Tuesday, 16 August 2016

What Aristotle could teach central bankers

 

4causes

Ideas are what moves the world. The biggest and most benevolent influence on the west are the ideas inherited from ancient Greco-Roman thinkers. The greatest of all these was Aristotle. What we think of today as common sense is, while not so common as we’d like it to be, largely the spread and influence over the last two millennia of Aristotle’s thinking on fundamentals.

If we want to know something, really know something – know it right down to the root – then, said Aristotle, we must know the causes of that thing.

Causes? Why the plural? Because all four together are required for a complete description of material change.

Aristotle describes and argues for the four causes in his books ‘Physics’ and ‘Metaphysics as a part of developing his philosophy of substance. He claims that there are four causes (or explanations) needed to explain change in the world. A complete explanation of any material change will use all four causes. These causes are material, formal, efficient and final.
    The material cause is what something is made out of… [it] explains the general sort of properties of something…
    The formal cause is what makes a thing one thing rather than many things
    The efficient cause is what did that. If a ball broke a window, then the ball is the efficient cause of the window breaking. Every change is caused by an efficient cause… Efficient causes answer the “what did that” question, but do not answer how it was done.
    The final cause is why efficient causes do what they do and why formal causes do what they do. [In other words,
identity applied to action.]
    Why do balls break windows? The final cause says that because balls are hard and windows are brittle, they break. Why do rocks fall? Aristotle said that rocks fall because they are heavy. Air is light, therefore air rises. These are all pointing out the final cause of efficient causes.
    To ask for the final cause of formal causes is to ask why these things exist at all. Why do human beings exist? Aristotle says that they exist to make more human beings, because they are alive. They also exist to be happy because they are rational. Why do computers exist? They exist because people made them. They wanted to use them as tools in math, gaming and business. Why do rocks exist? They exist because the wind, sea and rain break rock formations to produce rocks. These things are also final causes.

So for Aristotle, real knowledge, knowledge down to the root, was knowledge of causality – of all a thing’s causes. Only knowledge of all causes gives us the complete explanation we should demand.

Not so for today’s alleged intellectuals, for whom causality itself is just an aging relic of yesteryear – a postemodern langour fully taken advantage of by economist John Maynard Keynes. It wasn’t that he even denigrated causality, just that he consistently applied it backwards – yet so adroitly that his interlocutors (already philosophically disarmed into thinking causality unimportant) simply failed to spot his sleight off hand and were left unable to properly understand his deception.

He argued that investment is a function of income, rather than the reverse; that spending multiplies wealth, rather than diminishes it; and that raising wage rates raises total employment, rather than lowering it.

It was not at all that that he posited a New Economics, simply (like some kind of macro-Pythonesque absurdity) the same sensible old economics but taken backwards. His biggest laugh was in reversing the cause and effect of production.

The economists of the British Classical for example had consistently and sensibly pointed out that production precedes production, on the simple basis that you can’t be fed before you’ve produced your food. Consumption is the final goal of all production, but not the cause, so if we want to bring more food out of the ground in the future we must put some aside of this year’s crop to help fund that hoped-for future production. We must not eat our seed corn.

Nonsense, said Maynard. Forget about saving your seed corn for the long run – for in the long run we are all dead. It is consumption in the aggregate that makes all production necessary, and so if we keep this “aggregate demand” humming by whatever means necessary – “pyramid-building, earthquakes, even wars may serve to increase wealth,” just as long as we all consume like as drunken a sailor we can emulute – then all will be well in  this best of all employment markets.

This sounds as child-like as it actually is, yet it is now virtually common “knowledge” to a profession who have long abjured the lessons of philosophers like Aristotle (unaware they have made themselves slaves instead to the defunct scribblings of the most benighted of the breed).

If Keynes had said anything like any of this when Aristotle’s model was still widely known and respected, he would have been laughed out of town – just as those who did say those very things were treated in the era of the British Classical School; generally, like J.A. Hobson and his ilk, they were given the well-deserved label of “crank” and shuffled off into the very well-severed shadows.

The coup-de-grace to Keynes’s backwards theory of production for anybody really watching was delivered succinctly by Ayn Rand, on the back of Aristotle, explaining the crucial importance of saving and production:

Consumption is the final, not the efficient, cause of production. The efficient cause is savings, which can be said to represent the opposite of consumption: they represent unconsumed goods. Consumption is the end of production, and a dead end, as far as the productive process is concerned. The worker who produces so little that he consumes everything he earns, carries his own weight economically, but contributes nothing to future production. The worker who has a modest savings account, and the millionaire who invests a fortune (and all the men in between), are those who finance the future. The man who consumes without producing is a parasite, whether he is a welfare recipient or a rich playboy.

Think of that every time you hear of one of today’s central bankers lowering rates to “boost” aggregate demand and discourage “unproductive” saving.

And ask yourself which academic scribbler they themselves are in thrall to.

It assuredly is not Aristotle, though he does still have much to teach them – if they were still able to learn.

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