Economic Zeitgeist

The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism

by Philip Pilkington

This article was first published by Naked Capitalism (May 13, 2013)

Editor’s Note: Econintersect considers this a fundamentally important discussion of the philosophical underpinnings of 20th and 21st century economic thinking.  It is contentious, to the point of being “in your face”, and is a far more complex subject than many would try to address in an essay of this length.  However, the author has succeeded illustriously in his effort.  The  reader is encouraged to take the time to read this carefully and critically.  We think it is well worth the effort.

The political philosopher Corey Robin recently published an interesting essay on what he thinks to be the connection between the late German philosopher Friedrich Nietzsche and the economic theory of marginalism which Robin associates with the Austrian school (but which, of course, is also a mainstay of mainstream neoclassical economics). I should start by saying that I respect Robin’s work a great deal; I respect it to the extent that I did an interview with him for this very site when his last book appeared. However, his latest piece is grossly misguided and reflective of the fact that, when it comes to theoretical economics, academic critics on the left simply do not know their enemy at all.

The reason for this, I think, is because Robin does not quite grasp the essence of either modern neoclassical or Austrian economics or, consequently, how these twin doctrines establish an absurd and abstruse metaphysical system of morals that poisons the minds of everyone from academics to laymen and lawmakers. It would also appear that, lying in the background somewhere, Robin assumes that the only antidote to the scourge of marginalism is the dusty old labour theory of value – as problematic and discredited as it is. This is something of a guess on my part but if I’m correct it is but another indication that the left are fighting battles that have long since been thoroughly and completely lost. In actual fact, the questions and the answers lie elsewhere – and they lie precisely in the work of the very philosopher that Robin mistakenly equates with degenerate marginalism.

Toxic Marginalism

It is Nietzsche’s critique of all theories of value and, by implication, all systems of morality that lay the ground for the most effective critique of the marginalist toxin – a critique that I have laid out in detail on this site before. These may seem like dusty academic issues – the realm of the literary critic than of the practical minded person – but this is not so.

“…the left are fighting battles that have long since been thoroughly and completely lost.”

Because the left do not know their academic enemy he escapes with impunity and lives on, zombie-like, day after day – in our classrooms and, more importantly, in our everyday moral and political discourse.

Bastard Nietzscheanism

Robin’s key mistake is in confusing the Nietzschean argument for a truly subjective conception of values with the marginalist hoax which, although it purports to be subjectivist, is nothing of the sort. In his essay Robin quotes the following passage from Nietzsche’s The Gay Science as a manifestation of Nietzsche’s subjectivist philosophy:

Whatever has value in our world now does not have value in itself, according to its nature — nature is always value-less, but has been given value at some time, as a present — and it was we who gave and bestowed it.

In this passage Robin sees an anticipation of the pseudo-subjectivist marginalist theory of value – that is: the theory of marginal utility. Robin writes:

That was in 1882. Just a decade earlier, Menger had written:

“Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being.”

Jevons’s position was identical, and like Nietzsche, both Menger and Jevons thought value was instead a high or low estimation put by a man upon the things of life.

Disaster! He carries on equating these theories by writing –

“Menger, like Jevons and Nietzsche, concludes that value “is entirely subjective in nature”.”

Robin has both completely misinterpreted the Nietzschean critique of values and, at the very same time, completely misunderstood the marginalist theory of value. This is extremely odd because he recognises that the Austrian apostles who followed the marginalists – that is, Hayek and von Mises – elevated the marginalist theory into a metaphysical and moral structure, something Robin rightly recognises as being a path that –

“Nietzsche would never have dared to take”.

But this is no coincidence; the reason lies in the fact that, as previously stated and as we shall now outline, the Nietzschean and the marginalist paths were entirely at odds with one another. The marginalist theory is, as we shall see, inherently static and requires that people, in a robot-like manner, order the world around them in a determinate way while the Nietszchean theory holds that subjective states are ephemeral and impossible to truly pin down in any quantifiable or quasi-scientific manner.

