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In this first part of the present series - Permeable Individualism (1/3) - In the Beginning There Were Markets? - I wish to draw attention to the link between
- certain preconceptions of classical liberalism
and
- the disappearance of societal reality from a large part of modern economics.
Drained in this way of pertinent content, the market order shows promise to satisfy a liberal utopia, if only it were allowed to spread more extensively.
While liberal authors like David Hume and Adam Smith insisted on practising political economy understood as a comprehensive theory of man and his interdependencies with the many different institutions of culture and society, the pronounced individualism of other strands of classical liberalism (following John Locke) inspired the pursuit of economics based on a lopsided view of the significance of the individual in establishing social order.
In the second part of the series, I shall try to explain what this new (neoclassical) economics is missing, and that freedom proves to be more complex and less determinate than thought by the individualist liberal, if we admit into the picture some of the vital, though now neglected, interdependencies that the earlier political economists had been trying to piece together.
Ultimately, my aim is to demonstrate that an overblown individualism inherent in certain classical conceptions of freedom has given rise to a major current in economics that nurtures the mirage of autonomous spheres of freedom on which modern, crypto-anarchist libertarianism rests. We will see that markets are inevitably interlaced with cultural, legal, and political influences that preclude their serving as an alternative to political society (= a politicised world). In that sense, it is true that in a free society there cannot be an economy other than a mixed economy.
Inherited Scars
Toward the end of my last post, The Idea(s) of Freedom (3/3) - The Mirage of Autonomous Spheres of Freedom, I noted:
The liberal bias in favour of natural society [i.e. an autonomous, pristine sphere of freedom, as opposed to political society which is marred at every corner by politics and government, G.T.] has had momentous consequences for the future of liberalism - playing, as I surmise, a significant role in its decline - but also for the development of the social sciences, not least economics, which carries ugly scars from such extraction.
Faced with a menacing new social technology - the modern territorial state -, liberalism focusses on the resources, the promise, and above all the moral primacy of the individual as its counter-model to the overweening pretence of absolutism which seeks to concentrate power in the authorities.
Creative, path-breaking, and worth heeding in countless ways, liberalism's apologia of the individual is not without its difficulties, especially when the explanatory and moral justificatory power heaped upon the possibilities of the individual becomes excessive so that individualism takes on the character of an intellectual monoculture.
Political Economy and the Individualistic Contagion
In future posts, we shall have occasion to reflect on the role that individualism assumes in the life cycle of liberalism; for the present, may it suffice to refer to individualism's pre-eminence in classical liberal thought, a hefty dose of which was finding its way into the emerging social sciences, especially into economics. This is the beginning of the end of political economics and the great fortune of an economics often more ambitious to emulate the star among the sciences at the time - Newtonian physics - than to capture an irremissibly complete range of the economic world's determinants.
The Misapplication of Individualism
A strand of economic analysis appears that takes the individual for granted in an overly pivotal capacity; individuals and their preference functions are assumed to be given, as opposed to being emergent, malleable and interdependent with their institutional environment. Indubitably, individualistic economics proves to be in possession of a heuristics productive of superb insights (think of price theory), nevertheless it is unequipped to make up for the contributions of political economy.
Whereas
[i]ndividuals and institutions are mutually constitutive of each other [ ... such that] institutions mold, and are molded by, individuals,
a connectedness appreciated and carefully looked into by political economy, the new economics turns this two-way street into a one-way street, trying
to explain the existence of institutions by reference to a given [a pre-established and primal, G.T.] model of individual behaviour, and on the basis of an initial institution-free "state of nature." The procedure is to start with given individuals and to move on to institutions. (p.181)
All quotes are from The Approach of Institutional Economics, by Geoffrey Hodgson: Journal of Economic Literature Vol. XXXVI (March 1998), pp. 166–192
The original individualistic paradigm in economics still informs much contemporary economic thinking such as embodied in the New Institutionalist Economics, one of whose most prominent representatives, Nobel prize winner Oliver Williamson, epitomises the neoclassical spirit in pronouncing this pithy dictum:
"In the beginning there were markets."
From this original context, some individuals go on to create firms and hierarchies. These endure if they involve lower transaction costs. However, the market itself is an institution. The market involves social norms, customs, instituted exchange relations, and—sometimes consciously organized—information networks that themselves have to be explained (Dosi 1988; Hodgson 1988). Market and exchange relations themselves involve complex rules. In particular, the institution of private property itself requires explanation. Markets are not an institution-free beginning. As if in search of the original, institution-free, state of nature prior to property and markets, Williamson (1983) argues that private property can emerge through “private ordering,” that is, individual-to-individual transactions, without state legislation or interference.
(Ibid. p. 182)
We shall see in the sequel why the institutions of freedom cannot
emerge through "private ordering,"
and that, quite naturally, liberty is a highly public and political affair.
Continued in Permeable Individualism (2/3) - In the Beginning There Were Markets?
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