Holism versus reductionism
in economic thought:
a response to Mario Bunge†
Andy Denis
City University, London
Address for correspondence and contact details:
Andy Denis
Economics Department
School of Social and Human Sciences
City University, LONDON
United Kingdom EC1V 0HB
tel: +44 (0)20 7040 0257
fax: +44 (0)20 7040 8580
email: andy.denis@city.ac.uk
URL: http://www.city.ac.uk/andy/
Abstract
This paper is a response to Mario Bunge (2000) ‘Systemism: the alternative to individualism and holism’. By compressing the two overlaying oppositions, between holism and reductionism and between idealism and materialism, into a single spectrum running from ‘individualism’ via ‘systemism’ to ‘holism’, Bunge loses focus and clarity on the fundamental division between holistic and reductionistic world-views in economics and social science in general. This lack of clarity itself contributes to an over-simplification and misunderstanding of the relation between methodological premises and policy consequences. Alongside the reductionist free marketeers of the kind Bunge criticises, such as Friedman, Lucas and Sir Keith Joseph, there are also holist laissez-faire theorists such as Smith and Hayek. Ignoring the methodological differences between them is both mistaken and allows us to overlook the fundamentally ideological role of invisible hand mechanisms in allowing economists to retain some approximation to efficiency as their default notion of how the economy actually works.
Holism; reductionism; systems thinking; idealism; materialism; economics; policy prescription; invisible hand.
This paper is a response to Mario Bunge (2000) ‘Systemism: the alternative to individualism and holism’. Bunge’s paper is an extremely interesting article which makes a number of telling points and is evidence of a growing discomfort with the reductionism of the neoclassical school currently hegemonic within the discipline of economics. However, there are two major points which need to made with respect to the article. Firstly, it is, in my opinion, preferable explicitly to distinguish between the two oppositions to which Bunge is implicitly referring: reductionism versus holism, on the one hand, and materialism versus idealism on the other. The second point is that the relation between policy prescription and philosophical standpoint in political economy is both more complex and more fascinating than Bunge’s account would lead one to believe.
Section 2 of the paper considers
the first of these points and proceeds to make some initial comments on the
opposition between reductionism and holism in economics. Section 3 looks in more detail at the second
question, that of the relationship between methodological standpoint and policy
prescription in political economy.
Section 4 concludes.
This section of the paper distinguishes the two oppositions with which, I suggest, Bunge’s article is really concerned, and goes on to discuss the significance of one of these, that between reductionism and holism, in political economy.
Bunge’s thesis is that there are three fundamental research approaches in the social sciences: the two most influential, individualism and holism, being fatally flawed, with only the minority approach of systemism offering a viable way forward. The first two are inadequate – each managing to avoid the other’s error only by committing an opposite error of its own, while systemism manages to synthesise the other two, accepting the criticism each makes of the other. For Bunge, ‘holism’ is inadequate ‘because there are no relations without relata’; and ‘individualism’ so ‘because all individuals are interrelated’(147[1]):
“Neither of the two most influential approaches to
the study and management of social affairs is completely adequate …
individualism is deficient because it underrates or even overlooks the bonds
among people, and holism, because it plays down or even enslaves individual
action. By contrast, systemism makes
room for both agency and structure.” (156-157)
Systemism, apart from being defined negatively with respect to individualism and holism, is characterised by viewing the world from a systems perspective: ‘everything is either a system or a component of a system and every system has peculiar (emergent) properties that its components lack’ (147).
Now, there is nothing in these formulations which is incorrect[2], and the points made are valuable ones. However, I think greater clarity can be obtained by stating the matter slightly differently. We are fully justified in endorsing Bunge’s rejection of ‘holism’ as ignoring the fact that the relations, of which our systems of relations consist, depend fundamentally upon the properties of the relata, the substrate-level entities which are doing the relating. But in doing so we take a position on a fundamental opposition: that between materialism and idealism. When we observe, and investigate, some facet of the world, we can choose – assuming we are at least monists, of one kind or another – to be led by one of two kinds of expectation: that the phenomenon in question is fundamentally reducible to matter in motion, or, on the contrary, that the properties of the entity in question derive ultimately from the mind, whether the mind of the individual observer, or that of some more general consciousness such as a deity. In rejecting what he calls ‘holism’, Bunge is taking his stand with materialism, and opposing idealism. What Bunge describes as ‘holism’ makes the properties of an entity independent of the properties of its material substrate.
