Machiavellian Economics

Machiavellian Economics

Note: What follows is merely an excerpt of a rough draft for my next book, Visions of Reality, which will appear, hopefully, in the summer or fall of 2006. — Greg Nyquist

The Enron debacle has given the pundits and the politicians the opportunity to once more vent their ideological passions. Senator Ernest Hollings went so far as to call the whole mess “a cancer” and insisted that it’s “got to stop.” All the Senators and Congressmen on Capitol Hill are doing their utmost to express their outrage at the behavior of those Enron executives who, realizing that their incompetence had bankrupted the company, devised a confidence scheme to transfer all the losses to the company’s hapless employees. It’s a “great tragedy” repeated one Senator after another round of dreary Enron hearings.

Such histrionic breast-beating has its place, no doubt; but it is of little use developing any kind of rational understanding of the issue at hand. To grasp the deeper meaning of the Enron mess the intrepid investigator has to place all his moral indignation to the side and proceed with the calm and deliberate detachment of an anatomist dissecting a corpse. Nor can the discerning analyst become so obsessed with his subject that he forgets his larger purpose. The individual corpse, in and of itself, means little, if anything, to the anatomist. He seeks something much larger: the principles of anatomy, to which the corpse is a mere instrument or illustration. The same logic applies to the dissection of the Enron bankruptcy. What makes Enron significant has little to do with the specific case: those are matters of interest only to criminal investigators and shallow journalists. No, Enron draws its significance from its larger implications concerning how American corporations, in an age of rapid debt expansion, conduct their finances. The real question at the heart of the Enron debacle is not How could anything so horrible happen? but How many more corporations are guilty of similar financial chicaneries, and to what extent is all this related to the problem of excessive debt in an age of unbridled credit expansion?

The investigator, when tackling a question of this sort, must place all his prejudices to the side and go about his business as impartially as human nature will allow. His goal must be to reach the truth of the matter, come what may. He should never confuse what did or might happen with what should or ought to have happened. These are entirely different questions which lead to entirely different answers. The moralist, in his obsession to determine what ought to be, often ends up ignoring the simple fact that he only control one person: himself. How others behave is beyond our control. We can attempt to influence them through persuasion or moral denunciation. But it is not clear that this will affect those of whom we disapprove. The behavior of other human beings is as much an independent reality, removed from our volition, as is any fact of nature. Men cannot be governed by slogans. Society, as a whole, has a momentum of its own that defies the attempt by professional busybodies and moralists to change or redirect it. Human nature is a reality as unalterable as the course of the planets. The elemental passions of men can no more be changed than can the laws of physics. Human beings are not blank slates upon which we can write what we please. There are deeper powers in each and every one of them that push them this way and that. If the analyst can grasp the mere outlines of these powers—and that is about as much as anyone can hope to see of them — then perhaps some understanding of this strange beast, Homo sapiens , can be attained.

Those who commence an investigation into political, economic, or social phenomena under the influence of some sort of ideological agenda almost certainly will go astray in their conclusions. If the investigator’s first priority is to prove his own prejudices and his second to convert others to his point of view, how can anyone trust him? The entire scientific enterprise, whether in the “natural” or “social” sciences,” can only succeed on the basis of trust. Those of us who are not scientists, who don’t have expertise in a given field of research, are not in a position to judge. We haven’t done any of the research. We don’t know the relevant facts. It’s the scientist’s job to do the research and know the facts. But if he is more interested in establishing his own presuppositions and converting his readers, rather than enlightening them, how can he fulfill his side of the bargain? The spread of knowledge, especially scientific knowledge, rests on the argument from authority, which, although technically a fallacy of logic, is nonetheless necessary in a society that requires an extensive division of labor merely to exist, let alone function. We cannot all be scientists, devoting the lion’s share of our spare time to checking the investigations and experiments of the thousands of full-time researchers who infest our universities and think tanks. That is why it is so important that scientists remain free from ideological agendas. A scientist, especially if, as is the case with social scientists, his research involves facts related to issues of great public controversy, must remain above the ideological fray, allowing the facts to speak for themselves, rather than for some surreptitious ideological agenda.

Achieving genuine objectivity in social science is not easy. It requires a certain kind of temperament and self-discipline, the rare ability to examine social phenomenon with the detachment of the entomologist dissecting a worm. Just as the entomologist is little concerned with devising a better worm, so the social scientist, when he is in the midst of his research, must care little for “improving” society or bettering the condition of his fellow man. At the very least, he must lay his philanthropic impulses aside while he goes about his business of discovering important truths about the social order. The ideologue inevitably winds up painting a rosier picture of society than the facts warrant. An uncompromising, truculent realism is the first priority of the intrepid social scientist.

