This volume brings together original research from the Austrian, Virginia, and Bloomington schools of political economy to analyse central elements of market process and market order. These include economic calculation, entrepreneurship, institutions and learning. Edited by three of the leading scholars in this field, the collection offers a multitude of new interdisciplinary understandings by engaging with scholars working in anthropology, economics, entrepreneurship, history, political science, public policy, and sociology.
This volume brings together original research from the Austrian, Virginia, and Bloomington schools of political economy to analyse central elements of market process and market order. These include economic calculation, entrepreneurship, institutions and learning. Edited by three of the leading scholars in this field, the collection offers a multitude of new interdisciplinary understandings by engaging with scholars working in anthropology, economics, entrepreneurship, history, political science, public policy, and sociology.
Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory
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Interdisciplinary Studies of the Market Order: New Applications of Market Process Theory
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Overview
This volume brings together original research from the Austrian, Virginia, and Bloomington schools of political economy to analyse central elements of market process and market order. These include economic calculation, entrepreneurship, institutions and learning. Edited by three of the leading scholars in this field, the collection offers a multitude of new interdisciplinary understandings by engaging with scholars working in anthropology, economics, entrepreneurship, history, political science, public policy, and sociology.
Product Details
| ISBN-13: | 9781786602022 |
|---|---|
| Publisher: | Rowman & Littlefield Publishers, Inc. |
| Publication date: | 05/31/2017 |
| Series: | Economy, Polity, and Society |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 302 |
| File size: | 1 MB |
| Age Range: | 18 Years |
About the Author
in Philosophy, Politics and Economics at the Mercatus Center and Professor of Economics and
Philosophy at George Mason University.
Christopher J. Coyne is the F. A. Harper Professor of Economics at George Mason University and
the Associate Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and
Economics at the Mercatus Center.
Virgil H. Storr is Research Associate Professor of Economics and Senior Fellow, F.A. Hayek Program for
Advanced Study in Philosophy, Politics & Economics, George Mason University.
Read an Excerpt
Interdisciplinary Studies of the Market Order
New Applications of Market Process Theory
By Peter J. Boettke, Christopher J. Coyne, Virgil Henry Storr
Rowman & Littlefield International, Ltd.
Copyright © 2017 Peter J. Boettke, Christopher J. Coyne and Virgil Henry StorrAll rights reserved.
ISBN: 978-1-78660-202-2
CHAPTER 1
Plato's Economic Genius
Nathan Sawatzky
Based primarily on his reading of Plato's Republic, Karl Popper (1947, 76) famously insisted that Plato's "political demands are purely totalitarian and anti-humanitarian." In this chapter I argue that Popper and many other prominent authors, from Plato scholars (e.g., Julia Annas 1991, 73–79, 172–81; Malcolm Schofield 1999, 77–80 and 2006, 205) to historians of economic thought (e.g., M. I. Finley 1970, 4; Joseph Schumpeter 1959, 55–56; Lionel Robbins 2000, 11–12, 14, 16) to political theorists (e.g., Sheldon Wolin 1960, 41–44, 47–50; Wendy Brown 1994, 176) to Austrian economists (e.g., Ludwig von Mises 2007, 583; Friedrich Hayek 1992, 32, 52, 109–10), have misidentified Plato as a proponent of extreme unity and control in politics because they have overlooked or misunderstood (i) the economic genius underlying the early stages of the city that Socrates and his young friend Adeimantus — Plato's literary characters — design at Republic 369b–372d, along with (ii) the distinct roles that Plato has his different characters play in designing that city. Socrates's brief account of how exchanges between individuals build a city, I propose, when carefully analyzed and placed in its proper context within the Republic, constitutes evidence that Plato was not, as is commonly thought, a communist, a totalitarian, or a fascist. Instead, Plato intends to contrast Socrates with his young friends Adeimantus and Glaucon — men who are enthusiastic supporters of thoroughgoing political unity and control and to whose education Socrates attempts to contribute — by making Socrates a consistent proponent of political and economic systems that as much as possible respect and respond to individuals' needs and aptitudes. If Popper had understood Plato, he would have embraced him.