We are equally justified in complaining, with Bunge, that ‘individualism’ fails to take into consideration the relationships between agents, the fact that individuals are only nodes in systems of such relationships, and the emergence of properties at the macro, or system level. But when we do so, we are again taking a position on a particular opposition which has implicitly or explicitly underlain a vast amount of methodological discourse in economics and elsewhere: that between holism and reductionism. We can see things in the world, and, in particular, economic phenomena, as congeries of substrate-level entities – or we can attempt to understand them as a whole or system, with emergent properties not enjoyed by constituent components.
So, on the materialism-idealism polarity, we may see that Bunge’s systemism adopts a materialist standpoint, while on the clash between holism and reductionism, he supports holism[3]. A better – clumsier, perhaps, but more exact – title for Bunge’s article would therefore have been ‘The systems standpoint or materialist holism: the alternative to reductionism and idealism’.
Of these two oppositions, I am most immediately concerned with that between holism and reductionism. Materialism has underpinned the natural scientific revolutions of the past half-millennium, and thereby gained enormous prestige (thank goodness). That, on the one hand, it has done so in spite of a considerable admixture of reductionism, and, on the other, holism has so often been associated with idealism (the contributions of Hegel, Toynbee and Smuts being prime examples – see, for example, Hegel, 1975, Toynbee, 1972, and Smuts, 1996), have both contributed to the peculiarly low esteem, indeed, contempt, in which holism is held today. The list of systems thinkers – scientists, philosophers, and evolutionary theorists working within a materialistic holism – who have felt it necessary to condemn ‘holism’ is lengthy indeed. Dawkins (1989: 113), Minsky (1985: 27), and Dennett (1995: 80-82) are just a few of the most salient examples – and, of course, Bunge himself. So, while idealism is largely (though certainly not entirely) discredited, reductionism is in far better health. I want, therefore, to say more on this second opposition, and will start with two proposed definitions:
Reductionism: the view that an entity at one level can be understood as a congeries, an aggregate of entities at a lower, substrate level, that the properties and behaviour of higher level entities can be understood in terms of the properties and behaviour of its constituent lower level parts, taken in isolation.
Holism: the view that phenomena at one level can be understood as emergent at that level, that a higher level entity can be understood as a product of the interrelationships between its component parts.
Correspondence relating to previous versions of the paper suggest that some discussion is in order at this point. Firstly, the question has been raised (Bunge, personal communication) as to whether ‘reductionism’ and ‘holism’ so defined are ontological or epistemological standpoints. As stated, both definitions are epistemological – ‘an entity … can be understood as …”. Nevertheless, if we adopt a realist standpoint, as in fact I do, then the implication is that a phenomenon can be understood in a particular way precisely because that is the way it is. So as well as being explicitly epistemological, the definitions are implicitly ontological. However, that further step is unnecessary for the purposes of this paper.
Secondly, the exact definitions of the terms are as controversial as everything else in the debate between the supporters of each point of view. The above definitions are my own, and are as unlikely to please as any others[4]. Correspondents, responding to earlier versions of this paper, have criticised this or that statement about reductionism or holism in the paper – but because their criticism was on the basis of other definitions than those set out above, they failed to engage with the points that I am making[5]. I submit that what is critical here is that holism and reductionism so defined can be shown to characterise two living trends in economic thought and to throw up interesting and enlightening questions about the nature of those trends.
Keynes, for example, in the ‘Preface’ to the French edition of 1939 of the General Theory, clearly advocates a holistic approach:
“I have called my theory a general theory. I mean by
this that I am chiefly concerned with the behaviour of the economic system as a
whole .... And I argue that important mistakes have been made through extending
to the system as a whole conclusions which have been correctly arrived at in
respect of a part of it taken in isolation.” (Keynes, 1973: xxxii)
Keynes sets out very clearly here what he takes to be the distinguishing feature of the two approaches: that, on the one hand, we can derive correct conclusions from the study of microeconomic phenomena ‘taken in isolation’, but that to extend those conclusions to macroeconomic phenomena leads to error, and, on the other, that the correct approach is (what we would now call) a systems approach, aiming to examine the behaviour of ‘the economic system as a whole’. The fallacy of composition involved in the approach he is criticising here, derives from a difference, between the two levels, in what it is legitimate to take as parametric or given (Keynes, 1973: 293).
