The philosophy behind economics
Words by Aiden Bedford & Rui Sihombing
Imagine for a moment there’s a brand new machine that you can choose to enter, for the rest of your life. This machine allows you, through the beauty of technology, to live the most perfect life imaginable with all of your deepest desires satisfied. And for the rest of your life thereafter, you don’t even realise you’re in the machine. Would you choose to enter the machine? A lot of you would be familiar with this idea already, Robert Nozick’s classic “experience machine”. How could Nozick’s experience machine, a philosophical thought experiment, be at all relevant to economics? Actually, it’s quite useful. It has to do with the whole idea of “utility”, a key aspect of the philosophy quietly underpinning contemporary mainstream (neoclassical) economics. We’ll return to the experience machine in a second.
As expressed in the seminal Principles of Economics by Alfred Marshall, utility is a philosophical concept; a quantifiable measure which is correlated with both desire and satisfaction but not quite the same as the two. We assign subjective value to all goods and services this way. But Marshall admits desire and satisfaction, being qualities, can’t be directly mathematised. Hence the reason for this separate idea of utility. If you’re confused, you should be.
Economist Joan Robinson famously referred to utility as a “concept of impregnable circularity: utility is the quality in commodities that makes individuals want to buy them, and the fact individuals want to buy commodities shows they have utility”. Neoclassical economics is the mathematical extrapolation of the philosophical presumption that all humans are rational utility-maximisers, and that given a certain constraint (income for instance), people will choose their optimal consumption, leisure and labour according to their preferences.
According to this theory then, everyone should choose to enter the experience machine and step inside the perfectly crafted dream world. Yet ask yourself, would you forgo reality for this synthetic alternative? If your answer is no, then you are not the perfect rational utility optimising agents that economists assume you all to be. And what we’ve raised so far is only one of many issues with the presumption of utility-maximising individuals. Chances are you often do things that you don’t want to, in order to satisfy someone else’s preferences. What’s more, we tend to recognise a distinct group of preference-optimisers as being problems: alcoholics & drug addicts. It goes on and on. Once you pick away at the implicit philosophical assumptions behind a so-called “science”, you start to notice these inconsistencies.
What is the point to all this then?
What this means is that fundamentally, neoclassical — mainstream economic theory is a philosophy about human nature and human economic behaviours and actions. Returning to Joan Robinson for another classic: “Economics itself has always been partly a vehicle for the ruling ideology of each period as well as partly a method of scientific investigation.”
The economy will continue to move on, whether or not the policy prescriptions and theories of economists are correct or not. There has never been a great scientific revolution to throw away failed theories as they failed to describe the natural world. As such, we are left with a mishmash of grand and often conflicting or inconsistent mathematical theories glued together with a variety of ad hoc hypotheses, resting on an arbitrary philosophical foundation. So today we are stuck with failed models, and many failed ideas. Academics flog dead horses and students behold.
If anyone claims to preach a doctrine of a value-free economics, regardless of economic school of thought, then you have every reason to question and doubt what they prescribe. They could still be right, of course. But our point here is about necessary scepticism. Behind the clean-cut mathematical models, there’s often the shaky assumptive foundations. Philosophy might seem at first glance to be unrelated or unnecessary to questions of economics. But on the contrary, it’s crucial. It is absolutely necessary, whilst recognising the biases of our own ideology, to seek an understanding of the market as it truly exists. It would be better off leaving our current fantasy world at the door.