Arthur Seldon, “Capitalism”

Lord Ralph Harris, Arthur Seldon, and Friedrich Hayek

Arthur Seldon, Capitalism (Oxford: Basil Blackwell, 1990).

I can honestly say that until I read Arthur Seldon’s Capitalism several years ago I was a socialist, at least in that vague and unreflective way that many socialists are socialist. It would have been difficult for me not to be, given that I was a scholar who had spent much time in an academic environment, and among academics for whom socialism is almost a conditioned reflex.

To this day I cannot remember what possessed me to read Seldon’s book, since at the time its very title would have held so little appeal to me, given my intellectual interests and proclivities. The experience of reading it ended up being a sort of smallish vision on the road to Damascus, my tiny conversion experience. I could easily entitle this post “How I Learned to Stop Worrying and Love Capitalism”. I have since steeped myself in literature of a free market and libertarian bent, but none of it (except Hayek perhaps) has hit me over the head with a hammer in the way this understated book has. In fact, it produced such a profound effect upon my views that I always make sure I own at least two copies, one for my own use, and another that I can give away to potential converts to the religion of capitalism (much like my optometrist, who keeps a stack of Bibles on his desk in case one of his patients should manifest any signs of receptivity to the “Good News”).

To be frank, there are things not to like about Capitalism. It is very much a book of its time, and many of the political events and figures it deals with are now rather dated. And being of its time, it oozes a sense of triumphalism that can only be found in a book about capitalism published in 1990, at the very moment that global communism was collapsing. To be fair, it is understandable that Seldon would be in a gloating mood. He had spent many decades as a voice in the wilderness, defending what had been — and is again — an unfashionable cause before living to see its ultimate triumph.

Seldon came from very humble beginnings, an orphan from the East End of London whose Jewish immigrant parents had been killed in the Spanish flu pandemic of 1918 when he was two. He was adopted by a childless cobbler and his wife, but the cobbler died when Arthur was eleven. His adopted mother, now widowed, provided for the family by selling stockings out of their home until she remarried, to a tailor. Being a gifted student, Arthur managed to get himself a scholarship to the London School of Economics, where he met and studied under Friedrich Hayek. After the LSE and subsequent wartime military service (where he observed widespread government waste and inefficient allocation of resources first-hand) he worked for a while as a consultant in the brewing industry and an editor of a trade journal, until he was called upon by his friend Ralph Harris to join the free market think tank, the Institute of Economic Affairs (IEA) in 1958, marking the beginning of a decades-long friendship and collaboration. The IEA was started up in 1955 by Sir Antony Fisher, and Harris was its General Director, with Seldon acting as Editorial Director.

Nowadays we tend to think of right-wing think tanks — with considerable justification — as establishment bastions, lavishly funded by corporations and moneyed elites with a vested interest in legitimating the market order. But this was not always the case. To be pro-market and anti-socialist in postwar Britain was to be very much on the wrong side of history (or so it was perceived at the time) and very much outside mainstream thinking. Britain had just come out victorious from a devastating World War, which was won by a massive national effort involving the nationalization of industry and economic central planning. Since such socialistic efforts had helped defeat the Nazis in wartime, it was thought that it could accomplish even more in peacetime. Socialism has become a mainstream idea and the centralizing government policies of the Labour and Conservative parties in this period were practically indistinguishable from each other (which is why Seldon was a lifelong Liberal Party member, at least until they too gave in to the siren call of statism).

Indeed, the very reason Fisher had started the IEA was because, alarmed by the message of Friedrich Hayek’s The Road to Serfdom, he contacted its author with the idea of running for Parliament in an effort to turn back the relentless advance of the state. Hayek told him he would be wasting his time in politics, since politicians of all stripes had long ago come to a consensus on the welfare state. In short, Fisher would get nothing done in Parliament. Instead, said Hayek, he would be better advised to turn to the painstaking but ultimately more effective strategy of influencing the intellectuals, whom he referred to as “the second-hand dealers in ideas”. In other words, before political change could be effected, a change in the general culture was required.

Thus, for many years, the free market policy prescriptions of the IEA were either ignored or ridiculed by the state’s kept intellectuals. Seldon and his colleagues toiled in relative obscurity. However, at least one person of influence was listening to them: Margaret Thatcher. When she came to power, the IEA suddenly had access to the ear of government and became a major source of public policy.

Seldon’s working class origin is a very important component of his thinking, as throughout Capitalism he is at great pains to point out the hypocrisy of socialism’s inflated claims to being the self-appointed guardian and savior of the working class, advocating high-minded social schemes which at the same time do much to hurt that same class. Take for instance, the following pungent criticism of the prevailing socialist intelligentsia:

“I have therefore not withdrawn my criticism of the mostly middle-class academics and writers who, for over a century since the time of Sidney and Beatrice Webb to this day, urged socialist solutions without suffering their coercions nor their foregone living standards, but who continued their comfortable lives as teachers in state-financed universities, politicians in state institutions, writers of ‘fiction’ that transparently condemned capitalism, or beneficiaries of government grants in academia, the arts and cultural life provided in part by the poor whose living standards their teaching and administrations have repressed.” (p. xii)

Scathing stuff, but working in a socialist university, I can identify with Seldon’s barely-concealed rage at the ignorance and self-righteous hypocrisy he saw around him, consisting of half-baked ideas put forth by privileged people who mostly know less than nothing about economics but who have learned that bad arguments can be given a sheen of surface plausibility so long as they are prefaced by hot words such as “equity” and “social” justice (whatever that means).

In reality, Seldon argues, the working class was doing just fine before bourgeois socialism appeared on the scene. As he outlines in Chapter 11 of Capitalism entitled “The Galloping Horses”, the story of the working class in liberal Gladstonian England is one of gradual improvement without the help of government programs. Literacy was very high and getting higher, and this without a government-run school system. Pretty much every child had access to a primary school education, and it was a quality education, unlike today’s public school system (using “public school” in its North American sense). Quite serviceable pension and insurance schemes were available, self-organized by various private and working men’s associations. Contrary to popular mythology, just about everyone had some access to health care, making due allowance for the less improved state of medical knowledge and technology at the time; many doctors served the poor and working class either pro bono, or through reduced fees or in-kind payment — which is more feasible through a private system that was more personal than public health care is today. Doctors back then could make up the difference by charging higher fees to their richer clients, arguably a more equitable way of doing things than, say, the NHS, in which the relatively affluent middle class gets a free ride, over-consuming scarce health care resources at the expense of both the rich and the poor. I doubt today that you will find many doctors who would accept payment for their services from the poor in chickens or trade, even if they wanted to. The system simply doesn’t allow it.

Seldon’s point is that the working classes had access to various services or had found their own creative solutions to problems in the absence of government assistance. Not every problem requires a government “program”. Unfortunately, Fabians and other do-gooding socialist elites decided that they knew better than workers what was good for them, and the self-organization of the working class was strangled in its cradle in order to create a socialist utopia that turned out to be a feeble offspring. Seldon waxes wistfully about what could have been if only the socialists had allowed the British state to develop naturally. I guess we’ll never know. In truth, Seldon’s account of the working class in the pre-welfare state sounds a little too perfect to me, and it is rather at odds with George Dangerfield’s classic The Strange Death of Liberal England (1935) — in Dangerfield’s account it is in part the workers themselves who contrive the downfall of the liberal state for lack of a living wage.

