Economists are Hobbesians

Brad DeLong has a “post”:http://delong.typepad.com/sdj/2012/09/brad-delong-resmackdown-watch-cosma-shalizi-argues-that-brad-delong-is-an-atypical-economist.html#more defending his claim that the actually existing microfoundations of economics are based around Lockean theories of exchange. A detailed point-by-point response below the fold [also: “Cosma Shalizi”:http://cscs.umich.edu/~crshalizi/weblog/942.html ].

bq. [BdL] First, your standard economist is not “Hobbesian”–does not enter a butcher’s shop only armed cap-a-pie and only with guards, fearing, as a Hobbesian would, that the butcher will not sell him meat for money but rather knock him unconscious, take his money, slaughter him, smoke him, and sell him as long pig. A Hobbesian does not buy and sell goods and services in mutually-beneficial Pareto-improving exchange relationships. A Hobbesian finds the biggest bad-ass in the neighborhood, and swears liege homage to that bad-ass in return for that bad-ass’s promising not to kill him. Your standard economist is, rather, a “Lockeian”–presumes that there is an underlying order of property and ownership that is largely self-enforcing, that requires only a “night watchman” to keep it stable and secure.

This really doesn’t get Hobbes right. A Hobbesian _does_ in fact engage in the buying and selling of goods and services in mutually-beneficial Pareto-improving exchange relationships, so long as there is a sovereign power, who may free him from the “perpetual war of every man against his neighbour.”

bq. The Liberty of a Subject, lyeth therefore only in those things, which in regulating their actions, the Soveraign hath praetermitted; such as is the Liberty to buy, and sell, and otherwise contract with one another; to choose their own aboad, their own diet, their own trade of life, and institute their children as they themselves think fit; & the like.

Brad is unhelpfully exaggerating the difference between Hobbes and Locke. The difference between them does not concern how men (they didn’t either of them consider the womenfolk so much) will transact with each other in a well ordered society – it is the underlying principles that guarantee that order. And there is an implicit assumption in Brad’s example that all this is happening in a well-ordered society, rather than a war of Alle against Alle. Brad’s appeal to the actual behavior of an imaginary economist would be rather less compelling if that economist were located e.g in. Chechnya at the height of the civil war.

bq. [BdL] Now it is true that your standard economist is a largely-unreflective Lockeian: does not inquire why one trades rather than takes, affects the tough-guy pose that it is only the repeated-game nature of economic interactions that keep us from always winding up in the bad cell of the prisoner’s dilemma, and adopts the reductio that humans are narrowly self-interested only in material acquisition (in order to strengthen the case that the social apparatus of voluntary market exchange produces good outcomes–to make the point that even private vices produce public benefits if they are constrained by the market). But that the standard economist is a largely-unreflective Lockeian does not mean that they are a Hobbesian.

There _is_ a disjuncture here, but it cuts in the opposite direction. The assumption of narrow self-interest is not just a rhetorical pose. It is quite basic to the ways that microeconomists model the world. It may well be that microeconomics (outside the core that is taught in Ph.D. textbooks) is relaxing the assumption of rationality in some interesting ways, but actual other-regarding preferences are (as best as I can see from my reading of the field) still at best regarded as a curiosity associated with those odd economists such as Amartya Sen, who have regrettably come to think of themselves as mere philosophers of the unworldly variety. As “Cosma noted back at the time”:http://cscs.umich.edu/~crshalizi/weblog/684.html, Brad is effectively suggesting that John von Neumann‘s understanding of the implications of preference functions rests on a howler. I’d not be wanting to make this claim about John von Neumann, even Dead John von Neumann, myself, without very carefully covering my arse beforehand.

This does, indeed, sit badly, with the blithe assumption of many economists that we can ignore politics and distributional questions when thinking about the world. But it cuts in a different way than Brad suggests. It suggests that the basic micro-assumptions of economists are incompatible with their Pollyannaism about how actual economic institutions come into being and work. Jack Knight puts this well in his essay “Models, Interpretations and Theories: Constructing Explanations of Institutional Emergence and Change” in (Knight and Sened, _Explaining Social Institutions_ ).

bq. [The assumption that actors prefer social institutions that best serve their individual interests] [c]learly … is a restrictive assumption about the possible preferences that social actors might have in the process of developing social institutions. Other motivations (such as concerns for collective welfare, justice, equality, or fairness) might enter into the decision to construct institutions. The point here is merely that the restrictive assumption of self-interest is fundamental to all of the existing explanations of the decentralized emergence of such institutions. If a proponent of one of these approaches wanted to invoke a mechanism of selection that was grounded in one of these other motivations, she would have to rethink the initial assumption upon which her analysis was based (p.119).

What Jack is doing here as I read him (and I’ve had conversations with him on just this point) is suggesting that economistically inclined people who want to explain institutions face a dilemma. On the one hand, they can stick with their rather Pollyanna-ish account of the awesome ways that institutions come into being to enhance efficiency, are morally justifiable etc. But this means that they face into the daunting theoretical challenge of explaining how entirely selfish actors consistently build fairness and efficiency enhancing institutions under circumstances that do not obviously resemble perfectly competitive markets. Or, alternatively, they can dump the microfoundations in favor of some more congenial account of why human beings are inclined to behave cooperatively. But this means that they also have to dump many of the intellectually appealing results that they have derived on the basis of these microfoundations.