That very few social scientists live up to these ideals is lamentable but true. Nietzsche’s remarks about the mendacity of philosophers also describe far too many scholars, especially in the humanities and the social sciences. “They are all advocates who resent that name, and for the most part even wily spokesmen for their prejudices which they baptize ‘truths,’” Nietzsche wrote. “They all pose as if they had discovered their real opinions through self-development of a cold, pure, divinely unconcerned dialectic (as opposed to the mystics of every rank, who are more honest and doltish—and talk of ‘inspiration’); while at the bottom it is an assumption, a hunch, indeed a kind of ‘inspiration’—most often a desire of the heart that has been filtered and made abstract—that they defend with reasons they have sought after the fact.”

This phenomenon is so widespread that it hardly requires documentation. The majority of books written by scholars today are works of advocacy. Most come from a left-liberal perspective, but some come from the center and a few from the right. These books include some valuable contributions, some real scholarship. But the non-expert can never really trust their authors, because he can never clearly distinguish their scholarship from their propaganda.

Although there were several important attempts in the pre-modern world to study society impartially, free of ideological bias, we don’t find any great successes along this line until Machiavelli. Why Machiavelli should have been the first consistently non-ideological social and political theorist is not altogether clear. He certainly had no self-consciousness about it. He regarded himself as a great patriot who merely used his objectivity to better serve his country. He once wrote: “I love my fatherland more than my own soul.”

Machiavelli believed that the best way he could help his country was by seeing things as they really are, and not as he or anyone else might wish them to be. Although a Republican at heart, when it became clear to him that Republicanism could not save Italy from the depredations of foreign invasion, he became a tentative monarchist, and wrote his most famous work, The Prince. Machiavelli always strove to be a realist. He never allowed his personal inclinations to blind him to the facts.

Machiavelli’s revolutionary method of analyzing politics has for centuries been condemned for divorcing politics from ethics. He has been vilified for separating ethics from politics and justifying every sort of political crime imaginable. This charge, however, as James Burnham has pointed out, is confused. “Machiavelli divorced politics from ethics only in the same sense that every science must divorce itself from ethics. Scientific descriptions and theories must be based upon the facts, the evidence, not upon the supposed demands of some ethical system. If this is what is meant by the statement that Machiavelli divorced politics from ethics, if the statement sums up his refusal to pervert and distort political science by doctoring its results in order to bring them into line with ‘moral principles’—his own or any others—then the charge is certainly true.” [ The Machiavellians, 44]

Machiavelli stressed knowing the facts before one passes moral judgment. If you put the moral judgment first, thinking that somehow the facts will fashion themselves to fit your values, you will never understand the truth of the matter. Facts always come first, regardless of what the passionate moralist may think. No values can be attained, no morality defended, when we live in ignorance and despair of the true causes of our sins and sorrows.

In the centuries following his death, Machiavelli’s reputation suffered most at the hands of the ruling class. When the Catholic Church instituted the notorious Index, they honored Machiavelli by choosing him as one of first writers condemned. Two centuries later, nothing much had changed. One of the great despots of the eighteenth century, Fredrick the Great of Prussia, actually wrote a book entitled Anti-Machiavel .

It is understandable that the great and the powerful would find Machiavelli detestable. Machiavelli understood their ways better than anyone, and they hated to find themselves described so perfectly. “If any man will read over my book...with impartiality and ordinary charity,” Machiavelli wrote of Il Principe to a friend, “he will easily perceive that it is not my intention to recommend that government or those men described to the world, much less to teach men how to trample upon good men, and all that is sacred and venerable upon earth, laws, religion, honesty, and what not. If I have been a little too punctual in describing these monsters in all their lineaments and colours, I hope mankind will know them, the better to avoid them, my treatise being both a satire against them, and a true character of them.”

Toward the end of the nineteenth century, Machiavelli’s realist methodology was adopted by a number of prominent social scientists, including Max Weber, Vilfredo Pareto, William G. Sumner, Robert Michels and Geatano Mosca. It is to these men that we owe a genuinely realist theory of politics and society. Curiously, despite the fact that Weber, Sumner, and Pareto all started out as economists, none of them ever got around to devising a fully developed theory of economics. Of this group, Pareto did the most work in this area. In Les Systèmes Socialistes and the Manuel d’Economie Politique, we find many brilliant observations, but no unified theory. Pareto expended all this theoretical energy in economics devising a mathematical “equilibrium” theory. Unfortunately, this theory is valid only if we assume a “static” economy. Since modern capitalism is, by its very nature, excessively dynamic, Pareto’s theoretical economics falls considerably short of the reality it attempts to describe.

