Book review: The True Cost of Economics by Philip Roscoe

We need a critique of economic thinking that also accepts the necessity of markets, says Roger Scruton
January 23, 2014
The last decades of the 20th century saw the triumph of market economics. The collapse of communism in Eastern Europe and the weakness of socialist economies elsewhere gave added credibility to the economic policies of the “new right,” and even Labour climbed onto the bandwagon, dropping Clause IV from its Constitution and accepting that industry is no longer the direct responsibility of government. Then came the 2008 financial crisis, with people all around the world thrown into poverty while the apparent culprits—the bankers, financiers and speculators—escaped with their bonuses intact. As a result books critical of market economics are enjoying a new popularity, whether reminding us of the limits of economic thinking (Michael Sandel’s What Money Can’t Buy) or arguing that markets, in current conditions, cause a massive transfer of wealth from the poorest to the richest (Joseph Stiglitz’s The Price of Inequality).

Philip Roscoe’s I Spend Therefore I Am is the latest of these post-crisis critiques. He endorses the argument, familiar from Marx, that markets threaten to reduce human beings to instruments in each other’s eyes and to undermine social attachments. But the argument is far older than Marx, being rooted in a primordial hostility to money and exchange that sounds through the wisdom books of the Bible, through the Gospels and the Koran. The things that we really value, the prophets have always told us, are the things that we refuse to exchange, the things that cannot be priced. The market is a kind of Mephistophelian tempter, prompting us to put a price on everything, from heirlooms to body parts, from sex to life, so that at last, like Faust, we are prepared to sell our souls.

That is also the way that Roscoe sometimes puts it; and it is not surprising to learn that he came to economics and management science—he is an academic at the University of St Andrew’s—from a background in theology. Christ commanded his followers not to lay up for themselves treasures on earth. And he highlighted thereby two remarkable features of money: that it is a universal medium of exchange, and that it obeys the laws of arithmetic. You can count it, add it, divide it, multiply it, watch it accumulate, and shell it out in precise amounts. You can use it to assign a price to all objects of exchange, and so compare one good with another in a precise ranking of their monetary worth. Without money it is hard to see that economics could ever have acquired the scientific pretensions that have made it so loud a voice in modern politics. For money lifts desire from the messy terrain of human need into the clear sky of mathematics.

But this gives Roscoe the cue for another, more interesting, line of attack. It is not the market only that is to blame for our woes; it is economics itself, which has created a peculiar fiction: homo oeconomicus, the individual rational chooser, who assigns a price to all he desires. The axioms of economics describe the thinking of this creature; laws of instrumental reasoning, based on the premise that his goals have been properly priced. And they deliver impeccable results, which follow by logic from premises that cannot be questioned from any place within the system.

Having created this fiction, economics then sets out to realise it. In Roscoe’s words “economics brings into being the agent about whom it theorises: self-interested, calculative and even dishonest.” There is a core of truth in this claim, though it is odd that Roscoe does not refer to the recent work of thinkers like Cass Sunstein and Daniel Kahneman, who have emphasised just how far economists’ models are from mapping actual human behaviour. Roscoe is right nevertheless to remind us that the habit of seeing all our problems in economic terms has fatally narrowed the range of motives to which politicians appeal. It is not that economics makes us all into self-interested and dishonest people. It is rather that it teaches us to solve our problems through cost-benefit calculations that have only a tenuous connection to our real needs and values.

Thus, in order to address the problem of climate change, the Labour government commissioned a report from Nicholas Stern which effectively rewrote the problem as one of economics, with all the variables and outcomes duly priced, offset and discounted. This report, published in 2006, has been the basis of government policy ever since, even though it has little or nothing to do with what is at stake. Of course we can assign a price to the electricity produced by the wind-farm that destroys Lake Windermere. But how do we price Lake Windermere? Environmental policy touches at every point on the realm of intrinsic goods—home, beauty, settlement—which cannot be priced since there is nothing we are prepared to exchange for them.

Properly understood, however, this scepticism towards economics should be part of an argument for the market, not against it. My reason for saying this goes back to the “calculation debate” that surrounded the early proposals for a socialist economy. The Austrian economists—notably Ludwig von Mises and Friedrich Hayek—argued that all economic activity depends upon knowledge of other people’s wants, needs and resources and that this knowledge is dispersed throughout society and cannot be summarised in a set of propositions. In the free exchange of goods and services, the price mechanism provides access to this knowledge—not as a theoretical statement, but as a signal to action. Prices in a free economy offer the solution to countless simultaneous equations mapping individual demand against available supply. In a socialist economy, however, that function is destroyed, and the information on which the economy depends is irretrievably lost. The economy either breaks down, with queues, gluts and shortages replacing the spontaneous order of distribution, or is replaced by a black economy in which things exchange at their real price—the price that people are prepared to pay for them.

