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A Solution to the Alleged Inconsistency in the Neoclassical
Theory of Markets: Reply to Guerrien's Reply
Deirdre McCloskey (University of Illinois at
Chicago, USA)
In the Post-Autistic Economics Review of October
2002, which has just come to my attention, Bernhard Guerrien
wrote an elaborate reply, including an appendix attacking in detail the old
textbooks by me and by David Friedman, to those of us who believe that supply
and demand curves are useful. He is very harsh in his complaint, and
briskly confident that his complaint tells.
Perhaps his confidence is misplaced.
Guerrien's
complains bitterly about supply and demand curves that they assume a
"given" price (correct); and that there is no conceivable source
for the givenness except the patently absurd
fiction of an Walrasian auctioneer (incorrect).
What's incorrect about this
old criticism is that there is a source, an obvious one, though
neglected by the Samuelsonian economics that Guerrien and I join in criticizing. Still, the
obvious source is also ignored by Marxist economics, institutional economics
(old and neo-), post-Keynesian economics, behavioral
economics, whatever. The only economists who so much as mention it are
the Austrians. That's one reason I count myself a fellow traveler of this much-disdained little group.
The missing source is
conversation, rhetoric, language, sweet talk itself. The price gets its
givenness from the literal conversations that go on
in markets. I do not mean by "conversations" only the putting
and taking of offers, surrounded otherwise, as has been assumed in economic
theory since Ricardo, by stony silence. To be sure, mere money offers
are, Adam Smith noted, a variety of persuasive talk: "The offering
of a shilling, which to us appears to have so plain and simple a meaning, is
in reality offering an argument to persuade one to do so and so as it is for
his interest" (Lectures on Jurisprudence, Report of 1762-3,
Glasgow edition, vi. 56, p. 352). But people do not merely silently
offer shillings and silently hand over haircuts. People are not, as
autistic economics and as Guerrien in his attack
assume, vending machines. They talk, or as Arjo
Klamer puts it, they converse. And in
conversing they open each other to modifications of the price, it may be, and
anyway they establish, as we say, the "going" price. Market participants "in this manner .
. . acquire a certain dexterity and address in managing their affairs, or in
other words in managing of men [and women, dear Adam, if you please]; and this
is altogether the practice of every man in the most ordinary
affairs." The ordinary affair of
economics itself, for example. The
going idea in Samuelsonian economics, we
post-autism folk are saying, is that people do not converse. The Samuelsonians are mistaken.
Of course, in a large market
or a large conversation a small voice is seldom heard. That is what we mean by givenness. There is little point in driving to an
enormous California supermarket and initiating a conversation with the
manager about the price of milk. You wait until you are talking to your
friend the local shopkeeper, perhaps, who might actually respond, persuading
you in the ensuing conversation that nothing is to be done, because after all
he is in turn a small voice in the market for milk. Or you might, as an
economist, wait until you are talking to the Milk Board, which sets the
wholesale price of milk, though doubtless it does so after much talk with
fellow Board members and with politicians and with Ministry of Agriculture
functionaries. You might change their minds, and so their talk,
and so the price, a bit. You certainly could change some weak minds if
you were the President the United States, and wanted to redefine, say, the
word "torture."
The situation in markets is
identical to that of language. No prudent person will initiate
conversations with strangers on the bus about the definition of "givenness" in economic theory. She will wait
until she in talking to other economists, at any rate to economists imagining
in their conservations a post-autistic economics that is not so dogmatically
of the Left that it objects to every idea
that the cursed bourgeois economists have articulated. We use the
French word amour or the English word love without stopping to
quarrel about their meanings, or insisting that love actually means
"hate," or "light bulb," or "the train will arrive
in six minutes." That is, the on-going conversation of
language---I note that Walras' colleague Saussure made this point a century ago---gives to us mere
ordinary speakers of it a set of distinctions serving to define what's on
offer in French or English by way of sheep/mutton as against mouton.
Guerrien
will perhaps reply that the going price/meaning is just an instance of his
much-beloved bargaining. I think he and I agree, though, that if bargaining
in a strictly game-theoretic way is what we are talking about, then we should
abandon hope in economics entirely. The Folk Theorem showed some time
ago that in a properly infinite game and an assumption of Prudence Only you
can get any old equilibrium you want. Prudence-only game theory,
without social agreements of solidarity and justice as to how a conversation
can change minds, has no implications.
None at all: change the assumptions, change the equilibrium. And in every empirical test on offer, this
or that set of prudence-only assumptions has failed. Unlike supply and demand curves.
A price is not set usually
by silent bid-offer, move-countermove game bargaining, with its intrinsic
paradoxes, an elderly example of which Guerrien has
repeated. (I note that in Guerrien's reliance
on lecture-room paradoxes here, rather than on the lived experience of
markets and languages, he perpetuates exactly the autistic, or if I may say
Cartesian, method he has done so much to warn us of.) Price is not set
by an auctioneer in most markets---though I wonder what Guerrien
would make of the Alsmeer flower market in Holland,
with its Dutch-auction clocks ticking the price down; or of the electronic
exchanges replacing open-outcry pits at the Chicago Board of Trade. Most prices get their meaning and in
particular the givenness of their meaning from the
economic conversation. Just as amour has a more or less given
meaning in French, modifiable at the edges by particularly persuasive
talkers, so do dictionary-makers face a more or less given money price for
their product. Larrouse
cannot suddenly decide to charge 10,000 euros a copy for its big dictionary,
or even much above the going price.
And therefore it lives with supply and demand curves. There is nothing mysterious or
self-contradictory about the situation.
I do not claim that we
economists have already figured out how language and the economy
intermesh. This scientific task still
remains to be done, and will yield a fully humanistic economics, that is, an
economics acknowledging humans as talking, singing, story-telling, ethical
creatures. Until then the science will
be incomplete and paradoxical in the ways that Guerrien
has noted. Adam Smith, whose first job
in Edinburgh was essentially that of a lycée
teacher of English composition, started us off thinking about a science humaine of
economics, but after 1790 we mislaid his instructions. Time to get back to them.
Meanwhile let's not let
clever-sounding paradoxes of the lecture hall persuade us to toss away what
tools we have. Givenness
is how we little folk in a large society face any piece of our culture.
We only need to recognize that the economy is part of the culture, and of its
conversations, to recognize that supply and demand curves do after all work,
rather well.
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SUGGESTED CITATION:
Deirdre McCloskey, “A Solution to the Alleged Inconsistency in the
Neoclassical Theory of Markets: Reply to Guerrien’ Reply, post-autistic economics review, issue no. 39, 1 October 2006, article
5, pp. 48-50, http://www.paecon.net/PAEReview/issue39/McCloskey39.htm
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