The attempt to describe economics realistically, following Machiavelli’s scientific methodology, finds its greatest exponent in the work of Joseph Schumpeter. No economist understood capitalist reality better than Schumpeter. Although he entertained an excessive admiration for the theoretical economics of Walras and Pareto, Schumpeter never allowed his admiration of pure theory to blind his grasp of economic and social facts. While most pro-Capitalist economists continued to believe that the market succeeded because of competition, only Schumpeter understood that the free market could never thrive on competition alone. An element of monopoly was also needed to enable businesses to earn a profit and raise capital. Schumpeter also was virtually the only economist who understood the role of credit creation and modern finance in the development and implementation of economic innovation. Whereas most economists view credit creation from some sort of ethical perspective, Schumpeter saw it for what it is: a flawed but necessary means of raising capital for economic innovation.

Although Schumpeter’s achievement is great, he did not quite succeed in bequeathing to posterity a fully developed system of “Machiavellian economics.” He really had no interest in such an undertaking. He saw himself, not as a Machiavellian, but merely as a theorist trying to solve specific economic problems. A fully realistic theory of economics would emerge, he thought, in time. In the meantime, the groundwork had to be laid. Greater work had to be done on the empirical side of things. Theory needed to be better integrated with fact. Walras’ equilibrium theory needed to be extended and enriched with a correlative dynamic theory. Schumpeter, finding himself confronted with all these problems, really did not know where to begin, and instead contented himself with doing only partial work on some of them. In his final years, he gave up theoretical work altogether and spent most of his time writing a history of economic thought.

Since Schumpeter, economics has sunk into a pitiful condition. Most of the work done by so-called professional economists in our universities is either excessively empirical and statistical or excessively mathematical. Economists only see what their prejudices allow them to see. If they happen to be anti-capitalist, they have very sharp eyes for the seamier side of capitalist reality. If, on the other hand, they are pro-capitalist, then they only notice the positive side of the ledger. A fully Machiavellian vision of economics is simply not anywhere found at the present time. Here and there, one might find a feeble approach to it; but a complete, uncompromising exemplification of it doesn’t exist.

The task of developing a thoroughly realistic economics, though difficult, is not impossible. A great deal of the research has already been done on economic problems. The facts are readily available to anyone who wishes to take the trouble to study them. It is simply a matter of analyzing these facts scientifically and drawing the requisite conclusions. I have done a bit of work along these lines myself. Although I can hardly boast of having developed a full-fledged theory, I have stumbled upon a few basic ideas or principles that could be useful in constructing more adequate theories. I have found ten principles that are critical in the development of any realistic theory of economics. They are listed as follows:

1. The Scarcity Principle. Scarcity is the rule in economic affairs. All economic goods are limited; human desires for those goods, on the other hand, remains unlimited and insatiable.

2. The Uncertainty Principle. All human actions are conducted on the basis of incomplete knowledge. Risk and, even more critically, uncertainty are two indispensable factors affecting economic decision-making and the development of economic institutions.

3. The Profit Principle. The first consideration of nearly all businesses in a free market is to keep the budget out of the red.

4. The Nation-State Principle. Markets always exist within a legal framework set by nation-states in competition with other nation-states.

5. The “Mixed Economy” Principle. All economies are in some sense “mixed,” that is, there are no “pure” economic (or political) systems in the real world. Political and economic factors are always commingled. The notion that economics can be separate from politics is empirically unsupportable. In the real world, there exists no clearly defined separation between economics and politics. This separation is purely conceptual in nature and should never be taken literally, as if it corresponded to an actual fact. It is a tool of analysis rather than a description of reality.

6. The Spoliation Principle. Some degree of economic spoliation always occurs in society. There is no such thing as an economy that does not feature some form of “expropriation.” For every sheep there exists a wolf, ready to gorge himself on the delectable flesh of the lamb.

7. The Status Principle. Status is the principle consideration of most economic actors, regarded as even more important that making money. Money is rarely pursued for its own sake, but only as an indispensable means to achieve “status.”

8. The Inequality Principle. There always has been and always will be inequality of income.

9. The Monopoly Principle. Competition in a free market must contain an element of monopoly in order to be effective. Pure competition would be an even greater disaster than pure monopoly.

10. The Principle of the Elitist Foundation of Progress. All progress, including all economic progress, is dependent on a handful of (often) “anti-social” innovators—individuals who, by discovering new and more productive ways of getting important tasks done, wind up destroying traditional methods.

There are, to be sure, other important principles necessary for an adequate comprehension of economic reality; but these ten will make a good start. I will proceed by explaining each principle in more detail and showing how various economists, under the sway of ideological passion, end up violating or ignoring them.

This concludes the excerpt of the essay "Machiavellian Economics."