[T]he American neo-liberals say this: It is strange that classical political economy has always solemnly declared that the production of goods depends on three factors—land, capital, and labor—while leaving the third unexplored. It has remained, in a way, a blank sheet on which the economists have written nothing. Of course, we can say that Adam Smith’s economics does begin with a reflection on labor, inasmuch as for Smith the division of labor and its specification is the key which enabled him to construct his economic analysis. But apart from this sort of first step, this first opening, and since that moment, classical political economy has never analyzed labor itself, or rather it has constantly striven to neutralize it, and to do this by reducing it exclusively to the factor of time. This is what Ricardo did when, wishing to analyze the nature of the increase of labor, the labor factor, he only ever defined this increase in a quantitative way according to the temporal variable. That is to say, he thought that the increase or change of labor, the growth of the labor factor, could be nothing other than the presence of an additional number of workers on the market, that is to say, the possibility of employing more hours of labor thus made available to capital. Consequently there is a neutralization of the nature itself of labor, to the advantage of this single quantitative variable of hours of work and time, and basically classical economics never got out of this Ricardian reduction of the problem of labor to the simple analysis of the quantitative variable of time. And then we find an analysis, or rather non-analysis of labor in Keynes which is not so different or any more developed than Ricardo’s analysis. What is labor according to Keynes? It is a factor of production, a productive factor, but which in itself is passive and only finds employment, activity, and actuality thanks to a certain rate of investment, and on condition clearly that this is sufficiently high. Starting from this criticism of classical economics and its analysis of labor, the problem for the neo-liberals is basically that of trying to introduce labor into the field of economic analysis. A number of them attempted this, the first being Theodore Schultz, who published a number of articles in the years 1950–1960 the result of which was a book published in 1971 with the title Investment in Human Capital. More or less at the same time, Gary Becker published a book with the same title, and then there is a third text by Mincer, which is quite fundamental and more concrete and precise than the others, on the school and wages, which appeared in 1975.
In truth, the charge made by neo-liberalism that classical economics forgets labor and has never subjected it to economic analysis may seem strange when we think that, even if it is true that Ricardo entirely reduced the analysis of labor to the analysis of the quantitative variable of time, on the other hand there was someone called Marx who ... and so on. Fine. The neo-liberals practically never argue with Marx for reasons that we may think are to do with economic snobbery, it’s not important. But if they took the trouble to argue with Marx I think it is quite easy to see what they could say [about] his analysis. They would say: It is quite true that Marx makes labor the linchpin, one of the essential linchpins, of his analysis. But what does he do when he analyzes labor? What is it that he shows the worker sells? Not his labor, but his labor power. He sells his labor power for a certain time against a wage established on the basis of a given situation of the market corresponding to the balance between the supply and demand of labor power. And the work performed by the worker is work that creates a value, part of which is extorted from him. Marx clearly sees in this process the very mechanics or logic of capitalism. And in what does this logic consist? Well, it consists in the fact that the labor in all this is “abstract,” that is to say, the concrete labor transformed into labor power, measured by time, put on the market and paid by wages, is not concrete labor; it is labor that has been cut off from its human reality, from all its qualitative variables, and precisely—this is indeed, in fact, what Marx shows—the logic of capital reduces labor to labor power and time. It makes it a commodity and reduces it to the effects of value produced. Now, say the neo-liberals—and this is precisely where their criticism departs from the criticism made by Marx—what is responsible for this “abstraction.” For Marx, capitalism itself is responsible; it is the fault of the logic of capital and of its historical reality. Whereas the neo-liberals say: The abstraction of labor, which actually only appears through the variable of time, is not the product of real capitalism, [but] of the economic theory that has been constructed of capitalist production. Abstraction is not the result of the real mechanics of economic processes; it derives from the way in which these processes have been reflected in classical economics. And it is precisely because classical economics was not able to take on this analysis of labor in its concrete specification and qualitative modulations, it is because it left this blank page, gap or vacuum in its theory, that a whole philosophy, anthropology, and politics, of which Marx is precisely the representative, rushed in. Consequently, we should not continue with this, in a way, realist criticism made by Marx, accusing real capitalism of having made real labor abstract; we should undertake a theoretical criticism of the way in which labor itself became abstract in economic discourse. And, the neoliberals say, if economists see labor in such an abstract way, if they fail to grasp its specification, its qualitative modulations, and the economic effects of these modulations, it is basically because classical economists only ever envisaged the object of economics as processes of capital, of investment, of the machine, of the product, and so on. Michel Foucault, 14 March, 1979, translated by Graham Burchell, Lecture 9, The Birth of Biopolitics, 219-222. [emphasis added)
For readers familiar with Foucault's Birth of Biopolitics, it may be thought strange I have resisted plunging into his account of the relationship between genetics, development, and human capital theory which are at the heart of Lecture 9. For what seemed like a "bit of science fiction" (227) has finally arrived and will become more salient in the aftermath of the pandemic and asymmetric response(s) to unfolding climate change. (I don't wish to avoid it, but in re-reading Foucault I am always struck by moves that seem recurrently timely.) Rather, I return to material I partially quoted and skipped last time. Today, I focus on his rational reconstruction of a historical debate that can help us situate a lot of debates about neoliberalism.
