Thursday, 11 November 2010

Mill on Comte : clever but absurdly consistent fascist

I'm just finishing up the great J.S. Mill book on August Comte.  In the end Mill spotted Comte's fascist tendencies, which clearly abhorred him, whilst appreciating his great intellectual abilities (especially early in Comte's career).  Mill finishes the book by highlighting the danger of what Emerson would later call a 'foolish consistency of small minds' but what Mill himself would call the absurd consistency of great minds.  Emerson tagged this kind of foolish consistency as indicative of small minds, ironically enough, in an essay encouraging people to be more self-reliant, individualists, non-conformist; this is the non-fascist perspective, precisely the opposite of the Comtian view of how humanity ought to be managed.  Mill labels Comte with Descartes and Leibniz in the same category, saying: 

"they were ... the most consistent, and for that reason often the most absurd, because they shrank from no consequences, however contrary to common sense, to which their premisses appeared to lead.  Accordingly their names have come down to us associated with grand thoughts,..., and also with some of the most extravagantly wild and ludicrously absurd conceptions and theories, which ever were propounded by thoughtful men."  
 I mention this because this argument about how free a model builder is to use input assumptions which differ substantially from reality is a very modern one in economics, just as it was in Ricardo and Malthus's time.  I hope to come back to it in later postings.

To my mind, what most resembles this frenzied French systematiser within the scope of economics is a well-described mathematical model of some aspect or other of economic behaviour, together with a set of (usually unrealistic) assumptions.  I hope to develop this idea further when reading other works on economic methodology.

It is also amusing to me that not only did Comte's life work contain inspiration for what would be the positive approach to economics, but also his life itself provided a model for a model-driven quasi-human not unlike the  Homo Economicus beloved of the neoclassical economist fraternity.  Mehrling, in his wonderful biography of Fisher Black, paints a similar picture of a man driven to change his very own behaviour in a way which made it conform to the CAPM model, an recent mathematical model of Homo economicus.  Mehrling refers often to Black as 'CAPM Man'.  I'm also reminded of John Searle's Chinese room experiment, which captures some aspect of this form of constraint on human behaviour.  When we behave according to the diktats of the model, are we debasing our humanity, or are we bringing light where otherwise there was emotional floundering?  In answering this question, it is worth remembering the conclusions concerning performativity as discussed in "An engine, not a camera".

Monday, 8 November 2010

Evolution of bagatelles

John Neville Keynes, in "The scope and method of political economy", 1891, highlighted two schools of political economy.  He prefers to regard them as differences of emphasis and notes that are both present in the great economists.  Adam Smith, he claims, didn't dwell on methodological issues explicitly but proponents of the two approaches both claim Smith for their side.  You could fancifully imagine that the original Smithian approach fractured into two, embodied in Ricardo and Malthus:

1. Is-based, theoretical, abstract, deductive, ahistoric , a priori, logical essences of human nature, Ricardo
2. Ought-based, ethical, realistic, inductive, historical, a posteriori , contingent evolved economic states of affairs, Malthus

Keynes, like J.S. Mill and Senior, are on the side of political economy as logical science.  One of the claims of this school is the ability to isolate more or less pure economic lines of reasoning which are distinct from general human social reasoning.  This empowers the scientist of economies to postulate models of behaviour which are exclusively economic in nature.  And no doubt Auguste Comte's views on the classification of each of the social sciences, and the possibility that they are allowed their own scientific models (grounded in mathematics, which he sees at the root of all science) dealing distinctly with phenomena from that subject have a large role to play in philosophically underpinning this school.

