Economics was time ago dubbed as the ‘sad science,’ because of its intrinsic predictive limitations, in spite of its colossal mathematical foundation. In this regard, economic libraries seem to disprove Galileo’s abused saying that ‘the book of nature is written in mathematical language.’ It might be so only because we, humans, so decided.[1] Alas, portions of this book do not seem to respond very well to mathematics.[2] Marxists and neo-Keynesians differently embraced the need to change economics in a ‘happy’ science, finally able, as all the rest of the successful sciences, to predict future facts and events through mathematical calculations over axioms and logical derivations. They tried the endeavor differently.
Marxists followed the humanistic determinism elaborated by the German idealist, Georg F. W. Hegel, according to which social evolution and history are determined by the convoluted dance of the Geist (spirit), which instantiates itself through a confrontation of multiple social groups (thesis, antithesis and synthesis – the Hegelian ‘dialectic’) through time. Marxists, instead, based their conception of historical evolution directly on the economic confrontation between different classes of people (class conflict), whose aggregated economic interests determine the evolution of history. As this history is based on laws of historical dynamics, history is fully predictable, although not necessarily only on purely mathematical terms.[3] Neo-Keynesians tried a different approach: they found it reassuring to formulate sophisticated mathematical notions for aggregating individual economic decisions into numerical classes (e.g., the GDP index shows beautifully what this is all about). Neo-Keynesians do not have a metaphysical commitment (as the Marxists), remaining philosophically neutral in the dispute over human destiny.[4] Against this vision of economics based on different classes (and types of classes!), the so-called Austrian School of Economics stood fast.
Ludwig Von Mises and Frederick Hayek, among others, argued for a decisive different conception of economics. They argued that economics, and history, is intrinsically unpredictable, because individual behavior is based on individual preferences whose logic is time sensitive and based exclusively on subjective values, that is on rules of evaluation that are only the result of the expression of fluctuating individual inclinations. This interpretation of economics leads to very different political philosophies, depending on how strong the individual should be considered free in his/her attitudes and values. In this regard, political order is an emerging phenomenon over the notion of individual freedom, instead of class. The Austrian School of Economics then evolved in the Chicago School of Economics and various forms of libertarianism almost unknown in Europe, whose love for Marx and neo-Keynesians is well-known. This very wide overview will suffice as an introduction of the very general landscape in which The Natural Order of Money is situated.
The book is an interesting reply to neo-Austrian economists, whose theories are based on a merely subjective notion of value. However, the argument is formulated in natural language, without (any significant) use of mathematical concepts and objects. Its main effort is to prove how the value of money (but value in general) is not and should not be conceived as merely subjective. It is subjective only in the sense that it is human-relative, as humanity is an omnivore species (a lion-relative value would give much more weight to row meat than, for instance, grain or greens). However, human-relative value is not subjectively-arbitrary as the value is bounded to reality (the ‘natural order’) in multiple ways. The argument is worth of being essentially reported.
Humanity is composed of individuals whose existence is tied to multiple essential components to be extracted using energy through time. Time and energy are two essential components of reality and considered the two ‘geodesics’ of human existence. Time is essentially the way to measure life as a finite process, mainly intended here as both ‘landscape time’ and ‘calendar time’, meaning ways to measure time through the relation between different progressions of biological reactions that end with the death of the organism. Time, here, is biologically constrained in function with the natural evolution of the world. This point is not of secondary importance because, as Sebag discusses, time in nature is cyclical, and it is not all equal (e.g. the ‘winter’ is a series of events whose physical nature is different from those in ‘summer’, etc.). Time is one essential pillar in life, which is biologically defined through changes in a body through the interchange of energy.
Energy, in human-biological terms, could be understood in calories to be extracted through specific goods. This extraction is drastically determined by the time flow that is required by the extractive process. Calling ‘goods’ anything that can be utilized for achieving a given (human) goal, the goods intended to be used for producing energy or substitutions of components (water, salt, etc.) are of primary importance, and they remain the essential commodity for human existence. In fact, any thriving comes after surviving, and surviving is guaranteed only by the extraction and consumption of calories through time. Once there is enough food stored, there is stability over an individual’s future capacity to survive and grow numerically. As a result, the second most important commodity is what can store food (which is to say a roof over the head!) and the people who produce it. Interestingly, unless I lost the passage, there is relatively little appreciation for the human capital itself, meaning the need to generate enough manpower and workforce to guarantee the food production and shelter, and then distribution of labor. However, Sebag’s theory easily accommodates this point.
The argument goes on to include what is needed to produce more food over time, for instance specific tools and techniques. Tools require material and technique knowledge. Materials are the second most important commodity available in nature, after food, as they are those components whose relevance is in function of their capacity to increase human effectiveness to change the world, ultimately incrementing food production and its storage over time. As an example, the shovel requires wood (of a specific type) and iron (for example). The iron has to be physically extracted as nobody can create it out of nothing. Even materials can be understood of difference importance depending on their qualities of guaranteeing the success in efficiency of producing new instruments durable through time. Only once food and materials are accumulated can the ‘economy of services’ start.
In this regard, however, economy of service, intended as the exchange of work for something back, is useful so far it does not disjoint itself from what it makes it possible. The economy of service can exist only because the production of food, the extraction of materials, and the production of energy allows the existence of a system to exchange value without wasting those foods, those materials and energy that required so much work to be produced in the first place. This ‘system of exchange’ is money.