Robert Lucas, on the contrary, is a very clear spokesman for the trend in economics which favours a reductionist methodology. The following is taken from the final paragraph of his Models of Business Cycles (Lucas, 1987: 107):
“The most interesting recent developments in
macroeconomic theory seem to me describable as the reincorporation of
aggregative problems such as inflation and the business cycle within the
general framework of ‘microeconomic’ theory.
If these developments succeed, the term ‘macro-economic’ will simply
disappear from use and the modifier ‘micro’ will become superfluous. We will simply speak, as did Smith, Ricardo,
Marshall and Walras, of economic theory. If we are honest, we will have to face the
fact that at any given time there will be phenomena that are well-understood
from the point of view of the economic theory we have, and other phenomena that
are not. We will be tempted, I am sure,
to relieve the discomfort induced by discrepancies between theory and facts by
saying that the ill-understood facts are the province of some other, different
kind of economic theory. Keynesian
‘macroeconomics’ was, I think, a surrender (under great duress) to this
temptation. It led to the abandonment …
of the use of the only ‘engine for the discovery of truth’ that we have in
economics.”
Here we have a clear expression of the desire to reduce macroeconomics to microeconomics, and a characterisation of the Keynesian approach as an illegitimate ‘surrender to temptation’.
Both the passages cited occur in contexts – a preface, and the concluding paragraph of a book – where the authors are standing back from the detail of the theories that they are presenting, and indicating what they regard as the underlying general features of their approaches. What they choose to highlight in both cases is their selection of a holist or reductionist approach. This, I think, establishes, at least a prima facie case, that the issue is worth looking at and potentially useful in understanding the controversy between various schools of thought in the history of economics.
*
Some examples can be given to show how this controversy continually emerges in economics:
Dore (1997: 227), in an extended review of Binmore (1994), comments thus on the latter’s deployment of evolutionary game theory – and it should be born in mind that what he says is intended to be, not praise, but a very serious criticism of Binmore’s approach:
“with [Binmore’s] new definition of self-interest,
methodological individualism, a hallmark of neoclassical economics, is
abandoned. In its place is a more
holistic and integrated view of society as an integral organism”.
According to Lawrence Boland
“Demonstrating the dependence of all macroeconomics
on microeconomic principles is essential for the fulfillment of the
(methodological) individualist requirements of neoclassical economics” (cited
in Nelson, 1984: 576)
So Dore and Boland agree that the reductionist standpoint – ‘methodological individualism’ – is an essential component of neoclassical economics. In a similar vein, Schotter (1985: 2), right at the beginning of a book on Free Market Economics, says that in the libertarian, or classical liberal view, ‘society is nothing more than the aggregate of the individuals composing it’. That is, before anything else, Schotter feels it important to establish the reductionist standpoint of libertarianism.
Hoover (1995), on the other hand, in a special edition of The Monist on ‘The Metaphysics of Economics’, argues that
“The idea that macroeconomics stands in need of a
microfoundational base is a commonplace among economists … [but] ontological
reduction of macroeconomics to microeconomics is untenable … while the program
of microfoundations may illuminate macroeconomics in various ways, it cannot
succeed in its goal of replacing macroeconomics.”
Feeling it necessary to point out that an example she wants to use for purposes of illustration, although couched in reductionist terms, could be replaced by a more holistic version, Nancy Cartwright remarks that
“We could attempt to explain macroeconomic
regularities by reference to capacities and relations that can only sensibly be
attributed to institutions or to the economy as a whole, with no promise of
reduction to features of individuals.”
