The Murky Economists

Men always endeavour to persuade others to be of their opinion even when the matter is of no consequence to them. If one advances any thing concerning China or the more distant moon which contradicts what you imagine to be true, you immediately try to persuade him to alter his opinion. And in this manner every one is practising oratory on others thro the whole of his life.

This is Adam Smith speaking—literally speaking, because the words come from the transcript of his Lectures on Jurisprudence.¹ Smith is discussing the “principle in the human mind” on which is based the famous disposition to “truck, barter, and exchange,” the cornerstone on which the equally famous division of labor is based. For the division of labor could not take place unless people wanted to exchange their wares. Evidently to Smith this exchange did not take place because of the direct appeal of self-interest. It required an exercise of persuasion to convince the buyer that he would be better off exchanging whatever he had for what the seller offered. “The offering of a shilling, which to us appears to have so plain and simple a meaning,” says Smith, “is in reality offering an argument to persuade one to do so and so for it is in his interest.”

Thus in the opinion of the first, and to many still the greatest, economist, the basis for economic relationships lies not in a disinterested calculation of advantages, but in the “faculties of reason and speech” that underlie the capacity for persuasion.² Rhetoric—the art of speaking—is the rock on which the mighty edifice of economics stands.

This is certainly not what most economists would today describe as the foundation of their discipline. As Donald McCloskey makes all too clear in The Rhetoric of Economics, economics prides itself on its sciencelike character, and economists on their ability to speak like scientists, without color, passion, or values, preferably in the language of mathematics. Of 159 full-length papers published between 1981 and 1983 in the American Economic Review, McCloskey tells us, only six used words alone. As I can testify from my own reading, most articles are “written” in matrix algebra, complex econometrics, formal lemmas, and four-quadrant diagrammatics. They would be incomprehensible to anyone not trained in the vocabulary and techniques of advanced economics, and are in fact incomprehensible, I venture to say, to a large proportion of the members of the American Economic Association, myself very often included.

McCloskey himself would not be daunted by the pages of the American Economic Review. He was for a long time a member of the economics department at the University of Chicago, a bastion of formalistic economics, and was one of the early proponents of the “new economic history,” a once much touted, now somewhat subdued, effort to fortify the frail judgments of historians with the sturdier stuff of quantitative research. Therefore he launches his attack on economics with the confidence of an insider, not the frustrations of an outsider. This enables him to offer a breezy translation of a famous article by John Muth arguing that public intervention in economic life is rarely effective because individuals “rationally” anticipate government’s moves and take self-protective actions that tend to vitiate the effectiveness of governmental action:

Muth

The hypothesis asserts three things: (1) Information is scarce, and the economic system generally does not waste it. (2) The way expectations are formed depends specifically on the structure of the relevant system describing the economy. (3) A “public prediction,” in the sense of Grunberg and Modigliani (1954), will have no substantial effect on the operation of the economic system (unless it is based on inside information). This is not quite the same thing as stating that the marginal revenue product of economics is zero, because expectations of a single firm may still be subject to greater error than the theory.

Translation

In other words, I’m saying that people take appropriate care with their guesses, and economists should credit them with such caretaking. If people take care of guessing, talk about the future will be pointless: people will have allowed for the effects being talked about. For instance, declarations that prosperity is just around the corner will have no impact, unless the declarer really does know something we all don’t know. Economists do know something, though not as much as their present notions about guessing imply: they know that a bunch of guesses by individuals average out over a large group to less quirky guesses.

McCloskey’s target is the pretentious scientism in which economists couch their mutual persuasions—a scientism that lingers on as the near-official language of economic discourse long after its inadequacies have been recognized by philosophers and scientists. What McCloskey wants economists to understand is that the language of formalism and mathematics is still a language, and therefore inescapably “rhetorical.” Moreover it is a dangerous language in that it conceals or minimizes, although it can never eliminate, the elements of judgment and moral valuation that are an intrinsic part of economics. It therefore becomes necessary, says McCloskey, for economists to recognize that like all serious inquiry economics is ultimately a “conversation”—a dialogue conducted among qualified people who share the ethical commitments without which the accumulation of knowledge is impossible: “Don’t lie; pay attention; don’t sneer; cooperate; don’t shout; let other people talk; be open-minded; explain yourself when asked; don’t resort to violence or conspiracy in aid of your ideas.”

This view of science as a “conversation” has been put forward by the philosopher Richard Rorty, and also resembles the philosophic arguments of Paul Feyerabend, who maintains that scientists use whatever method advances their purposes, despite their protestations of methodological purity. In like fashion, McCloskey declares that even the most “scientific” economists use all manner of wiles to persuade one another—leaning on authority (as in my use of Adam Smith in the opening paragraphs of this piece), or relying on the powerful associations of metaphors, such as those of “systems” and “mechanisms,” or simply reaching for literary devices in the innocence of M. Jourdain speaking prose.

Perhaps I can best convey the structure of McCloskey’s argument, as well as the flavor of his style, by reproducing a sample of the table of contents:

The Official Methodology of Economics Is Modernist

Modernism Is a Poor Method

It Is Obsolete in Philosophy

Falsification Is Not Cogent

Prediction Is Not Possible in Economics

…

Any Rule-Bound Methodology Is Objectionable

…

Good Science Is Good Conversation

Rhetoric Is a Better Way to Understand Science

The Jokes of Economists Tell

…

Even a Modernist Uses, and Must Use, Literary Devices: The Case of Paul Samuelson

…

Rhetoric Can Improve Economic Argument

And Improve the Temper of Economists

McCloskey’s attack on the dominant economic methodology is slashing and witty. Much as with Feyerabend his prose is itself part of the attack, in that its very gaiety and irreverence challenge the formal citadel of the discipline as much as does the cogency of his argument. To judge by the extraordinary interest aroused by his article in the prestigious Journal of Economic Literature in which he first raised the subject of rhetoric, McCloskey has touched a live nerve of the profession. Indeed, if the chief problem of economics were its continued obedience to a sterile and antiquated methodology, his book might carry the day and the American Economic Review might again be written in a more articulate prose, comprehensible to the nonspecialist, as it was thirty years ago.

