't we just revisiting the simple point that self-interest + competition and markets can lead to more "efficient" allocations in the sense of a larger pie, but that this is not to say that everyone is made better off by the resulting price changes.

Yes the winners can in principle compensate the losers in these cases, but whether they should do so or not, is undoubtedly a moral issue.

What Smith should have said is that self-interest + competition and markets leads to a bigger pie, but he (or those who would follow and interpret him) indeed commit a folly by claiming that this necessarily increases the "social good."

[anne]

http://www.nytimes.com/2006/11/25/us/25beliefs.html?ex=1322110800&en=486930bee3b7e814&ei=5090&partner=rssuserland&emc=rss

November 25, 2006

Economics: The Invisible Hand of the Market
By PETER STEINFELS

Duncan K. Foley could have called his new book simply "A Guide to Economic Theory." The book grew from a course he long taught at Barnard College and elsewhere, with an even more granite-faced title, "Theoretical Foundations of Political Economy."

Instead, for his survey of more than 200 years of economic thought, recently published by the Harvard University Press, he chose the title "Adam's Fallacy: A Guide to Economic Theology."

Adam? Theology? The Adam in question is not the original inhabitant of Eden and biblical founding father of the human race, but the 18th-century inhabitant of Edinburgh and founding father of modern economics, Adam Smith.

So what is "Adam's Fallacy"? (The author, who is the Leo Model professor of economics at the New School for Social Research, always capitalizes the term.)

It is the idea that the economic sphere of life constitutes a separate realm "in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome," Professor Foley wrote, a realm unlike all the rest of social life, "in which the pursuit of self-interest is morally problematic and has to be weighed against other ends."

"This separation of an economic sphere," he wrote, "with its presumed specific principles of organization, from the much messier, less determinate and morally more problematic issues of politics, social conflict and values, is the foundation of political economy and economics as an intellectual discipline."

Professor Foley's book is simultaneously an introduction to economic theory and a critique of it.

It is his version, as mentioned on his opening page, of the classic introduction for the economically challenged by Robert L. Heilbroner, "The Worldly Philosophers," now in its seventh edition. "Adam's Fallacy" concentrates more on the worldly philosophies rather than philosophers, on economic theory rather than on characters and events.

How "Adam's Fallacy" will serve as an introductory text is for others to decide. What is pertinent here is the author's contention that economists, all along, have been writing theology.

He does not use the word "theology" with disdain, as many writers do when they want to disparage something as doctrinaire or irrational, although he has clearly chosen the word to provoke those who assume that economics is either strictly logical or empirical. On the other hand, he doesn't use it to signal anything about God, either.

What he means, he wrote, is that "at its most abstract and interesting level, economics is a speculative philosophical discourse, not a deductive or inductive science."

Historically, economics has not only shed light on how a capitalist market system works, it has also suggested what attitudes people should take about those workings and about the moral conflicts accompanying them.

"These are discussions, above all, of faith and belief, not of fact, and hence theological," Professor Foley wrote.

"Economics functions in a theological role in our society," he added in an interview in which he paraphrased Milton, "to justify the ways of the market to men." Economists, moreover, are "becoming priestly figures, with arcane knowledge" and special powers, he said.

Economic laws are cast as universal and invariable. They are even presented as natural laws akin to those of mathematical physics or evolutionary biology.

From the bedrock belief that the pursuit of private self-interest will ultimately benefit the whole society stems a willingness to abide harsh economic measures and consequences, ranging from large-scale unemployment to the destruction of traditional cultures....

[anne]

Peter Steinfels:

So what is “Adam’s Fallacy”? ...

It is the idea that the economic sphere of life constitutes a separate realm “in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome,” Professor Foley wrote, a realm unlike all the rest of social life, “in which the pursuit of self-interest is morally problematic and has to be weighed against other ends.”

What is the problem with questioning the philosophical bases of economics and why should such an investigation by an economist be tiresome? The questions raised are extensions of Benjamin Friedman's much praised thoughts, praised by Brad DeLong, and the questions reflect a quite modest sense that there needs to be a consideration of the philosophical groundings in and for economics.

[anne]

http://economistsview.typepad.com/economistsview/2006/11/what_you_may_no.html

November 17, 2006

What You May Not Know About AIDS in Africa
By Emily Oster - University of Chicago

"[T]he questions I wanted to answer ... were being asked by anthropologists, sociologists, and public-health officials. ...

"These disciplines believe that cultural differences—differences in how entire groups of people think and act—account for broader social and regional trends. AIDS became a disaster in Africa, the thinking goes, because Africans didn't know how to deal with it.

"Economists like me don't trust that argument. We assume everyone is fundamentally alike; we believe circumstances, not culture, drive people's decisions, including decisions about sex and disease...."

Here, by contrast we find a patently absurd supposedly a-philosophical and surely a-moral sense of what economists are and should be about. I suggest the contrasts raised by Duncan Foley should be thoroughly welcome.

