Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…

“What is the use of studying philosophy if all that does for you is to enable you to talk with some plausibility about some abstruse questions of logic, etc., & if it does not improve your thinking about the important questions of everyday life?”  Wittgenstein, letter to Malcolm, 1944

1.  In my current excursions into “Physics and Reasoning”, I stumbled some days ago upon Professor Cheryl Misak’s 2012 lecture at the Cambridge philosophy department about Ramsey having linked Peirce with Wittgenstein https://www.youtube.com/watch?v=nQuNWNjYcVY  also her 2014 lecture at London’s Royal Institute of Philosophy  https://www.youtube.com/watch?v=c_Nxr3ZQxqA.  I note too Professor Misak has a 2016 book titled Cambridge Pragmatism whose contents are advertised by Oxford University Press as follows

Part I Cambridge, Massachusetts
1: Peirce
2: James
3: Bridges across the Atlantic
Part II Cambridge, England
4: The Anti-Pragmatism of Pre-War Cambridge
5: The Pull of Pragmatism on Russell
6: Ramsey
7: Wittgenstein: Post-Tractatus
Conclusion

I have not seen the book, I enjoyed her talks published at YouTube,  and I look forward to seeing results of her original archival work with Ramsey’s papers. 

Whether Wittgenstein’s later work was affected by Peirce more than a dozen years after Peirce’s death in 1914, and how it may have done so through Ramsey in particular, has been studied extensively if sporadically over years by Jaime Nubiola of the University of Navarre “Scholarship on the Relations Between Ludwig Wittgenstein and Charles S. Peirce” in I. Angelelli & M. Cerezo, eds., Proceedings of the III Symposium on History of Logic, Gruyter, Berlin, 1996; Mathieu Marion of Quebec University, “Wittgenstein, Ramsey and British Pragmatism” in European Journal of Pragmatism and American Philosophy [Online], IV-2 | 2012, 24 December 2012; Albert Atkin of Sheffield University http://www.iep.utm.edu/peircebi/ and doubtless others. Professor Misak’s findings in Ramsey’s papers will add to existing scholarship that is already large. 

2.  What I found disconcerting even shocking, however, has to do with  her audience at the Cambridge philosophy department in 2012.  That audience, with its noted Professors in attendance and participating, was evidently clueless that two Cambridge people, namely Renford Bambrough, philosophy, and myself, economics, decades ago in the 1980s had described the link between Peirce and Wittgenstein via Ramsey.   If someone asserts at Cambridge today a claim of linking Peirce with Wittgenstein through Ramsey, one expects a Cambridge philosophy audience to be sufficiently informed to know Bambrough, in an extremely difficult achievement, had already done so in 1979.

Bambrough sent me, then in Blacksburg, the proof of his article reproduced below; a clearer copy of the published article may be found at

http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract.

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My Philosophy of Economics: On the Scope of  Reason in Economic Inquiry published in 1989 in Routledge’s International Library of Philosophy was the first  work by an economist in that  series, known earlier as the International Library of Psychology, Philosophy and Scientific Method and even before that as the International Scientific Series.  It sold out quickly and was in paperback two years later.  Chapter 5 and Chapter 9 had long passages placing Peirce and Wittgenstein together in regard to doubt and certainty, and the use of mathematics. Keeping with my purpose of addressing extant problems in economic theory while using philosophy as discreetly as possibly, I noted Bambrough had established the link between Wittgenstein and Peirce via Ramsey:

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To repeat:

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3.  Now before its publication my book manuscript had been mostly under contract with University of Chicago Press, not Routledge.  About 1984 one of Chicago’s half a dozen reviewers hit me with a large surprise: my argument had been anticipated decades earlier in America by MIT’s Sidney Stuart Alexander!   I had no idea of this though I knew Alexander’s publications on other subjects the balance of payments.

Alexander, who was Paul Samuelson’s contemporary and Robert Solow’s teacher, was extremely gracious, read my manuscript and immediately declared with great generosity it was clear to him my arguments had been developed independently of his own.  Alexander had come at the problem from an American tradition of John Dewey, Peirce’s pupil, I had done so from Wittgenstein through John Wisdom and Renford Bambrough.  Alexander and I had arrived at similar conclusions but had done so completely independently!

Before we had met, Alexander wrote in support of my work:

“(This) is a very ambitious work directed at the foundations of normative judgments in economics. The author arrives at some conclusions very closely matching those I arrived at some years ago. It is clear, however, that Dr. Roy arrived at his conclusions completely independently. That is all the more piquant to me in that the philosophical underpinning of his work is the development of philosophy in England  from the later Wittgenstein, while mine derives principally from earlier work in the United States by the pragmatists and those who may loosely be called neo-pragmatists. A prominent Cambridge ethical philosopher of the early thirties referred to the United States as the place where moribund English philosophies were to be hailed as the latest thing. Now the most characteristically American philosophy seems to have arrived first by a wide margin at a position gaining wider acceptance in England as well as America.

Dr. Roy reveals a clear understanding of the methodological positivism that invaded economic policy analysis in the thirties and still dominates the literature of economics…. Following Renford Bambrough (Moral Scepticism and Moral Knowledge) he arrives at a position equivalent to that of the American pragmatists, especially Dewey, who insist that the problematic situation provides the starting point for the analysis of a problem even though there are no ultimate starting points. The methodological implication is the support of inquiry as fundamental, avoiding both scepticism and dogmatism. Roy develops his position with a great deal of attention to the ramifications of the problem both in philosophy and in economics….”

When we did meet, as he drove me around MIT in his car, Alexander joked how it used to be bad form in his time to make comparisons about a trio of pairs: Cambridge vs Cambridge, baseball vs cricket, and “American English” vs (what is now called) “British English”!

I asked whom he had referred to as the “prominent Cambridge ethical philosopher”, he said C D Broad and decades later I found Broad’s condescending passage

“… all good fallacies go to America when they die, and rise again as the latest discoveries of the local professors…” Five Types of Ethical Theory 1930, p. 55.

No wonder Alexander found “piquant” that I had reached via Wittgenstein and Bambrough an equivalent position to his own decades earlier via American pragmatism. [Besides by Alexander, a most perspicacious review of my book is by Karl Georg Zinn.]  

Within economics, Alexander and I were pirate ships blowing holes and permanently sinking the positivist Armada of “social choice theory” etc.  Amartya Sen arrived at Cambridge in 1953, the year Philosophical Investigations was published, two years after Wittgenstein’s death the year after Wittgenstein died. Professor Sen told me, in 2006, John Wisdom and C D Broad both knew him at the time, all at Trinity College; if anyone, Amartya Sen should have conveyed to Kenneth Arrow in America in the 1960s and 1970s the implications for economic theory of Wittgenstein’s later work. Instead I had to do so in 1989, Arrow graciously admitting when he read my book:

“I shall have to ponder your rejection of the Humean position which has, I suppose, been central in not only my thought but that of most economists. Candidly, I have never understood what late Wittgenstein was saying, but I have not worked very hard at his work, and perhaps your book will give guidance.”

 

4. Last week I wrote to Professor Misak at the University of Toronto:

“Dear Professor Misak, I do hope you accounted for Renford Bambrough’s 1979 linking of Peirce, Wittgenstein and Ramsey, here http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4975.1981.tb00439.x/abstract

My 1989 book Philosophy of Economics applied both, and Sidney Alexander of MIT recognized it. Of course my book was viciously attacked in America.  Your U of T colleague (GBC) was an old friend from Cambridge days and knows all about me.  Cordially Suby Roy …”

I expected to hear back something like:  “Dear Dr Roy, Thanks for this.  Yes I have acknowledged your 1989 book in a footnote, though I was unable to locate the earlier Bambrough piece and will do so now.”  Instead Professor Misak replied

“Dear Suby, Some Americans don’t like anyone to have had thoughts similar to those of their heroes!  Thanks for these references. Cheryl”

Excuse me? “Some Americans don’t like anyone to have had thoughts similar to those of their heroes”?

I have had to take this to mean

“Subroto Roy (doubtless an American national, surely he isn’t still an Indian? Answer: He is) objects to Cheryl Misak having had ‘similar thoughts’ to his hero Bambrough”.

A puzzling response from an eminent Professor of Philosophy at the University of Toronto.  I wrote back:  “Hello, I’m afraid your paragraph is too enigmatic for me”.  Professor Misak’s second reply was even more curious than the first:

“Apologies. I just meant that some Peirce scholars don’t like to think that Ramsey and Wittgenstein might have been promoting the same ideas. The reasoning behind their aversion is enigmatic to me! Cheers, Cheryl.”

I am afraid I do not accept such a completely irrelevant mention of “some Peirce scholars”.  If through negligence or some mishap,  Professor Misak, not having received the effort due to her during the peer review process from either her 2012 Cambridge philosophy department audience or her Oxford University Press referees, has failed to acknowledge in her book the prior work of Bambrough and others including myself it is necessary and sufficient a corrigendum be now inserted into the book giving references to these earlier works, that’s all.

 

5.  The case is evidence that while Cambridge obviously has a  fine department teaching academic philosophy, that could easily be mistaken for a fine department at an Australian or American university or even Oxford, the distinct product once known as “Cambridge Philosophy” in the line descending from Wittgenstein through John Wisdom and Renford Bambrough is quite dead there.   Several lines descended from Wittgenstein through his several disciples, including Max Black whom I visited and talked extensively with at Cornell throughout the Fall of 1983, and whom I was privileged to count as a friend, an experience I have yet to write of. 

“But there is one disciple who stands apart from the rest; the work of Professor Wisdom is truly Wittgensteinian, yet at the same time original and independent…Wisdom carries Wittgenstein’s work further than he himself did, and faces its consequences more explicitly… Wisdom’s approach is much less esoteric than Wittgenstein’s, and his conclusions are perhaps easier to come to grips with.  We see in Wisdom something like a new application of Wittgenstein’s ideas; we recognize the same forms there, yet cast, as it were, in a new medium…” (David Pole, The later philosophy of Wittgenstein, 1958).

Wisdom in his obituary notice of Wittgenstein said if he was asked to say in one sentence what Wittgenstein had accomplished he would say it was asking the question “Can you play chess without the Queen?”  Wisdom’s disciple Bambrough in turn said if he was asked to say in one sentence what Wisdom accomplished he would say it was Wisdom replying to such a question about Wittgenstein as he had done.  I said in my 2004 public lecture at the University of Buckingham: “If I was asked to answer in one sentence what has been the combined contribution to human thought of Wittgenstein, Wisdom and Bambrough, indeed of modern British philosophy as a whole, I would say it has been the proof that there are no unanswerable questions, that there is no question to which there is not a right answer.  By “common reasoning” I shall mean merely to refer to the structure of any conversation well-enough described by F R Leavis’s operators in literary criticism: “This is so, isn’t it?, Yes, but….”.  My “yes” to your “This is so, isn’t it?” indicates agreement with what you have said while my “but…” tells you I believe there may be something more to the matter, some further logical relation to be found, some further fact to be investigated or experiment carried out, some further reflection necessary and possible upon already known and agreed upon facts. It amounts to a new “This is so, isn’t it?” to which you may respond with your own, “Yes, but…”; and our argument would continue.  Another set of operators is: “You might as well say…”; “Exactly so”; “But this is different…” This was how Wisdom encapsulated the “case-by-case” method of argument that he pioneered and practiced. It requires intimate description of particular cases and marking of similarities and differences between them, yielding a powerful indefinitely productive method of objective reasoning, distinct from and logically prior to the usual methods of deduction and induction that exhaust the range of positivism.  We are able to see how common reasoning may proceed in practice in subtle fields like law, psychology, politics, ethics, aesthetics and theology, just as objectively as it does in natural science and mathematics. Wittgenstein had spoken of our “craving for generality” and our “contemptuous attitude towards the particular case”. Wisdom formalized the epistemological priority of particular over general saying: “Examples are the final food of thought. Principles and laws may serve us well. They can help us to bring to bear on what is now in question what is not now in question. They help us to connect one thing with another and another and another. But at the bar of reason, always the final appeal is to cases.” And “Argument must be heard”.  In all conflicts – whether within a given science, between different sciences, between sciences and religion, within a given religion, between different religions, between sciences and arts, within the arts, between religion and the arts, between quarreling nations, quarreling neighbours or quarreling spouses, whether in real relationships of actual life or hypothetical relationships of literature and drama – an approach of this kind tells us there is something further that may be said, some improvement that can be carried out, some further scope for investigation or experiment allowing discovery of new facts, some further reflection necessary or possible upon known facts. There are no conflicts that are necessarily irresoluble. Where the suicide-bombers and their powerful adversaries invite us to share their hasty and erroneous assumption that religious, political or economic cultures are becoming irreconcilable and doomed to be fights unto death, we may give to them instead John Wisdom’s “Argument must be heard….”

Bambrough, applying Wisdom applying Wittgenstein, and integrating all this with his deep classical scholarship and knowledge of Aristotle and Plato in particular, showed how objectivity and reasoning are possible in politics, in ethics, in theology, in aesthetics, in literature, as much or as little as in science or mathematics.  

Bambrough’s  path-breaking works of general epistemology and ontology are two three four humble papers in  Proceedings of the Aristotelian Society 

“Universals and Family Resemblances”
https://www.jstor.org/stable/4544648

“Unanswerable Questions”

https://www.jstor.org/stable/4106729?seq=1#page_scan_tab_contents

“Objectivity and Objects”

https://www.jstor.org/stable/4544817?seq=1#page_scan_tab_contents

“Thought, Word and Deed”

https://academic.oup.com/aristoteliansupp/article-abstract/54/1/105/1779886?redirectedFrom=PDF

I, applying all of this from Bambrough to the economic theory of Marshall, Keynes, Hicks, Hayek, Hahn, Friedman, Arrow and others Frank Hahn, Milton Friedman, Kenneth Arrow and others showed in 1989 the same for economic policy and normative economics.  I have since then tentatively applied similar methods of reasoning to diplomacy, politics, psychology, religion, literature, and presently explore  physics.

What Wisdom did was far more astonishing, showing, among many other things, how the confluence of Freud and Wittgenstein could be found to help us comprehend all that seems so irrational: hopes & fears, dreams & the unconscious, psychoses & neuroses, everything said or done has an explanation, usually when there has been an adequate description.   Modes of reasoning are manifold, well beyond the deduction and statistical inference induction known to the positivist.  Then besides, there’s reflection about known facts too.  Really if you can make reasonable sense of dreams and the unconscious, of  the psychotic and the neurotic, as Wisdom did, the differences between Pakistan and India over Kashmir, between the West and Islam, between Einstein and Quantum Mechanics too become amenable…

My praise of Wisdom and Bambrough in my 2004 public lecture was extravagant:  “For some 25 years I have been learning of and reflecting upon the work of two great modern British philosophers, John Wisdom (1904-1993) and Renford Bambrough (1926-1999). In the 1980s in America, I came to apply their thinking in Philosophy of Economics (Routledge 1989), a book which got me into a lot of trouble there. Returning to Britain in 2004, I am dismayed to find their work almost forgotten or unknown today, even at the Ancient University that had been their home. “Orientalists” from the West once used to comprehend and highlight the achievements of the East for the peoples of the East who were unaware of them; I am happy to return the favour by becoming an “Occidentalist” in highlighting a little of the work of two of Britain’s finest sons of which she has become unaware. Wisdom and Bambrough played a kind of modern-day Plato and Aristotle to the Socrates played by Wittgenstein (1889-1951); the knowledge they achieved in their lives and have left behind for us to use and apply to our own problems make them, in terms of Eastern philosophy, rather like the “Boddhisatvas” of Mahayana Buddhism. I do not expect anyone to share such an extravagant view, and will be more than satisfied if I am able to suggest that we can have a grasp of the nature and scope of human reasoning thanks to their work which may help resolve the most intractable and seemingly irreconcilable of all current international problems, namely the grave cultural conflicts made apparent since September 11, 2001….”

In 2007 I added:

“I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgments promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…” It has taken me more than a quarter century to traverse some of that expanse; when I returned to Britain in 2004 as the Wincott Visiting Professor of Economics at the University of Buckingham, I was very kindly allowed to deliver a public lecture, “Science, Religion, Art and the Necessity of Freedom”, wherein I repaid a few of my debts to the forgotten work of Bambrough and Wisdom — whom I extravagantly compared with the Bodhisattvas of Mahayana Buddhism, also saying that the trio of Wittgenstein, Wisdom and Bambrough were reminiscent of what Socrates, Plato and Aristotle might have been like.  I had written to Bambrough from within Cambridge expressing my delight at finding his works and saying these were immensely important to economics; he had invited me to his weekly discussion groups at St John’s College but I could not attend. Between 1979 and 1989 we corresponded while I worked in America on my application of his and Wisdom’s work to problems in economics. We met only once when I returned to Cambridge from Blacksburg for my doctoral viva voce examination in January 1982. Six years later in 1988 he said of my Philosophy of Economics, “The work is altogether well-written and admirably clear”, and on another occasion he said he was “extremely pleased” at the interest I had taken in his work. The original preface of Philosophy of Economics said he was not responsible for the use I had made of his writings, which I reiterated in the 2004 lecture. At our meeting, he offered to introduce me to Wisdom who had returned to Cambridge from Oregon but I was too scared and declined, something I have always regretted since. It is only in the last few years that I have begun to grasp the immensity of Wisdom’s achievement in comprehending, explaining and extending the work of both Wittgenstein and Freud. His famous “Virginia Lectures” of 1957 were finally published by his admirers with his consent as Proof and Explanation just before his death in 1993. As for Bambrough, I believe he may have been or become the single greatest philosopher since Aristotle; he told me in correspondence there was an unfinished manuscript Principia Metaphysica (the prospectus of which appeared in Philosophy 1964), which unfortunately his family and successors knew nothing about; the fact he died almost in obscurity and was soon forgotten by his University speaks more about the contemporary state of academic philosophy than about him.

Single-handedly I have over a few decades restored the philosophical work of John Wisdom and Renford Bambrough. That there was good reason to do so is now obvious.  

Will Cambridge Philosophy wish to revive “Cambridge Philosophy” within Cambridge?  

Well if so, here’s a reading list from this Indian economist… yes in India (get over those racist thoughts at once!):

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John Wisdom (1904-1993), Main Philosophical Works:

Interpretation and Analysis, 1931

Problems of Mind and Matter 1934

Other Minds, 1952

Philosophy & Psychoanalysis, 1953

Paradox & Discovery, 1965

Logical Constructions (1931-1933),1969

Proof and Explanation (The Virginia Lectures 1957), 1991

Secondary literature:

Wisdom: Twelve Essays, R. Bambrough (ed) 1974

Philosophy and Life: Essays on John Wisdom, I. Dilman (ed) 1984.

 

Renford Bambrough (1926-1999), Main Philosophical Works:

“Socratic Paradox”, Philosophical Quarterly, 1960

“Universals and Family Resemblances”, Proceedings of the Aristotelian Society 1960-61

“Plato’s Modern Friends and Enemies”, Philosophy 1962

The Philosophy of Aristotle, 1963

“Principia Metaphysica”, Philosophy 1964

New Essays on Plato and Aristotle (edited by R. Bambrough), 1965

“Unanswerable Questions”, Proceedings of the Aristotelian Society Supplement 1966

Plato, Popper and Politics (edited by R. Bambrough), 1967

Reason, Truth and God 1969

“Foundations”, Analysis, 1970

“Objectivity and Objects”, Proceedings of the Aristotelian Society 1971-72

“How to Read Wittgenstein”, in Understanding Wittgenstein, Royal Institute of Philosophy 1972-3

“The Shape of Ignorance”, in Lewis (ed) Contemporary British Philosophy, 1976

Introduction & Notes to Plato’s Republic (Lindsay trans.), 1976

Conflict and the Scope of Reason, 1974; also in Ratio 1978

“Intuition and the Inexpressible” in Katz (ed) Mysticism & Philosophical Analysis, 1978

Moral Scepticism and Moral Knowledge, 1979

“Thought, Word and Deed”, Proceedings of Aristotelian Society Supplement 1980

“Peirce, Wittgenstein and Systematic Philosophy”, MidWest Studies in Philosophy, 1981

“The Scope of Reason: An Epistle to the Persians”, in Objectivity and Cultural Divergence, Royal Institute of Philosophy, 1984

“Principia Metaphysica: The Scope of Reason” also known as “The Roots of Reason”; a work and manuscript mentioned several times but now unknown.

Of course it’s more likely Cambridge Philosophy fails to move from its inertia, is uninterested in what I have outrageously called “Cambridge Philosophy”, and instead continues to provide the homogeneous, Americanized, philosophical product that is available in Australia, North America, Oxford etc.  

If so, People, not to worry…. enjoy all this “Cambridge Philosophy” at your leisure… and come to see me… in India…  

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[Postscript 1 from Twitter 22 November 2017: I was still not in Kindergarten

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when Wisdom delivered his Virginia Lectures:

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published decades later in 1991 which I bought at a Bethesda bookshop in 1993…I had been to see Prof SF Barker at Johns Hopkins too. I regret I was too scared to meet Wisdom in 1982 when Bambrough suggested it. But yes for a few decades now I have single-handedly restored the work of Wisdom and Bambrough. My intellectual debt to Britain repaid with interest…

Postscript 2   from Twitter  9 January 2018  What is remarkable is John Wisdom’s Virginia Lectures 1957, published eventually in 1991 as *Proof and Explanation*, remain as fresh as a daisy if you read them now in 2018… It was the pre Elvis Presley age in music! ]

 

My Recent Works, Interviews etc on India’s Money, Public Finance, Banking, Trade, BoP, Land, etc (an incomplete list)

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My “Critique of Monetary Ideas of Manmohan & Modi: the Roy Model explaining to Bimal Jalan, Nirmala Sitharaman, RBI etc what it is they are doing” of 2019 is here.

 

 

My critical assessment dated 23 August 2013 of Professors Jagdish Bhagwati & Amartya Sen and Dr Manmohan Singh is here

 

 

My critique of PM Modi’s 8 November 2016 statement began on Twitter immediately, and is  summarized here “Modi & Monetary Theory: Economic Consequences of the Prime Minister of India”

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My critical assessment dated 19 August 2013 of Professor Raghuram Rajan is here and here.

My 3 Dec 2012 Delhi talk on India’s Money is now available at You-Tube in an audio version here

My July 2012 article “India’s Money” in the Caymans Financial Review is here and here https://independentindian.com/2012/07/21/my-article-indias-money-in-the-cayman-financial-review-july-2012/

My 5 December 2012 interview by Mr Paranjoy Guha Thakurta, on Lok Sabha TV, the channel of India’s Lower House of Parliament, broadcast for the first time on 9 December 2012 on Lok Sabha TV, is here and here  in two parts.

My interview by GDI Impuls banking quarterly of  Zürich  published on 6 Dec 2012 is here.

My interview by Ragini Bhuyan of Delhi’s Sunday Guardian published on 16 Dec 2012  is here.

 “Monetary Integrity and the Rupee” (2008)

https://independentindian.com/2008/09/28/monetary-integrity-and-the-rupee/

  “India’s Macroeconomics” (2007)

“Fiscal Instability” (2007)

 “Fallacious Finance” (2007)

https://independentindian.com/2007/03/05/fallacious-finance-the-congress-bjp-cpi-m-et-al-may-be-leading-india-to-hyperinflation/

 “Growth and Government Delusion” (2008)

https://independentindian.com/2008/02/22/growth-government-delusion/

 “Distribution of Govt of India Expenditure (Net of Operational Income) 1995”
https://independentindian.com/2008/07/27/distribution-of-govt-of-india-expenditure-net-of-operational-income-1995/

“India in World Trade & Payments” (2007)

https://independentindian.com/2007/02/12/india-in-world-trade-payments/

“Path of the Indian Rupee 1947-1993″ (1993)

https://independentindian.com/1993/06/01/path-of-the-indian-rupee-1947-1993/

“Our Policy Process” (2007)

https://independentindian.com/2007/02/20/our-policy-process-self-styled-planners-have-controlled-indias-paper-money-for-decades/

“Indian Money and Credit” (2006)

https://independentindian.com/2006/08/06/indian-money-and-credit/

“Indian Money and Banking” (2006)

https://independentindian.com/2006/04/23/indian-money-and-banking/

“Indian Inflation” (2008)

https://independentindian.com/2008/04/16/indian-inflation-upside-down-economics-from-new-delhis-establishment/

 How the Liabilities/Assets Ratio of Indian Banks Changed from 84% in 1970 to 108% in 1998 https://independentindian.com/2008/10/20/how-the-liabilitiesassets-ratio-of-indian-banks-changed-from-84-in-1970-to-108-in-1998/

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“Growth of Real Income, Money & Prices in India 1869-2004” (2005)

https://independentindian.com/2008/07/28/growth-of-real-income-money-prices-in-india-1869-2004/

“How to Budget” (2008)

https://independentindian.com/2008/02/26/how-to-budget-thrift-not-theft-should-guide-our-public-finances/

“Waffle but No Models of Monetary Policy: The RBI and Financial Repression (2005)”

https://independentindian.com/2005/10/27/waffle-but-no-models-of-monetary-policy-the-rbi-and-financial-repression/

“The Dream Team: A Critique” (2006)

https://independentindian.com/2006/01/08/the-dream-team-a-critique/

 

“Against Quackery” (2007)

https://independentindian.com/2007/09/24/against-quackery/

“Mistaken Macroeconomics” (2009)

https://independentindian.com/2009/06/12/mistaken-macroeconomics-an-open-letter-to-prime-minister-dr-manmohan-singh/

Towards a Highly Transparent Fiscal & Monetary Framework for India’s Union & State Governments (RBI lecture 29 April 2000)

https://independentindian.com/2000/04/29/towards-a-highly-transparent-fiscal-monetary-framework-for-india%E2%80%99s-union-state-governments/

“The Indian Revolution (2008)”

https://independentindian.com/2008/12/08/the-indian-revolution/

Can India Become an Economic Superpower or Will There Be a Monetary Meltdown? (2005)

https://independentindian.com/2005/05/05/can-india-become-an-economic-superpower-or-will-there-be-a-monetary-meltdown-2005/

Memo to Kaushik Basu, 2010

Land, Liberty, & Value, 2006

https://independentindian.com/2006/12/31/land-liberty-value/

On Land-Grabbing, 2007

https://independentindian.com/2007/01/14/on-land-grabbing/

No Marxist MBAs? An amicus curiae brief for the Honourable High Court

https://independentindian.com/2007/08/29/no-marxist-mbasan-amicus-curae-brief-for-the-honourable-high-court/

Coverage in The *Asian Age*/*Deccan Herald* of 4 Dec 2012.

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Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform? Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington? Judge the evidence for yourself. And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform?  Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington?  Judge the evidence for yourself.  And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

 

Contents

 

Part I:  Facts vs Fiction, Flattery, Falsification, etc

 

1. Problem

2.    Rajiv Gandhi, Siddhartha Shankar Ray, Milton Friedman & Myself

3.     Jagdish Bhagwati & Manmohan Singh?  That just don’t fly!

 4.    Amartya Sen’s Half-Baked Communism:  “To each according to his need”?

 

  Part II:    India’s Right Road Forward Now: Some Thoughtful Analysis for Grown Ups

5.   Transcending a Left-Right/Congress-BJP Divide in Indian Politics

6.   Budgeting Military & Foreign Policy

7.    Solving the Kashmir Problem & Relations with Pakistan

8.  Dealing with Communist China

9.   Towards Coherence in Public Accounting, Public Finance & Public Decision-Making

10.   India’s Money: Towards Currency Integrity at Home & Abroad

 

 

Part I:  Facts vs Fiction, Flattery, Falsification, etc

 

1. Problem


Arvind Panagariya says in the Times of India of 27 July 2013

 

 “…if in 1991 India embraced many of the Track-I reforms, writings by Sen played no role in it… The intellectual origins of the reforms are to be found instead in the writings of Bhagwati, both solely and jointly with Padma Desai and T N Srinivasan….”

 

Now Amartya Sen has not claimed involvement in the 1991 economic reforms so we are left with Panagariya claiming

 

“The intellectual origins of the reforms are to be found instead in the writings of Bhagwati…”

 

Should we suppose Professor Panagariya’s master and co-author Jagdish Bhagwati himself substantially believes and claims the same?  Three recent statements from Professor Bhagwati suffice by way of evidence:

 

(A)  Bhagwati said to parliamentarians in the Lok Sabha on 2 December 2010 about the pre-1991 situation:

 

“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s which culminated in our book, India: Planning for Industrialization (Oxford University Press: 1970) with a huge blowback at the time from virtually all the other leading economists and policymakers who were unable to think outside the box. In the end, our views prevailed and the changes which would transform the economy began, after an external payments crisis in 1991, under the forceful leadership of Prime Minister Manmohan Singh who was the Finance Minister at the time….”

 

(B)  Bhagwati said to Economic Times on 28 July 2013:

 

“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’.”

 

(C)  And Bhagwati said in Business Standard of 9 August 2013:

 

“… I was among the intellectual pioneers of the Track I reforms that transformed our economy and reduced poverty, and witness to that is provided by the Prime Minister’s many pronouncements and by noted economists like Deena Khatkhate.. I believe no one has accused Mr. Sen of being the intellectual father of these reforms. So, the fact is that this huge event in the economic life of India passed him by…”

 

From these pronouncements it seems fair to conclude Professors Bhagwati and Panagariya are claiming Bhagwati has been the principal author of “the intellectual origins” of India’s 1991 reforms, has been their “intellectual father” or at the very least has been “among the intellectual pioneers” of the reform (“among” his own collaborators and friends, since none else is mentioned).  Bhagwati has said too his friend Manmohan Singh as Finance Minister participated in the process while quoting Manmohan as having said Bhagwati was the principal author. 

 

Bhagwati’s opponent in current debate,  Amartya Sen, has been in agreement with him that Manmohan, their common friend during college days at Cambridge in the 1950s, was a principal originating the 1991 reforms, saying to Forbes in 2006:

 

“When Manmohan Singh came to office in the early 1990s as the newly appointed finance minister, in a government led by the Congress Party, he knew these problems well enough, as someone who had been strongly involved in government administration for a long time.”

 

In my experience, such sorts of claims, even in their weakest form, have been, at best, scientifically sloppy and unscholarly,  at worst mendacious suppressio veri/suggestio falsi, and in between these best and worst interpretations, examples of academic self-delusion and mutual flattery.  We shall see Bhagwati’s opponent, Amartya Sen, has denied academic paternity of recent policies he has spawned while appearing to claim academic paternity of things he has not!  Everyone may have reasonably expected greater self-knowledge, wisdom and scholarly values of such eminent academics.  Their current spat has instead seemed to reveal something rather dismal and self-serving. 

 

You can decide for yourself where the truth, ever such an elusive and fragile thing, happens to be and what is best done about it.   Here is some evidence.

 

 

2.  Rajiv Gandhi, Siddhartha Shankar Ray,  Milton Friedman & Myself

 

Professor Arvind Panagariya is evidently an American economics professor of Indian national origin who holds the Jagdish Bhagwati Chair of Indian Political Economy at Columbia University.   I am afraid I had not known his name until he mentioned my name in Economic Times of  24 October 2001.   He said

 

panagariya

 

In mentioning the volume “edited by Subroto Roy and William E  James”,  Professor Panagariya did not appear to find the normal scientific civility to identify our work by name, date or publisher.  So here that is now:

 

 

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This was a book published in 1992 by the late Tejeshwar Singh for Sage.  It resulted from the University of Hawaii Manoa perestroika-for-India project, that I and Ted James created and led between 1986 and 1992/93.   (Yes, Hawaii — not Stanford, Harvard, Yale, Columbia or even Penn, whose India-policy programs were Johnny-come-latelies a decade or more later…)   There is a sister-volume too on Pakistan, created by a parallel project Ted and I had led at the same time:

 

 

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In 2004 from Britain, I wrote to the 9/11 Commission saying if our plan to study Afghanistan after India and Pakistan had not been thwarted by malign local forces among our sponsors themselves, we, a decade before the September 11 2001 attacks on the USA, may  just have come up with a pre-emptive academic analysis.   It was not to be.

 

Milton Friedman’s chapter that we published for the first time was a memorandum he wrote in November 1955 for the Government of India which the GoI had effectively suppressed.  I came to know of it while a doctoral student at Cambridge under Frank Hahn, when at a conference at Oxford about 1979-1980, Peter Tamas Bauer sat me down beside him and told me the story.  Later in Blacksburg about 1981, N. Georgescu-Roegen on a visit from Vanderbilt University told me the same thing.  Specifically, Georgescu-Roegen told me that leading Indian academics had almost insulted Milton in public which Milton had borne gamely; that after Milton had given a talk in Delhi to VKRV Rao’s graduate-students,  a talk Georgescu-Roegen had been present at, VKRV Rao had addressed the students and told them in all seriousness “You have heard what Professor Friedman has to say, if you repeat what he has said in your exams, you will fail”.

 

In 1981-1982 my doctoral thesis emerged, titled “On liberty & economic growth: preface to a philosophy for India”,

 

phd

 

My late great master in economic theory, Frank Hahn (1925-2013), found what I had written to be a “good thesis” bringing “a good knowledge of economics and of philosophy to bear on the literature on economic planning”, saying I had  shown “a good knowledge of economic theory” and my “critique of Development Economics was powerful not only on methodological but also on economic theory grounds”.  

 

I myself said about it decades later “My original doctoral topic in 1976  ‘A monetary theory for India’ had to be altered not only due to paucity of monetary data at the time but because the problems of India’s political economy and allocation of resources in the real economy were far more pressing. The thesis that emerged in 1982 … was a full frontal assault from the point of view of microeconomic theory on the “development planning” to which everyone routinely declared their fidelity, from New Delhi’s bureaucrats and Oxford’s “development” school to McNamara’s World Bank with its Indian staffers.  Frank Hahn protected my inchoate liberal arguments for India; and when no internal examiner could be found, Cambridge showed its greatness by appointing two externals, Bliss at Oxford and Hutchison at Birmingham, both Cambridge men. “Economic Theory and Development Economics” was presented to the American Economic Association in December 1982 in company of Solow, Chenery, Streeten, and other eminences…” How I landed on that eminent AEA panel in December 1982 was because its convener Professor George Rosen of the University of Illinois recruited me overnight — as a replacement for Jagdish Bhagwati, who had had to return to India suddenly because of a parental death.  The results were published in 1983 in World Development.

 

Soon afterwards, London’s Institute of Economic Affairs published Pricing, Planning and Politics: A Study of Economic Distortions in India.  This slim work was the first classical liberal critique of post-Mahalonobis Indian economic thought since BR Shenoy’s original criticism decades earlier.  It became the subject of The Times’ lead editorial on its day of publication 29 May 1984 — provoking the Indian High Commission in London to send copies to the Finance Ministry in Delhi where it apparently caused a stir, or so I was told years later by Amaresh Bagchi who was a recipient of it at the Ministry.

 

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The Times had said

 

“When Mr. Dennis Healey in the Commons recently stated that Hongkong, with one per cent of the population of India has twice India’s trade, he was making an important point about Hongkong but an equally important point about India. If Hongkong with one per cent of its population and less than 0.03 per cert of India’s land area (without even water as a natural resource) can so outpace India, there must be something terribly wrong with the way Indian governments have managed their affairs, and there is. A paper by an Indian economist published today (Pricing, Planning and Politics: A Study of Economic Distortions in India by Subroto Roy, IEA £1.80) shows how Asia’s largest democracy is gradually being stifled by the imposition of economic policies whose woeful effect and rhetorical unreality find their echo all over the Third World. As with many of Britain’s former imperial possessions, the rot set in long before independence. But as with most of the other former dependencies, the instrument of economic regulation and bureaucratic control set up by the British has been used decisively and expansively to consolidate a statist regime which inhibits free enterprise, minimizes economic success and consolidates the power of government in all spheres of the economy. We hear little of this side of things when India rattles the borrowing bowl or denigrates her creditors for want of further munificence. How could Indian officials explain their poor performance relative to Hongkong? Dr Roy has the answers for them. He lists the causes as a large and heavily subsidized public sector, labyrinthine control over private enterprise, forcibly depressed agricultural prices, massive import substitution, government monopoly of foreign exchange transactions, artificially overvalued currency and the extensive politicization of the labour market, not to mention the corruption which is an inevitable side effect of an economy which depends on the arbitrament of bureaucrats. The first Indian government under Nehru took its cue from Nehru’s admiration of the Soviet economy, which led him to believe that the only policy for India was socialism in which there would be “no private property except in a restricted sense and the replacement of the private profit system by a higher ideal of cooperative service.” Consequently, the Indian government has now either a full monopoly or is one of a few oligipolists in banking, insurance, railways, airlines, cement, steel, chemicals, fertilizers, ship-building, breweries, telephones and wrist-watches. No businessman can expand his operation while there is any surplus capacity anywhere in that sector. He needs government approval to modernize, alter his price-structure, or change his labour shift. It is not surprising that a recent study of those developing countries which account for most manufactured exports from the Third World shows that India’s share fell from 65 percent in 1953 to 10 per cent in 1973; nor, with the numerous restrictions on inter-state movement of grains, that India has over the years suffered more from an inability to cope with famine than during the Raj when famine drill was centrally organized and skillfully executed without restriction. Nehru’s attraction for the Soviet model has been inherited by his daughter, Mrs. Gandhi. Her policies have clearly positioned India more towards the Soviet Union than the West. The consequences of this, as Dr Roy states, is that a bias can be seen in “the antipathy and pessimism towards market institutions found among the urban public, and sympathy and optimism to be found for collectivist or statist ones.” All that India has to show for it is the delivery of thousands of tanks in exchange for bartered goods, and the erection of steel mills and other heavy industry which help to perpetuate the unfortunate obsession with industrial performance at the expense of agricultural growth and the relief of rural poverty.”…..

 

I felt there were inaccuracies in this and so replied  dated 4 June which The Times published on 16 June 1984:

 

timesletter-11

Milton and I met for the first time in the Fall of 1984 at the Mont Pelerin Society meetings at Cambridge when I gave him a copy of the IEA monograph, which he came to think extremely well of.   I told him I had heard of his 1955 document and asked him for it; he sent me the original blue/purple version of this soon thereafter.

 

[That original document was, incidentally,  in my professorial office among all my books, papers, theses and other academic items including my gown when I was attacked in 2003 by a corrupt gang at IIT Kharagpur —  all yet to be returned to me by IIT despite a High Court order during my present ongoing battle against corruption there over a USD 1.9 million scam !… Without having ever wished to, I have had to battle India’s notorious corruption first hand for a decade!]

 

I published Milton’s document for the first time on 21 May 1989 at the conference of the Hawaii project over the loud objection of assorted leftists… 

friedman-et-al-at-uh-india-conf-19891

Amartya Sen, Jagdish Bhagwati, Manmohan Singh or any of their acolytes will not be seen in this group photograph dated 21 May 1989 at the UH President’s House, because they were not there.  The Government of India was represented by the Ambassador to Washington, PK Kaul, as well as the Consul General in San Francisco, KS Rana (later Ambassador to Germany), besides the founding head of ICRIER who had invited himself.  

 

Manmohan Singh was not there as he precisely represented the Indian economic policy establishment I had been determined to reform!   In any case, he had left India about 1987 on his last assignment before retirement, with Julius Nyerere of Tanzania relating to the “South-South Commission”.  

 

I have said over more than a half dozen years now that there is no evidence whatsoever of Manmohan Singh having been a liberal economist in any sense of that word at any time before 1991, and scant evidence that he originated any liberal economic ideas since.  The widespread worldwide notion that he is to be credited for originating a sudden transformation of India from a path of pseudo-socialism to one of pseudo-liberalism has been without basis in evidence — almost entirely a political fiction, though an explicable one and one which has served, as such political fictions do, the purposes of those who invent them.

 

Jagdish Bhagwati and Amartya Sen were in their mid 50s and were two of the three senior-most Indians in US academic economics at the time.  I and Ted James, both in our 30s, decided to invite both Bhagwati and Sen to the Hawaii project-conference as distinguished guests but to do so somewhat insincerely late in the day, predicting they would decline, which is what they did, yet they had come to be formally informed of what we were doing.  We had a very serious attitude that was inspired a bit, I might say, by Oppenheimer’s secret “Manhattan project” and we wanted neither press-publicity nor anyone to become the star who ended up hogging the microphone or the limelight.

 

Besides, and most important of all, neither Bhagwati nor Sen had done work in the areas we were centrally interested in, namely, India’s macroeconomic and foreign trade framework and fiscal and monetary policies.   

 

Bhagwati, after his excellent 1970 work with Padma Desai for the OECD on Indian industry and trade, also co-authored with TN Srinivasan a fine 1975 volume for the NBER  Foreign Trade Regimes and Economic Development: India. 

 

TN Srinivasan was the third of the three senior-most Indian economists at the time in US academia; his work made us want to invite him as one of our main economic authors, and we charged him with writing the excellent chapter in Foundations that he came to do titled “Planning and Foreign Trade Reconsidered”.

 

The other main economist author we had hoped for was Sukhamoy Chakravarty from Delhi University and the Government of India’s Planning Commission, whom I had known since 1977 when I had been given his office at the Delhi School of Economics as a Visiting Assistant Professor while he was on sabbatical; despite my pleading he would not come due to ill health; he strongly recommended C Rangarajan, telling me Rangarajan had been the main author with him of the crucial 1985 RBI report on monetary policy; and he signed and gave me his last personal copy of that report dating it 14 July 1987.  Rangarajan said he could not come and recommended the head of the NIPFP, Amaresh Bagchi, promising to write jointly with him the chapter on monetary policy and public finance. 

 

Along with Milton Friedman’s suppressed 1955 memorandum which I was publishing for the first time in 1989, TN Srinivasan and Amaresh Bagchi authored the three main economic policy chapters that we felt we wanted. 

 

Other chapters we commissioned had to do with the state of governance (James Manor), federalism (Bhagwan Dua), Punjab and similar problems (PR Brass), agriculture (K Subbarao, as proposed by CH Hanumantha Rao), health (Anil Deolalikar, through open advertisement), and a historical assessment of the roots of economic policy (BR Tomlinson, as proposed by Anil Seal).  On the vital subject of education we failed to agree with the expert we wanted very much  (JBG Tilak, as proposed by George Psacharopolous) and so we had to cover the subject cursorily in our introduction mentioning his work.  And decades later, I apologised to Professor Dietmar Rothermund of Heidelberg University for having been so blinkered in the Anglo-American tradition at the time as to not having obtained his participation in the project.  

 

[The sister-volume we commissioned in parallel on Pakistan’s political economy had among its authors Francis Robinson, Akbar Ahmed, Shirin Tahir-Kehli, Robert La Porte, Shahid Javed Burki, Mohsin Khan, Mahmood Hasan Khan,  Naved Hamid, John Adams and Shahrukh Khan; this book came to be published in Pakistan in 1993 to good reviews but apparently was then lost by its publisher and is yet to be found; the military and religious clergy had been deliberately not invited by us though the name of Pervez Musharraf had I think arisen, and the military and religious clergy in fact came to rule the roost through the 1990s in Pakistan; the volume, two decades old, takes on fresh relevance with the new civilian governments of recent years.] [Postscript  27 November 2015: See my strident critique at Twitter of KM Kasuri, P Musharraf et al  e.g. at https://independentindian.com/2011/11/22/pakistans-point-of-view-or-points-of-view-on-kashmir-my-as-yet-undelivered-lahore-lecture-part-i/ passing off ideas they have taken from this volume without acknowledgement, ideas which have in any case become defunct  to their author, myself.]

 

Milton himself said this about his experience with me in his memoirs:

 

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miltononmefinal

And Milton wrote on my behalf when I came to be attacked, being Indian, at the very University that had sponsored us:

 

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My obituary notice at his passing in 2006 said: “My association with Milton has been the zenith of my engagement with academic economics…. I was a doctoral student of his bitter enemy yet for over two decades he not only treated me with unfailing courtesy and affection, he supported me in lonely righteous battles: doing for me what he said he had never done before, which was to stand as an expert witness in a United States Federal Court. I will miss him much though I know that he, as a man of reason, would not have wished me to….”

 

In August 1990 in Delhi I came to tell Siddhartha Shankar Ray about the unpublished India-manuscript resulting from the Hawaii project that was in my possession as it headed to its publisher. 

 

Ray was a family-friend whose maternal grandfather CR Das led the Congress Party before MK Gandhi and had been a friend and colleague of my great grandfather SN Roy in Bengal’s politics in the 1920s;  Ray had also consented to stand on my behalf as Senior Counsel in a matter in the Supreme Court of India. 

 

Ray was involved in daily political parlays at his Delhi home with other Congress Party personages led by PV Narasimha Rao.  These senior regional figures seemed to me to be keeping their national leader, Rajiv Gandhi, aloof in splendid isolation at 10 Jan Path. 

 

Ray told me he and his wife had been in London in May 1984 on the day The Times had written its lead editorial on my work and they had seen it with excitement.  Upon hearing of the Hawaii project and the manuscript I had with me, Ray immediately insisted of his own accord that I must meet Rajiv Gandhi, and that he would be arranging a meeting. 

 

Hence it came to be a month later that a copy of the manuscript of the completed Hawaii project was be given by my hand on 18 September 1990 to Rajiv Gandhi, then Leader of the Opposition and Congress President, an encounter I have quite fully described elsewhere.  I offered to get a copy to the PM, VP Singh, too but a key aide of his showed no interest in receiving it.

 

Rajiv made me a senior adviser, and I have claimed principal authorship of the 22 March 1991 draft of the Congress manifesto that actually shook and changed the political thinking of the Congress on economic matters in the direction Rajiv had desired and as I had advised him at our initial 18 September 1990 meeting. 

 

“… He began by talking about how important he felt panchayati raj was, and said he had been on the verge of passing major legislation on it but then lost the election. He asked me if I could spend some time thinking about it, and that he would get the papers sent to me. I said I would and remarked panchayati raj might be seen as decentralized provision of public goods, and gave the economist’s definition of public goods as those essential for the functioning of the market economy, like the Rule of Law, roads, fresh water, and sanitation, but which were unlikely to appear through competitive forces.

 

I distinguished between federal, state and local levels and said many of the most significant public goods were best provided locally. Rajiv had not heard the term “public goods” before, and he beamed a smile and his eyes lit up as he voiced the words slowly, seeming to like the concept immensely. It occurred to me he had been by choice a pilot of commercial aircraft. Now he seemed intrigued to find there could be systematic ways of thinking about navigating a country’s governance by common pursuit of reasonable judgement. I said the public sector’s wastefulness had drained scarce resources that should have gone instead to provide public goods. Since the public sector was owned by the public, it could be privatised by giving away its shares to the public, preferably to panchayats of the poorest villages. The shares would become tradable, drawing out black money, and inducing a historic redistribution of wealth while at the same time achieving greater efficiency by transferring the public sector to private hands. Rajiv seemed to like that idea too, and said he tried to follow a maxim of Indira Gandhi’s that every policy should be seen in terms of how it affected the common man. I wryly said the common man often spent away his money on alcohol, to which he said at once it might be better to think of the common woman instead. (This remark of Rajiv’s may have influenced the “aam admi” slogan of the 2004 election, as all Congress Lok Sabha MPs of the previous Parliament came to receive a previous version of the present narrative.)

 

Our project had identified the Congress’s lack of internal elections as a problem; when I raised it, Rajiv spoke of how he, as Congress President, had been trying to tackle the issue of bogus electoral rolls. I said the judiciary seemed to be in a mess due to the backlog of cases; many of which seemed related to land or rent control, and it may be risky to move towards a free economy without a properly functioning judicial system or at least a viable system of contractual enforcement. I said a lot of problems which should be handled by the law in the courts in India were instead getting politicised and decided on the streets. Rajiv had seen the problems of the judiciary and said he had good relations with the Chief Justice’s office, which could be put to use to improve the working of the judiciary.

 

The project had worked on Pakistan as well, and I went on to say we should solve the problem with Pakistan in a definitive manner. Rajiv spoke of how close his government had been in 1988 to a mutual withdrawal from Siachen. But Zia-ul-Haq was then killed and it became more difficult to implement the same thing with Benazir Bhutto, because, he said, as a democrat, she was playing to anti-Indian sentiments while he had found it somewhat easier to deal with the military. I pressed him on the long-term future relationship between the countries and he agreed a common market was the only real long-term solution. I wondered if he could find himself in a position to make a bold move like offering to go to Pakistan and addressing their Parliament to break the impasse. He did not say anything but seemed to think about the idea. Rajiv mentioned a recent Time magazine cover of Indian naval potential, which had caused an excessive stir in Delhi. He then talked about his visit to China, which seemed to him an important step towards normalization. He said he had not seen (or been shown) any absolute poverty in China of the sort we have in India. He talked about the Gulf situation, saying he did not disagree with the embargo of Iraq except he wished the ships enforcing the embargo had been under the U.N. flag. The meeting seemed to go on and on, and I was embarrassed at perhaps having taken too much time and that he was being too polite to get me to go. V. George had interrupted with news that Sheila Dixit (as I recall) had just been arrested by the U. P. Government, and there were evidently people waiting. Just before we finally stood up I expressed a hope that he was looking to the future of India with an eye to a modern political and economic agenda for the next election, rather than getting bogged down with domestic political events of the moment. That was the kind of hopefulness that had attracted many of my generation in 1985. I said I would happily work in any way to help define a long-term agenda. His eyes lit up and as we shook hands to say goodbye, he said he would be in touch with me again…. The next day I was called and asked to stay in Delhi for a few days, as Mr. Gandhi wanted me to meet some people…..

 

… That night Krishna Rao dropped me at Tughlak Road where I used to stay with friends. In the car I told him, as he was a military man with heavy security cover for himself as a former Governor of J&K, that it seemed to me Rajiv’s security was being unprofessionally handled, that he was vulnerable to a professional assassin. Krishna Rao asked me if I had seen anything specific by way of vulnerability. With John Kennedy and De Gaulle in mind, I said I feared Rajiv was open to a long-distance sniper, especially when he was on his campaign trips around the country.  This was one of several attempts I made since October 1990 to convey my clear impression to whomever I thought might have an effect that Rajiv seemed to me extremely vulnerable. Rajiv had been on sadhbhavana journeys, back and forth into and out of Delhi. I had heard he was fed up with his security apparatus, and I was not surprised given it seemed at the time rather bureaucratized. It would not have been appropriate for me to tell him directly that he seemed to me to be vulnerable, since I was a newcomer and a complete amateur about security issues, and besides if he agreed he might seem to himself to be cowardly or have to get even closer to his security apparatus. Instead I pressed the subject relentlessly with whomever I could. I suggested specifically two things: (a) that the system in place at Rajiv’s residence and on his itineraries be tested, preferably by some internationally recognized specialists in counter-terrorism; (b) that Rajiv be encouraged to announce a shadow-cabinet. The first would increase the cost of terrorism, the second would reduce the potential political benefit expected by terrorists out to kill him. On the former, it was pleaded that security was a matter being run by the V. P. Singh and then Chandrashekhar Governments at the time. On the latter, it was said that appointing a shadow cabinet might give the appointees the wrong idea, and lead to a challenge to Rajiv’s leadership. This seemed to me wrong, as there was nothing to fear from healthy internal contests for power so long as they were conducted in a structured democratic framework. I pressed to know how public Rajiv’s itinerary was when he travelled. I was told it was known to everyone and that was the only way it could be since Rajiv wanted to be close to the people waiting to see him and had been criticized for being too aloof. This seemed to me totally wrong and I suggested that if Rajiv wanted to be seen as meeting the crowds waiting for him then that should be done by planning to make random stops on the road that his entourage would take. This would at least add some confusion to the planning of potential terrorists out to kill him. When I pressed relentlessly, it was said I should probably speak to “Madame”, i.e. to Mrs. Rajiv Gandhi. That seemed to me highly inappropriate, as I could not be said to be known to her and I should not want to unduly concern her in the event it was I who was completely wrong in my assessment of the danger. The response that it was not in Congress’s hands, that it was the responsibility of the VP Singh and later the Chandrashekhar Governments, seemed to me completely irrelevant since Congress in its own interests had a grave responsibility to protect Rajiv Gandhi irrespective of what the Government’s security people were doing or not doing. Rajiv was at the apex of the power structure of the party, and a key symbol of secularism and progress for the entire country. Losing him would be quite irreparable to the party and the country. It shocked me that the assumption was not being made that there were almost certainly professional killers actively out to kill Rajiv Gandhi — this loving family man and hapless pilot of India’s ship of state who did not seem to have wished to make enemies among India’s terrorists but whom the fates had conspired to make a target. The most bizarre and frustrating response I got from several respondents was that I should not mention the matter at all as otherwise the threat would become enlarged and the prospect made more likely! This I later realized was a primitive superstitious response of the same sort as wearing amulets and believing in Ptolemaic astrological charts that assume the Sun goes around the Earth — centuries after Kepler and Copernicus. Perhaps the entry of scientific causality and rationality is where we must begin in the reform of India’s governance and economy. What was especially repugnant after Rajiv’s assassination was to hear it said by his enemies that it marked an end to “dynastic” politics in India. This struck me as being devoid of all sense because the unanswerable reason for protecting Rajiv Gandhi was that we in India, if we are to have any pretensions at all to being a civilized and open democratic society, cannot tolerate terrorism and assassination as means of political change. Either we are constitutional democrats willing to fight for the privileges of a liberal social order, or ours is truly a primitive and savage anarchy concealed beneath a veneer of fake Westernization….. Proceedings began when Rajiv arrived. This elite audience mobbed him just as the farmers had mobbed him earlier. He saw me and beamed a smile in recognition, and I smiled back but made no attempt to draw near him in the crush. He gave a short very apt speech on the role the United Nations might have in the new post-Gulf War world. Then he launched the book, and left for an investiture at Rashtrapati Bhavan. We waited for our meeting with him, which finally happened in the afternoon. Rajiv was plainly at the point of exhaustion and still hard-pressed for time. He seemed pleased to see me and apologized for not talking in the morning. Regarding the March 22 draft, he said he had not read it but that he would be doing so. He said he expected the central focus of the manifesto to be on economic reform, and an economic point of view in foreign policy, and in addition an emphasis on justice and the law courts. I remembered our September 18 conversation and had tried to put in justice and the courts into our draft but had been over-ruled by others. I now said the social returns of investment in the judiciary were high but was drowned out again. Rajiv was clearly agitated that day by the BJP and blurted out he did not really feel he understood what on earth they were on about. He said about his own family, “We’re not religious or anything like that, we don’t pray every day.” I felt again what I had felt before, that here was a tragic hero of India who had not really wished to be more than a happy family man until he reluctantly was made into a national leader against his will. We were with him for an hour or so. As we were leaving, he said quickly at the end of the meeting he wished to see me on my own and would be arranging a meeting. One of our group was staying back to ask him a favour. Just before we left, I managed to say to him what I felt was imperative: “The Iraq situation isn’t as it seems, it’s a lot deeper than it’s been made out to be.” He looked at me with a serious look and said “Yes I know, I know.” It was decided Pitroda would be in touch with each of us in the next 24 hours. During this time Narasimha Rao’s manifesto committee would read the draft and any questions they had would be sent to us. We were supposed to be on call for 24 hours. The call never came. Given the near total lack of system and organization I had seen over the months, I was not surprised. Krishna Rao and I waited another 48 hours, and then each of us left Delhi. Before going I dropped by to see Krishnamurty, and we talked at length. He talked especially about the lack of the idea of teamwork in India. Krishnamurty said he had read everything I had written for the group and learned a lot. I said that managing the economic reform would be a critical job and the difference between success and failure was thin….”

