Do we need a new New Political Economy?
One of the best statements of the particular nature of political economy was given by English liberal philosopher John Stuart Mill in the Preface to his 1948 Principles of Political Economy. It bears repeating in full, as it also provides the point of departure of the subsequent work of Jevons and Marshall that would form the original and eventually separate intellectual core of economics. Writing of Adam Smith’s 1776 An Inquiry in to the Nature and Cause of the Wealth of Nations, Mill states the following:
“The most characteristic quality of that work, and the one in which it most differs from some others which have equalled or even surpassed it as mere expositions of the general principles of the subject, is that it invariably associates the principles with their applications. This of itself implies a much wider range of ideas and of topics than are included in Political Economy, considered as a branch of abstract speculation. For practical purposes, Political Economy is inseparably intertwined with many other branches of Social Philosophy. Except on matters of mere detail, there are perhaps no practical questions, even among those which approach nearest to the character of purely economical questions, which admit of being decided on economical premises alone. And it is because Adam Smith never loses sight of this truth; because, in his applications of Political Economy, he perpetually appeals to other and often far larger considerations than pure Political Economy affords—that he gives that well-grounded feeling of command over the principles of the subject for purposes of practice, owing to which the Wealth of Nations, alone among treatises on Political Economy has not only been popular with general readers, but has impressed itself strongly on the minds of men of the world and of legislators.“
There is a multitude of ideas packed in to that paragraph. The key ones are:
The pinnacle of political economy is its practical applicability. It is conducted with a purpose.
Political economy cannot and should not seek to isolate itself from of branches of what we now call social science. Practical issues cannot and will not be solved without reference to other aspects of social science.
Practically-focussed political economy is both more accessible and more useful than “pure political economy” — by which he means what we now call economic theory.
Because of this, practical political economy resonates more forcefully popularly and in the minds of practical people and legislators.
In 2004, LSE economist Tim Besley noted that New Political Economy, as he called it, aimed to reverse the split that occurred between political economy and the economic pursuits of the marginalists and the programme of mathematisation of economics that it unleashed, formalised, in particular, by John Hicks’ systematisation of Keynes’ general theory in to IS-LL (later IS-LM) analysis 1937 and 1939 (in which he offered a mathematical appendix formalising the model) and, definitively, by Paul Samuelson in 1949. Besley emphasises the inclusion of attention to institutional design and policy implementation as crucial to New Political Economy alongside the pure public economics that had developed by the 1980s in public finance and most notably in variants of public choice theory. He also notes that New Political Economy adopts a comprehensive approach to issues in and causes of failure both of markets and of government action.
While it is frequently quoted and viewed as a significant contribution, Besley’s definition of the vista of New Political Economy makes little effort to reach beyond the orthodoxy of mainstream economists, Downs’ economic theory of democracy, Stigler’s realist theory of bureaucracy and work of logical (Otto Neurath, Rudolf Carnap, A.J. Ayer, ) and economic positivists (of whom there are many, typified by Milton Friedman). While his definition is given during the Keynes’ lecture at the British Academy, its stature, at least within economists’ definitions of political economy, necessitates highlighting key deficiencies and omission of several key concepts.
First, he largely ignores consequentialist discussions of public policy. Although he acknowledges that consequences of policy endure beyond individual governments, he sees this as a temporal or Downsian problem. He addresses the need for solutions to problems in an instrumental sense linked to analysis of government failure, but skirts the essential equity (or ‘justice’, in Rawls’ terms) issue of defining success in the long-term.
Secondly, his definition skirts the issue of ethics and intentionality, as well as the role of habit. He admits an expansion of motivations beyond the usual, narrowly-defined bounds of economic or hedonic utility to include subjective aspects of utility, but does not address the broader issue of eudaemonic utility or inter-subjective (or collective) utility (other than to refer to public choice theory), nor does he offer any structure or theory of human action beyond that standard to heterodox economics.
Thirdly, his definition is largely bereft of reference to epistemological challenges or ontological foundations. While acknowledging the centrality to New Political Economy of the economics of information asymmetries, he does little to address critical issues of time or uncertainty.
Also, his lecture dismisses the 1930s socialist calculation debate between Lange & Lerner and F.A. Hayek, in light of the fall of socialism (which he conflates with the fall of Soviet Communism) as “offering little of concrete relevance to contemporary economics and politics.” He makes no effort to acknowledge or consider the strong contribution of Ken Galbraith whose empirical analysis of institutions in the modern industrial economy, of corporations as part of the planned economy and the role of the technocracy, cannot be ignored, even if his subsequently-prescribed policy preferences can.