[anne]

What is necessary is to view the arguments of Duncan Foley as continuing argument of Robert Heilbroner, Benjamin Friedman and Brad DeLong on the development of a more profound philosophical grounding for economics than mere utilitarian thinking. After all, Kant did live. The pretense of economists to be a-philosophical is foolish as Brad DeLong has pointed out, while more than utilitarian thinking is morally essential.

[Dave Parker]

"Cost-reducing technical change may not reduce employment in the sector in which it occurs, but it can have (and has in many cases) devastating effects in other sectors and economies."

Another example would be African textile exports, deprived of (inadvertently) advantageous quota arrangements and decimated by cheaper Asian competition under last year's WTO-imposed liberalisation regime.

Something similar of course happened in 19th-century India and later in China, though less devastatingly. Their turn came around again, but were the decades of decline and growth from low levels wholly offset by gains from a more efficient Lancashire?

The displaced may eventually find a niche in the new economic landcape, but what of the meantime? The loss of intervening opportunities for development may extend beyond immediate efficiency gains, even imperilling social stability.

[anne]

http://economistsview.typepad.com/economistsview/2006/11/was_adam_smith_.html#comment-25818150

November 27, 2006

Was Adam Smith Wrong About the Invisible Hand?
By Kevin Quinn

I urge economists to read Foley's book. (By the way, "this guy Foley" is, for those in the know, an economist's economist, both early in his career when with Miguel Sidrauski, he pioneered in constructing GE models with money and non-convexities; and later, when he became, IMHO, a brilliant, and highly mathematical, Marxist economist whose take on Marx was idiosyncratic and provocative.) The new book is a marvelous example of a heterodox "radical reconstruction" of the history of economic thought that forces one to think about the big questions and the taken-for-granted (but historically shifting) backdrop of economic thinking. As for Adam's fallacy, my own view is related to, but not identical to, Foley's: There is an Adam Smith problem, I think, but it is not a conflict between altruism and selfishness in TMS and WN, respectively (not that Foley says this); it is a conflict between seeing people as a acting for the sake of the world, under the authority of norms that they both inherit and recreate (in some parts of TMS) and seeing people as rootless atoms of self-interest, to be shaped by proper institutions via carrots and sticks (in WN).

[anne]

A biologist who had read philosophy might or might not find a relation in the thought of Plato or Aristotle to a research program. Biologists before Charles Darwin often found Plato a base, however. The base for Darwin was Aristotle, though biologists in general were decades in realizing the implications and only a century beyond Darwin were the implications methodically described.

There is every reason to question a philosophical base in economics as Benjamin Friedman does and Duncan Foley continues.

[anne]

http://www.nytimes.com/2006/11/25/us/25beliefs.html?ex=1322110800&en=486930bee3b7e814&ei=5090&partner=rssuserland&emc=rss

November 25, 2006

Economics: The Invisible Hand of the Market
By PETER STEINFELS

So what is “Adam’s Fallacy”? ...

It is the idea that the economic sphere of life constitutes a separate realm “in which the pursuit of self-interest is guided by objective laws to a socially beneficent outcome,” Professor Foley wrote, a realm unlike all the rest of social life, “in which the pursuit of self-interest is morally problematic and has to be weighed against other ends.” ....

[A terrific applied philosophical work....]

[dale]

This "uncoupling" of the economy from the normative strictures of culture was a real process- not just an intellectual error on Smith's part. Like almost all of us who have thought about this issue (amateurs like myself and professional social thinkers)there is a wall or aporia run up against- where do the real, seemingly norm-free technocratic rules of the economics of industrial societies end and where do the class based ideologies and reifications begin?

Volume 2 of the Theory of Communicative Action deals with these issues from a philosophical perspective. I'm eager to read Foley's book for his contributions.

The main problem is that there seems to be no democratic way to intentionally put back together society in a wholistic way. The Social Democrats have successfully dealt with this, in part, by insisting upon the primacy of the political process over the development of the economy. That seems unwise to neo-liberal economists and wrong headed to Traditionalists who want something more than a fragile political consensus taking the lead as the driving force in modern culture.

[anne]

Dale:

'This "uncoupling" of the economy from the normative strictures of culture was a real process- not just an intellectual error on Smith's part. Like almost all of us who have thought about this issue (amateurs like myself and professional social thinkers) there is a wall or aporia run up against- where do the real, seemingly norm-free technocratic rules of the economics of industrial societies end and where do the class based ideologies and reifications begin?'

Nice.

[Dipankar Basu]

J. Bradford DeLong's comments on Duncan Foley's recent book "Adam's Fallacy: A Guide to Economic Theology".... [M]ost of DeLong's criticism of the example are baseless; some of them rest on misreadings, and some on what I call "imputation"; some of his claims are supported by quoting passages out of context or quoting them only partially.

To read more go to: http://radicalnotes.com/content/view/31/30/
(It is a detailed rebuttal of Brad Delong's criticism of Adam's Fallacy).