 

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“… I got the afternoon train to Calcutta and before long left for America to bring my son home for his summer holidays with me. In Singapore, the news suddenly said Rajiv Gandhi had been killed. All India wept. What killed him was not merely a singular act of criminal terrorism, but the system of humbug, incompetence and sycophancy that surrounds politics in India and elsewhere. I was numbed by rage and sorrow, and did not return to Delhi….”

 

In December 1991, I visited Rajiv’s widow at 10 Jan Path to express my condolences, the only time I have met her, and I gave her for her records a taped copy of Rajiv’s long-distance telephone conversations with me during the Gulf War earlier that year.   She seemed an extremely shy taciturn figure in deep mourning, and I do not think the little I said to her about her late husband’s relationship with me was comprehended.  Nor was it the time or place for more to be said.

 

In September 1993, at a special luncheon at the Indian Ambassador’s Residence in Washington, Siddhartha Shankar Ray, then the Ambassador to Washington, pointed at me and declared to Manmohan Singh, then Finance Minister, in presence of Manmohan’s key aides accompanying him including MS Ahluwalia, NK Singh, C Rangarajan and others,

 

“Congress manifesto was written on his computer”.

 

This was accurate enough to the extent that the 22 March 1991 draft as asked for by Rajiv and that came to explicitly affect policy had been and remains on my then-new NEC laptop.

 

At the Ambassador’s luncheon, I gave Manmohan Singh a copy of the Foundations book as a gift.  My father who knew him in the early 1970s through MG Kaul, ICS, had sent him a copy of my 1984 IEA monograph which Manmohan had acknowledged.  And back in 1973, he had visited our then-home at 14 Rue Eugene Manuel in Paris to advise me about economics at my father’s request, and he and I had ended up in a fierce private debate for about forty minutes over the demerits (as I saw them) and merits (as he saw them) of the Soviet influence on Indian economic policy-making.  But in 1993 we had both forgotten the 1973 meeting.  

 

In May 2002, the Congress passed an official party resolution moved by Digvijay Singh in presence of PV Narasimha Rao and Manmohan Singh that the 1991 reforms had originated with Rajiv Gandhi and not with either Narasimha Rao or Manmohan; no one dissented.  It was intended to flatter Sonia Gandhi as the Congress President,  but there was truth in it too which all Congress MPs of the 13th Lok Sabha had come to know in a publication of mine they had received from me at IIT Kharagpur where since 1996 I had become Professor.  

 

Manmohan Singh himself, to his credit, has not at any point, except once during his failed Lok Sabha bid, claimed the reforms as his own invention and has said always he had followed what his Prime Minister had told him. However, he has not been averse to being attributed with all the credit by his flatterers, by the media, by businessmen and many many others around the world, and certainly he did not respond to Ambassador Siddhartha Shankar Ray telling him and his key aides how the Congress-led reform had come about through my work except to tell me at the 1993 luncheon that when Arjun Singh criticised the reforms in Cabinet, he, Manmohan, would mention the manifesto. 

 

On 28 December 2009, Rajiv’s widow in an official Congress Party statement finally declared her late husband

 

left his personal imprint on the (Congress) party’s manifesto of 1991.″ 

 

How Sonia Gandhi, who has never had pretensions to knowledge of economics or political economy or political science or governance or history, came to place Manmohan Singh as her prime ministerial candidate and the font of economic and political wisdom along with Pranab Mukherjee, when both men hardly had been favourites of her late husband, would be a story in its own right.  And how Amartya Sen’s European-origin naturalised Indian co-author Jean Drèze later came to have policy influence from a different direction upon Sonia Gandhi, also a naturalised Indian of European origin, may be yet another story in its own right,  perhaps best told by themselves.

 

I would surmise the same elderly behind-the-scenes figure, now in his late 80s, had a hand in setting up both sets of influences — directly in the first case (from back in 1990-1991),  and indirectly in the second case (starting in 2004) .  This was a man who in a November 2007 newspaper article literally erased my name and inserted that of Manmohan Singh as part of the group that Rajiv created on 25 September following his 18 September meeting with me!   Reluctantly, I had to call this very elderly man a liar; he has not denied it and knows he has not been libeled.

 

One should never forget the two traditional powers interested in the subcontinent, Russia and Britain, have been never far from influence in Delhi.  In 1990-1991 what worried vested bureaucratic and business interests and foreign powers through their friends and agents was that they could see change was coming to India but they wanted to be able to control it themselves to their advantage, which they then broadly proceeded to do over the next two decades.  The foreign weapons’ contracts had to be preserved, as did other big-ticket imports that India ends up buying needlessly on credit it hardly has in world markets.  There are similarities to what happened in Russia and Eastern Europe where many apparatchiks and fellow-travellers became freedom-loving liberals overnight;  in the Indian case more than one badly compromised pro-USSR senior bureaucrat promptly exported his children and savings to America and wrapped themselves in the American flag.

 

The stubborn unalterable fact remains that Manmohan Singh was not physically present in India and was still with the Nyerere project on 18 September 1990 when I met Rajiv for the first time and gave him the unpublished results of the UH-Manoa project.  This simple straightforward fact is something the Congress Party, given its own myths and self-deception and disinformation, has not been able to cope with in its recently published history.   For myself, I have remained loyal to my memory of my encounter with Rajiv Gandhi, and my understanding of him.  The Rajiv Gandhi I knew had been enthused by me in 1990-1991 carrying the UH-Manoa perestroika-for-India project that I had led since 1986, and he had loved my advice to him on 18 September 1990 that he needed to modernise the party by preparing a coherent agenda (as other successful reformers had done) while still in Opposition waiting for elections, and to base that agenda on commitments to improving the judiciary and rule of law, stopping the debauching of money, and focusing on the provision of public goods instead.    Rajiv I am sure wanted a modern and modern-minded Congress — not one which depended on him let aside his family, but one which reduced that dependence and let him and his family alone.

 

As for Manmohan Singh being a liberal or liberalising economist, there is no evidence publicly available of that being so from his years before or during the Nyerere project, or after he returned and joined the Chandrashekhar PMO and the UGC  until becoming,  to his own surprise as he told Mark Tully,  PV Narasimha Rao’s Finance Minister.  Some of his actions qua Finance Minister were liberalising in nature but he did not originate any basic idea of a change in a liberal direction of economic policy, and he has, with utmost honesty honestly, not claimed otherwise.  Innumerable flatterers and other self-interested parties have made out differently, creating what they have found to be a politically useful fiction; he has yet to deny them.

 

Siddhartha Shankar Ray and I met last in July 2009, when I gave him a copy of this 2005 volume I had created, which pleased him much. 

 

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I said to him Bengal’s public finances were in abysmal condition, calling for emergency measures financially, and that Mamata Banerjee seemed to me to be someone who knew how to and would dislodge the Communists from their entrenched misgovernance of decades but she did not seem quite aware that dislodging a bad government politically was not the same thing as knowing how to govern properly oneself.  He,  again of his own accord, said immediately, 

 

“I will call her and her people to a meeting here so you can meet them and tell them that directly”. 

 

It never transpired.  In our last phone conversation I mentioned to him my plans of creating a Public Policy Institute — an idea he immediately and fully endorsed as being essential though adding “I can’t be part of it,  I’m on my way out”.

 

“I’m on my way out”.   That was Siddhartha Shankar Ray — always intelligent, always good-humoured, always public-spirited, always a great Indian, my only friend among politicians other than the late Rajiv Gandhi himself.

 

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In March February 2010, my father and I called upon the new Bengal Governor, MK Narayanan and gave him a copy of the Thatcher volume for the Raj Bhavan Library; I told him the story about my encounter with Rajiv Gandhi thanks to Siddhartha Shankar Ray and its result;  Narayanan within a few days made a visit to Ray’s hospital-bed, and when he emerged after several hours he made a statement, which in substance he repeated again when Ray died in November 2010:

 

“There are few people in post-Independence India who could equal his magnificent contribution to India’s growth and progress”.

 

To what facts did MK Narayanan, a former Intelligence Bureau chief, mean to refer with this extravagant praise of Ray?  Was Narayanan referring to Ray’s politics for Indira Gandhi?  To Ray’s Chief Ministership of Bengal?  To Ray’s Governorship of Punjab?  You will have to ask him but I doubt that was what he meant:  I surmise Narayanan’s eulogy could only have resulted after he confirmed with Ray on his hospital-bed the story I had told him, and that he was referring to the economic and political results that followed for the country once Ray had introduced me in September 1990 to Rajiv Gandhi. But I say again, you will have to ask MK Narayanan himself what he and Ray talked about in hospital and what was the factual basis of Narayanan’s precise words of praise. To what facts exactly was MK Narayanan, former intelligence chief, meaning to refer when he stated Siddhartha Shankar Ray had made a “magnificent contribution to India’s growth and progress”?

 

 

3.   Jagdish Bhagwati & Manmohan Singh?  That just don’t fly!

 

Now returning to the apparent desire of Professor Panagariya, the Jagdish Bhagwati Professor of Indian Political Economy at Columbia, to attribute to Jagdish Bhagwati momentous change for the better in India as of 1991, even if Panagariya had not the scientific curiosity to look into our 1992 book titled Foundations of India’s Political Economy: Towards an Agenda for the 1990s or into Milton Friedman’s own 1998 memoirs, we may have expected him to at least turn to his co-author and Columbia colleague, Jagdish Bhagwati himself, and ask, “Master, have you heard of this fellow Subroto Roy by any chance?”

 

Jagdish would have had to say yes, since not only had he received a copy of the proofs of my 1984 IEA work Pricing, Planning and Politics: A Study of Economic Distortions in India, he was kind enough to write in a letter dated 15 May 1984 that I had

 

“done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems!” 

 

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Also Jagdish may or may not have remembered our only meeting, when he and I had had a long conversation on the sofas in the foyer of the IMF in Washington when I was a consultant there in 1993 and he had come to meet someone; he was surprisingly knowledgeable about my personal 1990 matter in the Supreme Court of India which astonished me until he told me his brother the Supreme Court judge had mentioned the case to him!

 

Now my 1984 work was amply scientific and scholarly in fully crediting a large number of works in the necessary bibliography, including Bhagwati’s important work with his co-authors.  Specifically, Footnote 1 listed the literature saying:

 

“The early studies notably include: B. R. Shenoy, `A note of dissent’, Papers relating to the formulation of the Second Five-Year Plan, Government of India Planning Commission, Delhi, 1955; Indian Planning and Economic Development, Asia Publishing, Bombay, 1963, especially pp. 17-53; P. T. Bauer, Indian Economic Policy and Development, George Allen & Unwin, London, 1961; M. Friedman, unpublished memorandum to the Government of India, November 1955 (referred to in Bauer, op. cit., p. 59 ff.); and, some years later, Sudha Shenoy, India : Progress or Poverty?, Research Monograph 27, Institute of Economic Affairs, London, 1971. Some of the most relevant contemporary studies are: B. Balassa, `Reforming the system of incentives in World Development, 3 (1975), pp. 365-82; `Export incentives and export performance in developing countries: a comparative analysis’, Weltwirtschaftliches Archiv, 114 (1978), pp. 24-61; The process of industrial development and alternative development strategies, Essays in International Finance No. 141, Princeton University, 1980; J. N. Bhagwati & P. Desai, India: Planning for Industrialisation, OECD, Paris : Oxford University Press, 1970; `Socialism and Indian Economic Policy’, World Development, 3 (1975), pp. 213-21; J. N. Bhagwati & T. N. Srinivasan, Foreign-trade Regimes and Economic Development: India, National Bureau of Economic Research, New York, 1975; Anne O. Krueger, `Indian planning experience’, in T. Morgan et al. (eds.), Readings in Economic Development, Wadsworth, California, 1963, pp. 403-20; `The political economy of the rent-seeking society, American Economic Review, 64 (June 1974); The Benefits and Costs of Import-Substitution in India: a Microeconomic Study, University of Minnesota Press, Minneapolis, 1975; Growth, distortions and patterns of trade among many countries, Studies in International Finance, Princeton University, 1977; Uma Lele, Food grain marketing in India : private performance and public policy, Cornell University Press, Ithaca, 1971; T. W. Schultz (ed.), Distortions in agricultural incentives, Indiana University Press, Bloomington, 1978; V. Sukhatme, “The utilization of high-yielding rice and wheat varieties in India: an economic assessment”, University of Chicago PhD thesis, 1977….”

 

There were two specific references to Bhagwati’s work with Srinivasan:

 

“Jagdish Bhagwati and T. N. Srinivasan put it as follows : `The allocation of foreign exchange among alternative claimants and users in a direct control system . . .would presumably be with reference to a well-defined set of principles and criteria based on a system of priorities. In point of fact, however, there seem to have been few such criteria, if any, followed in practice.’”

 

and

 

“But as Bhagwati and Srinivasan report, `. . . the sheer weight of numbers made any meaningful listing of priorities extremely difficult. The problem was Orwellian: all industries had priority and how was each sponsoring authority to argue that some industries had more priority than others? It is not surprising, therefore, that the agencies involved in determining allocations by industry fell back on vague notions of “fairness”, implying pro rata allocations with reference to capacity installed or employment, or shares defined by past import allocations or similar rules of thumb’”

 

and one to Bhagwati and Desai:

 

“The best descriptions of Indian industrial policy are still to be found in Bhagwati and Desai (1970)…”

 

Professors Bhagwati and Panagriya have not apparently referred to anything beyond these joint works of Bhagwati’s dated 1970 with Padma Desai and 1975 with TN Srinivasan.  They have not claimed Bhagwati did anything by way of either publication or political activity in relation to India’s economic policy between May 1984, when he read my soon-to-be-published-work and found I had

 

done an excellent job of setting out the problems afflicting our economic policies, unfortunately government-made problems”,

 

and September 1990 when I gave Rajiv the University of Hawaii perestroika-for-India project results developed since 1986, which came to politically spark the 1991 reform in the Congress’s highest echelons from months before Rajiv’s assassination.   

 

There may have been no such claim made by Bhagwati and Panagariya because there may be no such evidence.  Between 1984 and 1990,  Professor Bhagwati’s research interests were away from Indian economic policy while his work on India through 1970 and 1975 had been fully and reasonably accounted for as of 1984 by myself.

 

What is left remaining is Bhagwati’s statement :

 

“When finance minister Manmohan Singh was in New York in 1992, he had a lunch for many big CEOs whom he was trying to seduce to come to India. He also invited me and my wife, Padma Desai, to the lunch. As we came in, the FM introduced us to the invitees and said: ‘These friends of mine wrote almost a quarter century ago [India: Planning for Industrialisation was published in 1970 by Oxford] recommending all the reforms we are now undertaking. If we had accepted the advice then, we would not be having this lunch as you would already be in India’

 

Now this light self-deprecating reference by Manmohan at an investors’ lunch in New York “for many big CEOs” was an evident attempt at political humour written by his speech-writer.   It was clearly, on its face, not serious history.   If we test it as serious history, it falls flat so we may only hope Manmohan Singh, unlike Jagdish Bhagwati, has not himself come to believe his own reported joke as anything more than that.  

 

The Bhagwati-Desai volume being referred to was developed from 1966-1970.  India saw critical economic and political events  in 1969, in 1970, in 1971, in 1972, in 1975, in 1977, etc.

 

Those were precisely years during which Manmohan Singh himself moved from being an academic to becoming a Government of India official, working first for MG Kaul, ICS, and then in 1971 coming to the attention of  PN Haksar, Indira Gandhi’s most powerful bureaucrat between 1967 and 1974: Haksar himself was Manmohan Singh’s acknowledged mentor in the Government, as Manmohan told Mark Tully in an interview.  

 

After Manmohan visited our Paris home in 1973 to talk to me about economics, my father — who had been himself sent to the Paris Embassy by Haksar in preparation for Indira Gandhi’s visit in November 1971 before the Bangladesh war —

 

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had told me Manmohan was very highly regarded in government circles with economics degrees from both Cambridge and Oxford, and my father had added, to my surprise, what was probably a Haksarian governmental view that Manmohan was expected to be India’s Prime Minister some day.  That was 1973.

 

PN Haksar had been the archetypal Nehruvian Delhi intellectual of a certain era, being both a fierce nationalist and a fierce pro-USSR leftist from long before Independence.  I met him once on 23 March 1991, on the lawns of 10 Jan Path at the launch of General V Krishna Rao’s book on Indian defence which Rajiv was releasing, and Haksar gave a speech to introduce Rajiv (as if Rajiv needed introduction on the lawns of his own residence);  Haksar was in poor health but he seemed completely delighted to be back in favour with Rajiv,  after years of having been treated badly by Indira and her younger son.  

 

 Had Manmohan Singh in the early 1970s gone to Haksar — the architect of the nationalisation of India’s banking going on right then — and said “Sir, this OECD study by my friend Bhagwati and his wife says we should be liberalising foreign trade and domestic industry”, Haksar would have been astonished and sent him packing.  

 

There was a war on, plus a massive problem of 10 million refugees, a new country to support called Bangladesh, a railway strike, a bad crop, repressed inflation, shortages, and heaven knows what more, besides Nixon having backed Yahya Khan, Tikka Khan et al. 

 

 

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Then after Bangladesh and the railway strike etc, came the rise of the politically odious younger son of Indira Gandhi and his friends (at least one of whom is today Sonia Gandhi’s gatekeeper) followed by the internal political Emergency, the grave foreign-fueled problem of Sikh separatism and its control, the assassination of Indira Gandhi by her own Sikh bodyguards, and the Rajiv Gandhi years as Prime Minister. 

 

Certainly it was Rajiv’s arrival in office and Benazir’s initial return to Pakistan, along with the rise of Michael Gorbachev in the changing USSR, that inspired me in far away Hawaii in 1986 to design with Ted James the perestroika-projects for India and Pakistan which led to our two volumes, and which, thanks to Siddhartha Shankar Ray, came to reach Rajiv Gandhi in Opposition in September 1990 as he sat somewhat forlornly at 10 Jan Path after losing office. “There is a tide in the affairs of men, Which taken at the flood, leads on to fortune….

 

My friend and collaborator Ted James died of cancer in Manila in May 2010; earlier that year he came to say publicly

 

“Seldom are significant reforms imposed successfully by international bureaucracies. Most often they are the result of indigenous actors motivated by domestic imperatives. I believe this was the case in India in 1991. It may have been fortuitous that Dr. Roy gained an audience with a receptive Rajiv Gandhi in 1990 but it was not luck that he was prepared with a well-thought out program; this arose from years of careful thought and debate on the matter.”

 

Changing the direction of a ship of state is very hard, knowing in which direction it should change and to what degree is even harder; it has rarely been something that can be done without random shocks arising let aside the power of vested interests. Had Rajiv Gandhi lived to form a new Government, I have little doubt I would have led the reform that I had chalked out for him and that he had approved of;  Sonia Gandhi would have remained the housewife, mother and grandmother that she had preferred to be and not been made into the Queen of India by the Congress Party; Manmohan Singh had left India in 1987 for the Nyerere project and it had been rumoured at the time that had been slightly to do with him protesting, to the extent that he ever has protested anything, the anti-Sikh pogrom that some of Rajiv’s friends had apparently unleashed after Indira’s killing; he returned in November 1990, joined Chandrashekhar in December 1990, left Chandrashekhar in March 1991 when elections were announced and was biding his time as head of the UGC; had Rajiv Gandhi lived, Manmohan Singh would have had a governor’s career path, becoming the governor of one state after another; he would not have been brought into the economic reform process which he had had nothing to do with originating; and finally Pranab Mukherjee, who left the Congress Party and formed his own when Rajiv took over, would have been likely rehabilitated slowly but would not have come to control the working of the party as he did. I said in my Lok Sabha TV interview on 5 9 December 2012 that there have been many microeconomic improvements arising from technological progress in the last 22 years but the macroeconomic and monetary situation is grim, because at root the fiscal situation remains incoherent and confused. I do not see anyone in Manmohan Singh’s entourage among all his many acolytes and flatterers and apologists who is able to get to these root problems.  We shall address these issues in Part II.

 

What Manmohan Singh said in self-deprecating humour at an investors’ lunch in New York in 1992 is hardly serious history as Jagdish Bhagwati has seemed to wish it to be.  Besides, it would have been unlike Manmohan,  being the devoted student of Joan Robinson and Nicholas Kaldor as he told Mark Tully,  to have taken such a liberalising initiative at all.  Furthermore, the 1969 American Economic Review published asurvey of Indian economic policy authored by his Delhi University colleagues Jagdish Bhagwati and Sukhamoy Chakravarty which made little mention of his work, and it would have been unreasonable to expect him to have been won over greatly by theirs. Perhaps there is a generous review from the 1970s by Manmohan Singh of the Bhagwati-Desai volume hidden somewhere but if so we should be told where it is.  A list of Manmohan Singh’s publications as an economist do not seem easily available anywhere.  

 

Lastly and perhaps most decisively, the 1970 Bhagwati-Desai volume, excellent study that it was, was hardly the first of its genre by way of liberal criticism of modern Indian economic policy!   Bhagwati declared in his 2010 speech to the Lok Sabha

 

“This policy framework had been questioned, and its total overhaul advocated, by me and Padma Desai in writings through the late 1960s…”

 

But why has Bhagwati been forever silent about the equally if not more forceful and fundamental criticism of “the policy framework”, and advocacy of its “total overhaul”, by scholars in the 1950s, a decade and more earlier than him, when he and Manmohan and Amartya were still students?  Specifically, by BR Shenoy, Milton Friedman, and Peter Bauer?   The relevant bibliography from the mid 1950s is given in Footnote 1 of my 1984 work. 

 

 


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Peter Tamas Bauer (1915-2002) played a vital role in all this as had he himself not brought the Friedman 1955 document to my attention I would not have known of it.

 

 

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As undergraduates at the LSE, we had been petrified of him and I never spoke to him while there, having believed the propaganda that floated around about him; then while a Research Student at Cambridge, I happened to be a speaker with him at a conference at Oxford; he made me sit next to him at a meal and told me for the first time about Milton Friedman’s 1955 memorandum to the Government of India which had been suppressed.  I am privileged to say Peter from then on became a friend, and wrote, at my request, what became I am sure the kiss of death for me at the World Bank of 1982:

 

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Later he may have been responsible for the London Times writing its lead editorial of 29 May 1984 on my work.

 

Now Milton had sent me in 1984, besides the original of his November 1955 memorandum to the Government of India, a confidential 1956 document also which seemed to have been written for US Government consumption.  I did not publish this in Hawaii in 1989 as I was having difficulty enough publishing the 1955 memorandum.  I gave it to be published on the Internet some years ago, and after Milton’s passing, I had it published in The Statesman  on the same day as my obituary of him. 

 

It makes fascinating reading, especially about Mahalanobis and Shenoy, of how what Bhagwati wishes to call “the policy framework” that, he claims, he and Desai called for a “total overhaul” of, came to be what it was in the decade earlier when he and Amartya and Manmohan were still students. 

 

Friedman’s 1956 document said

 

“I met PC Mahalanobis in 1946 and again at a meeting of the International Statistical Institute in September 1947, and I know him well by reputation. He was absent during most of my stay in New Delhi, but I met him at a meeting of the Indian Planning Commission, of which he is one of the strongest and most able members.   Mahalanobis began as a mathematician and is a very able one. Able mathematicians are usually recognized for their ability at a relatively early age. Realizing their own ability as they do and working in a field of absolutes, tends, in my opinion, to make them dangerous when they apply themselves to economic planning. They produce specific and detailed plans in which they have confidence, without perhaps realizing that economic planning is not the absolute science that mathematics is. This general characteristic of mathematicians is true of Mahalanobis but in spite of the tendency he is willing to discuss a problem and listen to a different point of view. Once his decision is reached, however, he has great confidence in it. Mahalanobis was unquestionably extremely influential in drafting the Indian five-year plan. There were four key steps in the plan. The first was the so-called “Plan Frame” drafted by Mahalanobis himself. The second was a tentative plan based on the “Plan Frame”. The third step was a report by a committee of economists on the first two steps, and the fourth was a minority report by BR Shenoy on the economists’ report. The economists had no intention of drafting a definitive proposal but merely meant to comment on certain aspects of the first two steps. Shenoy’s minority report, however, had the effect of making the economists’ report official. The scheme of the Five Year Plan attributed to Mahalanobis faces two problems; one, that India needs heavy industry for economic development; and two, that development of heavy industry uses up large amounts of capital while providing only small employment.  Based on these facts, Mahalanobis proposed to concentrate on heavy industry development on the one hand and to subsidize the hand production cottage industries on the other. The latter course would discriminate against the smaller manufacturers. In my opinion, the plan wastes both capital and labour and the Indians get only the worst of both efforts. If left to their own devices under a free enterprise system I believe the Indians would gravitate naturally towards the production of such items as bicycles, sewing machines, and radios. This trend is already apparent without any subsidy. The Indian cottage industry is already cloaked in the same popular sort of mist as is rural life in the US. There is an idea in both places that this life is typical and the backbone of their respective countries. Politically, the Indian cottage industry problem is akin to the American farm problem. Mohandas Gandhi was a proponent of strengthening the cottage industry as a weapon against the British. This reason is now gone but the emotions engendered by Gandhi remain. Any move to strengthen the cottage industry has great political appeal and thus, Mahalanobis’ plan and its pseudo-scientific support for the industry also has great political appeal.  I found many supporters for the heavy industry phase of the Plan but almost no one (among the technical Civil Servants) who really believes in the cottage industry aspects, aside from their political appeal. In its initial form, the plan was very large and ambitious with optimistic estimates. My impression is that there is a substantial trend away from this approach, however, and an attempt to cut down. The development of heavy industry has slowed except for steel and iron. I believe that the proposed development of a synthetic petroleum plant has been dropped and probably wisely so. In addition, I believe that the proposed five year plan may be extended to six years. Other than his work on the plan, I am uncertain of Mahalanobis’ influence. The gossip is that he has Nehru’s ear and potentially he could be very influential, simply because of his intellectual ability and powers of persuasion. The question that occurs to me is how much difference Mahalanobis’ plan makes. The plan does not seem the important thing to me. I believe that the new drive and enthusiasm of the Indian nation will surmount any plan, good or bad. Then too, I feel a wide diversity in what is said and what is done. I believe that much of Nehru’s socialistic talk is simply that, just talk. Nehru has been trying to undermine the Socialist Party by this means and apparently the Congress Party’s adoption of a socialistic idea for industry has been successful in this respect.  One gets the impression, depending on whom one talks with, either that the Government runs business, or that two or three large businesses run the government. All that appears publicly indicates that the first is true, but a case can also be made for the latter interpretation. Favour and harassment are counterparts in the Indian economic scheme. There is no significant impairment of the willingness of Indian capitalists to invest in their industries, except in the specific industries where nationalization has been announced, but they are not always willing to invest and take the risks inherent in the free enterprise system. They want the Government to support their investment and when it refuses they back out and cry “Socialism”..”

 

I look forward to seeing a fundamental classical liberal critique from India’s distinguished American friends at Columbia University, Professors Jagdish Bhagwati and Padma Desai and Arvind Panagariya, if and when such a critique arises,  of the  “policy framework” in India as that evolved from the mid 1950s to become what exists across India in 2013 today.  Specifically:  Where is the criticism from Bhagwati of Mahalanobis and friends?  And where is Bhagwati’s defence of Shenoy, leave aside of Milton Friedman or Peter Bauer?   They seem not to exist. The most we get is a footnote again without the civility of any references, in the otherwise cogent 1975 Desai-Bhagwati paper “Socialism and Indian Economic Policy” alleging 

 

” Of these three types of impact of the Soviet example, the Plan-formulation approach was to be enthusiastically received by most commentators and, indeed, to lead to demands on the part of aid agencies for similar efforts by other developing countries. However, the shift to heavy industry was seen as a definite mistake by economic opinion of the Chicago school variety, reflecting their basic unfamiliarity with the structural models of growth and development planning of the Feldman-Mahalanobis variety-an ignorance which probably still persists. The detailed regulation was not quite noticed at the time, except by conservative commentators whose position however was extreme and precluded governmental planning of industrial investments on any scale.”

 

Desai and Bhagwati naturally found no apparent desire to locate any possible scientific truth or reasonableness among

 

“conservative commentators”

 

nor among the unnamed and undescribed

 

“economic opinion of the Chicago school variety”.   

 

Could Desai and Bhagwati have done anything different after all, even when talking about India to an American audience, without being at risk of losing their East Coast Limousine Liberal credentials?  Bhagwati used to routinely declare his “socialist” credentials, and even the other day on Indian TV emphatically declared he was not a “conservative” and scornfully dismissed “Thatcher and Reagan” for their “trickle down economics”…

 

Jagdish Bhagwati has evidently wanted to have his cake and eat it too…

 


 

4.    Amartya Sen’s Half-Baked Communism: “To each according to his need”? 

 

If I have been candid or harsh in my assessments of Jagdish Bhagwati and Manmohan Singh as they relate to my personal experience with the change of direction in Indian economic policy originating in 1990-1991, I am afraid I must be equally so with Bhagwati’s current opponent in debate, Amartya Sen. Certainly I have found the current spat between Bhagwati and Sen over India’s political economy to be dismal, unscholarly, unscientific and misleading (or off-base) except for it having allowed a burst of domestic policy-discussion in circumstances when India needs it especially much.  

 

None of this criticism is personal but based on objective experience and the record.  My criticism of Professor Bhagwati and Dr Manmohan Singh does not diminish in the slightest my high personal regard for both of them.

 

Similarly, Amartya Sen and I go back, momentarily, to Hindustan Park in 1964 when there was a faint connection as family friends from World War II  (as Naren Deb and Manindranath Roy were friends and neighbours, and we still have the signed copy of a book gifted by the former to the latter), and then he later knew me cursorily when I was an undergraduate at LSE and he was already a famous professor, and I greatly enjoyed his excellent lectures at the LSE on his fine book On Economic Inequality, and a few years later he wrote in tangential support of me at Cambridge for which he was thanked in the preface to my 1989 Philosophy of Economics — even though that book of mine also contained in its Chapter 10 the decisive criticism of his main contribution until that time to what used to be called “social choice theory”. Amartya Sen had also written some splendid handwritten letters, a few pages of which remain with me, which puzzled me at the time due to his expressing his aversion to what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value. 

 

Professor Sen and I met briefly in 1978, and then again in 2006 when I was asked to talk to him in our philosophical conversation which came to be published nicely.  In 2006 I told him of my experience with Rajiv Gandhi in initiating what became the 1991 reform on the basis of my giving Rajiv the results of the Hawaii project,  and Amartya was kind enough to say that he knew I had been arguing all this “very early on”, referring presumably to the 1984 London Times editorial which he would have seen in his Oxford days before coming to Harvard.

 

This personal regard on my part or personal affection on his part aside, I have been appalled to find Professor Sen not taking moral and intellectual responsibility for and instead disclaiming paternity of the whole so-called “Food Security” policy which Sonia Gandhi has been prevailed upon over the years by him and his acolytes and friends and admirers to adopt, and she in her ignorance of all political economy and governance has now wished to impose upon the Congress Party and India as a whole:

 

“Questioner: You are being called the creator of the Food Security Bill.

Amartya Sen: Yes, I don’t know why. That is indeed a paternity suit I’m currently fighting. People are accusing me of being the father”.

 

Amartya Sen has repeatedly over the years gone on Indian prime-time television and declared things like

 

If you don’t agree there’s hunger in the world, there’s something morally wrong with you”

 

besides over the decades publishing titles like Poverty and Famines: An Essay on Entitlement and Deprivation, Hunger and Public Action, The Political Economy of Hunger etc and ceaselessly using his immense power with the media, with book publishing houses, with US academic departments and the world development economics business,  to promote his own and his acolytes’ opinions around the world, no matter how ill-considered or incoherent these may be.   A passage from his latest book with Jean Drèze reportedly reads

 

“If development is about the expansion of freedom, it has to embrace the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms — and crucial ingredients of our quality of life — are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water we drink, and the epidemiological surroundings in which we live….”

 

Had such a passage reached me in an undergraduate essay, I would have considered it incoherent waffle, and I am afraid I cannot see why merely because it is authored  by an eminence at Harvard and his co-author, the evaluation should be any different.   I am reminded of my encounter in 1976 with Joan Robinson, the great tutor in 1950s Cambridge of Amartya and Manmohan:  “Joan Robinson cornered me once and took me into the office she shared with EAG… She came at me for an hour or so wishing to supervise me, I kept declining politely… saying I was with Frank Hahn and wished to work on money… “What does Frankie know about India?” she said… I said I did not know but he did know about monetary theory and that was what I needed for India;  I also said I did not think much about the Indian Marxists she had supervised… and mentioned a prominent name… she said about him, “Yes most of what he does can go straight into the dustbin”…”  The Indian Marxist whom I had referred to in this conversation with Joan was not Amartya but someone else much younger, yet her candid “can go straight into the dustbin” still applies to all incoherent waffle, whomsoever may produce it.

 

Indeed, Amartya Sen, if anyone, really should get down to writing his memoirs, and candidly so in order to explain his own thinking and deeds over the decades to himself and to the world in order that needless confusions do not arise.  

 

Else it becomes impossible to explain how someone who was said to be proud to have been a Communist student on the run from the police in West Bengal, who was Joan Robinson’s star pupil at a time she was extolling Maoist China and who has seemingly nurtured a deep lifelong fascination and affection for Communist China despite all its misdeeds, who was feted by the Communist regime of West Bengal after winning the Bank of Sweden Prize (on the same day that same regime had tossed into jail one unfortunate young Mr Khemkha merely for having been rude to its leaders on the Internet), and who seemed to share some of those winnings on social causes like primary education at the behest of the Communist regime’s ministers, etc, how someone with that noble comradely leftist personal history as an economist allows a flattering interviewer with a Harvard connection to describe him in Business Standard of 25 July 2013  as having been all along really a

 

“neoclassical economist”

 

who also happens to be

 

“the greatest living scholar of the original philosopher of the free market, Adam Smith”

 

Amartya Sen a neoclassical economist and a great scholar of Adam Smith?  It is hilarious to suppose so. The question arises, Does Sen, having published about Adam Smith recently in a few newspapers and leftist periodicals, agree with such a description by his flattering admirer from Harvard at Business Standard?  “Neoclassical” economics originated with men like Jevons, Menger, Walras, Pareto, Marshall, Wicksell, and was marked by the theory of value being explained by a demand-side too, and not, like classical economics, merely by the cost of production alone on the supply side.  Indeed a striking thing about the list below published by the Scandinavian Journal of Economics of Amartya’s books following his 1998 Bank of Sweden Prize

 

1467-9442.00152_p1is how consistently these works display his avoidance of all neoclassical economics, and the absence of all of what is normally called ‘price theory’, namely the Marshallian and/or Walrasian theory of value.   No “neoclassical economics” anywhere here  for sure!  

 

It would be fair enough if Professor Sen says he is hardly responsible for an admirer’s ignorant misdescription of his work — except the question still arises why he has himself also evidently misdescribed his own work!  For example, in his 13 July 2013 letter to The Economist in response to the criticism of Jagdish Bhagwati and Arvind Panagariya, he says he had always been keenly interested in

 

“the importance of economic growth as a means— not an end”

 

and that this

 

“has been one of the themes even in my earliest writings (including “Choice of Techniques” in 1960 and “Growth Economics” in 1970)”.

 

This is a very peculiar opinion indeed to have been expressed by Professor Sen about his own work because the 1970 volume Growth Economics listed above among his books hardly can be said at all to be one of his own “earliest writings” as he now describes it to have been!

 

What had happened back then was that Sen, as someone considered a brilliant or promising young Indian economist at the time, had been asked by the editors of the famous Penguin Modern Economics Readings series to edit the specific issue  devoted to growth-theory — a compendium of classic already-published essays including those of Roy Harrod, Evsey Domar, Robert Solow and many others, to which young Amartya was given a chance to write an editorial Introduction.   Every economist familiar with that literature knows too that the growth-theory contained in that volume and others was considered highly abstract and notoriously divorced from actual historical processes of economic growth in different countries.  Everyone also knew that the individual editors in that famous Penguin Modern Economics Series were of relative unimportance as they did not commission new papers but merely collected classics already published and wrote an introduction.

 

This is significant presently because neither Professor Sen nor Professor Bhagwati may be objectively considered on the evidence of his life’s work as an economist to have been a major scholar of economic growth, either in theory or in historical practice.  As of December 1989,  Amartya Sen himself described his own interests to the American Economic Association as

 

“social choice theory, welfare economics, economic development”

 

and Jagdish Bhagwati described his interests as

 

“theory of international trade and policy, economic development”. 

 

Neither Sen nor Bhagwati mentioned growth economics or economic history or even general economic theory, microeconomics, macroeconomics, monetary economics, public finance, etc.  Furthermore, Sen saying in his letter to The Economist  that he has been always interested in economic growth seems to be baseless in light of the list of his books above, other than the Penguin compendium already discussed.

 

Incidentally in the same American Economic Association volume of 1989, Padma Desai had described her interests as

 

“Soviet economy and comparative economic systems”; 

 

Arvind Panagariya had described his interests as

 

“economies of scale and trade; smuggling; parallel markets in planned economies”;

 

and one Suby Roy described his interests as

 

“foundations of monetary economics”.

 

Reflecting on Amartya Sen’s works over the 40 year period that I have known them

 

[and again, my personal copies of his books and those of Bhagwati and Desai, were all in my professorial office at IIT Kharagpur when I was attacked by a corrupt gang there in 2003; and IIT have been under a High Court order to return them but have not done so],

 

I wonder in fact if it might be fairly said that Sen has been on his own subjective journey over the decades around the world seeking to reinvent economics and political economy from scratch, and inventing his own terminology like “capabilities”, “functionings” and yes “entitlements” etc. to help him do so, while trying to assiduously avoid mention of canonical works of  modern world economics like Marshall’s Principles, Hicks’s Value and Capital, Debreu’s Theory of Value, or Arrow and Hahn’s General Competitive Analysis, all defining the central neoclassical tradition of the modern theory of value.  

 

But no contemporary science, economics and political economy included, is open to be re-invented from scratch, and what Amartya Sen has ended up doing instead is seeming to be continually trying to reinvent the wheel, possibly without having had the self-knowledge to realise this.  Wittgenstein once made a paradoxical statement that one may know another’s mind better than one knows one’s own…  

Here is a current example.  Professor Sen says

 

“First, unlike the process of development in Japan, China, Korea and other countries, which pursued what Jean Drèze and I have called “Asian economic development” in our book, India has not had enough focus on public spending on school education and basic healthcare, which these other countries have had….”

 

Does Sen really believes believe he and Drèze  have now in 2013 discovered and christened an economic phenomenon named “Asian economic development”?  Everyone, from Japan and Bangkok and Manila, to Hawaii and Stanford to the World Bank’s East Asia department, including  especially my Hawaii colleague Ted James, and many many others including especially Gerald M Meier at Stanford, were was publishing about all that every month — in the mid 1980s!  In fact, our project on India and Pakistan arose in the 1980s from precisely such a Hawaiian wave!  Everyone knows all that from back then or even earlier when the Japanese were talking about the “flying geese” model.  (And, incidentally,  Communist China did not at the time belong in the list.)  Where was Amartya Sen in the mid 1980s when all that was happening?  Jean Drèze was still a student perhaps. Is Professor Sen seeking to reinvent the wheel again with “Asian Economic Development” being claimed to be invented in 2013 by him and Drèze now? Oh please!  That just won’t fly either!

 

A second example may be taken from the year before Professor Sen was awarded the Bank of Sweden Prize when he gave a lecture on “human capital” theory which was published as a survey titled “Human Capital and Human Capability” in World Development 1997 Vol. 25, No. 12, 

 

Can you see any reference in this 1997 survey to TW Schultz’s 1960 American Economic Association Presidential Address or to Schultz’s classic 1964 book Transforming Traditional Agriculture or to his 1979 Bank of Sweden Prize address?  I could not.   If one did not know better, one might have thought from Professor Sen’s 1997 survey that there was nothing done worth talking about on the subject of “human capital” from the time of Adam Smith and David Hume until Amartya Sen finally came to the subject himself. 

 

Thirdly,  one is told by Sen’s admirer and collaborator, Professor James Foster of George Washington University, that what  Sen means by his notion of

 

“effective freedom”

 

is that this is something

 

“enhanced when a marginally nourished family now has the capability to be sufficiently nourished due to public action”…

 

Are Amartya and his acolytes claiming he has invented or reinvented welfare economics ab initio?   That before Amartya Sen, we did not know the importance of the able-bodied members of a community assisting those who are not able-bodied? 

 

Where have they been? Amartya needed merely to have read Marshall’s Principles evenslightly to find Marshall himself, the master of Maynard Keynes and all of Cambridge and modern world economics, declaring without any equivocation at the very start 

 

“….the study of the causes of poverty is the study of the causes of the degradation of a large part of mankind…”

 

But Marshall was interested in study, serious study, of poverty and its causes and amelioration, which is not something as easy or trivial as pontification on modern television.  My 1984 article “Considerations on Utility, Benevolence and Taxation” which also became a chapter of my 1989 Philosophy of Economics surveyed some of Marshall’s opinion.

 

“From each according to his ability, to each according to his need” was a utopian slogan around 1875 from Karl Marx, which generations of passionate undergraduates have found impressive. Amartya Sen deserves to tell us squarely about his engagement with Marx or Marxist thought from his earliest days until now.  His commitment in recent decades to democracy and the open and free society is clear;  but has he also at the same time all along been committed to a kind of half-baked communist utopia as represented by Marx’s 1875 slogan? 

 

“To each according to his need” sounds to be the underlying premise that is seeing practical manifestation in the Sonia Congress’s imposition of a so-called “right to food”; “from each according to his ability” is its flip side in the so-called “rural employment guarantee”.  Leave aside the limitless resource-allocation and incentive and public finance problems created by such naive ideas being made into government policy, there is a grave and fundamental issue that Amartya and other leftists have been too blinkered to see:

 

Do they suppose the organised business classes have been weakly cooperative and will just allow such massive redistribution to occur without getting the Indian political system to pay them off as well?   And how do the organised business classes get paid off?  By their getting to take the land of the inhabitants of rural India.   And land in an environment of a debauching of money and other paper assets is as good as gold.

 

So the peasants will lose their land to the government’s businessman friends on the one hand while purportedly getting “guaranteed” employment and food from the government’s bureaucrats on the other!  A landless, asset-less slave population, free to join the industrial proletariat! Is that what Amartya wants to see in India?  It may become what results within a few decades from his and his acolytes’ words and deeds. 

 

Rajiv Gandhi once gave me his private phone numbers at 10 Jan Path.  I used them back in January 1991 during the Gulf war.  But I cannot do so now as Rajiv is gone.  Amartya can.  Let him phone Sonia and prevail upon her to put the brakes on the wild food and employment schemes he and his friends have persuaded her about until he reads and reflects upon what I said in January 2007 in “On Land-Grabbing” and in my July 2007 open letter to him, reproduced below:

 

“At a business meet on 12 January 2005, Dr Manmohan Singh showered fulsome praise on Buddhadeb Bhattacharjee as “dynamic”, “the Nation’s Best Chief Minister”, whose “wit and wisdom”, “qualities of head and heart”, “courage of conviction and passionate commitment to the cause of the working people of India” he admired, saying “with Buddhadeb Babu at the helm of affairs it appears Bengal is once again forging ahead… If today there is a meeting of minds between Delhi and Kolkata, it is because the ideas that I and Buddhadebji represent have captured the minds of the people of India. This is the idea of growth with equity and social justice, the idea that economic liberalization and modernization have to be mindful of the needs of the poor and the marginalized.”…. Dr Singh returned to the “needs of the poor and the marginalized” at another business meet on 8 January 2007 promising to “unveil a new Rehabilitation Policy in three months to increase the pace of industrialisation” which would be “more progressive, humane and conducive to the long-term welfare of all stakeholders”, while his businessman host pointedly stated about Singur “land for industry must be made available to move the Indian manufacturing sector ahead”. The “meeting of minds between Delhi and Kolkata” seems to be that agriculture allegedly has become a relatively backward slow-growing sector deserving to yield in the purported larger national interest to industry and services: what the PM means by “long-term welfare of all stakeholders” is the same as the new CPI-M party-line that the sons of farmers should not remain farmers (but become automobile technicians or IT workers or restaurant waiters instead).   It is a political viewpoint coinciding with interests of organised capital and industrial labour in India today, as represented by business lobbies like CII, FICCI and Assocham on one hand, and unions like CITU and INTUC on the other. Business Standard succinctly (and ominously) advocated this point of view in its lead editorial of 9 January as follows: “it has to be recognised that the world over capitalism has progressed only with the landed becoming landless and getting absorbed in the industrial/service sector labour force ~ indeed it is obvious that if people don’t get off the land, their incomes will rise only slowly”.  Land is the first and ultimate means of production, and the attack of the powerful on land-holdings or land-rights of the unorganised or powerless has been a worldwide phenomenon ~ across both capitalism and communism.  In the mid-19th Century, white North America decimated hundreds of thousands of natives in the most gargantuan land-grab of history. Defeated, Chief Red Cloud of the Sioux spoke in 1868 for the Apache, Navajo, Comanche, Cheyenne, Iroquois and hundreds of other tribes: “They made us many promises, more than I can remember, but they never kept any except one: they promised to take our land, and they took it.”  Half a century later, while the collapse of grain prices contributed to the Great Depression and pauperisation of thousands of small farmers in capitalist America in the same lands that had been taken from the native tribes, Stalin’s Russia embarked on the most infamous state-sponsored land-grab in modern history: “The mass collectivisation of Soviet agriculture (was) probably the most warlike operation ever conducted by a state against its own citizens…. Hundreds of thousands and finally millions of peasants… were deported… desperate revolts in the villages were bloodily suppressed by the army and police, and the country sank into chaos, starvation and misery… The object of destroying the peasants’ independence…was to create a population of slaves, the benefit of whose labour would accrue to industry. The immediate effect was to reduce Soviet agriculture to a state of decline from which it has not yet recovered… The destruction of the Soviet peasantry, who formed three quarters of the population, was not only an economic but a moral disaster for the entire country. Tens of millions were driven into semi-servitude, and millions more were employed as executants…” (Kolakowski, Main Currents of Marxism).   Why did Stalin destroy the peasants? Lenin’s wishful “alliance between the proletariat and the peasantry” in reality could lead only to the peasants being pauperised into proletarians. At least five million peasants died and (Stalin told Churchill at Yalta) another ten million in the resultant famine of 1932-1933. “Certainly it involved a struggle ~ but chiefly one between urban Communists and villagers… it enabled the regime to obtain much of the capital desired for industrialization from the defeated village… it was the decisive step in the building of Soviet totalitarianism, for it imposed on the majority of the people a subjection which only force could maintain” (Treadgold, 20th Century Russia).  Mr Bhattacharjee’s CPI-M is fond of extolling Chinese communism, and the current New Delhi establishment have made Beijing and Shanghai holiday destinations of choice. Dr Singh’s Government has been eager to create hundreds of “Special Economic Zones” run by organised capital and unionised labour, and economically privileged by the State. In fact, the Singur and Nandigram experiences of police sealing off villages where protests occur are modelled on creation of “Special Economic Zones” in China in recent years.  For example, Chinese police on 6 December 2005 cracked down on farmers and fishermen in the seaside village of Dongzhou, 125 miles North East of Hong Kong. Thousands of Dongzhou villagers clashed with troops and armed police protesting confiscation of their lands and corruption among officials. The police immediately sealed off the village and arrested protesters. China’s Public Security Ministry admitted the number of riots over land had risen sharply, reaching more than seventy thousand across China in 2004; police usually suppressed peasant riots without resort to firing but in Dongzhou, police firing killed 20 protesters. Such is the reality of the “emergence” of China, a totalitarian police-state since the Communist takeover in 1949, from its period of mad tyranny until Mao’s death in 1976, followed by its ideological confusion ever since.  Modern India’s political economy today remains in the tight grip of metropolitan “Big Business” and “Big Labour”. Ordinary anonymous individual citizens ~ whether housewife, consumer, student, peasant, non-union worker or small businessman ~ have no real voice or representation in Indian politics. We have no normal conservative, liberal or social democratic party in this country, as found in West European democracies where the era of land-grabbing has long-ceased. If our polity had been normal, it would have known that economic development does not require business or government to pauperise the peasantry but instead to define and secure individual property rights and the Rule of Law, and establish proper conditions for the market economy. The Congress and BJP in Delhi and CPI-M in Kolkata would not have been able to distract attention from their macroeconomic misdeeds over the decades ~ indicated, for example, by increasing interest-expenditure paid annually on Government debt as a fraction of tax revenues… This macroeconomic rot originated with the Indira Gandhi-PN Haksar capriciousness and mismanagement, which coincided with the start of Dr Singh’s career as India’s best known economic bureaucrat….”

 

“Professor Amartya Sen, Harvard University,  Dear Professor Sen,  Everyone will be delighted that someone of your worldwide stature has joined the debate on Singur and Nandigram; The Telegraph deserves congratulations for having made it possible on July 23.  I was sorry to find though that you may have missed the wood for the trees and also some of the trees themselves. Perhaps you have relied on Government statements for the facts. But the Government party in West Bengal represents official Indian communism and has been in power for 30 years at a stretch. It may be unwise to take at face-value what they say about their own deeds on this very grave issue! Power corrupts and absolute power corrupts absolutely, and there are many candid communists who privately recognise this dismal truth about themselves. To say this is not to be praising those whom you call the “Opposition” ~ after all, Bengal’s politics has seen emasculation of the Congress as an opposition because the Congress and communists are allies in Delhi. It is the Government party that must reform itself from within sua sponte for the good of everyone in the State.  The comparisons and mentions of history you have made seem to me surprising. Bengal’s economy now or in the past has little or nothing similar to the economy of Northern England or the whole of England or Britain itself, and certainly Indian agriculture has little to do with agriculture in the new lands of Australia or North America. British economic history was marked by rapid technological innovations in manufacturing and rapid development of social and political institutions in context of being a major naval, maritime and mercantile power for centuries. Britain’s geography and history hardly ever permitted it to be an agricultural country of any importance whereas Bengal, to the contrary, has been among the most agriculturally fertile and hence densely populated regions of the world for millennia.  Om Prakash’s brilliant pioneering book The Dutch East India Company and the Economy of Bengal 1630-1720 (Princeton 1985) records all this clearly. He reports the French traveller François Bernier saying in the 1660s “Bengal abounds with every necessary of life”, and a century before him the Italian traveller Verthema saying Bengal “abounds more in grain, flesh of every kind, in great quantity of sugar, also of ginger, and of great abundance of cotton, than any country in the world”. Om Prakash says “The premier industry in the region was the textile industry comprising manufacture from cotton, silk and mixed yarns”. Bengal’s major exports were foodstuffs, textiles, raw silk, opium, sugar and saltpetre; imports notably included metals (as Montesquieu had said would always be the case).  Bengal did, as you say, have industries at the time the Europeans came but you have failed to mention these were mostly “agro-based” and, if anything, a clear indicator of our agricultural fecundity and comparative advantage. If “deindustrialization” occurred in 19th Century India, that had nothing to do with the “deindustrialization” in West Bengal from the 1960s onwards due to the influence of official communism.  You remind us Fa Hiaen left from Tamralipta which is modern day Tamluk, though he went not to China but to Ceylon. You suggest that because he did so Tamluk effectively “was greater Calcutta”. I cannot see how this can be said of the 5th Century AD when no notion of Calcutta existed. Besides, modern Tamluk at 22º18’N, 87º56’E is more than 50 miles inland from the ancient port due to land-making that has occurred at the mouth of the Hooghly. I am afraid the relevance of the mention of Fa Hiaen to today’s Singur and Nandigram has thus escaped me.  You say “In countries like Australia, the US or Canada where agriculture has prospered, only a very tiny population is involved in agriculture. Most people move out to industry. Industry has to be convenient, has to be absorbing”. Last January, a national daily published a similar view: “For India to become a developed country, the area under agriculture has to shrink, urban and industrial land development has to take place, and about 100 million workers have to move out from agriculture into industry and services. This is the only way forward for bringing prosperity to the rural population”.   Rice is indeed grown in Arkansas or Texas as it is in Bengal but there is a world of difference between the technological and geographical situation here and that in the vast, sparsely populated New World areas with mechanized farming! Like shoe-making or a hundred other crafts, agriculture can be capital-intensive or labour-intensive ~ ours is relatively labour-intensive, theirs is relatively capital-intensive. Our economy is relatively labour-abundant and capital-scarce; their economies are relatively labour-scarce and capital-abundant (and also land-abundant). Indeed, if anything, the apt comparison is with China, and you doubtless know of the horror stories and civil war conditions erupting across China in recent years as the Communist Party and their businessman friends forcibly take over the land of peasants and agricultural workers, e.g. in Dongzhou. All plans of long-distance social engineering to “move out” 40 per cent of India’s population (at 4 persons per “worker”) from the rural hinterlands must also face FA Hayek’s fundamental question in The Road to Serfdom: “Who plans whom, who directs whom, who assigns to other people their station in life, and who is to have his due allotted by others?”  Your late Harvard colleague, Robert Nozick, opened his brilliant 1974 book Anarchy, State and Utopia saying: “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”. You have rightly deplored the violence seen at Singur and Nandigram. But you will agree it is a gross error to equate violence perpetrated by the Government which is supposed to be protecting all people regardless of political affiliation, and the self-defence of poor unorganised peasants seeking to protect their meagre lands and livelihoods from state-sponsored pogroms. Kitchen utensils, pitchforks or rural implements and flintlock guns can hardly match the organised firepower controlled by a modern Government.   Fortunately, India is not China and the press, media and civil institutions are not totally in the hands of the ruling party alone. In China, no amount of hue and cry among the peasants could save them from the power of organised big business and the Communist Party. In India, a handful of brave women have managed to single-handedly organise mass movements of protest which the press and media have then broadcast that has shocked the whole nation to its senses.  You rightly say the land pricing process has been faulty. Irrelevant historical prices have been averaged when the sum of discounted expected future values in an inflationary economy should have been used. Matters are even worse. “The fear of famine can itself cause famine. The people of Bengal are afraid of a famine. It was repeatedly charged that the famine (of 1943) was man-made.” That is what T. W. Schultz said in 1946 in the India Famine Emergency Committee led by Pearl Buck, concerned that the 1943 Bengal famine should not be repeated following dislocations after World War II. Of course since that time our agriculture has undergone a Green Revolution, at least in wheat if not in rice, and a White Revolution in milk and many other agricultural products. But catastrophic collapses in agricultural incentives may still occur as functioning farmland comes to be taken by government and industry from India’s peasantry using force, fraud or even means nominally sanctioned by law. If new famines come to be provoked because farmers’ incentives collapse, let future historians know where responsibility lay.  West Bengal’s real economic problems have to do with its dismal macroeconomic and fiscal position which is what Government economists should be addressing candidly. As for land, the Government’s first task remains improving grossly inadequate systems of land-description and definition, as well as the implementation and recording of property rights.  With my most respectful personal regards, I remain, Yours ever, Suby”

 

How does India, as a state, treat its weakest and most vulnerable citizens? Not very well at all.  It is often only because families and society have not collapsed completely, as they have elsewhere, that the weakest survive.  Can we solve in the 21st Century, in a practical manner appropriate to our times, the problem Buddha raised before he became the Buddha some twenty six centuries ago?  Says Eliot,

 

“The legend represents him as carefully secluded from all disquieting sights and as learning the existence of old age, sickness and death only by chance encounters which left a profound impression”

 

It is to this list we add “the poor” too, especially if we want to include a slightly later and equally great reformer some miles west of the Terai in the Levant.  I said some years ago “As we as infants and children need to be helped to find courage to face the start of life, we when very elderly can need to be helped to find courage to face life’s end”.   Old age carries with it the fear of death, fear of the end of life and what that means, which raises the meaning of life itself, or at least of the individual life, because we can hardly grasp what the end of life is if we haven’t what it is supposed to be the end of in the first place. What the very elderly need, as do the dying and terminally ill, is to find courage within themselves to comprehend all this with as much equanimity as possible. Companionship and camaraderie — or perhaps let us call it love — go towards that courage coming to be found; something similar goes for the sick, whether a sick child missing school or the elderly infirm, courage that they are not alone and that they can and will recover and not have to face death quite yet, that life will indeed resume.  

