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Politike episteme and the Usury Crisis

One of the real problems we face is confusion about the interaction between economics and philosophy. Men are seen constantly arguing across a chasm of pedagogic division, with one shouting fiercely about certain principles of nature and man qua man, and another gesturing sharply toward the empirics of a science. The fact-value distinction has left some of us unable to communicate.

Megan McArdle wrestles with some of the same difficulties in this essay on the statistical history of Gross Domestic Product.

I propose that we need to repose in that discipline or field of study which proposes to bridge this divide; which proposes to make some balance or unity of facts and values. I mean, the field of politike episteme, a Greek phrase which translates directly to political science but (following Voegelin) I would say more closely resembles what we call political philosophy.

Consider this exchange:

“Efficient-markets theory says only that markets will give us the best estimate of value. Price is our best estimate of factual value. So on the evidence, all of our banks should have perished in 2008. They were ruined institutions. If I, as trader in bank-related credit derivatives, could have had my view made policy, all of your nationalization wishes could have come true. The banks were dead. We derivatives traders glimpsed it first. Policy should have reflected it. So why should I be blamed for a political system that won't let banks fail?”

“Any derivatives trader, by virtue of his labor activity, is complicit in the very trade which brought down the banks; all of which is to state that a derivatives trader creates the conditions of his own claims to knowledge, much like oil speculators in 2008 driving up the price of oil, after real estate tanked, and then claiming that the increased ‘demand’ for oil made it a great investment. One doesn't get to create one's own knowledge and then claim an especial prescience for ‘knowing’ it, or teasing out the implications of it. The implications of the derivatives trade were that the big Wall Street banks were insolvent, and ought to have been liquidated by the Feds; the derivatives trade caused this, more than any other factor. Moreover, the derivatives trade was not a necessary condition of this knowledge; one doesn't need a trade in occult financial instruments to know whether banks are insolvent or not; one needs only the information that banks have been required to disclose, even before derivatives emerged as a critical orgy site for Wall Street.”

Here is an argument which combines factual claims with philosophic principle. The speakers refer to facts and propose principles for weighing and interpreting said facts, with an eye toward applicable policy.

It is immaterial, for my purposes here, whether we agree with one statement or the other. What I’m concerned with is this intellectual structure of integrated science and philosophy. We can ask of the authors, with an empirical cast of mind, “Did the derivatives trade on the evidence indeed bring down the banks?” or we can ask of them, philosophically, “Ought governments to simply liquidate insolvent banks? in other words, ought policy to reflect the reality that derivatives revealed?”

The latter sets up a structure of moral obligation — insolvent banks don’t deserve to continue in business — in justice they deserve to fail — while the former presents an empirical conclusion from the facts.

The integration in one argument of these two branches of human intellectual endeavor is an instance of politike episteme. And it is vital to maintain some precision in this. An economist operating purely from the facts could dispute the factual conclusion; but if he is wont, rather, to dispute the principle that insolvent banks ought to be liquidated, he may be an economist by training but he is in this case acting as a philosopher.

Another way to look at this division is to realize that the “science” side of politike episteme is always available for counsel, but the philosophic side must call the shots. The economist advises the executive or statesman, who must in the end decide his policy or principle, and decide it from the facts but according to his vision of the nature and destiny of man.

The amount of confusion produced by ignorance on these points is something to behold. The vulnerability it presents, easily exploited by the unscrupulous, is considerable.

A fairly instructive example of this confusion can, I think, be made of Keynesian economics, popularly portrayed. I will present it with a considerably polemic edge for purposes of sharpening distinctions.

In the Financial Times some months back, though surrounded by some useful advice, I came to find this peculiar statement: “Keynes’s genius – a very English one – was to insist we should approach an economic system not as a morality play but as a technical challenge.”

Technical challenge drastically underestimates the character of what we face. It underestimates the character of what is called the economic system. It underestimates the nature of man.

It is common enough for modern man to assume that the technical characteristics of a thing amount to the whole. But this is a grave and crippling error.

The economist may think he has captured “demand” or “consumer confidence” or any other of a thousand elements — captured and bound it neatly to a number in a statistical model. But even he, if pressed, would acknowledge the reality of things like psychology, fear, exuberance, etc — things outside the competence of statistical models, or at least very incompletely assayed by models. So there is human psychology, which is not technical.

There is also the spiritual crisis of our age, which is about the farthest thing from technical. The spiritual crisis of modernity — that same streak of madness which shall insure that my generation is one of whom history may record that it invented the school-shooter, a particularly depraved innovation in suicide-murder — is quite real, despite the impotence of technical analysis to explain it. Modernity imagined it could dislodge man from the foundations of his spiritual order and his moral framework, and go on his technical mastery alone, but it was a terrible error. It is an error many centuries in the making. A colossal and ruinous error.

The spiritual nature of man cannot be apprehended by numbers and technique alone. And the spiritual nature of man affects everything about him, even his economic systems.