Mainstream Marginalism and the Organisation of Reality

In order to fully appreciate the metaphysical weight of the marginalist theory one must really work through a few contemporary “problem sets” in a course on mainstream microeconomics. I do not recommend doing this for either educational or leisurely purposes, but in order to fully grasp the essence of the theory one really must. Marginalism, and consequently modern microeconomics, is all about the ordering of one’s behaviour. It is, like any rigid metaphysical system of morals handed down from on high, about organising one’s desire. What marginalism seeks to do, at a very basic level, is to give a person a rigid worldview that is completely metaphysical and unreal in nature from which they can derive a manner in which they should act and behave.

“… marginalist theory is … inherently static and requires that people, in a robot-like manner, order the world around them in a determinate way…”

Unlike the religious and metaphysical of yesteryear, the marginalists have found a new series of tricks to hide the fact that they’re essentially priests who are imparting to people the “correct” way of thinking and acting. They have done this because, in part thanks to Nietzsche, the mist of blind religious devotion no longer weighs so heavily on contemporary society and so the marginalists have turned that more modern subject of objectivity and devotion: mathematics.

“… Nietszchean theory holds that subjective states are ephemeral and impossible to truly pin down in any quantifiable or quasi-scientific manner.”

The marginalists have derived some of these mathematics from engineering (for example, the Lagrange multiplier), some from contemporary game theory and some they have simply invented themselves. However, the goal is always the same; namely, to trick the student into thinking they are learning something objective when really they are being taught how to organise their minds in a very particular way.

I shall not here get into too many concrete examples having provided them elsewhere before, but take the standard marginalist exercise in “showing” that a perfectly competitive firm in a perfectly competitive market will always equate marginal revenue with marginal cost. The student is taught to work through this problem mathematically (using the engineering math discussed earlier) in order to “prove” the truth of the proposition. Of course, the proposition itself is false because no firms operate like this in the real-world, as numerous empirical studies have hinted at, but which good theory and careful observation should tell us anyway.

“… marginal cost-marginal revenue theory … puts income distribution and pricing down to some perfectly optimal allocation of scarce resources that is objectively determined by ‘The Market’.”

So, what is the point of the exercise? Simple, it gives the student a moral story which doubles as a call to action. On the one hand, it tells the student the morally purifying tale that they should make optimal use of scarce resources – this is based on the fantasy of “utility” which we shall deal with below (and which ties this to Robin’s concerns and the Austrians). On the other hand, it hints at the fact that the world actually works this way and so begins to structure their reality. That is, it avoids the fact that the way in which firms actually operate in a capitalist economy involves distributive issues that are inherently political and open-ended (widening income disparities anyone?). The marginal cost-marginal revenue theory (i.e. the marginalist theory) puts income distribution and pricing down to some perfectly optimal allocation of scarce resources that is objectively determined by ‘The Market‘. The reality is quite different. Income distribution and pricing, as any non-economist will know, are inherently political and institutional issues.

“And they are then given the invitation to join this imaginary world – as one more cog in the ‘Great Machine of Efficient and Fair Allocation’.”

It is then strongly hinted at that this is how capitalist economies actually function – which is a complete lie.  And they are then given the invitation to join this imaginary world – as one more cog in the ‘Great Machine of Efficient and Fair Allocation‘. These are the people that then give us our moral guidance in the contemporary world. They are the ones that call for free-trade, balanced government budgets and privatisation. They are the ones that advised countries like Russia and Argentina in 1990s and collapsed them. All of this undertaken is a sort of purple haze of mathematics and nonsense. The metaphysics bleeds into reality through the halls of power but, as can be seen again and again, reality rejects the metaphysics and the economy crashes.

The Marginalist Theory of Objectively Measurable Value

Back to the Austrians; the villains in Robin’s story (although the reader should realise by now that he has his gun pointed firmly in the wrong direction). The Austrians avoid the fog of scientism and instead, as Robin correctly notes, build a straightforward metaphysical framework which devotes quite literally kneel before. In doing so they lay out marginalism in its most nakedly metaphysical form. This brings us back to the roots of marginalism and how it relates to Nietzsche. By looking at this we cut right to the heart of the mathematical marginalist theories outlined above and, at the very time, of the Austrian metaphysical system – for they are one and the same.

“… as can be seen again and again, reality rejects the metaphysics and the economy crashes.”