 

As for the poor, I said in 2009 about the bizarre Indian scheme of “interrogating, measuring, photographing and fingerprinting them against their will” that “the poor have their privacy and their dignity. They are going to refuse to waste their valuable time at the margins of survival volunteering for such gimmickry.”

 

“What New Delhi’s governing class fails to see is that the masses of India’s poor are not themselves a mass waiting for New Delhi’s handouts: they are individuals, free, rational, thinking individuals who know their own lives and resources and capacities and opportunities, and how to go about living their lives best. What they need is security, absence of state or other tyranny, roads, fresh water, electricity, functioning schools for their children, market opportunities for work, etc, not handouts from a monarch or aristocrats or businessmen….” Or, to put it differently in Kant’s terms, the poor need to be treated as ends in themselves, and not as the means towards the ends of others…

 

 

Part II India’s Right Road Forward Now: Some Thoughtful Analysis for Grown Ups

 

5.   Transcending a Left-Right/Congress-BJP Divide in Indian Politics

6.   Budgeting Military & Foreign Policy

 

7.    Solving the Kashmir Problem & Relations with Pakistan

 

8.  Dealing with Communist China

 

9.   Towards Coherence in Public Accounting, Public Finance & Public Decision-Making

 

10.   India’s Money: Towards Currency Integrity at Home & Abroad

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Cambridge Economics & the Disputation in India’s Economic Policy (2013)

19 May 2013

“Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms; the Communists have been appeased or bought; the BJP is incompetent”

is what I said in Sep 2007 in an op-ed in The Statesman. I have to say it again, adding Amartya Sen too for his backing of the so-called “Food Security Bill”…

[Sonia was livid in a speech after I said in 2007 “Manmohan and Sonia have violated Rajiv Gandhi’s intended reforms” … Her stooges wanted me arrested! One said “lined up and shot”… Then she said she only meant to refer to Haryana politics! … https://twitter.com/subyroy/status/1064737873746976768  ]

 

But taking Sonia and Rajiv out of it all, we are left with a battle from within Cambridge economics, viz,

Sen and Singh (disciples of Joan Robinson, Kaldor, Dobb et al in the 1950s)

vs

myself … in my PhD thesis of 1981 under Frank Hahn...

PhD

 15 July 2013

I am afraid I cannot remember a cogent coherent book authored by Amartya Sen since his 1972 *On Economic Inequality*, which had nice surveys of the Gini coefficient and related concepts…

My 2006 conversation with him about his book *Identity and Violence* is here.  (see too Is “Cambridge Philosophy” dead, in Cambridge? Can it be resurrected, there? Case Study: Renford Bambrough (& Subroto Roy) preceded by decades Cheryl Misak’s thesis on Wittgenstein being linked with Peirce via Ramsey…”

I now see he and a co-author seem to have produced yet one more piece of extended undergraduate waffle…E.g. “If development is about the expansion of freedom, it has to embrace the removal of poverty as well as paying attention to ecology as integral parts of a unified concern, aimed ultimately at the security and advancement of human freedom. Indeed, important components of human freedoms — and crucial ingredients of our quality of life — are thoroughly dependent on the integrity of the environment, involving the air we breathe, the water we drink, and the epidemiological surroundings in which we live….”

See also https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

15 July 2013

Where is Amartya’s reply to this?

scan0001

And where is Manmohan’s reply to this?

ppp19842

And where is Manmohan’s reply to this?

602593_10151152229307285_27628359_n

And Manmohan was given a copy of this

indvol

by me at a luncheon at the Indian Embassy Residence in Washington in September 1993 when the Ambassador, the late Barrister SS Ray, told him in the presence of all his senior aides including Montek Ahluwalia and C. Rangarajan, that I had authored the 1991 reform for the then-dead Rajiv Gandhi… on my laptop…

So, to cut to the chase, I have not and do not accept that either Amartya Sen or Manmohan Singh have been leaders of economic thought about India at least (US and British economists can judge for themselves the impact of the former on their own economics). The Sonia Congress has misled itself on the basis of their advocacy and the pity is the BJP, Communists et al in India seem to be even worse…

See also https://independentindian.com/2013/08/23/did-jagdish-bhagwati-originate-pioneer-intellectually-father-indias-1991-economic-reform-did-manmohan-singh-or-did-i-through-my-encounter-with-rajiv-gandhi-just-as-siddhartha-shan/

Brady Bonds for Bengal….

From Facebook July 11 2011:

Subroto Roy introduced the idea, of course momentarily, of Brady Bonds for Bengal some six hours ago, and expects it will become part of policy-discussion in Bengal within six months.

From Facebook July 10 2011:

Subroto Roy is glad to read of Brady Bonds again — Mamata Banerjee’s West Bengal needs them too but who is going to explain that much economics to her? Amartya Sen? Or his proteges?

Introduction and Some Biography

My two main works, namely my book of 19 years ago Philosophy of Economics: On the Scope of Reason in Economic Inquiry (first published by Routledge, London & New York, 1989, 1991), and my monograph of 24 years ago Pricing, Planning and Politics: A Study of Economic Distortions in India (first published by the Institute of Economic Affairs, London, 1984) are both now republished here, each with a new preface. I have also published here for the first time the full story of my encounter with Rajiv Gandhi — an abbreviated version appeared in Freedom First in October 2001 which focussed on economic policy and deliberately excluded mention of my warnings about his vulnerability to assassination and my attempts in vain to get people around him to do something about it. I have also republished my three advisory memoranda to him between September 1990 and March 1991, which were first published in The Statesman‘s Editorial Page of July 31, August 1 and August 2 1991.

I have also published here now for the first time a public lecture I gave as the Wincott Visiting Professor of Economics at the University of Buckingham in 2004 titled “Science, Religion, Art and the Necessity of Freedom”. Also republished is “A General Theory of Globalization and Modern Terrorism” which was my keynote address to the Council of Asian Liberals and Democrats at their Manila meeting in November 2001; it appeared first in September 11 & Political Freedom: Asian Perspectives (eds. Smith, Gomez & Johannen) in Singapore in 2002.

I have also published for the first time my April 29 2000 address titled “Towards a Highly Transparent Monetary & Fiscal Framework for India’s Union and State Governments” to the Reserve Bank’s Annual “Conference of State Finance Secretaries”.

Also to be found in one place are my most recent signed writings since 2005 in The Statesman and elsewhere on India’s economy and foreign policy, Jammu & Kashmir, Pakistan, Afghanistan, China, Tibet, Taiwan, the United States, etc.

My political affiliation in India would be to a non-existent party — as may be seen from the article on a Liberal Party for India; and I trust it will be seen that I have dispensed criticism upon the present-day Congress Party, BJP/RSS and Communists equally harshly.

Readers are welcome to quote from my work under the normal “fair use” rule, but please quote me by name and indicate the place of original publication. Readers are also welcome to comment or correspond by email, though please try to introduce yourself.

The new preface of Philosophy of Economics is reproduced below as it is partly biographical.

“(Philosophy of Economics) germinated when I was 18 or 19 years of age in Paris, Helsinki and London, and it was first published when I was 34 in Honolulu. I came to economics from natural science (biology, chemistry, physics), not mathematics. It was inevitable I would be drawn to the beauty of philosophy as a theoretical discipline while being driven, as a post-Independence Indian, to economics as the practical discipline that might unlock secrets to India’s prosperity and progress. I belonged to an ancient family of political men, and my father, who had joined India’s new foreign service the year before I was born, inculcated in me as a boy an idea that I had “a mission” (though he later forgot he had done so).

I was fortunate to fail to enter Oxford’s PPE and instead go to the London School of Economics. LSE was at an intellectual peak in the early 1970s. DHN Johnson in international law, ACL Day in international monetary economics, Brian Griffiths vs Marcus Miller in monetary economics with everyone still in awe of Harry Johnson’s graduate lectures in macroeconomics, Ken Wallis, Graham Mizon, JJ Thomas, David Hendry in econometrics with the odd lecture by Durbin himself – I was exposed to a fully grown up intellectual seriousness from the day I arrived as an 18 year old. Michio Morishima as my professorial tutor told me frankly that, as an Indian, I would face less prejudice in Western academia than in the private sector, and said he was speaking from experience as a fellow-Asian. He turned out to be wrong but it was wise advice nevertheless, just as wise as his requiring pupils to read Hicks’ Value and Capital (which, in our undergraduate mythology, he himself had read inside a Japanese gunboat during war).

What was relatively weak at LSE was general economic theory. We were good at deriving the Best Linear Unbiased Estimator but left unsatisfied with our grasp of the theory of value that constituted the roots of our discipline. I managed a First and was admitted to Cambridge as a Research Student in 1976, where fortune had Frank Hahn choose me as a student. That at the outset was protection from the communist cabal that ran “development economics” with whom almost all the Indians ended up. I was wholly impecunious in my first year as a Research Student, and had to, for example, proof-read Arrow and Hahn’s General Competitive Analysis for its second edition to receive 50 pounds sterling from Hahn which kept me going for a short time. My exposure to Hahn’s subtle, refined and depthless thought as an economist of the first rank led to fascination and wonderment, and I read and re-read his “On the notion of equilibrium in economics”, “On the foundations of monetary theory”, “Keynesian economics and general equilibrium theory” and other clear-headed attempts to integrate the theory of value with the theory of money — a project Wicksell and Marshall had (perhaps wisely) not attempted and Keynes, Hicks and Patinkin had failed at.

Hahn insisted a central question was to ask how money, which is intrinsically worthless, can have any value, why anyone should want to hold it. The practical relevance of this question is manifest. India today in 2007 has an inconvertible currency, vast and growing public debt financed by money-creation, and more than two dozen fiscally irresponsible State governments without money-creating powers. While pondering, over the last decade, whether India’s governance could be made more responsible if States were given money-creating powers, I have constantly had Hahn’s seemingly abstruse question from decades ago in mind, as to why anyone will want to hold State currencies in India, as to whether the equilibrium price of those monies would be positive. (Lerner in fact gave an answer in 1945 when he suggested that any money would have value if its issuer agreed to collect liabilities in it — as a State collects taxes – and that may be the simplest road that bridges the real/monetary divide.)

Though we were never personal friends and I did not ingratiate myself with Hahn as did many others, my respect for him only grew when I saw how he had protected my inchoate classical liberal arguments for India from the most vicious attacks that they were open to from the communists. My doctoral thesis, initially titled “A monetary theory for India”, had to be altered due to paucity of monetary data at the time, as well as the fact India’s problems of political economy and allocation of real resources were more pressing, and so the thesis became “On liberty and economic growth: preface to a philosophy for India”. When no internal examiner could be found, the University of Cambridge, at Hahn’s insistence, showed its greatness by appointing two externals: C. J. Bliss at Oxford and T. W. Hutchison at Birmingham, former students of Hahn and Joan Robinson respectively. My thesis received the most rigorous and fairest imaginable evaluation from them.

I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgements promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…”

It has taken me more than a quarter century to traverse some of that expanse; when I returned to Britain in 2004 as the Wincott Visiting Professor of Economics at the University of Buckingham, I was very kindly allowed to deliver a public lecture, “Science, Religion, Art and the Necessity of Freedom”, wherein I repaid a few of my debts to the forgotten work of Bambrough and Wisdom — whom I extravagantly compared with the Bodhisattvas of Mahayana Buddhism, also saying that the trio of Wittgenstein, Wisdom and Bambrough were reminiscent of what Socrates, Plato and Aristotle might have been like.

I had written to Bambrough from within Cambridge expressing my delight at finding his works and saying these were immensely important to economics; he had invited me to his weekly discussion groups at St John’s College but I could not attend. Between 1979 and 1989 we corresponded while I worked in America on my application of his and Wisdom’s work to problems in economics. We met only once when I returned to Cambridge from Blacksburg for my doctoral viva voce examination in January 1982. Six years later in 1988 he said of my Philosophy of Economics, “The work is altogether well-written and admirably clear”, and on another occasion he said he was “extremely pleased” at the interest I had taken in his work. The original preface of Philosophy of Economics said he was not responsible for the use I had made of his writings, which I reiterated in the 2004 lecture. At our meeting, he offered to introduce me to Wisdom who had returned to Cambridge from Oregon but I was too scared and declined, something I have always regretted. It is only in the last few years that I have begun to grasp the immensity of Wisdom’s achievement in comprehending, explaining and extending the work of both Wittgenstein and Freud. His famous “Virginia Lectures” of 1957 were finally published by his admirers with his consent as Proof and Explanation just before his death in 1993. As for Bambrough, I believe he may have been or become the single greatest philosopher since Aristotle; he told me in correspondence there was an unfinished manuscript Principia Metaphysica (the prospectus of which appeared in Philosophy 1964), which unfortunately his family and successors knew nothing about; the fact he died almost in obscurity and was soon forgotten by his University speaks more about the contemporary state of academic philosophy than about him. (Similarly, the fact Hahn, Morishima and like others did not receive the so-called Economics “Nobel” says more about the award than it does about them.)

All I needed in 1980 was time and freedom to develop the contents of this book, and that I found in America — which I could not have done in either Britain or India. It would take eight or nine very strenuous years before the book could be written and published, mostly spent at Virginia Polytechnic Institute (1980-1985) and University of Hawaii (1986-1990) Economics Departments, with short interludes at Cornell (Fall 1983) and Brigham Young (1985-86). I went to Virginia because James M. Buchanan was there, and he, along with FA Hayek, were whom Hahn decided to write on my behalf. Hayek said he was too old to accept me but wrote me kind and generous letters praising and hence encouraging my inchoate liberal thoughts and arguments. Buchanan was welcoming and I learnt much from him and his colleagues about the realities of public finance and democratic politics, which I quickly applied in my work on India, published in 1984 in London as Pricing, Planning & Politics: A Study of Economic Distortions in India and republished elsewhere here. The visit to the Cornell Economics Department was really so I could talk to Max Black the philosopher, who represented a different line of Wittgenstein’s students, and Max and I became friends until his death in 1988.

Buchanan’s departure from Blacksburg led to a gang of inert “game theorists” to arrive, and I was immediately under attack – one senior man telling me I was free to criticise the “social choice” work of Amartya Sen (since he was Indian too) but I was definitely unfree to do the same of Sen’s mentor, Kenneth Arrow, who was Jewish! (Arrow was infinitely more gracious when he himself responded to my criticism.) On top of that arose a matter of a woman, fresh off the aeroplane from India, being assaulted by a senior professor, and when I stood for her against her assailant, my time in Blacksburg was definitely up.

The manuscript of this book was at the time under contract with University of Chicago Press, and, thanks to Mrs Harry Johnson there, I had come in contact with that great American, Theodore W. Schultz. Schultz, at age 81, told me better to my face what the book was about than I had realised myself, namely, it was about economics as knowledge — its subject-matter was the epistemology of economics. Schultz wrote letters all over America on my behalf (as did Milton Friedman at Stanford and Sidney Alexander of MIT, whom I had also met and become friends with), and I was able to first spend a happy year among the Mormons at Brigham Young, and then end up at the University of Hawaii where I was given responsibility for the main graduate course in macroeconomics. I taught Harry Johnson-level IS-LM theory and Friedman-Tobin macroeconomics and then the new “rational expectations” vs Keynesian material.

I was also offered a large University grant to work on “South Asia”, which led to the books Foundations of India’s Political Economy: Towards an Agenda for the 1990s, and Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, both created by myself and WE James, and which led to the origins of India’s 1991 economic reform and the India-Pakistan peace process as told elsewhere. Also, this book came to be accepted for publication by Routledge, as the first economics book in its famed International Library of Philosophy.

Just as I was set to be evaluated for promotion and tenure at the University of Hawaii, I became the victim of a most vicious racist defamation (and there was some connection with Blacksburg). Quite fed up with the sordidness of American academia as I had experienced it, I sued in the federal court, which consumed much of the next half dozen years as the case worked its way through the United States Supreme Court twice. Milton Friedman and Theodore W. Schultz stood as expert witnesses on my behalf but you would not have known it from the judge’s ruling. There had been not only demonstrable perjury and suborning of perjury by the State of Hawaii’s officers, there was also “after-discovered” evidence of bribery of court-officers in the US District Court for the District of Hawaii, and I had to return to India in 1996 quite exhausted to recuperate from the experience. “Solicitation of counsel, clerks or judges” is “embracery curialis”, recognized as extrinsic fraud and subversion of justice since Jepps 72 E R 924 (1611), “firmly established in English practice long before the foundation” of the USA, Hazel Atlas, 322 US 238 (1943). “Embracery is an offense striking at the very foundation of civil society” says Corpus Juris 20, 496. A court of equity has inherent power to investigate if a judgement has been obtained by fraud, and that is a power to unearth it effectively, since no fraud is more odious than one to subvert justice. Cases include when “by reason of something done by the successful party… there was in fact no adversary trial or decision of the issue in the case. Where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practised on him by his opponent, as…where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side ~ these, and similar cases which show that there has never been a real contest in the trial or hearing of the case, are reasons for which a new suit may be sustained to set aside and annul the former judgment or decree, and open the case for a new and a fair hearing….” (Hazel Atlas). There is no time-limit in United States federal law for rectification of fraud on the court of this sort, and I remain fully hopeful today of the working of American justice in the case.

The practical result was that this book was never able to be properly publicized among economists as it would have been had I become Professor of Economics at the University of Hawaii by 1992 as expected. The hardback sold out quickly on its own steam and went into paperback by 1991, and a friend told me it was being used for a course at Yale Law School. The reviews were mostly intelligent. Upon returning to Britain as the Wincott Visiting Professor in 2004, I found times had changed and so had Routledge who would not keep it in print let alone permit a second revised edition. But I am now free to republish the book as I please, and today in 2007, with the Internet growing to a maturity which allows the young geeks at WordPress.com to want to encourage blogging worldwide, I can think of no more apt place to reproduce the first edition of this book than here at my own blog http://www.independentindian.com.

This is not a second or revised edition, and it is unchanged in content except for this lengthy new preface made necessary by the adventures and dramas the book’s author found himself unwittingly part of since its first publication. I am 52 now and happy to say I endorse the book just as I had published it at 34, though I do find it a little impatient and too terse in a few places. The 1991 paperback corrected a few slight errors in the 1989 hardback, and has been used. I am planning an entirely new book which shall have its roots in this one though it will be mostly in philosophy and not economics — the outlines it may take may be seen in the 2004 public lecture I gave on the work of Bambrough and Wisdom mentioned above and published elsewhere; its main aim will be to uncover for new generations the immense worth there is in their work which is in danger of being lost.

At least two names failed to appear in the original list of acknowledgements. G. Bruce Chapman, now of the University of Toronto, and I talked much of serious ethics and political philosophy when I first arrived at Cambridge in 1976. And in 1980 in Blacksburg, Anil Lal, then a graduate student and house-painter, borrowed my copy of Bambrough’s work, read it, and later made a comment on the metaphysics of John Wisdom which allowed me to see things more clearly.

Ballygunge, Kolkata,
April 7 2007″

An Open Letter to Professor Amartya Sen about Singur etc

A letter to Prof. Sen

First published in The Statesman 31 July 2007, Editorial Page Special Article

Professor Amartya Sen, Harvard University

Dear Professor Sen,

Everyone will be delighted that someone of your worldwide stature has joined the debate on Singur and Nandigram; The Telegraph deserves congratulations for having made it possible on July 23.

I was sorry to find though that you may have missed the wood for the trees and also some of the trees themselves. Perhaps you have relied on Government statements for the facts. But the Government party in West Bengal represents official Indian communism and has been in power for 30 years at a stretch. It may be unwise to take at face-value what they say about their own deeds on this very grave issue! Power corrupts and absolute power corrupts absolutely, and there are many candid communists who privately recognise this dismal truth about themselves. To say this is not to be praising those whom you call the “Opposition” ~ after all, Bengal’s politics has seen emasculation of the Congress as an opposition because the Congress and communists are allies in Delhi. It is the Government party that must reform itself from within sua sponte for the good of everyone in the State.

The comparisons and mentions of history you have made seem to me surprising. Bengal’s economy now or in the past has little or nothing similar to the economy of Northern England or the whole of England or Britain itself, and certainly Indian agriculture has little to do with agriculture in the new lands of Australia or North America. British economic history was marked by rapid technological innovations in manufacturing and rapid development of social and political institutions in context of being a major naval, maritime and mercantile power for centuries. Britain’s geography and history hardly ever permitted it to be an agricultural country of any importance whereas Bengal, to the contrary, has been among the most agriculturally fertile and hence densely populated regions of the world for millennia.

Om Prakash’s brilliant pioneering book The Dutch East India Company and the Economy of Bengal 1630-1720 (Princeton 1985) records all this clearly. He reports the French traveller François Bernier saying in the 1660s “Bengal abounds with every necessary of life”, and a century before him the Italian traveller Verthema saying Bengal “abounds more in grain, flesh of every kind, in great quantity of sugar, also of ginger, and of great abundance of cotton, than any country in the world”. Om Prakash says “The premier industry in the region was the textile industry comprising manufacture from cotton, silk and mixed yarns”. Bengal’s major exports were foodstuffs, textiles, raw silk, opium, sugar and saltpetre; imports notably included metals (as Montesquieu had said would always be the case).

Bengal did, as you say, have industries at the time the Europeans came but you have failed to mention these were mostly “agro-based” and, if anything, a clear indicator of our agricultural fecundity and comparative advantage. If “deindustrialization” occurred in 19th Century India, that had nothing to do with the “deindustrialization” in West Bengal from the 1960s onwards due to the influence of official communism.

You remind us Fa Hiaen left from Tamralipta which is modern day Tamluk, though he went not to China but to Ceylon. You suggest that because he did so Tamluk effectively “was greater Calcutta”. I cannot see how this can be said of the 5th Century AD when no notion of Calcutta existed. Besides, modern Tamluk at 22º18’N, 87º56’E is more than 50 miles inland from the ancient port due to land-making that has occurred at the mouth of the Hooghly. I am afraid the relevance of the mention of Fa Hiaen to today’s Singur and Nandigram has thus escaped me.

You say “In countries like Australia, the US or Canada where agriculture has prospered, only a very tiny population is involved in agriculture. Most people move out to industry. Industry has to be convenient, has to be absorbing”. Last January, a national daily published a similar view: “For India to become a developed country, the area under agriculture has to shrink, urban and industrial land development has to take place, and about 100 million workers have to move out from agriculture into industry and services. This is the only way forward for bringing prosperity to the rural population”.

Rice is indeed grown in Arkansas or Texas as it is in Bengal but there is a world of difference between the technological and geographical situation here and that in the vast, sparsely populated New World areas with mechanized farming! Like shoe-making or a hundred other crafts, agriculture can be capital-intensive or labour-intensive ~ ours is relatively labour-intensive, theirs is relatively capital-intensive. Our economy is relatively labour-abundant and capital-scarce; their economies are relatively labour-scarce and capital-abundant (and also land-abundant). Indeed, if anything, the apt comparison is with China, and you doubtless know of the horror stories and civil war conditions erupting across China in recent years as the Communist Party and their businessman friends forcibly take over the land of peasants and agricultural workers, e.g. in Dongzhou.

All plans of long-distance social engineering to “move out” 40 per cent of India’s population (at 4 persons per “worker”) from the rural hinterlands must also face FA Hayek’s fundamental question in The Road to Serfdom: “Who plans whom, who directs whom, who assigns to other people their station in life, and who is to have his due allotted by others?”

Your late Harvard colleague, Robert Nozick, opened his brilliant 1974 book Anarchy, State and Utopia saying: “Individuals have rights, and there are things no person or group may do to them (without violating their rights)”. You have rightly deplored the violence seen at Singur and Nandigram. But you will agree it is a gross error to equate violence perpetrated by the Government which is supposed to be protecting all people regardless of political affiliation, and the self-defence of poor unorganised peasants seeking to protect their meagre lands and livelihoods from state-sponsored pogroms. Kitchen utensils, pitchforks or rural implements and flintlock guns can hardly match the organised firepower controlled by a modern Government.

Fortunately, India is not China and the press, media and civil institutions are not totally in the hands of the ruling party alone. In China, no amount of hue and cry among the peasants could save them from the power of organised big business and the Communist Party. In India, a handful of brave women have managed to single-handedly organise mass movements of protest which the press and media have then broadcast that has shocked the whole nation to its senses.

You rightly say the land pricing process has been faulty. Irrelevant historical prices have been averaged when the sum of discounted expected future values in an inflationary economy should have been used. Matters are even worse. “The fear of famine can itself cause famine. The people of Bengal are afraid of a famine. It was repeatedly charged that the famine (of 1943) was man-made.” That is what T. W. Schultz said in 1946 in the India Famine Emergency Committee led by Pearl Buck, concerned that the 1943 Bengal famine should not be repeated following dislocations after World War II. Of course since that time our agriculture has undergone a Green Revolution, at least in wheat if not in rice, and a White Revolution in milk and many other agricultural products. But catastrophic collapses in agricultural incentives may still occur as functioning farmland comes to be taken by government and industry from India’s peasantry using force, fraud or even means nominally sanctioned by law. If new famines come to be provoked because farmers’ incentives collapse, let future historians know where responsibility lay.

West Bengal’s real economic problems have to do with its dismal macroeconomic and fiscal position which is what Government economists should be addressing candidly. As for land, the Government’s first task remains improving grossly inadequate systems of land-description and definition, as well as the implementation and recording of property rights.

With my most respectful personal regards, I remain

Yours ever

Suby

Bengal’s Finances

BENGAL’S FINANCES

First published in The Sunday Statesman February 25 2007, Editorial Page  Special Article, www.thestatesman.net

There is urgent need for calm, sober thought, not self-delusion. Foreign trade, world politics are not what State Governments are constitutionally permitted to do.

By SUBROTO ROY

Mr Buddhadeb Bhattacharjee is fond of saying his hoped for industrialization plans will lead to jobs for “thousands” of unemployed young men and women emerging from West Bengal’s many schools, colleges and universities.

Now ever since JM Keynes’s time, economists have understood the phenomenon of unemployment quite well. Some unemployment is voluntary: where someone declines to accept a job at the prevailing wage or chooses leisure instead, e.g. withdraws from the labour-force in order to go to college or care for children or family or be involved in search for a better job. Some unemployment is seasonal, as in agriculture ~ where there often is “overfull” employment at harvest-time. Some unemployment may be frictional or structural, depending on dynamic unpredictable industrial or technological changes. In none of these cases is any large role defined for government investment using public resources, though there can be smaller roles like providing job-information, advice and training.

Keynes himself was concerned with systematic “involuntary” unemployment, where masses of people are willing but unable to find work at the going wage because there has been a general collapse of the market economy, as arguably happened in the 1930s in the Western countries. There has been no such situation in independent India.

And it is important to remember our labour markets are mostly unrestricted by State boundaries: unlike totalitarian China, we do not have internal passports in the country, and Indians are mostly free to work anywhere they wish to. Talk from CPI-M, Congress, BJP or other politicians of alleged Keynesian “multiplier” effects arising from government expenditure is mostly talk. And as for Sonia Gandhi’s “National Rural Employment Guarantee”, to the extent it was argued for at all by Amartya Sen’s disciples like Jean Drèze, the argument was not on Keynesian grounds but of a purportedly more equitable distribution of government expenditure.

What then is the Bhattacharjee Government supposed to be doing?

Chandrababu Naidu started a trend among Chief Ministers flying off to exotic foreign vistas, addressing international conferences and signing memoranda with foreign businessmen. But world politics, international relations and foreign trade are not what Indian State Governments are permitted by our Constitution to be engaged in doing. Nelson Mandela is a great man of history but Jyoti Basu’s Government had no constitutional right or business to gift him five million American dollars of West Bengal public money after he was released from jail in South Africa in 1990 by De Klerk.

Our Constitution is crystal clear that the legitimate agenda of India’s State Governments is something very mundane and wholly unglamorous: State Governments are supposed to be managing Courts of Law; the Police, Civil Order, Prisons; Water, Sanitation, Health; State Debt Service; Intra-State Infrastructure & Communications; Local Government; Liquor & Other Public Sector Industry; Trade, Local Banking & Finance; Land, Agriculture, Animal Husbandry; Libraries, Museums, Monuments; State Civil Service & Administration. In addition, “concurrent” with the Union Government are Criminal, Civil & Family Law, Contracts & Torts; Forests & Environmental Protection; Unemployment & Refugee Relief; Electricity; Education. It is relative to that explicit agenda that State Government performances around the country must be evaluated.

The finances of the West Bengal Government and those of every other State of the Union appear in a condition of Byzantine confusion. Even so, it is not impossible for any citizen to understand them with a little serious effort. The State receives tax revenues, income from State operations (like bus fares, lottery tickets etc), and grants transferred from the Union. Of the State’s total revenues, more than 80% arise from taxation. Of those taxes, about 30% is collected by the Union on behalf of the State in accordance with the Finance Commission’s formulae; 70% is collected by the State itself, and about 60% of whhat the State collects is Sales Tax. On the expenditure side, more than 60% goes in repaying the State’s debts as well as interest owed on that debt. The remainder gets distributed as summarily shown in the table. (What would be revealed at a higher level of detail is that e.g. Rs. 2.63 Bn is spent in collecting Rs. 9.93 Bn of land revenue!) The wide difference between the State’s income from all sources and its expenditures implies the State must then issue new public debt. That typically has been a larger and larger sum every year, greater than the amount of maturing debt being amortised or extinguished. The potentially grave consequence of this will be obvious to any householder, and makes it imperative that calm, sober thought and objective analysis occur about the State’s financial condition and budget constraint. There is no room for self-delusion, especially on the part of the Bhattacharjee Government. We are still paying interest on the money we borrowed to make Nelson Mandela a gift seventeen years ago.

Govt. of W. Bengal’s Finances 2003-2004
Rs Billion (Hundred Crore)
EXPENDITURE ACTIVITIES:
government & local government 8.68 1.68%
judiciary 1.27 0.25%
police (including home guard etc.) 13.47 2.61%
prisons 0.62 0.12%
bureaucracy 5.69 1.10%
collecting land revenue & taxes 4.32 0.84%
government employee pensions 26.11 5.05%
schools, colleges, universities, institutes 45.06 8.72%
health, nutrition & family welfare 14.70 2.84%
water supply & sanitation 3.53 0.68%
roads, bridges, transport, etc. 8.29 1.60%
electricity (mostly loans to power sector) 31.18 6.03%
irrigation, flood control, environment, ecology 10.78 2.09%
agricultural subsidies, rural development, etc. 7.97 1.54%
industrial subsidies 2.56 0.50%
capital city development 7.29 1.41%
social security, SC, ST, OBC, labour welfare 9.87 1.91%
tourism 0.09 0.02%
arts, archaeology, libraries, museums 0.16 0.03%
miscellaneous 0.52 0.10%
debt amortization & debt servicing 314.77 60.89%
total expenditure 516.92

tax revenue 141.10
operational income 6.06
grants from Union 18.93
loans recovered 0.91
total income 167.00
INCOME SOURCES:

GOVT. BORROWING REQUIREMENT
(total expenditure
minus total income ) 349.93

financed by:
new public debt issued 339.48
use of Trust Funds etc 10.45
349.93
From the author’s research and based on latest available data published by the Comptroller & Auditor General of India

The Politics of Dr Singh

Preface April 25 2009:  This article of mine has become a victim of bowdlerization on the Internet by someone who seems to support Dr Singh’s political adversaries.  I should say, therefore, as I have said before that  there is nothing personal in my critical assessment of Dr Singh’s economics and politics.  To the contrary, he has been in decades past a friend or at least a colleague of my father’s, and in the autumn of 1973 visited our then-home in Paris at the request of my father to advise me, then aged 18, before I embarked on my undergraduate studies at the London School of Economics.   My assessments in recent years like “The Politics of Dr Singh” or “Assessing Manmohan” etc need to be seen along with my “Assessing Vajpayee: Hindutva True and False”, “The Hypocrisy of the CPI-M”, “Against Quackery”, “Our Dismal Politics”, “Political Paralysis” etc.   (Also “Mistaken Macroeconomics”, June 2009). Nothing personal is intended in any of these; the purpose at hand has been to contribute to a full and vigorous discussion of the public interest in India.

 

 

Postscript 2 Sep 2013: See especially Did Jagdish Bhagwati “originate”, “pioneer”, “intellectually father” India’s 1991 economic reform?  Did Manmohan Singh? Or did I, through my encounter with Rajiv Gandhi, just as Siddhartha Shankar Ray told Manmohan & his aides in Sep 1993 in Washington?  Judge the evidence for yourself.  And why has Amartya Sen misdescribed his work? India’s right path forward today remains what I said in my 3 Dec 2012 Delhi lecture!

also from 2014: https://independentindian.com/2014/08/07/haksar-manmohan-and-sonia/

 

 

 

 

THE POLITICS OF DR SINGH

by

Subroto Roy

 

First published in The Sunday Statesman Editorial Page Special Article, May 21 2006

 

 

 

Manmohan Singh matriculated during Partition, and earned bachelor’s and master’s degrees in economics from Punjab University in 1952 and 1954. He then went to Cambridge to read for the BA over two years. The pro-communist Joan Robinson and Nicholas Kaldor were dominant influences in Cambridge economics at the time. Mark Tully reports Dr Singh saying in 2005 he fell under their influence. “At university I first became conscious of the creative role of politics in shaping human affairs, and I owe that mostly to my teachers Joan Robinson and Nicholas Kaldor. Joan Robinson was a brilliant teacher, but she also sought to awaken the inner conscience of her students in a manner that very few others were able to achieve. She questioned me a great deal and made me think the unthinkable. She propounded the left wing interpretation of Keynes, maintaining that the state has to play more of a role if you really want to combine development with social equity. Kaldor influenced me even more; I found him pragmatic, scintillating, stimulating. Joan Robinson was a great admirer of what was going on in China, but Kaldor used the Keynesian analysis to demonstrate that capitalism could be made to work.”

 

 

Now, in fact, what was going on in China at that time was the notorious catastrophe caused by Mao Zedong known initially as the “Little Leap Forward” (with a Stalin-like collectivization of agriculture) and then as the “Great Leap Forward”. Mao later apologised to China’s people for his ignorance of microeconomic principles, admitting he “had not realised coal and steel do not move of their own accord but have to be transported”. If what Robinson was extolling to young Indians at Cambridge like Amartya Sen and Manmohan Singh in the mid 1950s was Mao’s China, it was manifest error.

 

 

As for Kaldor, the Canadian economist Harry Johnson independently reported that “being a man who rolls with the times fairly fast”, Kaldor “decided early on that capitalism actually was working. So for him the problem was, given that it works, it cannot possibly work because the theory of it is right. It must work for some quite unsuspected reason which only people as intelligent as himself can see.” Like Robinson, Kaldor made a handful of fine contributions to economic theory. But in policy-making he exemplified the worst leftist intellectual vanity and “technocratic” arrogance.

 

 

Returning to India, Manmohan Singh was required to spend three years at Chandigarh. In 1960, he left for Nuffield College to work for an Oxford DPhil on the subject of Indian exports. He returned to Chandigarh as required by government rules for another three years, and in 1966 left again until 1969, this time as a bureaucrat at the new UNCTAD in New York run by Raul Prebisch. A book deriving from his doctoral thesis was published by Clarendon Press in 1964.

 

 

In 1969, Dr Singh returned to India becoming Professor of International Trade at the Delhi School of Economics. A technical survey of mainstream Indian economic thinking done by his colleagues Jagdish Bhagwati and Sukhamoy Chakravarty published in the American Economic Review of 1969, made footnote references to his book in context of planning and protectionism, but not in the main discussion of Indian exports which at the time had to do with exchange-rate overvaluation.

 

 

After Indira Gandhi’s March 1971 election victory, Dr Singh came to the attention of Parameshwar Narain Haksar, who launched his career in bureaucracy after inviting him to write a political paper “What to do with the victory”. Haksar had been an Allahabad lawyer married into the Sapru family. In London as a student he was a protégé of R. Palme Dutt and Krishna Menon, and openly pro-USSR. He was close to the Nehrus, and Jawaharlal placed him in the new Foreign Service. He was four years older than Indira and later knew her husband Feroze Gandhi who died in 1960. By May 1967 Haksar was Indira’s adviser, and became “probably the most influential and powerful person in the Government” until 1974, when there was a conflict with her younger son. But Haksar’s influence continued well into the 1990s. His deeds include nationalization of India’s banks, the Congress split and creation of the Congress(I), and politicisation of the bureaucracy including the intelligence services. High quality independent civil servants became politically committed pro-USSR bureaucrats instead. Professionalism ended and the “courtier culture” and “durbar” politics began.

 

 

Haksar and T. N. Kaul were key figures negotiating the August 1971 “Treaty of Peace, Friendship and Cooperation” with the USSR, which was to run 25 years except the USSR collapsed before then. Indira had hosted Richard Nixon two years previously, and the Nixon-Kissinger attempt to get close to Zhou En Lai’s China using Pakistan’s Z. A. Bhutto and Yahya Khan (coinciding with Pakistan’s civil war) were undoubtedly factors contributing to India’s Soviet alliance.

 

 

As Haksar’s protégé, Dr Singh’s rise in the economic bureaucracy was meteoric. By 1972 he was Chief Economic Adviser and by 1976 Secretary in the Finance Ministry. The newly published history of the Reserve Bank shows him conveying the Ministry’s dictates to the RBI. In 1980-1982 he was at the Planning Commission, and in 1982-1985 he was Reserve Bank Governor (when Pranab Mukherjee was Finance Minister), followed by becoming Planning Commission head, until taking his final post before retirement heading the “South-South Commission” invented by Julius Nyerere of Tanzania, from August 1987 until November 1990 in Geneva.

 

 

Dr Singh joined Chandrashekhar’s Government on 10 December 1990, when Rajiv Gandhi was Leader of the Opposition yet supporting Chandrashekhar “from the outside”, and left when new elections were announced in March 1991. The first time his name arose in context of contemporary post-Indira Congress Party politics was on 22 March 1991 when M K Rasgotra challenged the present author to answer how Manmohan Singh would respond to proposals being drafted for a planned economic liberalisation of India by the Congress Party authorised by Rajiv since September 1990 (viz., “Memos to Rajiv” The Statesman 31 July-2 August 1991 republished here as “Three Memoranda to Rajiv Gandhi”; “The Dream Team: A Critique” The Statesman 6-8 January 2006 also republished here; see also “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform” published elsewhere here, and in abbreviated form in Freedom First, October 2001).

 

 

Rajiv was assassinated on 21 May 1991, resulting in Narasimha Rao (who had been ill and due to retire) becoming PM in June 1991. Dr Singh told Tully: “On the day (Rao) was formulating his cabinet, he sent his Principal Secretary to me saying, `The PM would like you to become the Minister of Finance’. I didn’t take it seriously. He eventually tracked me down the next morning, rather angry, and demanded that I get dressed up and come to Rashtrapati Bhavan for the swearing in. So that’s how I started in politics”. In the same conversation, however, Dr Singh also said he learnt of “the creative role of politics” from Robinson, and hence he must have realised he actually became politically committed when he began to be mentored by Haksar — Indira Gandhi’s most powerful pro-communist bureaucrat. Before 1991, Dr Singh may be fairly described as a statist anti-liberal who travelled comfortably along with the tides of the pro-USSR New Delhi political and academic establishment, following every rule in the bureaucratic book and being obedient in face of arbitrary exercise of political and economic power. There is no evidence whatsoever of him having been a liberal economist before 1991, nor indeed of having originated any liberal economic idea afterwards. The Congress Party itself in May 2002 passed a resolution saying the ideas of India’s liberalisation had originated with neither him nor Narasimha Rao.

 

 

Indeed, the 1970s and 1980s saw onset of the worst macroeconomic policies with ruination and politicisation of India’s banking system, origins of the Rs 30 trillion (Rs 30 lakh crore) public debt we have today, and the start of exponential money supply growth and inflation. Along with Pranab Mukherjee, Dr Singh, as the exemplary Haksarian bureaucrat, must accept responsibility for having presided over much of that. If they are to do anything positive for India now, it has to be first of all to undo such grave macroeconomic damage. This would inevitably mean unravelling the post-Indira New Delhi structure of power and privilege by halting deficit finance and corruption, and enforcing clean accounting and audit methods in all government organisations and institutions. Even the BJP’s Vajpayee and Advani lacked courage and understanding to begin to know how to do this, allowing themselves to be nicely co-opted by the system instead. Rajiv might have done things in a second term; but his widow and her coalition government led by Dr Singh, who exemplified India’s political economy of the 1970s and 1980s, appear clueless as to the macroeconomic facts, and more likely to enhance rather than reverse unhealthy fiscal and monetary trends.

A Philosophical Conversation between Prof. Sen & Dr Roy

A Philosophical Conversation between Professor Sen & Dr Roy

First published in The Sunday Statesman, “8th Day”, May 14 2006

 

 

ROY: …The philosophers Renford Bambrough and John Wisdom would have been with you at Cambridge….

SEN: Wisdom I knew better; he was at my College; but you know my philosophy was not an important thing at the time. Among the philosophers there, it was C. D. Broad with whom I chatted more. But Wisdom I knew, and he mainly tried to encourage me to ride horses with him, which I didn’t.

ROY: You went to Cambridge in …

SEN: I went to Cambridge in 1953.

ROY: So Wittgenstein had just died…

SEN: Wittgenstein had died.

ROY: Only just in 1952 (sic; in fact he died in 1951).

SEN: But I knew a lot about the conversations between Wittgenstein and Sraffa because Sraffa was alive; I did a paper on that by the way.

ROY: Well that’s what I was going to ask, there is no trace of your work on Wittgenstein and the Wittgensteinians.

SEN: I don’t know why. My paper was published in the Journal of Economic Literature a couple of years ago. Now mind you it’s not a conclusion, just an interpretation, what was the role of Gramsci in the works of Sraffa and Wittgenstein, what is it that Sraffa actually did in intermediating between them.

ROY: In your book Identity and Violence, I was curious to find you call yourself a “dabbler” in Philosophy yet at the same time you are an eminent Professor of Philosophy at Harvard for decades. The question that arose was, were you being modest, and if so, truly or falsely?

SEN (laughs): I think if you make a statement which you suspect might have been made out of modesty and then I said it was because of modesty I think I would have eliminated the motivation for the statement as you identify it. I am not going to answer the question as to what I think.

ROY: But surely you are not a “dabbler” in Philosophy?

SEN: I am interested in Philosophy is what I meant, and whether I am a dabbler or whether I’ve succeeded in making some contribution is for others to judge. But not for me to judge.

ROY: Okay.

SEN: As for me, the right description is that I am a dabbler in Philosophy. But then that diagnostic is… mine, and I won’t go to war with others if someone disputes that. But it’s not for me to dispute it.

ROY: Would you, for example in reference to our discussion about Wittgenstein, say that you have contributed to Philosophy in and of itself regardless of Economics?

SEN: Most of my work on Philosophy has got nothing to do with Economics. It is primarily on Ethics, to some extent on Epistemology. And these are not “economic” subjects. I have never written on the “Philosophy of Economics” at all.

ROY: How about Ontology? I mean the question “What there is” would be…..

SEN: I am less concerned with Ontology or with Metaphysics than some people are. I respect the subject but I have not been involved.

ROY: You have not been involved?

SEN: Well, I have read a lot but I haven’t worked on it. I have worked on Ethics and Political Philosophy and I have worked on Epistemology and I have worked a little bit on Mathematical Logic. Those are the three main areas in which I have worked.

ROY: Why I say that is because, if the three main philosophical questions are summarised as “What is there?” (or “Who am I?”), “What is true?”, “What should I do?”, then the question “Who am I?” is very much a part of your concern with identity and a universal question generally, while “Is this true?” is relevant to Epistemology and “What should I do?” is obviously Ethics. Morton White summarised philosophy in those three questions. It seems to me you have in this book had to look at…

SEN: At all three of them.

ROY: Well, some Ontology at least.

SEN: But you know I agree with your diagnostic that the second question “What I regard myself to be, is that true?”, is a question of Epistemology, because that’s the context in which “Is it true?” comes in. The second is primarily an epistemological question. The third is, as you said, primarily an ethical question, though I do believe that the dichotomy between Epistemology and Ethics is hard to make. On that subject I would agree with Hilary Putnam’s last book, namely when he speaks of “the collapse of the fact-value dichotomy” which is sometimes misunderstood and described as the collapse of the fact-value distinction, which is not what Hilary Putnam is denying, he’s arguing that the dichotomy is very hard to sustain, because the linkages are so strong, that pursuit of one is always taking you into the other. But the first question you are taking to be an ontological question, “Who am I?”, and at one level you can treat it as that, but there is a less profound aspect of “Who am I?”, namely what would be the right way of describing me, to myself and to others, and that has a deep relationship with the second question. If the separation or dichotomy between the second and third raises some philosophical questions of significance, the dichotomy between the first and second would too. So “Who am I?” can be interpreted at a profound ontological level but it could also be interpreted at a level which is primarily fairly straightforward Epistemology. And it is at that level that I am taking that question to be. Namely: Am I a member of many different groups? Do I see myself as members of many different groups? If I do not see myself as members of many different groups, am I making a mistake in not seeing that I belong to many different groups? Is it the case that implicitly I often pursue things which are dependant on my seeing myself as being members of other groups than those which I explicitly acknowledge? These are the central issues of the “Who am I?” question in this book.

ROY: Well you haven’t used the word “identity” here but when you speak in your book of people having a choice of different identities, you are plainly not referring to multiple identities in the sense of the psychologist; are you not merely saying that everyone has different aspects or dimensions to his or her life, and is required to play different roles at different times in different contexts? Or is there something beyond that statement in your notion of “choice of identities”?

SEN: What I mean by “multiple identities” is, at one level, the most trivial, common but, at another level, most profoundly important recognition that we belong to many different groups: I’m an Indian citizen, I’m a British or American resident, I’m a Bengali, the poetry I like is Bengali poetry, I’m a man, I’m an economist, I belong to all these groups. Nothing complicated about that, and the multiple identity issues of the psychologist that you’re referring to indicate a certain level of complexity of humanity, and sometimes even of pathology perhaps, but that’s not what I am concerned with here, it’s just a common fact that there are many different groups to which any person belongs. And it’s on that extraordinarily simple fact that I am trying to construct a fairly strong, fairly extensive set of reasonings, because that forces us to see the importance of our own choice, our own decisions in deciding on how should I see myself, how would it be correct to see myself given the problems I am facing today, and given the priorities that I will have to examine.

ROY: But if we don’t use the word “groups” just for a minute, then we are not too far wrong to just say that everyone has different aspects or dimensions to their lives, so one dimension could be nationality, one dimension sexuality, one dimension one’s intellectual upbringing, then any person, any character in a novel would have different dimensions….

SEN: The difficulty with that, Subroto, is that in the same aspect we may have more than one…

ROY: Dimension?

SEN: Well dimension tries to capture in a Cartesian space a rather more complex reality, and you know I don’t think this is a metric space we are looking at, so dimensionality is not a natural thought in this context. One thing I am very worried about is when something which is very simple appears to people as being either profoundly right or profoundly mistaken. I’ll try to claim that it is right and it is not very profound but that it is not very profound does not mean people don’t miss it and end up making mistakes. In terms of the aspects of my life which concern my enjoying poetry, there may be many different groups to which I belong, one of them is that I can appreciate Bengali poetry in a way that I will not be able to appreciate poetry in some language which I speak only very little, like Italian poetry for example. But on the other hand, in addition to that, in the same aspect of my appreciating poetry, there may be the fact that I am not as steeped into historical romance which also figures in poetry or patriotic poetry and these are all again classifications which puts me in some group, in the company of some and not in the company of others, and therefore an aspect does not quite capture with the precision the group classification that I was referring to does capture.

ROY: Well, groups we can quarrel about perhaps because groups may not be well- defined…

SEN: Don’t go away Subroto but that does not make any difference, because many groups are not well-defined but they are still extremely important…

ROY: Of course there are overlapping groups…

SEN: Not only overlapping, but you know that is a different subject on the role of ambiguity, that is a very central issue in Epistemology, and the fact of the matter is that there are many things for which there are ambiguities about border which are nevertheless extremely important as part of our identity. Where India begins and China ends or where China begins and India ends may not be clear, but the distinction between being an Indian and being Chinese is very important, so I think that this border dispute gets much greater attention in the social sciences than it actually deserves.

ROY: Well, one of the most profoundly difficult and yet universally common dilemmas in the modern world has to do with women having to choose between identities outside and inside the home. Does your theory of identity apply to that problem, and if so, how?

SEN: I think the choice is never between identities, the choice is the importance that you attach to different identities all of which may be real. The fact of the matter is that a woman may be a member of a family, a woman is also a member of a gender, namely being a woman, a woman may also have commitment to her profession, may have commitment to a politics…

ROY: Does your theory help her in any way, specifically?

SEN: The theory is not a do-it-yourself method of constructing an identity. It is an attempt to clarify what are the questions that anyone who is thinking about identity has to sort out. It is the identification of questions with which the book is concerned, and as such, insofar as the woman is concerned… indeed the language that you use Subroto, that what you have to choose between identities, I would then say that what I am trying to argue is that’s not the right issue, because all these would remain identities of mine but the relative importance that I attach to the different identities is the subject in which I have to make a choice, and that’s the role of the theory…

ROY: They are all different aspects of the same woman.

SEN: Yes indeed. If not explicitly then implicitly, but that is part of the recognition that we need, it is not a question that by giving importance to one of those compared with the others you’re denying the other identities. To say that something is more important than another in the present context is not a denial that the other is also an identity. So I think the issue of relative importance has to be distinguished from the existence or non-existence of these different identities.

ROY: Well, you’ve wished to say much about Muslims in this book….

SEN: That’s not entirely right. I would say that I do say something about the Muslims in this book….

ROY: … yet one gets the impression that you have not read The Quran. Is that an accurate impression?

SEN: No, it’s not.

ROY: You have read The Quran?

SEN: Yes.

ROY: In English, presumably?

SEN: In Bengali to be exact. Not in Arabic, you probably have read it in Arabic.

ROY (laughs): No, just in English. Is it possible to understand a Muslim’s beliefs until and unless one sees the world from his/her perspective? I had to read The Quran to see if I could understand — attempt to understand — the point of view of Muslims. Does one need to read The Quran in order to see their perspective?

SEN: Well it depends on how much expertise you want to acquire. That is, if you have to understand what the Quranic beliefs are, to which Muslims as a group – believing Muslims, who identify themselves as believing and practising Muslims – as opposed to Muslims by ancestry and therefore Muslims in a denominational sense, yes indeed, if you want to pursue what practising and believing Muslims practise and believe then you would have to read The Quran. But a lot of people would identify themselves as Muslim who do not follow these practises or for that matter beliefs, but who would still identify themselves as Muslims because in the sense of a community they belong to that. I mean even Mohammad Ali Jinnah did not follow many of the standard Muslim practises, that did not make him a non-Muslim because a “Muslim” can be defined in more than one way. One is to define somebody who is a believing and practising Muslim, the other is somebody who sees himself as a Muslim and belongs to that community, and in the context of the world in which he lives that identity has some importance which it clearly had in the case of Mohammad Ali Jinnah.

ROY: Well, Muslims like Jews and Christians believe the Universe had a deliberate Creation; Hindus and Buddhists may not quite agree with that. Muslims will further believe that the Creator spoke once and only once definitively through one man, namely Muhammad in the 7th Century in Arabia. Would you not agree that no person can deny that and still be a Muslim?

SEN: I think you’re getting it wrong Subroto. It said Muhammad was the last prophet, it does not deny that there existed earlier prophets. Therefore it’s not the case as you said that God spoke alone and uniquely and only once.

ROY: Definitively?

SEN: No, no, Muslims believe that it was definitely spoken at each stage — as a follow up, like Christians misunderstood what message the prophet called Jesus was carrying and they deified Jesus, there was a need for turning a page, that’s the understanding; it’s not the case that’s what Muslims believe, that is not the Quranic view at all, that God spoke only once to Muhammad, that’s not the Quranic belief

ROY: True, true enough..

SEN: But you said that Subroto!

ROY: What I meant was “definitively”, the word “definitively” meaning that…
SEN: Definitively they would say that at each stage there was a memory, and the memory and the understanding got corrupted over time and that’s why they were also so wild about idolatry for example

ROY: Well the Ahmadiyas, for example, are considered non-believers by many Muslims because they claim that there …

SEN: That also brings out the point I was making, that Ahmadiyas see themselves as Muslim….

ROY: Indeed.

SEN: …and in terms of one of the definitions of Muslim that I am giving you, namely as a person who sees himself as a Muslim, or herself as a Muslim, and regards that identity to be important is a Muslim according to that definition; another one would apply a test which is what many of the more strict Sunnis and Shias do, namely, that whether they accept Muhammad as the last prophet, and insofar as Ahmadiyas don’t accept that, then they would say then you are not Muslim…

ROY: Well they do actually…

SEN: Well they do, but in terms…I think what I am telling you is that in terms of the Shia-Sunni orthodox critique they say that in effect they don’t accept that, that is the charge against them, but those who believe that would say that on that ground Ahmadiyas are not Muslim. So I think there is a distinction in the different ways that Muslims can be characterised….

The Dream Team: A Critique

The Dream Team: A Critique

by Subroto Roy

First published in The Statesman and The Sunday Statesman, Editorial Page Special Article, January 6,7,8, 2006

(Author’s Note: Within a few weeks of this article appearing, the Dream Team’s leaders appointed the so-called Tarapore 2 committee to look into convertibility — which ended up recommending what I have since called the “false convertibility” the RBI is presently engaged in. This article may be most profitably read along with other work republished here: “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, “Three Memoranda to Rajiv Gandhi”, “”Indian Money & Banking”, “Indian Money & Credit” , “India’s Macroeconomics”, “Fiscal Instability”, “Fallacious Finance”, “India’s Trade and Payments”, “Our Policy Process”, “Against Quackery”, “Indian Inflation”, etc)

1. New Delhi’s Consensus: Manmohantekidambaromics

Dr Manmohan Singh has spoken of how pleasantly surprised he was to be made Finance Minister in July 1991 by PV Narasimha Rao. Dr Singh was an academic before becoming a government economic official in the late 1960s, rising to the high office of Reserve Bank Governor in the 1980s. Mr Montek Singh Ahluwalia now refers to him as “my boss” and had been his Finance Secretary earlier. Mr Ahluwalia was a notable official in the MacNamara World Bank before being inducted a senior government official in 1984. Mr P Chidambaram was PVNR’s Commerce Minister, and later became Finance Minister in the Deve Gowda and Gujral Governments. Mr Chidamabaram is a Supreme Court advocate with an MBA from Harvard’s Business School. During 1998-2004, Dr Singh and Mr Chidambaram were in Opposition but Mr Ahluwalia was Member-Secretary of the Vajpayee Planning Commission. Since coming together again in Sonia Gandhi’s United Progressive Alliance, they have been flatteringly named the “Dream Team” by India’s pink business newspapers, a term originally referring to some top American basketball players.

