Economic metaphors a-go-go

Apparently this year's (non-)Nobel prize for economics as caused a stir, with the results going to Elinor Ostrom and Oliver Williamson, one of whom it an Institionalist! A somewhat rare breed, the most famous of whom was the late (and important) John Kenneth Galbraith. Elinor Ostrom has done some important work on "the commons", refuting Garret Hardin's utterly inaccurate (but politically very useful) tragedy of the commons nonsense.

While I've written articles about previous winners (namely, Edmund Phelps in 2006 -- for repeating Karl Marx -- and Paul Krugman last year, not to mention my review of his last book), I'm not going to do so this year -- far too busy on the Proudhon Reader and AFAQ volume 2! I will say this though, on the propertarian Marginal Revolution Blog, Alex Tabarrok has a piece on the (so-called) Nobel Prize for Oliver Williamson. In part it reads:

"Transaction cost economics is all about applying these ideas in different settings to figure out the best governance structures (marriage, vertical integration etc.) in different circumstances . . . Williamson analyzes how firms come to rely on long term contracts or vertical integration or other seemingly non-competitive solutions to enhance market productivity. Early generations of antitrust enforcers often saw these as monopolistic dealings, but scholars such as Williamson helped us understand how these are essential to the workings of the invisible hand."

The "invisible hand"? Really? Looks like the very visible hand of company hierarchy to me, acting to reduce the uncertainty of the market (i.e., the actual "invisible hand") by replacing it with planning in an attempt to maximise power and profits...

So the "invisible hand" acts via the visible hand in an attempt to eliminate itself... Ah, but of course, god (sorry, the market!) does work in mysterious ways... and whatever happens on the market is, by definition, for the best -- so no need to worry... It's not like such a perspective could lead to major social ills such as massive inequality, economic crisis and the reduction of liberty to being able to swap masters...

Marx would not be that surprised at this, given that this was one of the dynamics he saw in capitalism... he based his "scientific" views on the rise of socialism in this -- the market being replaced by planning on a wider and wider scale within bigger and bigger companies...

In a sense, though, Marx was right. The companies ARE trying to gain the benefits of communism by eliminating the uncertainties associated with markets. He was wrong in seeing the increasing scope of planning as being the form communism would take -- he was not aware that such centralisation destroys the local knowledge needed for sensible and informed decision making.

Unlike, say, Kropotkin who rightly saw that the notion that a "strongly centralised Government" could "command that a prescribed quantity" of a good "be sent to such a place on such a day" and be "received on a given day by a specified official and stored in particular warehouses" was not only "undesirable" but also "wildly Utopian." During his discussion of the benefits of free agreement against state tutelage, Kropotkin noted that only the former allowed the utilisation of "the co-operation, the enthusiasm, the local knowledge" of the people. [The Conquest of Bread, pp. 82-3 and p. 137]

An Anarchist FAQ discusses these issues in section I.1.2 (during the libertarian communist critique of the claim by von Mises that socialism is "impossible") and in sectin I.1.5 (on how market uncertainty undermines von Mises' arguments and expose major irrationalities in market allocation of goods).

The non-Nobel economics crew have been making some interesting decisions of late. In stark constrast to the last major crisis (in the 1970s), they have been giving it to non-lassiez-faire ideologues. Thus we saw Milon Friedman get it after the Pinochet regime embraced his dogmas (so giving his Monetarism nonsense a boost) and von Hayek (for his contributions to the "Austrian" business cycle which had been debunked by the likes of Sraffa and Kaldor in the 1930s!). Is this due to the different nature of this crisis compared to the 1970s? After all, a crisis can break out for different reasons. The 1970s was provoked by working class resistance (capital was too weak) while this one has its roots in growing inequality, financial domination, etc (capital was too strong). Or is it just coincidence? But given how economic ideology has evolved to counter socialist critiques of it, the nature of the crisis may be having its impact on decisions being reached. Perhaps...

Finally, I forgot to add this link to my anti-Draper blog yesterday (I have just done so). It is in relation to his peasant-like "good Lenin" perspective. Here is Ante Ciliga's account of how he became aware that, like the good Tsar, the good Lenin myth is precisely that, a myth: Lenin, Also.

Until I blog again, be seeing you...

  


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