Worldly Non-Philosophy, pt. 1: The Principle of Sufficient Economics
[I’ve decided to write the intermediary steps of my interpretation of Economics through Laruelle’s Non-Philosophy, rather than wait until completing the sequel to my Sraffa essay.]
The key component of François Laruelle’s Non-Philosophy is its identification of the ‘Principle of Sufficient Philosophy’, which he claims has been presupposed by all philosophies throughout history. It is surprising, then, to see how simply it can be formulated: “Everything is philosophizable.” The PSP adopts its name from the ‘Principle of Sufficient Reason’ propounded by Leibniz, which stated that everything has a reason for being the way it is. The ‘sufficiency’ of philosophy, then, lies in its purported ability to apply itself (as a discourse) to every element of the Real: with philosophies of ’culinary materialism‘, the human voice, and even economics, the list of possibilities for “philosophy of x” seems limitless.
Laruelle’s innovation lies in his denial of the PSP: he states that the structure of philosophy is so constituted that it precludes itself from accessing certain elements of the Real, or more simply, that its methodological presuppositions lead to an overly constrained definition of what constitutes thought. Thus Laruelle posits that there exists a Non-Philosophy going beyond philosophy’s boundaries: his project aims to create new forms of thinking, as well as to comprehend the structure of philosophy by means of examining it from an outside perspective.
As this brief essay will endeavour to show, there also exists a Principle of Sufficient Economics (PSE), one identical in content with the Principle of Sufficient Philosophy (PSP), albeit different in its linguistic form. The following will describe why it is that the PSE takes a different linguistic form from the PSP (rather than being the simple transposition ‘everything is economizable’), how Sraffian theory demonstrates that the PSE is false, how Keynesian theory provided the initial break with the PSE, and how Austrian economics’ tacit assumption of the PSE entirely invalidates their criticism of Keynesian macroeconomics.
The ‘sufficiency’ of a discipline can roughly be defined as its ability to apply itself indiscriminately (i.e. uniformly) to all elements of its object. Worded differently, it is the assertion that a single ontology (set of concepts, axioms, definitions) can account for the entirety of a disciplinary field (e.g. the economy, or the Real). The Principle of Sufficient Economics can then be roughly formulated in these terms: ‘every economy has the same form, viz. that propounded by economics’. This may, however, seem strange: one would imagine that it would take the form of ‘everything is economizable’, being an exact linguistic transposition of the Principle of Sufficient Philosophy. The reason for this difference is the deceptive use of the word ‘everything’ in the PSP: since the object which philosophy studies is the Real, the PSP can equally clearly be formulated as ‘all elements of the Real may be encompassed by philosophy’, which can be transposed into ‘all elements of the economy may be encompassed by economics’. In both cases, there is an object supposed, and a methodology that claims to be able to model it. The claim of the methodology’s sufficiency lies in the assertion that the form of the model is equivalent to the form of the object. So from here it is only a small step to reformulate the PSP/PSE as ‘every element of the Real/economy conforms to the structure of philosophy/economics’. But this of course is unwieldy, so the PSE may be further shortened to ‘every economy has the same form’, if we use the term ‘economy’ somewhat loosely. The emphasis may be different, but the content is exactly the same.
This may seem like a great deal of fuss, but it is important to make clear the notion of economics’ sufficiency, in order that it may become possible to break with it. Non-Philosophy breaks with the PSP by stating as its main thesis that the structure of philosophy prevents it from accessing certain elements of the Real, and Piero Sraffa’s work shows that the same can be said about the structure of economics for the economy. Sraffa’s argument contends that marginalist economics, by depending on abstractly breaking elements of the economy into infinitesimal units via calculus, is led to circular reasoning in order to encompass particular elements of the economy (namely, capital) which resist such quantification due to their heterogeneity. In the terms of marginalist economics, in order to know a quantity of capital (expressed in abstract units), one has to know the length of a period of production, whose length is determined by the rate of profit, which is determined relative to the quantity of capital required to bring it about. Other than this obviously circular reasoning, marginalism has no way to measure capital in any meaningful sense, as Piero Sraffa himself describes in a letter to Joan Robinson (quoted in Harcourt, 1997: 131):
If one measures labour and land by heads or acres the result has a definite meaning, subject to a margin of error: the margin is wide, but it is a question of degree. On the other hand if you measure capital in tons the result is purely and simply nonsense. How many tons is, e.g., a railway tunnel?
