"Weights and Measures"
by Joel Bowman
"Economics is about how people make choices.
Politics is about how people ignore those choices.”
~ P.J. O’Rourke, "Eat the Rich:
A Treatise on Everyday Economics" (1998)
Buenos Aires, Argentina - "Down here at the End of the World, as elsewhere, the rain falls on the just and the unjust alike. From our perch, in a quaint corner café here in Recoleta, we cannot easily tell one from the other...but we’ll take a guess anyway, if only for our own amusement. To wit...
The tall blonde who just entered the scene, in the single-breasted mac with the bright red lipstick, is here to meet her boss... while hubby is out of town. Meanwhile, the elderly gentleman over by the window, drinking tea and studying the newspaper, is secretly hoping to spot his ex-wife... listed among the obituaries. And nearest to the exit, two middle-aged partners raise a glass to celebrate their good fortune... as divorce lawyers.
Sin... deception... betrayal... the world is full of sordid tales and tawdry affairs, real and imagined. Of course, not every relationship ends in salty tears and divorce papers... but in the case of Politics vs. Economics, the die was cast from the beginning.
Value vs Power: In last week’s Note, "A Messy Divorce," we looked at a few of the “irreconcilable differences” between the former paramours. To briefly review...Economics, for its part, is concerned with understanding the production of wealth. Its origins. Its formation. And the conditions that best enable it to flourish. Politics, meanwhile, focuses not on the multiplication of wealth... nor even on its division per se, as is sometimes sheepishly suggested by its pseudo-apologists and roguish practitioners...but rather on who gets to decide.
The former deals in the currency of value, in other words, the latter in the currency of power. We might go even further and say, one aims at objective truth… while the other deals in subjective narrative. One promotes voluntary exchange…the other on violent coercion… But let’s zoom out a little further, and take a look at wealth, value and what we might call “the origins of specie.”
Once considered the proper domain of moral philosophers, classical economics is very much the brainchild of Enlightenment thinking. Adam Smith did not pen his "Wealth of Nations" in a vacuum, after all, but amidst the milieu of such OG enlightenment thinkers as David Hume, Voltaire and Benjamin Franklin, to name but a few of his head-scratching contemporaries.
Naturally, the inquiries of the early classical economists (Smith, Ricardo, J.S. Mill et al.) were very much rooted in the prevailing ideas of the age. Which is to say, what later came to be known as the formal study of economics originally sprang from the notion that there exists discoverable laws governing our universe... and that reason is capable of uncovering them.
The Bottom Line: Economics, as a discipline, tends to concern itself with quantifiable measurements... profit and loss, supply curve fluctuations, demand curve elasticity, etc. (on the micro side)... interest rates, inflation prints, gross domestic product, etc. (on the macro side). Each of these measurements, however flawed or tortured by those fallen angels who interpret them, is an attempt to “get at reality,” to understand the world in a fundamentally objective way. The impulse to measure, to weigh, to test and to compare results is quintessentially of the Enlightenment.
And so, with their parallel rulers and compasses and proportional dividers, the proto-eggheads set about to do just that. What they soon discovered, contrary to the prevailing mercantilist orthodoxy of the day, was that wealth was not, as some still believe, a “fixed pie.” That is, through innovation, efficiency, trade, specialization and capital formation, societies could become richer over time.
Even better, they could also advance at the same time, through those very same processes. Which is to say, they found that societies that preferred peaceful trade, leveraged their comparative advantages, and accumulated capital tended, over time, to outperform those who preferred the old “tried and true” methods of empire: conquest, plunder, tribute and subjugation.
Commerce, which multiplied wealth, was ultimately preferable to conquest, which merely divided it... often at great cost to both parties. As Thomas Jefferson advocated in his Inaugural Address to the Nation, 1801: “Peace, commerce, and honest friendship with all nations - entangling alliances with none.”
Here, the Founding Father was likely channeling another early Enlightenment thinker, one with whom he was exceedingly well-versed, even from a young age: “Commerce is a cure for the most destructive prejudices.” ~ Montesquieu ("The Spirit of the Laws", 1748)
Invisible Hands: In addition to arguing for reason over dynasty, a position that the author of the Declaration of Independence might readily be expected to defend, Jefferson was also arguing for the liberty of individuals to trade freely, without constant and meddlesome direction of the state.
As Enlightenment thinkers – Montesquieu, Smith, Jefferson et al. – began to shift their focus from the whims of kings, divine providence, and the accidents of history to the everyday actions of ordinary people, they began to notice that individuals respond to incentives (for better or worse)... and to understand that the resulting decisions were measurable in the aggregate.
It is the basic insight behind Smith’s “invisible hand”... “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.”
The result of all this brewing, baking and butchering is the market determining its own outcome... setting a price, finding a level, and sending forth information for future participants to make better informed decisions. It is the market saying, “This is the will of the people, their uniquely human hopes and fears and preferences, as expressed by their millions of individual, voluntary actions.”
It is here that the moral philosopher is obliged to assume some degree of humility before an infinitely complex order… while the politician, after his own peculiar nature, sees an opportunity to exert power over it. More on the age-old tension to come…" Stay tuned for more in your next Notes From the End of the World..."
No comments:
Post a Comment