Putting the ics into economics

November 2013

Modern economists’ propensity towards, even dependency upon, mathematics is the inevitable, indeed intended result of the endeavour to make economics a hard science. The clue is in the suffix: mathematics, physics, mechanics, economics – words that tellingly do not easily translate out of English.

This development is above all attributable to English economist, Alfred Marshall (1842-1924), a step that was not so much consequent on Marshall the mathematician, as on Marshall the one who, during the second half of the 19th century, pushed more than most to separate economic science from economic history. Indeed, from all other social sciences in general. He also wanted to give the discipline a ‘truly’ scientific foundation, objective and free of the subjectivity that, in his mind, characterises or characterised political economy, for example. His aim was to wrest economics free of the ancient past, free of traditional values.

Given that nothing in the field of economics has sense-perceptible existence (who has ever seen a price or touched a rate if inflation?) this entails a substantial epistemological challenge. It compels those who dare to liberate economics in this way to borrow its consistency from elsewhere – mathematics in particular. But thereby we operate in a thought world, a word of ideas, wherein lies a problem: One can say with certainty that 1 + 1 = 2, but can one be as sure that “resources are scarce”, a mantra with which most economics textbooks begin?

Is the real life economy properly represented by the inner consistency of mathematics? While one can abstract from real life and create models, can one reverse this process back into life? The only way is to devise policies and practices that take their cue from the models and then enforce them. Nowadays, of course, we can – and do! – ‘structurally adjust’ life, but ought not the economist’s task be to give expression to and maintain true the economic structure of the world?

The purpose of abstraction, in economics as in anything else, is to set ourselves free of the matrices in which we find ourselves. To step outside the 'given’ world in order to understand it and to play our part in it. The challenge, however, is not to set ourselves apart or to invent a new reality, but to perceive the ‘old’ one from outside. It is the difference between mastery of the universe and being a master of the universe.

The question we now urgently face is how to reconnect with life. How to give economics a foundation in thought and in real life that is abstract like mathematics but not alienating. This, as argued previously in these blogs, is the task of accounting – understood in its archetypal sense – in combination with imagination, for which mathematics works (in economics) as a surrogate. We can readily calculate in trillions, but can we imagine a trillion?

The journey back into touch with real life will not allow economics to remain apart from economic history – neither the events of history nor the evolution of economic thought. Economics has to achieve a sense of plot. An awareness of why it is the way it is today – abstract and theoretical – and how it needs to move on.

But how is it to do this without reverting into the swamp of subjectivity and atavism from which, for those who see things in that way, it has so recently emerged? Does it really stand free by being objective after the idea of Ayn Rand’s objectivism? How can amorality and value-freeness be superseded with a morality that is not religious as of old or based on lowering one’s head in a fog of incense so as not to see what is or may be within the tabernacle? How is one to hold one’s head up, to be upright, to have a sense of balance without obeisance to a priestly caste – whether yesteryear’s befrocked clerics or disciples of today’s business schools? 

One way, perhaps the way, is to think of Number 1 – already the essence of uprightness. Or of the pronoun ‘I’, the hieroglyph for human individuality. But not in the self-centred sense to which we have become accustomed these past two hundred years or more – assertive individualism that leaves concern for others to an invisible hand. 

Instead, we should celebrate the individual for what he gives, not for what he takes. For this the T-account stands as an apt metaphor. Upright and balanced. One side not able to exist without the other. Motivations matched by effects. No debit without a credit; and vice versa. Aware of ourselves and active, yet not leaning on our environment. But whereas a T-account shows when balance has been struck, the human being has to know how to strike it, when and how balance is to be achieved. We inhabit Aristotle’s ‘mean’. We it is who know when we are too much or not enough of something. As the Skidelskys put it: When is enough enough? Who can answer this – some externally devised and imposed metric? Or our own sense of proportionality, of knowing when we have gone too far, externalised too much, drawn blood when cutting our pound of flesh?

Mechanics, physics – these sciences take their cue from the external world because it is to that world they belong or at least refer. Economics errs when it tries to do the same. That is no reason to give up its ics-ness, however. Rather it should give to this allusion to sure fact a newer, higher meaning. We can be scientific in the unseen world beyond what the hard senses represent. To the senses of touch and smell, for example, we can add a sense of balance and sense of right, a sense of enough. Our economics will be nonetheless scientific or objective because of this. Indeed, without this economics risks collapsing back into a mire of assumptions and assertions that run contrary to very existence it seeks to emulate.