(1995: 278)
Nelson (1984) is an interesting case since at first he seems enthusiastic about the possibility of reducing macro to micro in economics:
“The possibility of reducing at least parts of
macroeconomic theory to microeconomic theory is especially exciting …. [I]t
seems that the large–scale phenomena dealt with in macroeconomics must be the
results of the total effects of the small scale phenomena dealt with in
microeconomics. Therefore, one might
expect that bridges could be built by merely adding up the microeconomic laws
describing the microphenomena to obtain the macroeconomic laws describing
macrophenomena …. [I]t does seem that a reduction of macroeconomics to
microeconomics would not be plagued with the kind of ontological difficulties
which might attend [other reduction] schemes” (Nelson, 1984: 573-74).
His conclusion, however, is pessimistic. There is
“little prospect of providing anything which
deserves to be called microfoundations … it is unlikely that we will see any
progress in reducing macroeconomics to microeconomics.” (ibid: 593)
Cross and Strachan agree that
“The way forward … is to eschew the reductionist
search for finer-grain microfoundations and instead [to] study how complex economic
systems can emerge from the interactions between agents” (Cross and Strachan, 1997: 565).
Finally, Hayek, who spent much of his life criticising the linked errors of macroeconomics, economic statistics and socialism, was amongst the most trenchant of those wishing to deny the legitimacy of macroeconomics: ‘I recognize … microeconomic theory as the only legitimate economic theory’ (1983: 22); ‘I believe it is only microeconomics which enables us to understand the crucial functions of the market process’ (Hayek, 1983: 27); ‘[M]y disagreement with that book [sc Keynes’s General Theory] did not refer so much to any detail of the analysis as the general approach followed in the whole work. The real issue was the validity of ... macro-analysis’. (Hayek, 1978: 100). As we shall see, however, the citation of these passages by no means settles the question of Hayek’s stance on the methodological issue of reductionism versus holism.
*
This section has argued that Bunge’s triad individualism-systemism-holism rests on a pair of more fundamental dyads – reductionism-holism and idealism-materialism. Further, I have proposed definitions of reduction and holism and tried to show that the opposition between them is a living issue in economics. The next section takes up the issue of the association, which can be seen to emerge here, and which is asserted by Bunge, between methodological premises and policy prescription.
A pattern seems to emerge from the examples cited: apparently there is a tendency for libertarians and those on the right of the spectrum of policy views within economics, such as Lucas, to appeal to reductionist methodological premises, while those on the left, those like Keynes adopting a more interventionist stance, are more likely to invoke holistic underpinnings for their theoretical pronouncements. Bunge takes up this point, speaking of the ‘obsolete individualism of … Smith … [and] the neoclassical economists’ (147); ‘the cultural policy of liberalism, which is based on individualism, is one of benign neglect. By contrast, the totalitarian cultural policy, which is based on holism, is one of censorship’ (150-151); ‘all market worshippers espouse individualism’ (151). ‘The radical individualists oppose all social planning in the name of individual liberties … holists swear by top-down planning … they are likely to ignore their aspirations and rights [sc those of the common people]. In either case, the powerless individual, whether forsaken or corralled, has nothing to gain’ (153). By contrast, ‘systemism takes into account social values (ignored by individualism) as well as individual values (ignored by holism)’ (157).
But there is a paradox here. We have just seen that there seems to be an association between a laissez-faire policy prescription and a reductionist methodology. Nevertheless, starting with Adam Smith, a profoundly influential trend, epitomised by writers such as Friedrich Hayek and Armen Alchian, has proposed what has been called an ‘invisible hand theorem[6]’ (De Vany, 1996: 427), in which order in human affairs is ‘emergent’, ‘resulting from human action but not design’. This emergence seems flatly to contradict the association between laissez-faire and reductionism just noted. This section will explore that paradox.
Perhaps the canonical statement of the ‘invisible hand theorem’ is Smith’s statement that
“It is not from the benevolence of the butcher, the brewer, or the
baker, that we expect our dinner, but from their regard to their own
interest. We address ourselves, not to
their humanity but to their self-love, and never talk to them of our own
necessities, but of their advantages.”