By providing a close reading of the "early city" (the name I adopt for what is generally but mistakenly, if not disparagingly, called the "city of pigs" but which Socrates at 372e calls a "true" and "healthy" city) at Republic 369b–372d, I argue that Plato thought deeply and analytically about market exchanges and the division of labor, discovering principles that go far beyond both the socially embedded and socially constrained economic structures of Ancient Greece and the aristocratic values and theories of his contemporary writers. In fact, Plato articulated principles that have become foundational for modern market economies and modern economics. His economic genius, expressed through Socrates, consists in (i) adopting, for social and political analysis, the basic perspective of individual decision makers who weigh the costs and benefits of alternative actions, assess the relative desirability of different ends for their relative contributions to a "better" condition, and, where needed, seek to discover new and better means and ends; (ii) systematically developing a theory of why such individuals come to cooperate and exchange with one another, a theory which features three apparently exhaustive reasons for the division of labor; (iii) separating out the variability of supply from the variability of demand; (iv) incorporating a normative claim — that individuals should only do what is needed/necessary — as an essential part of a descriptive analysis of why individuals engage in exchange; (v) distinguishing among, and systematically linking, demand for consumption goods and demands for labor, tools, materials, transportation, and other factors of production; (vi) identifying the part of the principle of supply and demand concerned with the effect of aggregate demand on supply; (vii) understanding that the foregoing principles governing exchange extend beyond state boundaries; (viii) proposing a fiat (as opposed to a commodity) understanding of money, and (ix) articulating reasons for the employer-employee relationship that come remarkably close to a full theory of comparative advantage.
Plato is the first to write about any of these, to the best of my knowledge. What is more, Plato accomplishes what he does in the space of only three pages, as part of a much larger project in which he portrays Socrates trying to educate his companions, who are optimistic regarding their abilities to design a city, about what is just and unjust in both public and private life. That Plato could write something of this nature is all the more extraordinary given S. Todd Lowry's otherwise true claim that ancient writings on economic matters were "framed in terms of personal and public administrative perspectives rather than in terms of commercial market analyses," since after all, "capitalist markets did not exist in ancient Greece" (Lowry 1987, 14, 18).
I anticipate that the arguments I develop in this chapter will be of interest to four (overlapping) audiences. For historians of economic thought, I present evidence that Plato developed a surprisingly general and analytic theory of a market economy, contrary to the prevailing view. Intriguing for political philosophers, I imagine, will be the ways in which Socrates relies on the descriptive principle that all human communities are built out of individuals seeking to fulfill their needs and incorporates the normative principle that one should always do what is most needed/necessary into his economic analysis. For those scholars and lay readers with a general interest in either Plato or pedagogical literary devices, I intend my account of how he uses the dialogue form as a means of conveying his economic and political thought to yield provocative, interpretively consequential insights into Plato's politics and pedagogical strategies in the Republic. Finally, those with an interest in the themes of this volume — the market process and the kinds of order that emerge from that process — will find that the analytical approach Socrates uses to construct his entire account of a system of market exchanges shares fundamental similarities with the versatile, powerful methods of Max Weber and Ludwig von Mises.
