My colleague Petrik Runst and I had a lovely chat this afternoon at a local bistro to discuss a paper project that we're working on. Over the course of that conversation, I articulated a point that neither one of us had thought about quite so clearly before and I want to take it for a test drive here.
Part of the argument of this paper is noting the evolution of socialist thinking, specifically from the emphasis of the early Marxists on exploitation and alienation to the Frankfurt School's more singular fixation on alienation. One reason we put forward for this change is that it became harder and harder to argue that really-existing capitalism had somehow materially impoverished workers in the way Marx argued it would. With rising living standards, the socialist critique shifted away from economic exploitation to a more narrow focus on alienation, often with a psychological twist (thanks to Freud I think) that Marx would have rejected given that he saw alienation as totally the result of the anarchy of commodity production under capitalism.
In the course of our conversation, I raised a point that Don Lavoie used to make all the time: much of Marx's critique of capitalism is like a photographic negative of what he imagines the socialist world will look like. In other words, the reason that exploitation and alienation are problems of capitalism is that Marx can envision a world in which neither one exists. Specifically, if the participatory but still unified planning of all economic activity (and the elimination of exchange/markets/prices/commodity production) is possible, we will eliminate alienation and exploitation. The particulars of the argument aren't that relevant here, but this is, in my view, a plausible reading of Marx.
Of course if the socialist future is not achievable, what becomes of the critique? If the "settled plan" can't be created or is doomed to generate poverty and misery, and therefore it is impossible to end exploitation and alienation by Marx's own definitions of those terms, what does it mean to say that these are flaws/shortcoming/imperfections of capitalism? Are they not, instead, simply features of the world? Perhaps we can dislike them, but are they "flaws?" I think we really are "alienated" in some sense that Marx meant it, but I think we simply can't change it and that the benefits of the process that produces what Marx calls alienation so overwhelmingly outweigh the costs that it is not that much of a worry. If we can't change it, is it even meaningful to call it an "imperfection?"
Suppose I can imagine a world in which humans can flap their arms and fly. Standing in that world, looking back at our reality, I see all kinds of "flaws" of our grounded world. Think of all the resources wasted to help us combat gravity (e.g., elevators, airplanes, pulleys). See how imperfect the grounded world is because it wastes so many resources on such things? I think we'd see such an argument as silly, but given the socialist calculation debate, is it any less silly than Marx's discussion of exploitation and alienation? (Note: I'm focused here only on Marx.)
Now let's fast-forward to the 1950s and 60s. The number of economists who believe in Marxian central planning has become small. However, for most critics of capitalism, the ground has shifted to "market failure" type arguments. But here's the kicker: the rhetorical strategy is exactly the same as Marx's! What are normally considered "market failures" are only "failures" because the economist is standing in the hypothetical perfect world of general competitive equilibrium and seeing how the real world fails to live up to the model. Isn't this the essence of the technical notion of "market failure?" Real world markets are condemned as imperfect or failures because they do not live up to a utopia, but now rather than central planning, it's GE. As many have asked, is it even reasonable to call these "failures" if the absence of failures defined that way is not even achievable? Just as with Marx, you only see "failures" and imperfections if you are standing in the perfect future.
And even more recently, the ground has shifted one more time. As criticisms of market failure arguments have become persuasive, we now see a new emphasis on what I earlier called "agent failure" theories of the imperfections of markets. I wrote there:
One thing that has always struck me about behavioral economics are the parallels to arguments about market failure (such as externalities). Much of BE shows us that economic agents are not the rational utility-maximizers of standard theory (as does much of psychology of course). But what this result implies for economics and policy depends upon whose hands the results are in.
One school of thought seems to say "a-ha! Agents don't act like our ideal models of behavior, therefore agents fail to behave in the way necessary for those models to work." Thus, in this view, "agent failure" leads to "market failure." And notice the parallel structure of the two "failures:" in both cases, failure is defined as not matching the idealized, perfect result, either perfect rationality or perfect competition/general equilibrium. The remedy, of course, is some combination of paternalism and intervention to bring the failed agent or market closer to the modeled ideal.
What unites all of these "failure" theories is a lack of attention to real-world institutions. For Marx, it was the role of market institutions as epistemological ecosystems. For the market failure crowd it was both an underappreciation of how, to use Pete's phrase, markets solved their own "failures" and an overestimation of government's ability to improve upon imperfect markets. And for the behavioral economists, it's an underappreciation of how markets enable "imperfect agents [to] learn sufficiently well to generate outcomes that are still not perfect, but are much closer to rational than any alternative." They too also seem to have too much faith in government's ability to nudge us the right way, as Mario Rizzo and Glen Whitman have argued.
In that earlier post, I also wrote:
It would also be interesting to see whether the move to BE in recent years is the result of market failure arguments failing to be as persuasive in light of decades of criticisms of the sort noted above [i.e., public choice and Austrian critiques]. If one wants to be more cynical, one might see the failure of market failure theories (there's a great paper title!) as the motivating force to turn away from markets and toward agents as the element that fails to match the model and thereby brings down, in the eyes of the market failure crowd, the argument for the market.
I'm more convinced of that than I was a year ago. In fact, one could argue that the whole line of critiques of capitalism from Marx to market failure to the agent failure version of behavioral economics is a process of seeing the prior argument defeated by good mainline economics, requiring the critics to come up with a new form of failure to condemn capitalism by comparison to some hypothesized ideal, whether central planning, general equilibrium, or Max U.
If this is right, I'm not sure of what all of the implications are, and this is not the focus of the paper Petrik and I working on, but the more I think about it, the more I think this is important and perhaps worth of a paper in its own right.
Petrik and I would love any feedback you all might have.