The trouble is that this is not the chief difficulty with economics, at least as I see it. Nor is the chief difficulty its failure to predict the movements of the economy or the effects of government policies. McCloskey is correct when he says that prediction is not possible in these matters, at any rate not with the exactitude that would be commensurate with the conception of economics as a science. The main trouble with economics is its failure to make “sense out of economic experience,” to use the criterion that McCloskey himself selects as the proper objective for the profession. This failure, however, does not derive from a tendency to carry on a conversation in the jargon of science. It arises from a failure to ponder what the conversation is to be about.

Let me illustrate this by discussing economics not as a conversation but as an ideology. By ideology I do not mean a knowingly biased or inaccurate description of the way society works, or an attempt to bamboozle the populace with explanations that economists know in their heart of hearts be false. I mean, rather, an earnest and sincere effort to explain society as its ideologists themselves perceive it—an effort to speak the truth at all costs. What is “ideological” about such an effort is not its hypocrisy but its absence of historical perspective, its failure to perceive that its pronouncements are a belief system, conditioned as are all belief systems by the political and social premises of the social order.

From such a perspective let us examine the conversation of typical conventional economists today. It concerns the workings of a social world which is seen as split into two “sectors,” one public, one private. The public sector is regarded as essentially political. That is, its raison d’être is perceived as primarily that of giving shape and force to the necessary social exercise of authority. The public sector is not viewed as having as vital and inextricable an economic role as the private sector. It is seen as peripheral to the production of wealth—indeed, it is often spoken of in economic conversation as constituting a drain on, rather than a source of, fruitful economic activity. The private sector, by contrast, is perceived as having an exclusively economic function, namely the production and distribution of wealth, and it is thought to be entirely divorced from any intrinsic political tasks, lobbying aside.

The conversation also leads us to see activities in the private sector as yoked into social harness through the pushes and pulls of market forces which, as Muth contends, cannot be escaped or outwitted, even by government. Moreover, because we see the market as a “mechanism” for the rational allocation of resources, we are able to speak about its workings without the encumbrances of guilt that inhibited or cramped economic understanding in earlier times. Economists do not dismiss questions of morality, but they do not consider them as lying within the discourse of economics. It makes no more sense for economists to converse about which of two equally profitable enterprises is “better” than for scientists to ask which of two experiments is more pleasing to the gods.

Now let us imagine how a historian of the future, wearing a different set of ideological spectacles, may perceive this selfsame economic world. He could well see it not as divided into two sectors, but as comprising a single socioeconomic whole, in which two spheres of responsibility and competence divide the tasks of authority and the tasks of production between them. The economic responsibility of the private sphere can then be described as the production of those goods and services that can be produced profitably; and its political responsibility as the provision of social discipline—steady work habits—through the payment or nonpayment of wages and other remuneration. Again by way of contrast, the political task of the public sphere appears as the exercise of the ancient prerogatives of state authority—mainly the making of laws, the conduct of war, and the performance of ceremony—while its economic function is seen as the production of all goods and services needed by the socioeconomic whole but unobtainable from the private sphere because they cannot be produced at a profit—mass education, general administration, and the public “infrastructure” such as roads and dams.

From this point of view one could no longer carry on a conversation that took for granted the absence of political functions in the private sphere and of economic functions in the public sphere. Talk would now concern the manner in which such a curiously bifurcated system of social order arranged its material affairs. It would concern what kinds of output were encouraged and what kinds discouraged, or the nature of political life in a society of two authority structures, one recognized and one not. It might not be easy for economists with these views to find something to converse about with economists of another persuasion.

The appearance of the market mechanism also changes when seen through these new lenses. In addition to serving as an institution by which individuals’ activities are integrated into a whole, it now appears as a means by which social perceptions are integrated into a belief system. In this system, the political categories of “land” and “capital,” both of which refer to property rights, are made to stand on the same footing as “labor,” the social category that embraces the living population, so that economists can converse about land, labor, and capital as if all three entities were on a par. No less remarkable is that the market renders its participants—including its most informed and observant ones, the economic experts—quite unaware that the enthronement of profit as the criterion of economic rationality can only be achieved by the exclusion of virtually all considerations of morality or aesthetics from the calculus of judgment, so that rationality refers only to the rules for profitable activity, not to the rules for socially useful activity. That is why economists can converse about the efficiency of a firm but not about its social validity; and why they become irritated when soft-hearted people declare that an enterprise judged only by its economic performance is as seriously misperceived as a government judged only by its surplus or deficit.

I do not wish to argue here for the second set of lenses as against the first. I set forth these divergent, and in many ways incompatible, views only to make the point that to my mind the deepest problem of economics is not its failure to shake off an obsolete and damaging rhetoric, but its failure to recognize the inescapably ideological character of its thought. To put the matter the other way, suppose that conventional economists developed overnight the methodological flexibility and the literary skills of McCloskey himself, would their conversations thereupon make sense out of economic experience? Would they illuminate our historic plight, our possibilities for social evolution? The Rhetoric of Economics does not raise these questions; indeed it professes a certain satisfaction with the state of economics as it now exists, murky rhetoric aside. But someone as perceptive and iconoclastic as Donald McCloskey would, I believe, find much to write about if he turned his attention from the style of economics to its substance.