post-autistic economics review
Issue no. 39, 1 October 2006
article 5



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A Solution to the Alleged Inconsistency in the Neoclassical

Theory of Markets: Reply to Guerrien's Reply
Deirdre McCloskey   (University of Illinois at Chicago, USA)

            In the Post-Autistic Economics Review of October 2002, which has just come to my attention, Bernhard Guerrien wrote an elaborate reply, including an appendix attacking in detail the old textbooks by me and by David Friedman, to those of us who believe that supply and demand curves are useful.  He is very harsh in his complaint, and briskly confident that his complaint tells.  Perhaps his confidence is misplaced.

            Guerrien's complains bitterly about supply and demand curves that they assume a "given" price (correct); and that there is no conceivable source for the givenness except the patently absurd fiction of an Walrasian auctioneer (incorrect). 

            What's incorrect about this old criticism is that there is a source, an obvious one, though neglected by the Samuelsonian economics that Guerrien and I join in criticizing.  Still, the obvious source is also ignored by Marxist economics, institutional economics (old and neo-), post-Keynesian economics, behavioral economics, whatever.  The only economists who so much as mention it are the Austrians.  That's one reason I count myself a fellow traveler of this much-disdained little group.

            The missing source is conversation, rhetoric, language, sweet talk itself.  The price gets its givenness from the literal conversations that go on in markets.  I do not mean by "conversations" only the putting and taking of offers, surrounded otherwise, as has been assumed in economic theory since Ricardo, by stony silence.  To be sure, mere money offers are, Adam Smith noted, a variety of persuasive talk:  "The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade one to do so and so as it is for his interest" (Lectures on Jurisprudence, Report of 1762-3, Glasgow edition, vi. 56, p. 352).  But people do not merely silently offer shillings and silently hand over haircuts.  People are not, as autistic economics and as Guerrien in his attack assume, vending machines.  They talk, or as Arjo Klamer puts it, they converse.  And in conversing they open each other to modifications of the price, it may be, and anyway they establish, as we say, the "going" price.  Market participants "in this manner . . . acquire a certain dexterity and address in managing their affairs, or in other words in managing of men [and women, dear Adam, if you please]; and this is altogether the practice of every man in the most ordinary affairs."  The ordinary affair of economics itself, for example.  The going idea in Samuelsonian economics, we post-autism folk are saying, is that people do not converse.  The Samuelsonians are mistaken.

            Of course, in a large market or a large conversation a small voice is seldom heard.  That is what we mean by givenness.  There is little point in driving to an enormous California supermarket and initiating a conversation with the manager about the price of milk.  You wait until you are talking to your friend the local shopkeeper, perhaps, who might actually respond, persuading you in the ensuing conversation that nothing is to be done, because after all he is in turn a small voice in the market for milk.  Or you might, as an economist, wait until you are talking to the Milk Board, which sets the wholesale price of milk, though doubtless it does so after much talk with fellow Board members and with politicians and with Ministry of Agriculture functionaries.  You might change their minds, and so their talk, and so the price, a bit.  You certainly could change some weak minds if you were the President the United States, and wanted to redefine, say, the word "torture."

            The situation in markets is identical to that of language.  No prudent person will initiate conversations with strangers on the bus about the definition of "givenness" in economic theory.  She will wait until she in talking to other economists, at any rate to economists imagining in their conservations a post-autistic economics that is not so dogmatically of the Left that it objects to every idea that the cursed bourgeois economists have articulated.  We use the French word amour or the English word love without stopping to quarrel about their meanings, or insisting that love actually means "hate," or "light bulb," or "the train will arrive in six minutes."  That is, the on-going conversation of language---I note that Walras' colleague Saussure made this point a century ago---gives to us mere ordinary speakers of it a set of distinctions serving to define what's on offer in French or English by way of  sheep/mutton as against mouton.

            Guerrien will perhaps reply that the going price/meaning is just an instance of his much-beloved bargaining.  I think he and I agree, though, that if bargaining in a strictly game-theoretic way is what we are talking about, then we should abandon hope in economics entirely.  The Folk Theorem showed some time ago that in a properly infinite game and an assumption of Prudence Only you can get any old equilibrium you want.  Prudence-only game theory, without social agreements of solidarity and justice as to how a conversation can change minds, has no implications.  None at all: change the assumptions, change the equilibrium.  And in every empirical test on offer, this or that set of prudence-only assumptions has failed.  Unlike supply and demand curves.

            A price is not set usually by silent bid-offer, move-countermove game bargaining, with its intrinsic paradoxes, an elderly example of which Guerrien has repeated.  (I note that in Guerrien's reliance on lecture-room paradoxes here, rather than on the lived experience of markets and languages, he perpetuates exactly the autistic, or if I may say Cartesian, method he has done so much to warn us of.)  Price is not set by an auctioneer in most markets---though I wonder what Guerrien would make of the Alsmeer flower market in Holland, with its Dutch-auction clocks ticking the price down; or of the electronic exchanges replacing open-outcry pits at the Chicago Board of Trade.  Most prices get their meaning and in particular the givenness of their meaning from the economic conversation.  Just as amour has a more or less given meaning in French, modifiable at the edges by particularly persuasive talkers, so do dictionary-makers face a more or less given money price for their product.  Larrouse cannot suddenly decide to charge 10,000 euros a copy for its big dictionary, or even much above the going price.  And therefore it lives with supply and demand curves.  There is nothing mysterious or self-contradictory about the situation. 

            I do not claim that we economists have already figured out how language and the economy intermesh.  This scientific task still remains to be done, and will yield a fully humanistic economics, that is, an economics acknowledging humans as talking, singing, story-telling, ethical creatures.  Until then the science will be incomplete and paradoxical in the ways that Guerrien has noted.  Adam Smith, whose first job in Edinburgh was essentially that of a lycée teacher of English composition, started us off thinking about a science humaine of economics, but after 1790 we mislaid his instructions.  Time to get back to them.  

            Meanwhile let's not let clever-sounding paradoxes of the lecture hall persuade us to toss away what tools we have.  Givenness is how we little folk in a large society face any piece of our culture.  We only need to recognize that the economy is part of the culture, and of its conversations, to recognize that supply and demand curves do after all work, rather well.




Deirdre McCloskey, “A Solution to the Alleged Inconsistency in the Neoclassical Theory of Markets: Reply to Guerrien’ Reply,
post-autistic economics review, issue  no. 39, 1 October 2006, article 5, pp. 48-50,