Brad, in fairness, is biting the bullet, and explicitly trying to resolve the inconsistency.

bq. Second, I do agree that I do–and other economic historians do, and Bowles and Gintis do, and McCloskey and Blaug do, and a bunch of the rest of us do–something somewhat different than what your standard economist does. But I view what I do as making the preconscious or the unconscious in “standard economics” conscious. And I would appeal not to the formal theory of the graduate textbooks, but to the actual practice of the economists I know as the test of what “standard economics” is.

He would like economists to replace their microfoundations, which stress narrow self-interest, with something more compatible with their Lockean druthers. As an aside, if he acknowledges that this is what he is doing, and that he does not think about these things the way that a standard economist does, he unambiguously “owes Chris Bertram a quite comprehensive apology”:http://delong.typepad.com/sdj/2010/09/moral-philosophy-chris-bertram-makes-an-elementary-mistake.html. Accusing someone of making an ‘elementary mistake’ for understanding the microfoundations of economics in the same way that you agree standard economists do isn’t particularly kosher, and can only be defended through very bad ‘no true Scottish Enlightenment economist’ arguments. But be that as it may – there are two problems here that Brad is not facing into.

First – that his proposed account is not particularly realistic. If we think we can trace back the institutions of economic order to the basic propensity of human beings to engage in peaceful and mutually beneficial exchange, then we are going to systematically ignore the propensity of actually-existing human beings to use every tool at their disposal in battles between unequal forces to bend institutions in ways that benefit them at the expense of others. On a couple of recent occasions, which I don’t have time to search out (feel free to link in comments), Brad has suggested that he was naive to think that Democratic and Republican technocrats had come to a rough agreement on how a well functioning economy could generate prosperity for all. It might be useful for him to consider whether the Pollyannaism-all-the-way-down account of economic and social life that he is proposing as a general framework is less, or more, likely to contribute to this kind of illusion in future. If neo-liberalism is based on a bad or non-existent theory of politics, as I’ve suggested that it is, flawed thinking about the self-sustaining nature of a self-enforcing system of fair and free exchange, thanks to its obvious benefits likely has quite a lot to do with this.

Second, it’s not consistent with Brad’s own arguments elsewhere. In a different mood, he has been inclined to argue that leftists should learn economics, exactly because of its asperity. Yet it’s just this asperity that he here proposes jettisoning. Which brings us to the rather puzzling suggestion that:

bq. it seems to me that your standard political scientist’s conception of the standard economist as “Hobbesian” is an exercise not in interpretive understanding but rather in disciplinary line-drawing–and, perhaps, attempted disciplinary imperialism: if the core of economics can be defined to be as small as possible, that leaves more space for political scientists to play. Remember: there are real Hobbesians about. They are the international-relations realists in political science departments–not the economists in economics departments.

This makes me wonder – has Brad actually _read_ much political science that has been published in the last thirty years? It would surely be an exaggeration to say that the Hobbesian realism that Brad so deplores in international relations is “drawn”:http://books.google.com/books/about/The_Strategy_of_Conflict.html?id=7RkL4Z8Yg5AC “directly”:https://www.google.com/search?q=hobbes+commerce&sugexp=chrome,mod=15&sourceid=chrome&ie=UTF-8#hl=en&biw=1651&bih=666&sclient=psy-ab&q=waltz+%22theory+of+international+politics%22+microeconomics&oq=waltz+%22theory+of+international+politics%22+microeconomics “from”:http://slantchev.ucsd.edu/courses/pdf/fearon-io1995v49n3.pdf “economics”:http://sitemaker.umich.edu/jdmorrow/selected_publications, but not a very big one. When political scientists think about the Hobbesian implications of models of what self-interested rational actors can do in unconstrained environments, they are typically not doing so in order to deplore economics. They are doing so in order to steal from it. For better or worse, the influence of economic notions of narrow rationality on political science (and not just international relations) has been profound.

And while there is a better, and there is a worse, it is arguably the underlying Hobbesianism of rational actor models, rather than the diffuse proto-Lockean waft that sometimes goes along with it, that has been most useful (here, I obviously disagree with Chris). Notions of human beings as fundamentally self-interested surely understate the likelihood of cooperation. But notions of human beings as fundamentally sociable very often overstate it, in systematically unhelpful ways (here, I think that the kinds of limited sociality described by e.g. Bowles and Gintis are much more useful than the hazy contractarian fug of e.g. much of the new institutional economics). They fail to explain the very crucial ways in which politics and institutions are shaped by struggles between self interested actors, often with very unequal resources, over who gets what. This means that they provide a bad account of international politics, where self-interest plays a very important role. They also – more to the point – provide a bad account of the domestic economic politics of the United States over the last twenty years, and a bad account that has had demonstrably malign consequences, to the extent that it has been believed. If Brad wants (as I believe he does) to think seriously about where he went wrong in his political beliefs, it might be useful to re-examine these more fundamental precepts, and the precise circumstances under which an order of mutually beneficial exchanges is, and is not sustainable. I suspect that the best way of thinking about these circumstances is rather more Hobbesian (as moderated through some Galbraithian notion of countervailing power) than Brad has acknowledged in this post.