But our dear Keynesians, like all those crippled by the modern error, have stifled their perception of the spiritual nature of man, on the grounds that it is fundamentally unreal. Man does not kill or steal or defraud, or race off, enraptured, in reckless speculation, because of his spiritual nature, for the simple reason that there is no such thing as his spiritual nature. No, no: it's always the Technicals.

So the school-shooter or the thief or the high-finance charlatan is fundamentally an irresolvable puzzle to modern man. The depravity of man is not a feature of his “technical” apparatus or makeup. And unless we want to hold the view that the economic crisis is quite unrelated to the spiritual crisis, we must say that the economic crisis will be fundamentally a puzzle to the Keynesian as well. All the technical expertise in the world will not enlighten him.

The causes of this economic crisis lie, at base, in those things this Financial Times writer has dismissed as a “morality play,” and Keynes is commonly thought to have dismissed with his quip we’re all dead in the long run. The causes cannot be spiritual, for if so then they must be fundamentally unreal in his mind. For him it is always a technical question. The great Technicals will save us, in golly good English fashion.

To hell with that premise. It's part of what got us here in the first place. The modern vision of man as a creature always and ever driven by material factors — the doctrine that matter is all, or that matter is real and mind illusory, or that all mind is the mere epiphenomena of matter — is, as I say, a crippling error.

In truth man is a dualistic creature, matter and spirit, body and soul. In truth there is an objective moral order, conformity to which is a duty of that same man. His spiritual aspect or nature is quite real despite our general inability to quantify it, and sheer techne will never replace the moral arts or the science of theology. A man cannot leverage himself out of usury anymore than a Keynesian can save us by overcoming technical challenge.

So there is a transparently polemical plea to restore philosophy to its proper place, to not let the prestige of science crowd out that importunate fact of morality.

We should resist any attempt to segregate technicals from the life of man and his destiny on earth; any pretense that the spiritual nature of man, being a troublesome thing to quantify technically, can be safely ignored or dismissed.

An error from the other direction, as it were, can be just as crippling. To insist so fiercely on a principle that no fact or set of facts can ever force adjustment, is a reckless thing in a statesman or businessman or any other actor. Here my sense is that statesmen face some facts that are going to require philosophical adjustment, and that is going to be a painful and erratic process.

But that is another essay. For now I would counsel that, in all the jumble of economic and political-economic talk that suffuses the airwaves, we keep our heads about us when it comes to this distinction between economics and philosophy, and the unique field that attempts to bring them into some balance or unity.

Politike episteme.

Comments (13)

Modernity imagined it could dislodge man from the foundations of his spiritual order and his moral framework, and go on his technical mastery alone, but it was a terrible error. It is an error many centuries in the making. A colossal and ruinous error.

I hope I remember to give attribution when I use that one in the future!

As for economics, James Howard Kunstler may be the right track;

Greenspan's greatest success may be to drive economics into such disrepute that it will be cut loose from the universities and only be taught by mail order or internet subscription from the same outfits that offer PhD's in astrology.

Paul -- You have put your finger on a constant frustration of mine in so much political discourse. We weave back and forth between these arguments from principle and arguments from results with little regard for the difference between them. I think one aggravating factor (and perhaps here I'm just restating your argument in different terms) is the prominence of that philosophy called utilitarianism. It really is no philosophy at all, or it is a philosophy of the lowest common denominator. Utilitarianism jettisons all other philosophy in favor of pure action and consequence. The fact that we feel that such calculations are adequate to analyzing the good and bad of human endeavors reveals much about the modern mind. As you have intimated, it says much about how the modern mind views humanity itself.

Your mention of the school shooter epidemic is very instructive. The lengths officials go through to try and "stop this from ever happening again"! Gun laws, counselling, snitching policies... There is nothing that addresses the emptiness or damage of the soul that must (objectively!) exist in a child who would take such an action!

Quite often these days I think we have a similar, but less obvious, blindness on the topic of health. There's something almost obsessive about our desire to make sure that every person lives their life without physical suffering of any kind (nevermind that many treatments consitute great physical suffering). It's as if we can't imagine anything worse than physical ailments or death because (as you again point out) we have no understanding of anything more than the physical.

I will make one nitpick with your essay--and I'm sure the philosophical hard-hitters at WWWTW will ensure that I am severely put in my place on this: Are we dualistic creatures? I'm fairly convinced we are not. We are creatures that can profitably be described as dualistic, but I think there is a greater unity between the physical and spiritual than often can imagine. So it is a useful distinction for clarifying certain issues on human nature, but if we take it too far and ascribe that split to nature itself I think we may make an error. Can I back this assertion up? Uh... not at the moment...?

Chris, I agree that we should not push dualism too hard. There is a more rigid dualism in Greek thought that can be very problematic. I think popularized Christian notions often partake (unknowingly) of far too much Greek dualism when they present the soul as fully separate from the body. That unity you speak of is very real, as in Catholic doctrine when the body is described as the material instance of the soul.

