In the middle of the eighteenth century the market no longer appeared as, or rather no longer had to be a site of jurisdiction. On the one hand, the market appeared as something that obeyed and had to obey “natural,”* that is to say, spontaneous mechanisms. Even if it is not possible to grasp these mechanisms in their complexity, their spontaneity is such that attempts to modify them will only impair and distort them. On the other hand—and this is the second sense in which the market becomes a site of truth—not only does it allow natural mechanisms to appear, but when you allow these natural mechanisms to function, they permit the formation of a certain price that Boisguilbert will call the “natural” price, the physiocrats will call the “good price,” and that will later be called the “normal price,” that is to say, a certain price—natural, good, normal, it’s not important— which will adequately express the relationship, a definite, adequate relationship between the cost of production and the extent of demand. When you allow the market to function by itself according to its nature, according to its natural truth, if you like, it permits the formation of a certain price which will be called, metaphorically, the true price, and which will still sometimes be called the just price, but which no longer has any connotations of justice. It is a certain price that fluctuates around the value of the product.
The importance of economic theory—I mean the theory constructed in the discourse of the économistes and formed in their brains—the importance of the theory of the price-value relationship is due precisely to the fact that it enables economic theory to pick out something that will become fundamental: that the market must be that which reveals something like a truth. This does not mean that prices are, in the strict sense, true, and that there are true prices and false prices. But what is discovered at this moment, at once in governmental practice and in reflection on this governmental practice, is that inasmuch as prices are determined in accordance with the natural mechanisms of the market they constitute a standard of truth which enables us to discern which governmental practices are correct and which are erroneous. In other words, it is the natural mechanism of the market and the formation of a natural price that enables us to falsify and verify governmental practice when, on the basis of these elements, we examine what government does, the measures it takes, and the rules it imposes. In this sense, inasmuch as it enables production, need, supply, demand, value, and price, etcetera, to be linked together through exchange, the market constitutes a site of veridiction, I mean a site of verification-falsification for governmental practice.
Consequently, the market determines that good government is no longer simply government that functions according to justice. The market determines that a good government is no longer quite simply one that is just. The market now means that to be good government, government has to function according to truth. In this history and formation of a new art of government, political economy does not therefore owe its privileged role to the fact that it will dictate a good type of conduct to government. Political economy was important, even in its theoretical formulation, inasmuch as (and only inasmuch as, but this is clearly a great deal) it pointed out to government where it had to go to find the principle of truth of its own governmental practice. In simple and barbaric terms, let’s say that from being a site of jurisdiction, which it remained up to the start of the eighteenth century, the market, through all the techniques I discussed last year with regard to scarcity and grain markets, etcetera, is becoming what I will call a site of veridiction. The market must tell the truth (dire le vrai); it must tell the truth in relation to governmental practice. Henceforth, and merely secondarily, it is its role of veridiction that will command, dictate, and prescribe the jurisdictional mechanisms, or absence of such mechanisms, on which [the market] must be articulated.--Michel Foucault, 17 January 1979, lecture 2 The Birth of Biopolitics. translated by Graham Burchell, 31-32
Foucault's second lecture is dazzling (recall lecture one; and here). It's full of fresh distinctions, creative resonances, and polemical arguments. And I intend to trace these in a number of follow up posts. But today, I am more modest and I want to point to a latent positivism (note his 'verification') or empiricism in his thought (despite the popperian 'falsification') so that he misses a complication in the way markets are a site of veridiction (a word I was unfamiliar with). I call it 'modest' because in a way my two corrections will reinforce and even strengthen his general analysis.
Here is my revision in terms of a possible slogan: it is not actual markets that can act as a site of verdication, but theory-mediated-counterfactual markets that can as a site of veridiction. And the key point here will be that theory helps to construct the counterfactual markets. And the markets will not be counterfactual merely in virtue of their theoretical construction, but rather theory will enable the construction of the right sort of counterfactuals. And that is to say that there is a sense in which the discerning of the correctness of policy cannot be done merely by inspecting or colelcting market prices, as it were, directly, but itself has to require the intervention of political economy and (specialist) political economists who compare actual prices to theoretically constructed prices. (This is the first correction.)