If you are not convinced, try it on someone who has not been entirely debauched by economics. Tell your gardener that a farmer has 200 acres or employs 10 men – will he not have a pretty accurate idea of the quantities of land & labour? Now tell him that he employs 500 tons of capital, & he will think you are dotty – (not more so, however, than Sidgwick or Marshall).
Thus it is necessary to break with economics, undermining its sufficiency, in order to deal with capital theory. This does not, however, entail that Sraffa’s work is an ‘Anti-Economics’ with the primary aim of refuting, and ultimately replacing, marginalist economics. Rather, the main thesis of the entire Worldly Non-Philosophy mini-series is that the most appropriate model for Sraffa’s project can be found in Non-Philosophy, which utilizes the concepts of philosophy, but looks at them from a different angle in order to remove their implicit pretensions of sufficiency. By such means, Non-Philosophy is able to acquire a perspective outside of philosophy in order to identify its limitations. Sraffa’s ‘Non-Economics’, we contend, performs the same operation through its alternative economic methodology which divests concepts such as supply, demand, equilibrium, and capital of their marginalist significance—which allows him to demarcate the situations where marginalism is appropriate from those where it is not. However, Sraffa’s ‘Non-Economics’ is not the first challenge to the purported sufficiency of economics: Non-Economics, we will argue, was preceded by Keynesian Schizo-Economics, so named for the fundamental rift it caused in economic theory which brought economics’ sufficiency radically into question, and for its fundamental opposition to any ‘Economics’ proper which assumes that its model is universally applicable for all elements and scales of the economy.
It was Paul Samuelson, author of perhaps the world’s most famous economics textbook, who academically formalized the division of economics into micro- and macroeconomics, corresponding to the work of the Neoclassical and Keynesian schools, respectively. Following the abandonment of the research programme of political economy due to seemingly intractable problems of the labor theory of value and several of its other concepts, the Neoclassical school made the attempt to reinterpret the Classical economists through the new methodologies provided by calculus, along with new a emphasis on supply and demand, whose co-dependence was famously illustrated by Alfred Marshall in terms of the two blades on a pair of scissors. The ideal economic goal became the equilibrium point where—by eliminating tariffs, taxes, minimum wage, etc.—supply equals demand, without any potential utility being lost.
The Neoclassicals turned their focus to the behaviours of particular agents, identifying different sorts of arrangements in which producers might find themselves. One example is perfect competition, where zero barriers to entry for new firms means that as long as a profit is being made in that industry, new firms will join that industry, taking profits away from other firms until at last everyone is making zero profits, i.e. only enough money to keep their business going. Another is monopoly, with total barriers to entry, meaning that because no one can do anything about it (excluding government antitrust suits, of course), the monopoly can raise its prices (and lower its supply) to the level which will maximize its profit, even though it could supply many more goods at a lower price (and thus satisfy more consumers) without taking a loss. From there, Neoclassical microeconomics extended its purview to innumerable other types of arrangements of agents, utilizing game theory to identify the optimal strategy or strategies for a given situation. This newfound flexibility allowed microeconomics to branch into the incentive structures of non-financial life, as is wonderfully illustrated by the Freakonomics books, in which microeconomics is applied to such situations as wearing seatbelts, match-fixing among sumo wrestlers, drug trafficking, and so on. Although the ubiquity of incentives means that there is ample reason to suppose that the same economic method can be applied to all economic phenomena (i.e. that microeconomics is sufficient), by examining the research programme of macroeconomics we will see that this is erroneous. (Levitt and Dubner, we should note, do not fall prey to this supposition, but as we will see, others do.)
Macroeconomics originated in the Keynesian school of thought, which emphasized aggregate quantities, such as aggregate supply and aggregate demand, which emphasized the sum total of demand within, say, a given country. What Keynes found, however, went against the common sense belief in economics’ sufficiency. Ha-Joon Chang, in an eminently clear passage of his book Bad Samaritans (p. 145-6), described Keynesian macroeconomics thusly:
Macroeconomic policies – monetary policy and fiscal policy – are intended to change the behaviour of the whole economy (as distinct from the sum total of the behaviours of the individual actors that make it up). The counterintuitive idea that the whole economy may behave differently from the sum total of its parts comes from the famous Cambridge economist John Maynard Keynes. Keynes argued that what is rational for individual actors may not be rational for the entire economy. For example, during an economic downturn, firms see the demand for their products fall, while workers face increased changes of redundancy and wage cuts. In this situation, it is prudent for individual firms and workers to reduce their spending. But is all economic actors reduced their expenditure, they will all be worse off, for the combined effect of such actions is a lower aggregate demand, which, in turn, further increase everyone’s chances of bankruptcy and redundancy. Therefore, Keynes argued, the government, whose job it is to manage the entire economy, cannot simply use scaled-up versions of action plans that are rational for individual economic agents. It should always deliberately do the opposite of what other economic actors do. In an economic downturn, therefore, it should increase its spending to counter the tendency of the private sector firms and workers to reduce their spending. In an economic upturn, it should reduce its expenditure and increase taxes, so that it can prevent demand from outstripping supply.
