It must be real

In his excellent book The Mismeasure of Man Stephen Jay Gould provides a great historical critique of intelligence testing. His focus is not so much on the tests themselves but on the fallacious conclusions which early 20th century scientists all too eagerly drew from them. Again and again he shows that supposedly objective proofs for the inequality of races were based on nothing more than prejudiced interpretations of statistical data. Some scientists resorted to direct falsification, but it is striking how many acted in good faith without any particular political agendas on their minds, yet still ended up concocting results which were clearly influenced by racist prejudice.

The generally accepted preconceptions of the times predisposed people to interpret the data in a certain way. Since most Africans lived in huts and utilized only primitive technology it was clearly unthinkable that they could be endowed with mental capacities comparable to the white man. An immediate consequence was that any given study of intelligence had to be defective if it didn’t show a clear difference between white and black. The properly scientific thing to do was then to revise the testing procedure or the results until the differences – objectively true as they were, by virtue of common sense – could be discerned.

The history of intelligence testing has implications which extend beyond “sociobiology”. It is an example of the abuse of scientific reasoning, one that is particularly instructive today because public opinion has shifted so strongly on this matter. When leading experts at the beginning of the 20th century touted the scientifically proven inequality of man, political equality was out of the question. Gould’s book contains many sad examples of discriminatory policies adopted on the grounds of objective science which naturally placed certain groups in a subjugated position, under paternal supervision where they belonged.

In this essay I will use The Mismeasure of Man as a starting point for some broader reflections on science and expertise in political questions, especially with regard to macroeconomics. I will do that by considering three general fallacies pinpointed by Gould: Reductionism, Reification and Ranking:

“(…) reductionism [refers to] the desire to explain partly random, large-scale and irreducibly complex phenomena by deterministic behaviour of smallest constituent parts (physical objects by atoms in motion, mental functioning by inherited amount of a central stuff)” (MoM p.27)

“(…) reification [refers to] our tendency to convert abstract concepts into entities. We recognize the importance of mentality in our lives and wish to characterize it (…). We therefore give the word “intelligence” to this wondrously complex and multifaceted set of human capabilities. This shorthand symbol is then reified and intelligence achieves its dubious status as a unitary thing.” (MoM p.56)

“(…) ranking [refers to] our propensity for ordering complex variation as a gradual ascending scale. (…) But ranking requires a criterion for assigning all individuals to their proper status in the single series. And what better criterion than an objective number?” (MoM p.56)

In intelligence testing, these three fallacies were applied like this. First, by reification, test scores were taken to signify something more than just the ability to perform well in a particular test. The scores supposedly signified mental ability in general, “intelligence”.  In everyday language this abstract word implies a variety of personal qualities, but through reification it was interpreted as a unitary, measurable quantity.

But in order to have explanatory value, reification must be supported by reductionism. This amounts to the belief that all mental qualities which require reasoning, including deductive, linguistic and memorization ability, spatial recognition, the capacity for abstract thought and so on, can all be explained by one underlying factor. This factor was “intelligence” as measured by the tests.

Ranking races by test scores was then just a simple application of this reductionist theory. The important point that Gould repeatedly makes in his book is that (A) normal variation within a population and (B) differences in average values between populations are two entirely separate biological phenomena. This means that even if intelligence would be heritable within groups, the average test score difference between whites and blacks in america might still only record the environmental disadvantages of blacks (MoM p.186-187).

In other words races were ranked by a fallacious method. The science of intelligence testing was based on an initial prejudice which it just restated in mathematical form. So in a sense the three Rs formed a self-reinforcing circle in sociobiology. The starting point was a self-evident hierarchy which motivated reification and reduction. This in turn allowed explicit ranking to “objectively” justify the hierarchy.

The value of things

In the following I will take a closer look at some theoretical concepts employed in modern macroeconomic theory. Macroeconomics is an interesting example because it is probably the only field of social theory which has a real bearing on actual political decision making. That’s why we should be particularly wary of reduction and reification in macroeconomic social science.

I will describe a circle in macroeconomic reasoning which reminds me of the sociobiological circle which I outlined above. But one adjustment is required to the three R’s. Ranking does not enter into macroeconomics, so it will be replaced by the idea of economic growth. I will explain shortly what that means, but we’ll need to have a look at reification and reduction first.

One basic idea in macroeconomics (of the “Keynesian” variety) is that the economy is in balance when aggregate demand precisely equals aggregate supply. The balance point will combine a given amount of economic output (GDP) with a given price level. At first sight this is just an extension of the simple relation between supply and demand for a single product or service. At low prices demand is high, at higher prices it is low. The relationship between supply and price is the opposite, so supply will meet demand at an equilibrium price.

But the concepts of aggregate demand and aggregate supply carry a lot of theoretical baggage which simple demand and supply do not. In effect it is assumed that all forms of demand are comparable through the medium of price. So when they are all added together, they constitute aggregate demand. This is the assumption I will take a closer look at. I will discuss aggregate demand, but the same reasoning could be applied to aggregate supply with obvious modifications (this topic is also closely related to the accounting identity ”expenditure = income = output” which I discussed in my earlier essay Things that grow).

I think the notion of value has been reified in macroeconomics to facilitate the idea of aggregate demand. The necessary requirement for aggregation is that prices can be added. Price is a measure of a generalized Value (henceforth ”Value” = reified value).  There is no logical justification for directly comparing  and aggregating different forms  of demand unless they are assumed to be expressions of the same thing – a unitary Value. So macroeconomists assume that Value is a real  and measurable entity.

