Friday, January 14, 2011

A note on Bastiat and "double inequality"

Sheldon Richman recently posted an interesting piece on "The Importance of Subjectivism in Economics: The double inequality of value," over at The Freeman. In it, while praising Bastiat, he wants to supplement Bastiat's account of the benefits of a market economy with "the subjectivist Austrian insight that individuals gain from trade per se."
For an exchange to take place, the two parties must assess the items traded differently, with each party valuing what he is to receive more than what he is to give up. If that condition did not hold, no exchange would occur. There must be what Murray Rothbard called a double inequality of value. It’s in the logic of human action – what Ludwig von Mises called praxeology. Bastiat, like his classical forebears Smith and Ricardo, erroneously believed (at least explicitly) that people trade equal values and that something is wrong when unequal values are exchanged.
Sheldon does a nice job of reading through Bastiat's Economic Harmonies, showing Bastiat's engagement with the "double inequality," as expressed in pre-Austrian form by Condillac, as well as referencing Roderick Long's commentary on the "Gratuity of Credit" debate, concluding that, although the principle had been around for a hundred years, "neither Bastiat nor Proudhon fully and explicitly grasped the Condillac/Austrian point about the double inequality of value."

Now, as Sheldon shows, Bastiat seems to have thought he had "grasped the point," only to reject it.  Indeed, when you look at his discussion of Condillac, he sounds a lot like Proudhon, positing “Exchange” as a more-or-less anarchic “association:”
“…the separation of employments is only another and more permanent manner of uniting our forces—of co-operating, of associating; and it is quite correct to say, as we shall afterwards demonstrate, that the present social organization, provided Exchange is left free and unfettered, is itself a vast and beautiful association—a marvellous association, very different indeed from that dreamt of by the Socialists, since, by an admirable mechanism, it is in perfect accordance with individual independence. Every one can enter and leave it at any moment which suits his convenience. He contributes to it voluntarily, and reaps a satisfaction superior to his contribution, and always increasing—a satisfaction determined by the laws of justice and the nature of things, not by the arbitrary will of a chief.”
And the two propositions about profit and loss ("The profit of one is the loss of another" or "The profit of one is the benefit of another") are alternately true or false, depending on whether individuals are or are not associated. Compare Proudhon, from the “Revolutionary Program” of 1848:
“Who does not see that the mutualist organization of exchange, of circulation, of credit, of buying and selling, the abolition of taxes and tolls of every nature which place burdens on production and bans on goods, irresistibly push the producers, each following his specialty, towards a centralization analogous with that of the State, but in which no one obeys, no one is dependent, and everyone is free and sovereign?”
Indeed, somewhat uncharacteristically, Proudhon insists so strongly (in that same essay) on the individualization of interests that he talks about “complete insolidarity.” So, however incommensurable the subjective values may be, the dual profit seems to arise, for both Bastiat and Proudhon, from the combination of individualization of interests and association, and, in both cases, this seems to occupy some ground between purely emergent phenomena arising from market forces and the more explicit sorts of "utopian," "communist" or state-socialist association from which Bastiat and Proudhon would both have been striving to differentiate themselves.

Now, it seems to me that the notion of the "double inequality" has at least two major components: 1) the assumption that exchange is conventional, because subjective values are incommensurable; and 2) the assumption that individuals will only trade under circumstances where they individually profit. That second assumption seems to depend a great deal on how you understand "profit," and it isn't clear that individual, subjective standards of "profit" are any more commensurable than the values on which they are based. But if we accept the notion that individuals "gain from trade per se,"it doesn't seem to be a notion limited to "freed-market" transactions, and the subjective "profits" don't seem incompatible with a certain amount of material loss. Like the arguments that claim we are all "proprietors" because we have arms and legs, I suspect this sort of "profit" amounts to pretty cold comfort in a lot of cases. More importantly, though, it points to what a strange thing "exchange" is from at least some Austrian perspectives. The "double inequality" is a rather a-mutual notion of exchange, involving no "exchange of values" or even a translation of them. Contrary to at least some of the senses of "catallactics" ("to admit in the community" or "to change from enemy into friend"), this sort of "exchange" seems strangely solitary.