(WN I.ii.2[7])
Even here, in this well-known and apparently simple statement, there is something mysterious about the relation between micro and macro levels. The butcher, brewer and baker do not care about the dinners they provide, so that, in some sense, the desirable social outcome of feeding the members of society is achieved in spite of rather than because of the motives and behaviours of the food providers. The articulation between the motivation and behaviour of agents at the micro level and macro outcomes is not even at first blush a trivial or straightforward question. It seems highly paradoxical that the trend which is associated with this ‘invisible hand theorem’, a trend which I describe as ‘reductionist’, should refer to the ‘emergent’ properties of human order, when emergence is precisely what distinguishes the holist from the reductionist approach
The question therefore arises, whether the invisible hand theorem is consistent with the reductionist or the holist approach. Haworth (1994 Ch 4, Section 1 ‘A logical dilemma’, 32-35) performs an invaluable service by addressing precisely this issue. Haworth’s procedure – part of his philosophical critique of libertarian thinking – is as follows. Firstly, he identifies two ‘theses’, implicit in libertarian thought, which he defines as follows, each illustrated by a statement from a libertarian[8] source. Then the libertarians’ logical dilemma arises from the mutual incompatibility of the two theses:
The reducibility thesis: the fully developed market economy can be understood as the sum or aggregate of its discrete components, the individual bilateral exchanges at the micro level. Sir Keith Joseph: ‘Since inequality arises from the operation of innumerable preferences, it cannot be evil unless those preferences are themselves evil.’[9]
The invisible hand thesis: the market is a ‘paradigmatic exemplar’ of want-satisfaction (ie, unrestricted market forces leave agents better off than any alternative economic environment) because an invisible hand transmutes our self-interested behaviour into socially desirable outcomes. Mandeville: ‘the grand principle that makes us social creatures, the solid basis, the life and support of all trade and employment without exception is evil.’[10]
So reductionism says that evil only comes of evil, while the job of the invisible hand is specifically to transmute evil into good[11]. For Sir Keith the aggregate outcome cannot be evil as long as the preferences it is based on are innocent; for Mandeville, on the contrary, the aggregate outcome cannot be good unless the preferences underpinning it are evil, vicious, selfish. Thus Haworth is able to conclude that the libertarians cannot have it both ways: ‘libertarianism is seriously broken backed in the sense that it must abandon one of its central theses.’ (Haworth, 1994: 34)
My own approach is slightly different from Haworth’s. Firstly, we need to pay more attention to the association, alluded to earlier, between methodological standpoint and policy prescription. There are policy implications of the choice between reductionism and holism. And, indeed, the consequences for policy implied by the approach selected, so far from being a mere scholium, are the tail which wags the methodological dog[12]. If one adopts the systems approach and recognises that the unintended collective outcomes of an unplanned, uncoordinated mass of individual actions may have far from desirable features, then the obvious implication is to see whether there is anything we can do about it. The absence of an invisible hand invites the intervention of the very visible hand of state intervention. The reductionist approach, on the contrary, says that, assuming individuals can be counted on to do the best they can for themselves given the constraints they face, the aggregate outcome of those individual actions will also be the best available: state intervention in the economy is nugatory.
There are two possibilities: we could be living in a world where the reductionists are right or one where the holists are right. Needless to say, I think we reside in the latter. If we lived in the former, the macro level would simply reflect the micro level. There would be nothing for an invisible hand to do. The individual would be directly social, or, what comes to the same thing, there would be no separate category of the social. Individual utility maximisation would directly be social welfare maximisation: the distinction between them would be meaningless. Likewise, macro irrationality would be just a summary of micro irrationality: unemployment would either be a product of irrational behaviour by workers, such as ‘pricing themselves out of jobs’, or it would be the product of a rational desire for leisure[13], and, hence, itself rational. In general, individuals could with confidence be left to get on with it without supervision or intervention. A reductionist world would be a laissez-faire world.
If, on the other hand, we were to inhabit, as in my opinion we do, a holistic world[14], then reductionists would (and do) have a problem. It is fairly obvious that higher level entities are not simply aggregates of their micro components: water does not behave as an aggregate of hydrogen and oxygen; steam, liquid water, and ice do not consist of tiny gaseous, liquid and solid molecules; nor do chairs consist of hard, green, ugly or uncomfortable molecules (Haworth, 1994: 35). As Ken Binmore (1994: 213) says, ‘As we all know, you would be very lucky if a small change in your program led only to a small change on your screen. Tiny programming errors typically lead to wild and unpredictable results when the program is run.’ All these properties emerge at higher levels. The problem faced by the reductionist is how to reconcile this fact of an obvious disjuncture between levels with the laissez-faire policy prescription. Libertarians face severe difficulties sustaining a logically consistent reductionism in a holistic world.
