Mill, James

Honorary member's speeches

After Dinner Speech at the 2002 ESHET conference in Rethymno by Christian Schmidt

Thinking Economics: Some Greek Roots

When I was preparing my dinner speech, I was definitely convinced by the relevance of the topic of the ESHET meeting in Valencia. Cultural traditions are really impressive. Obviously, I did not find any joke to begin this speech. Fortunately, we are in Crete, the place of the well-known liar’s paradox, where the lack of a joke can be transformed into a joke. Does it preclude any ‘potential surprise’ a la Shackle? It will be up to you to decide at the end of the speech.
Anyway, it appears to me as evidence that it was the right place and also the right time for our Society to think about several affinities between the Greek ‘EpistemŽe’, as a language, as well as a way of thinking, on the one side, and Political Economy and Economics, on the other side.Almost everybody here knows that I am a specialist neither in ancient Greek economic thought, nor in Greek economic history (this could be the beginning of the surprise). My purpose is different. I would like to point out how much economic thought owes to Greece, during all its development up to now (including the present time), for better, but also perhaps for worse. To be free of preconceived ideas can excuse the temerity of my tentative. I propose to cast a side glance at the matter in picking out three different levels, namely a) linguistical, the lexicographic prints in economic terminology; b) mythical, the elaboration and the scope of several founding myths of economics; c) cognitive, the emergence of some tricky paradoxes.
Let us start with the dictionary. First of all, the name of our discipline. Everybody knows its Greek etymology It provides an opportunity to question the meaning of its referential domain. According to its Greek roots, Economics combines two different ideas: the home and more generally a notion of ‘homewords’ in opposition to ‘outside’ (the return to home’s foundation), and the law, but also the custom and the social convention, by opposition to At this stage, an interesting point is to be noticed: Economics which has been finally adopted to label our scientific domain is quite different from (and almost opposite to) physiocratie which is often considered as its precursor. Indeed, physiocratie refers to the order of nature (and not the convention), and to the power, the authority, the strength in its political and public acceptance (and not the home affairs). This etymological recall defines the two options which were opened at the end of the XVIIIth century: either to conciliate the natural order with politics in a research programme a la mode of the age of Enlightenment (‘physiocratie’), or to stress the conventional dimension of the social rules to be explored from a domestic view point. I have no time here to discuss the variety of many intermediate positions between these two extremes which have been developed at that time, especially by Montesquieu and Rousseau.
In spite of the semantic victory of Economics, the history of the discipline shows that a tension persists between these two references, from Adam Smith to Marx and from Walras to Hayek. Once again, and thanks to the Greek, the terminology is significant. In order to reintroduce the political dimension into the first denomination of this new science became Political Economy. One can wonder what remains of the political in Economics today, or if Economics and Political Economy are definitely different topics, still a very relevant question.
In order to summarize this first point, let me suggest an additional comment. Economics does not refer until today to a completely unified domain. This explains why the history of economic thought has a specific role, from the very beginning, in the development of our scientific field. MacCulloch, and after him, Blanqui, offered examples. Another feature of this Greek reference is meaningful.
When an economist desires to delimit with precision the frontiers of a new concept or the content of a new paradigm, he looks spontaneously to a Greek denomination.
The best known case is obviously provided by Pareto and his ophelimity, directly derived from the Greek which designates the property to be used without any normative connotation. But the neologism ‘catallactics’ is much more colourful and interesting.
Catallactics has a long history, but Edgeworth, who was fascinated by the antique humanities gave its definite meaning. This word is the direct translation of the Greek which means precisely ‘easy to reconcile’. Indeed, the substantive refers to ‘exchange’, but with a specific connotation of ‘conciliation’. Therefore catallactics suggest the possibility of conciliating opposite interests through a commercial exchange. Furthermore, for Edgeworth the deep nature of catallactics can only be reached by the means of a mathematical sub-structure: ‘to whose varied cultivation of the mathematical science, catallactics, ... is only to be reached by a mathematical substructure’ (Edgeworth, Mathematical Psychics, 1881, p.30).