The notion that individual values are subjectively incommensurable was hardly alien to the anarchists generally associated with labor theories of value. Josiah Warren had pretty thoroughly subjectivized “equal exchange” rhetoric as early as the 1820s. His "hour of labor" was, after all, merely a standard—an hour of a particular sort of labor—against which the subjective valuations of individual laborers could be measured. And Proudhon, for whom "equal exchange" was certainly a part of the mutualist program, the incommensurability of values was basic. In The Philosophy of Progress, he wrote:
The idea of value is elementary in economics: everyone knows what is meant by it. Nothing is less arbitrary than this idea; it is the comparative relation of products which, at each moment of social life, make up wealth. Value, in a word, indicates a proportion.
Now, a proportion is something mathematical, exact, ideal, something which, by its high intelligibility, excludes caprice and fortune. There is then, on top of supply and demand, a law for comparison of values, therefore a rule of the evaluation of products.
But that law or rule is a pure idea, of which it is impossible, at any moment, and for any object, to make the precise application, to have the exact and true standard. Products vary constantly in quantity and in quality; the capital in the production and its cost vary equally. The proportion does not remain the same for two instants in a row: a criterion or standard of values is thus impossible. The piece of money, five grams in weight, that we call the franc, is not a fixed unity of values: it is only a product like others, which with its weight of five grams at nine-tenths silver and one-tenth alloy, is worth sometimes more, sometimes less than the franc, without us ever being able to know exactly what is its difference from the standard franc.
On what then does commerce rest, since it is proven that, lacking a standard of value, exchange is never equal, although the law of proportionality is rigorous? It is here that liberty comes to the rescue of reason, and compensates for the failures of certainty. Commerce rests on a convention, the principle of which is that the parties, after having sought fruitlessly the exact relations of the objects exchanged, come to an agreement to give an expression reputed to be exact, provided that it does not exceed the limits of a certain tolerance. That conventional expression is what we call the price.

Thus, in the order of economic ideas, the truth is in the law, and not in the transactions. There is a certainty for the theory, but there is no criterion for practice. There would not even have been practice, and society would be impossible, if, in the absence of a criterion prior and superior to it, human liberty had not found a means to supply it by contract
 This is, of course, the "equality in the long term" argument that is central to the "free market anti-capitalism" of Carsonian mutualism—and there's no downplaying the importance of Kevin Carson's rediscovery of the compatibility of subjective and labor theories of value. But it would be a mistake, I think, not to highlight the essential differences between the approach we find in Proudhon and that of Rothbard. It seems to me that, like the more solipsistic egoists, the Rothbardian economic actor acts in an essentially solitary manner: whether or not the exchange is "equal," in either the long or short run, is not his concern, and the willingness of the other trader to trade is just another aspect of scarcity. Reciprocity is not a goal. Instead, it is assumed to be an outcome of "equal" profit-seeking. And the currency in even nominally mutualist circles of notions like "stigmergy"—"indirect coordination," based on the interactions between actors and the traces of other actors—suggests a body of thought in which there is no clear distinction between the Golden Rule and "devil take the hindmost."

There seems to me to be an enormous difference between exchanges which always work to the profit of all exchangers and exchanges, as we find them in Proudhon's account, that fundamentally don't work at all, until some convention—some mutual approximation—is constructed which bridges the gulf of incommensurability. That approximation is the law of exchange, and, for Proudhon, that law is equality—set up as the standard against which all approximation-by-exchange will be judged. The positing of the law of equality is, at the same time, the creation of the possibility of society ("equal" association), and the condition for that positing and creation is liberty—and liberty is the result of a prior complex interconnection of actors. Implicit association gives rise to liberty, which gives rise to explicit association, which gives rise to the conventions by which exchange and society become really possible.

Regular readers of the blog will probably already see familiar dynamics in this business of a mutual gift bridging the impossible differences between incommensurable regimes of value, but I'll leave more explicit explorations of all that for another day.

Where, ultimately, does Bastiat come down in all of this? Somewhere in between, I would guess, seeing in the laws of exchange something more natural and harmonious than Proudhon, the philosopher of economic contradictions, but still more concerned with explicit association and its empirical effects than Condillac or Rothbard.

2 comments:

Sheldon Richman said...

I appreciate the discussion, Shawn. I'm not convinced that Proudhon's account of exchange is superior to the Austrians', but it gives me something to think about.

Shawn P. Wilbur said...

At this stage of the debate, it just seems useful to highlight the ways in which the crucial differends are not, as we so often claim, between theories of value, but between accounts of what we do with values in exchange.

And it got me started on an overdue rereading of some Bastiat I hadn't look at in a log while.