The invisible hand is one potential solution to this problem. There are two possibilities. Either one can ignore the disjuncture between levels, and adopt a thoroughgoing reductionist methodology and policy stance – this seems to be line taken by Joseph, Lucas and Friedman – or with Hayek and Adam Smith one can accept that disjuncture and adopt a methodological holism but at the same time postulate a mechanism reconciling that methodological holism with a laissez-faire policy reductionism. Such a mechanism is an invisible hand mechanism. The invisible hand allows us to say, granted that social outcomes are not logically bound to reflect individual behaviour in an aggregative, summary manner, nevertheless a mechanism exists which ensures that in practice they do so. The invisible hand is what allows us to think, and act, in a reductionist way in a holistic world: it underpins reductionism by tacitly conceding holism. Laissez-faire is vindicated, we are inveigled into tying the visible hand behind our back, if we can be persuaded that the invisible hand will do its job instead, and do it better.
What I am suggesting, therefore, is the following: the laissez-faire policy prescription does, indeed, embody a reductionist standpoint. However, there is more than one way of sustaining that standpoint methodologically. One can believe, or at least act as if one believes, that the world truly is reductionist in relevant ways and that supposed macro-level pathology is simply the summation of micro-level behaviour which may or may not be pathological. Laissez-faire is a reductionist policy prescription in the sense that it issues from a reductionist methodological standpoint. Or one can accept that the world is holistic and hence that macro-level pathologies might in principle be emergent at that level, but postulate the existence of an invisible hand mechanism which ensures that the reductionist policy prescription of laissez-faire is nevertheless valid. The latter strategy combines methodological holism with policy reductionism.
*
Bunge’s criticisms of the ‘individualism’ (for
which, following the terminology I adopt, read reductionism) of the
neoclassical economists are well taken - although it may well be a rhetorical
error blandly to dismiss monetarist macroeconomics as akin to faith healing
(156)! But the simple, one-to-one
relationship between this reductionist standpoint and a laissez-faire
policy prescription, which Bunge asserts, simply doesn’t exist. Compare the standpoints of Hayek and
Friedman. For Friedman, economics is
based on the study of ‘a number of independent households - a collection of Robinson Crusoes’ (cited in
Haworth, 1994: 8[15]). For Hayek, on the contrary, ‘individuals are
merely the foci in the network of
relationships’ (Hayek, 1979: 59[16]). So on the definitions proposed earlier,
Hayek subscribes to a very clearly holistic, and Friedman to an equally clearly
reductionist methodology. Yet they still both endorse the same basic framework
for policy prescription: laissez-faire.
And in bracketing Smith with the neoclassicals (148) in the reductionist
camp, Bunge is simply in error – see Denis (1999, 2000).
Smith and Hayek are methodologically very distant
from the crude reductionism of Joseph, Lucas and Friedman. They tacitly recognise a holistic world by
invoking invisible hand mechanisms. For
Smith the invisible hand is literally the hand of an omniscient and omnipotent
deity desiring nothing other than the maximisation of human welfare. For Hayek, writing in a more secular age,
the invisible hand mechanism takes the form of an evolutionary process, albeit,
unfortunately, one based on the exploded group selection theory of VC Wynne-Edwards. And Hayek’s attempts to distinguish his own
stance from that of Keynes, his anxiety to head off a line of thought leading
from the holistic or systems thinking premises he shared with Keynes to an
interventionist policy prescription, lead him to make the crudely
reductionistic statements about macroeconomics and microeconomics which we
noted earlier.