Based on pronouncements, publications and positions held, other members or associates of the “Dream Team” include Reserve Bank Governor Dr YV Reddy; his predecessor Dr Bimal Jalan; former PMO official Mr NK Singh, IAS; Chief Economic Advisers Dr Shankar Acharya and Dr Ashok Lahiri; RBI Deputy Governor Dr Rakesh Mohan; and others like Dr Arvind Virmani, Dr Isher Ahluwalia, Dr Parthasarathi Shome, Dr Vijay Khelkar, Dr Ashok Desai, Dr Suman Bery, Dr Surjit Bhalla, Dr Amaresh Bagchi, Dr Govind Rao. Honorary members include Mr Jaswant Singh, Mr Yashwant Sinha, Mr KC Pant and Dr Arun Shourie, all economic ministers during the Vajpayee premiership. Institutional members include industry chambers like CII and FICCI representing “Big Business”, and unionised “Big Labour” represented by the CPI, CPI(M) and prominent academics of JNU. Mr Mani Shankar Aiyar joins the Dream Team with his opinion that a gas pipeline is “necessary for the eradication of poverty in India”. Mr Jairam Ramesh explicitly claimed authoring the 1991 reform with Mr Pranab Mukherjee and both must be members (indeed the latter as Finance Minister once had been Dr Singh’s boss). Dr Arjun Sengupta has claimed Indira Gandhi started the reforms, and he may be a member too. External members include Dr Jagdish Bhagwati, Dr. TN Srinivasan, Dr Meghnad Desai, Dr Vijay Joshi, Mr Ian Little, Dr Anne O. Krueger, Dr John Williamson, IMF Head Dr R Rato, and many foreign bank analysts who deal in Bombay’s markets. Harvard’s Dr Larry Summers joins with his statement while US Treasury Secretary in January 2000 that a 10% economic growth rate for India was feasible. His Harvard colleague Dr Amartya Sen — through disciples like Dr Jean Dreze (adviser to Sonia Gandhi on rural employment) — must be an ex officio member; as an old friend, the Prime Minister launched Dr Sen’s recent book while the latter has marked Dr Singh at 80% as PM. Media associates of the Dream Team include editors like Mr Aroon Purie, Mr Vinod Mehta, Dr Prannoy Roy, Mr TN Ninan, Mr Vir Sanghvi and Mr Shekhar Gupta, as well as the giddy young anchors of what passes for news and financial analysis on cable TV.

This illustrious set of politicians, government officials, economists, journalists and many others have come to define what may be called the “New Delhi Consensus” on contemporary India’s economic policy. While it is unnecessary everyone agree to the same extent on every aspect — indeed on economic policy the differences between the Sonia UPA and Vajpayee NDA have had to do with emphasis on different aspects, each side urging “consensus” upon the other — the main factual and evaluative claims and policy-prescriptions of the New Delhi Consensus may be summarised as follows:

A: “The Narasimha Rao Government in July 1991 found India facing a grave balance of payments crisis with foreign exchange reserves being very low.”

B: “A major cause was the 1990-1991 Gulf War, in its impact as an exogenous shock on Indian migrant workers and oil prices.”

C: “The Dream Team averted a macroeconomic crisis through “structural adjustment” carried out with help of the IMF and World Bank; hence too, India was unaffected by the 1997 ‘Asian crisis'”.

D: “The PVNR, Deve Gowda, Gujral and Vajpayee Governments removed the notorious license-quota-permit Raj.”

E: “India’s measurable real economic growth per capita has been raised from 3% or lower to 7% or more.”

F: “Foreign direct investment has been, relative to earlier times, flooding into India, attracted by lower wages and rents, especially in new industries using information technology.”

G: “Foreign financial investment has been flooding into India too, attracted by India’s increasingly liberalised capital markets, especially a liberalised current account of the balance of payments.”

H: “The apparent boom in Bombay’s stock market and relatively large foreign exchange reserves bear witness to the confidence foreign and domestic investors place in India’s prospects.”

I: “The critical constraint to India’s future prosperity is its “infrastructure” which is far below what foreign investors are used to in other countries elsewhere in Asia.”

J: “It follows that massive, indeed gargantuan, investments in highways, ports, airports, aircraft, city-flyovers, housing-estates, power-projects, energy exploration, gas pipelines, etc, out of government and private resources, domestic and foreign, is necessary to remove remaining “bottlenecks” to further prosperity for India’s masses, and these physical constructions will cause India’s economy to finally ‘take off’.”

K: “India’s savings rate (like China’s) is exceptionally high as is observable from vast expansion of bank-deposits, and these high (presumed) savings, along with foreign savings, will absorb the gargantuan investment in “infrastructure” without inflation.”

L: “Before the gargantuan macroeconomic investments bear the fruits of prosperity, equally large direct transfer payments also must be made from the Government to prevent mass hunger and/or raise nominal incomes across rural India, while existing input or other subsidies to producers, especially farmers, also must continue.”

M: “While private sector participants may increasingly compete via imports or as new entrants in industries where the public sector has been dominant, no bankruptcy or privatisation must be allowed to occur or be seen to occur which does not provide public sector workers and officials with golden parachutes.”

Overall, the New Delhi Consensus paints a picture of India’s economy on an immensely productive trajectory as led by Government partnered by Big Business and Big Labour, with the English-speaking intellectuals of the Dream Team in the vanguard as they fly between exotic conferences and international commercial deals. An endless flow of foreign businessmen and politicians streaming through Bangalore, Hyderabad, five-star hotels or photo-opportunities with the PM, followed by official visits abroad to sign big-ticket purchases like arms or aircraft, reinforce an impression that all is fine economically, and modern India is on the move. Previously rare foreign products have become commonplace in India’s markets, streets and television-channels, and a new materialist spirit, supposedly of capitalism, is captured by the smug slogan yeh dil mange more (this heart craves more) as well as the more plaintive cry pardesi jana nahin, mujhe chhorke (foreigner, please don’t leave me).

2. Money, Convertibility, Inflationary Deficit Financing

India’s Rupee became inconvertible in 1942 when the British imposed exchange controls over the Sterling-Area. After 1947 independent India and Pakistan, in name of “planned” economic development, greatly widened this war-time regime – despite the fact they were at war now only with one another over Jammu & Kashmir and, oddly enough, formed an economic union until 1951 with their currencies remaining freely convertible with each other.

On May 29 1984, the present author’s Pricing, Planning and Politics: A Study of Economic Distortions in India proposed in London that the Indian Rupee become a convertible hard currency again — the first time liberal economics had been suggested for India since BR Shenoy’s critique of the Second Five Year Plan (a fact attracting an editorial of The Times). The simple litmus test whether believers in the New Delhi Consensus have or have not the courage of their stated convictions – i.e., whether what they have been saying is, in its empirical fundamentals, more signal or noise, more reality or rhetorical propaganda – would be to carry through that proposal made 21 years ago. The Dream Team have had more than enough political power to undertake this, and it remains the one measure necessary for them to demonstrate to India’s people and the world that the exuberant confidence they have been promoting in their model of India’s economy and its prospects is not spurious.

What does convertibility entail?  For a decade now, India has had limited ease of availability of foreign exchange for traders, students and tourists. Indeed some senior Government monetary economists believe there is convertibility already except forex dealers are being allowed “one-way” and not “two-way” quotes! That is wrong. The Government since 1942 has requisitioned at the border all foreign exchange earned by exporters or received as loans or investment — allocating these first to pay interest and amortisation on the country’s foreign debt, then to make its own weapons and other purchases abroad, then to release by ration what remains to private traders, students, tourists et al. Current account liberalisation has meant the last of these categories has been relaxed, especially by removal of some import quotas. What a convertible Rupee would mean is far more profound. It would allow any citizen to hold and save an Indian money that was exchangeable freely (i.e. without Government hindrance) into moneys of other countries. Full convertibility would mean all the paper money, bank deposits and rupee-denominated nominal assets held by ordinary people in India becomes, overnight, exchangeable without hindrance into dollars, yens, pounds or euros held anywhere (although not of course at the “one-way” rates quoted today).

Now money is a most peculiar human institution. Paper money is intrinsically worthless but all of India’s 1,000 million people (from street children onwards) have need to hold it temporarily to expedite their individual transactions of buying and selling real goods and services. Money also acts as a repository of value over time and unit of account or measure of economic value. While demand to hold such intrinsically worthless paper is universal, its supply is a Government monopoly. Because Government accepts obligations owed to it in terms of the fiat money it has itself issued, the otherwise worthless paper comes to possess value in exchange. Because Government controls its supply, money also can be abused easily enough as a technique of invisible taxation via inflation.

With convertibility in India, the quantity of currency and other paper assets like public debt instruments representing fiscal decisions of India’s Union and State Governments, will have to start to compete with those produced by other governments. Just as India’s long-jumpers and tennis-players must compete with the world’s best if they are to establish and sustain their athletic reputations, so India’s fiscal and monetary decisions (i.e. about government spending and revenues, interest-rates and money supply growth) will have to start competing in the world’s financial markets with those of the EU, USA, Japan, Switzerland, ASEAN etc.

The average family in rural Madhya Pradesh who may wish, for whatever personal reason, to liquidate rupee-denominated assets and buy instead Canadian, Swiss or Japanese Government debt, or mutual fund shares in New York, Frankfurt or Singapore, would not be hindered by India’s Government from doing so. They would become as free as the swankiest NRI jet-setters have been for years (like many members of the New Delhi Consensus and their grown children abroad).  Scores of millions of ordinary Indians unconnected with Big Business or Big Labour, neither among the 18 million people in government nor the 12 million in the organised private sector, would become free to hold any portfolio of assets they chose in global markets (small as any given individual portfolio may be in value). Like all those glamorous NRIs, every Indian would be able to hold dollar or Swiss Franc deposit accounts at the local neighbourhood bank. Hawala operators worldwide would become redundant. Ordinary citizens could choose to hold foreign shares, real-estate or travellers’ cheques as assets just as they now choose jewellery before a wedding. The Indian Rupee, after more than 65 years, would once again become as good as all the proverbial gold in Fort Knox.

When added up, the new demand of India’s anonymous masses to hold foreign rather than Rupee-denominated assets will certainly make the Rupee decline in price in world markets. But — if the implicit model of India’s economy promoted by the Dream Team is based on correctly ascertained empirical facts — foreign and domestic investor confidence should suffice for countervailing tendencies to keep India’s financial and banking system stable under convertibility. Not only would India’s people be able to use and save a currency of integrity, the allocation of real resources would also improve in efficiency as distortions would be reduced in the signalling function of domestic relative prices compared to world relative prices. An honest Rupee freely priced in world markets at, say, 90 per dollar, would cause very different real microeconomic decisions of Government and private producers and consumers (e.g., with respect to weapons’ purchases or domestic transportation, given petroleum and jet fuel imports) than a semi-artificial Rupee at 45 per dollar which forcibly an inconvertible asset in global markets. A fully convertible Rupee will cause economic and political decisions in the country more consistent with word realities.

Why the Rupee is not going to be made convertible in the foreseeable future – or why, in India’s present fiscal circumstances if it was, it would be imprudent to do so – is because, contrary to the immense optimism promoted by the Dream Team about their own deeds since 1991, they have in fact been causing India’s monetary economy to skate on the thinnest of thin ice. Put another way, a house of cards has been constructed whose cornerstone constitutes that most unscientific anti-economic of assumptions, the “free lunch”: that something can be had for nothing, that real growth in average consumption levels of the masses of ordinary households of rural and urban India can meaningfully come about by nominal paper-money creation accompanied by verbal exhortation, hocus-pocus or abracadabra from policy-makers and their friends in Big Business, Big Labour and the media. (Lest half-remembered inanities about “orthodox economics” come to be mouthed, Maynard Keynes’s 1936 book was about specific circumstances in Western economies during the Depression and it is unwise to extend its presumptions to unintended situations.)

3. Rajiv Gandhi and Perestroika Project

On 25 May 2002, India’s newspapers reported “PV Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High Command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.”

Now Rajiv Gandhi was an airline-pilot and knew no economics. But the origins of the 1991 reform did come about because of an encounter he had, as Opposition Leader and Congress President from September 1990 onwards, with a “perestroika” project for India’s political economy occurring at an American university since 1986 (viz., The Statesman Editorial Page July 31-August 2 1991, now republished here; Freedom First October 2001). In being less than candid in acknowledging the origins of the reform, the Dream Team may have failed to describe accurately the main symptoms of illness that afflicted India before 1991, and have consequently failed to diagnose and prescribe for it correctly ever since.

The Government of India, like many others, has been sorely tempted to finance its extravagant expenditures by abusing its monopoly over paper-money creation. The British taught us how to do this, and in 1941-43 caused the highest inflation rates ever seen in India as a result. Fig. 1 shows this, and also that real growth in India follows as expected the trend-rate of technological progress (having little to do with government policy). Independent India has continually financed budget- deficits by money creation in a process similar to what the British and Americans did in wartime. This became most conspicuous after Indira Gandhi’s bank and insurance nationalisations of 1969-1970. Indeed, among current policy-makers, Pranab Mukherjee, Manmohan Singh, Arjun Sengupta, Montek Singh Ahluwalia, Bimal Jalan, NK Singh, Amaresh Bagchi and Shankar Acharya, were among those governing such macroeconomic processes before 1991 — albeit in absence of the equations that illustrate their nature. Why the Rupee cannot be made an honest, internationally convertible, stable money held with confidence by all Indians today, is because the Dream Team have continued with the same macroeconomics ever since. The personal and political ambitions of the tiniest super-elite that the New Delhi Consensus represent (both personal and political) have depended precisely on gargantuan unending deficit-financing backed by unlimited printing of paper-money, and hence the continuing destruction of the integrity of India’s banking system. A convertible Rupee would allow India’s ordinary people to choose to hold other stores of value available in the world today, like gold or monies issued by foreign governments, and thus force an end to such processes.

Two recent articles in The Statesman (Perspective Page 30 October 2005, Front Page 29 November 2005) outlined India’s financial repression and negative real interest rates (which suffice to explain the present stock market boom the way athletes perform better on steroids), and also how deficits get financed by money creation accompanied by wishful projections of economic growth in an upside down imitation of how macroeconomic policy gets done in the West.

“Narrow Money” consists mostly of hand-to-hand currency. “Broad Money” consists of Narrow Money plus bank-deposits. Modern banking is built on “fractional reserves”, i.e. a system of trust where your bank does not literally hold onto deposits you place there but lends these out again – which causes further deposit expansion because no individual banker can tell whether a new deposit received by it is being caused by the depositor having himself borrowed. As a general rule, bank lending causes further deposit expansion. Why India’s (and China’s) bank deposits have been expanding is not because Indians (or Chinese) are superhuman savers of financial assets in banks but because the Government of India (and China) has for decades compelled (the mostly nationalised) banks to hold vast sums of Government debt on the asset side of their balance-sheets. Thus there has been humongous lending by the banking system to pay for Government expenditures. The Dream Team’s macroeconomics relies entirely on this kind of unending recourse to deficit finance and money creation, causing dry rot to set into banks’ balance sheets (Figs. 2,3, 4).   If the Rupee became convertible, those vast holdings of Government debt by banks would become valued at world prices. The crucial question would be how heavily New York, London and Hong Kong financial markets discounted Indian sovereign debt. If upon convertibility, the asset sides of domestic Indian banks get discounted very heavily by world financial markets, their insolvency upon being valued at international prices could trigger catastrophic repercussions throughout India’s economy. Hence the Rupee cannot be made convertible — and all our present inefficiencies and inequities will continue for ever with New Delhi’s rhetorical propaganda alongside. The capital flight of 10 out of 1000 million Indians will continue, leaving everyone else with the internal and foreign public debts to pay.

4. A Different Strategy had Rajiv Not Been Assassinated

Had Rajiv Gandhi not been assassinated and the perestroika project allowed to take its course, a different strategy would have been chosen. Honest money first demands honest Government and political leadership. It would at the outset have been recognised by Government (and through Government by all India’s people) that the asset-liability, income-expenditure and cash-flow positions of every public entity in the country without exception — of the Union Government, every State and local Government, every public undertaking and project – is abysmal.  Due to entanglement with government financial loans, labour regulations, subsidies, price controls, protection and favouritism, the same holds for the financial positions of vast numbers of firms in the organised private sector. Superimpose on this dismal scene, the bleak situation of the Rule of Law in the country today – where Courts of Justice from highest to lowest suffer terrible abuse receiving pitiable amounts of public resources despite constituting a third and independent branch of India’s Government (while police forces, despite massive expenditure, remain incompetent, high-handed and brutal). What India has needed ever since 1991 is the Rule of Law, total transparency of public information, and the fiercest enforcement of rigorous accounting and audit standards in every government entity and public institution. It is only when budgets and financial positions become sound that ambitious goals can be achieved.

The Dream Team have instead made a fetish of physical construction of “infrastructure”, in some grandiose make-believe dreamworld which says the people of India wish the country to be a superpower. The Dream Team have failed to properly redefine for India’s masses the appropriate fiscal and monetary relationship between State and citizen – i.e. to demarcate public from private domains, and so enhance citizens’ sense of individual responsibility for their own futures, as well as explain and define what government and public institutions can and cannot do to help people’s lives. Grotesque corruption and inefficiency have thus continued to corrode practically all organs, institutions and undertakings of government. Corruption is the transmutation of publicly owned things into private property, while its mirror image, pollution, is the disposal of private wastes into the public domain. Both become vastly more prevalent where property rights between private and public domains remain ill demarcated. What belongs to the individual citizen and what to sovereign India –their rights and obligations to one another – remains fuzzy. Hence corruption and pollution run amuck. The irrational obsession with “infrastructure” is based on bad economics, and has led to profoundly wrong political and financial directions. The Rupee cannot be made an honest stable money because India’s fiscal and monetary situation remains not merely out of control but beyond New Delhi’s proper comprehension and grasp. If and when the Dream Team choose to wake up to India’s macroeconomic realities, a great deal of serious work will need to be done.

 

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Philosophy of Economics: On the Scope of Reason in Economic Inquiry (1989)

Apropos *Philosophy of Economics*

“Dr. Roy’s book, Philosophy of Economics, which I have read in galleys, I regard as a masterpiece, not only in economic analysis but in philosophic analysis as well.  Sidney Hook 1989

“I shall have to ponder your rejection of the Humean position which has, I suppose, been central in not only my thought but that of most economists. Candidly, I have never understood what late Wittgenstein was saying, but I have not worked very hard at his work, and perhaps your book will give guidance.” Kenneth J. Arrow, letter to the author, 1989

“I was grateful for the reminder of the passage of Aristotle at which I had not looked for many years and found the criticism of Arrow well justified and important.”  FA Hayek, letter to the author, 1981

“It is an extraordinarily well-written and well-thought through book that shows a wide-ranging capacity and understanding of economics as a discipline in both its macro and micro aspects.” Milton Friedman 1991, Evidence in the US District Court for the District of Hawaii.

“There is no doubt whatsoever that he has a thorough and deep understanding of the major issues that have occupied macroeconomics over the past fifty years…. It is a sign of real understanding that Roy can state these ideas not in terms of jargon, not in terms of equations or technical terms, but in straightforward English using only a minimum of specifically economic terminology. All in all, it is a very knowledgeable and sophisticated performance.”Milton Friedman, 1989

“I had the privilege of reading early drafts of this book. I saw it emerge as an in-depth analysis of the philosophical foundations of economics. It is scholarship of a high order. It is an original contribution of major importance to economic thought.”  Theodore W. Schultz 1989

“The core of Roy’s study is devoted to the nature and grounds of economics as knowledge; it examines the basic intellectual roots of economics. It is cogent and, what is exceedingly rare these days, it is refreshingly lucid…. Roy’s book is in several important respects an original contribution, the most important being his treatment of the philosophical foundations of economics as knowledge. He is all too modest in assessing the importance of his contribution.” Theodore W. Schultz, 1983

“(This) is a very ambitious work directed at the foundations of normative judgements in economics. The author arrives at some conclusions very closely matching those I arrived at some years ago. It is clear, however, that Dr. Roy arrived at his conclusions completely independently. That is all the more piquant to me in that the philosophical underpinning of his work is the development of philosophy in England  from the later Wittgenstein, while mine derives principally from earlier work in the United States by the pragmatists… Dr. Roy reveals a clear understanding of the methodological positivism that invaded economic policy analysis in the thirties and still dominates the literature of economics…. Following Renford Bambrough….he arrives at a position equivalent to that of the American pragmatists, especially Dewey, who insist that the problematic situation provides the starting point for the analysis of a problem even though there are no ultimate starting points. The methodological implication is the support of inquiry as fundamental, avoiding both scepticism and dogmatism. Roy develops his position with a great deal of attention to the ramifications of the problem both in philosophy and in economics. While his treatment of economic questions is ‘from the top down’ so to speak, it reveals a strong command of conventional economic analysis. He writes very well and thinks very clearly. He is certainly not afraid to tackle the big questions. His book reveals a keen mind, ready to pay almost undue respect to his forerunners, but anxious also to achieve originality….”Sidney Stuart Alexander, 1985

“I know that I have to continue to bear the responsibility for things that I wrote nearly fifty years ago.  I am however glad that your attention has been drawn to that passage written much more recently…. building up to what I think is  a coherent point of view very different from that which I took in ’34 and ’39…. concerned with a field not far removed from that you  reach…”   John R Hicks, letter to the author, 1984

“A work altogether well written and admirably clear.”Renford Bambrough, 1985

“I like very much the courage in trying to produce a genuine philosophy of economics. Such a book is badly needed and could be very useful to economists. The fine use made of extensive readings in older as well as contemporary theorists and the splendid choice of quotations would themselves be worth the price of admission. The style maintains a fine level of clarity and emphasis.” Max Black 1985

“The discussion of Arrow’s theorem under unintended interpretations focuses our understanding on what is really fundamental to this famous result…. Roy has obviously thought much harder about the foundational and methodological problems in economics than most of his fellow-economists.” Anonymous

“Roy’s platonist view of what is the purpose of government is very odd at this stage of history. He seems to suppose that there is an objectively best state of affairs which we must simply discover. The more urgent issue in politics is generally not that of knowing what is the best thing to do but of dealing with conflicting interests. Conflict of interests is not merely disagreement over facts.” Anonymous

“The author has performed a very valuable service for economists interested in the philosophical problems and positions discussed. He has not misrepresented the positions he discusses and his account of various issues and different positions on those issues is philosophically adequate. Many economists will be stimulated as a result of reading this work to reconsider their own positions on the issues Roy addresses.” Anonymous

“The work has many strengths. It is wide in its references and its outlook. Its endorsement of objectivism is both right and timely. The chapter on mathematics in economics is particularly fine.” Anonymous

KGZ
“The author intends to discuss some of the central philosophical questions facing modern economic theory. In the foreground is a disposition of the conventional problem of value-independence. Roy sees the value-independence postulate as “Hume’s Scepticism”. He defines Hume’s First and Second Laws on the basis of two signified propositions taken from R. M. Hare. (1) From positive empirical premises, no normative postulate can be derived; in order to establish obligatory propositions, at least one normative proposition is needed. (2) In a specified economic context, after all empirical and formal/logical matters are resolved, little scope exists for further intersubjectively valid answers. Valuations beyond this limit are based on the subjective feelings of the economist to the concerned problem. The scientific/theoretical attitude representative of most economists of the 20th century has been based on this characteristic Humean scepticism. To show this, the author reviews short representative quotations from some of the known names of recent economic theory: Friedman, Myrdal, Lionel Robbins, P. A. Samuelson, Hicks, Joan Robinson, Hayek, Oskar Lange, Schumpeter, Arrow, Blaug, Frank Hahn. Subsequently, the author raises the point as to what explains this scientific-theoretical approval. A cursory survey of important real and virtual historical developments since antiquity confirms that the essential reason for the reported wide acceptance of a humean position by the economic scientist indeed could have been as a defensive posture against dogmatism and political dictatorship (“It is part of the democratic reaction against medieval authoritarianism” p.45). Conditioned by their “disgust with the tyrannies and ideologies of the twentieth century”, these authorities tried to protect economic science and guarantee the objectivity of research by resort to moral scepticism. Hence the author arrives at the starting position of his actual subject: After using Hume to escape from dependence on Plato e tutti quanti, has not value-free economics gotten into a fresh dependence, namely, moral scepticism and its philosophical consequence, moral indifference? Here too a contradiction is shown to arise, namely, that each argumentation against the normative can stand its ground only through normative premises. Thus ultimately something like correct standards become necessary. This however is only a marginal problem compared to a very much more important point: whether the moral scepticism permeating the strict scientific-theoretical position, is not just part of a very much more comprehensive scepticism, which includes Hume’s own criticism of induction as well. But then the same scepticism makes positive theory dubious as well: “Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together”(p.47). The author illustrates the difficulties with radical scepticism in a continental traversal of economic theory: micro and macroeconomics, mathematical economic theory and welfare theory are stations on this tour. A solution of the problem in the strict sense is not given nor could have been expected. But Roy delivers a methodical rule which permits a more exact definition of the limits to which normative discussion can take place precisely and objectively: first, to distinguish always whether an objective answer is at all possible to certain questions, and secondly, to ask who is competent or in the best position to give an answer. For readers interested in a new, thoroughly subtle discussion of a basic yet customary problem, this book will be profitable reading. However, the author could have argued some matters slightly more elaborately and others less redundantly, and set forth the central idea more clearly through appropriate summaries.” Karl Georg Zinn, in Jahrbücher für Nationalökonomie und Statistik / Zeitschrift für Wirtschaft und Statistik. Vol. 209, Nr. 5/6 (May 1992), p 573-574, translated from the German by Nahar Bhattacharya. 

“Effectively demonstrates the direct and significant links between the basic philosophical beliefs held by economists and their fundamental disagreements” Kyklos (Switzerland).

“Every rule of good argument is flouted. Does little to grapple with the large issues to which he rightly urges us to attend.” Times Literary Supplement (UK).

“Not the book to set off the revolution in economic epistemology and it is not even a reliable introduction to the field for undergraduates.” Journal of Applied Philosophy (UK).

“Subroto Roy’s Philosophy of Economics is a formidable contribution…. The author’s aim is to steer a middle course between scepticism and dogmatism in his account of the knowledge we can have of economic phenomena, and in this he largely succeeds. The result is a most distinguished and valuable exploration of the nature of economic inquiry.” John Gray, Economic Affairs (UK).

“Interesting and well-written. Definitely worthwhile being read by any economist interested in the philosophical foundations of his subject and profession.”
Journal of Institutional & Theoretical Economics (Germany).

“Roy’s basic argument is that the theory of economic knowledge underlying the work of most economists is logically inconsistent… The inconsistency lies in not permitting the skepticism that undermines the analysis of normative problems to destroy the logical foundation underlying positive analysis….. This well-documented study is a worthwhile contribution to the burgeoning literature on the philosophy of economics.” Choice

“The central argument of the book shows that the skepticism/dogmatism choice is a false dichotomy, that one need not embrace dogmatism in order to have objectivity or give up objectivity for freedom…. In the final section of the book Roy applies his critique… to several debates in economics. Chapter 8 presents the development of macroeconomics from John Maynard Keynes to the present through a dialogue between economists of opposing schools… Chapter 9 is a rich, wide-ranging discussion of mathematical models in economics…. Chapter 10 discusses the foundations of welfare economics… Roy shows how philosophical mistakes can lead economic thought astray, even though some of his arguments are also unsound. As a philosopher I find it encouraging to see an economist apply recent developments in epistemology to economic debates.” Journal of Economic History

“Accomplished, interesting and ambitious.” Mary Farmer, Manchester School (UK) 

“Perfectly sensible.” De Economist (Netherlands).

“Engaging and illuminating study. His seamless style may lull the reader into underestimating the extent and difficulty of the philosophical ground covered.” Research in History & Methodology of Economics (USA).

“(Roy’s) message is for his fellow economists, urging them not to shy away from the treatment of normative issues in their discipline.” – Economics and Philosophy

“When Roy refers to the present received theory of economics, he means that this is the view not only of Chicago, but also of Cambridge, Massachusetts, and Cambridge, England, of Friedman, Samuelson, Myrdal, Hayek, and Joan Robinson. His coverage is broad…. In one place he states that it is precisely because it is possible for even a unanimous group of experts to be wrong that we have a reason, an objective reason, why freedom is to be valued. ‘Freedom is necessary for objectivity.’…. Whether one agrees or disagrees, one has to be impressed by the knowledge and sophistication involved in Roy’s presentation. Involved here is no run-of-the-mill carping at the economics establishment. This is a serious thoughtful work.” Social Science Quarterly

https://independentindian.com/thoughts-words-deeds-my-work-1973-2010/philosophy-of-economics-on-the-scope-of-reason-in-economic-inquiry-1989/

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First published by Routledge of London & New York , 1989, in the International Library of Philosophy

Library of Congress HB72.R69 1989

British Library 330’.01-dc19
Economics – philosophical perspectives
ISBN 0-415-03592-9

Reprinted in paperback, 1991
Library of Congress HB72.R69.1991
British Library 330’.01-dc20
ISBN0-415-06028-1

Postscript Twitter 8 July 2016

 pabeypabe

Philosophy of Economics

On the Scope of Reason in Economic Inquiry

Subroto Roy
© 1989, 1991, 2007 Subroto Roy

First published by Routledge of London & New York , 1989, in the International Library of Philosophy,

Library of Congress HB72.R69 1989

British Library 330’.01-dc19
Economics – philosophical perspectives
ISBN 0-415-03592-9

Reprinted in paperback, 1991
Library of Congress HB72.R69.1991
British Library 330’.01-dc20
ISBN0-415-06028-1

Preface to 2007 WordPress.com Republication

This book germinated when I was 18 or 19 years of age in Paris, Helsinki and London, and it was first published when I was 34 in Honolulu. I came to economics from natural science (biology, chemistry, physics), not mathematics. It was inevitable I would be drawn to the beauty of philosophy as a theoretical discipline while being driven, as a post-Independence Indian, to economics as the practical discipline that might unlock secrets to India’s prosperity and progress. I belonged to an ancient family of political men, and my father, who had joined India’s new foreign service the year before I was born, inculcated in me as a boy an idea that I had “a mission” (though he later forgot he had done so).

I was fortunate to fail to enter Oxford’s PPE and instead go to the London School of Economics. LSE was at an intellectual peak in the early 1970s. DHN Johnson in international law, ACL Day in international monetary economics, Brian Griffiths vs Marcus Miller in monetary economics with everyone still in awe of Harry Johnson’s graduate lectures in macroeconomics, Ken Wallis, Graham Mizon, JJ Thomas, David Hendry in econometrics with the odd lecture by Durbin himself – I was exposed to a fully grown up intellectual seriousness from the day I arrived as an 18 year old. Michio Morishima as my professorial tutor told me frankly that, as an Indian, I would face less prejudice in Western academia than in the private sector, and said he was speaking from experience as a fellow-Asian. He turned out to be wrong but it was wise advice nevertheless, just as wise as his requiring pupils to read Hicks’ Value and Capital (which, in our undergraduate mythology, he himself had read inside a Japanese gunboat during war).

What was relatively weak at LSE was general economic theory. We were good at deriving the Best Linear Unbiased Estimator but left unsatisfied with our grasp of the theory of value that constituted the roots of our discipline. I managed a First and was admitted to Cambridge as a Research Student in 1976, where fortune had Frank Hahn choose me as a student. That at the outset was protection from the communist cabal that ran “development economics” with whom almost all the Indians ended up. I was wholly impecunious in my first year as a Research Student, and had to, for example, proof-read Arrow and Hahn’s General Competitive Analysis for its second edition to receive 50 pounds sterling from Hahn which kept me going for a short time. My exposure to Hahn’s subtle, refined and depthless thought as an economist of the first rank led to fascination and wonderment, and I read and re-read his “On the notion of equilibrium in economics”, “On the foundations of monetary theory”, “Keynesian economics and general equilibrium theory” and other clear-headed attempts to integrate the theory of value with the theory of money — a project Wicksell and Marshall had (perhaps wisely) not attempted and Keynes, Hicks and Patinkin had failed at.

Hahn insisted a central question was to ask how money, which is intrinsically worthless, can have any value, why anyone should want to hold it. The practical relevance of this question is manifest. India today in 2007 has an inconvertible currency, vast and growing public debt financed by money-creation, and more than two dozen fiscally irresponsible State governments without money-creating powers. While pondering, over the last decade, whether India’s governance could be made more responsible if States were given money-creating powers, I have constantly had Hahn’s seemingly abstruse question from decades ago in mind, as to why anyone will want to hold State currencies in India, as to whether the equilibrium price of those monies would be positive. (Lerner in fact gave an answer in 1945 when he suggested that any money would have value if its issuer agreed to collect liabilities in it — as a State collects taxes – and that may be the simplest road that bridges the real/monetary divide.)

Though we were never personal friends and I did not ingratiate myself with Hahn as did many others, my respect for him only grew when I saw how he had protected my inchoate classical liberal arguments for India from the most vicious attacks that they were open to from the communists. My doctoral thesis, initially titled “A monetary theory for India”, had to be altered due to paucity of monetary data at the time, as well as the fact India’s problems of political economy and allocation of real resources were more pressing, and so the thesis became “On liberty and economic growth: preface to a philosophy for India”. When no internal examiner could be found, the University of Cambridge, at Hahn’s insistence, showed its greatness by appointing two externals: C. J. Bliss at Oxford and T. W. Hutchison at Birmingham, former students of Hahn and Joan Robinson respectively. My thesis received the most rigorous and fairest imaginable evaluation from them.

I had been attracted to Cambridge partly by its old reputation for philosophy, especially that of Wittgenstein. But I met no worthwhile philosophers there until a few months before I was to leave for the United States in 1980, when I chanced upon the work of Renford Bambrough. Hahn had challenged me with the question, “how are you so sure your value judgements promoting liberty blah-blah are better than those of Chenery and the development economists?” It was a question that led inevitably to ethics and its epistemology — when I chanced upon Bambrough’s work, and that of his philosophical master, John Wisdom, the immense expanse of metaphysics (or ontology) opened up as well. “Then felt I like some watcher of the skies, When a new planet swims into his ken; Or like stout Cortez when with eagle eyes, He star’d at the Pacific…”

It has taken me more than a quarter century to traverse some of that expanse; when I returned to Britain in 2004 as the Wincott Visiting Professor of Economics at the University of Buckingham, I was very kindly allowed to deliver a public lecture, “Science, Religion, Art and the Necessity of Freedom”, wherein I repaid a few of my debts to the forgotten work of Bambrough and Wisdom — whom I extravagantly compared with the Bodhisattvas of Mahayana Buddhism, also saying that the trio of Wittgenstein, Wisdom and Bambrough were reminiscent of what Socrates, Plato and Aristotle might have been like.

I had written to Bambrough from within Cambridge expressing my delight at finding his works and saying these were immensely important to economics; he had invited me to his weekly discussion groups at St John’s College but I could not attend. Between 1979 and 1989 we corresponded while I worked in America on my application of his and Wisdom’s work to problems in economics. We met only once when I returned to Cambridge from Blacksburg for my doctoral viva voce examination in January 1982. Six years later in 1988 he said of my Philosophy of Economics, “The work is altogether well-written and admirably clear”, and on another occasion he said he was “extremely pleased” at the interest I had taken in his work. The original preface of Philosophy of Economics said he was not responsible for the use I had made of his writings, which I reiterated in the 2004 lecture. At our meeting, he offered to introduce me to Wisdom who had returned to Cambridge from Oregon but I was too scared and declined, something I have always regretted since. It is only in the last few years that I have begun to grasp the immensity of Wisdom’s achievement in comprehending, explaining and extending the work of both Wittgenstein and Freud. His famous “Virginia Lectures” of 1957 were finally published by his admirers with his consent as Proof and Explanation just before his death in 1993. As for Bambrough, I believe he may have been or become the single greatest philosopher since Aristotle; he told me in correspondence there was an unfinished manuscript Principia Metaphysica (the prospectus of which appeared in Philosophy 1964), which unfortunately his family and successors knew nothing about; the fact he died almost in obscurity and was soon forgotten by his University speaks more about the contemporary state of academic philosophy than about him. (Similarly, the fact Hahn, Morishima and like others did not receive the so-called Economics “Nobel” says more about the award than it does about them.)

All I needed in 1980 was time and freedom to develop the contents of this book, and that I found in America — which I could not have done in either Britain or India. It would take eight or nine very strenuous years before the book could be written and published, mostly spent at Virginia Polytechnic Institute (1980-1985) and the University of Hawaii (1986-1990) Economics Departments, with short interludes at Cornell (Fall 1983) and Brigham Young (1985-86). I went to Virginia because James M. Buchanan was there, and he, along with FA Hayek, were whom Hahn decided to write on my behalf. Hayek said he was too old to accept me but wrote me kind and generous letters praising and hence encouraging my inchoate liberal thoughts and arguments. Buchanan was welcoming and I learnt much from him and his colleagues about the realities of public finance and democratic politics, which I quickly applied in my work on India, published in 1984 in London as Pricing, Planning & Politics: A Study of Economic Distortions in India and republished elsewhere here. The visit to the Cornell Economics Department was really so I could talk to Max Black the philosopher, who represented a different line of Wittgenstein’s students, and Max and I became friends until his death in 1988.

Buchanan’s departure from Blacksburg led to a gang of inert “game theorists” to arrive, and I was immediately under attack – one senior man telling me I was free to criticise the “social choice” work of Amartya Sen (since he was Indian too) but I was definitely unfree to do the same of Sen’s mentor, Kenneth Arrow, who was Jewish! (Arrow was infinitely more gracious when he himself responded to my criticism.) On top of that arose a matter of a woman, fresh off the aeroplane from India, being assaulted by a senior professor, and when I stood for her against her assailant, my time in Blacksburg was definitely up.

The manuscript of this book was at the time under contract with University of Chicago Press, and, thanks to Mrs Harry Johnson there, I had come in contact with that great American, Theodore W. Schultz. Schultz, at age 81, told me better to my face what the book was about than I had realised myself, namely, it was about economics as knowledge — its subject-matter was the epistemology of economics. Schultz wrote letters all over America on my behalf (as did Milton Friedman at Stanford and Sidney Alexander of MIT, whom I had also met and become friends with), and I was able to first spend a happy year among the Mormons at Brigham Young, and then end up at the University of Hawaii where I was given responsibility for the main graduate course in macroeconomics. I taught Harry Johnson-level IS-LM theory and Friedman-Tobin macroeconomics and then the new “rational expectations” vs Keynesian material.

I was also offered a large University grant to work on “South Asia”, which led to the books Foundations of India’s Political Economy: Towards an Agenda for the 1990s, and Foundations of Pakistan’s Political Economy: Towards an Agenda for the 1990s, both created by myself and WE James, and which led to the origins of India’s 1991 economic reform and the India-Pakistan peace process as told elsewhere. Also, this book came to be accepted for publication by Routledge, as the first economics book in its famed International Library of Philosophy.

Just as I was set to be evaluated for promotion and tenure at the University of Hawaii, I became the victim of a most vicious racist defamation (and there was some connection with Blacksburg). Quite fed up with the sordidness of American academia as I had experienced it, I sued in the federal court, which consumed much of the next half dozen years as the case worked its way through the United States Supreme Court twice. Milton Friedman and Theodore W. Schultz stood as expert witnesses on my behalf but you would not have known it from the judge’s ruling. There had been not only demonstrable perjury and suborning of perjury by the State of Hawaii’s officers, there was also “after-discovered” evidence of bribery of court-officers in the US District Court for the District of Hawaii, and I had to return to India in 1996 quite exhausted to recuperate from the experience. “Solicitation of counsel, clerks or judges” is “embracery curialis”, recognized as extrinsic fraud and subversion of justice since Jepps 72 E R 924 (1611), “firmly established in English practice long before the foundation” of the USA, Hazel Atlas, 322 US 238 (1943). “Embracery is an offense striking at the very foundation of civil society” says Corpus Juris 20, 496. A court of equity has inherent power to investigate if a judgement has been obtained by fraud, and that is a power to unearth it effectively, since no fraud is more odious than one to subvert justice. Cases include when “by reason of something done by the successful party… there was in fact no adversary trial or decision of the issue in the case. Where the unsuccessful party has been prevented from exhibiting fully his case, by fraud or deception practised on him by his opponent, as…where an attorney fraudulently or without authority assumes to represent a party and connives at his defeat; or where the attorney regularly employed corruptly sells out his client’s interest to the other side ~ these, and similar cases which show that there has never been a real contest in the trial or hearing of the case, are reasons for which a new suit may be sustained to set aside and annul the former judgment or decree, and open the case for a new and a fair hearing….” (Hazel Atlas). There is no time-limit in United States federal law for rectification of fraud on the court of this sort, and I remain fully hopeful today of the working of American justice in the case.

The practical result was that this book was never able to be properly publicized among economists as it would have been had I become Professor of Economics at the University of Hawaii by 1992 as expected. The hardback sold out quickly on its own steam and went into paperback by 1991, and a friend told me it was being used for a course at Yale Law School. The reviews were mostly intelligent. Upon returning to Britain as the Wincott Visiting Professor in 2004, I found times had changed and so had Routledge who would not keep it in print let alone permit a second revised edition. But I am now free to republish the book as I please, and today in 2007, with the Internet growing to a maturity which allows the young geeks at WordPress.com to want to encourage blogging worldwide, I can think of no more apt place to reproduce the first edition of this book than here at my own blog http://www.independentindian.com.

This is not a second or revised edition, and it is unchanged in content except for this lengthy new preface made necessary by the adventures and dramas the book’s author found himself unwittingly part of since its first publication. I am 52 now and happy to say I endorse the book just as I had published it at 34, though I do find it a little impatient and too terse in a few places. The 1991 paperback corrected a few slight errors in the 1989 hardback, and has been used. I am planning an entirely new book which shall have its roots in this one though it will be mostly in philosophy and not economics — the outlines it may take may be seen in the 2004 public lecture I gave on the work of Bambrough and Wisdom mentioned above and published elsewhere; its main aim will be to uncover for new generations the immense worth there is in their work which is in danger of being lost.

At least two names failed to appear in the original list of acknowledgements. G. Bruce Chapman, now of the University of Toronto, and I talked much of serious ethics and political philosophy when I first arrived at Cambridge in 1976. And in 1980 in Blacksburg, Anil Lal, then a graduate student and house-painter, borrowed my copy of Bambrough’s work, read it, and later made a comment on the metaphysics of John Wisdom which allowed me to see things more clearly.

Ballygunge, Kolkata,
April 7 2007

TO: R.A.R.

Contents

Preface

1. Introduction

Part I

2. Hume and the Economists

3. Understanding the Consensus

4. Difficulties with Moral Scepticism

Part II

5. Objectivity and Freedom

6. Expertise and Democracy

Part III

7. An Example from Microeconomics

8. A Dialogue in Macroeconomics

9. Mathematical Economics and Reality

10. Remarks on the Foundations of Welfare Economics

Envoi

Notes and References

Select Bibliography

Preface to First Edition
The publication of this work marks the end of an adventure of more than a decade and a half, most of the writing being done between 17 December 1980 and 22 May 1987. It has been quite perilous at times, especially as a foreigner in the West, and over the years many teachers, colleagues, friends and members of family have contributed to the author’s learning with their thoughts and actions. A number of senior scholars in economics and philosophy — especially Professor Frank Hahn, Professor James Buchanan, Professor Sidney Alexander, Professor Milton Friedman, Professor Max Black, Professor Sidney Alexander, Professor Amartya Sen, Professor Peter Bauer, Professor T. W. Hutchison and Dr C. J. Bliss, have lent their support to the work as it developed, even when they may have not known of its final form, or disagreed with its content, or been themselves a subject of its criticism. Most especially, the work has been honoured in the last six years with the unwavering encouragement of Professor T. W. Schultz of the University of Chicago. And Professor Ted Honderich of University College London has shown it the kindest consideration, without which publication would have been much delayed. Finally, a large philosophical debt will be seen to be owed to the work of Mr. Renford Bambrough of St. John’s College, Cambridge; however he should not be considered responsible for the use that has been made here of his writings.
HONOLULU
15 AUGUST 1988.

1. Introduction

1. IN this book, some of the central philosophical questions facing the modern economist will be raised. Most attention will be given to the question of the appropriate relationship between the positive and the normative, as well as to its parent question of the appropriate scope of objective reasoning in the making of evaluative judgements. Closely related is the question of the appropriate role of the economic expert in society, while slightly more distant questions have to do with the significance of interpersonal comparisons of utility, with the philosophical status of the concepts and theorems of mathematical economics, and with how judgements of probability should be understood. It is this family of questions which will be the concern of the present work.

Economics is a science with potentially important practical bearing upon the lives of men and nations. The state of the modern world may have been affected more profoundly and subtly by the use or misuse of economic knowledge than by many another science. Yet anyone familiar with the intellectual history of the field will know it to have seen more conflicts, and often conflicts of a more destructive kind, than may be reasonably expected or tolerated in the development of a scholarly discipline. The reader will be familiar with the many explicit and implicit divisions of opinion that have occurred upon theories and methods and evidence and policies, which have sometimes torn apart individual university departments and even threatened the integrity of the science itself. Indeed the modern economist in a despondent mood might be inclined to say of the state of his discipline as David Hume once said of philosophy: “There is nothing which is not the subject of debate, and in which men of learning are not of contrary opinions. The most trivial question escapes not our controversy, and in the most momentous we are not able to give any certain decision. Disputes are multiplied, as if everything was uncertain, and they are settled with the utmost warmth, as if everything was certain.”
At the same time as there have been deep and persistent divisions on substantive questions of economic theory and method and evidence and policy, there has been a deliberate or inadvertent consensus about the answer to an important question in the theory of knowledge. Modern economists happen to have been practically unanimous in their opinion on the possible scope of objective reasoning in the making of judgements, and thus in their opinion on the appropriate relationship between the positive and the normative. A broad consensus has developed to the effect that while common reasoning can have some scope in evaluative discussion, it is quite possible in practice and in principle for this scope to become exhausted. At such a point of the exhaustion of reason, only sheer and unadulterated subjective differences will be found to remain between people. Put another way, it has been believed possible for judgements ultimately to become immune to rational question and criticism.

Many of the pioneers of twentieth century economic thought, Kenneth J. Arrow, Milton Friedman, F. A. Hayek, Sir John Hicks, Oskar Lange, Gunnar Myrdal, Lionel Robbins, Joan Robinson, Paul Samuelson, Joseph Schumpeter, Jan Tinbergen, to name but a few, who between themselves would represent all of the main schools of contemporary economics, may be found to have shared such a thesis in the theory of knowledge, differing amongst themselves only upon the relatively minor question of the precise amount of room reasoning should be considered to have: some saying a great amount, others saying almost none, but all agreeing that whatever the exact amount it is a finite amount, both actually and potentially. The theory of demand, the theory of macroeconomic policy, the theory of welfare economics, the theory of social choice — each has in whole or in part rested upon an epistemological premise of this kind. If such a consensus can be shown to have existed, the reader may agree it to be something of a remarkable fact, since it would be difficult indeed to find a single substantive proposition of theory or method or evidence or policy to which a similar measure of consensus among modern economists might obtain.
One of the objects of the present work will be to argue that the fact there have been tremendous disharmonies on substantive economic questions, may not be independent of the fact there has been this kind of harmony in the theory of knowledge among many of the pioneers of twentieth century economics as well as the many more who have followed them. If the epistemological point hitherto accepted as true happens in fact to be false, it becomes possible that the scope of objective reasoning on substantive questions has been artificially prevented from being extended as far as it could have and should have been. Evaluative judgements are clearly of indefinite variety: attitudes towards goods or people, expectations of the future, recommendations to buy or sell, advice to a friend or a student or a government, etc. — roughly, all judgements taken by an individual or social agent about a right or optimal course of action in given circumstances. We shall find the consensus has been that it is possible for reasoning to come to a necessary halt in the process of coming to such judgements, whether the maker of the judgement is a public body or a private individual acting in the capacity of consumer or voter. A large amount (and possibly the whole amount) of what may deserve to be within the domain of common and objective reasoning comes to be placed instead under the rule of subjective will and caprice. Not only must we live with the fact that discussions between citizens or economists or politicians or spouses or states do frequently come to end without resolution, because there happens to be a lack of patience or tolerance or perseverance or good humour or whatever, but also that such outcomes may be written into the script from the start. In any normative discussion, we are to be permitted to call a unilateral halt merely by declaring “Well that is a value judgement of mine” or “That is a personal opinion of mine”, with the implication that any further questioning is out of bounds and unacceptable. Given a theory which allows us in this way to declare as we please what to call objective science and what to call subjective opinion, and given that it may be but human nature to be sceptical of the other fellow’s dogma while being oblivious to one’s own, we may have some explanation of how the consensus among economists in the theory of knowledge may have caused and preserved a state of affairs in which rival substantive dogmas can thrive — because the processes of common reasoning and even communication itself may have been allowed too often to come to a virtual standstill. (Or move at a snail’s pace.) “Disputes are multiplied, as if everything was uncertain, and they are settled with the utmost warmth, as if everything was certain.”

The gist of the present work will be that the present consensus in the theory of economic knowledge is logically inconsistent. It is therefore untenable and deserves to be abandoned. Men can aspire to, and in fact do attain and possess, certain and objective knowledge in an indefinite number of contexts. At the same time, there is no proposition of any kind held by anyone which must be thought of as necessarily closed to further question on grounds of reason or evidence. This simple maxim is something that may be found to hold in any field of human inquiry or endeavour one cares to mention — mathematics or medicine, ethics or physics, history or probability, logic or theology — and it will be our purpose in this work to examine its consequences in the context of economics in particular.

§2. Our study is one in what may be called theory of economic knowledge, and it may be worth a moment to consider what may be meant by this.

Bertrand Russell said of pure mathematics that it was a subject “in which we do not know what we are talking about” — meaning that the pure mathematician does not normally intend to refer in his theorems to substantive factual truths about the world. The epistemology or theory of knowledge of a discipline may be thought of similarly as being not concerned with either affirming or denying, corroborating or refuting the substantive propositions that happen to be made within the discipline. The study of the theory of economic knowledge may be thought of as not making any commitment one way or another to the substantive propositions which are to be found within the department of economics itself. Instead it is a more abstract undertaking, which seeks to examine certain kinds of questions from outside the department in the practical hope of dissolving or at least clarifying the character of substantive questions and controversies that may be occurring within. For example, to ask whether a criterion of truth and falsity can be applied to economic propositions, or whether objective knowledge is possible in the field, or how the kinds of propositions made in economics are to be justified, or how they compare and contrast with propositions made in other departments of inquiry — these would be the kinds of question we might see asked in the theory of economic knowledge; from which too the importance can be seen of generally abstaining from making substantive commitments in the process.

Much of the present work, especially Parts I and II, may be understood to be an attempt to provide a theory of economic knowledge of this kind. Thus the reader will not find in it commitments made to any substantive economic propositions. There is no theorem reported of the existence or efficiency of some new kind of economic equilibrium, no new model or evidence offered of the influence of the supply of money on prices, no new theory of how the expectations of economic agents may be formed or fulfilled or disappointed, no new evidence or explanation of why some country may be experiencing rapid growth or high inflation or increasing unemployment. No new result within economic science; one might almost say, nothing substantive! The present work will offer no more than “a machine to think with” on certain philosophical aspects of economics; it intends to leave economics as it is — and yet in so doing to have shown the way out of some of the philosophical difficulties that are encountered in its study. “For the clarity that we are aiming at is indeed complete clarity. But this simply means that the philosophical problems should completely disappear.”

Yet the practical purpose to making an investigation of this kind may be stated quite readily. For suppose, for sake of argument, we granted the truth of our simple maxim and assumed the epistemological concepts ‘knowledge’ and ‘doubt’, and their allied concepts ‘objectivity’ and ‘freedom’, should not be seen as incompatible in the project of inquiry. What consequences would follow from accepting such a viewpoint? Clearly first of all, we would be placed in a happy position of being able to say that no matter how deep or persistent the actual disagreements between economists or between citizens on economic questions happened to be, there is knowledge to be had in the study of economics. Not just high sophistry or rhetoric or political posturing or the opinions and prejudices of different people — but certain and objective knowledge about those actions, events, and phenomena that are part of the economic context. We would be able to say, in other words, there are at least some propositions in economics which are true, and which moreover can be known to be true.

An important ambiguity is possible here in asking whether there is knowledge about a given matter, insofar as such a question can be taken either as asking whether it is possible for there to be any knowledge about the matter, or as asking whether it is known that someone actually possesses such knowledge and how that has been determined. Defining as an expert someone who has the most reasonable and justifiable answer to give to a question, we need to distinguish, in other words, the relatively cool logical question of whether here can be any such thing as expert knowledge from the more heated political question of who is supposed to be such an expert and how we are supposed to know that. For instance, a question like “Is there a proof to Fermat’s last theorem?” can be understood either in the manner of the pure mathematician, as asking whether there can be a proof to the proposition it is impossible xn + yn = zn for positive integers x, y, z, n, and n > 2; or in the manner of the historian of mathematics, as asking whether any human being has come up with such a proof, as Fermat himself claimed to have done but of which no record exists. Among the great thinkers, Plato is the most influential to have crossed these wires in suggesting it possible not only for there to be objective knowledge about mathematics and ethics and statesmanship, but also for a special and closed set of experts to come to be identified to whom such knowledge should be thought of as being exclusively given. Plato’s theory can be and has been interpreted as giving license to elitism and dictatorship, yet the natural protest which the ideas of these would evoke in most of us may lead to an equal and opposite error of denying the very possibility of knowledge because we feared or wished to reject the idea of being ruled by a closed set of self-described experts. Once these wires are uncrossed, we may see it to be quite possible to maintain there can be objective knowledge and expertise in economics, without making any commitments toward specifying who should be considered an expert on some economic issue, or how we are supposed to determine that, or for that matter claiming any such knowledge or expertise for ourselves.

A second consequence of our simple maxim may seem more troubling. For by its second part, we should also have to say that even while there is objective knowledge in economics, there is nevertheless no proposition in the field which must be thought of as being necessarily closed to further question. Not the proposition that every human act is a rational act, nor the proposition that economic agents continually maximize utility, or are well modelled as doing so, nor the proposition that the market economy cannot be expected to reach full employment and needs to be and can be actively supplemented by macroeconomic policy, nor the proposition that the growth of money is necessary and sufficient for inflation, nor the proposition that free trade will maximize world output given factor immobility, nor the proposition that externalities imply a possible scope for taxes and subsidies, nor the proposition that the histories of nations is a history of class struggle.

By the second part of the maxim, there is no axiom or theorem of economic theory, no finding of economic history, no estimate of the value of an economic coefficient, no prediction of the course of an economic variable, no proposal of economic policy, which must be thought of as being closed to further question. None whatsoever. “No statement is immune to revision” (Quine).

Taken together, then, the net consequence of supposing objectivity and freedom, knowledge and doubt, to be compatible concepts deserving of equal respect, is that we shall be able to chart a course which steers us clear of two perennial and opposing hazards besetting all projects of human inquiry, viz., Scepticism and Dogmatism — the modern origins of which were traced by the American philosopher Charles Sanders Peirce to the cartesian proposal that philosophy “must begin with universal doubt, whereas scholasticism had never questioned fundamentals.” In the pages to follow, we will be denying universal doubt and we shall be free to question fundamentals. In an indefinite number of contexts, there is certain and objective knowledge to be had. Scepticism, understood technically as a logical thesis denying that we can possibly have or know that we have certain knowledge, is therefore a false thesis. At the same time, there is no proposition which is necessarily closed to question. Dogmatism, understood technically as a logical thesis implying there can be or must be some propositions which are absolutely and incorrigibly true, is therefore an equally false thesis. In place of a theory of knowledge restricting the scope of common reasoning to the finite or even the potentially finite, it is possible to have a theory of knowledge extending this scope to the potentially infinite. In particular, while normative proposals in economics or elsewhere may be supposed to be objectively better or worse depending on the soundness of the positive grounds given in their support, there are no unquestionable normative proposals — because there are no unquestionable positive grounds. The simple practical result of making the present investigation is that it will permit a sure and safe course to be found between Scepticism and Dogmatism for any project of economic inquiry.

