Anti Market E01.

Andreas Gursky, Chicago, Board of Trade II, 1999.

We tend to uncritically assume systematicity, as when one talks of the "capitalist system", instead of showing exactly how such systematic properties of the whole emerge from concrete historical processes. Worse yet, we then tend to reify such unaccounted-for systematicity, ascribing all kinds of causal powers to capitalism, to the extent that a clever writer can make it seem as if anything at all (from nonlinear dynamics itself to postmodernism or cyberculture) is the product of late capitalism. This basic mistake, which is, I believe, a major obstacle to a correct understanding of the nature of economic power, is partly the result of the purely top-down, analytical style that has dominated economic modeling from the eighteenth century. Both macroeconomics, which begins at the top with concepts like gross national product, as well as microeconomics, in which a system of preferences guides individual choice, are purely analytical in approach. Neither the properties of a national economy nor the ranked preferences of consumers are shown to emerge from historical dynamics. Marxism, is true, added to these models intermediate scale phenomena, like class struggle, and with it conflictive dynamics. But the specific way in which it introduced conflict, via the labor theory of value, has now been shown by Shraffa to be redundant, added from the top, so to speak, and not emerging from the bottom, from real struggles over wages, or the length of the working day, or for control over the production process. (4)

Besides a switch to a synthetic approach, as it is happening, for instance, in the evolutionary economics of Nelson and Winter in which the emphasis is on populations of organizations interacting nonlinearly, what we need here is a return to the actual details of economic history. Much has been learned in recent decades about these details, thanks to the work of materialist historians like Fernand Braudel, and it is to this historical data that we must turn to know what we need to model synthetically. Nowhere is this need for real history more evident that in the subject of the dynamics of economic power, defined as the capability to manipulate the prices of inputs and outputs of the production process as well as their supply and demand. In a peasant market, or even in a small town local market, everybody involved is a price taker : one shows up with merchandise, and sells it at the going prices which reflect demand and supply. But monopolies and oligopolies are price setters : the prices of their products need not reflect demand/supply dynamics, but rather their own power to control a given market share. (5)

When approaching the subject of economic power, one can safely ignore the entire field of linear mathematical economics (so-called competitive equilibrium economics), since there monopolies and oligopolies are basically ignored. Yet, even those thinkers who make economic power the center of their models, introduce it in a way that ignores historical facts. Authors writing in the Marxist tradition, place real history in a straight-jacket by subordinating it to a model of a progressive succession of modes of production. Capitalism itself is seen as maturing through a series of stages, the latest one of which is the monopolistic stage in this century. Even non-Marxists economists like Galbraith, agree that capitalism began as a competitive pursuit and stayed that way till the end of the nineteenth century, and only then it reached the monopolistic stage, at which point a planning system replaced market dynamics. 

However, Fernand Braudel has recently shown, with a wealth of historical data, that this picture is inherently wrong. Capitalism was, from its beginnings in the Italy of the thirteenth century, always monopolistic and oligopolistic. That is to say, the power of capitalism has always been associated with large enterprises, large that is, relative to the size of the markets where they operate. (6)

Also, it has always been associated with the ability to plan economic strategies and to control market dynamics, and therefore, with a certain degree of centralization and hierarchy. Within the limits of this presentation, I will not be able to review the historical evidence that supports this extremely important hypothesis, but allow me at least to extract some of the consequences that would follow if it turns out to be true. 

First of all, if capitalism has always relied on non-competitive practices, if the prices for its commodities have never been objectively set by demand/supply dynamics, but imposed from above by powerful economic decision-makers, then capitalism and the market have always been different entities. To use a term introduced by Braudel, capitalism has always been an "antimarket". This, of course, would seem to go against the very meaning of the word "capitalism", regardless of whether the word is used by Karl Marx or Ronald Reagan. For both nineteenth century radicals and twentieth century conservatives, capitalism is identified with an economy driven by market forces, whether one finds this desirable or not. Today, for example, one speaks of the former Soviet Union's "transition to a market economy", even though what was really supposed to happen was a transition to an antimarket : to large scale enterprises, with several layers of managerial strata, in which prices are set not taken. This conceptual confusion is so entrenched that I believe the only solution is to abandon the term "capitalism" completely, and to begin speaking of markets and antimarkets and their dynamics. 

