Transcript Allegory and Political Economy

Liberal economics rediscovers Adam Smith
By Daniel Klein
This file accompanies the Mercatus Center presentation made 28 March 2012
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Here I treat some of the central ideas.
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Smith sketches an aspect of coordination:
“It is the interest of the people that their
daily, weekly, and monthly consumption
should be proportioned as exactly as
possible to the supply of the season.”
In the pursuit of profit, the grain dealer
adjusts price in ways that conduce to such
coordination.
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“Without intending the interest of the people, he is necessarily led, by a
regard to his own interest, to treat them, even in years of scarcity,
pretty much in the same manner as the prudent master of a vessel is
sometimes obliged to treat his crew. When he foresees that provisions
are likely to run short, he puts them upon short allowance. Though
from excess of caution he should sometimes do this without any real
necessity, yet all the inconveniences which his crew can thereby suffer
are inconsiderable in comparison of the danger, misery, and ruin to
which they might sometimes be exposed by a less provident conduct.”
(WN, 525)
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That is a miniature of this:
“[The individual] generally, indeed, neither
intends to promote the public interest, nor
knows how much he is promoting it. ... [A]nd
by directing that industry in such a manner
as its produce may be of the greatest value,
he intends only his own gain, and he is in
this, as in many other cases, led by an
invisible hand to promote an end which was
no part of his intention.” (WN, 456)
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• The prudent ship master is a simile.
• The being whose hand is invisible is a
metaphor.
• By extending a metaphor, it may become
allegory.
• allegory:
“an expressive style that uses fictional
characters and events to describe some
subject by suggestive resemblances; an
extended metaphor.”
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“The reason why it pays to do the right thing
– to do nearly what an omniscient and
omnipotent benevolent Inca would order to
be done – are to be looked for in the laws of
value” (1902, 461).
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Joy is
• like a monotheistic God
• universally benevolent
• super knowledgeable
• able to communicate personally with each
individual
• Individuals believe in Joy’s benevolence
• Individuals trust Joy’s knowledge
• Individuals value Joy’s love and approval
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• Joy tells Bridget that perhaps she should buy
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new ovens, look out for better deals in flour,
and advertise her confections.
Joy communicates these instructions to
Bridget.
There is a meeting minds between Joy and
Bridget.
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Bridget is sensible to Joy’s benevolence and
ethical wisdom.
Bridget feels entrusted to advance what Joy finds
beautiful.
She generally follows Joy’s communications.
The signals from Joy are embraced voluntarily
from what Smith would call her sense of duty.
Bridget “enters, if I may say so, into the
sentiments of that divine Being” (1790/1982: 276)
—and those communications tell her to take
actions rather like the actions that the market
signals would lead her to take.
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• bonafide communication
• beholding by Joy of the coordination of the
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vast coordination
cooperation writ large among the
participants of the system
• If Joy were to give bad instructions, she
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would be erring
She then might correct the error
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“We must look at the price system as such a
mechanism for communicating information
if we want to understand its real function”
(1948, 85-87).
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• “prices are signals” (84)
• “The high price of ice … signals a profit
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opportunity for ice suppliers” (84)
“price signals … tell entrepreneurs what
areas of the economy consumers want
expanded and what areas they want
contracted” (85)
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• What communication here?
• There is communion in communication.
• Simply, “Yours for $1.89.”
• The economic explanation of profit seeking
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and prices entails communication only
incidentally.
The communication is allegorical.
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“[The spontaneous coordination of individual
efforts] has never been given a title which would
secure it an adequate and permanent place in our
thinking. The limitations of language make it
almost impossible to state it without using
misleading metaphorical words. The only
intelligible form of explanation for what I am
trying to state would be to say—as we say in
German—that there is sense [Sinn] in the
phenomena; that they perform a necessary
function.”
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“But as soon as we take such phrases in a
literal sense, they become untrue. It is an
animistic, anthropomorphic interpretation of
phenomena, the main characteristic of which
is that they are not willed by any mind. And
as soon as we recognize this, we tend to fall
into an opposite error, which is, however,
very similar in kind: we deny the existence of
what these terms are intended to describe.”
(1933, 27)
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“The problem which we pretend to solve is
how the spontaneous interaction of a
number of people … brings about a state of
affairs … which could be brought about by
deliberate direction only by somebody who
possessed the combined knowledge of all
those individuals.” (1937, 50-51)
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• What are the relevant signals?
• How do they conduce to the general interest?
• How do they adjust when practices go wrong?
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If the signals start “telling” people to go in the
wrong direction, will the system correct itself?
Will the system tend to keep up with changes?
Will the system dig up new opportunity, new
matters for “communication”?
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• Simon Newcomb: Coordination of the
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concatenation of activities within the firm.
Hayek, Coase and others took it beyond the
firm.
Who beholds the vast concatenation?
We imagine a beholder, like Joy.
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“[P]rices can act to co-ordinate the separate
actions of different people in the same way
as subjective values help the individual to
co-ordinate the parts of his plan.”(1945, 85)
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• Bastiat celebrated the market system as “a
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marvelous association”.
Henry George: “[C]ompetition ... becomes
the … most refined system of co-operation”.
Philip Wicksteed spoke of “a vast system of
co-operation” and “one huge mutual benefit
society”.
Milton and Rose Friedman: “Cooperation is
worldwide, just as in the economic system”.
Cowen-Tabarrok: “[T]his immense
cooperation is voluntary and undirected.”
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“Cooperation, like solidarity, presupposes a
large measure of agreement on ends as well
as on methods employed in their pursuit. It
makes sense in a small group whose
members share particular habits, knowledge
and beliefs about possibilities” (1988, 19).
• Bastiat and the others make sense only by
allegory!
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• Error entails a sense of regret
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–- actual, vicarious, or potential.
Loss-making firms have not necessarily
erred.
You could have a story of market “error” and
“correction” without any actual agent error.
Market error and correction should be
understood as allegory: Joy would be erring
in telling Borders to enter and expand.
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You could have a story of policy “error” and
“correction” without any actual agent error.
Economists often explain that the policy maker
is not erring.
Policy error and correction should be
understood as allegory.
When affairs are heavily governmentalized,
correction mechanisms are particularly weak or
even perverse. Liberal economists can make the
point stronger by minding the allegory behind
policy “error” and “correction.”
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• The economy
• Cost-benefit analysis (social costs, social
benefits).
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They play into the role of one unattuned to the
social.
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They nonetheless speak of coordination, market
communication, social error and correction, thus
falling into inconsistency and self-contradiction.
They subvert their own valuable teachings.
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They relinquish the allegorical to those inclined
to take it in illiberal directions.
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• Liberals need to fight illiberal allegory, not
with denials of allegory, but with liberal
allegory.
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• Making the allegory explicit helps to make it
innocuous.
• You confess the looseness of aspects of your
analysis.
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• Allegory can to some extent help to answer
in a liberal way the yearning for larger
meaning and connection.
• Allegory can help people to see that they
must subdue or rechannel the yearning for
larger meaning and connection.
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• “If you don’t know where you’re going, you
could end up somewhere else.”
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• Thank you for your attention.
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