Andy Denis

This thesis argues for the fundamental importance of the opposition between holistic and reductionistic world-views in economics. Both reductionism and holism may nevertheless underpin laissez-faire policy prescriptions. Scrutiny of the nature of the articulation between micro and macro levels in the writings of economists suggests that invisible hand theories play a key role in reconciling reductionist policy prescriptions with a holistic world. An examination of the prisoners' dilemma in game theory and Arrow's impossibility theorem in social choice theory sets the scene. The prisoners' dilemma epitomises the collective irrationality coordination problems lead to. The source of the dilemma is identified as the combination of interdependence in content and independence in form of the decision making process. Arrovian impossibility has been perceived as challenging traditional views of the relationship between micro and macro levels in economics. Conservative arguments against the possibility in principle of a social welfare function are criticised here as depending on an illicit dualism. The thesis then reviews the standpoints of Smith, Hayek and Keynes. For Smith, the social desirability of individual self-seeking activity is ensured by the 'invisible hand' of a god who has moulded us so to behave, that the quantity of happiness in the world is always maximised. Hayek seeks to re-establish the invisible hand in a secular age, replacing the agency of a deity with an evolutionary mechanism. Hayek's evolutionary theory, criticised here as being based on the exploded notion of group selection, cannot underpin the desirability of spontaneous outcomes. I conclude by arguing that Keynes shares the holistic approach of Smith and Hayek, but without their reliance on invisible hand mechanisms. If spontaneous processes cannot be relied upon to generate desirable social outcomes then we have to take responsibility for achieving this ourselves by establishing the appropriate institutional framework to eliminate macroeconomic prisoners' dilemmas.

Bunge (2000) distinguishes two main methodological approaches of holism and individualism, and associates with them policy prescriptions of centralism and laissez-faire. He identifies systemism as a superior approach to both the study and management of society. The present paper, seeking to correct and develop this line of thought, suggests a more complex relation between policy and methodology. There are two possible methodological underpinnings for laissez-faire: while writers such as Friedman and Lucas fit Bunge’s pattern, more sophisticated advocates of laissez-faire, such as Smith and Hayek, base their policy prescription in a methodology quite divergent from the individualism Bunge describes.

In a world of partially overlapping and partially conflicting interests there is good reason to doubt that self-seeking behaviour at the micro-level will spontaneously lead to desirable social outcomes at the macro-level. Nevertheless, some sophisticated economic writers advocating a laissez-faire policy prescription have proposed various 'invisible hand' mechanisms which can supposedly be relied upon to 'educe good from ill'. Smith defended the 'simple system of natural liberty' as giving the greatest scope to the unfolding of God's will and the working out of 'natural' providential processes free of interference by 'artificial' state intervention - the expression not of divine order but of fallible human reason. Hayek, adopting a similar policy stance, based it in an evolutionary process in which those institutional forms best adapted to reconciling individual interests would, he believed, spontaneously be selected for in the inter-group struggle for survival. Keynes shares the holistic approach of Smith and Hayek, but without their reliance on invisible hand mechanisms. If spontaneous processes cannot be relied upon to generate desirable social outcomes then we have to take responsibility for achieving this ourselves by establishing the appropriate institutional framework. Keynes takes a historical view of the role of capitalism and analyses its pathology as rooted in what we would now refer to as a multi-player prisoners' dilemma. The paper draws out the significance of his methodological standpoint here. Keynes's policy standpoint assigns a critical role to his own class, the 'educated bourgeoisie' in the reform process he maps out. A distinction, but also an intimate connection, is highlighted between, on the one hand, micro-level individualism (the 'Manchester System, and, on the other, the macro-level collective action ('planning') required to preserve it. Finally Keynes is considered in relation to the themes of laissez-faire, holism, reductionism, providentialism and the invisible hand.