Roscoe is aware of this argument, and states it clearly and carefully. But he ignores its implications. Markets, for Roscoe, are all about competition. They are “ruthless,” “calculating,” driven by “the insistent, instrumental logic of self-interest,” so as to invade all our most cherished ties and attachments. I wonder whether Roscoe has ever been to an old fashioned market, like that which I knew in my youth on the Campo de’ Fiori in Rome or the cattle market that I visit today in Cirencester? Maybe he has; and maybe he has experienced some of the radiance of good will and fellow feeling that exists, when people come together in order to exchange what they have for what they want. Local markets show people cooperating in order to compete, and competing in order to cooperate.

Of course markets can be ruthless, and depend upon relations of trust which they do not themselves produce. But if they are ruthless it is not because they are markets but because they have been detached from relations of mutual responsibility. Hayek’s argument is about the way in which information comes into being through our free agreements, and so enables us to coordinate our activity with that of the many strangers upon whom we depend. Take markets away and you don’t get the benign and compassionate universe for which Roscoe hankers. You get the socialist nightmare that we witnessed in Communist Europe in the 20th century. There markets still existed, but underground, uncontrolled, and with no remedies against the cheat and the exploiter.

As Hayek recognised, a properly functioning market depends upon other forms of socially generated knowledge, among which common law is the most significant. The authoritative precedents of common law embody information that we need but which is made available only through our interactions, conflicts and adjudications—information about liabilities, responsibilities, dependencies, and so on. And maybe morality is a bit like this too. Maybe the knowledge that certain things are irreplaceable, to be cherished absolutely, is itself the result of our free transactions over time, which endow those things with an aura that records the boundaries that we all must recognise if we are to live in harmony with the strangers we depend on. Maybe that is why in all communities people make the distinction between things with a price and things with a value. Wilde defined the cynic as the one “who knows the price of everything and the value of nothing.” In that remark is contained the distinction upon which Roscoe’s complaint against economics ultimately rests.

Economists approach practical problems with two assumptions, without which their calculations cannot begin. The first is that all our many goals can be priced; the second is that our goals can be understood and evaluated in advance of achieving them. Roscoe’s arguments tend to focus on the first of those assumptions. He spends a lot of time laboriously rehearsing the ancient complaint against prostitution—that pricing what is priceless destroys its real value—and more modern complaints against medical economics, which assigns “quality adjusted life years” to the effects of various treatments, to establish a preference ordering among them.

However, the real complaint against economics should focus on the assumption that goals can be understood in advance of achieving them. We achieve our ends in collaboration with others. It is not a prior understanding of the nature of erotic love that leads me to assign a price to it and then fix on Sarah as the provider. My understanding emerges from my encounter with Sarah and through the revelation, the significance of which I could not have grasped in advance, that just this person is irreplaceable to me. With her I am fulfilled, at rest, and attached to a form of life that has no price, since its value lies in the fact that there is nothing for which it could be meaningfully exchanged. Ditto for the love of children, the attachment to home, the relations of trust that Adam Smith regarded as the sine qua non of a market economy, and beautiful things like the city of Venice and the quartets of Beethoven.

But once we put the point in that way we will surely recognise the connection with Hayek’s defence of the market. The knowledge that some things are not to be exchanged, and therefore not to be priced, comes to us through our social interactions. This knowledge is not available in advance of our engagement with others, and is in any case tacit, and dependent on conditions that we could never single-handedly produce or aim at, since we know them only when we join with others in creating them.

Roscoe is right that the relentless drive to attach a market price to everything is undermining the realm of human values. But the fault lies not with markets—there being no alternative to the market when it comes to pricing things—but with the habit of pricing things. That habit comes from the loss of the ways in which we remove things from the market: love, marriage, worship, dancing, courtship, adventure, making music together, getting drunk with your mates. There is an economics of all those things, of course: and it is in reading the results that we come to see that, when it comes to what matters, economists don’t know what they are talking about. Roscoe is certainly right in this, and right in his most important conclusion, which is that we must confine the economists to the asylums—universities for instance—where they can do no harm. But he too is confined in such a place, manifestly beating against the bars of the cage. In my experience it is rather more effective to open the door, and to step out into reality.

I Spend Therefore I Am: The True Cost of Economicsby Philip Roscoe (Viking, £16.99)