Tuesday, August 5, 2014

SCIOD 4: Paradox Laws

The moral to this story, as to any tale, is not fully circumscribed by its plot. The story's composition, its reception and retelling, the motives of its narrators are all implicated. The customers crowding the cheap market are not all there to buy the products on display. Some show up simply to loiter and observe. "In the flaneur," Walter Benjamin wrote, "the intelligentsia sets foot in the marketplace — ostensibly to look around, but in truth to find a buyer."

The supply of explanations creates its own demands. At the plot level alone, the theoretical consequence of Say's supposed law is that overproduction – a general glut on the market – is impossible. Leaving the "true" meaning of Say's Law to the pedants, what concerns us here is precisely its indeterminateness. Dogma arises out of mystery and assertion. The anthropologist Peter Yu describes the reasons given for ritual acts as being linked to a "general system of thought. If the system changes, as frequently happen, without disturbing the ritual acts, they will be reinterpreted in terms of the new system." Whatever else they are, whatever other meanings and uses they have acquired, the exchange of commodities or services for money and of money for commodities or services are ritual acts. In this case, the explanation of those ritual acts, the law that supposedly governs them, has itself become a ritual act. A textbook from the mid-19th century asserts dogmatically:
The proposition, that all men desire wealth, is inconsistent with the occurrence of a general glut. Some have supposed such a thing possible; it is plainly impossible.
So what exactly does "the proposition, that all men desire wealth" mean? Why is this proposition, even if true, "inconsistent" with a general glut? What is so "plain" about an impossibility asserted on the grounds of an alleged inconsistency? And finally, when is an inconsistency not inconsistent? Answer to the last question: when it is a paradox. Say's Law (or Platitude) has also been referred to as Say's Paradox, particularly in light of its relationship to another paradox – proposed by William Stanley Jevons in 1865.

"It is wholly a confusion of ideas," wrote Jevons in The Coal Question, " to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth." He went on to explain:
As a rule, new modes of economy will lead to an increase of consumption according to a principle recognised in many parallel instances. The economy of labour effected by the introduction of new machinery throws labourers out of employment for the moment. But such is the increased demand for the cheapened products, that eventually the sphere of employment is greatly widened. Often the very labourers whose labour is saved find their more efficient labour more demanded than before.
In other words, to recall Rasbotham's Rule: "A cheap market will always be full of customers." No sooner is a product created than it opens a market for other products. Supply creates its own demand, not least because more supply makes products cheaper... and we all know what happens in a cheap market.

As with any aphorism, there are a lot of underlying assumptions, qualifications and corollaries to Say's Law, Jevons's Paradox and Rasbotham's Rule that are "understood" (or perhaps they are not understood, misunderstood or understood differently in different circumstances by different people). This sea of ambiguity make it possible for the same authority to believe in Say's Law and simultaneously scoff at the Jevons Paradox even though they are simply two statements of the exact same principle. There is, indeed, such a thing as being "too profound."

Both positive and negative valences attach to the bird trapped inside the hollow paper figure, the man concealed in the chess-playing automaton, the enigma of steadfast doctrines that dissolve into a mare's nest of platitudes and paradoxes. The economists' economic laws and theoretical models are, in fact, no more autonomous in their moves than was von Kempelen's mechanical Turk.

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