About a century later, Hicks is much more explicit. He argues that catallactics is the proper label for designating the ‘Marginalist paradigm’. For him, the principal reason for its success has nothing to do with socialism or individualism, or even marginal calculation. It must be found in its ability to build a powerful mathematical approach to economics focussed on exchange versus production and distribution. Whatever Hicks’ position and preferences, the Greek connotation of catallactics is still present in the notion of coordination between decentralized persons by the means of a negotiation (or bargaining) process a la Nash, in its game theoretical acceptance. An additional proof of the relevance, nowadays, of the Greek terminology.
Let us come to the myth. According to the Greek tradition, a myth is a kind of language where truth is not directly revealed, but only suggested and voluntarily hidden. It takes the form of a tale or an allegory, and can be understood in modern times as a rhetoric process.
Such a kind of rhetoric device exists in the core of Political economy. This is the exact status of the famous Smithian ‘Invisible hand’. Smith himself uses it in various contexts in the Theory of Moral Sentiments, as well as in the Wealth of Nations, but for a similar purpose to be discovered by his readers. As its truthfulness is not selfevident, it has given rise to many interpretations, and even opposite explanations: on one side the imposing architecture of the general equilibrium (with or without the Walrasian ‘commissaire priseur’), on the other side the elusive figure of the Hayekian spontaneous order, which, according to this author results from human actions, but not from human designs.
Many contradictory conclusions may be drawn about it, but the main virtue of the invisible hand as a myth is probably not to give answers but to raise the always acute and very difficult question ‘How can individual persons coordinate their economic actions in a social world?’ Incidentally, the ‘invisible hand’ is an economic myth in the complete sense of the term which has run across the time. But other economic notions can also be considered as incomplete myths, because they only show one specific facet of this intricate intellectual construction.
This is probably the case for the ‘stationary state’ in the classical age, especially for J. Stuart Mill. Another meaningful example can be found in Normative economics. The so-called ‘veil of ignorance’ was probably first evoked by Hobbes in the middle of the XVIIth century in Element of Law Natural and Politics: the social pact (1640).
More recently it has been revisited by political philosophers and economists. As in the ‘invisible hand’, the ‘veil of ignorance’ has been the starting point of opposite interpretations of social justice: namely Rawls’ two principles of justice and Harsanyi’s defence of a fair allocation based on a rule utilitarianism. As you know, Rawls uses the ‘veil of ignorance’ in connection with what he calls ‘the original position’, whilst Harsanyi utilized it as a probabilistic foundation for his thesis. A long life is to be expected for this mysterious ‘veil of ignorance’.
We must now consider ‘paradoxes’ from the Greek (beside the true). Indeed, many paradoxes bloom in the economic garden, but, at variance with a naive negative connotation, the existence of paradoxes in the economic literature is a proof of a close link between economics and logic.
I shall not refer to the Smithian paradox of the value comparing the water and the diamond, because it has been easily solved by Smith himself. But look at the ‘liberal paradox’ expressed by Amartya Sen in a brief and incisive article. Each of the two following propositions seem, at first sight, very sensible:
1) Each member of a free society must impose his own preference on at least one pair of alternative in any social choice, whatever.
2) If every member of a society prefers one option to another, the society as a whole must choose it.
But as straightforwardly demonstrated by Sen these two propositions are self-contradictory. What does this mean? Not necessarily a deadlock to conciliate social choice with individual freedom, but, for sure, the urgent necessity for re-thinking its logical background.
Economic rationality itself does not escape paradoxes, on the contrary. The familiar figure of the prisoner’s’ dilemma exemplifies a large family of counter-intuitions resulting in interactive situations. But the paradoxical dimension of rationality itself is still more intricate. Assume that somebody for personal convenience proposes to you the two following options:
Option 1: to take an envelope in which a ten-Euro note has been deposited.
Option 2: to refuse the envelope.
In addition, the person commits himself (or herself) to offering to you 100 Euros if you choose ‘irrationally’. What would be your rational choice from an economic point of view? Answers are welcome.
Must we conclude that economics does refuse rationality? I do not think so. Once again, the Greeks’ message sent to economics through paradoxes is to be interpreted. Economics, as well as political economy is a human knowledge, and furthermore, a knowledge about human beings. Therefore, we, economists, must be cautious about our results and keep a critical mind about our final contributions to understanding the social world. The memory of Economic Thought remains the best intellectual assistance in this direction.