The resolution, then, to the paradox[17] identified at the beginning of this section is as follows. We can understand the contradictory association between an appeal to reductionist methodological underpinnings and an assertion of a holistic invisible hand mechanism on the basis of a dual foundation. The first part is a factual hypothesis about the nature of the world we actually inhabit, namely, the systems view of the world, the hypothesis that the world is a holistic one with all that this implies about the scope and potential for collective intervention in the economy. The second part concerns the laissez-faire policy prescription of the reductionist camp, a policy prescription which both depends on and supports the reductionist methodological stance. Taking the two points together, we can see that some mechanism has to be introduced to articulate between a holist world and a reductionist policy prescription: the invisible hand does the job. The invisible hand, whatever its precise content, whether it comprises the hand of a deity as in Smith, or the result of an evolutionary process as in Hayek, allows us to assert that, in practice, the world can be treated as if it were reductionist. The logical inconsistency which Howarth has correctly identified is an internalisation of the inconsistency between laissez-faire programme and holistic world. It is illogical because it is attempting to do what is ultimately impossible, namely to reconcile the irreconcilable.
The alternative to both of these approaches is to combine recognition of the holistic nature of the world we live in with acceptance that there is no invisible hand. In this view, rational individual self-seeking behaviour is by no means the necessary and sufficient micro substrate for the desirability of social outcomes. Rather, behaviour must be directly social if desirable social outcomes are to be obtained. According to Keynes, for example, egotistical activity uncoordinated by the state may lead to inefficient outcomes. The price system aggregates rational individual actions but the aggregate is an unintended outcome as far as those individuals are concerned. There is no particular reason why unintended outcomes should necessarily be desirable and often they are not. Individuals take responsibility for maximising their own welfare, given what everyone else is doing, but society as a whole has to take responsibility for organising the aggregate outcome if undesirable aggregate outcomes are to be avoided:
“There is no design but our own ... the invisible hand is merely our
own bleeding feet moving through pain and loss to an uncertain
destination.” (Keynes,
1930, reprinted 1981: 471)
*
The verdict of this section, therefore, is that while reductionist approaches may be safely dismissed, embracing holism is no guarantee of getting it right. There is holism and there is holism. Methodological holism combined with the deus ex machina of an invisible hand mechanism can still sustain the inappropriate and unwarranted reductionist policy prescription of laissez-faire. The bulk of this paper has concerned the holism-reductionism dyad, at the cost of ignoring the idealism-materialism dyad. Nevertheless, as was argued earlier, holism can be paired with either materialism or idealism, and what Bunge, and I, advocate is, in my terminology, a materialist holism. The implication is that writers in the invisible hand tradition, such as Smith and Hayek, adopt an idealist from of holism. As far as Smith is concerned, the case has been made in Denis (1999) where the invisible hand is interpreted as literally the hand of an omniscient, omnipotent and benign deity. As far as Hayek is concerned, this is the topic of another paper, at the time of writing under consideration for publication by another journal.
The consequence of this analysis is that the association between methodological standpoint and policy prescription asserted in Bunge (2000) can be challenged. There is no simple association between ‘individualism’ and laissez-faire, on the one hand, nor between ‘holism’ and intervention or centralisation, on the other. On the contrary, both ‘individualism’ (reductionism) and ‘holism’ (idealist holism) are associated with laissez-faire[18], while ‘systemism’ (materialist holism) is associated with a range of policy prescriptions from mild to radical intervention.
In substance Bunge’s article is a significant contribution to our understanding of the methodology of economics – perhaps best embodied in his bold injunction to ‘see agency through Weber’s microscope, and structure through Marx’s telescope’ (154). The article, however, can be faulted in two respects. By compressing the two overlaying oppositions, between holism and reductionism and between idealism and materialism, into a single spectrum running from ‘individualism’ via ‘systemism’ to ‘holism’, he loses focus and clarity on the fundamental division between holistic and reductionistic world-views in economics and social science in general. This lack of clarity itself contributes to an over-simplification and misunderstanding of the relation between methodological premises and policy consequences. There do exist reductionist free marketeers of the kind Bunge describes: the pronouncements of Friedman, Lucas and Sir Keith fit this pattern. But to lump holists such as Smith and Hayek in with them, is both mistaken and allows us to ignore the fundamentally ideological role of invisible hand mechanisms in allowing economists to retain some approximation to efficiency as their default notion of how the capitalist economy actually works.