Not all money is equally good argues Sebag. Money is of two types: jointed with reality (gold) or fully or partially disjointed (fiat currency). Sebag spends a good piece of the argument in showing how gold, a material itself, is a good example of a virtue system of exchange because it is directly connected with what human reality is about (reality in relation with specific human needs that make gold of special value even in comparison with other precious metals). Gold is not an exception in the human interaction with reality, as it is in fact extracted as any other material. It is a physical object whose physical virtues ground its value. For instance, gold does not change physically over time, and it is of finite quantity. In simple terms, gold is stable over time across different uses and users, and it does not change its properties and overall quantity (its durability is high). Instead, fiat currencies do change because they are arbitrarily defined by people whose contact with the physical reality of human existence is far away and unclearly connected with the basic products that makes human life possible (the economy of service). Hence, the arbitrariness of the definition can lead to nonsensical decisions driven by the conventional value of the fiat currency, not by its relationship with the ‘natural order’. The result of this misalignment can be, of course, catastrophic.
This short overview of Sebag’s argument does not go into the weeds of the notion of money or the ‘service economy’, although, it must be said, Sebag has interesting things to say about both. What it matters to me is that Sebag gives a convincing answer to something that made me feel always uneasy about the Austrian School of Economics and its various philosophic-economical derivations and deviations. In principle, Mises and his followers have elaborated a convincing vision of human action, able to describe and explain a good chunk of what we understand as ‘economic behavior’ in human existence and why economics can be a ‘happy science’ only giving away the sadness of its mathematical concepts (at least its pretense to solve mathematically unsolvable mathematical problems). This theory does not have to idealize the subjects, assuming their intrinsic rationality and capacities over time in order to work. In fact, it is perfectly compatible with the so-called behavioral economics, which studies the divergences between the real subject’s choices and game-theoretical, idealized subjects’ ‘perfect’ decisions.
However, what made me always uneasy is the extent of arbitrariness over the role played by subjective value, that seems to go as far to justify too much: if it is all about the subjects’ values, nobody can really understand anything at all in Mises’ own terms. Any expectations would be too fluctuating to justify any stable human dis-order. Ultimately, nothing would make clear sense. And although humans are reported to be or too predictable or too unpredictable depending on the extremist position embraced, it is still possible to understand human actions in both situations, under proper knowledge of the subjects’ and their circumstances. However, if it is possible to understand subjects’ decisions in a given circumstance or context of choice, it must be because their decision is not arbitrary in the first place, for the simple reason that arbitrariness goes against any possibility of reduction to logic. It could have been the case, or it could have been otherwise, and all the world wouldn’t have changed, to paraphrase Ludwig Wittgenstein (who would have had a difficult time to say if economic is within or without what it could be said with some clarity!).
Sebag has a good argument for justifying human action as universally oriented toward recurrent objectives, subjective-value independently. In fact, it does not matter what a given culture teaches as rules of evaluation for food choices. The fact is that there must be food to survive. The same line of argument is reiterated toward the extraction of materials that make the food production possible or more efficient (so saving precious calories for something better). There is no escape from the extractive process as there is no escape from the need to produce instruments related to food, material extraction, and elaborations of new tools.
Sebag’s argument is also able to explain why we need an efficient system of exchange, that has to be based on a specific physical currency and it cannot be based on the arbitrariness of subjective value alone. As Sebag stated in an interview: ‘My own contribution to this perennial enquiry into the nature of money is really to provide the modern individual with a kind of reminder. To remind them about the basic laws of nature that govern economic cooperation. To show why the exchange of goods and services reflects something more than just one’s personal subjective desires.’ (Italics added) Interestingly, although there could be a discussion, value here is not to be intended as necessarily ‘objective’ (or in re – ‘in the thing’) but at least as ‘intersubjective’, (or post rem – ‘following the things but not in the things’). Possibly, one can argue that value here is a shared dispositional belief or, even more precisely, a ‘sharable aggregately understandable semi-stable dispositional belief’. In other words, it is a rule of evaluation that is understandable, even if not endorsed, by multiple subjects for not fully arbitrary reasons, ultimately grounded in some feature of reality. Again, there must be a reason why every human aggregate is based on the production of nutrients in a given proportion, food storage, material extraction, tool production, and a system of exchange. If there is some constant behaviour in a wildly mutable beast, there must be a (good series of) reason(s).
The Natural Order of Money is a very compelling reading whose value is in the author capacity to stick with what he promised in the preface of the volume: stay short, give a philosophical vision of money in a way that anybody can understand, in line with the real classics of the ‘sad’ economic discipline.
[1] It seems to me that there is no such a thing as the ‘book of nature’, but only books about nature written in many different ways see Pili, G., (2017), ‘La storia come libera creazione delle verità eterne,’ Scuola Filosofica, https://www.scuolafilosofica.com/5915/5915
[2] At least in a rigorous notion of mathematics, because if I give a number and I say that this number must be interpreted as the cardinal associated to the set of ‘apples’ I am already breaching the pure realm of mathematics, as I don’t believe any mathematician has anything to say about apples.
[3] Although Marxists also loved numbers, they were not overtly committed to them in the formulation of their predictions or prescriptions, as Vladimir Lenin’s writings (and Marx’s!) showed. Mao, in fact, confirmed that the revolution is an act of violence, not of mathematics!
[4] And that’s why neo-Keynesians can be liberal in nature and deterministic in the means of analysis.
Giangiuseppe Pili
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