Q&A on the Philosophy of Economics with Dr. Alexander Douglas – Session 6

A myopic and short-term view of economic goals fails to create sustainable institutions or incentives

Dr. Alexander Douglas specialises in the history of philosophy and the philosophy of economics. He is a faculty member at the University of St. Andrews in the School of Philosophical, Anthropological and Film Studies. In this series, we discuss the philosophy of economics, its evolution, and how the discipline of economics should move forward in a world with increasing inequality so that it is more attuned to democracy. Previous sessions can be found here in part 1, part 2, part 3, part 4, and part 5.

Scott Jacobsen: Let’s move into your new research, as those who have followed the previous sessions know, you have an expertise in the philosophy of economics. Dr. Stephen Law recommended you. How else can social sciences differentiate from and inform society in contrast to the natural sciences?

Dr. Alexander Douglas: I class psychology as a natural science rather than a social science. I think psychological research can serve many important social functions – for example educating us out of moral prejudices, but this is not what you’re asking about.

Social sciences can be what Joan Robinson called “an organ of self-consciousness” because they can expose the origins of our social institutions. This can lead us to see them in a different light. And then, sometimes, they exercise less control over us.

For example, René Girard, whom I admire very much, went as far as he possibly could in identifying scapegoating as the hidden mechanism that underlies many of our institutions and social practices. He found that art, theatre, worship, criminal trials, marriage – there are many more examples – have their origin in scapegoating rituals. This is in stark contrast to the more rationalistic functional explanations given by other social scientists.

While I have no expertise to pronounce on whether or not he was right, I admire his work because it inspires us to take a second look at our institutions, to see that they really are what we think they are. It was crucial for Girard that once we recognise a practice as a scapegoating practice, we can no longer commit to it. Scapegoating only works when those participating in it think they’re doing something else, i.e., prosecuting a deserving criminal.

This is, perhaps, an example of what Joan Robinson was talking about. When we become self-conscious in our institutions, they stop working on us. In political economy, when we start to see that what we have been institutionalised to think of as a market composed of individual exchanges might be in fact something quite different, we begin to wriggle loose from an ideology that controls much of our social life. Likewise with many other social practices and institutionalised forms of life.

In future work, I plan to look at early modern theories of society, particularly those of Spinoza, Hobbes, and some of their contemporaries.

Spinoza was the most philosophically radical thinker of the Early Modern period, at least in Western Europe. He challenged the theological prejudices of his day while retaining the grand and sweeping cast of mind of a religious thinker.

Jacobsen: You have a deep interest and have published research on Spinoza. Who was Spinoza? Does his work inform your own on the philosophy of economics?

Douglas: Spinoza was the most philosophically radical thinker of the Early Modern period, at least in Western Europe. He challenged the theological prejudices of his day while retaining the grand and sweeping cast of mind of a religious thinker. He believed in the power of pure reason with a conviction seldom found elsewhere in Europe, outside of the period of ‘Idealist’ philosophy.

His work informs my views on everything, including on the philosophy of economics. One thing I’ve been interested in lately is the treatment of time inconsistency in economic models. A time-inconsistent policy is, roughly, one that determines what it is best to do now versus what it is best to do in the future. The inconsistency arises from what was previously ‘the future’ eventually becoming ‘now’, in which case the same policy delivers a different result inconsistent with the first. Spinoza was one of the first philosophers, to my knowledge, to consider time-inconsistency. The last few propositions of Part Four of his masterpiece, Ethics Demonstrated in Geometrical Order, discuss how a crucial component of rationality is the avoidance of time-inconsistency.

Spinoza also deals with the social aspects of human desire, in a way that I find more insightful than the standard liberal tradition. Spinoza notices how insecure we often are in our desires: we’re really very unsure about what we want. One effect of this is that we both model our desires on those we seem to observe in others and aim at being emulated in our desires. Having others around us wanting certain things confirms our belief that we really want those things. This plays havoc with the transactions that economists treat as basic and standard. Exchange, for example, is profoundly complicated by the tendency of desires to converge on certain goods rather than being spread stably across diverse goods.