Of course, Seldon could argue that he has no doubt that there was suffering among workers and the poor in Gladstone’s Britain, just as there is today, and as he himself knew from personal experience. But where socialists and Marxists saw the degradation of the working class, the truth was that things were gradually improving. A difference of perspective, I suppose. But at least Seldon can claim some direct knowledge whereof he speaks: all his life he had little patience with the description of his own childhood as “deprived”, and the sense of optimism shared by Seldon and those he grew up with in his East London neighbourhood is rather touchingly portrayed in the afterword of Capitalism entitled “Envoi: A Promise Kept”.

There is one central theme of Seldon’s Capitalism that is right on the money (pardon the pun), and which has had a great influence on my own thinking. Seldon observes — and my own experience tallies with this — that if you read socialist literature, in addition to the obligatory denunciation of the market and of capitalism, you will typically find a lot of rhapsodizing over the limitless possibilities of socialism. In other words, says Seldon, capitalism as it exists is found wanting, while socialism as it supposedly could be is found to be desirable:

“The critics of capitalism have persisted in the device of contrasting imperfect capitalism as it is, or has been, with a vision of socialism as it has not so far been, and could not be in the foreseeable future…. This is an act of faith that sustains the intellectual effort long performed by the critics of capitalism to show its contrasts with the alternative of faultless socialism. The familiar non sequitur, ‘capitalism as we have known it, bad; socialism as it could be, good’ (or at least better) still permeates most socialist writing.” (p. 223)

This is hardly a fair comparison, for a number of reasons. First, capitalism as it is exists in nothing like its pure form anywhere, overlaid as it is by decades of socialist experimentation and adulterated by state tampering. Second, socialist experiments have been tried in various places, so shouldn’t these be the relevant examples to juxtapose against existing capitalism? Third, if we want to speculate on an ideal socialist world, shouldn’t the relevant comparison be an ideal capitalist one?

In Capitalism Seldon from the very beginning proposes a more fair comparison: socialism as it exists/has existed with capitalism as it exists/has existed. On every score Seldon makes a compelling case that in this more fair comparison capitalism comes out smelling like a rose, while socialism comes out smelling like week-old unrefrigerated salmon. Perhaps this was a much easier case to make in 1990 than it is today, but I think that if we were to repeat the exercise in good faith, capitalism would still look pretty good.

Seldon never tries to argue that the fair face of capitalism has no blemishes, and he even makes room for government functions that would not be popular among more doctrinally pure libertarians (e.g. environmental protection, the preservation of cultural heritage, and adaptation to new technologies). But according to another strand in his argument, capitalism has at least one crucial virtue that socialism lacks: corrigibility.

Consider this: The well-functioning of markets depends on the free flow of information, not just of capital. Capital can only be put to its most efficient uses if people have the means of finding out what those most efficient uses are. This requires information. Some of this information will come through the mechanism of price signals in markets (another advantage of capitalism over socialism), and some of it will come through people communicating directly with each other. The best way of facilitating the latter kind of communication is through the free institutions of an open society.

By contrast, in a socialist society information is either unavailable or more costly to obtain, for at least two reasons. First, the absence of free markets (or presence of over-regulated ones) means that price signals are missing or distorted. Second, the political institutions necessary to carry out the task of centralized economic planning will necessarily be coercive, and thus closed rather than open. In a coercive state, dissent is not tolerated. But dissent is a form of information signaling and in many circumstances it is the best way a government has of finding out that its policies are not working.

(And that may be where I have some limited support for the Occupy protests — the understanding and proposed solutions of the Occupiers may be simplistic, but the protesters are at least managing to signal that all is not well in the economy. After all, no system is incapable of being improved upon, not even capitalism.)

Thus, although there is no perfect or necessary connection between capitalism and freedom, capitalism will tend to work best where there is open communication and openness in institutions. A country like China seemingly represents a prima facie counter-example to this trend, but I predict it will be a relatively short-lived one: China will either become more open or it will regress economically; “capitalism with Chinese characteristics” is an unstable transitional state.

Getting back to Seldon’s point about corrigibility: capitalism is corrigible because a) it tends to facilitate access to the information necessary to correct mistakes, and b) it tends to have more open and flexible institutions that can respond to the need for change. Unfortunately, if that change comes in the form of socialism, the result will likely be another historical cul-de-sac from which it will be difficult to escape.

Since 2008, we have been moving backward. We have lost hold of that triumphalist “Spirit of 1990”. We have lost that faith which Seldon strove most of his life to instill, and we are reverting to the old gods of planning, government “programs”, and the uninspiring vision of a society of social workers and their clients. Seldon did what needed to be done: a comparison of socialism as it has been to capitalism as it has been. What we need now are more capable voices that will give us inspiring visions of capitalism as it could be, as an antidote to all those voices, so prominent now, who, in focusing exclusively on the faults of capitalism, too easily forget the gifts it has given them, and all the while doing so through media which capitalism has made possible.

Bibliographic Note

The original edition of 1990 has become a little difficult to get hold of and is to my knowledge out of print, though used copies are to be found. However, a more recent and affordable edition was published in 2004 by Liberty Fund as Volume 1 of The Collected Works of Arthur Seldon. The volume is entitled “The Virtues of Capitalism” and combines Capitalism with Seldon’s earlier book Corrigible Capitalism, Incorrigible Socialism. An electronic version is made available for free through the publisher’s “Online Library of Liberty”.

“The Federalist”

Hamilton, Madison, and Jay, The Federalist (New York: Modern Library, 2000).

In Philadelphia in the summer of 1787, delegates gathered to come up with suitable changes to the Articles of Confederation, the document that had outlined the terms of cooperation of the thirteen American colonies in their struggle for independence from Great Britain. During the Revolutionary War and in the years immediately following, the Articles had proved themselves woefully inadequate. They bound the confederacy too loosely. Many states were not paying up for their share of war costs, and the Articles provided no powers for forcing them to do so. Interstate commerce was being hampered by state-imposed tariff barriers that were self-canceling at best, self-destructive at worst. And Shays’ Rebellion in Massachusetts seemed to indicate the need for some centralized military power to maintain public order and security.

Even so, the delegates to the Philadelphia Convention went well beyond their brief. Rather than simply improving on the Articles of Confederation, they instead ended up drafting a new Constitution that would form a more perfect union between the states. Many people today, especially Americans, tend to believe that this Constitution emerged fully formed from the heads of the framers. In reality, as the notes of the convention taken by James Madison make clear, the room in which they worked became a veritable sausage factory of political deal-making.

The Federalist papers were an attempt to sell the resulting sausages to the American people during the ratification process that followed. On the other hand, despite the papers’ purpose as propaganda, never has political hackery contributed so much to Western political thought.

The papers offered wise and sometimes profound meditations on the human political animal that ventured far beyond their limited purpose as defense of a particular constitution. They were also very persuasive, although at the time their persuasiveness lay as much in the fact that they were published in such rapid succession — often three per week — that opponents hardly had time to reply. Anti-federalists simply couldn’t keep up with the fertile minds of Hamilton and Madison.

I say “Hamilton and Madison” while leaving out Jay because in reality the latter only ended up penning five of the papers (numbers 2, 3, 4, 5 and 64), before dropping out of the project due to ill health. Thus, of the other numbers, Hamilton authored fifty-one, Madison authored twenty-six, and the remaining three were co-authored by the two of them.

Federalist No. 1 was signed by “A Citizen of New York”. However, Madison then joined the team and he was a Virginian, so every paper thereafter was subscribed “Publius”, the name taken from one of the founders of the Roman Republic, Publius Valerius Publicola (Publicola = “friend of the people”). Since there were eighty-five papers altogether, there isn’t space here for a thorough analysis of all of them, or even for anything like a comprehensive overview. Instead I will discuss three sample papers, the first two of which are stand-alone classics of political theory.

