Samuel Bowles — How the Deadly Sin of Avarice Was Rehabilitated as Self Interest

In the aftermath of the stock market crash of 1987, the New York Times headlined an editorial “Ban Greed? No: Harness It,” It continued: “Perhaps the most important idea here is the need to distinguish between motive and consequence. Derivative securities attract the greedy the way raw meat attracts piranhas. But so what? Private greed can lead to public good. The sensible goal for securities regulation is to channel selfish behavior, not thwart it.”

The Times, surely unwittingly, was channeling the 18th century philosopher David Hume: “Political writers have established it as a maxim, that in contriving any system of government . . . every man ought to be supposed to be a knave and to have no other end, in all his actions, than his private interest. By this interest we must govern him, and, by means of it, make him, notwithstanding his insatiable avarice and ambition, cooperate to public good.”…

The idea that base motives could be harnessed for the public good is what I term economic alchemy. And in Hume’s time it was definitely a new way of thinking about how society could be governed.…

Magical thinking that leads to the liberal paradox of reconciling social, political and economic liberalism, or to put it another way, reconciling homo economicus with homo socialis.

From there, it was a short step to thinking that while ethical reasoning and concern for others should inform one’s actions as a family member or citizen; the same did not go for shopping or making a living.

Evonomics

How the Deadly Sin of Avarice Was Rehabilitated as Self Interest

Samuel  Bowles

Samuel Bowles, is at the Santa Fe Institute, recently published The Moral Economy: Why good incentives are no substitute for good citizens and is one of the authors of The Economy, a free online introduction to economics by the CORE Project, He also wrote Microeconomics: Behavior, Institutions and Evolution, and with Herbert Gintis, A cooperative species: Human reciprocity and its evolution.

Here are a couple of relevant quotes from Keynes:

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognised for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease…

But beware! The time for all this is not yet. For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our godsfor a little longer still. For only they can lead us out of the tunnel of economic necessity into daylight.

—as quoted in "Keynes and the Ethics of Capitalism" by Robert Skidelsy

The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems — the problems of life and of human relations, of creation and behaviour and religion.— First Annual Report of the Arts Council (1945-1946)

Attributed to Keynes:

Capitalism is “the astonishing belief that the nastiest motives of the nastiest men somehow or other work for the best results in the best of all possible worlds.”

— Attributed by Sir George Schuster, Christianity and human relations in industry (1951), p. 109

Recent variant: Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.— As quoted in Moving Forward: Programme for a Participatory Economy (2000) by Michael Albert, p. 128

Wikiquote

Matt Bruenig — Liberalism Is a Philosophy of Rich White Male Domination

Devastating smackdown of Jonathan Chait.

If Chait’s right, and Marxism is the theory that only the oppressed should have political rights, then it’s certainly at least as accurate to say Liberalism is the theory that only the oppressors should have political rights.

Quotes from Kant, Hume and Rousseau to that effect. Turns out that the Enlightenment wasn't all that enlightened.

MattBruenig | Politic

Liberalism Is a Philosophy of Rich White Male Domination

Matt Bruenig

Eric Schliesser — Smith, Design, Hume/Kant, and Transcendental Illusions

Adam Smith versus David Hume on foundations. Smith and Hume, who were contemporaries, were correspondents.

Digressions&Impressions
Smith, Design, Hume/Kant, and Transcendental Illusions
Eric Schliesser | Professor of Political Science, University of Amsterdam’s (UvA) Faculty of Social and Behavioural Sciences

David Glasner — What Is Free Banking All About?

I notice that there has been a bit of a dustup lately about free banking, triggered by two posts by Izabella Kaminska, first on FTAlphaville followed by another on her own blog. I don’t want to get too deeply into the specifics of Kaminska’s posts, save to correct a couple of factual misstatements and conceptual misunderstandings (see below). At any rate, George Selgin has a detailed reply to Kaminska’s errors with which I mostly agree, and Scott Sumner has scolded her for not distinguishing between sensible free bankers, e.g., Larry White, George Selgin, Kevin Dowd, and Bill Woolsey, and the anti-Fed, gold-bug nutcases who, following in the footsteps of Ron Paul, have adopted free banking as a slogan with which to pursue their anti-Fed crusade. 

Now it just so happens that, as some readers may know, I wrote a book about free banking, which I began writing almost 30 years ago. The point of the book was not to call for a revolutionary change in our monetary system, but to show that financial innovations and market forces were causing our modern monetary system to evolve into something like the theoretical model of a free banking system that had been worked out in a general sort of way by some classical monetary theorists, starting with Adam Smith, who believed that a system of private banks operating under a gold standard would supply as much money as, but no more money than, the public wanted to hold. In other words, the quantity of money produced by a system of competing banks, operating under convertibility, could be left to take care of itself, with no centralized quantitative control over either the quantity of bank liabilities or the amount of reserves held by the banking system.…

Uneasy Money

What Is Free Banking All About?
David Glasner

JW Mason — What Do People Need to Know About International Trade?

Not what most introductory texts teach — more brainwashing for neoliberalism.

The Slack Wire
What Do People Need to Know About International Trade?
JW Mason | Assistant Professor of Economics at Roosevelt University

Lord Keynes on Mises and epistemology

Lord Keynes put up two interesting philosophical posts recently. I did want to comment on the first post, which is a good summary of the issues, but haven't had time. However, I did just write up a response to the second about Mises, putting it in historical perspective.