The underlying logic is, in fact, best illustrated by an example from Hume's work on demography (and this hints at the second correction). Since Locke's art of government (recall here; here), a growing population is a proxy for good government. A growing skilled, population extends the markets and also helps keep prices (of labor and goods) down while improving quality. Foucault had made this point, too, already in lecture 1 (without mentioning Hume):
[Government] has an underside, or rather, it has another face, and this other face of governmentality, its specific necessity, is precisely what political economy studies. It is not background, but a permanent correlative. Thus, the économistes explain, the movement of population to where wages are highest, for example, is a law of nature; it is a law of nature that customs duty protecting the high price of the means of subsistence will inevitably entail something like dearth. (16)
In this (1752) essay on the populousness of ancient nations, which is a major scholarly and intellectual feat (recall here; here), Hume postulates a natural rate of propagation relativized toward particular geographic context: slightly more than a doubling in every generation of the human species. (Strictly speaking Hume does not call it a “natural rate” although a page later he says, the rate “seems natural to expect.”) Hume stipulates that “everything else being equal” (vegetation, climate, etc.) this rate can be achieved only under “wise, just, and mild government” with the “wisest institutions.” The natural rate is, thus, for Hume an optimal rate. Deviations from this rate can be explained in two ways: climate induced famine and bad political governance. The two are connected because, and this echoes Mencius and Chinese political governance, excellent governance (that is, one that has free market in grain, and good price signaling,. etc.) should also be able to ameliorate the effects of famine.*
So, the observed data are by themselves uninformative. They become so in light of background theory. This is is also so with market prices. When it comes to economic data, somebody like Adam Smith makes a sharp distinction between market prices and natural prices. To simplify: natural prices are the counterfactual price that would occur were the factors (e.g., rent, labor, profit) left free. But, as Smith notes, there are many different sources/causes that generate "deviations, whether occasional or permanent, of the market price of commodities from the natural price." This deviation can last for centuries.
And because factors of one commodity influence the costs or supply/demand (and so market prices) of other commodities, until there are free markets in most important commodities all natural prices must be estimated. And the way to estimate them is, in part, by using theory and in part by using existing market prices. One way in which theory enters in, is that Smith assumes that there are basic staples that are essential to the diets of the mass of working poor. On this model the market prices of these basic staples (rice in Asia, potato in Ireland, corn in the UK, etc.) influence whether people can survive (and/or population grows/declines) and how many other goods can be consumed. In Smith's terminology these basic staples/commodities 'regulate' the prices of other goods. But they, in turn, and the factors that compose them, are determined by the "general circumstances of the society, their riches or poverty, their advancing, stationary, or declining condition."
So, as an aside, and this is the second, promised correction to Foucault, which simultaneously strengthens his argument: the political economy of the eighteenth century cannot calculate natural prices without bringing in questions of population growth (or decline, that is, starvation or not). So, to be a good government doesn't just mean to govern according to the truth in the market, but, simultaneously, according (recall lecture 1 above) to the truth of the (growing) census data.
So, in order to establish a natural price for any commodity, Smith first has to figure out what the natural price of the regulating (staple) commodity is and then look at how the prices of the most important factors for that commodity are determined, etc. To discipline these estimations, Smith, in turn, relies on the kind of proxies/natural rates (which will involve population).
I hope it is somewhat clear now why the market as site of veridiction involves the theory mediated construction of the right sort of counterfactual prices deviations from which then can be informative. This has three implications, two technical one more metaphysical. First, the more markets can be free or are made free the easier it becomes for them to act as sites of verirdication.** Second, the more government starts collecting data the easier it becomes to guess and construct the relevant counterfactuals, which in turn allow such political economists to improve on estimating the deviations from natural prices, in an open ended process of improvement. So, while this is a skilled practice, it is hard to see how to remove arbitrary judgment from this discipline. These are the two technical points.
The third implication is that strictly speaking, the conceptual apparatus of the political economists are such that existing markets cannot tell the truth before all markets are free. And at that point their truth becomes boring/uninformative.
*Hume recognizes this may not always be possible. And he has a whole discussion about the right of necessity.
**Strictly speaking, all that's needed is that the magnitude of an intervening cause (i.e. policy) that generates a deviation from a natural price is well understood.
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