Federalist No. 10 (Madison)

Number 10 is a tour de force of republican political argument and is possibly the most famous of the Federalist papers. It has also become a canonical text for the so-called “public choice” school of economics, of which I consider myself an amateur devotee.

Public choice economists such as James M. Buchanan have criticized mainstream economists, who too often adopt the standpoint of policy adviser to some benevolent despot (i.e. government). Buchanan has spent much of his career arguing that the despot is neither benevolent nor disinterested, and that this fact must be taken into account when designing or proposing to reform political institutions. Buchanan professes himself to be a follower of Madison, who in Federalist No. 10 (and elsewhere) argued that there is no such thing as a disinterested legislator. For one thing, a legislator is a human being (or a group of them), just like anyone else, so why should we expect that he alone would be exempt from the self-interest that motivates the rest of us? As Buchanan would put it, government is an actor in the market, not a spectator standing outside it.

For another thing, legislators legislate, and all legislation involves taking sides. Legislation is not impartial. And because it is not, we can expect the realm of politics to be a battleground where competing interests duke it out. The most that can be hoped for is that the battle remains more or less civilized. In the pursuit of their competing interests, people will form factions. As long as people are free to pursue their ends, competition and factions are natural concomitants of a free society:

“Liberty is to faction, what air is to fire, an aliment, without which it instantly expires. But it could not be a less folly to abolish liberty, which is essential to political life, because it nourishes faction, than it would be to wish the annihilation of air, which is essential to animal life because it imparts to fire its destructive agency.”

In other words, there are no utopias in politics.

It was common for eighteenth-century political thinkers to abhor factions or parties, as these were signs of interest, and politics was ideally supposed to be disinterested and public-spirited. But for Madison, the pursuit of factional self-interest was natural, and since there was no impartial agency that stood outside the fray to mediate, the best that could be hoped for in a free society was to have well-designed institutions that could limit the damage factions can do:

“Is a law proposed concerning private debts? It is a question to which the creditors are parties on one side, and the debtors on the other. Justice ought to hold the balance between them. Yet the parties are and must be themselves the judges; and the most numerous party, or, in other words, the most powerful faction must be expected to prevail…. The inference to which we are brought, is, that the causes of faction cannot be removed; and that relief is only to be sought in the means of controlling its effects.”

This is especially necessary in a democracy, where there always looms that most dangerous of factions, the democratic majority. Imagine a democracy of three people, A, B, and C. It is always a possibility for A and B to form a voting bloc to deprive C of his wealth or rights or liberty. The best way to avoid this outcome is to have institutions and constitutional constraints which prevent A and B from effecting their intentions. Such a constitution may provide for a list of protected rights and liberties that may not be infringed upon by a democratic legislature. Or it may provide that in order for anyone’s rights to be infringed, unanimity is required. Or it may give citizens of C’s description two vote to compensate. Or it may provide for more than one legislative house, with different rules of representation to ensure that one may act as a check upon the other.

 Whatever the precise constraints a society chooses, Madison’s point is that men are — or should be assumed to be — imperfect and selfish creatures, and that there is no power that can be assumed to be impartial. Interest must oppose interest because there is no disinterested power to oppose it. These considerations lead naturally to a discussion of Federalist No. 51, another great masterpiece by Madison.

Federalist No. 51 (Madison)

Because humans are self-interested, and because their interests often clash, there must be some power that can restrain their pursuit of interest. In most political theories, this role has been played by government. But governments are composed of human beings, so they too are subject to the same self-interested motivations and must be restrained. As Juvenal rightly asked, sed quis custodiet ipsos custodes? (“But who will guard the guardians themselves?”). Here is how Madison famously stated the paradox in Federalist No. 51:

“But what is government itself but the greatest of all reflections on human nature? If men were angels, no government would be necessary. If angels were to govern men, neither internal nor external controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: You must first enable the government to control the governed; and in the next place, to oblige it to control itself.”

One of the ways of doing this was by a constitution which provided for separation of powers and functions in different branches of government, branches which could act as checks upon one another. It is this that has become the central hallmark of Madisonian republicanism. But just as Madisonian is his encouragement of pluralism: The more groups and subdivisions there are, the less likely it is that any one of them can form a majority and overpower the others. In our three-person democracy, it is very easy for A and B to form a faction to prey upon C. But in what Madison and Hamilton called an “extended republic” a vast number of citizens can form a vast number of factions, no one of which is likely under those conditions to become powerful enough to dominate the others.

This line of thinking informs Madison’s reflections on the separation of church and state. For example, regarding religious pluralism, even though Madison was probably the least religious of the Founding Fathers (he may even have been an atheist), he encouraged freedom of worship because he wanted as many religions to flourish as possible: the more of them there were, the less dangerous they would be to the state. With no single religion having any hope of dominating over the others, religious groups would spend less time trying to take over the reins of government, and more time making jealously making sure that no other sect tried to do so.

Federalist No. 72 (Hamilton)

This work of Hamilton’s is part of a running argument defending a strong executive branch. This is in response to anti-federalist arguments that an executive magistrate should only hold power for a brief term and should not be subject to re-election. It is to the topic of re-election that Hamilton’s attention turns in this paper. I chose to look at this piece because it well illustrates the Federalist’s adeptness at designing republican institutions through incisive analysis of the springs of human political behavior and the incentive structure of political office-holding. In other words, beginning with how humans can typically be expected to behave in political contexts, institutions are proposed that, in the words of Hamilton, best balance the “energy of government” with the “liberties of the people”.

This tension between strong government and individual liberty would in the coming years be reflected in the growing tension between Hamilton’s and Madison’s respective views of republican government. Hamilton tended to stress the necessity of energetic government, seeing a strong federal government as the guarantor of individual liberty (while implicitly viewing the state governments as liberty’s greater threat). Madison, on the other hand, had a growing jealousy of energetic government’s ability to trample on individual rights. His solution was to weaken government through intricate institutional checks and balances, having power oppose power. Despite their collaboration in 1787-88, Madison and Hamilton a rift would eventually form between the two men that was never healed. But the rift still lay in the future when Hamilton wrote Federalist No. 72.

Excluding the executive from seeking re-election would have several pernicious effects, argued Hamilton. For one thing, it would reduce the magistrate’s incentive to good behavior; since he had no hope of being re-elected, he had less incentive to be exemplary in the performance of his office. “There are few men who would not feel much less zeal in the discharge of a duty when they were conscious that the advantages of the station with which it was connected must be relinquished at a determinate period, than when they were permitted to entertain a hope of obtaining, by meriting, a continuance of them.”

In addition, Hamilton argued that the exclusion from re-election would result in a more urgent temptation of the office-holder to make the most of his short time in office financially: “An avaricious man, who might happen to fill the office, looking forward to a time when he must at all events yield up the emoluments he enjoyed, would feel a propensity, not easy to be resisted by such a man, to make the best use of the opportunity he enjoyed while it lasted, and might not scruple to have recourse to the most corrupt expedients to make the harvest as abundant as it was transitory.”

A greater danger than peculation was the possibility of usurpation. An unscrupulous magistrate might simply decide he doesn’t want to give up his office. Without any hope for continuance in office, “such a man, in such a situation, would be much more violently tempted to embrace a favorable conjuncture for attempting the prolongation of his power, at every personal hazard, than if he had the probability of answering the same end by doing his duty.”

