Economics as Storytelling: McCloskey Again

This is not new to most of you of course. You are already steeped in McCloskey’s Rhetoric. Or you ought to be. After all economists are simply telling stories about the economy. Sometimes we are taken in. Sometimes we are not.

Unfortunately McCloskey herself gets a little too caught up in her stories. As in her explanation as to how she can be both a feminist and a free market economist:

“The market is the great liberator of women; it has not been the state, which is after all an instrument of patriarchy … The market is the way out of enslavement from your dad, your husband, or your sons. … The enrichment that has come through allowing markets to operate has been a tremendous part of the learned freedom of the modern women.” — Quoted in “The Changing Face of Economics – Conversations With Cutting Edge Economists” by Colander, Holt, and Rosser

Notice the binary nature of the world in this story. There are only the market (yea!) and the state (boo!). There are no other institutions. Whole swathes of society vanish or are flattened into insignificance. The state is viewed as a villain that the market heroically battles against to advance us all.

It is a ripping tale.

It is shallow and utterly misleading.

The problem McCloskey has is that she constantly battles her own Chicago roots and those roots sometimes – not often – surface in this same way. Markets good. State bad. Nothing else matters.

This binary and overly simple view of the world is common throughout economics. We are constantly being asked to set the market alongside the state and leave other things aside. The word ‘society’ is such an anathema to economists that they seem to have forgotten its existence. And thinking of institutions as playing a role in our everyday affairs is definitely déclassé. Except, of course that both the state and the market are institutions, but let’s not dwell on that.

Somewhere in the tale told by McCloskey the market rode in on her white horse, struck down the nasty masculine dragon we know as the state, and women were happy ever after. Why were they happy? Because they could become independently prosperous and could, therefore, flourish away from their prior enslavement.

Presumably markets didn’t exist throughout those aeons of prior enslavement. Presumably only states did.

Which implies that McCloskey’s vision of what a market is must be extremely historically contingent. At some point they must have morphed into the dragon slaying kind. At some point they too must have been set free to accomplish their magic. Quite how we have to ponder another time. After all with a binary vision of the world and with the state perpetually the villain markets had to self-liberate. Which, I suppose, implies that the entire history of modernization, liberation, advance, enlightenment, and such can be reduced to market forces.

So markets are epicenters of learning, philosophy, the arts, politics, and all other good stuff.

Except they are impersonal.

At least according to Brian Arthur’s summary of the structural foundations of general equilibrium analysis. I take this quote from the introduction he wrote with Durlauf and Lane to their edited volume “The Economy as an Evolving Complex System II”:

“In general equilibrium analysis, agents do not interact with one another directly, but only through impersonal markets. By contrast, in game theory all players interact with all other players with outcomes specified by the game’s payoff matrix.”

I choose this text not for its unique insight but for its brevity and ease of use.

Neither of these alternative forms of analysis seem, to me, to be very plausible. Game theory has its specified payoff matrices and has all agents interacting with all other agents. How anything ever gets done given all this interacting I shudder to think. But that’s beside the point for now. What I want to give more attention to is the nice summary of how most mainstream economists view a market. The key word being impersonal.

What does impersonal mean?

Meaning number one is ‘the lack of personal feeling’. Synonyms being objective, neutral, unbiased, dispassionate, unattached and so on.

Meaning number two is ‘not existing as a person’ or ‘having no personality’.

So the market, according to economists, is a place devoid of feeling. Bereft of emotion. It is a cold landscape where calculation and self-advancement dominate over other less worthy sentiments like cooperation and altruism. And where enslavement over aeons is likely to have been established only because it fulfilled some utterly rational and  utilitarian role. Markets, in this narrative, don’t care. They are places of cold rationality, not places of heated debate.

I happen to think markets are never impersonal. They involve people: always and everywhere. So the notion of an impersonal market is nonsense from the very beginning. As a rhetorical device or as a starting point for analytical purposes I can tolerate them for a nanosecond or less. But as a permanent feature of a theory about human behavior they are – how do I put this? – rubbish.

Now it is quite possible that in her departure from Chicago McCloskey also rid herself of the impersonal market notion. But I am not so sure. From my point of view a market full of human beings is also a market situated in a lush and diverse social setting. This is by definition since humans are surrounded by all sorts of institutional manifestations of their creativity and search for structure.

Which gets us back to the binary problem we started with.

It is only in a society rich with alternative networks and channels of development, of outlets for expression and argument, and of institutional ways for accepting or enforcing progress, that the riddance of enslavement can take place. A binary split between an evil state and a virtuous market will not do. Such a split is a device created by economists to make their lives easy and merely suffices as an ideological crutch in their libertarian adventure.

As part of a narrative about the steady rise of freedom in our modern world it just doesn’t work.

Markets don’t care. But McCloskey does. Yet she persists in calling herself a free market economist.

Why?