Modern Political Economics: Chapter 4

Continuing to read “Modern Political Economy: Making sense of the post-2008 world” by Yanis Varoufakis, Joseph Halevi and Nicholas Theocarakis, published in 2011 by Routledge. In this and next posts I will collect my comments, chapter by chapter. Here I discuss Chapter 4.

This chapter starts strangely enough with an excursion into the science fiction world of “the matrix”, a world ruled by machines that exploit human beings for their heat source. The authors develop this into a two-sector model that exceeds the complexity of the Ricardian one-sector corn model. This modelling exercise results into a growth equation that describes a stable growth path of the economy. Ultimately, the growth rate is fully determined by the exogenously given growth rate of the determining scarce resource, being the heat source. The model, thus, depicts an economy which is fully controlled by a central authority. This authority selects weights for the various factors fully to set the stable growth path determined by the external heat source.

The authors then ask some philosophical questions about machine economies versus human economies. Can one talk about “value” in a machine economy? The conclusion is that such an ontological question has no true answer. We need to hypothesise about what value means. The authors now hypothesise (claiming Ockham’s Razor) that only freedom of decision making leads to the human conditions to lead to value rather than function. So, for the authors value is directly linked to human decision making and needs. It also presupposes freedom of such human decision making: Free thinking as well as a modicum of freedom of action.

This then brings up the very important question: What is freedom? In particular, in the context of the matrix economy this is a very interesting ontological question! I think that freedom itself is a social construct. Indeed, our free thinking is always constrained by the social mores and society’s constraints through its social norms and rules. Thus, freedom is. Function of socio-economic embeddedness of all actors. In that regard, history shows that human freedom is always constrained and never completely accessible; it is a social construct.

This shows the slippery slope that we enter if we engage in thinking about machines versus humans in the matrix economy…

This slippery slope is however followed further by the authors by stating that economics only becomes necessary in a world in which there are pools of free human labour that are employed in social production organisations. Hence, economics is useless to describe all ancient economies, the feudal economy as well as the traditional Asian economies. This seems a fallacy to me.

The main argument used by the authors is that free human labour pools resulted into wealth creation at an unprecedented scale. Again the linearisation of history hits us in the face here. Was the wealth level generated in the Roman Empire not only matched again at the end of the 19th century? And does economic theory not treat labour as any other input, making it non-distinguishable from any other economic intermediary? What use is economics in that regard then if it treats human labour as if it is not subject to free will and self-consciousness? It seems the authors only confuse matters and have only thought this through to a certain level. Their philosophical reasoning remains wanting.

The authors argue that the incompleteness of the incompleteness of the human labour contract and the moral hazard nature of the employment relationship actually define the human condition. I only note that this subject is a rather limited part of certain fields in economic theory, like game theoretical labour economics; it certainly does not enter sufficiently into macroeconomic reasoning. There labour just remains another commodity traded in a market.

Subsequently the authors move to the discussion of Marxian political economics based on these insights. The global economy can be viewed as thoroughly Smithian, while the underlying counter processes are Hegelian. Marx brings these two lines of reasoning together: Free human labour becomes irrevocably enslaved by capital (machines) and this commodification of human labour results in economic crises such as 1873, 1929 and 2007-08. Only the move away from the Smithian adoration of physical or outer wealth in favour of the Hegelian dialectic dynamic to achieve a higher consciousness and inner wealth would result in a more stable society.

This chapter is therefore a call to develop a much deeper understanding of economic dynamic processes. Only through understanding such processes, we get a handle on how to improve our society to regulate unwanted deep crises such as listed above. I fully agree with this sentiment.

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