I think I see in this Comtian idea the beginnings of the intrinsic/extrinsic, modelled vs externally shocked dichotomy which permeates economic thinking and language to this day.  Keynes says:
Economic facts are, it is allowed, influenced by social facts of very various kinds, and in their turn influence them; but it is nevertheless held to be possible up to a certain point to isolate the study of the phenomena of society ... Economic science constitutes, therefore, a distinct, though not entirely indpendent, department of sociological speculation.
Keynes gives two more prosaic reasons to favour the deductive theoretical school - (i) we can't carry out economic experiments, hence undermining the more empirical of the two approaches; (ii) given the 'leakage' of causal explanations into general sociological departments of human behaviour, inducing a coherent and pure economic theory is very difficult.  Point (i) seems less relevant to us today, given the new subject of experimental economics, and (ii), I would have thought, has a similar flip-side w.r.t. the deductive approach - namely the artificiality of the 'purely economic' simplifying model could render theories inspired by this approach intellectual bagatelles with no serious value.  I think this is probably too strong, given the subsequent productive directions economics has moved in following Ricardo, J.S. Mill and Cournot, but nonetheless it can't be taken for granted that in general any theoretical economic model will necessarily be useful.

The axioms of the deductive approach are essentially axioms about human nature - for example,  all men would prefer the outcome of any economic behaviour they engage in to increase their wealth.  All the other idiosyncratic motivations can, by definition, be assumed to be random noise around the basic tenets, and hence can be ignored in models as a simplifying first assumption.  But nobody at the time sees this as anything more than a model of a hypothetical man.  Rational expectations assumptions were still a long way off.  Still, it is indeed not a bad approximation to identify these axioms and consider them static for the purpose of the model.  Yet of course, there's always a historically embedded, institutional version of even these axioms of human nature - how our cognitive facilities developed, no doubt as our material environment and maturing culture evolved.

Keynes points out that in reality, neither of these two schools were as different from each other as they claimed (except in the positions of their own extremists).  This sounds right to me.  Take, for example, the efficient markets hyppothesis.  Markets are clearly historically situated; and they have been moving towards a position of achieving efficiency through the construction of historically embedded institutions of trading, (exchanges, electronic exchanges, S.E.C. protections, corporate govenrances, etc.)  Yet the mathematician who jumps straight to the matehmatical asymptote of this essentially cultural evolution may also be justified in constructing his model with these assumptions.  They are two sides of the same analytical coin, for me. 

It is interesting to see how Keynes distinguishes the positive science (IS) of political economy with the ethics (OUGHT) of political economy and the art of political economy.  His son would contribute to all three.  Also, it isn't clear to me how the OUGHT school got to be associated with an empirical approach.  Aren't there just as good a set of reasons to associate IS with the empirical approach?  Conversely the OUGHT school could be considered theoretical and ahistoric - after all, a moral system is often considered timeless and theory-based.

Keynes is an advocate in positive economic science of the principle which resists any final vocabulary, since the phenomena of economic activity are driven not only by human beings' self-interested motivations, but also by their other-regarding motives.  And the particular mix of these two must be historically contingent and subject to change.  This position is akin to adding a historical element to Smith's "Theory of moral sentiments".  Shouldn't the key distinction be not between self-interest versus altruism but long-established pieces of cultural-biological context versus more recent cultural context?

Sunday, 7 November 2010

Adam Smith the moralist more revolutionary than Auguste Comte the moralist

Most moral systems aim at the general good of humanity (or a subset thereof).  This is certainly true of Smith's Theory of Moral Sentiments
1759 and Comte's System of positive philosophy, which was published a century later.  But it is Smith's work which is more revolutionary.  If you assume the goal of morals to be the general good of humanity, then one obvious way of going about it is Comte's - namely to enforce on every human in every culture that would ever live an all-encompassing systematic way of behaving.  This is quite dictatorial and also fits many of the major world religions.  Comte's is an extreme form whereby a set of rules for acting is defined and against which all humans will be judged.  Society will cohere around this set of rules, and rule-breakers would expect to pay a price which such a society saw fit to exact.  In essence, the ought which underlies the moral system as it applies to human beings in general gets directly encoded in terms of rules for individuals.  There is within it an implicit top-down homogeneous model of behaviour which identically reflects the goals at the level of Humanity.  That is to say, once the starting point of "what's good for humanity" has been worked out, then the rules individual human beings ought to follow just drop straight out of the analysis.