What this means in Non-Philosophical terms is that economics (taken as a whole) has for quite some time been operating with an understanding of its own lack of sufficiency. Put in less technical (but perhaps more bombastic) terms, because the theories of agency underlying micro- and macroeconomics are incompatible with one another, any economics which accepts the validity of both research programmes is inherently fragmented, a ‘schizo-economics’. As should perhaps be expected, however, there is still plenty of debate about the efficacy of Keynesian stimulus, even among such reputable economists as Jeffrey Sachs—though such arguments tend to focus on the concept of the multiplier, which Chang does not include in his description quoted above, and not on economics’ sufficiency. There is one economic school of thought, however, which vehemently opposes itself to macroeconomic theory, insisting upon its sufficiency by claiming that ‘microeconomics is the only economics’. As we will show, this statement rests on a fallacy inherent within Austrian theory, a fallacy which in fact makes it impossible for Austrian economics to say anything at all about macroeconomics.
The Austrian school of economics—named after the mother country of its founders, though it took up headquarters in Alabama during WWII so that its Jewish members could escape Nazi persecution—is notable for its idiosyncratic methodology which involves logically deducing the theorems of economics from the single axiom “Human action exists.” (For ease of exposition, the following will focus exclusively on the views propounded in the book Human Action by Ludwig von Mises.) Perhaps surprisingly, this axiom does provides a tenable base for an entire methodology: the fact that human action exists implies that humans possess ungratified desire, which implies that resources are scarce, which leads to reflections on the nature of time and society and the system of relations required to gratify desires in a limited world. Since its sole axiom is obviously true, then provided that its arguments are valid, Austrian theory should be irrefutably true. By extension, if Austrianism is consistent then there is no reason to presume any sort of contradiction on the macroscopic scale with the principles of the micro scale.
The fatal error of Austrian theory is a tacit assumption contained within its very act of utilizing an axiomatic methodology. In assuming that economics is structured axiomatically, it makes a tacit commitment to the PSE, since in supposing that their analysis is at all commensurable with macroeconomics, they assume that the Austrian axiomatic applies to all elements of the economy. This assumption, however, is not self-evidently true, nor does it in any way follow from the fact that ‘human action exists’—thus it is an independent axiom. As the example of Non-Euclidean geometry shows, it is entirely possible to construct an equally valid axiomatic theory by means of different (but equally true) definitions and axioms from those of a different axiomatic system (Euclidean geometry/Austrian economics) which nonetheless yield entirely different results. By replacing one of Euclid’s primary axioms and altering some definitions, such as what counts as a line, Non-Euclidean geometry is able to apply itself to round (or hyperbolic) surfaces, while Euclidean geometry is limited to flat surfaces. This is not to say that the former is in any way ‘better’ than the latter: just as Euclidean geometry cannot be applied to curved surfaces, Non-Euclidean geometry does not apply to flat surfaces. As Sraffa’s description of capital markets show, however, there do exist markets (namely, capital markets) which are inaccessible to other forms of economics; it is therefore entirely reasonable to think of such markets as being ‘round’, and thus inaccessible to the Austrian axiomatic, just as there are likely certain ‘flat’ markets that are inaccessible to Non-Economics.
Yet, Austrian economics implicitly rules out in advance the validity of alternative axiomatics by insisting that only their method provides privileged access to the true structure of the economy. Therefore, even if the logic which structures the Austrian edifice is entirely flawless, it has nonetheless assumed the point to be proved: namely, the sufficiency of its theory. This fallacy, also known as ‘begging the question’, means in effect that it is impossible for Austrian theory not to disagree with Keynes, regardless of whether Keynesian macroeconomics is true or untrue. What this means is that Austrian economics contains nothing that can prove or disprove Keynes: the truth conditions of Keynesianism must be sought in empirical reality or a non-aprioric economic methodology—Austrian theory is incapable of saying anything meaningful about the validity of Keynes’ theories.
