The Quantitative Delusion
Economics and the Good Life: Essays on Political Economy by Bertrand de Jouvenel; Edited by Dennis Hale and Marc Landy (Transaction, 1999, ix + 308 pgs).
Many people have wondered why modern intellectuals hate capitalism. In "The Treatment of Capitalism by Continental Intellectuals," one of the essays included in Professors Hale's and Landy's excellent collection, Bertrand de Jouvenel asks a more original question: why should we trust intellectuals? On historical grounds, de Jouvenel tells us, they should be viewed with suspicion.
Contemporary intellectuals who oppose capitalism profess their concern for the poor and downtrodden. But no necessary connection binds intellectuals to the poor. Beginning in late medieval times, secular intellectuals attacked the Church for "wasting" money on the poor. "During the Middle Ages the church had amassed immense wealth from pious gifts and foundations for charitable purposes. From the Renaissance to the eighteenth century these accumulations were returned to private possession through far_reaching confiscation. In this process the intellectuals played a major role. The lay intellectuals took little account of the social needs fulfilled by the institutions they sought to destroy. Beggars should be rounded up and led to forced labor; this was the great remedy" (pp. 145-46).
But has not de Jouvenel here fallen into fallacy? Why should the willingness of intellectuals hundreds of years ago to push the poor aside have any bearing on their present proclivities? Do they not declare in fervent tones their devotion to the least well_off?
De Jouvenel does not deny this, but he locates a common pattern of thought in today's intellectuals and their early modern precursors. Intellectuals, our author maintains, tend to reduce all values to quantity. Whatever does not fit their preconceived schemes of measurement must be swept away. Early modern writers thought that the poor blocked the growth of efficiency: hence they were dispensable. Contemporary intellectuals view the poor otherwise, but the quest for quantitative reduction continues.
In a brilliant critique, de Jouvenel shows that modern welfare economics has been infected by the quantitative delusion. A society should be judged, welfare economists contend, by the extent to which it maximizes individual satisfactions. But of course we cannot in practice compare the satisfactions of one person with those of another. Is welfare economics then doomed? (Attempts to avoid the problem, e.g., through appeal to the Pareto criterion, have only very limited use in practice.) Here the quantitative temptation proves too strong for many economists.
Since we cannot directly assess satisfaction, why not use money as a proxy for utility? To increase a society's wealth more than any available alternative becomes the goal of policy. (In sketching this view, de Jouvenel anticipated the precise position advanced by Richard Posner, of "law and economics" fame, in his voluminous works.)
Our author finds this position deeply mistaken. Not all goods can be measured in money. "Let me first attend to the drawback of emphasizing those services obtained from money as against those which are not. Anything people are willing to pay for is an addition to welfare. And things are contributions to welfare only in such proportion as people do pay for them. . . . Those things which are free, such as an excellent climate, are not counted and do not figure . . . while the production of waterproofs in the country in which they are necessary does figure in welfare" (p. 29).
The last sentence of the passage just quoted indicates another way in which de Jouvenel thinks the monetary criterion inadequate. If people spend money to correct a problem in order to restore themselves to the status quo ante, the funds spent count as additions to welfare. But is this not absurd?
A situation in which people do not have a problem requiring correction counts as worse than one that does. "For instance in a country where people are very careful that no fires break out few firemen are needed. Stupid pictures now induce an outbreak of arson . . . but the fires which break out now call for a vast increase in the number of firemen and the fire machinery: this is also an increase in welfare. Thus an evil and its correction bringing things back to the former situation both come out as additions to welfare" (p. 29).
Libertarians may at this point be inclined to object, but de Jouvenel shows himself well prepared to meet the line of attack they are likely to pursue. Is not de Jouvenel merely attempting to substitute his preferences for those of free actors in the market? Who is he to say that people should prefer trips to the Parthenon to the "stupid pictures" on which they choose to spend their money?
De Jouvenel thinks this objection has considerable weight: "It is fully in keeping with our ideas of freedom that the position of individuals is improved every time they willingly alter it: doing the best for themselves in their behavioral world" (p. 31).
Has not de Jouvenel here painted himself into a corner? He first criticized the monetary criterion for its failure to consider certain classes of goods. But, in response to the counter that he wishes to interfere with individual choice, he admits that persons act to maximize their welfare as they see it. How can he maintain both those positions?
Exactly at this point lies the seminal insight of de Jouvenel's essay, and here he converges with the central thrust of Murray Rothbard's "Toward a Reconstruction of Utility and Welfare Economics." If by welfare we mean individual choice, nothing beyond the actions of free individuals counts. If one challenges these preferences, one has shifted to a new notion of welfare. Thus (and here at last is the point) the "choices" of the State cannot be assessed by the criteria used in individualist welfare economics.
De Jouvenel is a master of the example that clarifies a difficult concept. Suppose that a "society spends so much on education. Now its government deems this not enough and increases expenditure on education, obviously through taxes. The previously ideal distribution of resources is thereby distorted. . . . If we adhere to the subjectivist conception of welfare, we must maintain that welfare has decreased. Consumers have been moved away from their chosen position" (p. 32).
Thus, de Jouvenel and Rothbard are in perfect accord. The coercive acts of government do not increase welfare. By a masterly feat of creative destruction, statist welfare economics has been reduced to rags and tatters.
Have I not, though, left out a vital point of difference? De Jouvenel allows, while Rothbard does not, certain acts of state intervention. Rothbard argues that since state action does not increase welfare, it should be curtailed; de Jouvenel's point is rather that other criteria than individual welfare maximization must be used to judge state policy.
Though I think that this objection misreads Rothbard's essay, it calls attention to something that is true enough: de Jouvenel, unlike Rothbard, was not a libertarian of the strict observance. In practice, though, he raises trenchant criticisms of government intervention in the economy.
If, from de Jouvenel's point of view, the free choices of individuals can be called "good" or "bad" from some standpoint not their own, it does not follow that the State is a fit agent to operate by these criteria. As an example of state ineptitude, de Jouvenel cites the French policy of rent control in the years after World War II.
Because the French government thought that workers needed cheap housing, a severe system of rent control was imposed. In 1948, "a dollar a month will pay a wage earner's rent in Paris" (p. 157). The result will be no surprise to any student of elementary economics: "rents are very low but there are no lodgings available" (p. 159).
Here I confess I have a trick up my sleeve. I anticipate this comment: "Of course, de Jouvenel is right about rent control. But why make such a fuss over so obvious an issue? What is supposed to be the remarkable display of insight?"
I have, I fear, so far concealed de Jouvenel's most important argument about the rent control case. De Jouvenel notes not only the bad effects of rent control, but also that everyone realized these bad effects. Why, then, did the program continue? In part, the answer is obvious: special interest groups favored it.
But de Jouvenel adduces another factor. Although legislators knew that the existing situation was deplorable, they feared the effects of an immediate return to the free market. Instead, they followed a gradualist path that did very little good. "No systematic view inspired this policy. It just grew from the fear of a sudden return to liberty which seemed ever more dangerous as prices rose" (p. 161).
Lacking the courage to trust the market, the policymakers were doomed to futility and drift.
Many people understand what is wrong with rent control and similar misguided measures; but few possess de Jouvenel's willingness to accept the consequences of what they grasp in theory: the government programs must be immediately ended. For his clear view of this point, and for his penetrating criticism of applying welfare economic criteria to the state, de Jouvenel deserves the attention of everyone interested in Austrian economics.