The Pathetic Fallacy in Economics

Originally published November 4-18, 1985

ECONOMICS studies what people do and should do in certain situations. Its analyses, like all analyses, search out the factors that make up the situations. Thus a market involves selling and buying, or supplying and demanding. It is obvious that the selling and buying are done by human beings, and that no actual person is only a supplier while very few are only demanders. Though there may be nothing the vintners buy one half so precious as the stuff they sell, they nevertheless do some buying. Since no individual is merely an embodiment of an economic function, personification of economic functions may rate as a variant of the pathetic fallacy, whereby emotions and reasonings are ascribed to inanimate objects.

The fallacy is common among economists (perhaps even more common than the fallacy of composition, which we have noted here many times) and it has fateful consequences. It exercises an almost irresistible attraction, even for writers who explicitly warn against it. Ludwig von Mises, a pundit revered among conservatives, is loud and clear enough in Human Action:

“The entrepreneurs, landowners, workers, and consumers of economic theory are not living men as one meets them in the reality of life and history. They are the embodiment of distinct functions in the market operations. Living and acting man by necessity combines various functions. He is never merely a consumer. He is in addition either an entrepreneur, landowner, capitalist, or worker, or a person supported by the intake caused by such people. Moreover, the functions of the entrepreneur, the landowner, the capitalist, and the worker are very often combined in the same persons.”

I quote extensively because when I came to this passage in von Mises’ massive book, my heart leapt up. It does me good to find virtuous ideas in the midst of others that set my teeth on edge. But by the time I had reached the end of Human Action, my pulse was racing from an excess of adrenaline, not from a surge of joy. In the end von Mises forgets what he has said about living combinations of functions. What he calls investing is done only in a certain way by certain people, and these certain people are exclusively entitled to the rewards. He opposes unemployment benefits because they make it “easier for the unemployed to remain idle.” He sneers at those who talk of economic justice. The pathetic fallacy has led him to a pathetically mean-minded view of the world.

At the other end of the spectrum, Karl Marx seems brazen in announcing his devotion to the fallacy. In the preface to the first edition of Capital he writes: “I paint the capitalist and the landlord in no sense couleur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests.” No matter how much he despises them, he resists the temptation of blaming individual capitalists for what they do. Marx won’t talk of blame, and von Mises won’t talk of justice: The pathetic fallacy knows not right and wrong.

At the same time, Marx is conscious of the danger that philosophical notions like individuality may become reified. For this reason he distances himself from his mentor Hegel and makes his famous move to stand the dialectic “right side up again” in the Preface to the second edition of Capital, holding that “the ideal is nothing else than the material world reflected in the human mind, and translated into forms of thought.”

The exploiting class and the exploited class, being based on materialistic functions, become monolithic and go at each other like the larger-than-life monomaniacal cudgelers in Goya’s “black painting, and we may wonder how materialization is an improvement on-or even a distinction from-reification. The notion of class is as surely an idea as anything in Plato or Hegel. No one has ever seen a class (except in a school) or heard one or touched one or smelled one or tasted one. Class is not a result of empirical inquiry.

It is no object of the senses. To talk of its force or action or reaction or progress is to talk pathetically. Class, in short, meets none of the usual tests for matter.

In the present connection, the idea of class is not only an odd ground for materialism, it imposes a rigidity on thought. The struggle is unremitting. It can be neither composed nor compromised but must be fought to the final battle. Marx’s vision is more generous than von Mises’, yet it is no less reductive.

What is true of the far Left and the far Right is true of most economists in between. Their analyses suggest to them the supply side or the demand side, public works or public austerity, saving or consumption, monetary policy or fiscal policy; and these impersonal policies or functions are in unremitting conflict.

To be sure, there is no lack of peacemakers ready to demonstrate that capitalists and workers need each other, nor is there a great lack of more or less grudging acceptance of that mutual need. Otherwise the economy would not work at all. There are periods, though, when the mutuality disappears. These are,  typically, periods of change, when business is faltering, or, quite the contrary, a technological leap forward seems possible or (depending on your point of view) desirable.