As Wittgenstein famously wrote in his Tractatus, “What can be said at all can be said clearly, and whereof one cannot speak, thereof one must be silent,” meaning that it is pointless to try to speak about any phenomenon which our language is incapable of encompassing. For any non-tautological proposition to have meaning, there must be some sort of external truth-condition(s) whose satisfaction provides the truth of that statement; therefore we are forced to conclude that Austrian theory’s arguments against Keynesianism—which are incapable of being false, since they are uncritically grounded upon the PSE, which, moreover, we know to be false—are meaningless. The falseness of the PSE (as demonstrated by Sraffa) does not invalidate the entire Austrian research programme, nor does it imply the correctness of Keynesian theory, but it means that Austrian theory is fundamentally limited in its scope, and possesses no epistemological superiority whatsoever over theories (such as those of Keynes and Sraffa) which break with the PSE.
In the next part of this mini-series we will compare and contrast Keynes’ and Sraffa’s challenges to the Principle of Sufficient Economics by comparing Keynes’ General Theory with that of Einstein, as well as explaining why it is that Keynes’ theory was only able to produce a fragmentary schizo-economics, and what it was about Sraffa’s method that allowed him to proceed into non-economics.
- Chang, H.-J. (2007). Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism. New York: Bloomsbury.
- Harcourt, G.C. (1997). A “Second Edition” of the General Theory, vol. 1. New York: Routledge.
- Laruelle, F.; Rubczak, N. & Smith, A.P. (trans.). (2012). Principles of Non-Philosophy. Unpublished draft translation.
- Levitt, S. & Dubner, S. (2005). Freakonomics: A Rogue Economist Explores the Hidden Side of Everything. New York: HarperCollins.
- Levitt, S. & Dubner, S. (2009). SuperFreakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance. New York: HarperCollins.
- Mises, L. (1963 ). Human Action: A Treatise on Economics, 4th Ed. San Francisco, CA: Fox & Wilkes.
- Wittgenstein, L. (1922). Tractatus Logico-Philosophicus. New York: Harcourt, Brace, & Co.
- The ‘sufficiency’ of a discipline can roughly be defined as its ability to apply itself indiscriminately (i.e. uniformly) to all elements of its object. The Principle of Sufficient Philosophy (PSP) states that philosophy (as a mode of thinking possessing a definite structure) can be applied to all elements of the Real without distorting any of them; the Principle of Sufficient Economics (PSE) states that a single method of doing economics can apply to all economic pheneomena.
- Sraffa proved the falsity of the PSE by showing that the concept of ‘quantity of capital’ is circular, and that economics is incapable of saying anything meaningful about capital. Hence Sraffa went outside of economics, developing a ‘Non-Economics’ that could meaningfully theorize about capital.
- Likewise, Keynes broke with the PSE by claiming that what may be rational for an individual economic agent may not be rational for the economy as a whole. His theory (which dealt with aggregate quantities) became known as ‘macroeconomics’, as opposed to ‘microeconomics’, which focused on individual agents only.
- Austrian economics opposes itself to Keynes, asserting the sufficiency of economics by claiming that ‘microeconomics is the only economics’. In order to prove its claim, Austrianism has developed an airtight axiomatic system starting from the sole proposition that ‘human action exists’.
- The case of Non-Euclidean geometry shows us that it is possible to develop different, but equally valid axiomatics. Because Non-Euclidean geometry uses different axioms and definitions from Euclidean geometry, the former is able to apply itself to round shapes (but not flat shapes), while the latter is able to apply itself to flat shapes (but not round shapes). Neither is better than the other: both are equally consistent. Furthermore, there is no reason why a ‘Non-’ axiomatic cannot exist for economics.
- Austrianism assumes that its axiomatic is the only possible one, and that it allows privileged access to the true structure of the economy. In doing so, it assumes the point to be proved, namely, the sufficiency of economics. This means that it is impossible for Austrianism not to disagree with Keynesianism or anyone else who breaks with the PSE.
- In order for a statement (besides a tautology like 1=1) to be meaningful, there must be some sort of external fact which can determine whether it is true or false. Since they assume the point to be proved, Austrian statements about Keynesianism are incapable of being false. Therefore they are meaningless, and Austrianism has no authority to criticize Keynesian theory, whose proof or disproof must be sought either in empirical reality or a non-aprioric economic theory.
Posted on June 25, 2012, in Economics, History, Methodology, Non-Philosophy, Philosophy and tagged Austrian economics, Keynes, Laruelle, macroeconomics, microeconomics, Mises, Sraffa. Bookmark the permalink. 8 Comments.