Philosophy of Economics Crash Course 10 – Economics’ Metaphysics


Dr. Alexander X. Douglas‘s biography states: “I am a lecturer in philosophy in the School of Philosophical, Anthropological, and Film Studies at the University of St. Andrews. I am a historian of philosophy, interested in the philosophy of the human sciences, particularly from the early modern period. I am interested in theories of human reasoning, desire, choice, and social interaction – particularly work that questions the foundations of formal theories in logic and economics from a humanistic perspective. I am particularly interested in the thought of Benedict de Spinoza, which continues to inspire alternatives to the dominant paradigm in economics and social science. My first book, Spinoza and Dutch Cartesianism, proposed a new interpretation of Spinoza, situating him in the context of debates within the Dutch Cartesian tradition, over the status of philosophy and its relation to theology. I am completing a book manuscript, which aims to introduce and develop Spinoza’s theory of beatitude. This is the culmination of Spinoza’s theory of desire, since it describes the condition of ultimate satisfaction. Although Spinoza saw the revelation of true beatitude as the ultimate goal towards which his philosophy reached, there are few interpretative works devoted primarily to this theme. Spinoza’s theory of beatitude is, in my view, the keystone that holds together diverse parts of his philosophy – his theory of desire and the emotions, his metaphysics of time, his theory of human sociability, and his philosophy of religion. These are often studied separately; my introduction to beatitude aims at helping readers understand Spinoza’s philosophy as a unified whole. I have also published a book examining the concept of debt from the perspective of language, history, and political economy. I’m interested in the philosophy of macroeconomics, which receives considerably less attention from philosophers than microeconomics. I am a member of the Centre for Ethics, Philosophy, and Public Affairs, the Executive Committee of the Aristotelian Society, the Management Committee of the British Society for the History of Philosophy, and a Research Scholar at the Global Institute for Sustainable Policy.”

In this series, we discuss the philosophy of economics. For this session, we come back after some time with session 10 on work happening in economics departments and the productivity of societies as the metric, the desire to come to a deeper understanding of the systems of economics through heterodox economics, the anthropological approach to economics and choice, Rosenberg and Leontieff, ad hoc maneuvers in economics, the excess attachments to models of reality, and the “Metaphysics of Accounting.”

Scott Douglas Jacobsen: In reference to the “work going on in economics departments and think tanks,” as an aside, is “productive for society” the main metric in terms of the beneficial aspects of the work done by the “economics departments”?

Dr. Alexander Douglas: I guess I was interpreting ‘productive’ in a broad sense. Working in a philosophy department, I’m very much in favour of sponsoring research on purely abstract and theoretical questions. Alex Rosenberg thinks that much of modern economics is just applied mathematics. I think a lot of it is really a branch of logic, and could be taught within a philosophy or computer science department. There is no need to ask whether this sort of research is socially useful – who knows when an abstract science might become surprisingly useful? On the other hand, I think that the policy decisions on which economists are often consulted require a type of broad wisdom that economics in its current form doesn’t provide. Sometimes, I think, an answer that is too narrow is worse than no answer at all.

Jacobsen: You know the common refrain about alternative medicine and mainstream medicine with the “alternative medicine” as that which does not work and mainstream medicine as that which works, where, by definition, the experimental threshold for efficacy reached on alternative medical treatments would make them mainstream medical treatments. Does Heterodox Economics in this sense of philosophy of economics seem to fit into this framework, though in a functional sense? It utilizes distinct critical paradigms, critical methodologies, and alternative theories of intrinsic human nature to come to conclusions about the right paths regarding economics. I ask this alongside an upcoming educational series with heterodox economist Dr. Carolina Alves, based on the recommendation from you (thank you).

Douglas: I think that the track record of mainstream medicine has been successful enough for its practitioners to be at least partly entitled to that boastful quip. The case is different with economics, I think. Mainstream economists sometimes claim to have provided the science that cured certain economic diseases (e.g. inflation or depressions). Paul Krugman wrote an op-ed once in which he argued that orthodox (Neo-Keynesian) economics found a direct, effective treatment for economic depressions (increase aggregate demand), whereas the heterodox (Institutional) economists were having complicated conversations about the multifarious social, legal, and cultural factors that bring about depressions. It’s true that governments, advised by economists, seemed much better placed to handle the Great Recession of the mid-2000s than they had been during the Great Depression of the 1930s. Yet in the financial crises that caused both, all the ‘institutional’ factors seemed to be at play – a fraudulent financial system, a dysfunctional regulatory environment, a macho culture of irresponsibility and risk-taking. Institutionalists and other heterodox economists could claim to have a much better understanding of those things – they were certainly looking at them much more than the mainstream, by and large. Perhaps the medical analogy could be with holistic medicine. Mainstream economics at least presents itself as working on a model like: diagnosis, prescription, next problem. Many heterodox approaches seem less problem-oriented and want to come to a deeper understanding of the whole system. 