Also, I searched my house at length to find your copy of a slender Voegelin book that you sent me years ago and I, unaccountably, have not returned. I wanted to quote him early on in the essay. I searched and searched but could not find it -- which is all the more frustrating because I know I've seen it recently. Argh! Fear not, it will turn up soon, and then I will return it.

So on the evidence, all of our banks should have perished in 2008.

It should be noted that a number of them would not have perished. The community bank that held many of our assets at the time turned a tidy profit during 2008.

As a matter of justice, the federal government should have split the difference by seizing the insolvent banks, dividing up their assets and selling them at public auction with the FDIC getting first dibs on any recovery from the public auction for any actions on its part to guarantee the value of the deposit accounts being auctioned off to solvent banks and credit unions.

Greenspan's greatest success may be to drive economics into such disrepute that it will be cut loose from the universities and only be taught by mail order or internet subscription from the same outfits that offer PhD's in astrology.

If that were possible, Sociology and Political Science would have been cut off decades ago since 9/10 they are public-subsidized propaganda machines for leftist politics.

Mike T: My imagined polemicists were definitely strident fellows, weren't they?

I am very glad to hear that evidence of the successful community bank, even if it is anecdotal.

Glad to hear the Vogelin is inspiring. You can thank Father William Ryan, S.J. for teaching a philosophy class on Vogelin, Viktor Frankl, and Karl Jaspers called "Existential Psychology." I admit a LOT of it, especially Vogelin was over my head at the time. Years later, some pundit or other mentioned "immanetizing the eschaton," and I remembered that I had the book. He's definitely a unique mind. I hope you find the book, but take your time with it.

some pundit or other mentioned "immanetizing the eschaton,"

For myself, I decided quite some time ago not to put much stock in anyone who uses the term "immanentizing". I find the even the use of the root "immanent" to be problematic, as it seems to be very, very susceptible to being used vaguely, without any effort at clarification, specificity, or precision. So that there seems to be a built-in tendency to equivocate when using it.

But other than that I liked both what Paul said and what Chris added.

I am very glad to hear that evidence of the successful community bank, even if it is anecdotal.

We belong to both a federal credit union and a community bank. Neither of them got hit by the loan crisis because of them were choosy about the loans they gave.

Considering the harm that the banks did to the wealth of the country, I think seizing all of their outstanding shares without compensation and selling off the assets is perfectly just punishment to the shareholders for the actions' of their companies.

Paul: You did see the book recently. You looked right at it 4 or 5 times while searching for it. Have done the same thing myself so many times; drives me nuts. Try forcing yourself to look for a different book. That sometimes works for me.

Also, could you fix the punctuation in the following, right before "the world", so that I can find out if you mean what I think you do?

So there is a transparently polemical plea to restore philosophy to its proper place, to not let the prestige of science crowd out that importunate fact of morality the world.


That last phrase was superfluous.

There is a kind of magic trick where economics admit their science is value netural but then use efficiency in its value positive connotation and then cajole anyone who would do anything that would deviate from market efficiency, even though such a criticism pressupposes the market ability to find efficiency is superior to the kind of rationality that can emerge from tradition or the political process.

John Paul II’s major contribution as Pope and as a figure in 20th Century history was to remind mankind that unbridled freedom is not enough for happiness, for a complete existence, or for a just society. Freedom, like the state, like nature, like the laws, like material resources is an *instrumental* good necessary for man to pursue his real end: life as a moral being and life in conformity with the God-ordained good.

While the Cold War pitted materialist capitalism against materialist socialism, John Paul II reminded men–both in his encyclical Centessimus Annus and in his preaching–that man was above all a spiritual being and that freedom loosened from self-restraint, from the contributions of civil society and charity, and from sound laws to protect the most vulnerable in society was deprived of its fundamental purpose: respect for human dignity. So, while his encyclicals more than previous sources recognized the fundamentally moral basis of free markets, they also showed how that same moral basis made demands upon individuals and society so that those institutions always served the divinely ordered ends of our individual and collective welfare as human beings.

"I have a tough message to the bankers too. The support from the taxpayer when you needed it most was there to prop up your banks not your bank accounts. Don’t forget that. I hope the new international rules work. It is the best solution. But if we find the money that should be going into stronger bank balance sheets is being unreasonably diverted into bigger pay and bonuses - we reserve the right to take further action and that includes using the tax system. I have given you a fair warning. For I believe in the free market not a free ride"
George Osborne, Tory Shadow Chancellor http://page.politicshome.com/uk/george_osborne_speech_to_conference.html

Why can't we get conservatives like him?

Oct. 21 (Bloomberg) -- The Obama administration will order seven companies that received the most government assistance to cut salaries of top executives by 90 percent on average, a person familiar with the situation said.

The Treasury Department’s announcement will come this week, the person said on condition of anonymity. Total compensation, including bonuses and other benefits, for the 25 highest-paid executives must be reduced by about 50 percent, the person said.


Good policy and good politics.

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