To understand the work of economic theorists it is often helpful to situate it in the context of the rhetorical strategy they were pursuing. Two ontologically distinct rhetorical strategies of laissez-faire may be distinguished by the way they articulate the individual interest with the general interest. A reductionist approach, exemplified by Friedman and Lucas, suggests that the properties and behaviour of an entity can be understood in terms of the properties and behaviour of the constituent lower-level components, taken in isolation. The contrary – holistic – stance, viewing the qualities of phenomena as products of the inter-relations between their component parts, is characteristic of Smith and Hayek. While the reductionist approach naturally issues in a laissez- faire policy prescription, the holistic account is more problematic. Reconciling a holistic ontology with a reductionist policy prescription requires the intercalation of a black box, such as an evolutionary process or the invisible hand of a deity.

In a recent paper (Denis, 2004b) I argued that the neoclassical use of the concept of equilibrium was guilty of a hypostatisation: an equilibrium which is only an abstraction and extrapolation, the logical terminus of a component process taken in isolation, is extracted and one-sidedly substituted for the whole. The temporary is made permanent, and process subordinated to stasis, with clearly apologetic results. I concluded by suggesting that this hypostatisation exemplified the contrast between formal and dialectical modes of thought, and that it may be in the application of a dialectical notion of equilibrium that the heterodoxy can make its most telling contribution. This paper develops the line of thought that, while heterodox currents may superficially appear as divided amongst themselves as they are from the orthodoxy, there is truly something profound uniting the apparently disparate heterodox trends: the adoption of a dialectical method. I draw on the work of Sciabarra (1995, 2000), who argues that making process primary, which we might expect of Austrian economists, is the essence of dialectics, which we might (wrongly, in his view) identify with Marxism. If this view is, as I believe, fundamentally correct, perhaps (a) we can only understand the method of neoclassical economics by contrasting it with a dialectical approach, and (b) we can explore the potential for common ground between the various heterodox currents by examining their attitude, both implicit and explicit, to dialectics.

writings, however, reveals a profoundly medieval outlook. Smith is preoccupied with the need to preserve order in society. His scientific methodology emphasises reconciliation with the world we live in rather than investigation of it. He invokes a version of natural law in which the universe is a harmonious machine administered by a providential deity. Nobody is uncared for and, in real happiness, we are all substantially equal. No action is without its appropriate reward – in this life or the next. The social desirability of individual self-seeking activity is ensured by the ‘invisible hand’, that is, the hand of a god who has moulded us so to behave, that the quantity of happiness in the world is always maximised.

Hayek’s Challenge is subtitled ‘an intellectual biography’ of Hayek, and the publisher describes it as ‘the first full intellectual biography’ of Hayek (front flap). But Caldwell himself appears to disagree: it was ‘never my goal’ to write ‘a comprehensive intellectual biography’ (177, note 10). Further, the book has a ‘secret title’: Caldwell’s Challenge (4). To assess what Caldwell has done, it is important to be very clear about what he was trying to do. Caldwell spells out in detail, in engaging autobiographical passages, that his own interest is very much in the area of methodology; and..

The concept of equilibrium has long been a focus for dissent between orthodox and heterodox schools of thought in economics. The paper explores the meanings of ‘equilibrium’ and attempts to tease apart salient appropriate and inappropriate modes of deployment of the concept. Under far-from-equilibrium conditions, equilibrium is not even an approximate description of the condition of the system, but an abstraction – a state of affairs which might obtain should a process under consideration run to its conclusion. The order of the system is viewed from this standpoint, not as an equilibrium, but as a temporary and ephemeral balance of forces, destined to be disturbed by the passage of time. A specific instance of the deployment of the concept of equilibrium by a neoclassical writer – Robert Lucas – is examined and the conclusion drawn that the concept has been hypostatised: an aspect of a process has been one-sidedly emphasised and substituted for the whole. The temporary is made permanent, and process subordinated to stasis, with clear apologetic results. The paper concludes by suggesting that this hypostatisation exemplifies the contrast between formal and dialectical modes of thought, and that it is in the application of a dialectical notion of equilibrium that the heterodoxy can make its most telling contribution.

