Introduction

Contents

Lists of tables and figures 5

Acknowledgements 6

Declaration on consultation and copying 7

Abstract 8

Key to symbols and abbreviations used in the thesis 9

1 Introduction 10

1.1 Preamble 10

1.2 Reductionism and holism: a response to Mario Bunge 12

1.3 Policy prescription and social philosophy:

reducibility and the invisible hand 18

1.4 The structure of the thesis 27

2 The Prisoners’ Dilemma 33

2.1 Barry and Hardin: rationality at two different levels? 33

2.2 The Prisoners’ Dilemma 35

2.3 Iterated and n-player games 39

2.4 God’s utility function 42

2.5 Collective and individual rationality 45

2.6 Hobbes and Rousseau 47

2.7 Conclusion 49

3 Arrow’s Impossibility Theorem 51

3.1 Introduction 51

3.2 The conditions 52

Condition O 53

Condition U 53

Condition P 53

Condition D 53

Condition I 54

3.3 Proof of the theorem 54

3.4 Scope for relaxing the assumptions 56

3.5 The libertarian response 60

3.6 Little: the argument against the existence of an SWF 63

3.7 Searle and Little 67

3.8 How serious a problem is Arrow’s impossibility theorem? 69

3.9 Conclusion 73

4 The Invisible Hand of God in Adam Smith 74

4.1 Introduction 74

4.2 Bibliographical note 76

4.3 Smith’s methodological stance 79

4.4 Smith’s Weltanschauung 84

4.4.1 All is for the best in this world and

we should accept our lot with joy 84

4.4.2 Why, then, bother with considerations of morality? 86

4.4.3 Every cloud has a silver lining 90

4.4.4 Review 99

4.4.5 The invisible hand 100

4.5 Smith’s intellectual environment 111

4.5.1 The ‘Heavenly City’ of the 18^th Century Philosophes 111

4.5.2 Nature and the natural in Smith 116

4.5.3 Smith’s contradictions 122

4.6 Conclusion 126

5 Friedrich Hayek: a Panglossian evolutionary theorist 128

5.1 Introduction 128

5.2 Hayek and Smith 130

5.3 Holism and reductionism in Hayek 133

5.3.1 Shenfield on collectivism and holism in Hayek 133

5.3.2 Hayek and holism 142

5.4 Hayek and evolution 145

5.4.1 Darwinian evolution 145

5.4.2 Hayekian evolution 155

5.4.3 The assumed optimality of evolved institutions 158

5.4.4 Group selection 164

5.4.5 Have Sober and Wilson rescued group selection? 176

5.5 Hayek’s anti-individualism 179

5.5 Conclusion 185

Appendix: Bibliographical note 185

6 Keynes’s methodological standpoint and policy prescription 189

6.1 Introduction 189

6.2 Keynes’s historical perspective 190

6.3 Keynes and holism 299

6.4 Keynes’s policy prescription 202

6.5 Did Keynes reject laissez-faire? 210

Appendix: Bibliographical note 213

7 Conclusion 216

7.1 Retrospective: Keynes and providentialism 216

7.2 Results and prospects 220

Glossary 222

References and bibliography 232

Lists of tables and figures

Tables

1 Payoff matrix for a one-shot prisoners’ dilemma game with ordinal payoffs 35

2 Payoff matrix for a one-shot coordination game with ordinal payoffs 39

3 Preferences of the three sets of agents, V₁, V₂ and V₃ 55

Figures

1 ‘Peakedness’ of preferences for the three sets of agents, V₁, V₂ and V₃ 58

Acknowledgements

I should like to thank my advisor, Geoffrey Kay, and my wife, Mary Denis, for their unfailing support and encouragement during the production of this thesis. The inspiration for the thesis originated in work completed in the late 1980s as a student on the excellent MA course in Political Economy at the then Middlesex Polytechnic; I should like to record my debt to the teaching staff on that course, in particular the late Geoffrey Pilling.