Jacobsen: How true is human “rationality”? How much human limitation plays into the idea of “axioms” for axiomatic assumptions or premises built into the mathematical models?

Douglas: Well economists nowadays like to experiment with putting limitations on the ‘agents’ in the mathematical models: they have incomplete or asymmetric information, they don’t examine all their choices before choosing, etc. As I’ve said before, we can mostly only infer people’s preferences from their choices. Which preferences we infer will depend on how rational people are in their choices. The theory that people are irrational in their choices is as unfalsifiable as the theory that they’re rational. Rational choice is just odd to me, but I don’t think it should be rejected entirely. I just think it’s a good hedging strategy to pursue that research alongside completely different strategies, such as the more anthropological approach I’ve favoured in previous interviews.

Jacobsen: With Rosenberg’s building on the work of Leontieff from the 1980s on the premise that the ‘best economists can do is only the predictions of the direction of a trend,’ is this something akin to a vector on a graph with a thick black marker? It’s a direction, sure, but not much else.  

Douglas: Yes, that’s right. It’s sort of: do this, and prices will go up. How much, how fast, and for how long, we don’t know – that depends on the relative strengths of many, many different factors. 

Jacobsen: Even with this 6.2% and 6.3% difference, is this the common act? A good experimental result comes out, but a “black box” is implied. This “black box” as what it supposedly states about human nature or psychology, while suggesting and not evidencing really, maybe not even really suggesting, actually. Then the after the experimental result. There’s a sort of washing it with the detergent of the orthodox economics ideas, i.e., preferences, choice, utility, etc.” It sounds as if an ad hoc maneuver. 

Douglas: Yes, I think it is ad hoc. And yes, I don’t think it’s helpful to fit every social phenomenon into that framework, although the framework – precisely because of that black box you’re talking about – can be fitted around any behaviour we like. In any case (going back to the example you mention), the fact that economics got one prediction right hardly vindicates it as the ultimate social science.

Jacobsen: To the “hamfisted” Hassett, and to the previous references to almost engineering words to human beings and to human thoughts & acts, including complexes of them seen in “skills and abilities of workers,” does this fakery of firm foundations to a global discipline lead to real-world problems rather than problem-solving? In that, the use of human-less terms leads to dehumanization in thinking, in eventual policy, in politics, and in discourse, after filtration through these orthodox economic gatekeepers made the rounds of this rigamarole. Something alluded in the grounding of “economics and finance” in a metaphysical theory” of a ‘divided world of assets and liabilities with definite values for estimation.’

Douglas: Yes, I really think so. I guess I was trying to make the point that a model of reality is not reality. If you get too attached to a model you can forget that it’s only a model. Yes we can speak of assets and liabilities, human capital stocks, goodwill assets, all the rest of it. Then, with a bit of stretching and squashing, we can maintain the truth of some iron laws of accounting (net worth = assets – liabilities). But we’re talking about real human beings and real human lives, and the laws only govern our model; they’re established by convention. It’s fine to model human interactions using something like an accounting system, for some purposes. But it’s very dangerous to think confuse the model with reality. It always worries me when the newspapers say, as if it were an objective fact, that a certain fund, or building, or person is worth X dollars or pounds or whatever. This is not because I disagree with valuing things in economic terms – sometimes that’s a perfectly reasonable thing to do. My problem is that the truth of such statements is always relative to the choice of some accounting model, and there’s an awful lot of political power exercised in the choice of such models, and it remains invisible to us if we think that there are just these objective values floating around that we can directly perceive.

Jacobsen: Following from the previous question and statement, does this “metaphysical theory” for ‘cleaning up’ the messier reality match the same critical analysis of “false precision” found in the mathematical modelling and the human-less terminology utilized by individuals such as Hassett the ‘Hamfist’?

Douglas: Yes, that’s the deeper issue I have with what I might call the Metaphysics of Accounting. Accountants themselves don’t do this, but the media, politicians, and the general public often reify accounting entities when in fact there are no portfolios, no accounts, no assets, no liabilities – there are only human beings coercing and cajoling each other in different ways, using different social and legal covenants, which are, as Hobbes said, only as real as the sword behind them. It’s really all just relations of power: accounting ‘facts’ are just a model for representing these complex relationships of power. If you take them to be objective entities in their own right, then you forget that they’re just conventions backed by the exercise of power, and power disappears entirely from your view.

Image Credit: Alexander Douglas.

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