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The Economy Does Not Exist – thoughts prior to the Australian federal election 2019

In coming days and weeks we are again going to be bombarded with the usual clichés about the economy. This or that will be good for or bad for The Economy. As a philosopher of sorts, I have problems with this. Some background first.

In the philosophy of the social sciences (and economics is most definitely classed as one of those), there are broadly two general metaphysical and methodological views about social institutions: holists and individualists. Metaphysical holists think a social institution (henceforth SI) is a real object with causal properties, and so can affect the course of the history of people, subgroups, and so forth. A metaphysical individualist thinks that SIs are abstractions, or even fictions, that summarise the overall behaviours of groups, but which do not themselves cause anything. The methodological views are the practical paralleles for this: envisage an SI as if it were real or not. That is a very broad and unjustly stupid simplification, but it’ll have to do now.

Sometime around the mid-1970s, economists stopped being metaphysical individualists about economic behaviour and became instead holists, even if their models and arguments tended to be methodological individualist in their assumption. Partly this was due to novel data gathering procedures being summarised in outcomes like GDP, inflation rates, and other such census taking goals. And partly it was due to an emphasis on “efficiencies” in public expenditures, which resulted in “user-pays” philosophies and the downgrading of infrastructural investment, which is a rant for another day. Add your favourite causal factors here.

So the focus shifted – if it ever were otherwise – from the duty of government to provide for all its citizens, onto the role of government as the enabler of economic prosperity. The rationalisation for this was that economic goods flow to all, the foundation of the neoliberal economic movement known as freshwater economics. It is where the partly informed political class gets the idea for “trickledown economics” which became, rather rapidly, the ideological credo required by both leftish and right wing political parties.

We know now, and did then, that this was just an excuse for the exploitation of the middle class by the very rich, now known as the 1%, and that nothing much trickled down (in fact it trickles up). But it also set in train a metaphysically holistic view that The Economy not only measured the health of society, but that it was society, and if it failed, society was failing. This is the view I want to criticise.

Margaret Thatcher, one of the key figures in the conservative movement that adopted this view, famously said “There is no such thing as society”, making her a methodological individualist at best:

I think we have gone through a period when too many children and people have been given to understand “I have a problem, it is the Government’s job to cope with it!” or “I have a problem, I will go and get a grant to cope with it!” “I am homeless, the Government must house me!” and so they are casting their problems on society and who is society? There is no such thing! There are individual men and women and there are families and no government can do anything except through people and people look to themselves first. It is our duty to look after ourselves and then also to help look after our neighbour and life is a reciprocal business and people have got the entitlements too much in mind without the obligations. [Wikipedia]

At least this is consistent; but what is not consistent is her monetarist economics that implicitly view The Economy as the reason for government at all. If Society is not real, neither is The Economy. An economy on her terms must be the sum total of the interactions of individuals, and not merely the profit margins of corporate entities like businesses and nation states, which leads back to the idea that a government’s role is to improve the lot and services available to its citizens (and inhabitants; Thatcher was also somewhat xenophobic).

Consider how we might define an Economy (the capital letter indicates an economic SI with causal powers; a lowercase economy is a population in economic activities): It is measured by currencies, not physical things. Why is that? Because we can book-keep currencies. But what about work in-kind? What about someone who feeds a hungry neighbourhood kid? What about bartering, sharing and just basically helping? These things can be given currency values, but this is cart before the horse. We use currency because it is a nice abstract way to track actual economic behaviours, and not because it defines them. Humans have always traded, shared and so on. Money is a recent invention.

So what is, and what is not, The Economy? Assuming that not everything is, but that most of what we do has an economic effect, one has to ask why political wisdom at the present moment focuses upon the “official” parts, like wages, interest rates, and taxes? And the answer is strikingly philosophical; the realism afforded to technical SIs like “trade”, “business” and suchlike. But just as Money is not a natural kind but an artificial abstraction that has taken over our actually concrete social interactions, so too The Economy has corrupted our government, law and public policy so that real persons (and not fictive ones like nations and corporations) are no longer served by these SIs. In any rational world, this would be reason to demolish the fictive in favour of the real. This is not a rational world.

This is partly why I am not a socialist or communist, as both philosophies place corporate entities like “class” ahead of the interests of actual persons (and I have seen such things as unions sacrifice members to get a deal that serves the leaders). In point of fact, nations, governments, classes, corporations – all these are fictions. In the end, none of them even have interests. Only actual persons can have interests. Universities, for example, do not have interests, and senior management will put their own individual interests ahead of what will serve the university, the students, or the needs of society. This applies to all corporate interests in the end.

For this reason, we need laws that prevent small special interest groups from exploiting the larger population in the name of “social institutions” like The Economy. These things are fictions or summaries of pragmatic behaviours only. They do not exist.

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  1. Interesting, thank you. Are you aware of any governments that operate in the interests of “real person”? And do you think the Westminster System as used for Australian legislation can accomodate the changes necessary?

  2. Jim Harrison Jim Harrison

    In the 50’s and 60’s it wasn’t unreasonable to take GDP as a proxy for how well the economy was doing because in an era of relative economic equality, most individuals did benefit from growth in GDP. A rising tide certainly didn’t lift all the ships, but it lifted quite a lot of them. You can’t make the same claim persuasively in an era of extreme inequality. The relationship between growth and well being was always a contingent historical fact, and history is fickle. Conservatives and many liberals still think that growth is an obvious good. Heck, many American right wingers think that environmental degradation is a good since once upon a time it was true that where there’s muck there’s brass. At this point, we definitely need better figures of merit than GDP because the parameters of our material lives have changed.

    The problem isn’t that the Economy is an abstraction or a fiction, but that as currently postulated it’s become the wrong fiction. You write, “In point of fact, nations, governments, classes, corporations – all these are fictions. In the end, none of them even have interests. Only actual persons can have interests.” Not to go all Buddhist on you, but persons are not natural entities either; and their interests have to be constructed by processes of socialization. The default egocentricity of a baby is very different than the programmatic selfishness of a competent businessman.

    • Persons are the exemplar of rights-bearers. All else is derivative or analogical. A coherent unitary person may be a fiction, but just because that conception of persons is mistaken doesn’t mean there are no persons.

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