This would have the added advantage that it would allow us to get rid of historical theories framed in terms of stages of progress, and to recognize the fact that antimarkets could have arisen anywhere, not just Europe, the moment the flows of goods through markets reach a certain critical level of intensity, so that organizations bent on manipulating these flows can emerge. Hence, the birth of antimarkets in Europe has absolutely nothing to do with a peculiarly European trait, such as rationality or a religious ethic of thrift. As is well known today, Europe borrowed most of its economic and accounting techniques, those techniques that are supposed to distinguish her as uniquely rational, from Islam. (7)

Many of the technological inventions that allowed her economy to take-off came from China. What needs explaining is not that antimarkets were born in Europe, but that they did not emerge in the economies of China or Islam, even though the volume of trade there was intense enough. Several historians explain this situation by invoking the repressive power of their respective states, which made large scale accumulation of capital impossible. (8)

Finally, and before we take a look at what a synthetic, bottom-up approach to the study of economic dynamics would be like, let me meet a possible objection to these remarks : the idea that "real" capitalism did not emerge till the nineteenth century industrial revolution, and hence that it could not have arisen anywhere else where these specific conditions did not exist. To criticize this position, Fernand Braudel has also shown that the idea that capitalism goes through stages, first commercial, then industrial and finally financial, is not supported by the available historical evidence. Venice in the fourteenth century and Amsterdam in the seventeenth, to cite only two examples, already show the coexistance of the three modes of capital in interaction. Moreover, other historians have recently shown that that specific form of industrial production which we tend to identify as "truly capitalist", that is, assembly-line mass production, was not born in economic organizations, but in military ones, beginning in France in the eighteenth century, and then in the United States in the nineteenth. It was military arsenals and armories that gave birth to these particularly oppressive control techniques of the production process, at least a hundred years before Henry Ford and his Model-T cars. (9)

This largely ignored military component of large scale enterprises is, I believe, another good reason to replace the term "capitalism" with a neologism like "the antimarket", since we can simply build this military component right into our definition of the term. 

Besides conceptual clarification of its terms, economics needs novel approaches to modeling in order to complement analysis of its concepts with synthesis of the emergent properties of the phenomena it concerns itself with. What would the models created by a bottom-up approach to the evolution of economics look like ? A convenient starting point for a description of such a complex simulation, is provided by the work of Nelson and Winter on evolutionary economics. In their work they begin at the bottom, at the level of the individual firm. Why not even lower, at the level of human individuals ? Because one important insight of their research is that large organizations, having developed routine procedures to handle many decisions, strongly constrain the choices of individual decision-makers, at least in most of the daily operation of the firm. These routines function as an "organizational memory" that maintains the identity of the firm from day to day. When a firm opens up a branch, for example, it moves some of it staff to that branch and a more or less accurate copy of this memory is transferred with them. (10)

Hence, the large firms that make up the antimarket, can be seen as replicators, much as animals and plants are. And in populations of such replicators we should be able to observe the emergence of the different commercial forms, from the family firm, to the limited liability partnership to the joint stock company. These three forms, which had already emerged by the fifteenth century, must be seen as arising, like those of animals and plants, from slow accumulations of traits which later become consolidated into more or less permanent structures, and not, of course, as the manifestation of some pre-existing essence. In short, both animal and plant species as well as "institutional species" are historical constructions, the emergence of which bottom-up models can help us study. 

It is important to emphasize that we are not dealing with biological metaphors here. Any kind of replicating system which produces variable copies of itself, coupled with any kind of sorting device, is capable of evolving new forms. This basic insight is now exploited technologically in the so-called "genetic algorithm", which allows programmers to breed computer software instead of painstakingly coding it by hand. A population of computer programs is allowed to reproduce with some variation, and the programmer plays the role of sorting device, steering the population towards the desired form. The same idea is what makes Artificial Life projects work. Hence, when we say that the forms the antimarket has taken are evolved historical constructions we do not mean to say that they are metaphorically like organic forms, but that they are produced by a process which embodies the same engineering diagram as the one which generates organic forms. Another example may help clarify this. When one says, as leftists used to say, that "class-struggle is the motor of history", one is using the word "motor" in a metaphorical way. On the other hand, to say that a hurricane is a steam motor is not to use the term metaphorically, but literally : one is saying that the hurricane embodies the same engineering diagram as a steam motor : it uses a reservoir of heat and operates via differences of temperature circulated through a Carnot cycle. The same is true of the genetic algorithm. Anything that replicates, such as patterns of behavior transmitted by imitation, or rules and norms transmitted by enforced repetition can give rise to novel forms, when populations of them are subjected to selection pressures. And the traits that are thus accumulated can become consolidated into a permanent structure by codification, as when informal routines become written rules. (11)