I have personally been favourable to limiting the tenure of elected officials to one term, of whatever the length. One of the reasons I have favoured such a policy is the notion that the officeholder would be more independent and willing to make hard decisions if he did not have to worry about re-election. To this, Hamilton conjectures that such a magistrate might actually be just as inclined to pander to the public as one with an eye on re-election, since at the end of his term he would be compelled to return to the people as a private citizen: “May he not be less willing by a firm conduct, to make personal enemies, when he acts under the impression that a time is fast approaching, on the arrival of which he not only MAY, but MUST, be exposed to their resentments, upon an equal, perhaps upon an inferior, footing? It is not an easy point to determine whether his independence would be most promoted or impaired by such an arrangement.” This argument may have been more convincing in the eighteenth century, when a gentleman ran in smaller and more localized circles than the typical politician does today. I am not convinced by it.

Finally, and most dangerously, there may be times where the people themselves wish the person to remain in office. What happens when the wishes of the people for a favourite son are thwarted by such a rigid constitutional restraint? “There may be conceived circumstances in which this disgust of the people, seconding the thwarted ambition of such a favorite, might occasion greater danger to liberty, than could ever reasonably be dreaded from the possibility of a perpetuation in office, by the voluntary suffrages of the community, exercising a constitutional privilege.” Hell hath no fury like a mob scorned. The people may simply decide to pull down completely the constitutional barrier separating them from their fancied man. Again, I do not find this argument of Hamilton’s overly convincing. Organized collective action of that nature takes considerable effort and enough time that the fickle mob is likely to grow indifferent to their erstwhile favourite.

Despite their later divergence in thinking, Hamilton’s approach is similar to Madison’s in assuming that human beings are largely self-interested and that because politicians are humans too, they should also be assumed to be self-interested. Institutions cannot be designed as if people are angels. Instead, writes Hamilton, because “the desire of reward is one of the strongest incentives of human conduct… the best security for the fidelity of mankind is to make their interest coincide with their duty.”

Adam Ferguson, "Essay on Civil Society"

Since I realized that there hasn't been one for some time, here is a review of another of my favourite books.


Adam Ferguson, An Essay on the History of Civil Society (Cambridge: Cambridge University Press, 1995).

Adam Ferguson (1723-1816) was one of the lesser lights of the Scottish Enlightenment. I don’t mean this in the sense that he is not equally deserving of respect as David Hume or Adam Smith. I believe that in their own way, Ferguson’s writings can profit a modern reader just as much as Smith’s Wealth of Nations or Hume’s Treatise of Human Nature. Thus, when I refer to Ferguson as a “lesser light”, I mean that he is in fact little read, not that he is not well worth reading, otherwise I wouldn’t be writing this.

The work for which Ferguson is best-known, both in his own time and ours, is his An Essay on the History of Civil Society (1767). The book is largely what its title implies: In typical Scottish style, the author traces a sort of moral history of humankind, structured within the four-stage framework of social development that was fashionable at the time. The four stages are: 1. hunting and gathering society, 2. herding or pastoral society, 3. agricultural society, and 4. commercial society. In places he refers to the first and second stages in more normative language, as the “savage” and “barbaric” states, respectively. It is worth noting in passing that Ferguson would have considered himself fairly knowledgeable about less advanced societies: although he was a celebrated man of letters at the centre of the Enlightenment, and was a professor at one of the world’s great universities (Edinburgh), he was also a Highlander, and spoke Gaelic. More polished lowland Scots considered the Highland clans to be in a transitional stage somewhere between the barbaric and civilized stages of social development (i.e. between stages 2 and 3). Having served as chaplain of the Black Watch Highland regiment, he saw the fierce battle prowess of “barbaric” society firsthand and according to accounts did not lack martial spirit himself.

Now, one must be careful of misunderstanding Ferguson’s stadial theory of social progress. He is merely saying that those societies that display progress do so through these four stages. He does not say that every society will progress through them. Indeed, history shows that societies are just as likely to regress, to move backwards. This happens especially when a society experiences a “relaxation” of its public spirit and civic virtue, losing its energy and its ability to exert itself for greater projects. Thus, as we’ll see, there is a profound pessimism at the heart of Ferguson’s philosophy that distinguishes him from an Adam Smith or a David Hume.

In many ways, Ferguson’s stadial view of human progress is the part of the book least worth reading. It certainly wasn’t very original, for other Scots had come up with variations of this theme before, for example Lord Kames’ Sketches of the History of Man (1734). In my opinion, the most important contributions of Ferguson’s book to the history of ideas were two.

The first was his idea of the organic development of order, and of what we might call the “law of unintended social consequences”. The basic concept is well expressed in the following passage, which was to have a profound effect on Friedrich Hayek in the 20th century when he wrote his magisterial three-volume Law, Legislation, and Liberty:

“Every step and every movement of the multitude, even in what are termed enlightened ages, are made with equal blindness to the future; and nations stumble upon establishments, which are indeed the result of human action, but not the execution of any human design. If Cromwell said, That a man never mounts higher, than when he knows not whither he is going; it may with more reason be affirmed of communities, that they admit of the greatest revolutions where no change is intended, and that the most refined politicians do not always know whither they are leading the state by their projects.” (An Essay on the History of Civil Society, Pt. III, §2, italics added)

Hayek took this idea and ran with it. For him, it was pointless for socialists to try to plan a society and economy along rational lines, for society is the complex outgrowth of the individual decisions ― some conscious, but most of them unconscious ― of billions of individuals, alive and dead. We might say that social institutions are emergent properties of individual action and decision. They are not always the result of a plan. Indeed, planned societies usually end up being very different from what their planners intended, as do planned institutions.

However, Hayek chose to largely ignore the darker side of Ferguson’s insight, which was that just as humans stumble upon order without intending it, so too they just as often stumble upon disorder:

“Mankind, when they degenerate, and tend to their ruin, as well as when they improve, and gain real advantages, frequently proceed by slow, and almost insensible steps. If, during ages of activity and vigour, they fill up the measure of national greatness to a height which no human wisdom could at a distance foresee; they actually incur in ages of relaxation and weakness, many evils which their fears did not suggest, and which, perhaps, they had thought far removed by the tide of success and prosperity.” (Pt. VI, §6)

As the conservative essayist Theodore Dalrymple quipped: “Rome wasn’t destroyed in a day.” Things may actually be going wrong just at that very moment when they seem most to be going right. There is a normative prescription in Ferguson’s observation. We should not allow small symptoms of weakness or lethargy in the body politic to go untreated, for though they seem benign or barely perceptible at first, they quickly become a disease untreatable. Such inattention has been the downfall of many a prosperous and polished civilization. Social rot has its beginnings during apparent health, so by the time the rot is first noticed, it has likely already been progressing for some time.

This observation leads to what I consider to be the second great contribution of Ferguson’s book. His stadial theory of progress aside, Ferguson’s genius lay not in his account of human progress, but of its decline. If you read no other part of this book, I would recommend that you at least skip ahead and read the Essay’s final Part VI, entitled “Of Corruption and Political Slavery”. It is in my opinion the wisest account of political corruption ever written.

One of the ways a society goes off the rails involves giving in to the temptation to discount the future in the service of current projects (or indeed, mere current pleasures). The following passage illustrates this, and when read in the light of the current fiscal situation of developed nations, it has an eerily contemporary ring to it:

“States have endeavoured, in some instances, by pawning their credit, instead of employing their capital, to disguise the hazards they ran. They have found, in the loans they raised, a casual resource, which encouraged their enterprises. They have seemed, by their manner of enacting transferable funds, to leave the capital purposes of trade, in the hands of the subject, while it is actually expended by the government. They have by these means, proceeded to the execution of great national projects, without suspending private industry, and have left future ages to answer, in part, for debts contracted with a view to future emolument. So far the expedient is plausible, and appears to be just. The growing burden too, is thus gradually laid; and if a nation be to sink in some future age, every minister hopes it may still keep afloat his own. But the measure… is, with all its advantages, extremely dangerous, in the hands of a precipitant and ambitious administration, regarding only the present occasion, and imagining a state to be inexhaustible, while a capital can be borrowed, and the interest be paid.” (Pt. V, §5)

Here, as elsewhere, Ferguson displays a deep-rooted ambivalence to commercial culture. He recognizes the possible benefits of such instruments of public finance as paper money and a national debt, but is very aware of how easily these may be manipulated and abused by short-sighted and self-interested leaders. Funding national projects through public debt seems to be working so far, he seems to say, but for how much longer?