   With Smith, things are quite different. Still present is an ought model of human behaviour but in his system individual humans could behave as self-interestedly as they liked, so long as the right economic structures were in place to transform such self-interested behaviour into outcomes which could maximise good for humanity in general.  What a fundamental difference this is between the model of individual behaviour (a realistic is) and the goal of maximising human happiness (ought), especially when compared to the much more simplistic Comtian  one.  In this one sense the intellectual development of social philosophy was stronger a century earlier - a clear counter-example to the implicit evolutionary, monotonically improving history of ideas you find within Comte

Saturday, 6 November 2010

Earnest Comtian eschatology loses against ironic Rortian contingency

When I first started studying Comte, I was under the impression that his later writings were not worth bothering about, and that his earlier writings more or less set the modern conception of the evolutions of the  various sciences.  Now that I've come back to his work I've found out that his conception of science was  dangerously final and his later writing contains some important (mainly negative) lessons for the way we approach modelling human phenomena. It is clear to me now that even from the very beginning he saw a definite end shape to the brief evolution of the sciences, and this final state was influenced by an essentially religious or metaphysical belief in the existence of such an end point.  In fact, you could even call it positive, so weakened has that term become to me now.

First let me sketch a picture of how Comte behaved during this period - this description largely through Mill's useful little book on Comte's two intellectual periods.   Comte had stopped reading newspapers, periodicals, and books, with the exception of a couple of favourite poems.  This you might expect from a rigorous systematiser who thought he'd found his own final vocabulary, to use a Rortian phrase.  This he did to achieve 'cerebral hygiene' - contrast this to Rorty's untrammelled love of the writings of others.  Cutting yourself off like that allows you to become the deluded master of your own model; it allows you to follow your systematising designs to their ridiculous limit.  The object of his later religion was a sense of duty towards the abstract concept of the human race.  In this sense he shares with Rorty the belief in the desirability of solidarity.  This concept of the human race certainly includes all our ancestors, descendants.  I'm reminded of one of the phrases he's famous for: "the dead govern the living" and how he really means it - especially in the final state of humanity - since most of our ways of seeing the world will have been discovered by thinkers of the past and these final conceptions will and should govern all of humanity for ever.  What a horrible thought - much more open is the Keynesian twist to the idea, pointing out that in the realm of economics and politics, often there's a long-dead thinker determining our approach, even if we delude ourselves into thinking we're practical men.  There's more of a sense that this influence should be discovered and overcome in Keynes than with Comte.  And that's a better attitude to have.

Wednesday, 3 November 2010

What's really different about private and public debt?

I really want to get to the heart of what's in theory different about the public sector and the private sector.  This is a huge issue and one which will take me a long time to get to.  But I'd just like to point out one issue which economists (neo-classical and Keynesian) have when comparing the public and private sectors and that is their attitude to debt.

The first point is I want to make is to be aware of the potential presence of the fallacy of composition when considering any micro phenomenon which can be aggregated up to the macro level.  In particular reasoning about debt at the individual consumer's level or the individual company's level may or may not apply when you talk about the debt levels within the private sector as a whole.  In practice, I notice that there's often an implicit assumption that the same reasoning can be done at both levels.  Politicians too have for quite some time been happy to extend metaphors of good housekeeping and good shopkeeping at the individual level at the national level.

Whatever the truth, economists are most certainly in the practice of aggregating private sector debt up to the national level, and then making inferences about its size, particularly when compared against the baseline of the nation's gross domestic product.

With public debt, there is quite a different aggregating activity - debt issued by national and local state bodies.  So national public debt goes through a different degree of aggregation.  Again, that may or may not be important when thinking about both of these kinds of debt.  Issuance of both kinds of debt are clearly similar in some ways - they respond to the interest rate, for example; commentators like to see good debt-to-equity coverage, similar basic principles of economics determine the market of public and private debts.

But there are also differences.  Why is it, for example, that Modigliani and Miller has provided a kind of theoretical justification for increasing debt loads on companies, but there's no corresponding irrelevance theorem at the national debt level?  What would one look like?