Structure, agency and the micro-macro divide

Chris Dillow, Marxist economics writer for the Investors Chronicle, blogs regularly on all sorts of topics at Stumbling and Mumbling. A recent post of his discusses structure versus agency and the neglect of systemic analysis in economics.

Structures and structural forces tend to be left to macroeconomic analysis. In modern microeconomics, individual agency, or the ability to act in order to influence some outcome given a particular environmental context, dominates theory. But structure shapes the environment, enabling or constraining agency. Individuals may therefore act in good faith but be unable to achieve the best economic outcome for themselves in the absence of a favourable context.

Given the limits of human agency in a particular structural context, an understanding of that structure, whether it is an institution such as the state, or macroeconomic in nature, such as the force of competition throughout the economy, can enable a response from policy-makers to try to improve social welfare, or not as the case may be! Continue reading

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Ideas and wealth creation

rawA break from the economics (sort of), with a quote from the late social philosopher and eclectic thinker, Robert Anton Wilson, from one of his most popular books (and one of my favourite), Prometheus Rising, which tries to make sense of the workings of the human mind and its role in human development in its broadest sense. Here he is on page 113:

All wealth is created by human beings using their neurons intelligently.

A neurotic young man once went to a Zen Master and asked how he could find peace of mind.

“How can you lack anything,” the Roshi asked, “when you own the greatest treasure in the universe?”

“How do I own the greatest treasure in the universe?” asked the young man, baffled.

“The place that question comes from is the greatest treasure in the universe,” said the Master, being more explicit than is common for a Zen teacher.

Of course, as a Buddhist, the Master had taken a vow of poverty and did not mean exactly what we mean here. But he knew that the brain produces all that we experience – all our pain and worry, all our bliss states and ecstasies, all our higher evolutionary vistas and trans-time Peak Experiences, etc. It is also “the greatest treasure in the universe” in the most materialistic economic sense: it creates all the ideas which, socially employed, become wealth: roads, scientific laws, calendars, factories, computers, life-saving drugs, medicines, ox-carts, autos, jet planes, spaceships…”

The ‘gaping hole’ in the Marxist argument

I do have time for Marx and Marxist thought, its interdisciplinarity, its breadth and depth of vision and its desire to uncover the workings of capitalism. However it remains flawed, and the historical record of state socialism, where attempts have been made to put it into practice, have resulted in a great deal of oppression and suffering.

That is not to say that all is well with capitalism, and we certainly should not avoid addressing arguments for both its radical reform, and the prospect of its evolution into something else.

Here is institutionalist economist Geoffrey Hodgson, who blogs here, from his recent, excellent, book Wrong Turnings – How the Left Got Lost (p.100):

“The dominant Marxist historical picture of rising and falling social classes meant that socialists did not have to think about how their proposed future would work. This was part of its appeal. It pointed to the growth of the proletariat and proclaimed it as the agent of socialist revolution. The tricky problem of explaining in messy detail how socialism could work in complex, large-scale societies could be postponed and addressed later when the working class has ’emancipated itself’. It was part of its historic destiny, and who could argue with destiny?

This left a gaping hole in the Marxist argument. Theoretical debates over the feasibility of socialism have shown convincingly that such as system – where most private property and trade are abolished – would face huge problems and it would slide towards totalitarianism. Twentieth-century experiences have amply confirmed these arguments.

With its wholesale abolition of non-state property and markets, Marxism blocked the road towards an alternative collectivist system involving worker cooperatives trading on markets. Marxism not only failed; it also ruled out more viable alternatives to capitalism.”

Freedom, welfare and state intervention

An insightful quote from economist Lars Pålsson Syll, who blogs here, on the nature of freedom and its relationship to welfare and Nobel Prize winner Amartya Sen’s concept of capabilities. The latter, contrary to the beliefs and wishes of many libertarians and neoliberals, can be enabled via state intervention:

“State intervention does not necessarily mean that our freedoms are restricted. They can, on the contrary, enable and increase real freedom. Talking about freedom in abstractu counts for nothing. What really means anything is – as Sen has often stressed – capabilities. What joy does the freedom of movement give the disabled person if no one enables him to use this freedom? What good does it bring us to have freedom of the press if there are no newspapers or journals where we can put forward our views? When estimating welfare more weight should be laid on positive freedom (ability to achieve desired goals) instead of only negative freedom (absence of outer restrictions). Welfare is, as already pointed out in Sen’s Tanner Lecture 1979, best understood in terms of capabilities . Positive freedom is a kind of capability to function that has a direct value of its own, while the resources that can increase this capability only get an instrumental value in so far as they help us to achieve that which we really value – our capability to function under different circumstances. It is not possession of commodities or perceived satisfaction that at first hand give a measure of well-being, but our capability to make use of our possessions. To focus on capability means emphasising what goods enable a person to do, and not the goods in themselves. A metric of goods or utilities does not get hold of the fact that the point of our belongings is to create possibilities of choice. Functioning and capability are what matters. What makes us value our car is not the fact that we perhaps own it, but that we can use it to take us where we want to get. Even if freedom is something important in itself, it is most often not for its own sake that we search for it.

Libertarians are oblivious of the fact that some persons’ entitlements can restrict the freedom of others, and that the want of property not only restricts the self-determination of the property-less but also makes him an instrument of others’ freedom. To this they respond that the more resources there are in society, the more the rich invest their capital to make production effective, and the richer all members of society become. In the libertarian society the egoism of the rich is linked fruitfully with the rest of society.”

Lars Pålsson Syll (2016), ‘Neoliberalism and neoclassical economics’, in On the use and misuse of theories and models in mainstream economics, College Publications on behalf of the World Economics Association, p.142-3.

Beyond the perfect and imperfect to the real

“There are…, I should admit, forces which one might fairly well call “automatic” which operate under any normal monetary system in the direction of restoring a long-period equilibrium between saving and investment. The point upon which I cast doubt – though the contrary is generally believed – is whether these “automatic forces” will…tend to bring about not only an equilibrium between saving and investment but also an optimum level of production.”

John Maynard Keynes

This brief quote from the great man sums up the argument put forth in his magnum opus, The General Theory, that a capitalist economy does not have an automatic tendency to achieve full employment. It may possess other “automatic forces”, but these will not do the trick. Continue reading

Friedrich Hayek – a brief intro

Following videos on Marx, Keynes, Adam Smith and Capitalism, and in the interests of some kind of balance, here is a brief video introduction from The School of Life on Austrian School economist Friedrich Hayek. His thinking influenced the political programmes of Reagan and Thatcher in the 1980s and, many years before, he was involved in some great intellectual debates with Keynes.

I found the video useful, as I have not read any of Hayek’s work, though I have read other writer’s critiques of him. One of the points in the video that stood out for me was Keynes’ questioning of Hayek as to where the line should be drawn between government intervention and the private sector, given the inevitability of some state planning. Of course, private firms make plans as much as governments, but the balance between the public and private will surely vary over time in any country depending on a range of factors.

I would also make the point that Thatcherism has been described by one academic as ‘the free economy and the strong state’. If this is an accurate characterisation, it illustrates the inevitable and shifting relationship between the market and the state, and a range of other institutions. Like it or not, modern capitalist economies are all mixed economies with interventionist states. There will always be room for debate over the balance between the various and evolving institutions that comprise such a system.