Foucault is very clear that from the perspective of Chicago economics (the American neo-liberalism of Schultz, Becker, and Mincer), the classical economics that comes out of Ricardo is a garden path (or degenerative research program). When it comes to the implied anthropology of capitalism, and, especially the significance of human capital in it, Chicago is closer to the earlier Adam Smith in some respects than Ricardo and other classical and neo-classical economists. This is why George Stigler is often quoted as saying "it's all in Adam Smith."
As an aside, what I have said in the previous paragraph is clearly not true of Milton Friedman who was very much inspired by Marshall. But Friedman does not figure in Focuault's analysis of Chicago at all, and, unlike Stigler, also cannot be simply assimilated to it. To the point jokingly, despite the importance of (recall) Simons to Foucault's narrative, in Foucault's hands Friedman is not a characteristic (Chicago school) neoliberal.*
But as Foucault notes (225), by building on (recall) the Robbins definition of economics (as optimization under given constraints and in light of scarcity), Chicago also re-establishes the significance of a utilitarian homo oeconomicus who maximizes utility or Max U (in McCloskeys' memorable phrase). And this echoes the Benthamite (so-called English radical) tradition (recall lecture, p. 41) that merged with classical economics in the wake of Ricardo and James Mill. That is to say, a major sub-theme of Foucault's whole lecture series on the Birth of Biopolitics is a kind of natural history of the changing conceptualizations of homo oeconomicus: (i) in the classical period starting with Ricardo he is the man of exchange or man the consumer in terms of satisfaction/pursuit of needs (p. 225); (ii) in the neoliberal period, especially in the (recall) ORDO senses, "he is the man of enterprise and production." (147, lecture 6) And (iii) at Chicago he is also "an entrepreneur," but now, especially, "an entrepreneur of himself," who develops and produces/maintains his own human capital as a source of earnings (226), even a possible earning stream into the future (230). The previous sentence simplifies in a crucial way: because as the Chicago program develops, as Foucault shows in the remainder of the lecture, it starts to be able to calculate the contribution of the family, culture, schooling, and (yes) genetics into the constitution of this auto-entrepreneur.
And so, what Chicago does, on Foucault's account, is to merge this re-invented utilitarian homo oeconomicus with a kind pre-Ricardian Smithian sensibility about human nature. And, to look ahead a bit beyond Foucault, this synthesis turns out to be both fertile and unstable as the experimental and behavioral psychologists explore the Smithian sensibility and see how at odds it is with the given utilitarian framework. (This previous sentence is most manifest in the work of Vernon Smith and his school, who understands himself as returning to the Smithian tradition.)
Now, recall that the distinct element of the ORDO response to Marxism is, in part, to say that even if the Marxists are right that monopoly is inevitable under the logic of pure capitalism, society -- and especially an independent state -- can prevent this outcome by an expansive understanding of anti-trust law whose twin aims are to prevent economic monopolies and to prevent rent-seeking behavior from would be powerful economic agents. (I am not claiming that is the whole story.) By contrast, one effect of the Chicago critique of Ricardian classical economics is, as Foucault notes, that it simultaneously can accept the Marxist critique of Ricardo/classical economics and de-fang its significance so much that it can practically ignore it.**
And the way it defangs it, on Foucault's creative account, is by way of a (implicit--since this is all Foucault's rational reconstruction) genealogy of error (this is the highlighted part above) in which the Marxist critique of capitalism is itself shaped by the classical elements, which it understands as ideology, it has inherited. And both classical economists and their marxist critics look at large scale processes that make value a kind of abstraction (even though they disagree over the source and nature of this abstraction.) And in response, the neo-liberals change the topic: and focus on "what they call
substitutable choices, that is to say, the study and analysis of the way in which scarce means are allocated to competing ends, that is to say, to alternative ends which cannot be superimposed on each other." (222) And rather than explaining (the source of) value, or thereby the exploitation of a class, the focus now becomes "how the person who works uses the means available to him." (223)
The effect of this, as I noted last week, is an important moral pay-off. In the Chicago neo-liberal approach, there is a methodological and epistemological perspective that takes the "point of view of the worker and, for the first time, ensure that the worker is not present in the economic analysis as an object—the object of supply and demand in the form of labor power—but as an active economic subject." (223) That is to, the Chicago school manages to bring its tools into line with important moral and political commitments of liberalism.
To put the point in previous paragraph in moral and rhetorical terms. The utilitarianism of the radical tradition has a tendency to treat economic agents as means. But in the neo-liberal Chicago school economic individuals are treated as agents with their own distinctive aims. And so the scientist can take their choices seriously as choices and the moralist, society, or policy-maker can hold them accountable for their choices. That this shift in perspective also generates serious moral and political problems once policy aims to program/nudge it is evident. But in the short term it has the rhetorical advantage that when the Marxist says 'exploitation,' and has to invoke a whole conceptual structure to explain why, the neo-liberal says 'choices' and can respectfully point at what we do. And, perhaps unexpectedly, this rhetorical move turned out to be attractive not just to the traditional economic right, but also politically to all those (but now I am echoing Melinda Cooper here; and here) who wished to emancipate from the hegemony of the 'traditional' wage-earning family structure.
*By Foucault's lights, Friedman is surely also not an Ordo or Austrian neoliberal. But see here.
**Whether this has to with snobbery, the after-effects of McCarthy, or the more plausible sense that engaging with Marx was best left to mathematical erudites like Samuelson (1971), I leave for another time.
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