The result is a Slightly New Political Economy that really just reaches back to classical political economy with an update about specific methods of price discovery and (dis)incentives structures (Vickrey & Mirrlees respectively, Nobel laureates in 1996) and the work of the 2002 Nobel laureates, George Akerlof (differential experiential knowledge of quality asymmetries and adverse selection), Michael Spence (structural asymmetries in certain markets involving performance, especially in services) and Joseph Stiglitz (on risk pooling and adjustable actuarial pricing, with Michael Rothschild) and in credit markets and wider financial economics.
In addition to the orthodoxy of realists and logical positivists, a truly renewed political economy would synthesise or incorporate insights of the main schools of both Continental and heterodox analysis, their precursors and successors:
the classical- and, later, neo-pragmatists — Peirce, James, Dewey, G.E. Moore (certainly a consequentialist), Frank Ramsey, possibly Santayana, W.E.B. Du Bois, and subsequently Richard Rorty, later W.V.O Quine, Hilary Putnam & Susan Haack;,
the Frankfurt School — Horkheimer, Adorno, Marcuse & Habermas;
the American School of power structure research — CW Mills, GW Domhoff;
the post-modernists and post-structuralists — Lyotard, Deleuze, Derrida, Foucault, Bourdieu, Baudrillard, Giddens;
cognitivists & constructivists — Chomsky, Bergson, Kripke, Irving Berlin, later Wittgenstein, Merleau-Ponty, Herbert Simon, Amos Tversky, Lev Vygotsky, R.M. Hare;
social constructionists — Husserl, Schutz, again Vygotsky, Paul Ricoeur, Berger & Luckmann, G.H Mead, Mark Granovetter, Bruno Latour;
existentialists — Nietzche, Kierkegaard, Kafke, Sartre, Camus, Simone de Beauvoir, & Hannah Arendt;
as well as the systems theoreticians & cyberneticians — Ross Ashby, Gregory Bateson, John von Neumann, Kenneth Boulding, Niklas Luhmann, Edgar Morin, Herbert Simon (again), Ludwig von Bertalanffy, William Powers; and
complexity theorists — Edward Lorenz, Murray Gell-Mann, Thomas Schelling, Robert Axelrod, Roslyn Frank;
ontologists — Veblen, George Shackle, Tony Lawson, Geoffrey Hodgson, F.A. Hayek, Paul Lewis, Victor Vanberg, Kurt Dopfer, Jason Potts, David Dequech, Uskali Mäki, Wade Hands;
meta-analysts & economic historians — Robert Hellbroner, David Colander, Israel Kirzner. Paul Boettke, Mark Blaug, Douglass North, Deidre McCloskey, Philip Mirowski, Joel Mokyr, Brad DeLong.
There are many others and, while some may quarrel with allocations of various thinkers to schools of thought, a more important issue is to seek to understand their thinking and to recognise its meaning in our times and to encourage active debate over the challenges they raise to our own thinking and the actions that result from it.
Besley’s New Political Economy is a modest improvement over the Marcusian sterility of modern economics’ representative agent or what early critics of J.S. Mill (unfairly, per Persky, 2011) termed Homo oeconomicus. But what is really required is a renewed New Political Economy that expands the scope of political economy to integrate methods and incorporate insights from neighbouring disciples of social science around power, human purpose and motivation-to-action and behaviour and the balance of process equity and equity of outcomes of public policy over the longer term and their implications for policy development and selection; that is, extended consequentialism.
Doing so would greatly increase the chances of meeting Rawls’ (1972) openness principle and might bring us closer to a fairer, more open and pluralistic society. It would also take us a further step along the path of realising the as-yet-unkown ‘sunlit uplands’ envisaged by the early philosophes of the Enlightenment, of true liberty, plurality, tolerance and harm avoidance. These are aspirations which most politicians seem to have abandoned as if they were used paper cups. It is also difficult to realise them in a modern, globalised world.
We must realise how that modernity and what has followed it has impacted our vital political, ecomic, social & cultural institutions and fight to protect and enhance the Western vision of liberal democracy from those who would diminish it, both from within and without. That involves recognising, in the words of Heraclitus of Ephesus, that a man (or woman) cannot step in the same river twice, for it is not the same river and he is not the sme man (or woman) — that the task of adapting our institutions must be unending and that selection may be democratised but that does not absolve us from striving to our existing institutions evolve and that newly-required institutions are designed to evolve to match changing times, contexts, technologies and human needs.
That is what Futuresphere aims to promote.
Sapere aude!