§3. Would such a simple and straightforward thesis be new to economics in any way? To what extent would the argument which has been summarized above and which will be developed in the chapters to follow not been expressed before? The reader may wish an answer to such a question, and the author presently takes this to be as follows. With respect to the general debate which has occurred about knowledge and scepticism especially in moral philosophy, there will be little if anything in the present work which is a direct or novel contribution to it. While the philosophers have not been concerned with political economy at all, we shall be passive participants to their discussions, listening in to see what can be learned for our purposes and not intending to add to them directly. It may be remembered of course that it has not been long since economics formally broke away from philosophy to become a specialized discipline in its own right, in the belief the concerns of economics are of a more concrete and practical kind than those of philosophy. Since then we have made many highly abstract and theoretical claims, while also becoming scornful of philosophical thinking and believing ourselves to be exempt from its influences. Yet serious philosophical thought constitutes a mature and magnificent conversation which it would be foolish for any serious science to be deaf to. Moreover, it has been quite widely believed that there have been significant advances in philosophical understanding in the present century, and we are responsible to take such a claim seriously. It will be one of the aims of the present work to apply what may be learned from these discussions towards resolving, or at least clarifying, some of the main substantive disputations in modern economic science.

These are two broad traditions of moral philosophy relevant to our subject-matter, one deriving from Aristotle, the other from Hume (and a line of sceptics before him). Even though it would be unwise to expect agreement within either tradition, we may for convenience speak of an aristotelian and a humean tradition respectively. With respect to the discussions among economists on the relationship of the positive to the normative, we shall find an eminent consensus to have appeared on the humean side. This work will declare for the other side, and in so doing shall have to dissent from the humean consensus upon which all of the theory of social choice and much of the theory of welfare economics and theory of economic policy have appeared to rest. As far as is known by the author, there seem to have been but two published dissents on similar lines among economists in recent decades: those of Sidney Alexander and Amartya Sen. Of these, Professor Sen’s dissent has been very short and hesitant, and he would seem to have withdrawn it in other writings. Professor Alexander’s dissent has been clear and vigourous, but unlike his work on the balance of payments, his philosophical work has not received attention, and the present work was mostly developed in complete ignorance of its existence.

By the end of this work however, a clear choice should have been set out for the reader on the question of the relationship of the positive to the normative — between the consequences of accepting the humean consensus among economists and the consequences of the position of Professor Alexander and the author and possibly Professor Sen. The simple maxim “Objective knowledge is possible and yet there is no proposition which is closed to question” should not undermine its own content by being closed to question itself — instead it is supposed to refer and apply to itself as well. It may be true and deserving of our belief but it is not self evidently so, and will have to earn its credentials at the common bar of reason. Ultimately it will have to be the reader’s individual judgement whether it has been successfully shown that, contrary to what has been supposed by many of the pioneers of twentieth century economics, no conflict must arise between knowledge and doubt, objectivity and freedom. The history of the discussion may accord to our side the advantage J. S. Mill had seen to be enjoyed by all minority opinions: if the opinion of one or a few is false then not much will be lost by believing in it, while if it proves better able to stand the tests of time then much may be gained by allowing it to replace error. Put differently, it may seem quite risky that the pioneers of modern economic science have placed all their philosophical eggs in the humean basket — just in case it is Hume himself who happens to be mistaken.

§4. In Part I of the work will be found described the received theory of economic knowledge and its possible justification, as well as an account of the logical difficulties that arise with it. Chapter 2 has the task of documenting as fully as possible the existence of a humean consensus among economists in recent decades. Chapter 3 then examines the kinds of reasons that may incline us to be persuaded to such a view, and which may go to explaining how it has seemed to be an attractive theory to so many economists. These reasons appear to have been of two different but related sorts.

First the concept of value as used in ordinary life and ethics may have become confounded with the concept of economic value or scarcity or rareté in Walras’s term. Where economists have referred to a theory of value, they may have meant to refer more accurately to a theory of relative prices as determined by conditions of scarcity. The advance of the original neoclassicals in the late nineteenth century was to establish the importance of subjective estimations of economic agents to the determination of the relative prices of goods — as opposed to say how much labour went into different production processes as the classical economists might have said, or how much intrinsic value God had placed in the goods as the scholastics might have said. While it is clear by now that such an observation is broadly correct, it would be a mistake to go from a premise that market prices are determined in part by subjective estimations to a conclusion that the relative prices thus determined in any sense establish an order of how goods deserve to be valued or not. Goods are indeed valued the way they are because people happen to value them. Yet equally, in most cases, people seem to value goods in the way they do because the goods deserve to be thus valued — for example, because, like food or clothing or shelter, the goods are conducive to some valuable human purpose.
Secondly, it is possible the consensus has been motivated by a desire to find an effective shield against dogmatism and tyranny. For example, the context of an open parliamentary democracy presupposed by the modern theory of economic policy may have derived out of the experience of the great tyrannies of twentieth century history. There may have been a natural and understandable desire that the choices and decisions of citizens in the capacity of voters or consumers should be treated with the fullest due respect, and a humean scepticism may have been adopted because it has been believed to be something which is necessary and sufficient for this kind of respect to be shown. This would be an outstanding reason for adopting a humean point of view, and one which any critic must be required to account for. Yet it also places in relief the fatal self-contradiction that is present within the humean theory. For example, a theory of economic policy which has to rely upon an assumption of the polity being open and democratic would have to be silent about the conduct of economic policy in societies which were demonstrably not open or democratic, making it a theory very special and contingent in its range of application. Moreover, to give the defence of political or economic or religious freedom as a reason for holding a subjectivist epistemology would be to have left freedom entirely defenceless and toothless from those who would attack it from within precisely the same subjectivist framework. For example, if we conflated a general right to express an opinion freely with an idea that what such an opinion expresses is itself a matter of subjective opinion, then clearly, by the same token, an opinion that opinions should be freely expressed might also be considered merely subjective, and therefore no better or worse than its contrary. Within a subjectivist theory of knowledge, there ultimately can be nothing to choose between freedom and tyranny.

Chapter 4 is a survey of these kinds of logical difficulties with the humean position stated in Chapters 2 and 3. Its main result will be that the anti dogmatic campaign of the humean cannot succeed, and in fact comes to make the Sceptic resemble the Dogmatist more than anything else. It is possible this happens because both Sceptic and Dogmatist are sharing the same deductivist model of justification, to the effect that we cannot know a proposition to be true or right unless we have deduced it as the conclusion of a set of premises of whose truth or rightness we are certain. The Sceptic sees the threat of infinite regress that is implicit in such a model, and then denies we can be certain of anything. The Dogmatist sees the potential regress too, but responds to it by calling a halt at some arbitrary point, denying the need or possibility of going any further. In Part II a fresh picture will be given which attempts to preserve the truths the Sceptic and Dogmatist would each like us to take notice of, while correcting for the distortions both would force upon us by their unequivocal adoption of a deductivist model of justification. Chapter 5 reframes the main philosophical problems of Part I in the terms of the ancient dualism between Nominalism and Realism, and brings to light a possible resolution of this which has been advanced by a number of modern philosophers. Chapter 6 develops the argument further and applies it to the question of the appropriate role of expertise in a democracy. Taken together, Part II contains the main outlines of a fresh theory of economic knowledge with which to replace the flawed and inconsistent theory to which so many economists have thus far subscribed.

Part III of the work consists of a series of diverse illustrations and possible applications of the theory of knowledge developed in Part II. Chapters 7-10 all give examples of how inquiry and criticism can be seen to proceed in economics without sacrifice of either objectivity or freedom. Chapter 7 examines an actual debate on a concrete question of microeconomic policy, which may be compared and contrasted with the more academic examples of later chapters. Chapter 8 examines aspects of the division in macroeconomics and monetary theory since J. M. Keynes’s General Theory of Employment, Interest and Money. Chapter 9 considers a question with wide and general reference to economic theory: how the relationship between mathematical economics and real economic phenomena might be best understood. This has been the subject of long and bitter disputation, and some light is attempted to be shed on it from the vantage point of the philosophy of mathematics. It is possible that certain views in the philosophy of mathematics have been presupposed in modern mathematical economics; once these are exposed and aired, some of the conceptual problems which have been faced in this discussion may come to be dissolved. The theory of probability and expected utility and the theory of general equilibrium will be used as brief illustrations. Finally, in Chapter 10, the possible philosophical sources of the controversy surrounding the question of interpersonal comparisons of utility will be described, and a possible resolution suggested. This will be argued to have bearing on received understanding of the foundations of welfare economics.

§5. It will be found in the present work, then, that we shall be denying universal doubt on the one hand, while yet being free to question fundamentals on the other. Such a project will entail a critical examination of the philosophical premises and assumptions advanced by some of the most distinguished contemporary scholars in our field, and it is to be hoped the spirit in which the present criticism is offered will not be misunderstood. Every generation holds a peculiar advantage over preceding generations in having available to it what has gone before, while not being able to anticipate the criticisms of its own beliefs that will certainly come in the future. This kind of advantage that the present holds over the past may be thought of as being quite arbitrary, and we can expect it to carry with it a responsibility of taking what has gone before into serious account. Since no individual is able to do so on his own, we find every generation as a whole attempting to provide itself with critical discussions, which, when integrated over time, constitute the grand and unending conversation we call the history of human thought. It is with such a model in mind of a continuing and self-critical tradition of scholarship that we shall seek to address the questions raised at the beginning about the foundations of economic knowledge, while not making any pretence whatsoever to finality, and instead leaving the entire treatment as open as it can be made to the examination and criticism of others.

PART I

2. Hume and the Economists
THERE has been a broad and long standing consensus among economists about the character of the relationship between positive and normative propositions, as well as about the related question of the appropriate scope and limits of economic expertise in society. Joining in this consensus have been many of the pioneers of twentieth century economic thought: Kenneth J. Arrow, Milton Friedman, F. A. Hayek, Sir John Hicks, Oskar Lange, Gunnar Myrdal, Lionel Robbins, Joan Robinson, Paul A. Samuelson, Joseph Schumpeter, Jan Tinbergen, to name but a few. Many others are likely to be found in explicit or implicit agreement, while a survey by Professor T. W. Hutchison suggests that some of the most renowned figures of nineteenth century economics should probably be included as well. The main purpose of this chapter will be to provide enough documentary evidence to show that such a consensus has in fact existed. When we think of how many deep and wide differences there have been over the years in the field that was once called political economy and is now called economic science, differences on questions of method and theory and evidence and recommendations of policy, the existence of such a consensus may seem quite a remarkable fact.

Very briefly, what appears to have been accepted is that it is possible to identify a body of progressively changing knowledge called ‘positive economics’, which is the main contribution of economists to human knowledge and understanding in general. It consists of such things as the microeconomic and macroeconomic descriptions of present and past states of an economy, conditional predictions of such states in the future, hypothetical or substantive explanations of what economic causes may have what economic effects, the deduction and analysis of theorems of economic significance, and so on. That is to say, positive economics has been supposed to consist of the domain of propositions in an economic context which have to do in one way or another with questions of what is the case, or with what has been the case in the past or may be expected to be the case in the future. In contrast, evaluative or prescriptive or ‘normative’ propositions, having in one way or another to do with what ought to be done or not done by a government or a private economic agent, have been believed to fall into quite a different category. These have been believed to amount sooner or later to being expressions of subjective personal opinion, either on the part of the individual economist himself or of those whom he may happen to be advising.

Most economists who have considered the matter have allowed that there is usually at least some scope, and sometimes much scope, for common reasoning on logical and empirical grounds to be brought to bear in normative discussion; making it possible that at least some of the disagreements between economists or citizens or politicians on normative questions can come to be objectively resolved. But it has been believed possible also for the processes of common reasoning to become exhausted in discussions of normative questions like those of economic policy or ethics or jurisprudence, in a way they are not supposed to become exhausted in discussions of positive questions like those of economic theory or econometrics or natural science or mathematics. Once such a point of the exhaustion of reason has been reached, any residual conflict which remains is to be considered necessarily irreconcilable and of a sheer normative kind. And such sheer normative opinions, upon which it is not possible to bring to bear any further objective consideration, are to be supposed to express the purely subjective attitudes and feelings of the individual person, opinions which might happen to be shared by others too, but which are certainly closed to further argumentation, whether in public or in the person’s own mind. Put a little differently, the theory of knowledge and policy which we shall see to have been widely accepted by many economists in the twentieth century, has made an assumption that while all questions of analysis and evidence can have objectively true or false answers, only some and not all questions of evaluation and prescription can have objectively right or wrong answers.

§2. Underlying the consensus among economists has been a more general thesis in the theory of knowledge or epistemology. It is a thesis which may be called ‘moral scepticism’, and its most brilliant and influential exponent in the modern period has been David Hume (1711-1776). Among those to have advanced influential and persuasive points of view of a similar kind in twentieth century moral and political philosophy have been C. L. Stevenson, R. M. Hare, A. J. Ayer, and Karl Popper.

In the course of a critique of dogmatic religion and ethics, the young Hume was to attack with a sceptical scalpel what he took to be the illogic of trying to deduce evaluation and prescription from analysis and description: “In every system of morality, which I have hitherto met with… the author proceeds for some time in the ordinary way of reasoning… when of a sudden I am surpriz’d to find, that instead of the usual copulations of propositions, is, and is not, I meet with no proposition that is not connected with an ought or an ought not. This change is imperceptible; but is, however, of the last consequence. For as this ought, or ought not, expresses a new relation or affirmation, ’tis necessary that it shou’d be observ’d and explain’d; and at the same time that a reason should be given, for what seems altogether inconceivable, how this new relation can be a deduction from others, which are entirely different from it.” While the precise context and implications of this passage continue to divide philosophers, it will be adequate for our present purpose to follow the sympathetic and influential modern interpretation given by the Oxford moral philosopher R. M. Hare, and obtain for an economic context what may be called Hume’s First Law: No normative conclusion, for example, about what a private economic agent or a government ought to do or not do, can be validly deduced from a set of solely positive premises, i.e., from premises which only describe what is the case. No normative conclusion can be deduced without at least one normative premise having been made. A dualism of this kind between the ‘is’ and the ‘ought’ has been frequently supposed to separate science from ethics, the objective from the subjective, the rational from the irrational, public knowledge from private opinion.

Hume was to reinforce this opinion a decade later in a more recondite form of words: “[A]fter every circumstance and every relation is known, the understanding has no further room to operate, nor any object on which it could employ itself. The approbation or blame which then ensues cannot be the work of the judgement, but of the heart; and is not a speculative proposition or affirmation, but an active feeling or sentiment.” This passage too continues to divide philosophers, but for our present purpose R. M. Hare’s recent writing is once more helpful in obtaining a modern interpretation. Hare asks whether, in addition to logical questions and factual questions about how the world is, there can be “irreducibly evaluative or prescriptive questions” as well; once we have “done all we can” by way of reasoning and adducing evidence, “will there remain something to be done which is neither logic nor fact finding but pure evaluation or prescription?” Hare answers yes it is possible, and in the same vein we may restate the idea to obtain for an economic context what may be called Hume’s Second Law: After every empirical question and every logical and mathematical question has been answered in an economic problem, there is no further scope for common reasoning to work. If an evaluative statement is made at such a point, then it can express no more than a subjective attitude or feeling of the individual economist towards the subject.

This is a maxim which does grant that a measure of common reasoning and evidence can be brought to bear upon particular normative questions, and so some normative disagreements may come to be objectively resolved. But it also allows for the potential for such reasoning to become exhausted, leaving merely a subjective residue of personal sentiment or feeling which people might or might not happen to share with one another but which would be beyond further question and discussion. In the pages to follow, a position will be referred to as ‘humean’ if it implicitly or explicitly endorses one or both of Hume’s Laws as stated above. The small h is used to suggest that a close examination of Hume’s works may show him to have been not entirely clear in his own meaning, as well as to suggest that the question of what Hume himself may have actually or fully meant is not of as direct importance for the present purpose as the question of what he has been taken to mean by contemporary economists.

The remainder of this chapter is given to documenting at fair length the fact that a number of the pioneers of twentieth century economics have quite unambiguously seemed to endorse a humean point of view in the theory of knowledge. Chapter 3 will be given to placing this fact in an appropriate historical context. This needs to be done not only in order to understand the nature of the consensus as fully as possible, but also to realize how close economists have been to one another on a central question in the theory of knowledge, even while being engaged in any number of deep and well known and seemingly interminable disputes on substantive matters. The reader who may be impatient with a detailed record of this kind, or who is prepared for the present to take its existence for granted, may wish to move on directly to Chapter 3 without losing the main threads of the argument.

§3. Friedman. Following Neville Keynes, Professor Milton Friedman has clearly and emphatically argued the importance of extending the scope of common reasoning in economics: “Positive economics is in principle independent of any particular ethical position or normative judgments…. [it] is, or can be, an ‘objective’ science, in precisely the same sense as any of the physical sciences…. Normative economics and the art of economics, on the other hand, cannot be independent of positive economics…. differences about economic policy among disinterested citizens derive predominantly from different predictions about the economic consequences of taking action — differences that in principle can be eliminated by the progress of positive economics — rather than from fundamental differences in basic values, differences about which men can ultimately only fight.” It is well known that in this and other works, Friedman has argued for the extension of common reasoning and evidence, or positive economics, as the surest means to resolving normative disputations. Yet from the passage quoted, it is clear that Friedman has also accepted something like Hume’s Second Law, to the effect that while common reasoning can have some and indeed much scope, a point of ultimate and sheer normative disagreement can still be reached, distant though it might be, where reasoning must be considered to have become exhausted and “men can ultimately only fight”. In the same essay, Friedman added that it was the practical importance of economics which impeded objectivity and promoted confusion between “scientific analysis and normative judgment”, suggesting an endorsement of Hume’s First Law as well.

Myrdal. Gunnar Myrdal argued for many years that a number of economic concepts purporting to be analytical or descriptive in character in fact had evaluative or prescriptive overtones. Myrdal and his editor and translator, Professor Paul Streeten, argued that a view that there is no place for normative judgments in economic science has been a guise for the advocacy of a specifically liberal political economy, a thesis which might well be endorsed by many marxian and keynesian economists. While postponing an assessment of this claim to a later chapter, we may note that Myrdal also happened to endorse the extension of the scope of positive economics, with as much emphasis as Friedman would do after him: “By subjecting to impartial criticism those arguments in political controversies which concern the facts and the causal relations between them, economic science can make an important contribution to the political sphere. As often as not, conflicting political opinions spring not so much from divergent valuations about the best possible future state of society and the proper policy for securing it, as from subjectively coloured and therefore distorted beliefs regarding actual social conditions.” Myrdal went on to endorse Hume’s First Law in recommending that the economist leave the supply of evaluative premises to the politician. While the economist can provide descriptions, explanations and conditional predictions, “the scientist must not venture beyond this. If he wishes to go further he needs another set of premises, which is not available to science: an evaluation to guide him in his choice of the effects which are politically desirable and the means permissible for achieving them.” Finally, Myrdal reached the humean conclusion that the normative differences between economists are ultimately beyond objective resolution: “[E]conomic reasoning is often obscured by the fact that normative principles are not introduced explicitly, but in the shape of general ‘concepts’. The discussion is thus shifted from the normative to the logical plane. On the former there is either harmony or conflict; conflict can only be stated, not solved by discussion. On the logical plane we should define our concepts clearly and then operate with them in a logically correct manner. What is ‘correct’ and what ‘false’ can be discussed with the methods of logic, whereas conflicting interests can be recognized, never solved scientifically.”

Robbins. In his influential writings over many years, Lionel Robbins made a distinction between ‘economic science’, having to do with such questions as how best to allocate scarce resources between alternative ends, and ‘political economy’ or normative theories of economic policy, prescribing the ends themselves and the weights to be attached to them. In his well known methodological work we read as clear a statement of Hume’s First Law as might be found in economics: “Propositions involving ‘ought’ are on an entirely different plane from propositions involving ‘is’…. Economics is neutral as between ends. Economics cannot pronounce on the validity of ultimate judgements of value…. Economics deals with ascertainable facts; ethics with values and obligations. The two fields of inquiry are not on the same plane of discourse. Between the generalizations of positive and normative studies there is a logical gulf fixed which no ingenuity can disguise and no juxtaposition in space or time can bridge over.” Robbins’s endorsement of the Second Law was equally emphatic. While positive economics extends the scope of common reasoning, it is still possible to find normative differences which are rationally irresoluble: “If we disagree about ends it is a case of thy blood or mine — or live and let live according to the importance of the difference or the relative strength of our opponents. But if we disagree on means, then scientific analysis can often help us to resolve our differences. If we disagree about the morality of the taking of interest (and we understand what we are talking about), then there is no room for argument.”
Samuelson. Professor Paul Samuelson has seemed to feel a tension in the humean position, but also that its logic compelled him to follow closely in Robbins’s path: “It is fashionable for the modern economist to insist that ethical value judgments have no place in scientific analysis. Professor Robbins in particular has insisted upon this point, and today it is customary to make a distinction between the pure analysis of Robbins qua economist and his propaganda, condemnations and policy recommendations qua citizen. In practice, if pushed to extremes, this somewhat schizophrenic rule becomes difficult to adhere to, and it leads to rather tedious cicumlocutions. But in essence Robbins is undoubtedly correct. Wishful thinking is a powerful deterrent of good analysis and description, and ethical conclusions cannot be verified in the same way that scientific hypotheses are inferred or verified.”

Hicks. Like Samuelson, Professor Sir John Hicks has seemed to feel a tension in the humean position, yet he too must be considered as having endorsed at least an important version of it. On the one hand, Hicks has seemed critical of mid-century positivism and emotivism, and claimed the main rationale of the “new welfare economics” to be that it allowed a route of escape from them. “During the nineteenth century, it was generally considered to be the business of an economist, not only to explain the economic world as it is and as it has been, not only to make prognostications (so far as he was able) about the future course of economic events, but also to lay down principles of economic policy, to say what policies are likely to be conducive to social welfare, and what policies are likely to lead to waste and impoverishment.” Since then positivism had declared that explanation and only explanation may be part of scientific economics, and any move to prescribe “must depend upon the scale of social values held by the particular investigator. Such conclusions can possess no validity for anyone who lives outside the circle in which these values find acceptance. Positive economics can be, and ought to be, the same for all men; one’s welfare economics will inevitably be different according as one is a liberal or a socialist, a nationalist or an internationalist, a christian or a pagan.” But such a position is “rather a dreadful thing to have to accept”, one which might “become an excuse for the shirking of live issues, very conducive to the euthanasia of our science.” Fortunately we are not compelled to accept it, since the new welfare economics advanced by Kaldor, Hotelling and Hicks himself was a viable alternative, not open to the objections the positivists had raised to the utilitarianism of Pigou and others.

Yet we may ask, what had the new welfare economics been about? And did it in fact make a break with the positivism which seemed to be troubling Hicks, or had it not been prompted precisely by humean doubts? As is well known, the new welfare economics had to do with questions such as whether the potential gainers from a change in policy could possibly compensate the potential losers from the change by enough so as to get them to go along with it, or conversely for the losers from a change to compensate the gainers from the change by enough so as to get them to go along without it, and so on. As Hicks himself makes clear, it was a discussion very much motivated by the belief that while the Pareto criterion was not a wholly adequate substitute for the utilitarianism of Pigou, any emendation of the paretian theory must leave untouched its basic positivistic premise, viz., that interpersonal comparisons cannot be conceived of as anything but purely subjective judgements, outside the scope of objective reasoning. Hicks claimed it was because the new welfare economics avoided making interpersonal comparisons that it should be considered a positive advance, a scientific advance. And Hicks has emphasized that he, like Robbins, has not wanted any truck with interpersonal comparisons. The old welfare economics of Pigou required one “to admit the possibility of comparing the satisfactions derived from their wealth by different individuals. This is where Professor Robbins parts company; for my part, I go with him.” More recently: “A single individual… shows by his choices that he prefers one thing to another; we may put this, if we like, in the form of saying that he derives (or thinks he derives) greater satisfaction from the one than from the other. But there is no similar way in which we can see that the satisfaction derived by one individual from one good is greater than the satisfaction derived by another individual from another good; these satisfactions are not compared in any actual choice, so that for the comparison between them there is not the same evidence.”
While we shall be returning to these questions in Chapter 10, what we may note here is that since interpersonal comparisons certainly amount to being a particular species of evaluative judgement, Hicks’s scepticism with respect to the possibility of making them objectively must be considered to amount to an endorsement of at least a species of moral scepticism. If so, it would seem to sit uncomfortably with Hicks’s opinion that he had not cared much for the positivist dichotomy between explanatory science and subjective prescriptions, which was said to have prompted the search for the new welfare economics in the first place.

Robinson. Writing on the theory of employment, Joan Robinson was to give a superbly clear account of the humean position at its best, which requires no commentary: “[All economic] controversies should be capable of resolution. The rules of logic and the laws of evidence are the same for everyone, and in the nature of the case there can be nothing to dispute about. Controversies arise for five main reasons. First, they occur when the two parties fail to understand each other. Here patience and toleration should provide a cure. Second, controversies occur in which one (or both) of the parties have made an error of logic. Here the spectators at least should be able to decide on which side reason lies. Third, two parties may be making, unwittingly, different assumptions, and each maintaining something which is correct on the appropriate assumptions…. Here the remedy is to discover the assumptions and to set each argument out in a manner which makes clear that it is not inconsistent with the other. Fourth, there may not be sufficient evidence to settle a question of fact conclusively one way or the other. Here the remedy is for each party to preserve an open mind and to assist in the search for further evidence. Fifth, there may be differences of opinion as to what is a desirable state of affairs. Here no resolution is possible, since judgements of ultimate values cannot be settled by any purely intellectual process…. argument in the nature of the case can make no difference to ultimate judgements based on interest or moral feeling. The ideal is to set out all the arguments fairly on their merits, and agree to differ about ultimate values. On questions of policy, the differences can never be resolved.”

Hayek. Professor F. A. Hayek has stated an unambiguous commitment to Hume’s First Law, as when he wrote recently: “Our starting point must be the logical truism that from premises containing only statements about cause and effect, we can derive no conclusions about what ought to be.” In his earlier discussion of the economics of socialism, Hayek had hinted at the Second Law as well, saying that “problems of ethics, or rather of individual judgements of value… [are]… ones on which different people might agree or disagree, but on which no reasoned arguments would be possible.” If the questions about socialist planning are ethical by this definition then “no scientist, least of all the economist” would have anything to say about them. Positive argument presumes there to be some common values between the participants: “Meaningful discussion about public affairs is clearly possible only with persons with whom we share at least some values. I doubt if we could even fully understand what someone says if we had no values whatever in common with him. This means, however, that in practically any discussion it will be in principle possible to show that some of the policies one person advocates are inconsistent or irreconcilable with some other beliefs he holds.” In particular, the argument over socialist planning should be seen to be one on positive grounds: “[E]veryone desires, of course, that we should handle our common problems as rationally as possible and that, in so doing, we should use as much foresight as we can command. In this sense, everybody who is not a complete fatalist is a planner, every political act is (or ought to be) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and shortsighted planning. An economist, whose whole task is to study how men actually do and how they might plan their affairs is the last person who could object to planning in this general sense.” The dispute between socialists and their critics is “not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals.”

Lange. Oskar Lange, the famous adversary of Hayek and Robbins on the question of socialist planning, was agreed with them that the only task within the scope of scientific economics was the determination of the best means, with economic ends having been decided politically. He gave this infelicitous analogy to the economist’s role: “The situation may be compared with that of two physicians treating a patient. There is no necessity of interpersonal agreement about the objective of the treatment. One physician may want to heal the patient, the other may want to kill him (e.g., the patient may be a Jew in a Nazi concentration camp; one physician may be a fellow prisoner who wants to help him, the other may be a Nazi acting under orders to exterminate Jews). But once the objective is set for the purposes under discussion (either of the two physicians may, of course, refuse to act upon it), their statements as to whether a given treatment is conducive to the end under consideration have interpersonal validity. Any disagreement between them can be settled by appeal to fact and to the rules of scientific procedure.”

Schumpeter. In discussing the wertfrei controversy between Carl Menger and the German historical school, Joseph Schumpeter was to suggest that the epistemological matters involved were neither difficult nor interesting and could be disposed of shortly. The distinction between ‘is’ and ‘ought’ had been correctly and adequately drawn already, so it only needed to be accepted that an ‘ought’ statement “that is to say, a precept or advice, can for our purpose be reduced to a statement about preference or ‘desirability’.” Schumpeter went on to endorse Hume’s First Law, saying that an acceptance of one value judgement always requires the acceptance of others. This “is of little moment when the ‘ultimate’ value judgments to which we are led up as we go on asking why an individual evaluates as he does, are common to all normal men in our cultural environment.” Unlike Lange, Schumpeter gave the physician as a negative analogy: “[T]here is no harm in the physician’s contention that the advice he gives follows from scientific premises, because the — strictly speaking extra-scientific — value judgment involved is common to all normal men in our cultural environment. We all mean pretty much the same thing when we speak of health and find it desirable to enjoy good health. But we do not mean the same thing when we speak of the Common Good, simply because we hopelessly differ in those cultural visions with reference to which the common good has to be defined in any particular case.” I.e., common reasoning can proceed in normative discussion but only so long as we find common values among “all normal men in our cultural environment”, which is to suggest reasoning may be helpless with abnormal men or those who are outside our cultural environment. Further, siding with Menger, Schumpeter suggested that the bitterness of the wertfrei controversy could be explained because it had been not so much a logical dispute as one between those who were practising and those who were protesting a kind of scholarly deceit, viz., the propagation of personal dogmas within an ostensible pursuit of objective knowledge: “Those who profess to be engaged in the task of widening, deepening, and ‘tooling’ humanity’s stock of knowledge and who claim the privilege that civilized societies are in the habit of granting to the votaries of this particular pursuit, fail to fulfil their contract if, in the sheltering garb of the scientist, they devote themselves to what really is a kind of political propaganda.”

Arrow. In opening his famous paper on the theory of social choice, Professor Kenneth J. Arrow was to refer explicitly to the ancient ontological dualism between Nominalism and Realism. To take aggregate rankings of “social states” as independent of individual rankings “is to assume, with traditional social philosophy of the Platonic realist variety, that there exists an objective social good defined independently of individual desires. This social good, it was frequently held, could be best apprehended by the methods of philosophic inquiry. Such a philosophy could be and was used to justify government by elite, secular or religious, although the connection is not a necessary one. To the nominalist temperament of the modern period the assumption of the existence of the social ideal in some Platonic realm of being was meaningless.” Nineteenth century utilitarianism had “sought instead to ground the social good on the good of individuals”, which, when combined with a hedonistic psychology, implied “each individual’s good was identical with his desires” and “the social good was in some sense to be a composite of the desires of individuals.” Such a view “serves as a justification of both political democracy and laissez faire economics, or at least an economic system involving free choice of goods by consumers and of occupations by workers.”
While Arrow found it necessary to remark that a connection between elitist rule and a Realist ontology was “not a necessary one”, he did not also remark upon whether he took a connection between democratic rule and a Nominalist ontology to be logically necessary. If not, then we might of course entertain other cases equally well, such as Nominalism being associated with elitist rule, or Realism with democratic rule, or perhaps more subtle cases which may arise from a denial of the dualism altogether — matters to which we shall return more explicitly in Part II. In any case, it would seem evident Arrow’s sympathy has been with the humean thesis, which he endorses strongly in suggesting, like Schumpeter, that no distinction can be made between a personal preference and a judgement of value: “One might want to reserve the term ‘values’ for a specially elevated or noble set of choices. Perhaps choices in general might be referred to as ‘tastes’. We do not ordinarily think of the preference for additional bread over additional beer as being a value worthy of philosophical inquiry. I believe, though, that the distinction cannot be made logically, and certainly not in dealing with the single isolated individual. If there is any distinction between values and tastes it must lie in the realm of interpersonal relations.” That Arrow believes normative questions to be only personally and subjectively answerable is further suggested by his remarks that “[t]he only rational defense of what may be termed a liberal position… is that it is itself a value judgment”; that his own values are such he is willing “to go very far indeed in the direction of respect for the means by which others choose to derive their satisfactions”; that he personally shares “a strongly affirmed egalitarianism, to be departed from only when it is in the interest of all to do so”; that he is personally “in favor of very wide toleration”; and so on. In Chapters 9 and 10, we shall return to examine certain aspects of the theories of general equilibrium and social choice which Professor Arrow has helped pioneer.

Blaug. In his influential writings in the history and methodology of economics, Professor Mark Blaug has appealed directly to Hume, declaring that the “orthodox Weberian position on wertfrei social science is essentially a matter of logic: as David Hume taught us, ‘you can’t deduce ought from is’.” Blaug grants that scientific practice does continually call for the exercise of judgement, but he wishes to distinguish “methodological” judgements, having to do with such questions as “the levels of statistical significance, selection of data, assessment of their reliability, and adherence to the canons of formal logic”, from “normative” or “appraising” judgements, which “refer to evaluative assertions about states of the world, including the desirability of certain kinds of behavior and the social outcomes that are produced by that behavior; thus all statements of the ‘good society’ are appraising value judgments.” It is judgements of this latter sort which are “incapable of being eliminated in positive science”. In support of such a dualism Blaug claims “there are long established, well tried methods for reconciling different methodological judgments” but none “for reconciling different normative value judgments — other than political elections and shooting it out at the barricades.” Blaug’s acceptance of Hume’s Second Law is as explicit as may be found in contemporary economics. There sometimes can be rational discussion over normative differences “and that is all to the good because there is a firmer tradition for settling disputes about facts than for settling disputes about values. It is only when we distill a pure value judgment… that we have exhausted the possibilities of rational analysis and discussion.” Echoing Robbins, Blaug suggests that at such a terminal point we are left with “factual statements and pure value judgments between which there is indeed an irreconcilable gulf on anyone’s interpretation.” Like Arrow, Blaug also makes reference to an ontological division between Realism (or “essentialism”) and Nominalism, and hints at a necessary link between a Realist ontology and dogmatism and tyranny. From Plato and Aristotle up through the nineteenth century, Western thought had been under the malign and mistaken impression that “it is the aim of science to discover the true nature or essence of things”. Such a view “raises its ugly head” even today, and Blaug charges the authors of a recent marxian thesis as being one such recent manifestation: “Adherents of essentialism are inclined to settle substantive questions by reaching for a dictionary of their own making, and Hollis and Nell exemplify this tendency to perfection: reproduction is the ‘essence’ of economic systems because we tell you so!”

Hahn. Professor Frank Hahn reports that contemporary economists “in keeping with the Positivist perspective” make “a thorough distinction of ‘is’ from ‘ought’ (positive from normative).” While Hahn has been mostly guarded in his own opinion as to the precise relationship between positive and normative, he has suggested recently that while normative questions are subject to reasonable argument, and economic theory is intended to widen this scope of common reasoning, “the intention is to take a small step in distilling what are genuinely questions of values.” Such a remark would seem to place Hahn among the moderate humeans like Joan Robinson and Milton Friedman — which in turn would make it an interesting fact that while Hahn has had long and well known disputes on substantive matters with both Friedman and Robinson, he would appear closely agreed with them on a point in the theory of knowledge, viz., that while there is much room for objective discussion to take place, it is possible for sheer differences of a normative kind to exist and come to be identified.

A few others. To take some final examples, Professor Robert Sugden affirms “Hume’s Law reflects a liberal view of the universe”; Professor William Baumol and Professor Allan Blinder write in their textbook that the economist defines rational decisions as those “that are most effective in helping the decision maker achieve his own objectives, whatever they may be”; Professor James Quirk writes in his textbook that “normative economics is based on a system of axioms, but these axioms concern ethics” and because these and any propositions derived from them are not “verifiable through empirical observation”, a person is “free to accept or reject the conclusions of normative economics as he wishes, simply by accepting or rejecting the axiom system — there are no scientific issues involved.” And Professor Jack Hirschleifer wrote in his textbook that “if one economist prefers Maoism and another capitalism, or if one prefers to exterminate and the other to tolerate an inconvenient minority group, the fundamental sources of contention are almost surely divergences in ethical values… [which] will not be eliminated by advances in scientific economics.”

3. Understanding the Consensus
THE great German philosopher and mathematician Gottlob Frege suggested at one place that we should not “ask for the meaning of a word in isolation, but only in the context of a proposition.” In the same vein, it may be said the meaning of a proposition or a hypothesis should not be asked for except in relation to the particular context in which it has been advanced. And we can maintain this without requiring the description of such a context to be fully explicit or even one which can be easily expressed in words. A proposition needs to be understood in relation to the fullest possible description of its implicit and explicit context — which may be a good sense too in which to understand the reference by Wittgenstein to the concept of a “language game” .

In the previous chapter, we have marshalled considerable evidence for our initial thesis that there has been a broad measure of consensus among many of the pioneers of modern economics about the appropriate relationship of the positive to the normative. Irrespective of their many and well known substantive differences, they have seemed all to share an affinity with a humean thesis of moral scepticism, whether in a radical way like Schumpeter and Professor Arrow when they say there can be no difference in kind between personal preferences and value judgements, or in a more moderate way like Joan Robinson and Professor Friedman and Professor Hahn, when they say there can be a great amount of room for objective argumentation to take place about normative questions before a naked and irreconcilable difference will be found to appear. The first question that needs now to be addressed is how this consensus should be understood, and this will require as full a description as can be attempted in this work of the context in which it has occurred. The second question would be whether or not the consensus is correct and justified — whether or not there are firm and adequate grounds for us to think we should join it, and so take the is ought dualism to be a barrier which it is neither possible nor necessary to surmount. The reader will have known from the Introduction that it is a main purpose of this study to make the argument that such grounds are not in fact available, that a humean position is ultimately untenable and misleading, and deserves to give way to a theory of economic knowledge and policy which treated objectivity and freedom as compatible concepts deserving of equal respect. Nevertheless we are first obliged to identify the strengths and motivations of a humean point of view, if only so that we might explain how it has come to command the kind of assent it has done among many of the most eminent of twentieth century economists as well as the many more who have followed them. When expressed as thoroughly as it has been by some, a humean point of view is certainly a respectable and recondite one to hold in the theory of knowledge; there seems nothing obvious that is wrong with it; to the contrary, it may seem foolhardy to try to refute it or even place its merits under scrutiny. In other words, a well thought-out moral scepticism deserves the respect of its critics, and any difficulties with it may be expected to be of a relatively subtle and not self evident kind.
The purpose of this chapter will be then to give as full a description as possible of the historical and political context — of the “language game” or the civilization — within which it is possible for the humean consensus in modern economics to be understood. The economists quoted in Chapter 2 do not appear to have attempted such descriptions themselves, and may even have assumed a humean point of view on the positive and normative to be self-evidently justified, for little thought seems to have been given as to why we should want to endorse it. Thus it will be fair to caution the reader that while a possible justification and explanation of a humean point of view will be given here, it will be one which has been constructed by a critic. Furthermore, the discussion will refer first to a more distant and then a more proximate context, and the discussion of the former will have to be speculative and greatly simplified — a mere thumbnail sketch of an actual drama of indefinite proportions.

§2. The adoption of moral scepticism in twentieth century economics may be most briefly explained as having been motivated by a genuine desire to shield against dogmatism and tyranny, whether in political, economic, scientific, or religious contexts. As scientist and scholar, the economist has been naturally concerned to extend the scope of common reasoning, as well as to protect the objectivity of the findings of his science from the imposition of personal or political dogma. Equally, it has been felt that the choices of the individual agent who is studied by economists, whether as consumer or voter, deserve to be treated with the fullest respect. A humean scepticism may have been adopted because it has been believed to be necessary and possibly sufficient for this kind of respect to be shown to the results of popular choice, whether in parliament, the market place, or in private life. This is summarized in for instance Sugden’s remark “Hume’s Law reflects a liberal view of the universe”, as well as in Schumpeter’s suggestion that the wertfrei controversy had been merely one between those who practised and those who protested a kind of scholarly deceit, namely, the propagation of personal dogma in the guise of a pursuit of knowledge. In other words, someone might become a moral sceptic because he wishes to defend, and wishes perhaps to be seen as defending, the freedom of the individual person to form and hold his or her own normative beliefs, as well as the objectivity of science from being compromised by the forced imposition of the beliefs of any one or a few people. In particular, the modern humean economist is likely to wish to contrast his theory as sharply as possible with the famous theory given by Plato, both directly with the political philosophy which is to be found in Plato’s writings, as well as indirectly, with the medieval scholasticism which came to be deeply influenced by the rediscovered works of Plato and Aristotle and to which the origins of modern economic and political thought can be traced.

Now the question of whether there is any objective knowledge in a field of inquiry is open to be understood either as asking whether there possibly can be any knowledge in the field, or as asking who should be thought of as possessing such knowledge and how they may have been identified. The first of these senses can be thought of as epistemological and the second as political in character. In Republic, Plato offered answers to both questions with respect to the knowledge of the statesman, and the answers he gave were yes — not only is it logically possible for there to be objective knowledge of use to the statesman, but it is practically possible to identify certain men and women in society as actually possessing or being considered fit to possess such knowledge. It is these special people who are the only true lovers of wisdom in society, and since we surely should want the policies of a state in which we lived to be the wisest and most prudent possible, informed by the best available knowledge, it appears to follow at once that what needs to be done is unite knowledge with authority and make these special people our guardians and rulers.

Plato’s ideal city-state is a place where individual freedom is conspicuous by its absence. Its rulers are to be imagined as being about as perfect rulers as there can be: the single and genuine source of all true wisdom and justice, and deserving therefore to be granted absolute authority on all significant questions of private and political conduct, including the right to suppress dissent, since any dissent would be misguided by definition. This is not to say the philosopher-kings would be entitled to a life of luxury or even ordinary comforts. To the contrary, since those who deserve to be philosopher-kings may well be disinclined to seek power and privilege for themselves in the normal course of politics, they may have to be first discovered and then forcibly drafted to take the office which rightfully should be theirs. In preparation for the serious business of piloting the ship of state, they will be placed in seclusion and rigourously educated in such disciplines as aesthetics and gymnastics and mathematics and music, their lives certainly without any of the signs of corruption that we would frequently associate with the exercise of power. At the end of the tenure of one generation of such rulers, they will be retired and replaced by a new generation, bred and educated through a similar and careful programme of eugenics and training in the arts and sciences of statesmanship. Finding actual examples of such extraordinary beings may be quite impossible; perhaps some appropriate mixture of the Dalai Lama, Gandhi, Attaturk and Mozart’s Sarastro might help our modern imagination.
A number of modern political thinkers have roundly condemned Plato for having written a theory hostile to democratic political institutions, and even for having provided the blueprints for the tyrannies of modern history. Yet while there is no question that Plato was no friend of democracy, or at least of the kind of democracy which had brought about the judicial murder of his friend and teacher Socrates, a fair-minded reader of Republic is unlikely to find in it any justification of tyranny at all. If we were to define tyranny in the way Plato and his contemporaries would have done as the rule of the ignorant and capricious, it would be a state of affairs Plato found abhorrent, the complete antithesis of his own ideal of a full union between knowledge and authority, of rule by the genuinely wise and the genuinely good; even the faulted system of democracy would be preferable to it. Moreover, Plato was to discuss at length the dynamics of how even his ideal city-state would be likely to degenerate into a tyranny; and besides, his single attempt to put theory into practice ended in pathetic failure, when he accepted an invitation to train a fatuous prince, who was incapable of and soon became bored with the rigorous education Plato had in mind for him, and who eventually became the worst of tyrants, much to Plato’s disgust. In fact Kant, the modern lover of freedom, was led to come to the defence of Plato, the ancient authoritarian, precisely because the logical possibility of a utopia is suggested to the reader of Republic — a state of affairs in which everyone is a genuine lover of wisdom, everyone a philosopher-king, and therefore all external government made redundant. Republic is a masterpiece of philosophy and mathematics and literature and political economy as well, and it would be a mistake to suppose its author to have been so inexperienced of human nature and society as to provide it as a textbook for grand or petty tyrannies, whether of his own time or of ours.

What is true however what is true is that the theological culture of medieval Europe would come to be deeply influenced by the rediscovered works of Plato and Aristotle, with which a synthesis of medieval Christianity was sought to be made. And it may also be fair to say that regardless of Plato’s intentions, Republic came to provide something of a model for the tyrannies to be experienced in subsequent European history.
Social and economic life in medieval Europe is marked by a four-fold division of society into the nobility, the clergy, free artisans and tradesmen self governed within a system of guilds and corporations, and the peasantry. The medieval church is seen as an eternal institution representing divine will on earth, deserving to be endowed with final and absolute authority on all significant questions of right conduct, somewhat perhaps in the manner of Plato’s philosopher-kings. Specific duties and rights belong to the members of different occupations, and it is within one’s calling that one is expected to lead one’s life in accordance with the divine law as interpreted by the church and the natural law as discovered by the temporal authorities. In particular, there is a notion that economic activities may be licit or illicit in nature, and since the general moral question of what ought to be done is closely identified with whether there is the sanction of the church for it to be done, whether a particular economic activity is to be approved of or not comes to depend on whether or not it has such a sanction. There is an idea too of economic goods having a ‘true’ or ‘intrinsic’ or ‘natural’ value endowed in them by God — an idea which will become perhaps a precursor of the labour theory of value of classical economics in the eighteenth and nineteenth centuries. Determining this intrinsic value establishes the ‘just’ price of a good or service, i.e., the price at which it ought to be traded, even if the actual market price as determined by the subjective estimates and actions of traders happens to contingently differ from this. There is a related concept of ‘equivalence’ in transactions, with a suggestion that one party to a trade can gain from it only at the expense of the other. Merchants and middlemen thus come to be treated with some disdain, since it does not seem apparent they are adding anything to the intrinsic values of goods, making the just price of their services seem hard to determine. Indeed the unabashed pursuit of wealth by anyone is probably the object of some considerable social and religious disapproval. Similar thinking may underlie the condemnation of usury, since, given a premise of money having no intrinsic worth, what is perceived to be the lending out of money should seem to have a just price of nought.

The common medieval culture and economy was to be transformed drastically though differently across Europe between the fourteenth and eighteenth centuries. The sea routes are discovered, nation states emerge competing with one another in trade and war, the age of modern science begins, a long and rapid succession of scientific discoveries and technological inventions takes place, there is a vast expansion of commerce and population and the settlement of European colonies in other continents. Accompanying these transformations in some places are intellectual rebellions against the medieval church, and almost everywhere in Europe a decline in the influence of formal faith. The assertion of individual will and conscience as the principal guides of human conduct is a challenge directed at church doctrine and dogma; but given that the medieval concept of reasoning is one of reason ultimately bounded by the doctrines and dogmas of faith, the assertion of a subjective individual will may have been assumed to amount to being a challenge to the full possibilities of objective reasoning itself.

In this new mercantilist age, the pursuit of material gain must come to be freed of the sanction of the church, and once more, since right and wrong are closely identified with such sanction and prohibition, a declaration of the independence of economic activity from the sanction of the church amounts virtually to a declaration of its independence from ethics as well. In particular, the medieval notion of ‘equivalence’ in the intrinsic value of goods in a transaction is transformed with the aid of mechanistic analogies at hand into a concept of ‘equilibrium’ in trade, such that each party to a trade is conceived of as gaining from it as an individual and continuing to transact until the prospect of such gain has come to be exhausted. It is understandable perhaps that England and Holland will be in the vanguard of the mercantilist revolution, given their theological distance from Rome as well as their growing commercial interests and naval power. Nor does it seem obviously foolish, at least in the early mercantilist years, for the wealth of a nation to be identified with its ability to export and its holdings of precious metals, when the circumstances of the time make it a first priority of the business of government to have liquid payment available for navies and armies. In France there comes to be the liberal protest of the physiocrats against the iniquities upon the peasantry, a protest which serves to rehabilitate a more secular version of the natural law of the scholastics. But the calls of men like Quesnay and Turgot for reform are too late, and the system of physiocracy is itself swept away with the onset of the French Revolution.

Adam Smith however has admired and learned from the physiocrats, while observing at first hand the dismal effects of a staling British mercantilism. This he rises to condemn in The Wealth of Nations, thereby starting an intellectual revolution of his own, ringing in a new century of free enterprise and imperial expansion, and establishing the concern of the economist with the workings of individual interest and the market economy which continues to this day. Forty years later it is David Ricardo who introduces to political economy the practice of an abstract hypothetical method, by which it is a body of abstract and general principles that the economist’s speculations and ratiocinations are intended to discover, detached from the rush of concrete economic realities. And Ricardo and his immediate followers exemplify the application of the new method to a main subject of Smith’s preoccupation, namely, the workings of individual self interest and the market economy.

In the musty passage-ways of Victorian thought, the new methods of abstraction in political economy must have been felt to be as invigorating as fresh air. Jevons, Walras, Menger and the other original neoclassicals firmly insist upon making the plain and simple observation that in the case of many and perhaps most goods, the prime determinant of relative value is not how much labour went into the different production processes, nor how much intrinsic value God might have placed in the goods, but rather the subjective estimations of economic agents in the market place. The victory seems complete. Out of the medieval notion of the scope of reasoning being limited by the dictates of doctrine and dogma, is eventually born the neoclassicals’ notion of the concept of value as fully and exactly synonymous with the concept of scarcity or market value, or rareté in Walras’s term. Economists are seemingly freed to speak of ‘a theory of value’ when meaning to refer more specifically to a theory of scarcity-determined relative prices, determined by conditions of supply and demand in the marketplace. From an idea that something is or is not a good only and merely because the church happens to say so, the wheel comes full circle to an idea that something is or is not a good only and merely because of the price it happens to command in the marketplace. The moral absolutism of the platonist and the scholastic gives way to the moral scepticism of the humean, and we reach the threshold of the modern period of economics in the later nineteenth and early twentieth centuries.

§3. Briefly then, the development of the kind of sceptical and subjectivist point of view represented by Hume and the humean economists may be seen as the democratic reaction which occurs to medieval and platonist authoritarianism. And in parallel with these democratic developments occurring in the marketplace and economic thought, there occurs between the medieval and the modern period an emancipation of the political mind as well. No more will it be for clergy and aristocracy to dictate divine and temporal laws respectively. Men are born equal — which is to say there are not grounds ex ante why one human being should be supposed to deserve more or less authority or dignity than another merely in virtue of his or her humanity. The political process must reflect this new emancipation, and displace the hierarchies of the past with the equalitarian notion that every man’s vote should count the same, and the most popular choice be established to rule.

The modern institutional context of a parliamentary democracy, bound by formal or informal constitutional principles and precedents, may be roughly sketched somewhat as follows. From among the body of citizens, some will choose to run for elected office. While reasonable restrictions may be placed on who can so choose (e.g., they must be adult nationals) any citizen normally will be free to be a candidate. Before a vote is conducted, a reasonable time will be allowed for candidates to put their respective cases to the public. There will be some constitutional rule, like first-past-the-post or proportional representation, agreed upon more or less unanimously in advance of the vote, which will map how the actual balloting will induce particular outcomes as to the composition of the parliament. The individual voter casts his or her ballot, reflecting some private mixture of interest, prejudice, caprice or good sense about the common welfare. The rule is applied, and the largest coalition of winning candidates come to constitute the new government, with smaller coalitions constituting the loyal opposition. Once elected, a government will be expected prima facie to carry out the agenda it had proposed to the public before the election and not something different. What it actually does will be the subject of constant scrutiny and criticism by the opposition, the press, and the public at large, but the laws finally enacted will have jurisdiction over all. After a certain maximum time, elections must be held again and the process repeated, with an incoming government either maintaining or changing the policies of its predecessor in large or small measure. The system may be considered indirectly democratic insofar as that at any given time citizens shall have given themselves, via their elected representatives, the policies and laws under which they are themselves to live.

While a government would be expected to implement the agenda chosen indirectly in this way by the public, it will be expected also to elicit expert advice upon the best means to be employed towards achieving the chosen ends. Yet the expert must be appropriately humbled, brought down from the high altar where Plato had placed him to being the modest and self-effacing servant of the popular will. The scientist in government is to take as given the ends of his political masters, under a presumption that these reflect the democratic choice and any interference or criticism would be impertinent. More generally, the competence of the expert in a democratic society is not to extend to questioning the uses to which his expertise may be put. Thus Popper was to write: “No amount of physics will tell a scientist that it is the right thing for him to construct a plough, or an aeroplane, or an atomic bomb. Ends must be adopted by him, or given to him; and what he does qua scientist is only to construct means by which these ends can be realised.” Or as Myrdal put it in the passage quoted in the previous chapter, the expert must not go beyond advising on the means, for he would otherwise require premises of a normative kind which have not been given to science, but which are to be presumed available instead to the elected politican. And Robbins wrote of how economists ought not to judge the ends to which economics is put, indeed that ultimately “there is no room for argument” about ends, but rather how the quintessence of economics is the study of the optimal allocation of scarce resources between competing ends. It is only the question of the best or optimal means towards such an allocation that is within the scope of rational inquiry, and therefore within the competence of the economist qua scientist; it is not for the economist to question the ends given to him by the representatives of the public.

Now the widespread view since that there is a unique and quintessential economic problem, and that in particular it is the problem of the allocation of scarce resources between competing ends, is of course one initially advanced in the course of the neoclassical revolution. As Marshall put it: “if a person has a thing which he can put to several uses, he will distribute it among these uses in such a way that it has the same marginal utility in all. For if it had a greater marginal utility in one use than another, he would gain by taking some of it from the second use, and applying it to the first.” The housewife must decide how much yarn should be put to making socks and how much to making vests so “as to contribute as much as possible to family well-being”; she will have allocated the yarn efficiently if the marginal increase in family well-being is the same whether she puts the last ball of yarn to making an extra pair of socks or to making an extra vest. In modern terms, the problem is one of constrained maximization in which a concave objective function is to be maximized subject to a number of linear or non-linear constraints. We might imagine, for example, a hospital administrator who must allocate fixed quantities of various resources at his disposal like medical staff, beds, dressings, and so on, between a number of alternative outputs which have to be produced in different hospital wards, with the aim of maximizing an objective function containing these outputs as concave arguments. The objective function itself, that is, the relative weights which should be given to the various outputs, is not ultimately for the administrator to decide, but rather to be taken by him as a parameter from an appropriate authority. If the necessary conditions for a maximum are met, an optimal allocation would be one in which (a) the ratio of marginal increases in the objective function from marginal increases in the output of any two goods equalled the implicit shadow prices of their technologies; and (b) the marginal increase in the objective function from increased use of a resource in any two production activities would be the same and equalled the shadow price of the particular resource. Thus the marginal hour of a nurse’s skills would be equally well applied whether in assisting mothers in labour or in providing aid in the Emergency Room. Similarly, a humean view of the expertise of economists would be one in which the economist did not question the social objective function but rather takes as his task the statement and solution of the formal problem of the allocation of scarce resources between the defined ends.