This is, I believe, part of the explanation of why one of Spinoza’s chief influences, Hobbes did not believe that any stable allocation of goods could temper the tendency to rivalrous violence in the ‘state of nature’. This insight puzzled his contemporaries, but Spinoza’s psychological account fills in some crucial details. Here I take inspiration from the work of Paul Dumouchel and Jean-Pierre Dupuy, who have looked from this angle at Hobbes, Adam Smith, and other supposed founding figures in the liberal tradition.

Jacobsen: Spinoza had an interest in Ibn Khaldoun, who was the father of trickle-down economics. Why did Spinoza have this interest? What is behind the philosophy of trickle-down economics in past and the present?

Douglas: I don’t know of any evidence that Spinoza read Ibn Khaldoun. I’m not sure Khaldoun was very well known in Western Europe until after Spinoza’s time. But Spinoza was more connected, via the Hebrew tradition, to the medieval Arabic literature than many of his contemporaries.

I don’t really know much about the history of trickle-down economics. Arthur Laffer wrote an article on his famous ‘curve’, showing some historical precedents for the central idea. The Laffer Curve is, roughly, the idea that increasing tax rates up to some point increases overall revenue to the Exchequer, but increasing it past that point decreases overall revenue due to a detrimental effect on national income. It’s often cited as a prime example of an economic idea with very little practical importance, due to the strength of its assumptions and its abstraction from complicating issues.

Spinoza has very little to say about taxation as such. In the Political Treatise (ch.6, §12) he argues that during peacetime there should be no taxation, though all land and housing should be publicly owned and then leased from the government. In this sense, he can be interpreted as an early proponent of the Land Value Tax famously promoted by Henry George in the nineteenth century. But trickle-down economics doesn’t seem to me to appear anywhere in his writings.

The Laffer Curve is, roughly, the idea that increasing tax rates up to some point increases overall revenue to the Exchequer, but increasing it past that point decreases overall revenue due to a detrimental effect on national income.

Jacobsen: Were there any social and cultural values – including freedom of speech – that Spinoza supported in order for the economic flourishing of society?

Douglas: It’s almost the other way around for Spinoza. He argues that commercial relations foster peaceful cooperation among people so that they can bind together under a common law and sovereign power. For him, the best guarantee of free speech is a powerful sovereign authority, subject to the democratic control of the citizens, which acts to protect freedom of speech from the soft power of religious and private institutions. So long as the citizens know what is good for them, they will insist upon the sovereign power acting in this way.

Commercial relations support the stability of the state, and thus the authority of the sovereign power, which is the protector of freedom of speech and other rights of citizens. Commerce is important because it keeps the citizens interested in each other’s welfare; “everyone defends the cause of another just so far as he believes that in this way he makes his own situation more stable” (Political Treatise, ch.7, §8). And there’s a positive feedback loop since, as Spinoza argues in the Theologico-Political Treatise, support for free speech and other civic rights ends up strengthening the sovereign authority and the rule of law.

On the other hand, Spinoza is well aware that economic institutions can often work to divide people rather than bringing them together. In the Political Treatise he has a few suggestions for ensuring that the institutions work in the right way; also in the Theologico-Political Treatise he speaks favourably of the Biblical debt jubilee. But, as I’ve argued in a recent paper (“Spinoza, money, and desire”), there is always a risk, on Spinoza’s theory, that our economic institutions will foster socially destructive passions rather than working in more pro-social ways.

About Scott Jacobsen 318 Articles
Scott Douglas Jacobsen is the Founder of In-Sight: Independent Interview-Based Journal and In-Sight Publishing. Jacobsen works for science and human rights, especially women’s and children’s rights. He considers the modern scientific and technological world the foundation for the provision of the basics of human life throughout the world and advancement of human rights as the universal movement among peoples everywhere.

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