It’s important to note that there’s nothing wrong with price as a measure of value per se. It has a valid microeconomic basis – we’re only willing to pay as much for a product as we think it’s worth. If we take one economic transaction at a time, it’s easy to see that the buyer and the seller agree on how much the product is worth, on its value, when they agree on price. Clearly price measures value in the agreement of buyer and seller.

But the important question is how the notion value must be modified if we say, for instance, that the value of apples and oranges is commensurable with the value of aircraft carriers. We must then assume that all exchanges are essentially alike, regardless of the actors – consumers, corporations, governments – , regardless of their motives – desperation, precaution, vanity, etc. -, and regardless of  the size of the exchange – fifty cents, fifty thousand, fifty billion. This can be accomplished only with the notion of Value.

So as far as reification and reduction are concerned, the parallel to sociobiology goes like this. Macroeconomists give the word Value to the complex and multifaceted set of capacities by which various things meet various needs, just like sociobiologists give the word Intelligence to a set of various human capacities. A measure which validly measures certain capacities – an exchange price which measures an agreed-upon value in one particular exchange, a test score which measures how well a person does in one particular test – is then taken to be a valid measure also of Value  and Intelligence.

Furthermore, just like the partly random and irreducibly complex phenomenon of the national economy is then taken to be explained by reference to its smallest constituent parts. The subjective value attached to each particular transaction supposedly adds up and explains the aggregate demand curve of the nation as a whole.

A different emphasis in macroeconomics?

I am now ready to return to the self-reinforcing macroeconomic circle which I hinted at in the previous section. I indicated above that the macroeconomic idea of economic growth plays a similar role in macroeconomic theory as social ranking did in sociobiology a hundred years ago. This is the role of a general presumption behind a scientific theory, a presumption which the theory reinforces.

Macroeconomics seeks to explain how money, goods and services circulate through consumers, producers, government and financial institutions as scarce resources are put to efficient use. One of its contemporary postulates is the notion of Value. Without that notion the idea of an “aggregate demand” which meets an “aggregate supply” at some perfect combination of GDP, price and employment becomes pointless.   The idea of economic growth, on the other hand, stems from the great material progress which has occurred in industrial societies in recent centuries. The idea that economic growth is beneficial to us, at least to a certain point, suggests itself naturally to layman and economist alike.

The macroeconomic model which emphasizes Value provides a justification for economic growth by theoretically connecting the private needs of individuals – the values they attribute to exchanged items – to GDP. That’s how it confirms our experience of economic progress. According to the model the sum total of valuable economic exchanges has increased and will continue to increase as long as more Value can be produced. Other good things, such as increased employment, are assumed to follow from the primary good thing of economic growth.

This relates directly to my discussion of GDP in Things that grow. I noted in that essay that there is serious incongruity between the definition of GDP (based on Value) and the reality it seeks to describe. The basic macroeconomic model which equates production, expenditure and income makes sense if we interpret it only as a model of how money moves through the different sectors of the economy. But it is much harder to put the pieces together when it is interpreted in terms of Value.

The Value model pays little regard to the specific circumstances of economic exchange. Maybe the values that determine consumer consumption shouldn’t be compared to the values by which big corporations make investments or the values by which influence governmental decisions. Maybe they shouldn’t be quantified. And maybe there really isn’t any “aggregate demand” after all, just a great number of particular demands, every one of which has its own justifications. That’s how it seems to me based on my analysis of GDP and the clear instances of reification and ranking which seem to transform assumptions into scientific facts in growth-based reasoning.

It’s not my intention to argue that contemporary macroeconomics is null and void. That would obviously be an absurd conclusion. But I do think that the preceding analysis raises some interesting questions about emphasis and epistemology in macroeconomic theory. The greatest fallacy we commit through reification and reductionism is that we assume that we are able to explain something very complex and large by a very simple, general scheme. But clearly no one person can comprehend the motives which lie behind every specific economic exchange. Aggregation and averaging aren’t always bad, but in this particular case they may have been misapplied.

And as we have seen this has important consequences for macroeconomic theory and policy. Macroeconomic policy decisions aren’t precise. They are based on educated guesses which nudge aggregates and averages in the right direction when they’re successful. It seems to me that there isn’t any a priori reason why macroeconomic theories would have to include the idea of abstract value. Perhaps they could be restricted to more concrete measures like employment instead.

In any case, an interesting question about macroeconomics is what kind of information governmental bodies need to govern the economy in a rational way. This is something I intend to look into in more detail in future essays. For now, the general purpose of this essay was to indicate that contemporary macroeconomic theory contains some questionable assumptions. It may be a product of its time just like sociobiological theory was. And it is not inconceivable that those assumptions could one day be challenged and discredited just like the assumptions of sociobiology.

References

(MoM) Gould, 1996: The Mismeasure of Man, W.W.Norton & Co.

Postscript 31.1.2012

Incidentally, just three days after finishing this essay I found an analysis of value in economist and philosopher Ludwig von Mises’ The theory of money and credit which relates directly to what I wrote above. In chapter 2 of that book, titled On the measurement of value, von Mises explains clearly why there is no such thing as abstract value. Recommended reading.

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