Marginalism purports to be a subjectivist theory of value. It appears, at face value, to hold that people have the freedom to choose. But it does not. This is all a well-disguised lie. In fact marginalism is a strongly objectivist system and it is for this reason that scoundrels and fools can build metaphysical systems out of it – whether clouded by mathematics or blind ideological devotion. As I have highlighted before on this site, marginalism conceives of people as fixed bundles of preferences. That means “fixed bundles” as in peoples’ preferences are assumed to be fixed. The neoclassical economist Paul Samuelson expresses this quite clearly in what is probably the most famous and widely read textbook on economics ever written:

What is assumed [in marginalist consumer theory] is that consumers are fairly consistent in their tastes and actions – that they do not flail around in unpredictable ways, making themselves miserable by persistent errors of judgement or arithmetic.

Marginalist analysis cannot exist outside of this static universe. The moment we conceive that human desire is somehow in a state of flux and change the entire marginalist doctrine breaks down completely and we enter a world that slips through the fingers of the neoclassicals and the Austrians.

“… marginalism is a strongly objectivist system and it is for this reason that scoundrels and fools can build metaphysical systems out of it – whether clouded by mathematics or blind ideological devotion.”

It is this stasis of human desire that gives the marginalist doctrine it’s strongly objectivist flavour. It is this that allows marginalists, Austrian or otherwise, to compare a basket of goods and give these weights – whether relative or numerical – which they then assume consumers will follow in an act of a sort of consumption-calculus.

The Rational Agent Garbage

Life, desire, action and everything else is reduced to a calculation that flashes through the person’s mind in line with their supposedly static preferences. Hello “rational agent” and all that garbage! The moment the marginalists have to face the fact that people may not attribute value to goods and services in such a straightforward and static manner is the same moment that the whole edifice collapses in upon itself. Indeed, the whole edifice of modern neoclassical and Austrian economics collapses and it becomes the meaningless verbiage I have no doubt it will be seen to be by future historians of thought.

At a deeper level the marginalist analysis assumes this stasis of fixity of preferences because it seeks, like the morality masking as a pseudo-science that it is, to view people as objects. It does not truly recognise subjectivity at all. Subjectivity is complex and ephemeral. The reasons why people make the choices the make – whether in love, in life or between Coke and Pepsi – is infinitely complex and very likely unanswerable. Marginalism cannot deal with this because, being a metaphysical doctrine that seeks to hand down structures of behaviour and belief to its followers, this means they can no longer exercise control over people. Because do not doubt it: any doctrine that treats people like objects is designed to control them and any doctrine that tries to objectively determine “laws” of human behaviour contains within it the worst seeds of tyranny; despite outward protestations to the contrary.

Flux and Flow, Not Equilibrium, Not Rationality

Nietzsche’s subjectivist theories of values and morals are completely different. Indeed, they are quite the opposite. Nietzsche’s theories, as those philosophers that developed them recognised well, were all about flux and change – the movement of people, their wills and their desires through time. These theories were about the mysterious forces that lay inside each individual, forces which they themselves do not properly understand, that push them to and fro, dictating their whims and desires. These forces, for Nietzsche, were above and beyond anything that could be objectively conceived in any rationalistic manner. Because these very forces determined our very ability to reason and hence our very impulse to try to determine things objectively, they could not be conceived of through the frame of objective knowledge. Such would be like an eye trying to look in upon itself.

“… this is the language of power as it operates in the world today.”

In equating Nietzsche’s truly subjectivist thoughts on human values and morals with fashionable marginalist claptrap Robin has not only done the great philosopher a disservice, he has also unknowingly provided cover for the marginalists. In touting their silly metaphysics as being subjectivist he has given them just the cover they need to carry out their designs which seek to view people as objects and control them.

Understand the Zeitgeist

With that I leave the reader with an extended quote from the great economist Joan Robinson from her recently reissued book Economic Philosophy. I encourage any philosopher who wants to begin to engage with marginalist economics – Austrian or neoclassical – to read; for this is the metaphysics of our day; this is the language of power as it operates in the world today. To understand it is, quite literally, to understand the Zeitgeist.