There are other worries lurking under the surface of this passage: The system will work only so long as the “great national projects” the debt funds continue to bring in a sufficient return to pay off accumulated debt plus interest. What are these projects? Will such a system naturally lead to the temptations of dangerous imperialist adventures, of the sort that contributed to the Roman decline into despotism? In Canada at least, we have been lucky in that those great national projects have largely consisted of social programs such as a publicly-funded healthcare system. As suspicious as I am of “progressive” attempts at social engineering, at least our great national projects have not involved large expenditures of blood in addition to treasure (the current Afghanistan adventure excepted).

In public finance, when future consumption is brought forward, and present payment pushed back, a moral hazard is created (thus, Ferguson’s reference to states that “have endeavoured, in some instances, by pawning their credit, instead of employing their capital, to disguise the hazards they ran”). For politicians who resort to this kind of finance, the rewards of risk are present and are enjoyed by the risk-taker; but the penalty for failure is a future burden shouldered by others. Given such a perverse incentive structure, is it any wonder that governments have a marked propensity to overspend?

This is a particular example of Ferguson’s more general tendency to see corruption in “polished” societies as a sort of moral complaisance. In describing this phenomenon, Ferguson deploys a rhetorical vocabulary of “energy”, “exertion” and “vigour” on the one hand, and “relaxation”, “ebbing”, and “languor” on the other. When a polished society’s national “vigour” becomes “relaxed”, the future is discounted while the present is spent eating up all the low-hanging fruit, enjoying luxuries purchased on credit, and avoiding decisions that require too much effort. Again, such moral complaisance often takes the form of a short-sighted discounting of the future.

War is a subject about which, like public finance, Ferguson displays a deep-rooted ambivalence. On the one hand, he dislikes imperialism and believes war to be a waste of human and material capital, especially when conducted in the service of immoral ends. On the other hand, nations face real dangers, and in order to protect itself the state must have a citizenry capable of making war. Not only that, but because of the constitution of human nature itself, struggle and aggressive competition play a vital role in the moral economy of a society: “To overawe, or intimidate, or, when we cannot persuade with reason, to resist with fortitude, are the occupations which give it most animating exercise, and its greatest triumphs, to a vigorous mind; and he who has never struggled with his fellow-creatures, is a stranger to half the sentiments of mankind” (Pt. I, §4).

Too long a period of peace may lead citizens to become weak, and a republic to lack vigour and energy. This effect may be mitigated to some extent by the sort of economic competition found in commercial societies. However, economic competition narrows the minds and moral horizons of citizens, as they struggle after private rather than common interests. And too much wealth tends to lead to luxury and civic apathy, which spell the death of a republic.

Another factor contributing to the decline of a healthy commonwealth stems from a certain mistaken view of politics, a view which I am afraid is all too common in our own time.  I have quoted the following passage more than once in this blog, but it will always be worth quoting again:

“[O]ur notion of order in civil society is frequently false: it is taken from the analogy of subjects inanimate and dead; we consider commotion and action as contrary to its nature; we think it consistent only with obedience, secrecy, and the silent passing of affairs through the hands of a few. The good order of stones in a wall, is their being properly fixed in the places for which they are hewn; were they to stir the building must fall: but the order of men in society, is their being placed where they are properly qualified to act. The first is a fabric made of dead and inanimate parts, the second is made of living and active members. When we seek in society for the order of mere inaction and tranquility, we forget the nature of our subject, and find the order of slaves, not that of free men.” (Pt. VI, §5)

In a healthy republic, citizens are active. They are not supposed to be passive spectators who vote every four years for new masters.

Some time ago, a former mayor of the city in which I live demanded from the provincial government that he and other mayors be given “strong mayor powers” to forward certain favoured projects. Beware the leader who claims to require more powers in order to be able to “get things done” and acts as if the constitutional order is a mere obstacle to his ends. The very purpose of a constitution is precisely to thwart ambitious politicians. It is supposed to be an obstacle.

A constitution is often the only thing that separates a free people from political slavery. Thus, beware too those politicians and citizens who bemoan a supposed excess of liberty. Free expression is often ugly, and democratic politics is often just as ugly. It is tempting to prohibit what is currently unpopular, while delegating political power to administrative bodies in the name of governmental expediency. This is a dangerous tendency: “subjects, as well as their princes, frequently imagine that freedom is a clog on the proceedings of government: they imagine, that despotical power is best fitted to procure dispatch and secrecy in the execution of public councils; to maintain what they are pleased to call political order, and to give a speedy redress of complaints” (Pt. VI, §5). This is precisely the phenomenon that Lord Hewart, in his 1929 book of the same name, famously described as “the new despotism”.

Wouldn’t it be nice if we had a wise and virtuous elite who always deliberated and acted for the common good? Wouldn’t it be grand to be able to spend all day drinking beer and watching hockey, safe in the knowledge that our security and prosperity were in the capable hands of our benevolent masters, and overseen by a scrupulous and efficient civil service? Wouldn’t it be wonderful if we simply had no need to attend to politics?

For Ferguson, this would not be desirable even if it were feasible: “When we suppose government to have bestowed a degree of tranquility… such a state, like that of China, by throwing affairs into separate offices, where conduct consists of detail, and in the observance of forms, by superseding all the exertions of a great or a liberal mind, is more akin to despotism than we are apt to imagine” (Pt. VI, §5). It is in activity that the mind is exercised, talents are made use of, and the commonwealth flourishes. A society cannot be in good health if its forms of political life have been routinized to such an extent that citizens and officials have little to do except to mindlessly follow procedures.

Habit is the great deadener, as Samuel Beckett once observed. A thoroughly bureaucratized political order is the order of slaves. In Democracy in America (1835-1840), Tocqueville warned of a similar sort of “soft despotism”, where the minds of citizens were (unwittingly) cramped by innumerable and often pointless rules and procedures, and where the government takes care of all the wants of the citizenry (or indeed decides what the citizenry’s wants are), to the extent that they look to it for everything. This is every bit as much a form of slavery.

Tocqueville characterized soft despotism as a tyranny of petty rules and procedures, which relieves the citizen of the burden of thinking. Ferguson would caution us not to mistake the rule of such petty administrative rules (now euphemistically referred to as “administrative law”) for the rule of law proper. Law is not a collection of mechanical procedures. It is a living thing, whose breath comes from the activity and wisdom of those subject to it and those who administer it. When virtue ceases to give it life, law becomes the exercise of naked power and nothing more:

“When a basha, in Asia, pretends to decide every controversy by the rules of natural equity, we allow that he is possessed of discretionary powers. When a judge in Europe is left to decide, according to his own interpretation of written laws, is he in any sense more restrained than the former?... If forms of proceeding, written statutes, or other constituents of law, cease to be enforced by the very spirit from which they arose; they only serve to cover, not to restrain, the iniquities of power…. And the influence of laws, where they have any real effect in the preservation of liberty, is not any magic power descending from shelves that are loaded with books, but is, in reality, the influence of men resolved to be free…” (Pt. VI, §5)

For Tocqueville, the only difference between soft despotism and the hard variety is that the latter breaks the spirit of citizens into whatever form the despot desires, whereas in the former the spirit is bent imperceptibly but inexorably. The end result is the same. And it matters little whether the despot is benevolent; either kind of despotism stamps upon the citizenry the moral character of slaves or children. What worried Tocqueville especially was that, while hard despotism or tyranny is incompatible with democracy, soft despotism is perfectly compatible with some reasonable facsimile of it. It takes vigilance and activity to prevent the slow rot of soft despotism. Ferguson foresaw the danger of soft despotism some seventy years before Tocqueville wrote.