Social Democracy For The 21St Century: A Post Keynesian Perspective
Epistemology and Kinds of Knowledge

What is the Epistemological Status of Praxeology and the Action Axiom?
Lord Keynes

Mises action principle is Aristotle's every agent acts for an end (telos). Aristotle's approach to biology is teleological. This principle of causality was reiterated by Aquinas and was fundamental to Medieval Scholasticism as rational explanation of articles faith, contra the credo quia absurdam est, misattributed to Tertullian. Long and venerable tradition deeply embedded the principle of causality in the Western psyche. 

Hume attacked causality as a principle based on his assumption that knowledge is either from sense data or logic and no sense data correspond to causality other than observation of constant conjunction. Kant attempted to counter this move by moving causality from intellectual intuition to the logical structure of the mind that imposes a necessary connection between cause and effect in structuring knowledge. Aristotle's intellectual intuition of cause (aitia) as a real principle known through intellectual intuition become instead a category inherent to reason that is imposed on knowledge of that which is given in experience.

Not a bad move in retrospect in that it is being borne out somewhat in cognitive research on brain function. But this says nothing about reality outside the mind, which is really Hume's skeptical argument. In Hume's view, humans believe in an external world but know only sense data, which is then structured in terms of logic.

Kant's solution was no escape. It is simply the claim that humans cannot think beyond the bounds of spacial and logical categories — space and time, and existence and causality. The question remains that, although humans are hardwired to think within and in terms of these boundaries, does knowledge correspond actually to reality and do we know this for sure. For Kant it is impossible to know the thing in itself since knowledge as for Hume occurs within the confines of experience, which is structured subjectively. In the attempt to escape Hume, Kant has landed in subjective idealism instead of Aristotle and Aquinas's subjective realism in trying to avoid Hume's skeptical conclusion.

Kant did not realize (and probably could not at the time) that his categories don't always match up with scientific theory and findings. De eloped over a century later, QM and relativity are counter-intuitive, for instance, and suggest that reality is much more complex than the classical world of ordinary thought and observation in which Kant's epistemic categories apply "necessarily". Moreover, there is increasing reason to think that so-called reason cannot be separated from feeling ("passion") categorically, or nature from nurture. There is no "pure reason," anymore than there is an "invisible hand".

In addition, the the Kantian categories function as epistemic substitutes for the metaphysical "essences" that the ancients asserted were intuited intellectually. Hegel realized this in setting forth logic as metaphysics. 

Now anthropologists and sociologists are finding that these categories are culturally determined to a far greater degree than previously realized. Philosophy is turing out to be much more anthropological and sociological that Western thinkers had suspected previously. Wittgenstein made use of these anthropological and sociological discoveries in his later work exploring the logic of ordinary language.

The upshot is that Mises generated yet another metaphysical system. Metaphysical systems assume or posit their own criteria, which leads to circular reasoning, or assume unspecified criteria that lead to an infinite regress. This is no ticket to avoiding skepticism, as the failure of metaphysical systems to be universally compelling goes to show.

Scientific method was devised to counter subjectivity, but even science cannot avoid the issue of skepticism since its appeal is to experience and science has not shown how to bridge the gap between the knowing subject and objects of knowledge in that science presumes that immediate knowledge of objects and events is dependent on the senses.

But science makes skepticism a virtue in that scientific theories are general descriptions and general descriptions can only be falsified but never confirmed indubitably if the description is of an open set not all of whose members is known. Nonetheless, the question about the relation of knowledge and reality remains without an answer that is able to overcome skepticism as the view that human knowledge is relational, hence, relative to the knower rather than immediate knowledge of reality independent of the knower. This knowledge is inferred from the inability of the knower to control the known, and this inference depends on the principle of causality, which itself is in question.

Hume was not the first to put forward an argument for skepticism, and his is not the strongest case owing to his flawed assumptions. But he did put the ball in the court of those who wish to claim that there are universally compelling criteria supporting an intrinsic connection between subjectivity and objectivity that yields true knowledge of reality such that it is not influenced by subjectivity, and it is possible to know this for sure, that is, based on adequate criteria.

Mises is stuck in his own mind, which he has confused with reality, and has ruled out empirical testing on the grounds that he matter is settled — he says. No wonder Hayek ran away from that dogmatic claim.

Unlearning Economics — The Myth of Neutral Money

More generally, I find the idea expressed by Friedman – that the economy will tend toward a stable, long term equilibrium, perhaps oscillating in the short term – is often used by economists, but is rarely fully justified. It is merely assumed that the economy will behave this way, and any erratic behaviour – such as money illusion, and sticky wages/prices – can be dismissed as short term ‘noise’. However, seems to me that such an idea can only be sustained by sweeping potential problems under the rug. Indeed, this supposed ‘noise’ (a) could be more relevant to understanding the system than the equilibrium and (b) could have a permanent impact on the economy and therefore equilibrium itself.

Unlearning Economics
The Myth of Neutral Money

Economic equilibrium is based on the assumption of near perfect markets in which imperfections are minor enough to be disregarded "in the long run," so that distortions are merely short terms phenomena that are correct by the operation of "natural laws."

Reality is characterized by imperfections that are far greater than assumed, and some those imperfections introduce a level of uncertainty that makes ergodic modeling idealistic rather than realistic.

There is nothing inherently "wrong" with idealistic modeling, which can be useful in understanding system by comparing and contrasting the behavior of different systems based on different assumptions and data. The mistake arises when idealistic models are confused with realistic ones.

For example, in the world imagined in idealistic economics based on equilibrium of perfect markets, efficiency and effectiveness are equated. That is to say the objective is efficiency, since economic efficiency is assumed to be most effective. 

This is seldom the case in the actual world however, where individual, social, political and economic considerations are involved and economic considerations are not necessarily paramount, other than to vested interests. Then, it may be to the advantage of vested interests to conflate economic efficiency with general effectiveness, to the disadvantage of other interests.