For many economists, including those who have made the most marked contribution to the development of the discipline, their work has to be understood in the context of the rhetorical strategy they were pursuing – what they wanted to persuade us of and how they wanted to do it. The paper identifies two fundamental rhetorical strategies of laissez-faire resting on entirely distinct ontological foundations. What distinguishes these two strategies is the way they articulate the individual with the general interest, how they relate the micro to the macro. The two strategies discussed in the paper are characterised by the stance they take on a fundamental ontological issue, the way in which the things which appear to us in the world are related to the things or matters which compose them. A reductionist approach suggests that we can understand an entity at one level as a congeries. An entity in this view is just an aggregate of entities at a lower, substrate level – a purely external unity. The properties and behaviour of an entity can then be understood in terms of the properties and behaviour of the constituent lower-level components, taken in isolation. In this approach, phenomena at some level are regarded as having just the qualities enjoyed by its lower-level, substrate elements, writ large. The contrary, holistic, stance is to view the qualities of phenomena at one level as emergent at that level, and to assert that an entity can be understood as a product of the inter-relations between its component parts. We have, then, a pair of contrasted approaches: a polarity which is productive in the study of schools of thought, of competing methodologies, and of rhetorical strategies in economics. The paper applies this approach to the work of Smith, Keynes, Hayek, Lucas and Friedman.

For many economists, including those who have made the most marked contribution to the development of the discipline, their work has to be understood in the context of the rhetorical strategy they were pursuing – what they wanted to persuade us of and how they wanted to do it. The paper identifies two fundamental rhetorical strategies of laissez-faire resting on entirely distinct ontological foundations. What distinguishes these two strategies is the way they articulate the individual with the general interest, how they relate the micro to the macro. The two strategies discussed in the paper are characterised by the stance they take on a fundamental ontological issue, the way in which the things which appear to us in the world are related to the things or matters which compose them. A reductionist approach suggests that we can understand an entity at one level as a congeries. An entity in this view is just an aggregate of entities at a lower, substrate level – a purely external unity. The properties and behaviour of an entity can then be understood in terms of the properties and behaviour of the constituent lower-level components, taken in isolation. In this approach, phenomena at some level are regarded as having just the qualities enjoyed by its lower-level, substrate elements, writ large. The contrary, holistic, stance is to view the qualities of phenomena at one level as emergent at that level, and to assert that an entity can be understood as a product of the inter-relations between its component parts. We have, then, a pair of contrasted approaches: a polarity which is productive in the study of schools of thought, of competing methodologies, and of rhetorical strategies in economics. The paper applies this approach to the work of Smith, Keynes, Hayek, Lucas and Friedman.

For many economists, including those who have made the most marked contribution to the development of the discipline, their work has to be understood in the context of the rhetorical strategy they were pursuing – what they wanted to persuade us of and how they wanted to do it. The paper identifies two fundamental rhetorical strategies of laissez-faire resting on entirely distinct ontological foundations. What distinguishes these two strategies is the way they articulate the individual with the general interest, how they relate the micro to the macro. The two strategies discussed in the paper are characterised by the stance they take on a fundamental ontological issue, the way in which the things which appear to us in the world are related to the things or matters which compose them. A reductionist approach suggests that we can understand an entity at one level as a congeries. An entity in this view is just an aggregate of entities at a lower, substrate level – a purely external unity. The properties and behaviour of an entity can then be understood in terms of the properties and behaviour of the constituent lower-level components, taken in isolation. In this approach, phenomena at some level are regarded as having just the qualities enjoyed by its lower-level, substrate elements, writ large. The contrary, holistic, stance is to view the qualities of phenomena at one level as emergent at that level, and to assert that an entity can be understood as a product of the inter-relations between its component parts. We have, then, a pair of contrasted approaches: a polarity which is productive in the study of schools of thought, of competing methodologies, and of rhetorical strategies in economics. The paper applies this approach to the work of Smith, Keynes, Hayek, Lucas and Friedman.