Jon Elster, "Sour Grapes"

I now move on to the second of Jon Elster’s books that I proposed to discuss in the previous post. Please note that, since I’ve dropped several names there — and since I’ll likely be dropping some more here — at the end of this post you’ll find a list of readings referred to in both.
 

Jon Elster, Sour Grapes: Studies in the Subversion of Rationality (Cambridge: Cambridge University Press, 1983).

I claimed earlier that Elster’s work has some possibly very damaging implications for economics as a rational science, particularly economics done in the rational choice tradition.

By “rational choice”, I refer to an approach to economic analysis that takes as its methodological starting point the idea that the preferences of agents are to be viewed as rational, even if they seem prima facie irrational to the third party observer. An example might be the approach of Nobel Prize-winning economist Gary Becker to a phenomenon like addiction: it may seem as if the choices of smokers are irrational, but they begin to make more sense if we view them as rational from the point of view of maximizing one’s present preferences. After all, if the choice of smokers to smoke were completely irrational, then why is it that when the price of cigarettes goes up, their consumption goes down? Economically, there is much about the behaviour of addicts that displays characteristics of rational economic choice.

(I would counter that this is correct to a certain extent, but that addictive products display a notable lack of demand elasticity — although demand falls when prices rise, the reaction of demand to price is much less sensitive than it is with, say, pickles or ice cream. If the price of heroin goes up, although a few addicts may kick, many will simply steal more purses to keep up with the rise in price. Few turn to crime to support their taste for expensive ice cream. There are many good reasons not to accept a rational choice theory of addiction. For an excellent critique, see Rogeberg 2004.)

Satisfying Preferences: Whose? Which?

Ulysses and the Sirens very much concerns the difficulty of whose preferences are to be satisfied. We might say that, in utilitarian or rational choice fashion, the preferences of all agents are to be given equal consideration. But Elster complicates this by showing us that each of those agents is composed of an indefinite number of intertemporal agents with possibly conflicting preferences, and with no clear cut indication of which of these selves is to have normative priority.

Sour Grapes takes things to a deeper level. Whereas economics pretends to be a descriptive rather than a prescriptive or normative science, Elster examines the nature of desires to demonstrate that it might not be so easy for economics to avoid normative prescriptions. To be more clear: whereas economics claims to be concerned with finding the best way of satisfying the preferences of the greatest number of people regardless of what those preferences are, Elster shows that economics cannot avoid making evaluative judgments about people’s preferences.

Economists are too apt to take people’s wants (or the ordering of these wants, in the form of preferences) as brute facts, as given. Their task then becomes the technocratically straightforward one of figuring out how best to satisfy the greatest number of them.

By contrast, Elster shows that not all desires are worthy of being satisfied. Now, on the face of it this is nothing new; moral philosophers have been saying as much since the time of Socrates. But Elster is not just concerned with the immoral nature of some desires. No economist in his right mind denies that satisfying the desires of sadists is on all fours with satisfying the desires of people with less perverted tastes. But the economist will try to parse this in terms of utility: they will say that as a matter of (contingent) fact, one satisfied sadist must mean one or more normal people must be made very dissatisfied victims of the sadists, the predictable result of which would be net disutility. That, they’d say, is why the preferences of sadists should not be satisfied. But notice that they are still taken into account.

This explanatory scheme might give economists some rationale for discriminating against the wants of sadists, although not on the grounds that the desires of sadists were wrong or immoral. After all, if it so happened that sadists and masochists were evenly distributed in the population and could somehow be paired up, the economists might have to revise their judgment, and take the preferences of sadists (and masochists) seriously.

Elster’s critique of preference-satisfaction has less to with variations in the moral worthiness of desires, and more to do with the fact that some desires are to be preferred to others in terms of their rationality. Indeed, his analysis implies that rationality is so easily subverted, that we ought not to put too much stock in the satisfaction of preferences at all, at least not unless we are willing to roll up our sleeves and examine the nature of the preferences we propose to satisfy.

We tend to think that preferences have at least some minimal rational ordering. For example, it is comforting to believe that our preferences obey the law of transitivity: If I prefer A to B, and I prefer B to C, then all things considered I must prefer A to C. Elster presents a variety of situations in which people’s preferences are not transitive in this way.

Path-Dependency and Context Dependency.

Often our preferences are path-dependent in that they are dependent on my previous history of choices and desires. In other words, they depend heavily on the temporal order in which choices are presented. Preferences are also context-dependent in that they are responsive to changes in the situational variables in the choice-context. Path-dependency is evident, for example, in what psychologists call “availability bias”, the observed tendency of people to prefer that which is most recently presented to them over that which was presented to them earlier. I may prefer A to B and B to C, but where C is presented to me after A, I might prefer C. So what is my real preference, the one that economists should be trying to figure out how to satisfy?

Here’s a rather cute example illustrating both path-dependency and context-dependency. Let x = a Vermeer painting, y = a Renoir painting, and z = a Monet painting. One each of x, y and z is up for auction. Let’s assume I have a lot of money, I’m not a huge fan of Impressionism, and that I don’t currently own a painting by any of these artists. Because I am rich and the paintings are for sale, the feasible set is {x,y,z}. In this situation, I have the following preference ordering: x > y > z. But, if the context is one in which a week earlier I inherited my uncle’s Monet painting, then it becomes conceivable that my preference ordering could be z > x > y (because I already have the beginnings of a Monet collection), or possibly z > y > x (because in addition to the beginnings of a Monet collection, I also already have the beginnings of an Impressionist collection).

The point is that our desires and preferences are closely tied to our previous experience and life history. For example, it is highly unlikely that I will have a preference for fine wines if no wine at all has ever passed my lips.

If Ulysses and the Sirens demonstrated the importance of the time dimension in human preference, Sour Grapes demonstrates the importance of how preferences are formed. Hence the title of the book, referring to Aesop’s fable of the fox and the grapes, in which the fox pretends not to care for the grapes that he cannot have, by telling himself that the grapes are in any case sour.

Adaptive Preferences.

Elster brings our attention to a phenomenon similar to sour grapes, which he calls adaptive preferences. The latter differs from the former in the fact that where the fox pretends not to like the grapes he cannot have, a person with an adaptive preference actually prefers precisely that which he can have over that which he cannot. His preferences are formed out of his feasible set of choices.

This is not just a phenomenon of settling for second-best, because it’s not something that is necessarily conscious. Nor is it necessarily a bad thing, for in countless cases it is a healthy response. After all, imagine how unbearable life would be if we continually felt discomfort at not having the things we want, given that we simply cannot have most of the things we want. Our minds tend naturally to tailor our desires to our possibilities and that’s probably a good thing. It seems only reasonable that our preferences be limited to some feasible set of options.

But adaptive preferences can also have a more sinister aspect. A slave for example might come to “prefer” the life of a slave and to “love” his master, because in the absence of other options, he settles for what he has. Does this mean that the “preferences” of slaves ought to be respected? Can such preferences serve as a justification of the institution of slavery? Economists have few resources to answer these questions because they are normative/evaluative.