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† Much of the material
reproduced here, other than references to Bunge (2000), derives from a paper,
‘Collective and individual rationality: an introduction to the issues’, given
in the PhD Seminar of the European Society for the History of Economic Thought
conference, Graz, Austria, 2000. Thanks
are due to seminar participants, to discussants Stephan Böhm and Richard Sturn,
and to Ian Steedman for comments on that paper. I should like to thank Mario Bunge, Joan Safran and Joe Sen for
support and constructive comment on a previous version of the present
paper. The usual caveat applies.
[1] Unqualified page numbers
refer to Bunge (2000).
[2] Apart, perhaps, from a
certain tendency to hyperbole: that ‘everything’ is a system, or part of one,
is both debatable and an unnecessary claim for the point being made.
[3] Clearly, on his own
terminology, he does nothing of the sort: on their own understanding of the
word, Bunge, along with Dawkins, Dennett, Minsky and many others, reject ‘holism’,
while on my understanding of the term, on the understanding of ‘holism’
as defined below, they all embrace it.
[4] An excellent discussion
with some initial references can be found in the entry “‘Emergence’ and
‘reduction’ in explanations” in Gregory (1987: 217-218). See also the entries on ‘reductionism’ and
‘holism’ in Honderich (1995: 750-52, 371-72).
[5] It would, of course, be
open to critics to object to my fallible attempts to produce a logically
coherent opposition in sympathy with the literature I had consulted.
[6] Mario Bunge (personal
communication) correctly points out that the invisible hand is not a theorem
but a postulate: citing works in which it is referred to as a theorem is not to
be taken as endorsement of that usage.
[7] That is, Smith (1976/1776: Book I, chapter ii, paragraph 2).
[8] Or at least
libertarian-approved: Mandeville has been claimed by Hayek as a libertarian
thinker (Hayek, 1966).
[9] Keith Joseph and Jonathan
Sumption (1979) Equality London: John
Murray, p78. Colleagues commenting on
previous versions have expressed surprise that I allow such an ‘outrageous’,
‘outstandingly silly’ statement to pass (Mario Bunge, Richard Sturn, personal
communications). Again, to cite an
instance of a claim is not in any way to endorse that claim: I wholly share
those colleagues’ distaste.
[10] Bernard de Mandeville in
Philip Harth (ed) (1970) Bernard
Mandeville: The Fable of the Bees London: Penguin. This contains The Fable of the Bees or Private Vices Made Publick Benefits (1705
and various dates under various names with accreted text) itself, and the
‘Vindication’ (1724) Mandeville published after the Fable was arraigned before the Grand Jury of Middlesex as a public
nuisance.
[11] A correspondent finds this
statement confusing: I seem to him to be conflating positive and normative
issues. This confusion can be avoided
by mentally substituting ‘possession of property x’ for ‘evil’. The moral value, if any, of property x
is irrelevant when considering whether the possession of property x by
some macro-level entity or phenomenon requires or contradicts the possession of
property x by the substrate-level entities. It just so happens that ‘evil’ is the property considered by the
representatives of the two theses adduced by Howarth.
[12] Of course, this is not a tight, one-to-one relationship: as Ian Steedman (personal communication) points out, very different policy prescriptions may in various ways be made consistent with similar methodological standpoints.
[13] As the Duke of Edinburgh
memorably asserted on the Jimmy Young Programme, and as Robert Lucas still
believes (1987: 66-67)
[14] A correspondent points out
that we cannot inhabit a ‘holistic world’ as holism is a doctrine, not a kind
of thing. Clearly this is a shorthand
expression, a figure of speech, for a world in which a holistic standpoint
would be appropriate.
[15] The reference is to Milton
Friedman (1962) Capitalism and Freedom
Chicago: Chicago University Press, p13.
[16] And cited in a highly
significant passage, setting out the meaning of the holist conception of
society, in Toynbee (1972: 43).
[17] I recognise that the
‘paradox’ will not seem very paradoxical if one starts out with different
expectations about the association, or otherwise, between reductionism and holism,
on the one hand, and the various possible policy prescriptions, on the
other.
[18] Which is certainly not to
say that idealist holism cannot be associated with anything else: clearly – in
so far as it feels a need for any philosophical underpinning at all – fascism
is associated with an even more blatantly idealist holism.