As Boettke and Storr (2002, 161–76) have highlighted, Weber's method of "Verstehen" and Mises's methodological individualism both seek to explain social phenomena by accounting for the experience of the individual decision maker. "[F]or the subjective interpretation of action in sociological work," Weber (1978, 13) writes, "collectivities must be treated as solely the resultants and modes of organization of the particular acts of individual persons, since these alone can be treated as agents in a course of subjectively understandable action." Mises's method is similar:
If we scrutinize the meaning of the various actions performed by individuals we must necessarily learn everything about the actions of collective wholes. For a social collective has no existence and reality outside of the individual members' actions. The life of a collective is lived in the actions of the individuals constituting its body. ... Thus the way to a cognition of collective wholes is through an analysis of the individuals' actions. (Mises 2007, 42)
An aim of this chapter is to show how Plato, more than two thousand years before Weber, portrays Socrates using a similar approach to construct a theory of how individuals cooperate and form communities and thereby constitute a city and an economic system. For although Plato did not use a modern economic or sociological vocabulary, the principles he discovered are in some cases similar to modern ones and may, with some care, be accurately represented in modern terms.
In the first substantive section of this chapter, I identify what I see to be the main reasons why Plato's economic thought has long been overlooked and misunderstood. In the next section, I begin to address these reasons by explaining Socrates's investigative procedure, a grasp of which is essential for avoiding unfair criticisms of Plato. Over several subsequent sections I turn to an exegesis of the early city, analyzing the economic principles Socrates identifies and explains, and responding to previous scholarly views of the early city. In the final section, I respond to the objection that, for all Plato's economic insight, he nevertheless advocates extreme political control over economic activities.
WHY PLATO'S ECONOMIC THOUGHT IS USUALLY OVERLOOKED OR MISUNDERSTOOD
Plato's economic genius, as Weinstein (2009, 439–40) observes, is generally overlooked. There are several reasons for this. Perhaps the most significant is that his most developed ideas are presented concisely (in only three pages) and in informal terms as part of a wandering conversation between Socrates and Adeimantus about why and how cities come into being. It is easy to assume that Plato's informal style of presentation corresponds to a lack of rigorous analysis. To this is added the fact that, for various reasons, most Plato scholars dismiss the early city Socrates and Adeimantus construct as, at least in Plato's view, mistaken and inferior to the versions of the city developed later in the Republic9 — if Plato did not consider the early city to be a serious political model, then why would one look there for any serious contributions to economic theory? Furthermore, that the later versions of the city exemplify a "rigid stationarity" in which "[a]ll economic and non-economic activity [is] strictly regulated" (Schumpeter 1959, 56, 55; see also Ekelund and Hébert 2007, 11–12) seems to suggest that the early city could not possibly contain any systematic insights about dynamic economic processes. Moreover, even in those cases when a scholar does study the early city in some detail (e.g., McNulty 1975, 373–74; Foley 1974, 228–34; 1975, 379; Greco 2009, 55), its interpretation is usually so conditioned by later versions of the city in the Republic that its economic principles are, as I will show, misrepresented and misunderstood. In this chapter, I aim to assess the economic and ethical principles of the early city on their own merits. This is of both analytical and historical interest in itself; it is also interpretively significant as a precondition for any fair comparisons of the early city to later versions of the city in the Republic.
Among historians of economic thought, three voices have done the most to spread the view that Plato's works contain no rigorous economic thought. Joseph Schumpeter asserts that "[t]he essential difference [between Plato's and Aristotle's approaches to economics] is that an analytic intention, which may be said (in a sense) to be absent from Plato's mind, was the prime mover of Aristotle's. This is clear from the logical structure of his arguments" (Schumpeter 1959, 57). Schumpeter defines economic analysis, distinct from mere economic thought or description, as "intellectual efforts ... to understand economic phenomena" (Schumpeter 1959, 3; see also Lowry 1979, 66–67). The eminent classicist Moses I. Finley concurs: "It is agreed on all sides that only Aristotle offered the rudiments of [economic] analysis" (Finley 1970, 4). Lionel Robbins, too, thinks that Aristotle "is much more germane to technical analysis than Plato's remarks on the division of labour" (Robbins 2000, 15), and he adds that we "must not expect too much of Plato," since he was "backward looking" in (allegedly) preferring the harsh, regimented Spartan regime to Athenian democracy and commerce (Robbins 2000, 11). Unsurprisingly, in light of these three prominent voices, a recent popular reader in the history of economic thought skips over Plato and begins with Aristotle (Medema and Samuels 2013, 2–4). Moreover, Finley's influential thesis that in the ancient world economic interactions were governed by considerations of status and "embedded" in hierarchical social relationships to such an extent as to make modern economic models of little use for understanding those interactions (Finley [1973] 1999, 35–61) has made it still more unlikely that scholars would look for a systematic economic theory in Plato. Against these voices, I seek to show that Socrates's casual style masks an analytic intention, and that he develops a systematic and far-reaching theory of market exchanges and the division of labor based on the interactions of thinking, decision-making individuals.