It is part of the economist’s training not to care about the ethical nature of slavery, but only whether as an institution it is efficient. In assessing this efficiency they will presumably do a calculation of how well it satisfies the aggregate preferences of society, and within this aggregate, for the purposes of calculation, the desires of slaves are on all fours with – count for no more or less than – the preferences of masters. Therefore, if the masters are happy, and the slaves are “happy” (in the adaptive preferences sense of the term), then, other things being equal, there is nothing (economically) wrong with slavery. Luckily for society, most economists have historically found slavery to be an inefficient institution.

I should like to presume, dear reader, that your intuitions accord with mine in finding that the economist misses the main point. The preferences of the slaves, being adaptive in the worst way, have been perverted. Slaves tailor their desires to their feasible set, but that feasible set has been artificially and immorally limited by the masters. The adaptive preferences of slaves should not count in the way that normal preferences count (I am intentionally using evaluative terminology like “worst”, “perverted” and “normal” here, because they don’t scare me in the way they seem to scare economists and other social scientists). As Elster puts it, “my suggestion is that we should evaluate the broad rationality of beliefs and desires by looking at the way in which they are shaped” (p. 15). Much later on in the book, he elaborates this point:

“[W]e should not take wants as given, but inquire into their rationality or autonomy. These, in the general case, are properties that cannot be immediately read off the wants themselves…. Rationality in the broad sense depends on the way in which the states are actually formed. Two individuals may be exactly alike in their beliefs and wants, and yet we might assess them differently from the point of view of rationality, judgment and autonomy.” (p. 140)

I fear I have not managed to do full justice to the genius of Elster’s book. Sour Grapes is really a virtuoso performance, so far-reaching are the topics with which it deals with and the sources upon which it draws. I mentioned in the previous post that Elster is an analytical Marxist. But even a Marxist is capable of speaking good sense from time to time. By way of an ending to this post, here are some other propositions Elster defends in Sour Grapes, propositions that Marxists (and indeed all social scientists) must grapple with:

1. There is no reason to suppose that beliefs shaped by a social position tend to serve the interests of the persons in that position (p. 143).

2. There is no reason to suppose that beliefs shaped by a social position tend to serve the interests of the ruling or dominant group (p. 147).

3. There is no reason to suppose that beliefs shaped by interests tend to serve these interests (p. 156).

4. There is no reason to suppose that beliefs which serve certain interests are also to be explained by those interests (p. 163).

Further Reading

AINSLIE, George. Picoeconomics: The Strategic Interaction of Successive Motivational States within the Person. Cambridge: Cambridge University Press, 1992. [Picoeconomics as a field of study can be thought of as micro-micro-economics. It concerns itself with such phenomena as time-preference, time-inconsistency, and hyperbolic discounting.]

BECKER, Gary and Kevin MURPHY. “A Theory of Rational Addiction,” Journal of Political Economy 96 (1988), 675-700. [Locus classicus for the rational choice approach to addiction.]

BRENNAN, Geoffrey and James M. BUCHANAN. The Reason of Rules: Constitutional Political Economy. Cambridge: Cambridge University Press, 1985. (Reprint, Indianapolis: Liberty Fund, 2000.) [Deals with the political and constitutional dimensions of a “multiple selves” theory.]

ELSTER, Jon. Ulysses Unbound: Studies in Rationality, Precommitment, and Constraints. Cambridge: Cambridge University Press, 2000. [More recent book carrying forward his work in Sour Grapes and Ulysses and the Sirens. He even applies his ideas to film and jazz music.]

ELSTER, Jon (ed.). The Multiple Self. Cambridge: Cambridge University Press, 1987. [A collection of essays by various authors, including Schelling and Ainslie.]

FRANFURT, Harry. The Importance of What We Care About. Cambridge: Cambridge University Press, 1988. [On the difference between first- and second-order desires, or roughly, between desires and values.]

KAVKA, Gregory. Moral Paradoxes of Nuclear Deterrence. Cambridge: Cambridge University Press, 1987.

PARFIT, Derek. Reasons and Persons Oxford: Clarendon Press, 1984. [Presents a utilitarian ethical theory based on a “multiple selves” conception of agency. The gist of Parfit’s position is that utilitarianism should only concern itself with satisfying the desires of present selves. I strongly disagree.]

ROGEBERG, Ole. “Taking Absurd Theories Seriously: Economics and the Case of Rational Addiction Theories,” Philosophy of Science 71 (2004), 263-285.

SCHELLING, Thomas. The Strategy of Conflict. Cambridge, MA: Harvard University Press, 1960. [Book in which Schelling explored the notion of rationally motivated irrationality, especially in the context of relations between nuclear-armed nations. A Cold War classic.]

SCHELLING, Thomas. Strategies of Commitment and Other Essays. Cambridge, MA: Harvard University Press, 2005. [Title essay concerns precommitment.]

THALER, Richard H. and Cass R. SUNSTEIN. Nudge: Improving Decisions about Health, Wealth, and Happiness. New Haven, CT: Yale University Press, 2008. [Applies some grossly oversimplified findings in social and cognitive psychology to problems of rational decision-making. They advocate a position they call "libertarian paternalism", in which the powers that be should design better institutions and choice-situations so that people can make better decisions. After reading it, I was left wondering why they bothered using the descriptor "libertarian".]

Jon Elster, "Ulysses and the Sirens"

Methinks this blog has become a little too obsessed with economics. It was certainly never the intention of The Spectacled Avenger to run an economics blog, but unfortunately that is the channel in which his slender genius hath run of late.

I have decided it’s time to switch gears a bit, but like any habit, breaking this one can be accomplished only gradually. As a first step, I propose to discuss the work of a man who is possibly the living thinker with the greatest influence on my thought. He is the Norwegian philosopher, economist, political theorist, social scientists, and all-around polymath Jon Elster. Anyone who has been reading this blog for any length of time should be surprised that I’m such a fan of Elster’s. He is, after all, an analytical Marxist. On the other hand, he’s my favourite kind of thinker: the adventurous type, not afraid of Big Ideas, and also not afraid to use the insights of authors like Montaigne and Stendhal in the service of economics and social science. He has written on such diverse topics as addiction, the emotions, Alexis de Tocqueville, constitutional design in the former communist countries of Eastern Europe, economics, jazz, film, and the conceptual foundations of the social sciences.

So smitten am I with Elster’s work, that I could not limit myself to discussing just one of his books, so I’m discussing what I consider to be his two best, Ulysses and the Sirens and Sour Grapes. As this will be done in two posts, I’ll begin with the former title first.

I consider discussing Elster as a natural step in the process of weaning myself from my late obsession with economics because his work has implications that sap the very foundations of economics as a rational science. It also represents the vanguard of many more recent – and in my opinion less insightful – books in the burgeoning field of what has come to be called “behavioural economics”, possibly the most sensational (and unsatisfying) of which is Richard Thaler’s and Cass Sunstein’s Nudge (Yale University Press, 2008).

Ulysses and the Sirens: Studies in Rationality and Irrationality (Cambridge: Cambridge University Press, 1979).

In Ulysses and the Sirens: Studies in Rationality and Irrationality, which is perhaps his most-cited book, Elster critiques the notion of rationality in the economist’s sense, as a faculty that is concerned with maximizing the satisfaction of agents’ present preferences. He contrasts this notion of locally maximizing rationality with what can be called globally maximizing rationality. This latter concept is perhaps best illustrated by those interesting situations where the best “strategy” is irrationality.