Utility is a metaphysical concept of impregnable circularity; utility is the quality in commodities that makes individuals want to buy them, and the fact that individuals want to buy them shows that they have utility … The whole point of utility was to justify laisser faire. Everyone must be free to spend his income as he likes, and he will gain the greatest benefit when he equalizes the marginal utility of a shilling spent on each kind of good. The pursuit of profit, under conditions of perfect competition, leads producers to equate marginal costs to prices, and the maximum possible satisfaction is drawn from available resources … This is an ideology to end ideologies, for it has abolished the moral problem. It is only necessary for each individual to act egoistically for the good of all to be attained.

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5 replies on “Economic Zeitgeist”

  1. Presently, economists are taught to go looking for growth. Almost all of macroeconomics is orientated towards that very singular objective. Which is nice but not nearly enough as a sole criteria of economic policy.
    Growth indeed brings an increase in National Income, and we must look beyond that objective alone. National Income is essential to any society/collective, without which its inhabitants would not have a decent existence. What is missing, however, is a notion of fairness. That is, the share of national income that goes to each class.
    Overall, the matter of fairness carries an appellation:  Income Disparity – which describes the manner in which national income is distributed statistically within a country. A crude but descriptive measure is typically the Gini Coefficient. The time-wise evolution of which can be seen in this info-graphic here:
    The coefficient has a range from 0 to 1. At “0”, this means everybody has perfectly the same income in the country, not a penny more, not a penny less. At “1”, the coefficient indicates that only one person has all the income.  Of course, either extreme is impossible in a Market Economy. But any tendency towards the higher end means also that the economy is trending towards unfairness.
    Looking at the above info-graphic, we see that America’s Gini Coefficient since WW2 was relatively flat. Until something happened in 1980. Actually, if one looks closely at the evolution of the US coefficient one sees that it was tending after the war slightly downwards until the early 1960s, when it pulled up and straightened on towards the 1980s. But during the 1980s, its inflexion upwards becomes dramatic and Income Disparity rises significantly.
    These changes in the coefficient were brought about by alterations in taxation policy, first by the Johnson Administration and then by the Reagan Administration. Upper tax rates were reduced successively from a once very high rate to today at exceedingly low rates. (See that historic evolution in this info-graphic: )
    It will require serious changes in taxation policy to rectify the coefficient and thus restore more equitability to income distribution in America. Namely, higher taxation at the upper levels of income.
    Which is a policy nowhere to be seen on Uncle Sam’s political horizon …

  2. I agree that economic theory often does not account well for the fluidity of life with its Irrationality of the messy lives so many of us lead either by design or by circumstances thrust upon us. The fiction of perfect competition does seem to be used too often to distract from or ignore the utility given to business owners by indulging their desire for super normal profits rather than optimising satisfaction for consumers.Food for thought thank you Philip Pilkington.

  3. @Mike Beckett 
    And I would agree with you. In fact, my indictment of macroeconomics as a science goes a bit further.
    During the past century the “science” of economics became dominated by statistical analysis, deepening its mathematical rigor. Which, we thought, gave it more credibility in terms of national policy.
    We are coming to realize, I submit, that economic science as a principal determinant of policy is not always very effective. The results of either Fiscal or Monetary Policy remain highly unpredictable. And they become known after and not before the fact.
    So, in doing so, we are predicting the past. (Or, explaining it.)
    I think, rather, that economics is also an “art”, and we should appreciate that difference:
    *Science =  the intellectual and practical activity encompassing the systematic study of the structure and behaviour of the physical and natural world through observation and experiment.
    *Art = the expression or application of creative skill and imagination
    Iow, there’s a place for both and academic excellence should show both expressions the way forward. How, as regards the latter? I really don’t know …

  4. @Tony PERLA1  @Mike Beckett  How you ask as to the expression or application of creative skill and imagination? I suggest not with the virtual pen but rather the paint brush and if one must use words perhaps they should be in verse?

  5. @Mike Beckett 
    Words are certainly necessary.
    Like these two “Social Justice” = The primary qualitative feature of any socioeconomic collective in which egalitarian principals merge with public solidarity to insure that the basic human right to well-being is attained by the maximum number of a nation’s citizens. 
    The above is not economics, per se. It is the philosophy as applied to economic policy. And it became an overarching vision in postwar Europe, which has developed along those lines.
    How so? Just look at the evolution of the Gini Coefficient and the difference between European countries and the US.

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