With the necessary change of detail, the same has been required in the influential theory of macroeconomic policy advanced by Professor Jan Tinbergen and his principal expounder, Professor Henri Theil. In this theory, normative premises are seen as being given to the expert economist by a representative of the political process, for instance “the Minister of Finance or Economic Affairs, who is interested in the employment level of his country and its balance of payments”. Such a person is assumed to know the set of variables relevant to determining the present state of the economy, which are divided into those whose values can be changed (“instruments”) and those whose values cannot be changed (“targets”), with a change in the value of an instrument being defined as a “policy measure”. The expert economist is called upon to specify as best as possible the structural relations between targets, instruments, and exogenous disturbances, and predict as best as possible the future course of the targets under alternative assumptions about the instruments. As Theil put it, the policy-maker is to receive from his forecasters “conditional expectations about the time-patterns of non-controlled variables, the conditions being alternative measures to be taken by himself in the present and the future.” Alternative futures of the economic model are then to be evaluated one against the other by means of a social utility function decided upon by the policy-maker. Its arguments could be a pair of macroeconomic ills such as inflation and unemployment implying the function should be minimized, or a pair of microeconomic goods like efficiency and equity implying the function should be maximized subject to the relevant constraints, with the relative weights given to the ends presumed to be reflecting the democratic mandate. An optimal vector of targets is determined which yields the least possible social disutility or the highest possible social utility; the values of the instruments which would result in this optimal vector are calculated, and changes from the present values of these instruments to these optimal values define the optimal set of policy measures to be taken.
Such briefly was the kind of theory of economic policy Tinbergen put forward in the early years after the Second World War. It was soon to have much influence among macroeconomists, especially in the United States. Fairly or not to both Keynes and Tinbergen, the models themselves came to be called “Keynesian”, yet their influence has been significant enough that contemporary critics of Keynes and Tinbergen have described their method and purpose in similar terms. For keynesians and their critics, the macroeconomist principally has a positive role, extending the scope of reasoning and discussion on logical and empirical grounds as far as he is able to. He assumes a constitutional democracy, and takes for granted that the normative premises of the policy-maker reflect the popular will.

§4. Drawing together, then, the main threads of this highly simplified and summary discussion, it may be possible to explain the adoption by twentieth century economists of a humean theory of knowledge by the widespread belief that such a theory provides a necessary and even a sufficient defence against dogmatism and tyranny. It is part of the democratic reaction to medieval authoritarianism. The modern civilization which has adopted the moral scepticism of Hume is one born out of the great medieval civilizations which had been influenced by the authoritarianism of Plato. And just as Plato’s theory was affected by his disgust with the doings of the democracy of his time, so it may be the theory of knowledge which has come to be adopted by as eminent and diverse economists as Robbins and Friedman and Samuelson and Hicks and Robinson and Myrdal and Arrow and Hayek and Lange and Tinbergen and Hahn and Schumpeter, and the many others who have followed them, has been conditioned in part by their disgust with the tyrannies and ideologies of twentieth century history, and their desire to protect from these both the objectivity of economic science as well as the individual in his capacity of consumer and voter.

The question arises however, whether, in making their escape from Plato, the pioneers of twentieth century economic thought have not become entranced by Hume.

4. Difficulties with Moral Scepticism

We have now a description of some of the main features of the theory of economic knowledge most widely accepted in the twentieth century, and we have seen also how its plausibility and influence may be explained by placing it in appropriate historical and political context. In this chapter we shall examine some of the main difficulties and paradoxes which happen to arise with this theory. These have been serious in their implications, and the more general problems from which they derive have been well known to many contemporary philosophers, yet they do not appear to have been given adequate notice by modern economists.
Briefly, the difficulties are two-fold.
First, if the justification of adopting a humean theory of knowledge by contemporary economists is to be what we have taken it to be, viz., that such a theory and only such a theory can provide an adequate bulwark for science and the individual against tyranny and dogmatism, then we clearly have the makings of an internal contradiction on our hands — since what is patently a moral purpose would have been advanced within a theory of knowledge whose ostensible aim was to deny the possibility of moral knowledge! In a theory in which all moral propositions are taken ultimately to be statements of mere personal opinion, the defence of the freedom of the individual or of the integrity of science must also be taken ultimately to be matters of mere personal opinion, and the declared or undeclared purpose of protecting freedom by adopting moral scepticism would have been internally defeated by that very scepticism itself.
Secondly, we shall find that sceptical attacks just as powerful as Hume’s attack on the possibility of moral knowledge can be made upon the possibility of knowledge in a number of non-moral contexts as well. Hume himself is responsible for one such attack when he raised his famous doubts about the possibility of induction, and analogous attacks can be made in diverse other contexts such as those of science, history, mathematics, or psychology. The result of recognizing these new possibilities for scepticism is to make evident that an acceptance of moral scepticism on its own may force a choice between either sliding into total scepticism, the position of believing there is ultimately nothing whatsoever that can be objectively known, or forsaking parity of reasoning, and denying that what may be sauce for the goose is also sauce for the gander. Either the possibilities of mathematical knowledge and scientific knowledge and historical knowledge all come to be denied ultimately because we wish in a consistent way to deny the possibility of moral knowledge, or one sort of knowledge is accepted and another sort rejected when there are reasons to think they must stand or fall together. Either all of positive economics is attacked with just as much scepticism as anything in normative economics, or we accept one and reject the other when instead there are reasons to think they share the same ultimate grounds and must be accepted or rejected together.
Such will be the main hazards we shall find on the humean course taken in the theory of knowledge by the economists quoted in Chapter 2. Their precise locations however are subtle and quite well hidden, so if we are to avoid them we must move here as carefully and precisely as possible.

§2. Let us recall at the outset Hume’s First Law as saying to the effect that a normative conclusion cannot be validly deduced from solely positive premises; that a normative conclusion cannot be deduced without at least one normative premise being made. Faced with a normative proposition then, a moral sceptic will ask to see the set of prior positive and normative premises from which it is to derive. To take a simple example, if you were to say “I think the government should reduce the rate of growth of the money supplym from 6% to 3%”, a moral sceptic may ask “Could you say why you think so, since your proposition is plainly normative and cannot have derived from a set of solely positive premises?” (We can suppose this not to be meant rhetorically, that some opinion like “What a stupid idea!” is not being surreptitiously introduced in the guise of asking a question, but rather that a genuine inquiry is being made to be told the grounds that may go to support the proposal.) If you were to reply “Well the government should try to reduce the rate of inflationp , it is necessary and/or sufficient to reducem in order to reducep , that is why I think the government should reducem ,” it would remain open for the sceptic to respond “Certainly I can agree if your premises are true then your conclusion follows. But your premises once more are not solely positive ones, including as they do one that is plainly normative. Could you now say why you think the government should try to reducep in the first place?”
It is not difficult to imagine a fair reply being given to this as well, such as perhaps “Well inflation has been rampant and the election was fought and won on a promise inflation would be curbed, election promises should be attempted to be kept, that is why the government should make a determined attempt to reducep .” But in practice the economist would typically and rightly allow such discussion to fade into the background — since an important and difficult task would already have been defined for him, which is to ask whether it is likely a reduction inm by the stated amount will succeed in reducingp , assuming that the government should be trying to do this in the first place. Trying to answer it will require abiding by the practices of language and logic and scientific method; but the question itself is a positive and not a normative one insofar as it asks what is the case, or what has been the case or is likely to be the case, and the desire to keep it distinct for analytical convenience from the explicitly normative may be understandable. The modern economist is one of many kinds of expert in civil society, and as such is expected to have some special theoretical or practical knowledge not possessed by the non-economist. And economists everywhere are in fact being called upon to evaluate whether or not a dam or a highway should be built, a budget balanced or unbalanced, a bond released or redeemed, a tax or a tariff levied or lifted; to judge whether the argument of a government or a colleague or a student or a critic is valid, substantiated, compelling, sound, cogent. In any such investigation, it may well be useful for purposes of clarity and analytical convenience to work with a dualism between the ‘is’ and the ‘ought’, the descriptive and the prescriptive — just as it is commonly useful to work with a dualism between an analytical sense of ‘is’ as in “two plus two is four”, and a descriptive sense of ‘is’ as in “the cat is on the mat”.
Yet from saying it may be useful to make working dualisms between what is possible and what is actual or between what is the case and what ought to be done, it does not follow there are any absolute or ineradicable lines to be drawn. Taking a set of normative premises as given and from there proceeding to extend the scope of positive reasoning would not imply the normative premises are unquestionable — only that they are not now in question, not presently in question. It is as if they have been temporarily taken out of the game while we attempted to see how far we may proceed without them. They can still be brought back and others taken out — indeed, in the game of inquiry, we might even wonder if there needs to be any proposition which must be so privileged as never to be benched, so indispensable that we must fear the whole project will collapse without it.

§3. We may recall next Hume’s Second Law to the effect that while it may be possible to bring to bear objective reasoning in some normative discussions, a point of sheer and unadulterated difference over ‘basic’ or ‘ultimate’ values can nevertheless come to be reached. The moderate humean may allow for much room for common reasoning to take place, but he takes the further step of supposing such reasoning to have a limit, a finite limit. In any normative discussion, it is eventually possible for the scope of objective reasoning to become exhausted and a difference of a sheer normative kind to come to be identified. While it is clear the economists quoted in Chapter 2 have meant to refer to a limit of this sort being reached, it is strictly speaking not clear if they have meant to refer to such a limit being reached just as a contingent matter of fact — in actual arguments and discussions — or whether they have meant to refer to such a limit being possible in principle as well. In other words, whether it is merely intended to be an empirical possibility that a disagreement will come to end without resolution, or whether it is also intended for this to be the logically necessary outcome. If a residue of disagreement remains after the processes of common reasoning have been allowed to work, is this residue to consist of differences which just happen to be closed to further discussion in a particular case, say because the discussants lack patience or good humour or tolerance or perseverance or whatever, or is it supposed to consist of sheer and naked differences over ‘basic’ values which must be thought of as necessarily beyond the scope of further discussion?
If it is the first interpretation alone which has been intended, then only a fairly small claim would have been made, which may need to be clarified and fully set out but which would not need to be disputed by someone wishing to attribute a greater scope to reason than does the moral sceptic. For it is quite evident that actual arguments and discussions frequently do come to end without full resolution — those between physicists, mathematicians, biologists, doctors or engineers no less perhaps than those between politicans, economists, writers, historians, spouses, or nation states. Yet an observation of this sort of the frequency or intensity of disagreement would not be directly relevant to the theory of knowledge, insofar as the fact an argument happens to stop where it does, does not bear upon whether a question in dispute is capable of having a true or a right answer. It is possible for the true or right answer to a question not to be available to those who happen to be discussing it, or even to others in their generation or those in later generations; that there can be an objectively true or right answer to a question is a different question from whether it has been found or will be found today or tomorrow or next year. What the answers happen to be to the questions raised by Darwin or Freud or Keynes is a different question from what they themselves might have thought the answers to be, or what their contemporary state of opinion happened to think the answers to be, or what the state of opinion in our own time or in some future time happens to think the answers to be. It is of course natural to want to know the true or right answer to a question, to know whether the answer which we think is true or right is true or right, and certainly we should be surprised and find it incongruent if someone said he or she believed something even while knowing it was not true, or approved of something even while knowing it was not right — we normally want to know what is true and what is right and make our beliefs congruent with it. In other words, we may distinguish the actual and contingent history of inquiry and conflict from the logic of inquiry and conflict.
Moreover, some concepts and propositions will be found to form a context or a background in any disagreement, being understood by both sides and being unnecessary to be made explicit. If we were discussing the monetary history of the United States in the 1980s for example, we would take for granted such facts as that the United States was not at war or civil war or in the throes of any major social convulsion during this time; assumptions which may not have formed the implicit background if we were instead discussing the monetary history of the 1960s or the 1860s. Not every feature of a description may be relevant to a particular question at hand nor must it be made explicit. And an observation of this kind may be made of any dispute in economics, once it has been carefully and thoroughly characterized, whether on method or theory or evidence or policy, in microeconomics or macroeconomics, whether between mathematical economist and applied economist, or keynesian and quantity theorist, or marxian and mainstream. Some aspects of any description will be implicitly understood or taken for granted by the participants in a discussion.
More strictly, it has been argued by the Cambridge philosopher Renford Bambrough that it is necessary for the participants in a discussion to be in at least some agreement before they can be even said to be in any disagreement at all: “You and I cannot be known to be in conflict unless it is possible to identify a proposition that I assert with a proposition that you deny; no such proposition can be identified unless there is some expression that you and I use in the same way; if we use an expression in the same way then we regard the same steps as relevant to determining the truth or falsehood of what is expressed by it; for a disagreement about what is relevant is or involves a disagreement about what the dispute is that we are engaged in, and when such a case of cross-purposes is resolved it resolves itself either into agreement or into a disagreement to which all these conditions again apply.” In other words, it must be either that the participants in a dispute are giving different answers to the same question or that they are giving answers to different questions. If the first, we have identified a genuine case of disagreement; if the second, we have what is strictly speaking not a genuine disagreement at all but a case of cross-purposes, where each is giving a different answer to the question as to what the question they are disagreeing over happens to be. The English literary critic F. R. Leavis suggested at one place that critical inquiry proceeds as if one person declares to another “This is so, isn’t it?”, and the other replies “Yes, but…”. When A declares “This is so, isn’t it?” he has invited both the challenge and collaboration of others. B’s yes in reply would indicate a certain agreement, while his “but…” would indicate the agreement was not total, that there perhaps is some case or circumstance to which what A has said will be found not to apply. In effect, the “but…” amounts to being a fresh “This is so, isn’t it?”, inviting in turn the collaboration and challenge of A, and so on. Applying such a scheme to our example of a simple debate over economic policy, we would obtain an abstract form of the following sort:
A : n1.
B : Why n1?
A : Given n2, p1 implies n1.
B : Granted (p1), but why n2?
A : Given n3, p2 implies n2.
B : Granted (p1, p2), but why n3?
A : Given n4, p3 implies n3.
B : Granted (p1, p2, p3), but why n4?
A can think B to be stupid or stubborn or self-seeking, and B can think the same of A, and neither or one or both of them may be partly or wholly correct in thinking so, and all these may be facts which go to explaining how their dispute actually happens to proceed or fail to proceed over time — yet the correct answer, the most reasonable and justifiable answer, to the question to which different answers may be given at any stage will be independent of all this. We should want to distinguish, in short, questions of the logic of thought from questions in the history of thought.
Thus if someone becomes persuaded to a moderate moral scepticism only through observing that as a matter of fact many normative disputations seem heated or interminable, then we need only to demonstrate that such an observation does not and should not be allowed to bear upon the theory of knowledge or epistemology we come to hold. Certainly the scope of objective reasoning may be found to be finite in practice in actual disagreements and disputations between people, because there happens to be a lack of patience or good humour or tolerance or perseverance or whatever. But from that it does not follow at all that there is no further room for discussion, or indeed that reasoning cannot be thought of as being of potentially indefinite scope.
If however, as seems equally likely, the economists who have endorsed a humean theory of knowledge have meant it to be possible not only in practice but also in principle for the scope of objective reasoning to become exhausted, then a much more serious claim would have been made, which deserves appropriately more rigorous scrutiny. It would then have been claimed that it is logically possible for A and B to be in total and justifiable agreement about all the empirical evidence and about every logical relation, and still for each to declare in favour of a sheer and contradictory ‘ultimate’ value.
B : Granted (p1, p2, p3,…, pω-2); but why nω-1?
A : Given nω, pω-1 implies nω-1.
B : Granted (p1, p2, p3,…, pω-2, pω-1); but why nω ?
A : nω that’s why! (Go jump in the lake if you don’t accept it too.)
B : I deny nω that’s all! (And it’s you who can jump in the lake.)
Not only in practice but also in principle the scope of common reasoning would be supposed to have a finite limit. Not only is it a handicap we have to live with that many disputes between economists or scientists or citizens or spouses or nation-states do come to halt without full and justifiable resolution, through lack of patience or tolerance or good humour or whatever, but it is inevitable that common reasoning will become exhausted and only sheer and unadulterated differences remain over ‘basic’ or ‘ultimate’ values over which only the irrational holds sway. Hume and Hare among philosophers certainly may be interpreted to have taken such a view, and, on the basis of the writings quoted in Chapter 2, it would not be unfair to interpret at least some of the economists to have meant the same. However no proof or example of the existence of a sheer dispute over ‘basic’ or ‘ultimate’ values between people who are in justifiable agreement over everything else, has ever been offered by Hume or any philosopher or economist after him. It seems merely to have been asserted or taken for granted that a point can come where the scope of reason must have become exhausted and nothing further could remain to be said or done.

§4. We are in position to have a clear sighting at last of the first major hazard which is present on the humean course: It is possible that the declared purpose of the humean economist of extending objectivity and thwarting dogmatism will be contradicted by an ultimate adoption of irrationality and personal dogmatism. Huge and invaluable edifices of inquiry and argument can crumble to the ground because the scope of reasoning must sooner or later become exhausted, and mere personal prejudice take its place. The presence of a single ‘ought’ would signal the presence of another, and then another, and another… until some set of private moral primes or absolutes or supreme principles are supposed to be reached, which others might or might not share but which are in any event beyond further question. According to the received theory of knowledge, the economist is ultimately able only to persuade or coax or cajole or perhaps bribe others into accepting the absolutes he may himself wish to endorse, but common reasoning is of no further avail. Sooner or later the advice of the expert economist cannot but express the personal dogmas and prejudices of the adviser (or those of his employer).
It was a tension of this kind in the humean doctrine that Professor Samuelson may have felt when he called it a “somewhat schizophrenic rule” even as he endorsed it in the passage quoted in Chapter 2. Yet while Samuelson was not afraid to describe the role of the economist in society that follows from the humean thesis, he did not see the paradox to which it leads. Following Robbins and in keeping with the modern theory of economic policy, Samuelson said we should keep distinct the economist qua scientist from the economist qua citizen. The former expresses objective knowledge (“pure analysis”), the latter expresses subjective opinions (“propaganda, condemnations and policy recommendations”). Thus when Professor Samuelson himself writes from his offices at the Massachusetts Institute of Technology, we must take him to be doing so qua rational, objective, scientific economist, while if the very same person writes from his home qua citizen of the United States, we must take him to be expressing a subjective and possibly irrational personal point of view. Or must Samuelson expect himself to sign and stamp everything he writes either as being a claim to objective knowledge made by the eminent economist which he is and deserving the world’s attention, or as being a subjective and possibly irrational opinion expressed by the ordinary citizen and human being which he also is, and perhaps not deserving nearly as much of the world’s attention? What would happen if the same human being came to say the same thing in both scientific and civic capacities? Clearly we would be in a quandary of having to decide whether it should be considered objective or subjective, public knowledge or private opinion, rational or irrational, economic science or personal prejudice. In the previous chapter we have seen that the humean economist is likely to want to sharply contrast his theory of the role of economic expertise from the famous theory given by Plato in Republic. Now we are able to see that there seems to be a less well known similarity too between the moral scepticism of the humean and the moral absolutism of the platonist. For just as in Plato’s theory so in the modern humean theory, there is evidently no way of telling from within the theory who is supposed to be the expert. Either the humean has to join the platonist whom he takes to be his enemy and declare there to be some arbitrary and unspecified way of distinguishing expert from layman, philosopher from commoner. Or the humean has to part company with Plato and the scholastics, and say that there is ultimately no objective distinction possible between knowledge and opinion, expert and layman, science and prejudice. What appears to be at stake when the merits of the humean epistemology are brought under critical scrutiny in this way, therefore, is nothing less than whether there ultimately can be objective knowledge in economics; and so, whether or not the economist can rightly consider himself to be a seeker after such knowledge — or whether we are all involved merely in some highly evolved and sophisticated branch of rhetoric, having “the semblance of wisdom without the reality” whose teacher and practitioner is just “one who makes money from an apparent but unreal wisdom.”

§5. The problem we are observing here with the received theory of economic knowledge can be placed in relief by comparing the moderate moral sceptic with his more radical cousin, the emotivist. For the emotivist is one who flatly denies there to be any scope at all for common reasoning to occur upon normative questions, maintaining instead that normative propositions amount only to being the expressions of personal feeling or emotive attitude. Thus a statement like “the government should reducem from 6% to 3%” would be taken by the emotivist to express merely the personal feelings or preferences of the individual, its full meaning and implications being equally well described if the speaker had said “I wish the government would reducem from 6% to 3%”, just as someone might say “I wish to have my coffee black” or “I do not like boiled vegetables” or “I like to wear colourful shirts”.
Now the feelings and emotions and attitudes of a speaker or author may be naturally and normally involved in the making of evaluative or prescriptive statements, in a way they may not be in the making of logical or empirical statements. When I propose something should be done I must mean what I say, or I would not be being sincere, what I outwardly expressed would be incongruent with what I inwardly felt, I would be engaged in a kind of self-contradiction or inner dissonance. Yet this sort of involvement of matters of personal sincerity and authenticity in the making of normative judgements does not imply these are all that is involved, or even the most important of what is involved, or that common reasoning cannot make headway in normative discussion. The emotivist correctly observes the involvement of the emotions in normative discussion but exaggerates its significance, perhaps by the confounding of simple and literal uses of concepts like “taste” and “preference” as in “I have a taste for ice-cream” or “I prefer my vegetables lightly cooked” with looser and more metaphorical and so more complex uses of the same concepts like “I prefer Truman to Dewey” or “I have no taste for public executions”. Where the moderate moral sceptic supposes a residue of irrational difference to remain after every relevant empirical and logical question has been answered, the emotivist wants to call a halt the instant a normative proposition is sighted. The difference is one of degree and not of kind. If a moderate moral sceptic like R. M. Hare or Milton Friedman or Joan Robinson remonstrated with the emotivist saying “Look you really should try to bring to bear as much logic and evidence as you possibly can in a normative dispute”, the emotivist has only to coolly reply “Sorry, but what you have just said is patently normative. Since, as you know, I take all normative propositions to amount to being expressions of personal taste or emotive attitude, I cannot take what you have said to be anything more than that either. That does not mean I cannot share the same emotive attitude as you, but that is no reason to think we can construct an objective justification for it.” The humean can bang his head in frustration at the emotivist’s behaviour, but he may not without circularity argue against it.
A more dramatic illustration of this sort of difficulty with the humean doctrine may be found in the writings of Hare and Popper, suggesting that even the most tough-minded and critical of moral sceptics may have allowed themselves to admit an ultimate irrationalism. Hare considers a fanatic who so fervently believes some group of innocent people should be put to death that he is prepared to be made such a victim himself if his own ancestors transpired to be of the same group. And the fanatic is closed to all further discussion of the matter. This, Hare takes it, would be a case of an ultimate value judgement, impervious both in practice and in principle to further question. Hare says that “fortunately” there are few fanatics who would be found to hold such an “extreme” position, leaving unsaid that if they were found then they should be just as entitled to their opinion as anyone else — not merely in the sense of having a legal right to hold such an opinion but in the more significant sense that such an opinion ultimately must be considered to be just as good, just as reasonable, just as cogent, just as sound, as its contrary. We could try to persuade or cajole or bribe our fanatic to give up his opinion and to hold ours, but there is no way for us to say he is simply wrong in his belief. If it turned out there were more fanatics than there were of us, it could of course become their turn to persuade or cajole or bribe us away from our opinions, yet none of their acts could be condemned, since, in the last analysis, there cannot be any such thing as moral knowledge.
Popper has written frankly that he knows of no rational grounds for recommending a rational temperament: “It is impossible to determine ends scientifically. There is no scientific way of choosing between two ends. Some people, for example, love and venerate violence. For them a life without violence would be shallow and trivial. Many others, of whom I am one, hate violence. This is a quarrel about ends. It cannot be decided by science…. you cannot, by means of argument, convert those who suspect all argument, and who prefer violent decisions to rational decisions. You cannot prove to them that they are wrong….” “I frankly confess that I choose rationalism because I hate violence, and I do not deceive myself into believing that this hatred has any rational grounds. Or to put it another way, my rationalism is not self-contained, but rests on an irrational faith in the attitude of reasonableness. I do not see that we can go beyond this.” But if Popper is entitled to have an irrational faith in being reasonable, then the fanatic is surely entitled as well to have an irrational faith in being unreasonable. Thus Professor Max Black responds on behalf of the fanatic who engages Popper thus: “Bravo! You hate violence, but I hate argument (a sneaking use of force by other means). You call me irrational, but I glory in that title. Like you, I hold that there are no ultimate reasons for my irrationality (for that would detract from the purity of my position). The difference between us is like that between a Protestant and a Catholic: your faith is my heresy; my faith is your heresy. That’s all there is to say.” (Yet Black himself does not say why differences between protestant and catholic must be supposed beyond discussion!)

§6. This kind of internal contradiction we are observing here to be associated with moral scepticism can be seen in a slightly more positive light as well. For we may ask, what does the moral sceptic’s recognition that dogma and tyranny should not be imposed upon science or the individual amount to being except a manifest example of a moral recognition? Or a proposal that the integrity of science as well as the freedom of the individual as consumer and voter should be preserved, except a manifest example of a moral proposal? All the economists quoted in Chapter 2 have recommended and practised the extension of the scope of common reasoning in economic science; what sort of recommendation would that be except a patently moral recommendation? When the theory of economic policy requires the economist to respect the ends of the elected politician, what sort of a premise does that rest upon except a moral premise that the institutions of constitutional democracy should be respected and not abused? It would presuppose in turn such things as that parliamentary elections do take place periodically and are in fact genuine and not fraudulent elections, that citizens will be judicious and well enough informed in their voting so that a good indication of what things are conducive to the common welfare will come to be determined as closely as possible given the size and diversity of the electorate, that the policies of a resulting administration are sincere attempts to reflect the ends chosen by the voters, that candidates for elected office and private citizens and scientists and scholars and others are not subject to being shot or jailed or persecuted for saying publicly what they think these ends should or should not be, and so on. It is implicitly or explicitly within the context of a free and open society, and one which probably has working democratic institutions, that the modern theory of economic policy makes sense at all, that positive questions like “Does the evidence support the hypothesis that reducingm from 6% to 3% is necessary and/or sufficient to reducep ?” are supposed to be discussed in the first place. Regardless of what the humean economist happens to say or suppose himself to be doing or not doing by adopting the theory of knowledge which he does, we are entitled to conclude that he is in fact far from asserting there cannot be any such thing as objective moral knowledge — since he himself may have advanced his moral scepticism precisely upon substantive moral grounds. Put differently, it does not seem possible without contradiction to start with a set of moral premises and arrive at a conclusion that there cannot be moral knowledge.
Equally, if the received theory of economic policy must presuppose a context of a free and open society and working democratic institutions, then it would seem it must be silent where such a context cannot be presumed. When we consider that most societies most of the time probably have not been very open or very democratic (and in such a count we must consider societies not only on the scale of nation-states but also families and clubs and corporations and university departments and armies and religions, and so on) this would at once make the received theory one of quite special and contingent application. Indeed it is a theory which must be silent about the appropriate role of the expert not only under conditions of tyranny (Solzhenitsyn: “The prison doctor was the interrogator’s and executioner’s right-hand man. The beaten prisoner would come to on the floor only to hear the doctor’s voice: ‘You can continue, the pulse is normal'” ); but also where the duly elected government of an open and democratic society proceeded to do things patently wrong or tyrannical (the imprisonment of the Japanese Americans). Hence Popper’s “paradox of democracy” and “tyranny of the majority”. It is ironic that the economist who may have adopted a humean epistemology as a reaction to dogmatism and tyranny in the first place, will come to be prevented by his own moral scepticism from condemning an act of tyranny whether it is committed in the name of the popular will or by an outright despotism. A theory of economic policy which both assumes a free and open society and bases itself upon a moral scepticism cannot have anything to say ultimately about the objective reasons why a free and open society may be preferred to an unfree or closed society, or about the good or bad outcomes that may be produced by the working of democratic processes.
A parallel difficulty arises for the humean economist with respect to market institutions and their possible outcomes. Ultimately, the received theory of economic knowledge cannot allow that there may be objective reasons why market institutions may be preferable (or not preferable) to non-market ones, whether one is speaking roughly and generally in a theory of political economy or more precisely and specifically about some actual set of concrete circumstances. Just as the medieval scholastics might have said that a good was a good only because the church said it was a good, so the modern humeans may have to say that a good is a good only because market forces have made it a good — i.e., because it happens to have a positive price in an equilibrium of supply and demand. And just as the church may have said a lot of things were goods which were indeed good, so market forces make a lot of things goods which indeed are good — for instance, like food, clothing and shelter, because they are conducive to some valuable human purpose. But also, just as there could have been things which the church said were good but were not, and things which were good but which the church said were not, so it is not at all hard for any of us to find in experience things which the market may have put a high value on but which were not in fact valuable, as well as things which the market did not value but which were indeed valuable.

§7. Drawing these simple threads together then, a first set of reasons why the modern economist may think himself poorly served by a subjectivist theory of knowledge has to do with the fact that it is a theory which falters and fails even in its own declared purpose of being an adequate shield against dogmatism and tyranny. In a theory in which nothing, ultimately, can be considered objectively right, it cannot be objectively right to extend the scope of reasoning in economics, or to preserve the integrity of science, or to protect the individual from dogmatism or tyranny. In a theory in which nothing, ultimately, can be considered objectively wrong, it cannot be wrong to block or subvert reason or to force dogma and tyranny upon science or the individual. If all moral propositions are ultimately taken to be matters of mere personal opinion, then the defence of individual freedom or the integrity of science also must be taken ultimately to be matters of mere personal opinion. Professor Arrow remarks: “The only rational defense of a liberal position… is that it is itself a value judgment.” Combine with this the idea that judgements are subjective, and you would have the result that no objective justification can be given ultimately for a liberal position, or for any other position either for that matter. When all has been said and done, protecting individual freedom is no better or worse than attacking it, preserving the integrity of science is no better or worse than destroying it. “Nothing is good or bad, but thinking makes it so.” Such fragile things as the preservation of human freedom and the integrity of science would seem to have been left exposed by the accepted epistemology in twentieth century economics to the shifting whims of popular opinion. The purposes that many eminent economists may have had in adopting the humean thesis, and these may have been invaluable purposes, would seem to be able to be fulfilled only in a theory which denied the humean thesis that nothing can be right or wrong but thinking makes it so.

§8. We have now sketched the first important set of dangers that are present on the humean course which has been adopted by modern economists. There happens also to be a second set with equally serious implications, calling for us to continue to move as carefully and precisely as possible. The reader who may have been unconvinced by the argument so far will therefore have a fresh set of challenges to consider, while the author will have to ask for the patience of the reader who may have agreed that there does happen to be something wrong at the foundations of the received theory of economic knowledge.
In short, there is the problem that an adoption of moral scepticism on its own may lead by parity of reasoning to total scepticism, to the ‘pyrrhonism’ which Hume himself had drawn back from. For what will come to be noticed by the truly serious and tough-minded sceptic is that the general logic employed in Hume’s First Law is in fact extremely powerful, more powerful than Hume or the modern humean economist may wish or intend it to be. For the tough-minded sceptic will look at Hume’s First Law and say: Why stop at ethics? Why so half-hearted? That it is not legitimate to deduce one kind of statement from another kind of statement is surely an argument of more general application. Just as a sceptical attack can be launched upon the possibility of ethics, so why not launch sceptical attacks everywhere: on the possibilities of science and history and induction and deduction and everything? In particular, the tough-minded sceptic will say to the humean economist: Why do you stop with normative economics? — Surely you can and you must destroy all of positive economics as well!
It was shown some years ago by the English philosopher John Wisdom how sceptical attacks analogous to Hume’s attack on ethics in fact can be made in a number of other contexts as well. Let us consider an example similar to one given by Wisdom to show how easily it may be possible to proceed to be sceptical of something so obvious as our knowledge of the past. A sceptic says “Do we really know anything about what has happened in the past? Can we be certain about anything that has happened at all before this very instant?” You say to him “What do you mean? Surely you don’t mean that while we know some things for certain such as that we are now having this conversation, we don’t know for certain other things such as that we did get up from bed this morning or that Nazi Germany did invade Poland on September 1 1939?” The sceptic says “Yes that’s the kind of thing I mean.” You reply “Well that’s crazy. I for one am just as confident of knowing that here I am talking with you now, as I am that I got up this morning, as indeed I am that Nazi Germany invaded Poland on September 1 1939.” The sceptic says “Please tell me how you can be so certain you got up this morning.” Staring at him in disbelief, you reply “Look I usually get up to the alarm clock at 7 am; this morning was no different; I remember the clock going at 7 am as usual, and I got up. That’s all there’s to it.” The sceptic makes a flanking movement. “If you remember something taking place you would of course imply the event did take place?” You are now perhaps quite irritated by this odd fellow — “Obviously; I could not have remembered the alarm clock going off if it had not in fact gone off.” But in fact the sceptic has got you exactly in his sights and can move in for the kill. “In that case it appears to me you have missed the point of my original question completely. I wished to know how we can know anything about the past. You gave me an example that you knew you had gotten up this morning, and that you knew this for certain because the alarm clock had gone off as usual and that you remembered getting up when it did. I can agree of course that if you knew this premise to be true then you are entitled to deduce that you know you did get up this morning. But you will have to grant that this is a premise which itself refers to the past. So all you would have done in supporting one statement about the past is to have given me another statement about the past, when the point of my question was to ask how we can know anything at all about the past for certain.”
Just as the fact we cannot deduce a normative conclusion without a normative premise having been made might lead someone to a moral scepticism, so the fact we cannot deduce a conclusion about the past without a premise about the past being made might lead someone to a historical scepticism. That Nazi Germany did invade Poland on September 1 1939, cannot be deduced except by reference to other historical premises — films and photographs of the dive-bombers going in against the Polish Cavalry, government documents, the testimony of eye-witnesses, reports in the newspapers of September 2 1939, etc. The sceptic agrees that if the premises were known to be true then the conclusion would be true as well, but he says that that would be to miss his point. Like the moral sceptic, he is challenging the possibility of our knowledge of all propositions of a particular kind, and it is no use giving him for his scepticism what amounts to merely a another proposition of the same kind. Bambrough has put the matter clearly thus: “So long as the premises used in support of a proposition include any propositions of the same type as itself, a philosophical sceptic, or any other enquirer who is determined to seek the ultimate grounds, is properly dissatisfied, since his question is about how propositions of that whole type are to be validated, and he cannot consistently permit any such proposition to be unproblematic when it occurs among the premises of an argument whose conclusion is of the same type…. the grounds offered for a proposition of kind k will necessarily be either of kind k or not of kind k; if they are of kind k they may be logically sufficient for the proposition that they are intended to support, but a further question will arise about the validation of the premises themselves; if on the other hand they are not of kind k then they necessarily cannot be logically sufficient for the truth of the proposition that they are intended to support.”
Yet once this box has been opened, we are obliged to examine all its contents, and there are quite a number. For one thing we may now join with the sceptic of the senses and cast doubt on all the knowledge the natural sciences purport to provide of the physical world; since, surely, no conclusion about the physical world can be deduced without a premise about the physical world having been made. Next we might join with the solipsist and question the possibility of knowledge in psychology, doubting whether one can ever know what someone else thinks or feels; since, surely, no conclusion about a mind other than one’s own can be deduced without a premise of the same sort having been made. It is this species of scepticism which forms the basis of the widespread belief in modern economics of the impossibility of interpersonal comparisons of utility, which we observed in discussing the views of Professor Hicks in Chapter 2 and to which we shall be returning in Chapter 10. Then of course there is Hume himself being just as famous for his sceptical attack on the possibility of induction as he is for his attack on the possibility of ethics: “there can be no demonstrative arguments to prove, that those instances of which we have had no experience resemble those of which we have had experience.” “Nay, I will go farther, and assert, that [reason alone] could not so much as prove by any probable arguments, that the future must be conformable to the past. All probable arguments are built on the supposition, that there is this conformity betwixt the future and the past, and therefore can never prove it. This conformity is a matter of fact, and if it must be proved, will admit of no proof but from experience. But our experience of the past can be a proof of nothing for the future, but upon a supposition, that there is a resemblance betwixt them. This therefore is a point, which can admit of no proof at all, and which we can take for granted without any proof.” In short, no conclusion about the future can be deduced without at least one premise about the future having been made.
And then again, the full force of the sceptical onslaught can be felt when we direct its method against that of which we might seem most certain of all: the procedure of deduction itself in logic and mathematics. Adapting an example given by Wisdom and Bambrough, we can see how it may not be possible without circularity to use deductive reasoning to justify deduction itself.
For consider the propositions All firms maximize profits and GM is a firm. We would be normally inclined to think GM maximizes profits is something which follows from these. But the serious sceptic can once more ask how we may justify such a conclusion. We might be inclined to take such a challenge lightly, and try to dismiss it by stating a general rule of the form of modus ponnens: “If all S is P, and x is S then x is P.” But that would be a mistake and we would have fallen directly for the trap set for us, since the sceptic would need only to make the following decisive response: “A rule of this sort must necessarily either exclude or include the particular case at hand. If it is intended to exclude this particular case but is intended to apply to every other case, then clearly I need not accept in this case that the conclusion GM maximizes profits follows from the premises All firms maximize profits and GM is a firm. On the other hand, if the rule is intended to include this case as well, then you are asking me to reason as follows: ‘In all syllogisms, deduction proceeds like this; this is a syllogism; therefore, deduction proceeds like this here as well.’ All you would have done in trying to justify the deduction at hand is to have given me yet another deduction against which all my arguments would apply with equal force once more. You may not mind arguing in a circle but I am not going to join you.” If making an is ought dualism is sufficient ground for us to doubt the possibility of moral knowledge, then we seem now to have just as good grounds to doubt we can know anything at all. The upshot of these kinds of sceptical attacks on the practice of modern economics may be seen quite readily. For consider the fact that it would be difficult to overestimate the significance to the practice of modern economic science of (i) the elementary mathematical concept of a function, mapping all the values taken by one variable X upon a range of values taken by another variable Y, and (ii) the formal and informal procedures of statistical inference. Yet at their foundations, all procedures of statistical inference must rest upon the possibility of a rational induction. Suppose there was some economic variable Y which has been found to take a particular value in each of the last 100 or 200 or 300 or 500 periods. Or suppose it is found in each of a large number of observations that Y happens to be systematically related by some identifiable functional form to another economic variable X. It will be seldom if ever that we shall be obliged with such neat data, but it will be readily agreed the study of such relationships whether in economic theory or in economic history or in applied economics or in econometrics constitutes the very stuff of the modern science. The variable Y might be the quantity traded of a good where X is the market price, or Y the long-term interest rate and X the state of expectations, or Y the change in the price and X the difference between quantity demanded and quantity supplied, or Y the rate of inflation and X the money supply, and so on indefinitely in hundreds of different contexts. If we are genuinely serious about adopting a humean scepticism — that is, adopting it consistently, without contradiction — then we must lead ourselves to conclude that even with a thousand observations of Y taking a certain value after X had taken a certain value, we would still have no grounds, no deductive grounds, for predicting the value of Y given the 1001st observation of X. From no amount of past evidence can any proposition about the present or the future be deduced. Equally, if we were to prevent ourselves out of a debilitating scepticism of this kind from employing the modus ponnens of deductive reasoning — if all S is P, and x is S then x is P — then all reasoning in economic theory would immediately come to a standstill. Without induction and deduction, we cannot proceed in economics or elsewhere: it would be not only normative economics but all of economics which would come to be lost in the whirlpools of scepticism.
The point the sceptic wishes to make is that we cannot deduce one kind of proposition from an altogether different kind of proposition — the is ought dualism may be a useful reminder that we cannot deduce a normative conclusion from any number of positive premises. Every normative conclusion must have had at least one normative premise, and it is the attempt to justify one normative proposition by offering another as a premise that allows the moral sceptic to keep repeating his challenge indefinitely. But that does not prevent us from asking whether the sceptic has not skewed the rules of the game in such a way that he must always win, and if he has done so, we can certainly decline to play. For what the sceptic seems to require is that the grounds for any kind of justification specifically be deductive grounds. We are to deduce every proposition as the descendant of other higher or more primitive propositions, which might explain how the sceptic is able to raise the threat of an infinite regress in every field in which he attacks. “Everything we offer and everything we could conceivably offer is either too little or too much…. Nothing will ever do to meet the sceptic’s requirement. But that is different from saying nothing will ever do.” Perhaps it is not necessary to meet the sceptic’s requirement. Perhaps it is not even possible to do so. Perhaps we do not have to have a deductive proof to justify that we can and we do know some things in science, in history, in ethics, in psychology, in economics, or that we can and do frequently and reliably use inductive reasoning in these and a hundred other contexts. In Part II we shall be making an argument on these lines more fully to show how scepticism can be avoided even as we steer well clear of the opposite dangers of dogmatism. What is important here is only to notice the slide into total scepticism that may be entailed by adopting moral scepticism on its own. The economist who accepts an is-ought dualism as an adequate reason for adopting a subjectivist theory of knowledge comes to face an unhappy choice between either becoming in the interest of consistency a sceptic of all of economics — theory, history, econometrics, everything, not to mention everything else outside economics as well like natural science and mathematics and history; or denying the parity of reasoning, and not having adequate grounds for believing objectivity is possible in one context but not another. Either accept the propositions of positive economics and natural science and mathematics and history etc. to be, in the final analysis, just as subjective as normative propositions. The infinite regress threatens everywhere, what is sauce for the goose is sauce for the gander, so there cannot be objective knowledge of any kind anywhere. The economist slides into a scepticism about everything — into the pyrrhonism which Hume himself had rejected. Or become a partial and prejudiced sceptic like the positivist — led to the inconsistency of threatening only normative propositions with infinite regress when analogous sceptical attacks can be made with equal force in any number of non-normative contexts as well, and therefore not having adequate reason to maintain objective knowledge to be possible in contexts other than ethics. When asked “Can there be objective knowledge in economics?” if we answer “No, truth is defined merely by agreement of opinions; we know a proposition in economics to be true only insofar as economists happened to agree it to be true; if such agreement fails to hold in the future the proposition would no longer be true”, we next may be asked “Can there be objective knowledge in physics?”, to which we can only reply yes or no. If yes, we shall have said that there is merely rhetoric in economics, perhaps a highly evolved and sophisticated rhetoric but mere rhetoric nevertheless, certainly not objective knowledge. We would justify the cynic and the cartoonist who mocks economists as the most querulous of breeds, for every one who says this there is another who says that, how it is entirely a matter of caprice or fashion or pecuniary interest which side one happens to take, whose “paradigm” one happens to accept. We should have to frankly admit to the scholarly commmunity that since there is nothing which may be properly called objective knowledge in economics, the Department of Economics in every university should be closed down, or why there might just as well be a Department of Astrology on campus too, teaching and researching the reading of palms, the writing of horoscopes, and so on. On the other hand, if we denied there to be objective knowledge possible of the physical world as well, if we said we cannot be certain of such things as that there is a table in this room or that the window is open and there is a tree outside it, then we would have to do battle not only with every scientist in history but also with the man on the street, whose commonsense like our own tells us the opposite.
It is said that Hume thought himself leaving his scepticism behind when he left his study. Yet “[his] scepticism is at odds with his actions even when he is at his most deliberately and consciously philosophical. His pen goes confidently to the ink-pot, he turns the pages of Sextus Empiricus with the well grounded expectation that Book II will be found between Books I and III…. it is shown by his life that he believes what he is trying to doubt.” Just as surely as the scholastics fell under the Spell of Plato, so modern economists may have fallen under the Spell of Hume. The time has come at last to see how both spells may be broken.
PART II

5. Objectivity and Freedom

SUPPOSE there was a philosopher who addressed modern economists in a strange way as follows
Consider the entities that we call ‘firms’. I mean banks, manufacturers, airlines, law partnerships, farms, grocery-stores, and so on. What is common to them all? — Don’t say: “There must be something in common, or they would not be called ‘firms'” — but look and see whether there is anything common to all. — For if you look at them you will not see something that is common to all, but similarities, relationships, and a whole series of them at that. To repeat: don’t think, but look! — Look for example at banks with their multifarious relationships. Now pass to savings and loans associations; here you find many correspondences with the first group, but many common features drop out, and others appear. When we pass next to manufacturers and transporters, much that is common is retained, but much is lost. — Are they all ‘profit-maximizing’? Compare the taxi company with the electricity company. Or is there always a separation of ownership from management? Think of the tailor’s shop at the corner. With corporations there is the buying and selling of shares; but when a farmer is offered a price for his homestead this feature too may have disappeared. Look at the part played by entrepreneurship; and at the difference between the entrepreneurship of a mom-and-pop shop and the entrepreneurship of a firm of lobbyists. Think now of firms like General Motors; here is the element of giant size, but how many other characteristic features have disappeared! And we can go through the many, many other groups of firms in the same way; can see how similarities crop up and disappear.
What should we think of such a strange philosopher? And what answer is to be made to him by the economist?
The philosopher is Ludwig Wittgenstein, and the passage which has been paraphrased here, odd though it may seem, is among the most famous in twentieth century philosophy, from his posthumous work Philosophical Investigations. The problem that can be found to be raised in it is the ancient problem of universals, the problem of the One and the Many, of Unity and Diversity: Must all instances of a general term or concept have anything in common, over and above the fact they are all instances of the same concept? Must all firms have anything in common, over and above the fact they are all firms? Must all red things have anything in common, over and above the fact they are all red things? Certainly we know there to be individual red things like red poppies and red roses and red corpuscles and redheads and Red Square, and we know there to be individual firms like General Motors and Mitsubishi and Kodak and the corner grocery-store. But how is each individual red thing related to the general concept ‘Red’? How are General Motors, Mitsubishi, the corner-store etc. each related to the general concept ‘Firm’? Should we think of red poppies and red corpuscles and redheads as each sharing or partaking of some transcendental property, a universal, called ‘Redness’? Should we think of General Motors and Mitsubishi and the corner-store as each sharing or partaking of some universal called ‘Firmhood’? Would it be because they do that we call a red thing red or a firm a firm?
Interpreting Wittgenstein’s passage in this way, one response that might be made to it would be this: “What you seem to be doing is to test whether there is any property common to all firms. However, as your example suggests, individual firms are actually indefinitely varied — in their goals, constraints, size, type of ownership, operating characteristics, and so on. (Even if they were not indefinitely varied as a matter of fact, we can certainly imagine them being indefinitely varied in principle.) Indeed so much do individual firms vary that, in my opinion, we should not think there to be anything at all in common to all of them, besides of course our arbitrary decision to call them all ‘firms’.” Let us call such a reply the reply of the Nominalist.
But another response to the same passage could go like this: “I agree that what you are trying to suggest is that there is no common property between all the things we call firms. But surely in applying the concept ‘firm’ we must have an objective justification. For instance, while we do and we may apply the concept to General Motors and to Mitsubishi and to the corner-store, we do not and may not apply it just arbitrarily to any old thing at all — such as to my umbrella or to the number 16 or to Harry Truman or to the characters in a Dickens novel. Even when people refer to modern Japan as ‘Japan Inc.’, what they mean is that some analogy can be drawn between the way a firm works and the way political and economic arrangements in Japan seem to work, not that Japan is literally a firm, for that would be absurd since Japan is not a firm but a sovereign nation-state, a parliamentary democracy, a former Axis power, etc., and to call her a firm would be an objective misuse of language. It is likely that a property common to all individual firms does exist, and indeed it seems to me it is precisely because it does exist, whether or not we have been able to identify it, that we are entitled to call all firms ‘firms’, and so distinguish what are firms, such as General Motors and Mitsubishi and the corner-store, from what are not firms, such as Harry Truman or my umbrella or the nation-state of Japan.” Let us call such a reply the reply of the Realist.
The Nominalist stresses the Many — he is the lover of Freedom and Diversity, and the enemy of all Dogmatism and Conformity. He looks and insists that we look at the vast differences there are or can be — between firms, in the uses of words and concepts, across ways of life and culture, in the histories of nations, in the circumstances and personalities of individuals. The Realist worries about the indiscipline and caprice that can result from the exaggeration or corruption of freedom. He recognizes and insists that we recognize the vast areas of commonality there are or can be. We use words and language only because there are objective or “intersubjective” (Popper) ways of speaking and understanding. No matter how diverse individual personalities or circumstances or ways of life may be, the fact is we belong to one species (or one genus etc.), which implies something different from if we had not. The Realist stresses the One; he is the lover of Objectivity and Reason, and the enemy of all Scepticism.
A similar division may be made to obtain with any of a number of other concepts in economics as well — ‘capital’, ‘money’, ‘utility’, ‘competitive market’, ‘unemployment’, ‘development’, ‘mixed economy’, ‘socialist economy’, or any of a hundred others. In each case, the plea of the Nominalist would be that we observe the differences between the individual instances, the plea of the Realist that we respect the similarities. Indeed what should be supposed to be in common between individual economists themselves? From Aaron, Abramovitz and Ackley, through Bagehot, Baran and Bauer, and Cantillon, Cassell and Cournot, all the way to Zeckhauser, Zellner and Zeuthen, what is there in common except that each happens to be listed in a recent bibliographic dictionary of economists? The Nominalist would say “Nothing. Ultimately there is nothing in common to all economists except that we have chosen to call them all economists. That these people happen to be in the dictionary and other people like Picasso or Jesse Owens or Greta Garbo are not is, ultimately, just a matter of arbitrary choice.” The Realist would say “Surely there must be something in common to all economists, otherwise we would not call them economists. We wouldn’t in our right minds consider Picasso, Jesse Owens, or Greta Garbo to be economists, just as we wouldn’t consider Wicksell, Keynes, or Milton Friedman to be famous artists, athletes, or cinema stars. There must be an objective justification to calling someone an economist — it must be that economists are economists because they all believe in Q”; where Q would refer to some criterion like the practice of mathematical modelling, or an attribution of utility-maximization, or an attendance to statistical data, or a concern with the distribution of wealth and income. If someone did not believe in Q, did not fall under a specific definition of this kind, the Realist would be inclined to say such a person was not really an economist at all but something of an imposter or a charlatan who did not rightfully belong in the dictionary. And of course if one man chooses one Q and another chooses another then we may begin to explain how each might think himself to fall under his own definition of economist while it was the other fellow who was the charlatan.
A similar division can be made to obtain upon the larger concept of science itself. The Nominalist would observe the rich and indefinite variety there is in the methods and subject-matter of the individual sciences, and indeed that there can be within any of the individual sciences as well — certainly within physics, chemistry, biology, and engineering but also within mathematics, law, medicine, economics, history, and philosophy itself. Dazzled by all the different colours and the different shades of different colours, the Nominalist would tend to conclude there to be no unifying characteristic between the sciences, nothing except that we have chosen to name them all sciences. The Realist for his part would observe and be impressed by the many points of comparison there are between and within the individual sciences. And being especially concerned to protect the concept of science from being hijacked and employed arbitrarily to just anything at all, the Realist will be in search of the common ingredient which he thinks must be present in each individual science to warrant our calling it a science at all. The Realist will be inclined to say that all scientific statements have this in common — where his this would now refer to something like “hypothetico-deductive methodology”, or the use of mathematics or deductive proof, or the empirical testability or falsifiability of propositions, or knowing the means of verification. The Realist searches for the criterion or set of criteria which he believes to be necessary to demarcate science from non-science (Popper), public knowledge from private opinion. And again, if one man chooses one criterion to demarcate science from non-science and another chooses another and contrary criterion, we can imagine the merry possibility of how each might think himself to fall under his own definition of scientist while really it is the other fellow who is the charlatan and the fraud.
Parallel to this kind of a division between Nominalism and Realism in the theory of existence occurs the division between Scepticism and Dogmatism in the theory of knowledge which we have met with in previous chapters. A Nominalist in ontology is likely also to be a Sceptic in epistemology, and a Realist in ontology is likely also to be a Dogmatist in epistemology and vice versa. C. S. Peirce had remarked that two points of contrast between scholastic and modern thought lay in the modern opinions that thought “must begin with universal doubt, whereas scholasticism had never questioned fundamentals” and that “the ultimate test of certainty is to be found in the individual consciousness; whereas scholasticism had relied on the testimony of sages and of the Catholic Church.” The Dogmatist finds there are at least some things which are certainly known. Therefore, he concludes, it must be that we cannot question everything, it must be that there are at least some propositions which should be supposed to be closed to further inquiry and discussion. Thus the medieval schoolmen would have supposed the Christian Scriptures to contain at least some propositions of this sort. Certainly there is scope to reason but it is a scope necessarily limited by the doctrines and dogmas of the faith. It would be precisely against this kind of a barrier being placed on the road of inquiry that the Sceptic protests. And finding there to be no human belief which must be thought of as closed to further question, the Sceptic concludes that it must be we cannot know anything for certain. Each side seems to have a compelling reason in its favour yet to be in direct contradiction of the other. One asks for belief and conviction, the other for doubt and question. The feeling of an antinomy arises because we feel we must choose between them.
It was suggested in Chapter 3 that medieval political thinking was platonistic and absolutist in important respects, and evidence has been given in Chapter 2 that modern economists have adopted the sceptical humean epistemology which may be seen as a reaction to the medieval dogmatism. As Peirce’s remarks make clear, this would not be a new thesis, though it is perhaps something which has not been adequately noticed before by modern economists and it has now been plainly set out. It is also a thesis which amounts to being a generalization, and suffers, as all generalizations must, from a lack of truth in its details, especially in not doing nearly enough justice to the depth and diversity of medieval thought. Yet every generation must be concerned with identifying and correcting the errors of its own time, and the purpose of trying to establish even such a generalized thesis as this has been to correct contemporary errors: to argue that the humean foundations of the modern theory of economic knowledge entail serious difficulties, that it is these and not the is-ought dualism which turn out to be insurmountable, that the broad and long standing consensus on the central question of the relationship between economic knowledge and economic advice, the positive and the normative, cannot be held consistently and deserves to be abandoned.
Nevertheless the reader who may have agreed with the drift of these arguments may wish to ask whether, in an attempt to correct contemporary errors, we shall not be led to commit the errors of an earlier time. Will we become Dogmatists if we renounce Scepticism? Are we forced to choose between Realist and Nominalist, Dogmatist and Sceptic, Plato and Hume? Must we either admit objectivity and reality and knowledge and expertise and common reasoning and commonsense, and suppress diversity and individuality and creativity and freedom and question and criticism; or embrace diversity and individuality and creativity and freedom and question and criticism, and abandon objectivity and reality and knowledge and expertise and common reasoning and commonsense? Can we lead our thinking lives coherently enough without making a choice, or would we find ourselves inevitably being shuttled between the rival parties, one moment in the Nominalist’s camp the next moment in the Realist’s, one moment with the Sceptics the next moment with the Dogmatists? If we decide to abandon Hume, is there no choice but Plato? If we find Plato’s embrace too close and claustrophobic, is there no alternative but to continue to live in doubt with Hume? Are we caught between the Spell of Plato and the Spell of Hume? Is the choice: Either Objectivity or Freedom?