An example of this is the sort of Cold War nuclear strategy that Nobel Prize-winning economist Thomas Schelling famously explored: as a nation you make a nuclear threat, but the threat cannot be made credible because your opponent knows that you would be irrational (in the locally maximizing sense) to carry through on the threat. So you put in place mechanisms that effectively take the decision to launch out of your hands, mechanisms that will automatically trigger a launch after a certain point has been reached, and which cannot be overridden. This is the idea behind the “fail-safe” deterrent. The deterrent is globally maximizing (or so it is postulated). There is a gain from the deterrent that can only be achieved by seemingly non-rational means. In sum, if you want people to leave you alone, act crazy. And the best way of getting people to believe that you’re crazy is by actually being crazy. The paradox, of course, is that it is no mean feat to go mad on purpose.

On a more mundane level, "rational irrationality" occurs when you make any kind of inter-temporal threat or promise in which carrying out the threat or promise involves some cost to yourself. Let’s imagine that Alice threatens Bob at time 1 with X at time 3, if Bob doesn’t do Y at time 2. Let’s further assume that there is some cost attached to Alice if she carries out X. If Alice is perfectly rational (in the maximizing sense), and if Bob knows this, then if Bob is also rational he won’t do Y – in other words, Alice’s threat will have no effect. This is because at time 3 Alice will no longer have an incentive to carry out her threat. After all, doing so would now represent a net cost to her. The damage has been done; there’s no point in adding to it by incurring a cost that no longer serves a purpose.

Notice that the same incentive structure applies to promises: Alice promises at time 1 to do X for Bob at time 3 if Bob does Y for her at time 2. Assuming both are rational and that X has some cost to Alice attached, Bob will not rely on Alice’s promise because he knows that at time 3 she’ll have no incentive to hold up her end of the bargain. Once Alice has got what she wants, why would she bother to incur the cost of giving Bob what she promised to give him?

(Of course, we should note that this whole dynamic changes where there is the prospect of repeated interactions between Alice and Bob. We're only contemplating one-off interactions here.)

What kind of a society could we expect if it were impossible to make credible threats and promises? Most market exchanges in the form of contracts with intertemporal performance (which is most if not all contracts) in a large and impersonal society like ours would be impossible. In short, if economic coordination and market exchange are dependent on the making of credible promissory contracts, and on making credible threats for breaches of those contracts, then such economic coordination and market exchange would be impossible if human nature were modeled after the economist’s homo economicus, the rational maximizer. Luckily we’re not perfectly rational. We have the ability to bind ourselves to actions that are not strictly rational from the narrow locally maximizing point of view. By “bind ourselves” I mean to bind our selves. In the example given above, it would be helpful if Alice could somehow bind her later self to carry out the intentions of her earlier self. Such self-binding can be done, broadly speaking, in two ways.

Endogenous self-binding. This relies heavily on the inculcation of moral norms, and on emotional responses to those norms. This can come through upbringing or through the kind of character formation recommended in Stoic philosophy. Either way, it is dependent on appropriate emotional response. (Contrary to popular misconception, the Stoics did not advocate the extirpation of the emotions, but rather their harmonization.) In the example of Alice and Bob, Alice might be motivated to carry through on her promise by wishing to avoid the emotional cost of the guilt or shame she would incur for breaking it.

There is a good reason why emotions play this crucial role. Emotions are largely autonomic, meaning they happen whether or not we think it’s in our interests to have them. In our rationalistic culture we tend to view this as a bad thing, as a weakness in which passion overcomes our better judgment. But in the kinds of cases I’ve been describing, our “better judgment” is not better at all, at least not in the overall global sense. If Alice were red-faced with anger, Bob would have a signal that she is capable of carrying out her threat despite her better judgment. The signal gains its efficacy by virtue of the fact that it can’t easily be faked. There are good functional reasons why such mechanisms have been evolutionarily selected. You see, within a framework of strategic interaction, evolution selects for global maximization. And although some responses can be faked some of the time, evolution has also selected for human beings with an ability to sniff out the fakes.

Exogenous self-binding. This is best illustrated by the example of Elster’s chosen title. In order to be able to hear the song of the Sirens, a sound which drove men mad and made them steer into the rocks, Ulysses had his crewmen put wax in their ears and bind him to the mast of his ship. The crewmen were to have their swords drawn and were to ignore any appeals Ulysses might make to be untied. Rather than draw on internal resources for resisting the call of the Sirens, and assuming that he would be weak under its influence, Ulysses relied on externally imposed constraints.

In the example of Alice and Bob, Alice might be motivated to keep her promise because of the existence of an institution like contract law that attaches heavy penalties to such breaches of trust. Similarly, if I want to quit drinking, it might help if I give the keys to my liquor cabinet to a friend. If I want to quit smoking, I might place a hefty side bet with friends so that I’ll incur a financial penalty if my later self gives in to temptation. Thus, my later self will have an incentive to stay quit. If I need to save money for Christmas presents, I might open a savings account that does not allow me to make withdrawals before December, in the knowledge that I am likely to be tempted to spend the money before then. If I am a nuclear-armed nation, I may have a computer system rigged up to launch missiles upon detection of a credible and impending threat, in the knowledge that my later self might have doubts or lack the guts to press the launch button. The difference between endogenous and exogenous self-binding is that while the former depends on internal resources for binding, the latter depends on what could broadly be called "external technologies", whether in the form of artificial incentives or determinative mechanisms. Another term for such technologies of exogenous self-binding is “precommitment”. They constitute pre-commitment because they effectively determine me on a course of action before the occasion for choice even arises.

One can overemphasize the distinction between endogenous and exogenous self-binding. I may refrain from doing something I am tempted to do because of moral principles that have been internalized (i.e. made endogenous) through some process of exogenous moral training (e.g. reward and punishment structures inculcated from parents).

Elster’s work in this area dovetails with work by others, notably psychologist George Ainslie and philosopher Derek Parfit, on the notion of “multiple selves”. Put (over)simply, the idea here is that the human agent is best conceptualized not as one overarching self who has an ordering of preferences and who chooses between them, but rather as an indefinite number of intertemporal selves. In many of the examples we have been considering, the preferences of earlier selves may be thwarted by later selves that give in to temptation.

In situations like addiction, it is taken for granted that the earlier “pre-craving” self knows what is best for the later “tempted” self and so is in a position to constrain the latter through precommitment devices. But one can also conceive of cases where the later self is in danger from the irrational choices of the earlier selves. Indeed, even with addiction, we can take a broader view in which the earlier rational self binds the later irrational self in the interest of some still-later self.

I must admit my own reservations here about the “multiple selves” view of agency. It seems to me that it is difficult to make sense of these various selves wishing to manipulate each other unless we preserve some notion of unified agency, where these various intertemporal selves somehow retain identification with each other. Why would I now wish to go to such great lengths to “legislate” for my later selves, unless I identify them as me? After all, by the time the occasion comes for a later self to act, the earlier self will no longer exist. There seems to be an incoherence lurking here. Still, the “multiple selves” notion is provocative, with far-reaching implications.

Some of these implications are ethical, rather than merely metaphysical: if I am not me, but am rather a series of intertemporal selves, then it would seem that the relation between successive selves is no different than the relation between simultaneous agents, i.e. between different agents at a given time. If that is the case, what right does my earlier self have to limit the choices of my later selves? It is no different than my claiming the right to limit your choices? This is paternalism at best, tyranny at worst.

(On the other hand, we might view a person in the throes of addiction as exercising precisely such a self-tyranny: sacrificing the interests of later selves to the arbitrary desires of the present self. An analogous kind of tyranny occurs at the aggregate level, when a society sacrifices the interests of future generations through deep or prolonged deficit financing for current consumption.)

I could go on exploring the ethical and metaphysical difficulties of the “multiple selves” approach, but I’ll save it for the post immediately following the next one.