SOCRATES' INVESTIGATIVE PROCEDURE AND PEDAGOGICAL STRATEGY
Socrates and Adeimantus begin to construct a "city in speech," a hypothetical or theoretical (as opposed to an actual) city, because they want to know what justice is and because they hope that, as the city develops, it will be easier for them to spot justice and injustice in it than in a person's soul, which is harder to observe (368c–369b). Socrates therefore sets out to build a realistic, "true" (372e6) city. Yet he attempts neither to narrate the historical development of a city — accusations that the early city develops in a historically unrealistic way (e.g., Harris 2002, 72–74) are therefore unfair — nor to build a theoretical model of a city systematically from first principles, as Schofield's characterization of "a sort of transcendental deduction of the very existence of the market" suggests (Schofield 1999, 76; followed by Weinstein 2009, 440). Rather, Socrates adopts what we might call an investigative procedure.
Presumably no one who is first discovering or inventing a theory articulates it fully and systematically while it is being discovered. Rather, in the process of discovery one moves back and forth between general and specific principles (if not also particular events), clarifying, extending, or correcting one's initial notions wherever one realizes that such activities are needed. In the same way, Plato portrays Socrates in the process of discovering a systematic theory with Adeimantus, alternately (i) positing or clarifying general principles (e.g., reasons for the division of labor) and (ii) applying these by developing specific principles for specific kinds of cases (e.g., applying the division of labor to the production of raw materials or transportation). This alternating investigative procedure gives the appearance of a wandering conversation, but this does not prevent Socrates from producing an economic theory surprisingly systematic in content. Schumpeter does not notice that Plato's purpose is not only to communicate ideas; in addition, Plato seeks to model the process of discovering ideas, and to lead the reader through his or her own process of discovery.
A further aspect of Plato's writing has proven particularly difficult for modern interpreters to make sense of, as we will see — his use of different speakers in the dialogue. The most common mistake is to assume that all or most things Adeimantus, his brother Glaucon, or even Socrates says represent Plato's own view. But the brothers do not merely "help [Socrates] expound elaborate theoretical constructions by friendly encouragement and the occasional well-placed question" (Schofield 1999, 70). Plato portrays Adeimantus and Glaucon as distinct individuals with their own character traits and prejudices. We will observe instances in which these prejudices — not Socrates's (or Plato's) own convictions — begin to introduce regulatory, static, aristocratic regime features into the city in speech. By having Socrates develop the early city before Glaucon and Adeimantus start influencing the course of later versions of the city, Plato sets up a contrast. As Socrates then allows the brothers to introduce new regime features into the city and helps them work out the consequences of those features (securing their approval at every step) in his attempts to help them know themselves better and to educate them, the city comes to embody a mix of principles introduced by all three interlocutors. Socrates's pedagogical strategy requires that he allow his interlocutors to influence the course of their joint investigation.
In sum, Socrates, if not Plato, is usually indiscriminately held responsible for most of the features of the city introduced after the early city, but this is a mistake. Very little of Socrates's pedagogy consists of simply telling Glaucon and Adeimantus what to believe. Distinguishing Socrates's views from the brothers' requires paying attention to which speaker introduces which principles as they jointly build the city, beginning with the early city and the subsequent turn to the city of luxury. It is these passages that are the focus of this chapter.
(Continues...)
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