§2. The simple answer that may be offered is that it is not. When objectivity and freedom, knowledge and doubt, have been carefully and adequately characterized, there is no conflict which must arise between them, whether in natural science, mathematics, ethics, history, economics, medicine, law, literature, or any other context of inquiry. There may be good reasons to be a Nominalist and also good reasons to be a Realist and yet better reasons to be neither. There may be good reasons to adopt a sceptical theory of knowledge and also good reasons to adopt a dogmatic theory of knowledge and yet better reasons to adopt neither. A course can be found which will allow us to steer clear of the hazards of Dogmatism on the one side while avoiding the whirlpools of Scepticism on the other.
How we may proceed to chart such a course is by airing and exposing a hidden and questionable assumption which may be being shared by both Nominalist and Realist. Namely, an assumption that for a general term or concept like ‘firm’ or ‘game’ or ‘science’ to be objectively employed, there must also correspond some sort of object. Just as alcohol is common to whiskey and beer and gin, so some common ingredient must be present in General Motors and Mitsubishi and the corner grocery-store in order to make them all firms. If such an assumption does happen to be at the source of the division between Nominalist and Realist, we might readily explain how it is that each seems plausible in part yet neither seems satisfactory as a whole. The Nominalist finds he cannot distill out any single common ingredient from all the particular instances of firms that there are or can be. But because he may be committed to an assumption that such an ingredient is necessary for the concept ‘firm’ to be objectively employed, he concludes it cannot be objectively employed. The Realist is certain the concept ‘firm’ can be objectively employed, and very certain it should not be arbitrarily employed, but because he too may be committed to the same assumption, he concludes there must be a common ingredient, a common “essence” which every particular firm must share, prompting him to make a search for it or merely declare his faith in it being “there”, somewhere, “out there”.
Wittgenstein in his later works (as well as others before and after him such as H. A. Price) may be understood to have offered a suggestion that to make this kind of dualism between Nominalism and Realism is ultimately mistaken and misleading. After careful and detailed examination of a variety of the individual entities or institutions or activities which fall under a general concept like ‘firm’ or ‘game’ or ‘competitive market’ or ‘mixed economy’ or ‘economist’ or ‘science’, it may well be that we shall wish to make an entry in our notebooks of the following sort: “We see a complicated network of similarities overlapping and criss-crossing: sometimes overall similarities, sometimes similarities in detail. I can think of no better expression to characterize these similarities than ‘family resemblances’; for the various resemblances between members of a family: build, features, colour of eyes, gait, temperament etc. etc. overlap and criss-cross in the same way.” An alternative to a common ingredient model of the structure of concepts would be a family resemblances model, and an example constructed by Bambrough may easily illustrate its working. Suppose there to be five objects, A, B, C, D, E, each of which has four out of five possible properties, a, b, c, d, e. A pattern may be produced like
object A B C D E
properties bcde acde abde abce abcd
in which each object would evidently share 75% of its properties with every other yet there would no single property or set of properties common to all the objects. “But if someone wished to say: ‘There is something in common to all these constructions — namely the disjunction of all their common properties’ — I should reply: Now you are playing with words. One might as well say: ‘Something runs through the whole thread — namely the continuous overlapping of those fibres.”
Many concepts, perhaps even most concepts, may be family resemblance concepts, their instances constituting “a ‘family’ of diverse things bundled together by virtue of shifting similarities”. While there may be no single or constant similarity between all the individual instances of firms or games or economists or sciences or competitive markets or mixed economies, there may be diverse and shifting similarities between the different instances. It is these shifting similarities which can provide an adequate justification for supposing the different instances to fall under the same concept; while the recognition that there is no need for them to be anything but shifting in kind would equally justify not making a search for some mysterious essence which must be common to the individual instances. (We might even “throw away the ladder” after we have climbed with it — for armed with such a model of the structure of concepts, we might even take Nominalism and Realism as family resemblance concepts themselves!)
A parallel observation is suggested about the division between Sceptic and Dogmatist, and a parallel resolution may be offered as well. Perhaps there too the problem occurs because the Sceptic and the Dogmatist have been united in sharing a hidden and questionable assumption, viz., that if knowledge is to be considered objective, it must also be considered absolute, not admitting any error or exception. The Sceptic correctly sees error to be possible, indeed error to be ubiquitous, and so an absolute or exceptionless knowledge to be impossible; from which he mistakenly concludes objective knowledge to be impossible. The Dogmatist correctly sees many things indeed to be known, but mistakes the character of what is known or at least some of what is known as incorrigible and unexceptionable, and goes on to deny error and exception to be possible. An equal and opposite error would be to confound the notion of something being personal or subjective with respect to an individual and the notion of something being relative to a given individual case or context or circumstance. That something can be true or right in a given case, context, or circumstance does not imply it must be true or right in all cases or contexts or circumstances. Nor does it have to mean that such knowledge must have been derived by applying an absolute and unexceptionable law or theory to a particular case. What may be true or right simply may be true or right relative to the particular case or context or circumstance, while the fact it is relative to the case or circumstance would not imply that it is a matter of subjective choice whether it is true or right.
An example can illustrate. If a child asked us whether Chicago is to the left or the right of New York, we might say that this is an incomplete question with no definite answer. Relative to someone looking north in Washington, Chicago is certainly to the left of New York, while relative to someone looking south in Montreal, it is to the right of New York. In each case, there is an objectively right answer to the question relative to the situation of the observer. And the significant fact would be the situation of the observer, not what his subjective beliefs might happen to be. If a man in Montreal said Chicago was to the left of New York he would be making an objective mistake in the sense that anyone in his situation should be reasonably expected to conclude the opposite. Or consider that while the West is due West and the East is due East of Istanbul, the West is due East and the East is due West — of Honolulu. The Sceptic would take the fact different and conflicting answers are possible to the same question as evidence for the conclusion that it is ultimately arbitrary what we call West or East, or whether Chicago is to the left or right of New York. The Dogmatist would take one or the other answer and conclude it must hold absolutely true everywhere, without possibility of exception or error. The division has been expressed clearly by Bambrough like this: “Both the sceptic and his dogmatist opponent assume that the absoluteness of logical space is necessary for the objectivity of enquiry; that in seeking knowledge and understanding we orient ourselves, if at all, by fixed landmarks whose own positions neither can be nor need to be the subject of investigation. Sceptics become sceptical because they recognise that what they believe to be necessary is nevertheless not possible. Dogmatists become dogmatic because they rebel against the paradoxes of scepticism but still agree with the sceptic on what is necessary for the validity of our knowledge. One party denies the possibility of knowledge because it sees that logical space is relative and the other denies that logical space is relative because it sees that knowledge is possible.” Both Sceptic and Dogmatist may be seen as united in their belief as to what will be allowed to count as knowledge — in what must be supposed to be the appropriate model of the justification of knowledge. In answering the question “How do we know this?” both may be assuming that we have to deduce our answer from some previous and more general law, rule, or theory; the answers we seek or arrive at must always be a particular application or exemplification of some more general thesis. (Wittgenstein wrote of a “craving for generality” and a “contemptuous attitude towards the particular case”.) The Sceptic becomes sceptical because he finds the process of deduction to be one without end. Deduction cannot be done without a remainder of unproven premises — a conclusion is deduced from a set of premises, each of which is the conclusion of other sets of premises, each member of which is the conclusion of yet other sets of premises, and so on. For every proposition there seems to be a genealogical tree consisting of all the lines from which the proposition deductively descends. The fact these lines can be indefinitely extended to unknown reaches leads the Sceptic to think the pedigree of every proposition to be questionable, that every argument ultimately must be inconclusive, that there really can be no such thing as certain knowledge. The Dogmatist shares the same kind of idea that the only justification of knowledge is a deductive justification, and also observing the same kind of threat of infinite regress in argument, decides to call a halt at some or other point; the precise point where to halt either being determined ex cathedra (the medieval schoolmen) or being chosen arbitrarily (the humean economist!). At such a point the Dogmatist is ready to stand and fight, and of course if different people choose different and contrary points, we may expect some mighty rows indeed to develop between rival dogmas. Indeed it is possible that economists who have subscribed to the received theory of knowledge have been both sceptical about the possibility of moral knowledge and dogmatic about the existence of supreme unquestionable normative primes and principles. The widespread adoption of moral scepticism may be itself a relevant fact in explaining how it is that numerous divisions of opinion have been so persistent in modern economics, whether with respect to the methods or the substance of inquiry in the subject. Thus it is possible to find eminent economists being in deep and seemingly irreconcilable conflict with one another on questions of method or theory or evidence or policy, being members or even founders of rival schools of thought, yet being completely agreed that the logical status of economic advice is equivalent ultimately to that of personal bias or prejudice. As Peirce remarked: “When society is broken into bands, now warring, now allied, now for a time subordinated one to another, man loses his conceptions of truth and of reason. If he sees one man assert what another denies, he will, if he is concerned, choose his side and set to work by all means in his power to silence his adversaries. The truth for him is that for which he fights.”

§3. It is possible that this parallelism between the Nominalist/Realist divide in the theory of existence and the Sceptic/Dogmatist divide in the theory of knowledge is not accidental. There is a possible connection which goes back to Plato. For it was part of Plato’s thinking that the things we find in the world are merely distorted and defective versions of ideal entities not actually given to human experience. In mathematics for example, a platonist would say that the dot we make on a piece of paper and call “a point” is but a defective image of the ideal point which has no parts or magnitude; the chalk mark on the blackboard which we call “a line” is but a defective version of the ideal line which has no breadth or width, and so on. It is these kinds of ideal points, lines, planes, etc. which are the true objects of mathematics; while they do not have location in the world in which we live that does not mean they are any less real. Rather mathematical objects should be thought of as inhabiting a kind of transcendental universe, a domain not directly observable yet which is reachable through the reasonings of the mathematician and philosopher, whose task it would be to discover and chart this unobservable terrain much as the geographer and astronomer discover and chart the observable earth and universe in which we live. As the English mathematician G. H. Hardy put it: “For me, and I suppose for most mathematicians, there is another reality, which I will call ‘mathematical reality’; and there is no sort of agreement about the nature of mathematical reality among either mathematicians or philosophers. Some hold that it is ‘mental’ and that in some sense we construct it, others that it is outside and independent of us…. I believe that mathematical reality lies outside us, that our function is to discover and observe it, and that the theorems which we prove, and which we describe grandiloquently as our ‘creations’, are simply notes of our observations.” Professor Michael Dummett has put it recently like this: “[Platonism is] the thesis that there really do exist such structures of abstract objects, and that we are capable of apprehending them by a faculty of intuition which is to abstract entities as our powers of perception are to physical objects.”
And ideal mathematical objects need not be the only inhabitants of Plato’s heaven. So could be ideal men and ideal women, ideal marriages and ideal families, ideal languages and ideal cultures, ideal economic agents trading at ideal prices in ideal markets, ideal societies and ideal polities. In fact there is some evidence to think modern economic theorists may have subscribed to such a view. For example, Professor Arrow remarked in his Nobel Lecture: “In my own thinking, the model of general equilibrium under uncertainty is as much a normative ideal as an empirical description. It is the way the actual world differs from the criteria of the model which suggests social policy to improve the efficiency with which risk bearing is allocated.” And Professor Hahn in his Political Economy Lecture at Harvard University and elsewhere has argued that the model of general equilibrium “serves a function similar to that which an ideal and perfectly healthy body might serve a clinical diagnostician when he looks at an actual body”, that even though the model “is known to conflict with the facts” and “is not a description of an actual economy” it nevertheless tells us “what the world would have to look like” if a neoclassical view of the economy is to be considered plausible. What is it possible to understand Arrow and Hahn to mean by such remarks except to be endorsing a platonist ontology? If so, it would of course sit oddly with their subjectivism elsewhere; we shall return to these matters in Chapters 9 and 10.
The platonist seeks to mentally grasp the ideal entities by his “mind’s hand” as it were, to use a phrase of Professor Morton White . And once he believes himself to have done so, the expression of his understanding would amount to being not only an expression of objective knowledge but an expression of absolute knowledge as well — something which is necessarily free of error or exception since it would have been the ideal which had been understood and expressed. The Realist becomes the Dogmatist. The Nominalist for his part wants nothing whatever to do with tales of airy fairy entities in transcendental heavens. As Professor W. V. O. Quine might have put it, what needs to be done instead is to make a clean shave of Plato’s Beard with Occam’s Razor. But in rejecting a picture of transcendental entities and the theory of absolute knowledge that goes with it, if the Nominalist cuts too thickly, he ends up rejecting the possibility of objective knowledge as well; the Nominalist becomes the Sceptic.
The theory of knowledge suggested by the writings of Peirce and Wittgenstein independently, suggests a third route. Reject Plato’s theory of a transcendental universe, as being unnecessary to the resolution of any question in the theory of knowledge. With it therefore is rejected the idea that to know something certainly and objectively we must have deduced it from some absolute and general law, theory, rule or principle; that when we say we know something we must be in fact expressing the discovery of some ideal transcendental “form”. Gone at once would be the possibility of an error-free and exceptionless knowledge which forms the basis of the Dogmatist’s dogmatism. Error and folly are ubiquitous: Let freedom ring! At the same time, once we unshackle ourselves from the cramped idea that every claim to genuine knowledge must be deduced from some previous and higher claim to knowledge and ultimately from some set of unquestionable supreme principles or axioms, we may reject Hume just as decisively as we reject Plato. The antidote to Hume’s debilitating and self-contradictory scepticism is commonsense. — We know some things are true and other things are false, we know some things to be right and other things to be wrong. And we can know these things without having to be haunted by an idea that we do not truly know them unless we have deduced them from some “higher” or more general proposition. The general rule or principle or theory may serve perfectly well as the unquestioned premise of one argument only to be the questionable conclusion of another. The inductive and the deductive may alternate in the activity of reasoning, as we proceed from one set of particular cases and questions to another set of particular cases and questions via as many general rules, principles, and theories that we need. As John Wisdom put it: “Examples are the final food of thought. Principles and laws may serve us well. They can help us to bring to bear on what is now in question what is not now in question. They help us to connect one thing with another and another and another. But at the bar of reason, always the final appeal is to cases.”
Furthermore, there may be a third and alternative mode of reasoning too, namely, reasoning by analogy. When faced with a question to which we do not have an answer, what may be required of us may involve neither induction nor deduction but comparison and contrast. The most reasonable way to proceed in a given situation may be to take the question at hand to which we do not presently have an answer and compare and contrast it with questions on either side of it to which we do have true or right answers. Here is a question L to which we do not presently have an answer. But we do know the answer to a question K which is close to L on one side, as well as the answer to another question M which is close to L on the other side. Now our question is, is L more like K or more like M? The reader may agree that that is how much reasoning does in fact proceed — in mathematics as much as in medicine, in science as much as in literature, in engineering as much as in ethics. It may turn out that on a particular question L the present state of our knowledge happens to be so poor that we require an answer not only to K but also to I, H, G, F, E, on the one side of it, as well as an answer not only to M but also to N, O, P, Q, R, on the other side of it, as well as perhaps to questions above and below and all around it. Will that mean our project is hopeless or that common reasoning can be of no avail in answering L? Not at all — it would only mean there is that much work to be done. For inquiry to be inchoate does not have to be cause for despair.
This kind of a notion that in the actual process of inquiry we always do start somewhere, and indeed that that is the only place to start, is to be found being expressed in the writings of Peirce: “We cannot begin with complete doubt. We must begin with all the prejudices which we actually have when we enter upon the study of philosophy. These prejudices are not to be dispelled by (the Cartesian maxim that philosophy must begin with universal doubt) for they are things which it does not occur to us can be questioned. Hence this initial skepticism will be a mere self-deception, and not real doubt; and no one who follows the Cartesian method will ever be satisfied until he has formally recovered all those beliefs which in form he has given up…. A person may, it is true, in the course of his studies, find reason to doubt what he began by believing; but in that case he doubts because he has a positive reason for it, and not on account of the Cartesian maxim. Let us not pretend to doubt in philosophy what we do not doubt in our hearts.” Then again: “Philosophers of very diverse stripes propose that philosophy shall take its start from one or another state of mind in which no man, least of all the beginner in philosophy, actually is. One proposes that you shall begin by doubting everything, and says that there is only one thing that you cannot doubt, as if doubting were ‘as easy as lying’. Another proposes that we should begin by observing ‘the first impressions of sense’, forgetting that our very precepts are the results of cognitive elaboration. But in truth, there is but one state of mind from which you can ‘set out’, namely, the very state of mind in which you actually find yourself at the time you do ‘set out’ — a state in which you are laden with an immense mass of cognition already formed, of which you cannot divest yourself if you would; and who knows whether, if you could, you would not have made all knowledge impossible to yourself? Do you call it doubting to write down on a piece of paper that you doubt? If so, doubt has nothing to do with any serious business.” A remarkable resemblance to this line of thought is to be found in the later writing of Wittgenstein: “If you tried to doubt everything you would not get as far as doubting anything. The game of doubting itself presupposes certainty.”
No theory of knowledge can compel us to think of the activity of reasoning to be starting all of a sudden out of nothing and nowhere, nor are we obliged to suppose it must have any necessary end. We always start somewhere — there are always cases to which we do have answers with which to compare and contrast the particular case presently in question. And there are always unexamined cases and unasked questions remaining, which we may bring to test the validity and soundness of any general law or theory or definition or principle in which we may have come to believe on the basis of the known and settled cases. Thus reasoning can be thought of as a certain and objective activity without having to be thought of as an exhaustive activity. Argument can be potentially endless, but it is not thereby inconclusive. It is conclusive, but it is not thereby absolute or final. There need not be either any canonical points from which we have to begin our reasonings, or any ultimate destination at which we have to stop. Reasoning can be objective without being thought of as having to have either an absolute beginning or an absolute end. We can be objective without being platonist, we can admit a rich and indefinite variety and diversity without being subjectivist.
In the next chapter this line of argument is continued in more detail and concluded.

6. Expertise and Democracy

In this chapter we shall consider in more detail the thesis introduced in the last, with the intent of together providing the main outlines of a theory of economic knowledge with which to replace the received humean theory.

§2. Our first task is to try to provide a more formal refutation of scepticism, i.e., to formally prove the existence of knowledge, a task which is in fact quite readily accomplished.
We have noted in previous chapters the important difference between the question of whether it is possible for an objective answer to be given to a question, and the question of whether someone should be thought of as possessing such an answer and how we are supposed to identify him or her. The question of whether there can be any expertise about a given matter is independent of (and prior to) the question of who if anyone should be thought of as an expert about it. Scepticism, considered technically as a thesis in the theory of knowledge, needs to be concerned with the former question alone; the consistent and universal sceptic being someone who takes each and every concept like ‘scientific knowledge’, ‘historical knowledge’, ‘moral knowledge’, ‘mathematical knowledge’, ‘probable knowledge’, ‘economic knowledge’ etc. and argues it to be empty, devoid of content, ultimately extending to no instances, in the way concepts like ‘unicorn’ or ‘reigning Czar of Russia’ would be said to have no instances. Equally a refutation of scepticism may proceed as a logical exercise as well, amounting to showing the existence of just one instance of knowledge. And to argue the possible existence of knowledge in this way would not be to commit oneself to any claim of knowing who should be thought of as an expert or indeed to any claim of knowledge for oneself. The heated political problem of who is supposed to be an expert and how we are supposed to identify him or her deserves to be kept separate from the cooler logical problem of whether there can be any knowledge on a question in the first place.
It is in such a light that we may view the proof of the existence of an external world given by the English philosopher G. E. Moore. Moore raised his hands one at a time before the British Academy and declared to the effect “Here is one hand and here is another. Therefore we know there are at least two objects in the external world.” Or Moore might have taken a pencil from his pocket and said: “Here is a pen; therefore we know there to be a world outside our minds.” The sceptic who protested that Moore was holding a pencil and not a pen would have helped Moore to prove his point, in that an attempt to deny Moore was holding an object in his hand could not be more certain than Moore’s claim itself. A single such example may suffice to show the concept ‘knowledge of the external world’ to be not empty and scepticism of the senses to be false and misleading. Moore wanted to show that we can and we do know some things for certain, and that we know them neither by induction or deduction necessarily, nor by fiat or dogma or mysticism, but simply by commonsense. Furthermore, if a theory of knowledge came to imply we did not know such things to be true when we did know them to be true then it was likely that it was the theory and not commonsense which was in error. Thus Moore declared that he most definitely knew that there was a living human body which was his body; that this body had been born at a certain time in the past and had existed continuously since then though not without changes; that it had come into contact with and been at various distances from many other things also having shape and size in three dimensions; that the earth had existed for many years before he had been born; that his body had been always in contact with or not far from the surface of the earth, and so on. Moore said that not only did he know these things to be certainly true, but that all of us know such things to be certainly true as well. In short, the problem of proving the existence of knowledge of an external world had a simple and yet rigorous solution.
An analogous proof of the existence of moral knowledge has been given recently by Bambrough by way of the following example: “We know that this child, who is about to undergo what would otherwise be painful surgery, should be given an anaesthetic before the operation. Therefore, we know at least one moral proposition to be true.” Bambrough claims there can be no argument to refute this proposition which does not accept the logical existence of moral knowledge. For suppose we tried to disagree on whether the child should be given the anaesthetic; there might be any of a number of grounds for doing so — such as the parents forbidding it, or because it went against the religion of the child and the child refused it, or because it was wartime and there was a shortage of anaesthetic and the child needed only a stitch on the hand when there were more serious cases needing the same scarce anaesthetic, or because the child was a premature and underweight newborn and there was danger it would not survive an operation under anaesthetic, and so on. That is, because there were other values besides that of avoiding unnecessary pain which were considered relevant to the problem at hand. We would have entered into a substantive moral debate with Bambrough, and pari passu we would have implied that whether it was he who was right to say the child should be given the anaesthetic or we who were right to say the child should not be given the anaesthetic, there was a right answer to the question whether the child should or should not be given the anaesthetic in the circumstances. A logical thesis of the objectivity of moral knowledge needs to establish only that there is, in principle, a right answer to every question as to what ought to be done. And this can be maintained without having to make any claim of either having the answer oneself, or knowing with whom it lies, or even knowing whether the answer has been in fact found. All substantive normative argumentation might be seen to take place within, as it were, this kind of logical space and would presuppose its existence. Likewise it may be said that there is to every question, once it has been appropriately characterized, a true answer whether or not we happen to have found it. “If a question can be framed at all, it is also possible to answer it.”
An analogous proof can be and needs to be given of the existence of objective knowledge in economics. And just as Moore did not refer to relatively complex physical propositions such as whether the universe is or is not expanding, nor Bambrough to relatively complex moral propositions such as whether abortion is or is not justifiable in some cases, so too we do not have to refer to relatively complex propositions in economics such as = (X’X)-1 X’y ; or that if Uh is a continuous utility function from a non-empty compact subspace Bh of Xh to the real line then Uh(Xh) has a maximum; or that with identical consumer preferences and production techniques a difference in factor endowments between countries is sufficient to explain the existence and direction of trade, with a country tending to export those goods which used relatively intensively the relatively abundant factor, and factor prices tending to equalize across countries. Just as very simple and uncomplicated propositions are sufficient to prove the existence of objective knowledge in physics or ethics, so only very simple and uncomplicated propositions are sufficient to prove the existence of objective knowledge in economics. For example: “In any human society which is not tribal or nomadic, there will be households concerned with the terms at which they are able to trade some of what they own for some of what they want, and this may well be true of tribal and nomadic societies as well. Therefore, we know at least one proposition in economics to be certainly true.” This would be a weak substantive claim, which can be made even weaker if in place of a generalization we merely point to this particular person who happens to be concerned with the terms of trade and declare: “Here is a person who happens to be concerned with the terms at which he can trade what he has for what he wants; therefore, we know at least one proposition in economics to be certainly true.” Or perhaps weaker still: “Here is a London taxi driver who knows how to get his passengers from King’s Cross to Knightsbridge; therefore, we know at least one proposition in economics to be certainly true.” The sceptic who tried to deny any of these as examples (albeit simple examples) of economic knowledge will have to bring to bear reasoning and evidence; will have to refer to propositions which he would say are true of economics — for instance, that this person in particular or people in general are not really concerned with the terms of trade or that the taxi driver does not really know his roads and intersections. Like Moore’s sceptic of the senses or Bambrough’s moral sceptic, the sceptic of economics would help us to prove our point, namely, that there exists a right answer to the substantive question to which he and we were giving different answers — as well as to every other substantive question, once it has been adequately characterized, which happens to have divided economists, whether or not its answer has been actually found. Once again to maintain that there can be objective knowledge in economics — that is, certain and definite answers known to be true about substantive questions in an economic context — would not commit us to any claim of knowing with whom such knowledge lies or even to claiming any such knowledge for ourselves. The cool logical question may be answered affirmatively that there is objective knowledge and expertise in economics without commitment to any answer to the heated political question of knowing who should be thought of as an expert on a given economic matter.
What may be indicated by this line of argument is the self-refutation that seems to be inherent in the sceptical position. As Frege remarked: “If anyone tried to contradict the statement that what is true is true independently of our recognizing it as such, he would by his very assertion contradict what he had asserted; he would be in a similar position to the Cretan who said that all Cretans are liars. To elaborate: if something were true only for him who held it to be true, there would be no contradiction between the opinions of different people. So to be consistent, any person holding this view would have no right whatsoever to contradict the opposite view.” It is also the requirement of Socrates that to be engaged in rational thought or action what one may not do is contradict oneself: “And yet I think it better…. that the majority of mankind should disagree with and oppose me, rather than I, who am but one man, should… contradict myself.” I, who am but one man, carry myself within as a partner, so to speak, and my thinking consists of the silent conversation in which we engage. If I find nothing uncomfortable in being inconsistent in my thought, I am at odds with myself and perhaps may not be said to be engaged in thinking at all. Likewise I would not be saying what I meant if my words contradicted my thoughts, and I would not be doing what I said if my actions contradicted my words.

§3. Now it is the political question of course of who should be thought of as having knowledge, who should be thought of as being an expert, which leads everywhere to the most and the merriest discussion. As we have seen in Chapter 3, a moral scepticism may have been found appealing by economists because it has been believed to be a doctrine which protects both the individual and the integrity of science from dogmatic claims that knowledge and expertise derive necessarily and absolutely out of unique or special sources. Plato may be considered responsible for this, if only indirectly through the misunderstandings and corruptions of his philosophy which have occurred from medieval times onwards. Plato was no friend of the democracy of his time, and dreaded the rise of the charlatan to high office who might proceed in caprice and folly to ruin public institutions and bring about civil chaos and misery. In the parable of the ship of state, which is overrun by a mob of sailors who then constantly try to fight one another for its control, the warning is issued of how mob rule can lead inevitably to the adulation of fraud and the condemnation of knowledge and justice. And certainly if we grant it to be possible that power and authority will fail to coincide with competence and virtue and instead coincide with ignorance and vice, we would be agreeing in some measure with this lesson in Republic. Plato’s solution was to propose the coincidence of competence and virtue with power and authority, either by suitably re-educating those already in office or by replacing them with those already educated in the arts and sciences requisite of statesmanship.
With the first part of such a solution, the modern democrat will have no dispute. In the modern theory of economic policy advanced by Professor Tinbergen and his followers for example, the maker of economic policy is imagined as someone representing the democratic political process, who, while setting the weights to be given to the variables in the social objective function to reflect the popular choice, also elicits expert advice on the best means to achieve these desired ends. The expert economist is imagined as someone specifying the constraints, doing the calculations and recommending how the intended “targets” can be most expeditiously reached given the “instruments” at hand. The modern theory differs from Plato’s in saying the democratic choice deserves respect, and that it is not the place of the expert to gratuitously debate it; but the modern democrat would be fully and rightly in agreement with Plato that the policies of a state deserve to be as well advised and well informed, as judicious and as prudent as they can be made.
Even some of the second part of Plato’s solution need not be disputed by the modern democrat. For the notion that an incompetent or corrupt government deserves to be replaced by one expected to do better is after all a principal reason for holding elections in modern democracies (“throw the rascals out”). What will be disputed by the democrat is Plato’s view that genuine knowledge and wisdom ultimately cannot be the property of any more than a few people, specifically a closed and identifiable set of philosopher-kings. We have seen in the previous chapter a possible connection between Plato’s theory of knowledge and his ontology or theory of existence; now we may add that Plato’s political philosophy too may be connected to his ontology. For it is only the genuine lover of wisdom, the true philosopher, who is supposed to have access through his pure reasonings to the transcendental domain of ideal “forms”, and thus come to possess what amounts to not just objective knowledge but absolute and infallible knowledge as well. Hence if knowledge and authority are to be made to coincide in the interest of good statesmanship, it is such a person and only such a person in whom they should be united. We have seen that we can sever Plato’s link between the possibility of objective knowledge and his ontological idea of the existence of a transcendental domain; likewise a democratic political theory might sever the link between the existence of political wisdom and Plato’s idea that such wisdom must be the ultimate property of only a few. It seems likely that Plato misconstrued the character of knowledge in this respect, and especially the task the scholar and scientist have of elucidating it. Yet it is possible to preserve the merits of his thought even while we reject its mistakes.
For what would there be to prevent us from characterizing the concept of knowledge fully and thoroughly as a family resemblance concept — as a concept of indefinite variety of kind and instance? As something which is the ultimate property neither of the one or the few as the platonist tells us, nor of no one at all as the humean tells us, but rather of everyone — precisely as the democrat tells us? In the previous chapter it was proposed that the activity of reasoning need not be conceived of so narrowly as to require deduction and induction alone as its methods; it can and often does require and involve a third method as well which is the method of analogy, i.e., the comparison and contrast of a question to which we do not presently have an answer with questions on all sides of it to which we do have answers. The expert answer is merely the correct answer, the most reasonable and most justifiable answer. When Plato has Socrates asking questions like “Who would you go to for advice in medicine or carpentry or shipbuilding?” the most natural answers are the ones given by Socrates’s respondents “Why to the doctor and the carpenter and the shipbuilder of course!” We expect the doctor’s answer to a medical question to be better than our own because we expect the doctor to have encountered many similar cases before in his training and practice; in other words, to have had experience of a larger stock of similar cases, drawing upon which he is expected to come more quickly and more surely than we would to the right answer to the question at hand. Learning from experience in any context, whether removing an appendix or piloting an aircraft or driving an automobile or tailoring clothes or running a household or a business, involves facing and resolving an indefinite number of similar cases. We call someone an expert about something relative to his or her stock of experience, and the novice or apprentice or student may be the expert relative to the complete layman. Understood in this way, everyone may be thought of as in fact having some experience, some expertise, some knowledge. — And then, if we are all specialists at some things, we must be laymen at everything else. Knowledge and expertise, as well as the power of reason as the means of their acquisition, may be relative and not absolute quantitites, possessed in some measure by all and in complete measure by none. (And it is this perhaps, we might say with Kant, that accords to every individual, to every rational being, a certain dignity. )

§4. A line of argument of this sort may be developed further in two aspects, with more specific reference first to knowledge of a public and scientific kind, and secondly, to the private knowledge of the individual agent.
Not everyone who may want to know the answer to a given question may be able to answer it correctly or have access to the correct answer. “The ionic addition to unsymmetrical alkenes proceeds in such a way that the more positive part of the reagent attaches itself to the least substituted carbon atom of the double bond” is not something self-evident to everyone, yet it is as a matter of fact something quite elementary to the student of organic chemistry, who refers to it as “Markofnikoff’s Rule” and knows it to be true under particular conditions, predicting for example that hydrochloric acid reacts with ethanol to give ethyl chloride and water. But why should the non-chemist be obliged to accept it? If the chemist tells us we must do so merely because all chemists happen to accept it, we may tell him he is making an ex cathedra claim and begging the question, since what we wish to know is from where the community of chemists itself derives its authority. Indeed the distinction we have made between the logical question of the existence of knowledge and the political question of who is supposed to have knowledge, makes it evident that even if every scientist or expert or a whole community itself took something to be true or right, that would not by itself make it true or right. For it is clearly possible to imagine a world in which all those who were called scientists or experts about a given matter happened to be inadvertently or deliberately spinning myths and falsehoods; to be engaged in self-deception and deception on a vast scale; e.g. Lysenkoism or Nazi genetics — but there are many less obvious examples too. (At once the claim of Mark Blaug reported in Chapter 2 is seen to be untenable. Blaug says “methodological” judgements can be and have to be made objectively in science but similar objectivity is not possible about “ethical views about the desirability of certain kinds of behaviour and certain social outcomes.” But let a community unanimously have as its “ethical view” one which entails deception or self-deception on scientific matters, and Blaug’s position becomes helpless.) Rather it is precisely because it is possible for even a unanimous group of experts to be wrong that we have a reason, an objective reason, why freedom deserves to be valued. As J. S. Mill put it: “If all mankind minus one were of one opinion and only one person of the contrary opinion, mankind would be no more justified in silencing that one person, than he, if he had the power would be justified in silencing mankind. Were an opinion a personal possession of no value except to the owner; if to be obstructed in the enjoyment of it were simply a private injury, it would make some difference whether the injury was inflicted on a few persons or on many. But the peculiar evil of silencing an opinion is that it is robbing the human race; posterity as well as the existing generation; those who dissent from the opinion still more than those who hold it. If the opinion is right they are deprived of the opportunity of exchanging error for truth; if wrong, they lose what is almost as great a benefit, the clearer perception and livelier impression of the truth, produced by its collision with error.” Where there is no freedom to ask what is the case, there may be answers but there will not be justifiable answers as to what the case is. In other words: freedom is necessary for objectivity. Just as Mill was clear that what is important is not only the formal presence of the freedom of dissent and criticism but its active exercise, so Karl Popper in more recent times has urged scientists to actively and continually try to refute their own and others’ conjectures about the world. It is only when we engage in conversation, in critical argument and discussion, in inquiry, whether within ourselves or with one another, that we are able to find out whether our beliefs are true or false, right or wrong, justifiable or unjustifiable, sound or unsound. If we are prevented by force or dissimulation from engaging one another in conversation, all we would be left with is the private reasoning in our own minds, as Orwell’s hero found in 1984: “The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command. His heart sank as he thought of the enormous power arrayed against him, the ease with which any Party intellectual would overthrow him in debate, the subtle arguments which he would not be able to understand, much less answer. And yet he was right! They were wrong and he was right. The obvious, the silly and the true had got to be defended. Truisms are true, hold on to that! The solid world exists, its laws do not change. Stones are hard, water is wet, objects unsupported fall towards the earth’s centre. With the feeling that he was speaking to O’Brien, and also that he was setting forth an important axiom, he wrote: ‘Freedom is the freedom to say two plus two make four. If that is granted, all else follows.” (Also Solzhenitsyn: “Fastenko, on the other hand, was the most cheerful person in the cell, even though, in view of his age, he was the only one who could not count on surviving and returning to freedom. Flinging an arm around my shoulders, he would say: To stand up for truth is nothing! For truth you have to sit in jail!”)
When the authority of a scientific or scholarly or expert community is brought to bear in answering some question, it may be understood merely as a short hand way of saying the result happens to be the best that common reasoning under conditions of freedom has thus far been able to achieve. If we say Markofnikoff’s Rule is true because the community of organic chemists says it is or β^ = (X’X)-1 X’y is true because the community of econometricians says it is, we would mean that so far as is known by anyone who has inquired into the truth of these propositions, they happen to be true under given conditions. If the layman wishes to challenge them, the route remains open for examination and discussion. If the route comes to be closed by force or dissimulation, the layman correspondingly is not obliged to accept as genuine what is being claimed as expert knowledge, and the writ of the experts cannot be said to run; while if it is open for anyone to examine the gamut of reasoning and evidence from common ground right up to the question at hand then we would have another kind of instance in which knowledge may be thought of as objective and yet relative to the situation of the knower. Just as someone in Washington is expected to conclude Chicago to be to the left and not the right of New York, so someone in the position of the econometrician is reasonably expected to conclude β^= (X’X)-1 X’y, and anyone in the position of the chemist is reasonably expected to conclude Markofnikoff’s Rule to be true under given conditions.
With respect to dogmatism directed at the individual, our central notion may continue to be applied that knowledge can be objective and yet its objectivity relative to the situation of the knower. Just as the West is objectively due West relative to Istanbul but objectively due East relative to Honolulu, so it may be said about positive questions that there can be a true answer in every case without it having to be that what is true in one case is also true in another, and likewise about normative questions that there can be a right answer as to what should be done in every case or context circumstance without it having to be that what is right in one case or even right in most cases is also right in every case. Murder is wrong, yet tyrannicide may be an exception (the July 1944 conspiracy against Hitler); slavery is an evil, yet it may have been the lesser evil when ancient victors offered the vanquished slavery or death; the soldier must obey orders, yet mutiny or desertion may prevent what could be worse such as mass murder, and so on. The social proposals of Jefferson or Marx or Keynes might be found strange and irrelevant by the bushmen of the Kalahari or the tribal people of the Amazon not because either the tribesmen or the philosophers are foolish or dogmatic but because the contexts experienced by the one are not the contexts envisaged by the other. “Circumstances objectively alter cases.” It is possible to suppose normative questions may be answered objectively in each carefully described context, while stopping well short of the further and fatal step taken by the dogmatist of supposing such answers to be of an absolute or infallible or unexceptionable kind. We have seen the subjectivist epistemology may have had as its purpose to protect the individual from some or other dogmatic rule when the individual is in fact going to be faced with having to make particular judgements in particular circumstances. Yet this is a purpose which may be better fulfilled, without the inconsistencies of the subjectivist epistemology, within an objectivist theory which nevertheless recognized the diversity, the indefinite diversity, that there can be in individual experiences and circumstances. Indeed an argument in support of the traditional liberal thesis of the freedom of the individual has been that individual knowledge and expertise is precisely of this particular and relative kind, and not of a general or absolute kind. An observation common to a number of liberal thinkers has been that the evidence relevant to the making of individual decisions is most likely to be available to the agents whom they most concern, that the individual normally has a certain kind of privileged access to the data which most concern him. Professor Hayek especially has placed in the foreground of his thinking what he has called the “indisputable intellectual fact which nobody can hope to alter” that there is a “constitutional limitation of man’s knowledge and interests, the fact that he cannot know more than a tiny part of the whole of society and that therefore all that can enter into his motives are the immediate effects which his actions will have in the sphere he knows.” Aristotle, though not a liberal in the modern sense, had made a similar observation long before: “the whole account of matters of conduct must be given in outline and not precisely, as we said at the very beginning that the accounts we demand must be in accordance with the subject matter; matters concerned with conduct and questions of what is good for us have no fixity, any more than matters of health. The general account being of this nature, this account of particular cases is yet more lacking in exactness; for they do not fall under any art or precept but the agents themselves must in each case consider what is appropriate to the occasion, as happens also in the art of medicine or of navigation…. We do not deliberate even about all human affairs; for instance, no Spartan deliberates about the best constitution for the Scythians. For none of these things can be brought about by our own efforts. We deliberate about things that are in our power and can be done.” It is an observation made in modern microeconomics as well. When an assumption of rationality is said to require of the individual economic agent merely “correct calculations and an orderly personality”, it is meant that the agent ranks in a consistent way the alternatives he believes himself to be facing, and that the action taken is the highest ranked alternative given constraints of feasibility. The picture is of someone looking to the particular evidence and deliberating upon it, evaluating the alternatives believed to be faced, and doing what is judged to be the most appropriate in the circumstances. ‘Ought’ certainly follows from ‘is’ in such a model of man, in the straightforward sense that action and conduct follow from observation and thought — Aristotle would have claimed no more in arguing the objectivity of moral knowledge. If this is believed to be the set of alternatives and this the set of constraints and this the ranking then this is the right action, the “optimal” action — that which the agent ought to do. Change the factual ingredients of the individual case, and the right action may well change with it, suggesting again not that there is no such thing as a right action but that what happens to be the right action in one context or set of circumstances may not be so in another. In the theory of general equilibrium too, an economy would be formally defined by the preferences, resources, technologies, expectations, etc. of different economic agents, and it would be taken for granted an individual agent has available knowledge only of his own particular data (“informational privacy”). To account for the fact the individual agent knows only of a small fraction of all the tradeable goods there are, we may have to define the specific partition of goods and skills known to the agent as his particular “information structure”, so all of the agent’s other data would come to be defined only within this small and particular subspace. It then would be said that for the agent to be able to make decisions and act upon them it suffices that he knows in addition only of relative prices, i.e., the terms at which he can make his desired trades.
It is from positive observations of this sort that the normative liberal recommendations followed. For example, it has been from an observation that the individual agent has a “special knowledge of circumstances of the fleeting moment not known to others”, a “knowledge of particular circumstances of time and place”, that Hayek concludes “practically every individual has some advantage over all others because he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation.” Adam Smith had arrived at a similar conclusion from similar grounds: “What is the species of domestick industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him.” A correct answer exists to every question. Smith’s question is: Who is likely to know best where an individual’s resources will earn their highest reward? The expert answer is just the correct answer. In Smith’s view, it is the individual himself who is normally the expert, perhaps the unique expert, because evidently it is he in his local situation who is most likely to know where his resources will come to earn their highest reward. In general, the liberal thesis of Adam Smith and J. S. Mill and Hayek and others gave objectivist grounds as to why the individual’s exercise of expertise should be valued and considered to be part of his “protected sphere”; viz., because it is usually the individual himself who knows most about his own ends and means while being ignorant of or indifferent about those of others.
Moreover, that the individual agent normally can be expected to have available to him the particular evidence relevant to his own decisions does not imply that what he actually comes to do is necessarily the right or optimal thing to be done. Nor does this in turn imply that he should be forced to do anything different. We know from ordinary experience that it is possible for our actual behaviour to be capricious, mercurial, myopic, foolhardy, thoughtless, profligate — in short, irrational. A person may even know something ought not to be done or be made a habit of and yet continue out of what Aristotle called akrasia or weakness of the will. Dostoevsky has Marameladov tell us how he is fully aware of the wretch he has become, that the more he drinks the more he feels it, that he is in search of not happiness but continued wretchedness. As the addict himself may be prepared to grant, behaving out of akrasia may no longer to be acting out of free and responsible volition. Of course the economist typically must ignore all this actual diversity in human behaviour and restrict his study for the sake of economy and analytical convenience only to what is purposeful in an economic context. Yet a potential error in the use of the concept of rationality in contemporary economic science would be to assume every human action must be an instance of it, when there is no such necessity and to make such an assumption would be to leave the concept without any force. As Frege said at one place: “It is only in virtue of the possibility of something not being wise that it makes sense to say ‘Solon is wise’. The content of a concept diminishes as its extension increases; if its extension becomes all-embracing, its content must vanish altogether.” If the concept of rationality is made to be all-embracing, its content must vanish altogether.
Furthermore, whether an individual believes what is mistaken or behaves irrationally is a different question from whether he or she should be forced to believe or do any different. This is a difference which has been blurred in the theory of social choice which will be discussed in Chapter 10, where dictatorship is defined as a situation in which one person alone believes x to be better than y and x and not y comes to be imposed on everyone. Certainly dictatorship may imply, among other things, the forced imposition of something over someone else; but in general whether someone should or should not believe or do something is quite a different question from whether he or she should be forced to believe it or do it. Whether it is only one or a few or a minority or a majority or all who happen to believe one alternative to be better than another, that would not by itself make one better than the other nor be a ground for others to be forced to believe the same. Whether a lesser or a greater evil happens to be avoided or a greater or lesser good promoted when a law forces everyone to do or not do something would be a question requiring the fullest possible description of the particular case for its answer; the question of whether something should or should not be done by an individual in a given context or set of circumstances deserves to be kept separate from it.

§5. Thus the Spell of Plato is broken when we recognize the pursuit of knowledge in any context to be a dynamic enterprise which necessarily requires freedom for its success. While we can know and do know many things, everything that we know or will come to know remains open to further inquiry, examination, discussion, and interpretation — open, that is, to fuller and more mature understanding. According to the received theory of economic knowledge, we are to suppose that while some positive considerations may be brought to bear in a normative discussion, a naked subjective conflict can still remain after there has been full and justifiable agreement over the evidence and the analysis. We have been taught to assume that the processes of common reasoning must have a finite limit. Yet even so, it is only supposed to be after all the positive questions have been answered, every relevant piece of evidence discovered, every piece of evidence tested for its relevance, every logical relation established, every detail in the vector of positive considerations (p1, p2,…, pω-2, pω-1) not only agreed upon but justifiably agreed upon; that Hume’s Second Law would declare there to be no further scope for reason, nothing more to be said or done. We have found in our study no grounds for supposing such a limit to be anything but a fiction. Instead we are in position to turn the tables on both sceptic and dogmatist and say to them: Surely there is always something further to be said, some logical argument to be improved, some contrast or comparison yet to be made, some relevant piece of evidence yet to be established. Even when two disputants seem entirely agreed upon all the positive considerations (p1, p2,…,pω-2, pω-1), and seem to be divided only over a sheer normative proposition like nω, surely there still remains pω to be discussed! The Spell of Hume upon modern economists can be finally broken when we see that while normative recommendations in economics or elsewhere may be objectively better or worse depending upon how sound or unsound are the positive arguments given in their support, there are no unquestionable normative recommendations — because there are no unquestionable positive grounds. A set of actions which are the means towards certain ends can be themselves the ends towards which other prior means have to be taken, as Aristotle said. Similarly the ends of certain actions can be the means towards certain others. The rational agent may be capable of deliberating not only as to the means towards certain ends but also as to the reasonableness of the ends themselves. We can accept the sound advice of the humean economist that it is a useful maxim to do these tasks in stages, without having to accept the dogmatic advice of the humean economist that deliberating about ends must sooner or later become dogmatic.

§6. If these should all seem quite simple and straightforward thoughts it will be all the more remarkable that in recent decades there seem to have been but two economists, Sidney Alexander and Amartya Sen, who have come to similar conclusions in their writing. In a very brief and troubled argument, Sen defined a “basic value judgment” as one held by a person “under all conceivable circumstances”. Sen admitted the humean position: only if a person’s judgement was “basic” could it be said to be beyond rational discussion. And then continued: while some judgements could be shown not to be “basic”, no judgement could be shown to be “basic”; there is “no sure-fire test” which can tell us whether the point has arrived where the scope of reasoning is allegedly exhausted. But Sen was ambivalent, and ended weakly with the statement “it seems impossible to rule out the possibility of fruitful scientific discussion on value judgments.” Sidney Alexander advanced the argument clearly and vigorously that if the foundations of economics are to be laid on positivist premises they would be necessarily inadequate. The positivist economist had seemed to shy away from normative discussion without in fact having done so. Indeed the positivist economist could not help not doing so, and besides need not do so, because once the scope of reason in the making of judgements has been properly characterized it is in fact seen to be potentially indefinite.
Many economists who have explicitly subscribed to the received theory of knowledge have nevertheless contradicted it in practice, and thereby stood on firmer epistemological grounds than their own theory would permit them to do. To take just two distinguished examples: when Professor Friedman recommends a monetary authority ought to have a steady and declared k% money supply growth rule, it is because he believes that it is the case that money is neutral outside the short run, that the quantity theory more or less accurately describes the demand for real money balances, that the lags entailed by discretionary policies are likely to thwart the intent of such policies, and so on. And Robbins for many years of his life was closely involved with the making of government policy in Britain, especially having to do with higher education. In such a capacity he would have sought to justify his evaluations on grounds of reasoning and evidence, and hardly would have said that only a free-for-all was ultimately possible over value judgements. There are these grounds on one side of the issue, and these on the other, he might have said, let us try to stand on the firmest possible. The same may be confidently expected to hold for every economist who has ever made a recommendation as to what ought to be done or not done by a government or a committee or a colleague or a student. Evaluations are grounded on reasons, and an evaluation is good or bad, judicious or capricious as the arguments and evidence which go to support it are true or false, reasonable or unreasonable, sound or unsound. Whenever two economists come to give different answers to the same normative question — who are therefore in genuine disagreement and not at cross-purposes — we may be confident they shall be found to be giving different answers to some or other positive question at the same time. When we disagree on whether the highway should be built, or whether there should be a balanced budget amendment, or whether the deficit or the money supply should be expanded, we shall also be found to disagree on whether the benefits expected of the highway will be exceeded by its costs, whether an amendment will hobble the legislature or discipline it, whether a deficit or an expanding money supply is likely to be inflationary or recessionary, and so on. In any actual public discussion, it is very unlikely that any serious economist will want to make use of, or be permitted by others to make use of, what he happens to be permitted to by the received theory of economic knowledge, which would be to foreclose all further discussion at any point he wishes saying “Look I like it and that’s that; if you don’t like it as well you can jump in the lake.”

§7. There is finally to be considered the position of Gunnar Myrdal and Paul Streeten, which has been widely believed to be opposed to the humean theory. In a representative statement Myrdal wrote: “There is no way of studying social reality other than from the viewpoint of human ideals. A ‘disinterested social science’ has never existed and, for logical reasons, cannot exist. The value connotation of our main concepts represents our interest in a matter, gives direction to our thought and significance to our inferences. It poses the questions without which there are no answers. The recognition that our very concepts are value-loaded implies that they cannot be defined except in terms of political valuations.” And Streeten writes: “The strict separation of ‘ought’ from ‘is’, which dominates modern liberal economic theory (and, in different versions, modern philosophy) is not, as it claims to be, morally neutral, nor simply a discovery of philosophical analysis. For no observation or logical analysis can discover that we ought to separate values from facts, or ends from means. No amount of description or deduction can show that we can fully analyze actual political and moral choices without introducing values into our analysis…. The philosophy which denies the logical connection between facts and values and deduces from this denial its own moral neutrality (suppressing a series of necessary unwarranted premises) suits admirably a liberal philosophy of tolerance, in which different political views have an equal right to exist (though it is not explicit whence it derives this claim).”
A sound epistemological premise may be seen here to be leading to an unsound epistemological conclusion. As Myrdal correctly observes, ethics does indeed help to represent our interest in a matter, give direction to our thoughts, significance to our inferences, to pose the questions without which there are no answers. And Streeten correctly hints at the paradoxes resulting from a cramped understanding of the is-ought dualism which have been brought to light in previous chapters. But both Myrdal and Streeten appear to take for granted with the humean economist, whom they think to be their enemy, that normative questions are only subjectively answerable, indeed that the answers to them might as well be equated with the personal interests of the respondent. Combine with this the correct observation of the involvement of values within the activity of reasoning, and we would be led with Myrdal and Streeten to conclude that there is no distinction — not even a working distinction — between facts and values, means and ends; that making such a distinction is merely a guise for the covert advocacy of a liberal economics; more generally, that the “main concepts” used by economists or other students of society must be being driven by the covert political motivations of their users — i.e., by “ideologies”. From trying to establish that some particular economic concepts may have had particular political overtones, Myrdal and Streeten would seem to slide into a position of saying political motivations permeate the study of man and society completely. Where the valid and useful line between the positive and the normative is exaggerated by the humean to be one which is impenetrable and ineradicable, Myrdal and Streeten over-react to erase it completely. The humean theory makes itself unable to judge the ends to which economic expertise is to be put, and so has a perverse if unintended consequence of confounding the economist as independent scholar or adviser with the economist as mercenary — disapproved of less because of the ends to which his special knowledge might be put than because he himself is indifferent as to whether these are foreseeably right or wrong, justifiable or unjustifiable, good or evil; where the humean theory provides respectability to the mercenary, the theory of Myrdal and Streeten may come to have an equally perverse if unintended consequence of providing respectability to the ideologue — solely and supremely concerned with the advancement or imposition of his own ideas. (“Thanks to ideology, the twentieth century was fated to experience evildoing on a scale calculated in the millions.”)
We are entitled to take a view less cramped than that offered by either theory.
First, the objectivity of economic knowledge is independent of the history of our controversies. The fact there may be widespread or even unanimous agreement among economists on a substantive positive or normative proposition does not by itself make the proposition true or right. Equally, the actual presence of deep and long standing substantive disputes between economists on the answers to positive or normative questions does would not constitute grounds for doubting the objectivity of economic inquiry, just as the presence of deep and long standing disputes on mathematical or scientific or medical questions does not constitute grounds for doubting the objectivity of mathematical or scientific or medical inquiry. We may hold certain and objective knowledge to be possible in economics even while we hold there to be no logical end to inquiry in the field.
Secondly, as noted in Chapter 4, it would be a cramped understanding of the is-ought dualism which leads to an absolute separation between the economist qua objective, rational, expert scientist, and the economist qua subjective, irrational, opinionated citizen and propagandist; the former allegedly concerned only with the ‘is’ questions of science, the latter allegedly with the ‘ought’ questions of dogma or prejudice. We have seen this to be, in effect, the same kind of absolute distinction as made in Plato’s theory between the special people of true wisdom and the ignorant populace at large, and that it suffers from the same internal weakness as well, of not being able to specify how such special people are supposed to be identified. Instead, we are entitled to take a view that the expertise of the economist — like that of the doctor, scientist, historian, writer or mathematician — is relative and not absolute in character. Its authority derives from and rests upon the weight of reasons in its support; upon the extent to which it can be made to stand, or has been subject to and has withstood rational criticism. Where force or dissimulation happens to prevent the possibility of criticism, we may not claim authority for our pronouncements, while if we are ourselves party to the prevention of criticism by force or dissimulation, then we lose by the same token our credentials as experts with special knowledge of the question at issue.
Thirdly, the expertise of the economist, like that of the scientist or the doctor, does not ipso facto exempt him from the constraints of ordinary moral reasoning to which everyone else is subject. The fact we are trained within a particular department of enquiry is hardly sufficient license for us to ignore or deny the central moral distinctions between right and wrong, good and evil, which we as rational beings are in general capable of making. Indeed the true/false distinction and the right/wrong distinction may be thought of as running in close parallels within the very activity of reasoning. If something is true then it ought to be believed (normally). Thus Peirce was to regard “Logic as the Ethics of the Intellect”. And Frege was to remark “Logic has a closer affinity with ethics. The property ‘good’ has a significance for the latter analogous to that which the property ‘true’ has for the former.” While Wittgenstein spoke of “the hardness of the logical ‘must'”. “A proof shews us what ought to come out.” “What I am saying comes to this, that mathematics is normative. But ‘norm’ does not mean the same thing as ‘ideal’.”
In sum, our broad strategy has been to show common knowledge to be a sufficient antidote for scepticism, while freedom to be a necessary antidote for dogmatism. We are justified in relying upon our commonsense beliefs in the objectivity of science, yet the history of the progress of science has been a history of the discovery of errors in our beliefs, requiring us to place as much importance upon the ubiquity of error as upon the possibility of knowledge. In turn this shows there to be perfectly objective grounds for valuing freedom, namely, that it is necessary for the progress of our knowledge and understanding and rationality itself, in all the manifold diversity that these concepts may be understood. We are also justified in relying upon our commonsense beliefs that some things are objectively right and others objectively wrong, without having to deduce how we know what is right or wrong in a particular case from some or other allegedly unquestionable, ultimate, moral prime or principle. What may be right or optimal in one case or context or circumstance simply may not be so in another. Furthermore, what we believe to be right in a given context, just as what we might believe to be true, is itself open to question and discussion. Again it is the active exercise of freedom which should be the antidote to dogmatism. The degree of authority resting in a claim of expertise in a given context depends squarely on the weight of reasons in its support and the degree of rational criticism it would be possible for it to successfully withstand. Where freedom is suppressed, whether deliberately or accidentally, whether in a grand or a petty tyranny, and claims to expertise are prevented from being examined for errors with a fine-tooth comb, there would be no genuine authority to be acknowledged.