In depressions or recessions or growth corrections, some capitalists may lose some money (though mostly they do very well, and have done extraordinarily well the past five years), but what happens first is that many workers lose their jobs. This is so commonplace that no one ever thinks to defend it. I doubt that it can be defended. If both capital and labor are essential to production, by what right are things more worthy of protection than people? How is ownership more important than existence?

Technological advances have always been resisted by workers. How stupid of them! Britain could not have achieved its first breakthrough if landowners had not enclosed the commons and driven tenants off the land to make way for sheep. Later, had the Luddites had their way, the Industrial Revolution would have been aborted; and if the followers of Captain Swing had prevailed, the denizens of the cities could not have been fed even as well as they were.

As economists and editorialists continue to scold, such misguided people are with us still. Automobile workers resist giving up their jobs to robots; labor-saving machines are opposed as labor-eliminating devices. Why can’t these people see that new robotic industries will create new jobs, just as automobile making turned out to employ many more people than harness making? Why should anyone in his right mind fight to preserve mind-deadening work on the old-fashioned production line? What is so great about conditions in Southern textile mills that leads people to want to keep them going in the face of cheap imports from the Orient?

SOCIETY is certainly better off with more mechanization, more robotization. It is a blessing that the bulldozer and the earth mover have supplanted those who used to “push-a, push-a, push” on the Delaware-Lackawan. It is a blessing that the back hoe has made “ditch digger” an obsolete term of opprobrium. It is a blessing that the dishwasher has replaced the scullery maid. Not only is progress irresistible, it is largely beneficial.

But there is trouble in paradise. The trouble is systemic. The individuals who are displaced by progress are systematically denied the benefits of progress. Although the working class or the worker-as-function may be better off in the famous long run, many individual living workers are not, either in the short run or the long. As we have noted, when bad times befall, everyone may lose some money (well, almost everyone); however, the worker-as-function and the individual worker will often lose not only money but job, career, independent livelihood, sometimes forever.

The trouble is, I repeat, systemic. Short of war, the system is in no danger of immediate collapse, and it is without doubt a better system than that of India or South Africa or Chile or the Soviet Union or even Japan. Nonetheless, the conflict and squalor and heartbreak produced by this best of present systems, too, are unconscionable. One requirement for reform is cancellation of the pathetic fallacy and the reconstitution of economic man (and woman) as not merely producer or consumer, not merely worker or capitalist, not merely wage earner or profits engrosser, not merely time-clock-puncher or manager, but something of all of them, all at once, all the time, in theory and in law and in fact.

Another requirement is the redefinition of property. The need for this has, interestingly enough, been advanced by Friedrich A. Hayek, usually classed with von Mises as an ultraconservative (see “Strolling Down the Road to Serfdom,” NL, July 1-15). In Individualism and Economic Order Hayek criticizes “a slavish application of the concept of property as it has been developed for material things” (see“Life, Liberty and Property,” NL, July 11-25, 1983) and suggests that “There may be valid arguments for so designing corporation law as to impede the growth of individual corporations” (see “Big is Ugly,” NL, September 9, 1984).

The problem we have been discussing is approached from a different direction in an important short book by Professor Robert A. Dahl of Yale, entitled A Preface to Economic Democracy (University of California Press). A political scientist who, like Tocqueville, is concerned about the future of democracy, Dahl notes that it requires” a widespread sense of relative well-being, fairness, and opportunity.” He worries that this sense – this morale – is being eroded by the modern corporation with its dictatorial control and its unconscionable spread of rewards. Both, he argues, are unnecessary.

Dahl shows, point by point, that the case for political democracy is also valid for economic democracy. Again point by point, he considers the right to property and the peculiar form it takes today. At one stage he remarks drily, “Thus to say that [stockholders] are entitled to a return because they sacrifice the use of their money begs the precise question at issue: whether, if their money represents a return from property ownership, they are entitled to that money.” And later: “Given the passivity of stockholders in a typical firm, their utter dependency on information supplied by management, and the extraordinary difficulties of contesting a managerial decision, it seems to me hardly open to question that employees are on the whole as well qualified to run their firms as are stockholders, and probably on average a good deal more.” In conclusion, Dahl summarizes the experiences of a variety of existing employee-ownership plans operating here and abroad.

Readers of this column will recognize the relevance of Dahl’s argument to what I have been calling the Labor Theory of Right. I urge you to read his new book.

The New Leader

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