I should like to thank the following for their encouragement and/or for insightful criticism of various points in the thesis: Alain Albert, Erik Angner, William Barber, Stephan Böhm, John Broome, Mario Bunge, Pete Clarke, Paul Coleshill, John Cowley, William Dixon, Sheila Dow, Denis Glycopantis, Denis Gray, Alfons Grieder, the late Peter Holl, Allan Isaac, Steve Miller, Simon Price, Joan Safran, Joe Sen, Adrian Seville, Ron Smith, Ian Steedman, Richard Sturn, Julian Ullman, Jack Vromen, and Rachael Walker.

Papers based on various parts of the thesis have been presented at the Economics Department and Interdisciplinary seminars in the School of Social and Human Sciences at City University, and conferences of the European Society for the History of Economic Thought (ESHET), the European Economics Association, the Association for Heterodox Economics (AHE), and the Leeds Postgraduate Economics Annual Conference. I should like to thank the many scholars, too numerous to list, who have participated in these discussions.

As is detailed at the appropriate points in the thesis, papers based on the material embodied in it have been submitted to various journals and I should particularly like to thank the editors, and several anonymous referees, for the Journal of Socio-Economics, Constitutional Political Economy, and History of the Human Sciences, for their helpful comments.

A debt of gratitude is owed to my students on the final year undergraduate option in History of Economic Thought at City University, London. Their responses to the material of this thesis, as it developed, have been extremely helpful: I should like to thank them for their enthusiasm, commitment and challenging criticism.

Finally, I should like to thank John Cowley and Jessica Holding for the invaluable gift of books which had belonged to the late Arthur Clegg and John Cameron, respectively.

The views expressed and errors committed here, are, of course, entirely my own and not to be associated with any of the above.

Declaration on consultation and copying

The following statement is included in accordance with the Regulations governing the ‘Physical format, binding and retention of theses’ (Research Studies Handbook, 2000: Appendix ii, (xxx), paragraph 5(e)):

I grant powers of discretion to the University Librarian to allow this thesis to be copied in whole or in part without further reference to me. This permission covers only single copies made for study purposes, subject to normal conditions of acknowledgement.

Andy Denis

Abstract

This thesis argues for the fundamental importance of the opposition between holistic and reductionistic world-views in economics. Both reductionism and holism may nevertheless underpin laissez-faire policy prescriptions. Scrutiny of the nature of the articulation between micro and macro levels in the writings of economists suggests that invisible hand theories play a key role in reconciling reductionist policy prescriptions with a holistic world.

An examination of the prisoners’ dilemma in game theory and Arrow’s impossibility theorem in social choice theory sets the scene. The prisoners’ dilemma epitomises the collective irrationality coordination problems lead to. The source of the dilemma is identified as the combination of interdependence in content and independence in form of the decision making process. Arrovian impossibility has been perceived as challenging traditional views of the relationship between micro and macro levels in economics. Conservative arguments against the possibility in principle of a social welfare function are criticised here as depending on an illicit dualism.

The thesis then reviews the standpoints of Smith, Hayek and Keynes. For Smith, the social desirability of individual self-seeking activity is ensured by the ‘invisible hand’ of a god who has moulded us so to behave, that the quantity of happiness in the world is always maximised.

Hayek seeks to re-establish the invisible hand in a secular age, replacing the agency of a deity with an evolutionary mechanism. Hayek’s evolutionary theory, criticised here as being based on the exploded notion of group selection, cannot underpin the desirability of spontaneous outcomes.

I conclude by arguing that Keynes shares the holistic approach of Smith and Hayek, but without their reliance on invisible hand mechanisms. If spontaneous processes cannot be relied upon to generate desirable social outcomes then we have to take responsibility for achieving this ourselves by establishing the appropriate institutional framework to eliminate macroeconomic prisoners’ dilemmas.

Key to symbols and abbreviations used in the thesis

Symbols

The delta symbol (D): DX means the change in X, where X = C or M.

The prime symbol ('): X' means X plus DX, where X means C or M.

[1] For details of works by Keynes, Hayek and Adam Smith, please refer to the bibliographical notes attached to the relevant chapters: Section 4.2 for Adam Smith, and the appendices to Chapters 5 and 6 for Hayek and Keynes respectively.

Symbols

Other abbreviations