PART III

7. An Example from Microeconomics

“EXAMPLES are the final food of thought”, and in this third part of the book we shall examine a diverse set of examples and applications with a view to illustrating the theory of economic knowledge advanced in the previous chapters. If this and the received theory of economic knowledge are to be tested for their relative merits, then we may wish the scope of the testing to extend to all manner of discussions. We begin in this chapter with a brief example in microeconomics; specifically, an actual debate spanning about ten or fifteen minutes which occurred not long ago on public television in the United States. Although the subject was of an economic nature the participants were not economists or academics as such; the debate is offered here as representative of similar non-technical discussions on concrete subjects which make up perhaps the bulk of actual discussion on economic policy in any society, and from which the university economist is sometimes far removed. We shall be returning in later chapters to the more abstract kinds of discussions which are to be found in university economics.
The debate to be considered had to do with a decision of the United States Federal Communications Commission (FCC) in December 1984 to require an increase in the charge of purchasing access to the long distance network. The rate was to increase by one dollar per month in 1985 and another dollar per month in 1986, in the expectation of revenues increasing by one billion dollars in the first year. One participant represented the FCC and was called upon to explain and justify the decision, the other represented the Consumer Federation of America and was called upon to express and explain his criticism of the decision. The two moderators were Mr. James Lehrer and Mr. Robert MacNeil.
LEHRER: Here to explain why the FCC did what it did is Albert Halprin, chief of the agency’s common carrier bureau, which oversees telephone rates among many other things. First, why was this charge necessary?
HALPRIN: Well, the FCC took an important step today designed to preserve the viability of the nation’s public telephone network and to prevent the division of society into a set of information haves — the very large companies, high tech companies — and information have nots — everybody else who will never have any choice but the public telephone network.
LEHRER: Now, how does the one dollar fit into all of that?
HALPRIN: The one dollar… covers the cost of connecting every telephone customer to the entire network… [as] part of an attempt to price the public telephone network in a way that will not discourage large companies from using it. The FCC believes that the public network serves almost everybody at the cheapest cost
LEHRER: What do you mean by “the public network”?
HALPRIN: Well, we have in place a tremendous public telephone system. It connects every subscriber to almost everybody inside the country and in the world. It makes a lot of sense to have everybody use this big, integrated, switchable network, because it’s there. Up until now we’ve developed a system in which we’ve charged heavy users of that public telephone network a much, much higher price than it actually costs them to use the network…
LEHRER: You mean business customers, mainly ?
HALPRIN: Well, in fact residential customers, who are heavy users of long distance service, have been paying to subsidize businesses that do not use long distance service. The key factor here is the people who make a lot of long distance calls have been asked to pay a price that’s much more expensive than it would cost them to go around the public network and go over what are called bypass facilities….
LEHRER: What was the FCC’s conclusion as to what would be the consequence of not imposing this dollar fee?
HALPRIN: Well, the FCC has been looking at what has been taking place, and we have found an increasing number of large users bypassing the network, either through building special facilities or through ordering new special line types of facilities, both of which are taking away from the network that serves you and me at home.
LEHRER: And why is this so awful?
HALPRIN: Well, for two reasons. The first, of course, is that those are the people who are paying subsidies now to keep your rates and my rates below the actual cost. If they drop off the network, that goes away. But even more important than that, if they drop off the telephone network, the telephone wires that are in place serving them now will not only not be used, but will be paid for by you and me, by those people who have no choice and will never have any choice but using the public network.
LEHRER: Thank you. Robin?
MACNEIL: For a very different perspective we turn to Gene Kimmelman, legislative director of the Consumer Federation of America, which represents more than two hundred consumer groups nationwide. Mr. Kimmelman, I know you object to this new charge. Can you tell us why?
KIMMELMAN: Well, we don’t think the access charge is necessary to keep the public network together, and nor do we think it’s equitable. We’ve found in studies of rate increases this past year that residential customers are now paying $2 billion more for basic telephone service. When you take that additional billion dollars in June 1985 for access charges and add them onto recent rate increases, we think that we are losing affordable phone service for the average American household.
MACNEIL: And are people dropping off?
KIMMELMAN: Yes. We found that in 1984, using a model put together by the Bell Companies, that over two million people will do without phone service by June 1985 because of the rate increases that they experienced in 1984.
MACNEIL: And how many more people do you estimate will do without phone service because of this new, by 1986, $2 a month charge?
KIMMELMAN: Well, at this point it’s difficult to predict, but we think at least a million people, if remedial action is not taken by state commissions or by the FCC to try to provide some special help, particularly to low income people.
MACNEIL: I see. How many more did you say again? I’m sorry. How many more?
KIMMELMAN: At least another million. It’s difficult to say.
MACNEIL: So that would be three million altogether who would have dropped off, you mean?
KIMMELMAN: Right. We already have over three million households that do not have phone service, and the number is growing as the rates increase. And this is an unnecessary result of phone company pricing changes, and the FCC seems to be buying into this new scheme….
MACNEIL: Well, what about [Mr. Halprin’s] point that if you don’t provide some incentives for big users, they’re going to go and set up their own networks to the detriment of the system that is already in place?
KIMMELMAN: Well, I believe it’s a legitimate concern. I do not believe it is occurring quite as much as the FCC believes. And even if it is occurring, I think there are other ways of repricing long distance service that will keep everyone on the network without having to shift those costs onto the average residential customer….
LEHRER: Mr. Halprin, let’s go through some of Mr. Kimmelman’s points. First of all, this is going to result – the fee, the access charge itself is going to result in another million people losing their phone service.
HALPRIN: Well, it won’t, for two reasons. The first, as Mr. Kimmelman mentioned, that rather than tracking and seeing that two million people had dropped off the network as a result of past increases, they used a model which predicted that two million people would drop off. The FCC has
LEHRER: Wait a minute, wait a minute. You’re saying that two million haven’t dropped off?
HALPRIN: That’s exactly right.
LEHRER (to KIMMELMAN): You’re saying two million have?
KIMMELMAN: We’re saying from the best numbers that we have available from the industry, conservative estimates are that at least that many people are giving up phone service, yes.
LEHRER: Well, because of the way
KIMMELMAN: Because of the 1984 rate increases.
HALPRIN: The FCC adopted a report today which was not based upon models, which are things you plug into a computer; [but which was instead] based upon studies and the actual numbers of people who are taking telephone service. It’s the Universal Service Report. There has not been any type of dropoff like this. In fact, as with most other commodities, each year there have been increases in telephone service….
LEHRER: I don’t think we can resolve this specific point, but this is awfully confusing. I mean, one of you is saying very clearly one thing and the other the other. I mean, this is a matter of fact, is it not? People either have phones or they don’t have phones.
KIMMELMAN: Yes, it is a matter of fact. The important thing to remember is the FCC is moving ahead in imposing these charges and now deciding just to start studying it. No, we do not have precise, absolute figures of the names of the people who have given up phone service, but we have the phone companies’ own model that projects what will happen. I seriously doubt that it’s an exaggeration of what has happened. I would be happy if the FCC would prove us wrong, because we want everyone to have a phone.
LEHRER (to HALPRIN): Why don’t you do that? Why don’t you go out and find out how many
HALPRIN: We have. The FCC adopted a report today which is not based upon computer models but upon an actual survey of what’s taken place, and there has not been a loss of universal service….
LEHRER: What do you say to Mr. Kimmelman’s other point in his conversation with Robin that there are other ways, if you really wanted to ensure the integrity of the national system, there are other ways to do it?
HALPRIN: I don’t believe that’s correct. I’ve taken a brief glance at Mr. Kimmelman’s report, and his answer is to
LEHRER: You have a report too, Mr. Kimmelman?
KIMMELMAN: Yes we do.
LEHRER: Okay.
HALPRIN: It uses a lot of computer models and very few facts. But it basically says that they agree that it’s necessary to keep the large customers on the network by reducing their rates, and what they propose is to jack up the price of long distance service for you and me and the people who only make one or two calls. We don’t think that can be done. We don’t think it’s feasible. We don’t think it’s fair.
LEHRER (to KIMMELMAN) Is that your solution? Has he accurately characterized your solution?
KIMMELMAN: I cannot say he has accurately characterized it. What I can say is we spread the costs of the public telephone network, I believe more equitably, among everyone who uses it. We do not believe the bulk of those costs should be on the local ratepayer. They should be spread equitably among everyone who benefits from the existence of the public network. That means keeping more costs on the long distance users, spreading them slightly differently than is currently done….
LEHRER (humourously): Gentlemen, I’m sure glad we cleared all this up tonight. Thank you very much.”
The reader may agree that the first thing that may be said about this debate is that it is one of good quality. It succeeds remarkably well in its purpose of advising and informing the observer of the matter at hand, not of course in any final or absolute way with every possible consideration having been brought up, but adequately enough for at least a number of the pertinent facts and issues to have been raised in the span of a few minutes. The purpose of the discussion is a limited one, and its fulfillment must be judged accordingly. Moreover, it is all four participants who contribute to this quality, protagonists and moderators jointly. The protagonists are willing and able to address the same questions and so come to define what correctly may be called disagreement, in which contrary answers are given to the same questions, rather than be at cross purposes resulting from one participant answering a different question from the other. There is also little or no stone-walling or prevaricating or obfuscating on either side; and of course it is the moderators who contribute here by asking the precise questions that they do, with a view to creating as much common ground as possible upon which the argument may take place. This conversation, brief and mundane as it was, is quite sufficient to show how the process of critical inquiry is a common and not a personal enterprise, reflecting the fact of language as a social institution and not a private possession.
Turning to the substantive questions raised, we find there to be much that may interest the economist. Halprin opens his defence of the FCC’s decision by arguing the ex ante situation is not one of equilibrium, and he hints it has been neither efficient nor conducive to the general welfare. The price charged to long distance users has greatly exceeded the marginal cost of production, while the opposite has been true for local users. Given current innovations in technology, an implicit tax of this sort on long distance users may make it possible and profitable for them to substitute away from the public network itself, threatening in the longer term to drastically raise marginal costs for those who remain. Better therefore to take a slightly bitter pill now than a more bitter pill later. Kimmelman’s opening round makes the suggestion that

the demand curve for telephone service (long distance and local together) over all households in the economy is quite elastic, and the rise in price will likely lead to a relatively large fall in demand, especially among poorer households for whom telephones might not be an absolute necessity. Implicit in the positions of both protagonists is a moderate kind of utilitarianism, specifically one according to which households should receive somewhat greater weight in the social utility function than businesses (notice Halprin’s quick denial of the suggestion that the FCC’s decision was intended to assist businesses at the expense of households), and poorer households receive more weight than other households. Kimmelman especially is concerned to make this last point, perhaps hinting that the availability of telephone service in a home is a good which deserves to be distributed in something of an egalitarian way, that it would be an avoidable injustice if poorer households were unable to call for things like emergency services in the way that others were able to, that the broad principle of equality in the consumption of public goods would suffer in some measure with the proposed charge. Halprin responds not at all by disagreeing with Kimmelman’s normative premises about the importance of preserving universal service but rather by disagreeing on the positive question of the nature of the demand curve; suggesting one or both that the demand curve is less elastic than Kimmelman claims, and so there will not be the kind of fall in demand that Kimmelman predicts, and also that the demand curve for this good as for other goods has been gradually shifting out over time with the growth in real income (this latter point being something of a red herring in the context).
Next the discussion takes an interesting turn with Halprin raising sceptical doubts about the use of a predictive model by Kimmelman in obtaining his results. The model provides only an indirect means, Halprin suggests, and therefore should be contrasted unfavourably with the direct and allegedly plain results of an actual survey. Halprin claims that to be what the FCC has done, hinting perhaps that the observer’s prize for a solid, feet on the ground approach deserves to go here rather than to any fancy modelling exercise the ordinary man is likely neither to understand nor want to understand. Kimmelman replies no, of course he does not have the names of the actual households who have dropped off the network, hinting perhaps at the practical impossibility of such an exercise, and suggesting that the use of the kind of model he had relied on is the best anyone can hope to do in the circumstances. Besides, Kimmelman says, the model he used would hardly have loaded the dice in his favour, since it was the very same model formulated and used by the telephone companies themselves, and they surely would not act against their own interests to bias their model in favour of consumers, would they?
And so on. Interpreted in this way, the large and potentially indefinite scope which remains for further discussion of the subject becomes readily clear: on the substitution and income effects of the one dollar increase, on the structure and contestability of the market for long distance telephone service, on the choice and formulation of the empirical model, on the collection and interpretation of the data, on the political forces and constraints that may be at work, and so on. Certainly it is the case that neither Halprin nor Kimmelman is a disinterested observer. To the contrary, each is and may even be expected to be representing as best he can the particular facts and points of view which are relevant to his own constituents. Then again, it is possible that Halprin is a Republican and Kimmelman a Democrat, or vice versa, that one is a conservative and the other a liberal, that they happen to agree or disagree with one another on any number of other substantive matters from the infallibility of the Pope to the fallibility of the local football team. But none of this would be in the slightest way relevant in the given discussion to the soundness of their respective arguments — to the truth and plausibility of their premises and reasoning. Nor would it make any difference that their emotions might have become involved in the process. Certainly they could have raised their voices in anger or shouted at one other in trying to make their points — say if the subject had not been the relatively simple and unexciting one of the pricing of telephone service but something more complex and volatile like foreign aid or abortion or the situation in South Africa or the Middle East. Or, it is possible the participants in this or any other debate will deliberately not be fully sincere in what they were saying, in the interests of tact and diplomacy in a public forum, keeping their fingers crossed under the table to remind themselves they did not completely believe what they heard their voices to be saying. But again the truth and plausibility of what was being said — whether one million or three million or nobody at all was likely to drop off the telephone network in consequence of a one dollar increase, whether this model is better than the other or not, and so on — would remain entirely unaffected and open to further inquiry and critical discussion by themselves or others.
In sum, we have a simple and straightforward illustration of how it may be possible for inquiry and discussion to continue freely and yet objectively — conclusively yet without necessary or final end — upon a normative question of microeconomic policy. This example of a direct and actual debate upon a concrete question may now be compared and contrasted with the more indirect and abstract divisions to be found in university economics.

8. A Dialogue in Macroeconomics
OUR next example is of quite a different sort, namely, the academic debate which has occurred in macroeconomics and monetary theory since Keynes’s General Theory of Employment, Interest and Money. This has of course received a great amount of attention, with innumerable commentaries having been written by many scores of protagonists and moderators around the world. Only a brief and highly simplified summary of these many conversations can be attempted here, within our limited objective of illustrating once more how it may be possible for critical discussion to be seen to proceed freely and yet objectively in economics. In the previous chapter we were fortunate to have had an actual conversation to consider; here our method shall have to be one of constructing a model of a conversation. In honour of Plato, we might name our conversants Athenian and Stranger.

ATHENIAN Tell me, have you perhaps been following the discussions among macroeconomists? I shall be interested to know what you take their present state to be.
STRANGER Indeed I have, though of course it is not possible or worthwhile to follow all of what has been said. But yes I have followed some of it, and certainly we can make it a topic of conversation.
ATHENIAN Please begin.
STRANGER Very well. Shall we do so in ’36 with the publication of Keynes’s book? Rightly or wrongly, this must be considered a watershed in the history of modern economics, if only because most economists since have had either to admit its arguments in some measure or define and explain their disagreement. You’ll remember at one time it was said by many that Keynes had fathered a revolution in economic science.
ATHENIAN Except Chicago and the Austrians.
STRANGER Quite so. Now more recently a renewal of neoclassical thought has been under way, and many doubts have been raised about the keynesian consensus, so much so that some of the main questions of the thirties seem in modern form to continue to be at issue today.
ATHENIAN The more things change, the more they stay the same! But when you say Keynes has been a central figure, I take it you mean only that he has been among the most influential and most discussed and nothing more. It is not to preclude judgement on the merits of his book, which is itself of very uneven clarity. Besides there has been too much idolatry and hagiography.
STRANGER Yes, there is so often a rush to belief and worship. There may have been less if Keynes had survived longer. Yet I should say the broad aim of the work is not hard to see. Keynes himself clearly believes that he is starting a revolution — going so far as to suggest a comparison with contemporary physics. The first chapter says the book aims to provide a “general” theory, which will explain the traditional model as a “limiting” case. The second chapter says the theory of value has been hitherto concerned with the allocation of given resources between competing ends; Keynes is going to explain how the actual level of employment comes to be what it is.
ATHENIAN And so begs the question?
STRANGER Or does traditional theory? That seems to be at the heart of it.
ATHENIAN Go on.
STRANGER The theory will be of the short run in Marshall’s sense of taking capital as a fixed factor. Traditional theory is said to postulate about the labour market (i) that the real wage equals the marginal product of labour, so there is an assumption of profit maximization by competitive producers giving rise to a short run demand curve for labour; and (ii) that the utility of the wage at a given level of employment equals the marginal disutility of that amount of employment; i.e., the real wage is just sufficient to induce the volume of labour which is actually forthcoming. So it can account for unemployment due to temporary miscalculations, or intermittent demand, or the refusal or inability of labour to accept a job at a given wage due to legislation or social practices or collective bargaining or obstinacy, or merely a rational choice of leisure — i.e., it can account for frictional and voluntary unemployment but not for what Keynes wants to call involuntary unemployment. What it can suggest is either such things as improvements in foresight, information, organization and productivity, or a lowering of the real wage. But Keynes’s critique will not have to do with such causes of the contemporary unemployment; instead the population is said to be seldom “doing as much work as it would like to do on the basis of the current wage…. More labour would, as a rule, be forthcoming at the existing money wage if it were demanded.” But it is not being demanded, and it is not being demanded because there has been a shortfall of “effective demand”. That is why there is as much unemployment as there is.
ATHENIAN Or so Keynes claims. And he would take it the neoclassical view would be that it must be the real wage is too high; it is only because the real wage has not fallen by enough that unemployment continues.
STRANGER Right. To which there are two observations. The first has to do with the actual attitude of workers towards the money wage and the real wage respectively. The traditional supply function of labour is a function of the latter; Keynes claims that at least within a certain range it must be workers are concerned more with the former. ATHENIAN How so?
STRANGER By the interesting and perhaps plausible claim that workers are found to withdraw labour if the money wage falls but do not seem to do the same if the price level rises. A real wage reduction caused by a fall in the money wage and the same real wage reduction caused by an increase in prices seem to have different effects on labour supply. “Whether logical or illogical, experience shows that this is how labour in fact behaves.” And he cites U. S. data for ’32 to say labour did not refuse reductions in the money wage nor did the physical productivity of labour fall yet the real wage fell and unemployment continued. “Labour is not more truculent in the depression than in the boom — far from it.”
ATHENIAN And the second observation?
STRANGER This may be of more interest. “Classical theory assumes that it is always open to labour to reduce its real wage by accepting a reduction in its money wage… [it] presumes that labour itself is in a position to decide the real wage for which it works…” Keynes does not find a traditional explanation why prices tend to follow wages, and suggests it could be because the price level is being supposed to be determined by the money supply according to the quantity theory. Keynes wants to dispute the proposition “that the general level of real wages is directly determined by the character of the wage bargain…. For there may be no method available to labour as a whole whereby…. [it] can reduce its real wage to a given figure by making revised money bargains with the entrepreneurs.” Hence he arrives at his central definition of involuntary unemployment: if the real wage falls marginally as a consequence of the price level rising with the money wage constant, and there is greater employment demanded and supplied in consequence, the initial state was one of involuntary unemployment.
ATHENIAN You are saying then that Keynes’s intent is to establish the existence of involuntary unemployment?
STRANGER At least a major part of the intent yes. To make the concept meaningful, to argue that it refers to a logical possibility, and also that much of the actual unemployment of the time may be falling under it, and is a result of lack of “effective demand”.
ATHENIAN The neoclassicals have been said to be cavalier about fluctuations in economic activity, when in fact Wicksell and Marshall and Thornton, let alone Hawtrey or Hayek as Keynes’s own critics, certainly had profound enough theories of the cycle. Before we go further, I think we should remind ourselves of what they actually said.
STRANGER Very well.
ATHENIAN Would you agree that can be summarized, then as now, as the quantity theory of money married to the theory of general equilibrium?
STRANGER Though it may be better to speak of divorce perhaps rather than marriage, in view of the dichotomy.
ATHENIAN From Smith to Mill, political economists broadly agree the role of government should extend and be restricted to such activities as defence, civil protection, the rule of law, the provision of public goods, education, the encouragement of competition, and so on. The traditional agenda does not as a rule include direct activity to restrain or otherwise change the natural course of trade, production, or consumption, and certainly no theory of what today is called macroeconomic policy. Underlying it is a broad belief that the competitive pursuit of private welfare within the necessary and minimal framework of the institutions of government, will result in tolerable social outcomes, and any further activity may be counterproductive. The State is after all endogenous to the economy, without any resources to its own name.
STRANGER The minimal state, though not so minimal perhaps as we sometimes think.
ATHENIAN The main function of money is seen to be that of facilitating real transactions. Hence the main component of the demand for money is the transactions demand, and the broad objective of monetary policy is the maintenance of the stability of the price of money. But this is recognized to be something elusive in practice, and fluctuations in economic activity are expected to occur in spite of the best intentions of the monetary authorities.
STRANGER How so?
ATHENIAN Well we might imagine two or three distinct but related markets: one for real investment and savings determined by intertemporal preferences, resources, and technologies; one a market for investment and savings defined in terms of money; one a short term credit market. The market for real investment and savings is, as it were, unobservable to the naked eye. Yet it drives the second and third markets for nominal savings and investment in which we actually participate. Monetary equilibrium requires the observable money rates of interest to equal the unobservable real rate of return on the market for physical capital. In particular, the real or natural rate of interest determined in the equilibrium of the first market is not, and perhaps ultimately cannot be, affected by nominal or monetary disturbances in the second or third markets.
STRANGER Why call it “natural”?
ATHENIAN In the sense it is a function of the real data of intertemporal preferences, resources, and technologies being what they are. If these data changed it should be expected to change too. But given these data, it would be the rate at which intertemporal constrained maximizations by individual agents resulted in planned present consumption equalling planned present production at the same time as planned future consumption equalled planned future production.
STRANGER In other words, real planned savings equal real planned investment.
ATHENIAN Exactly. It is the real interest rate, or rather the whole structure of own-rates and cross-rates at various terms, which is the key price signal for macroeconomic equilibrium.
STRANGER “Natural” seems to me to carry a physiocratic connotation. A better nomenclature would replace it with something else — perhaps “equilibrium real rate” or just “walrasian” rate.
ATHENIAN Very well, though I for one do not bias myself against the physiocrats! Now consider how a simple business cycle might occur on wicksellian lines. From a position of full real and monetary equilibrium, an expansion of credit has its first effect on the banks, increasing reserves and inducing more lending for reserve/deposit ratios to be restored, and so lowering the loan rate. But customers are only able to perceive a lowering of this nominal rate of interest and cannot know the equilibrium real rate has not changed. As far as households know, the relative price of present consumption has fallen and there is an incentive for greater consumption and lesser savings. As far as businesses know, the relative price of the future good has risen, and there is an incentive for greater investment. Inventories are run down, and markets for both consumer goods and capital goods are stimulated and show signs of excess demand. But if there was a walrasian equilibrium initially, then the economy will now show signs of inflation; with a gold standard, there would be increased demand for imports and an external drain of reserves, and even perhaps an internal drain if there was a panic and a run on the banks. The loan rate will have to rise once more to reign in reserves, but if the rate is now raised too high relative to the still unchanged real rate, there would be the makings of a recession.
STRANGER Your point being that economists before Keynes had recognized the decentralized economy may be fluctuating continually.
ATHENIAN Surely they had done so quite fully. A first set of causes such as wars, disasters, discoveries and migrations would change the real data of the economy, while a second set would be monetary disturbances like the failure of the authorities to adequately follow the dictates of the real data of the economy, i.e., failure to observe the equilibrium real rate of interest. It may even be intrinsic to the problem that they must fail in the attempt to observe, let aside compute, the equilibrium real rate warranted at a given time by the structure of the real data.
STRANGER Hence the conclusion that they cannot hope to do better than establish a climate of monetary and fiscal stability, such as by declaring a long term policy and staying with it.
ATHENIAN Exactly. Private economic agents already face endemic uncertainty with respect to changes in the real data, and must be assumed to not want more added by government policy. You appear to have seen my point nicely.
STRANGER Very well. But you have jumped ahead as this kind of a conclusion sounds very modern to me. You made me stop all the way back at Keynes’s notion of effective demand!
ATHENIAN As I said, the more things change, the more they stay the same.
STRANGER Let us go back a little. I think we may be able to rejoin our initial route at a point which may bring us close to where we seem to have come by the route you have taken. Specifically suppose we go back to the question of the money wage and the real wage, and of the real wage being “too high”.
ATHENIAN That has been interpreted a number of ways, has it not?
STRANGER Yes it has. One would be to say Keynes was merely simple minded and assumed money illusion on the part of workers. Another would be to say Keynes assumed a short run context of fixed prices, so it would not make a difference whether labour happened to be concerned with changes in the real or the money wage. Yet a third would be to say Keynes, whether he realized it or not, had come upon a recondite truth about the sort of complex monetary economy in which we live — namely, that when transactions are quoted and made in a monetary economy, it may become difficult ipso facto for the walrasian equilibrium to be achieved. Even workers might fully recognize the real wage to be too high and be prepared to work more at a lower wage, but be unable to signal this willingness to potential employers.
ATHENIAN So involuntary unemployment becomes another sort of equilibrium outcome. STRANGER Exactly. Not only of labour but of machines too, along with the unintended holding of inventories. It is as if firms would have sold what they had planned to if only workers had the income to buy it, which they would have done if only they had been able to sell as much labour they had planned to, which they would have done if only there had been an effective demand for it, which there would have been if firms had not cut back on production because they found themselves unable to sell what they had planned to sell. A kind of vicious circle, due to pessimistic and self-fulfilling expectations all around.
ATHENIAN An unhappy solution to a non-cooperative game you might say.
STRANGER Quite so. Keynes does not deny there may be a monetary route out of the impasse. A wage deflation would eventually lead to price deflation, raising the real value of money holdings, so via liquidity preference lead to an increased demand for bonds, raising their price and lowering money interest rates, which through the investment function would lead eventually to increased effective demand. But the fiscal route may be more direct and quicker in its effect on expectations. Trying to deflate across the board in the face of what seem to be excess supplies of goods and labour might be counterproductive, causing unexpected transfers from debtors to creditors and precipitating bankruptcies. Instead: “Government investment will break the vicious circle. If you can do that for a couple of years, it will have the effect, if my diagnosis is right, of restoring business profits more nearly to normal, and if that can be achieved then private enterprise will be revived. I believe you have first of all to do something to restore profits and then rely on private enterprise to carry the thing along….”
ATHENIAN A shot in the arm for enterprise in the hope of breaking the pessimism. But Keynes was hardly alone in such thinking.
STRANGER Quite true.
ATHENIAN And he certainly seemed to treat the opinions of others without due respect, which is to say he may have exaggerated the significance of his own. Hinting that he was the Einstein of economics set an especially bad example. Only the other day one eminence was comparing himself to Newton, and another was calling his friend Shakespeare. It will be Joyce and Pasternak next!
STRANGER Flattery and nepotism are common weaknesses, my friend. Like the rush to belief and worship.
ATHENIAN Besides you would have to assume the government to be outside the game, and only so being able to see the problem which private agents could not from inside the game. That may be too large an assumption, don’t you think?
STRANGER Yes it may. Yet it seems to me pump-priming was a possible solution being offered to a temporary problem. Many of the controversies may have come about because it became institutionalized, because discretionary fiscal policy became a permanent part of the government agenda.
ATHENIAN And a more direct route out was available too, was it not? With wealth placed in the consumption function directly, a deflation would increase the real value and affect effective demand directly. We would not have to wait for the roundabout effects through so-called liquidity preference.
STRANGER Which in a way brings us back to a central pillar of traditional theory: with given real data and given velocity of circulation, desired holding of real money balances will roughly be constant. In particular the demand for real money balances should not be seen as a function of the interest rate.
ATHENIAN The real rate or the monetary rate?
STRANGER For neoclassicals certainly the real; Keynes does not seem clear.
ATHENIAN There may lie a problem.
STRANGER The title of the book says “Employment, Interest, and Money”. No question employment is real and money is money — interest is the bridge. If you ask me to bet I would say Keynes’s agents make real responses to signals expressed as they must be in a large economy in monetary terms.
ATHENIAN Perhaps we ought to move on. Tell me, if you think Keynes’s book rightly or wrongly ranks as the most influential document of the last fifty years, would you agree it is Friedman’s address on the role of monetary policy which must rank second to it if not on a par with it?
STRANGER Certainly there can be few competitors.
ATHENIAN Well then, it appears to me the net effect of Friedman’s critique has been a restoration of the wicksellian theory and a banishment of the keynesian theory.
STRANGER Friedman of course makes his approach via a critique of the Phillips’ Curve.
ATHENIAN Yes, but it is Wicksell whom he acknowledges in advancing the notion of a natural rate of unemployment, one which has been “ground out by the walrasian system of general equilibrium equations” — in other words, one which happens to be consistent with the structure of the real data of the economy at a particular time.
STRANGER Though again we may as well speak of walrasian instead of natural.
ATHENIAN A monetary policy which tried to peg unemployment at lower than such a rate (if such a rate could be determined, which it cannot) is likely to be counterproductive. The initial effect of an expansionary policy on a walrasian equilibrium may be to increase real output. Workers assume the increase to reflect an increase in the unobservable real demand for their services, and hence they expect a higher real wage. Businesses see the same and assume it to reflect an increase in the unobservable real demand for their goods. But given there was no real excess demand in the first place for either labour or goods, the effect outside anything but the short run will be a return to the initial structure of real wages, and the temporary decline in unemployment is reversed to the walrasian rate at higher prices. If the government tries to maintain unemployment at less than the walrasian rate, it will have to concede — indeed it will have caused — accelerating inflation without any real fall in unemployment.
STRANGER And vice versa perhaps, so there would be a kind of knife-edge.
ATHENIAN Now your remark about Friedman making his approach via the Phillips Curve seems to me interesting. We may have been too hasty to make a comparison with the debate in the thirties. For the world suffers a very real and severe shock between Keynes’s book and the keynesian consensus, which is the Second World War itself.
STRANGER I am not sure I follow.
ATHENIAN Well think of the consensus afterwards on the need for macroeconomic policy — it is actually Tinbergen’s notion of a “policy-maker” which is married to what seems to be Phillips’s finding of a trade-off between inflation and unemployment. It becomes the role of the macroeconomist to advise the politician on how to minimize social disutility from inflation and unemployment subject to the Phillips Curve. Macroeconomics becomes a so-called “policy science”. Give your expert economist your social utility function, and he will tell you where to slide to on your Phillips Curve.
STRANGER The available instruments being money supply and tax rates. That is what I meant in saying Keynes’s idea became institutionalized.
ATHENIAN It seems to me this consensus is born out of the War.
STRANGER How so?
ATHENIAN Well just think of the structural problems of the time: demobilization of large armies, reconstruction, all the displaced peoples, and so on. What are democratic governments to do? Say to their voters, right, thank you very much, now could you please go home quietly? What could have been expected except an Employment Act? Governments were going to help their returning citizens find work, or at least it would have seemed irresponsible if they had not said they were going to.
STRANGER You are saying then that Friedman may have been arguing against a new orthodoxy, grown out of what might have been a sensible idea.
ATHENIAN Exactly. The world is a very different place now than in 1945, in ’45 than in ’33, in ’33 than in 1914. Real shocks every time. It may be a grave mistake for us to look for a unique and universal theory which is supposed to explain all particular circumstances, all of history.
STRANGER Reminds me of the historical school.
ATHENIAN Why not? Again I hold no prejudice against them! Anyhow, consider that Lucas and others have followed Friedman to argue it is a mistake to formulate the problem as Tinbergen had done, with unemployment as a target in a social utility function along with inflation. If it ought to be assumed that people will not continually make the same mistakes in predicting policy, then a systematic employment policy is going to be discovered quickly enough and rendered either ineffective or counterproductive. This idea too has its origins in Wicksell. Examining an opinion that inflation might stimulate enterprise and free debtors, Wicksell says: “It need only be said that if this fall in the value of money is the result of our own deliberate policy, or indeed can be anticipated and foreseen, then these supposed beneficial effects will never occur, since the approaching rise in prices will be taken into account in all transactions by reasonably intelligent people.”
STRANGER Wicksell said that?
ATHENIAN Precisely that.
STRANGER It does sound very modern.
ATHENIAN Now Lucas speaks of how the advice that economists give should be limited only to “the well understood and empirically substantiated propositions of monetary economics, discouragingly modest as these may be.” What can we take him to mean? It seems to me he is sharing Friedman’s scepticism of the possibilities which had been claimed for macroeconomics by the keynesian consensus. And that surely has been a healthy scepticism, befitting good economists.
STRANGER As I said, there is so often a rush to belief.
ATHENIAN Which is really disastrous when combined with the craving for power.
STRANGER But the question remains, does it not, as to which propositions of monetary economics are to be considered “well understood and empirically substantiated”. I cannot help think the propositions taken to be well understood and empirically substantiated in Chicago may be very different from those taken to be well understood and empirically substantiated in Cambridge, or for that matter, those in the U. S. from those in Europe.
ATHENIAN I don’t see any difficulty in this. For first, it would have been granted there are propositions in economics which can be well understood and empirically substantiated. And that must be counted as progress! For something cannot be well understood if it cannot be understood at all, and where there is the possibility of understanding there must be the possibility of objective knowledge as well. And second, why should we not say the most appropiate task of economic theory or analytical economics is simply one of clarification and elucidation of the conceptual basis of economic thinking and expression? All theory ultimately is, or ought to be, “Critique of Language”. When we are faced with a particular and concrete problematic situation, the theorist is to whom we turn for conceptual guidance and criticism. If instead you take the role of the theorist to be one of searching the universe for grand and general and absolute and abstract truths, which need to be discovered before we can say anything about some concrete set of particulars, then it seems to me you will be either struck dumb by a total and debilitating scepticism or become very shrill in your dogmatism or alternate wildly between the two. To me it seems unimportant ultimately to whose flag one shows allegiance, or indeed that allegiance to any flag must be shown.
STRANGER It seems again I will not disagree. But you have sketched the critique of Friedman and Lucas and indeed the ghost of Wicksell addressed to the dogmas of the keynesian orthodoxy. And I have agreed with you this has been a healthy criticism of the sort we should expect economists to provide. But there has been serious question too of the framework used by Friedman and Lucas, hasn’t there? I am thinking especially of Tobin and Hahn.
ATHENIAN Tobin has done much to add clear and reasonable thinking about Keynes — his suggestion that a certain amount of inflation may be the only way to bring down real wages towards their walrasian rates in complex monetary economics is especially interesting; it shows how wide the common ground can be upon which the debate may occur. But you will have to tell me what Hahn’s criticisms have been. I have always found them too abstract and too caustic.
STRANGER That they tend to be, but don’t let that deter you. As I see it, Hahn argues somewhat as follows. We should grant Friedman and Lucas two important points: first, the government is itself a large economic agent whose actions and announced plans enter the calculations of private agents; secondly, erratic changes in monetary policy away from a steady k% rule may have perverse effects “by confusing signals of relative scarcity with those that arose from the monetary policy”. Also, we may accept that the assumptions sufficient for a full walrasian equilibrium with rational expectations suffice for the absence of any persistent involuntary unemployment by Keynes’s definition. But Hahn would say this may not be the relevant empirical description.
ATHENIAN In what way?
STRANGER Well for one thing the pricing axiom or the recontracting assumption of stability theory remains unexplained. It is possible traders will face quantity constraints, and this often seems so in markets for labour and credit. We may simply find prices not moving in the direction of excess demand even when a quantity constraint happens to be binding. The structure of wages may be “neither fixed, nor abritrary, nor inflexible; it is what it is because given conjectures, no agent finds it advantageous to change it.” Moreover, it may not be plausible to suppose there will be convergence after arbitrary displacements back towards a stable equilibrium, because the conditions for stability are very stringent and uniqueness of equilibrium may also need to be postulated. Furthermore, it may be quite unsatisfactory to treat money in models which are isomorphic to the Arrow-Debreu model, because in such a world there is no logical use for money, so there must be some essential features of reality which have failed to be features of the model.
ATHENIAN You don’t think Patinkin’s integration was adequate?
STRANGER For many practical purposes perhaps, but certainly not to full logical satisfaction. If you put real money balances into the utility function and treat money just about like any other good, you have to be prepared to accept a possible equilibrium in which the price of money is zero. Lastly, if there are internal debts denominated in money as there are in fact, you may not assume equiproportional changes in all prices will not have real effects, unless you are prepared to assume away redistributions between creditors and debtors, which you can do only under another assumption that all households have parallel and linear Engel curves through the origin. Hahn’s line of argument is admittedly abstract, but you will have to admit it raises some fundamental questions.
ATHENIAN Another example we might say of the healthy scepticism of the theorist. It seems my turn to agree with you. But we can imagine replies too can we not?
STRANGER What do you have in mind?
ATHENIAN Well to argue there can be unemployment which is involuntary is not to have argued that an employment policy can be expected to remove it. This seems a premise and conclusion too frequently confounded by both keynesians and their critics, with disastrous consequences. Then, Buchanan would argue that a more thorough characterization needs to be given of the making of government policy, especially when it is proposed to supplant the market outcome. Policies are after all proposed, enacted, and put into effect by actual people — all of whom may need to be assumed to be pursuing private rewards as well in the course of their public duties. The relevant description for the economist needs to be one including this further fact that actual proposals of public policy can embody the private interests of the proposers too.
STRANGER Making it that much more difficult to determine what is in the public interest in a given case.
ATHENIAN Exactly. And so reinforcing the case for predictability and an orderliness in the framework of government.
STRANGER But we have been talking now for quite long enough my friend. I seem to feel a fear too that we have not gained anything at all in our discussions.
ATHENIAN Don’t be so pessimistic! Surely the point of reconstructing such conversations as we have done is not to hold absolutely to the matters raised in them. You and I after all have been making summary and highly simplified and unauthorized interpretations. I take the point of it to have been clarifying our thoughts, and perhaps to show ourselves how discussion can proceed between economists of different schools of thought. Arguments might come to a halt for any of a number of reasons, but they needn’t be supposed to have any logical or necessary end. Too often we let people retreat into different dogmatic positions, fostering the belief that each is starting from some set of absolute axioms ultimately irreconcilable with those of the other. We may need to keep insisting instead that the pursuit of knowledge and understanding is an open-ended activity with potentially indefinite limits. It yields conclusive results but has no absolute end. You or I might call a halt and retire from it, but that will not mean it cannot or will not continue without us.
STRANGER Perhaps so. But you are younger than I, and I have become tired by all these thrusts and parries. Besides, there has been the enjoyment of conversation itself.
9. Mathematical Economics and Reality
In this chapter we shall examine the appropriate relationship of mathematics to the subjects of economic study. Few divisions on substantive questions in economic science have been as bitter as the dispute which has occurred on this question of choice of methods, with charges of sophistry and humbug being periodically traded in private and in print between the more and the less mathematical among economists. The weapons of “intemperate discussion, namely invective, sarcasm, personality and the like” have not been spared, not only by those in minority at some university department to whom they might bring “the praise of honest zeal and righteous indignation”, but also by those in comfortable if temporary majorities.
At first, it was the pioneers of mathematical economics who had faced inert and intransigent opinions against the use of any mathematics at all in economic study. Cournot attributed the prejudice of his contemporaries to their ignorance of mathematics even when they were “otherwise judicious and well versed in the subject of Political Economy”, though he added they may have been put off algebra by the errors in earlier attempts at applying it. For his own part, Cournot did not wish “to make a complete and dogmatic treatise on Political Economy” and would be putting aside “questions to which mathematical analysis cannot apply, and those which seem… entirely cleared up already.” Jevons declared economics “if it is to be a science at all, must be a mathematical science”, and counselled against despair even though “the popular opinions on the extension of mathematical theory tend to deter any man from attempting tasks which, however difficult, ought some day to be achieved.” Walras inveighed against “those economists who do not know any mathematics, who do not even know what is meant by mathematics and yet have taken the stand that mathematics cannot possibly serve to elucidate economic principles”; and at the same time against the narrow division of education in his native France into two compartments, “one turning out calculators with no knowledge of sociology, philosophy, history or economics; and the other cultivating men of letters devoid of any notion of mathematics.”
In recent times the majorities have changed, and it is mathematical economists who now command much more the directions of economic study at many universities. Yet the controversy has continued, and a few examples can give a taste of its bitterness. Professor L. R. Klein has denounced non-mathematical writings in economics as “fat, sloppy and vague”, while Professor Samuelson has considered “the laborious literary working over of essentially simple mathematical concepts such as is characteristic of much of modern economic theory” to call for “mental gymnastics of a peculiarly depraved type”. From the other side, Professor N. Georgescu-Roegen quotes Frank Knight as saying “there are many members of the economics profession who are mathematicians first and economists afterwards” and claims “the situation since Knight’s time has become much worse. There are endeavours that now pass for the most desirable kind of economic contributions although they are just plain mathematical exercises, not only without any economic substance but also without mathematical value. Their authors are not something first and something else afterwards; they are neither mathematicians nor economists.” Keynes had provided similar ammunition: “Too large a proportion of recent ‘mathematical economics’ are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.” On the other hand, Samuelson reports with approval Professor Gerard Debreu’s remark that “the discipline which most fully uses in its daily work the frontier refinements of mathematical analysis is modern economic theory.” And Debreu himself justifies axiomatic economic theory as follows: “Among the many consequences of transformation in methodology that the field of economic theory underwent in the recent past, the clarity of expression that it made possible is perhaps one of the greatest gains that it has yielded. The very definition of an economic concept is usually subject to a substantial margin of ambiguity. An axiomatized theory substitutes for an ambiguous economic concept a mathematical object that is subject to entirely definite rules of reasoning. No doubt the economic interpretation of the primitive mathematical objects of the theory is free, and this is indeed one of the sources of the power of the axiomatic method…. [W]hile a primitive concept of an axiomatic theory admits different interpretations a theorist who has chosen one of them succeeds in communicating his intended meaning with little ambiguity because of the completely specified formal context in which he operates…. [T]he complete specification of assumptions, the exact statement of conclusions, and the rigor of the deductions of an axiomatized study provide a secure foundation on which the construction of economic theory can proceed…. Thus axiomatization facilitates the detection of logical errors within the model, and perhaps more importantly it facilitates the detection of conceptual errors in the formulation of the theory and in its interpretations.” On the other hand we find Professor Lord Bauer: “The adoption of mathematical methods as the standard form in economics has had serious untoward effects. The use of these methods has even come to serve as a barrier to criticism of a wide range of transgressions…. Apart from the shielding of specific lapses, emphasis on the use of mathematical methods has contributed more pervasively to inappropriate practices and habits of mind. Possibly the most important of these inappropriate or even misleading practices is the tendency to elevate technique above substance, form above content. Others include preoccupation with economic phenomena and factors which can genuinely or spuriously be quantified, and consequent neglect of those which cannot be so treated but frequently are much more germane…” As well as Kaldor: “There is, I am sure, a vague sense of dissatisfaction, open or suppressed, with the current state of economics among most members of the economics profession…. On the one hand it is increasingly recognised that abstract mathematical models lead nowhere. On the other hand it is also recognised that ‘econometrics’ leads nowhere — the careful accumulation and sifting of statistics and the development of refined methods of statistical inference cannot make up for the lack of any basic understanding of how the actual economy works.” Professor Werner Hildenbrand writes in defence of Debreu: “To a traditionally educated economist, who does not have a training in modern mathematics, Debreu’s contributions might appear, at first glance, incomprehensibly ‘abstract’. There is then a great temptation to dismiss the work as ‘too abstract’ (with the implication of ‘unrealistic’ whatever this term may mean) rather than to invest the required intellectual effort. In this respect Debreu has never compromised just as he has never followed fashions in economic research. I have often heard him say that every economic problem requires its own mathematical treatment. The economic problem determines the mathematical tool that is applied to obtain a precise formulation of the problem and to analyze it; one does not take a mathematical tool and then look for applications…. Debreu presents his scientific contributions in the most honest way possible by explicitly stating all underlying assumptions and refraining at any stage of the analysis from flowery interpretations that might divert attention from the restrictiveness of the assumptions and lead the reader to draw false conclusions.” Hildenbrand quotes Russell, as Professor Hahn had done in an earlier defence: “Many people have a passionate hatred of abstraction, chiefly, I think, because of its intellectual difficulty; but as they do not wish to give this reason they invent all sorts of others that sound grand. They say that all abstraction is falsification, and that as soon as you have left out any aspect of something actual you have exposed yourself to the risk of fallacy in arguing from its remaining aspects alone. Those who argue in this way are in fact concerned with matters quite other than those that concern science.” But in reply there is Professor Wassily Leontief: “Not having been subjected from the outset to the harsh discipline of systematic fact-finding, traditionally imposed on and accepted by their colleagues in the natural and historical sciences, economists developed a nearly irresistible predilection for deductive reasoning. As a matter of fact, many entered the field after specialization in pure or applied mathematics. Page after page of professional economics journals are filled with mathematical formulae leading the reader from sets of more or less plausible but entirely arbitrary assumptions to precisely stated but irrelevant theoretical conclusions…. Year after year economic theorists continue to produce scores of mathematical models and to explore in greater detail their formal properties; and the econometricians fit algebraic functions of all possible shapes to essentially the same sets of data without being able to advance, in any perceptible way, a systematic understanding of the structure and the operations of a real economic system.” There is also the reflection of Professor Salim Rashid in course of a reply to Georgescu-Roegen: “No assistant professor at any reasonably good university can hope to keep his job unless he publishes at least one article a year in a recognized journal. In order for a paper to be published, it must contain something new. How can several thousand junior faculty find topics simultaneously novel and worthwhile?…. One of the inimitable merits of mathematics is that it mechanizes the process of grinding out articles. If a theorem has been proven with twice continuously differentiable utility and production functions, then the next step is to prove them true for once differentiable functions, then for Lipschitze continuous functions, then for continuous functions, and finally for measurable functions. Each step provides a new result and is therefore a publishable effort, but one could argue that the economic content of these (mathematical) refinements is marginal.”

§2. We may ask if the theory of knowledge presented in Part II can be put to work here, to dissolve or at least clarify certain aspects of this conflict, and indeed a number of observations are possible to be made.
First of all, a dispute over choice of methods is of course a dispute over a choice — that is to say, it is a normative dispute having to do with what economists ought to do or not do as economists. At once we would know from our theory of knowledge that this is a dispute capable of sustaining reasonable and open ended and objective discussion. We may begin with the certainty that there are positive grounds to be contested here, that there will be scope for common reasoning to be put to work. Modern mathematical economists have typically argued that the use of mathematical methods has contributed to the removal of ambiguity surrounding economic concepts, to precision in reasoning, to clarity and economy of expression, to assisting the discovery of errors in economic analysis. They have charged the non-mathematical economist with speaking from ignorance, with not making or being capable of the requisite effort to learn the relevant methods, and so failing to see their benefits. The critics have typically argued that the growth of mathematical economics has led to impenetrability and not clarity, to a lack of critical thinking and imagination, to the mechanical churning out of results, to a lack of realism and practical application. They have charged the mathematical economist with irresponsibility in his choice of work. Yet here may be values finely poised! For there is nothing surely to disagree that greater clarity and precision and falsifiability are virtues to be encouraged, or that a lack of responsibility or critical thinking or imagination are failings to be discouraged in economic study. Like other long standing normative disputes, the dispute over the use of mathematics in economics may be found to have substantive intellectual values poised on either side, and it is precisely in face of the complexity of the problem that we must not despair with reason. Where a humean epistemology might conclude the differences to be sheer and irreconcilable and that all we can do ultimately is choose our side and fight for it, the epistemology of Part II would warn us to expect strong dogmatisms pit against strong scepticisms and advise us that there may be no single side to be chosen. Better perhaps to court the friendship and the enmity of both! Indeed the bitterness of the conflict could be explained by the fact each party has tended to deny the legitimacy of the other’s work, as if the legitimacy of research in any complex field of inquiry and scholarship, whether science or literature or economics or philosophy or mathematics itself, can be universally legislated by some or other unique and general and exceptionless rule. Protagonists in divisions on substantive questions in economics have seldom charged one another with not being economists at all, in the way protagonists in this division on the choice of methods seem on occasion to have done.
A juster perspective may be possible by applying the model of the structure of concepts given in Chapter 5. Concepts like ‘economist’ or ‘advance in economic understanding’ may be better understood as family resemblance concepts, whose instances are objectively ascertainable and yet are of indefinite variety, requiring careful description of context and circumstance, of the particular “language-game” within which they are intended to be understood. If we abandoned the idea seemed to be shared by many mathematical economists as well as their critics that there must exist some unique and identifiable criterion or set of criteria determining what makes an economist or what makes a piece of economic study, we would be able to take seriously the manifold diversity of economic thought as it actually is, and to recognize that just as the phenomena we are concerned to study are complex and various, so the methods we need may have to be complex and various. Here as elsewhere the antidote to dogmatisms of all kinds must be freedom of inquiry and expression. Whether the application of a particular method or technique to a particular economic problem indicates a lack of responsibility or imagination or critical thinking, or whether it has led to greater clarity or precision or falsifiability, or to what extent it has done a combination of these things, is a question capable of a disinterested and objective answer. While it may be hard work to determine the answer in some cases (for example the method of analogy may need to be applied, comparing and contrasting the question at hand with others whose answers were not presently in dispute), and even futile work in most cases, what we may be confident about is that it is possible for the answer to be determined in every case.
Secondly, in view of the seriousness of the economic controversy, it is remarkable that scant attention has been paid by either side to the discussions among mathematicians and mathematical philosophers about the ultimate character of mathematics itself. While there has been much abstract thinking in contemporary economics, perhaps we have not been abstract enough! For the relationship that the axioms and theorems of mathematical economics can possibly have to the reality of economic life and phenomena is certainly an abstract epistemological question, but one which has received little if any serious thought on the part of either mathematical economists or their critics. Russell wrote at one place of how in mathematics it is possible either to look telescopically forward “towards gradually increasing complexity: from integers to fractions, real numbers, complex numbers; from addition and multiplication to differentiation and integration, and on to the higher mathematics”, or to look microscopically “backward to the logical foundations of the things that we are inclined to take for granted…. by analyzing, to greater and greater abstractness and logical simplicity; instead of asking what can be defined and deduced from what is assumed to begin with, we ask instead what more general ideas and principles can be found, in terms of which what was our starting-point can be defined or deduced.” By this analogy mathematical economics has been telescopic, as when it is said by Debreu and Samuelson that the “frontier refinements” of mathematics have been finding use in contemporary mathematical economics. But if we looked even briefly in the other direction in which Russell pointed, we would find a sight quite different from the one we have grown accustomed. Here are a rich assortment of continuing questions and controversies in which are engaged some of the great figures of modern logic, mathematics, science and philosophy. Here are leaders and loyalties, doctrines and dissenters, spirited attacks and exchanges, noble admissions of error and paradox and puzzlement — leading one participant to even remark “it has proved not to be intuitively clear what is intuitively clear in mathematics”.
In particular, mathematics most definitely treats of certain kinds of objects, such as points, lines, spaces, numbers, quantifiers, and so on. Yet these objects are surely not objects like the objects of natural science. For one thing, unlike the table in this room or the tree outside the window or the city of Paris or the planet Venus, mathematical objects evidently do not have any real location. “Certainly there are such things as numbers, but surely there is no such thing as a number. What sort of a thing is it that is not a thing and yet is not nothing at all?” Many kinds of answer have been offered in discussions in the philosophy of mathematics to this sort of question, and of these three may have special bearing upon an analysis of the economic debate: (i) that mathematics is an abstraction of the reality in which we actually live (empiricism); (ii) that mathematics is an abstraction of a transcendental reality in which we most definitely do not live (platonism); and (iii) that mathematics is an abstraction of no sort of reality at all (formalism). Let us briefly consider each of these in turn.
The empiricist thesis, represented by Mill, would see mathematics as not differing in kind from empirical science but as a species of empirical science itself, just the most certain and general and abstract of all. Mathematical writing is a shorthand way of describing relationships between the actual objects of our universe. Thus Mill suggested our understanding of a number like 3 would derive from our recognition that it corresponded to particular collections of physical objects like three horses or three pebbles: “[W]e may call ‘Three is two and one’ a definition of three; but the calculations which depend on that proposition do not follow from the definition itself, but from an arithmetical theorem presupposed in it, namely that collections of objects exist, which while they impress the senses thus ooo, may be separated into two parts, thus oo o. This proposition being granted, we term all such parcels Threes, after which the enunciation of the above-mentioned physical fact will serve also as a definition of the word Three…. every number represents that particular number of all things without distinction….” “The mere written characters, a, b, x, y, z, serve as well for representatives of Things in general, as any more complex and apparently more concrete conception. That we are conscious of them, however, in their character of things, and not of mere signs, is evident from the fact that our whole process of reasoning is carried on by predicating of them the properties of things…. The inferences, therefore, which are successively drawn, are inferences concerning things, not symbols.”
The criticism of Frege would appear to have been decisive in discrediting the empiricist view, at least in the form Mill had stated it. Mill seemed to have no place for zero or the imaginary numbers or the irrationals, all of which are legitimate objects of mathematical inquiry yet are not perceivable by the senses, and we surely do not have to perceive zero pebbles or 2 horses to understand the concepts of zero or 2. (Mill’s view is to be contrasted however with the modern opinion of Professor Hilary Putnam, that mathematics does in fact employ empirical and “quasi-empirical” methods. )
The second thesis is one we have met already in Chapter 5, namely, the highly influential thesis of platonism represented by G. H. Hardy, Kurt Gödel, and many others possibly including Frege and Russell as well. The things we find in the world would be taken by the platonist to be distorted and defective versions of ideal entities not given to experience. The dot on a piece of paper we call a point is but a defective image of the ideal point which has no parts or magnitude, the chalk mark on the blackboard we call a line is but a defective version of the ideal line without breadth or width, and so on. It is such ideal points, lines, spaces, etc. which are the true objects of mathematical inquiry. Mathematical objects do not have location in the world in which we live but instead inhabit a kind of transcendental parallel universe, a domain reachable through the reasonings of the pure mathematician, whose task it becomes to discover and chart its unobservable terrain in the way the geographer and astronomer discover and chart the observable earth and universe in which we live. As Michael Dummett puts it: “Platonism, as a philosophy of mathematics, is founded on a simile: the comparison between the apprehension of mathematical truth to the perception of physical objects, and thus of mathematical reality to the physical universe.” It is “the thesis that there really do exist such structures of abstract objects, and that we are capable of apprehending them by a faculty of intuition which is to abstract entities as our powers of perception are to physical objects.” The platonist seeks to mentally grasp the ideal entities by his “mind’s hand” (in the phrase of Morton White) and once he believes himself to have done so, the expression of his understanding would amount to being not only an expression of objective knowledge but an expression of absolute knowledge as well, something necessarily free of error or exception.
In criticism, it may be said again as in Chapter 5 that the platonist’s reference to a transcendental universe would appear to be no more than a declaration of faith. And one moreover which is unnecessary to questions in the theory of knowledge, since the question of the objectivity of mathematical knowledge and inquiry need not be made to depend on the existence of a transcendental mathematical reality.
A third and again highly influential thesis has been that of formalism, represented by David Hilbert, Johann Von Neumann, Haskel Curry and many others. The formalist takes mathematical inquiry to be possible without reference to any and all realities, whether of our own world or that of the platonist or any other. Mathematics is independent of everything that is real or actual, and says nothing about anything that is real or actual. The pure mathematician does not abstract from reality — his theorems simply do not have reality as their concern and are incapable by themselves of having anything to say about it. The felicitous consequence of such a view is that the mathematician is liberated from having to justify in any way whatsoever the empirical plausibility of any of his axioms. In Russell’s epigram: “pure mathematics is the subject in which we do not know what we are talking about.” The formalist requires himself first to state the “vocabulary” he will use; that is to say, list all symbols and propositions to be defined as the “primitives” or “axioms” or “tokens” for the project at hand. For instance
“p  q” will mean “either p or q”
“f(x)” will mean “the property f belongs to object x”
“x, f(x)” will mean “there exists an x such that f is its property”
“x, f(x)” will mean “for every x, f is a property of x”
“x = y” will mean “x and y are names of the same object”
and so on. A list like this would be intended to be no more than a string of symbols, not signifying anything concrete, possessing only what meaning the mathematician shall choose to give each symbol. Then, “rules of procedure” or “operators” are to be stated, the use of which upon the axioms in the vocabulary will give rise to meaningful “formulas”. Taking Von Neumann’s illustrations, a combination of symbols
1 + 1 = 2
would be a meaningful formula which is true, while
1 + 1 = 1
would be a meaningful formula which is false, while

1 +  = 1 or
+ + 1 = 
would remain meaningless strings of symbols. The act of “proving a theorem” is that of deducing meaningful formulas thus defined via the successive application of the given rules of procedure to the given axioms. The “consistency” of the axioms and rules of procedure with a theorem proved from them defines the truth of the theorem. A “formal system” would be a set of theorems derived from given axioms by given rules such that no two theorems contradicted each other. To take a commonplace illustration, the axioms of chess would include that it is a game played by two on an 8  8 board, each player having sixteen pieces, of which eight are of one kind, two each are of three other kinds, and each of the remaining two is of one of two further kinds, and so on. The pieces may be called anything we wish and are not intended to refer to any real objects outside the game. The rules of procedure decree “the King” may move one square in any direction, “the Queen” may move a