In this case, we have the diagram of a process which generates hierarchical structures, whether large institutions rigidly controlled by their rules or organic structures rigidly controlled by their genes. There are, however, other structure-generating processes which result in decentralized assemblages of heterogeneous components. Unlike a species, an ecosystem is not controlled by a genetic program : it integrates a variety of animals and plants in a food web, interlocking them together into what has been called a "meshwork structure". The dynamics of such meshworks are currently under intense investigation and something like their abstract diagram is beginning to emerge. (12)

From this research, it is becoming increasingly clear that small markets, that is, local markets without too many middlemen, embody this diagram : they allow the assemblage of human beings by interlocking complementary demands. These markets are indeed, self-organized decentralized structures : they arise spontaneously without the need for central planning. As dynamic entities they have absolutely nothing to do with an "invisible hand", since models based on Adam Smith's concept operate in a frictionless environment in which agents have perfect rationality and all information flows freely. Yet, by eliminating nonlinearities, these models preclude the spontaneous emergence of order, which depends crucially on friction : delays, bottlenecks, imperfect decision-making and so on. 

The concept of a meshwork can be applied not only to the area of exchange, but also to that of industrial production. Jane Jacobs has created a theory of the dynamics of networks of small producers meshed together by their interdependent functions, and has collected some historical evidence to support her claims. The basic idea is that certain relatively backward cities in the past, Venice when it was still subordinated to Byzantium, or the network New York-Boston-Philadelphia when still a supply zone for the British empire, engage in what she calls, import-substitution dynamics. Because of their subordinated position, they must import most manufactured products, and export raw materials. Yet, meshworks of small producers within the city, by interlocking their skills can begin to replace those imports with local production, which can then be exchanged with other backward cities. In the process, new skills and new knowledge is generated, new products begin to be imported, which in turn, become the raw materials for a new round of import-substitution. Nonlinear computer simulations have been created of this process, and they confirm Jacobs' intuition : a growing meshwork of skills is a necessary condition for urban morphodynamics. The meshwork as a whole is decentralized, and it does not grow by planning, but by a kind of creative drift. (13)

Of course, this dichotomy between command hierarchies and meshworks should not be taken too rigidly : in reality, once a market grows beyond a certain size, it spontaneously generates a hierarchy of exchange, with prestige goods at the top and elementary goods, like food, at the bottom. Command structures, in turn, generate meshworks, as when hierarchical organizations created the automobile and then a meshwork of services (repair shops, gas stations, motels and so on), grew around it. (14)

More importantly, one should not romantically identify meshworks with that which is "desirable" or "revolutionary", since there are situations when they increase the power of hierarchies. For instance, oligopolistic competition between large firms is sometimes kept away from price wars by the system of interlocking directorates, in which representatives of large banks or insurance companies sit in the boards of directors of these oligopolies. In this case, a meshwork of hierarchies is almost equivalent to a monopoly. (15)

And yet, however complex the interaction between hierarchies and meshworks, the distinction is real : the former create structures out of elements sorted out into homogenous ranks, the latter articulates heterogeneous elements as such, without homogenization. A bottom-up approach to economic modeling should represent institutions as varying mixtures of command and market components, perhaps in the form of combinations of negative feedback loops, which are homogenizing, and positive feedback, which generates heterogeneity. 

Manuel De Landa, Markets and Antimarkets in the World Economy, 1996 (via Alamut).

Notes.

4. Geoff Hodgson, Critique of Wright 1 : Labour and Profits in Ian Steedman (ed.) The Value Controversy, Verso, London, 1981, p.93.

5. John Keneth Galbraith, The New Industrial State, Houghton Mifflin, Boston, 1978, p.24.

6. Fernand Braudel, Civilization and Capitalism, 15th-18th Century. Vol 2., Harper and Row, New York, 1982, p.229.

7. Ibid, p.559-561.

8. William H. McNeill, The Pursuit of Power, University of Chicago Press, 1982, p.49.

9. Merritt Roe Smith, Army Ordnance and the "American system" of Manufacturing, 1815-1861 in Merritt Roe Smith (ed.), Military Enterprise and Technological Change, MIT Press, 1987, p.47.

10. Richard Nelson and Sidney Winter, An Evolutionary Theory of Economic Change, Belknap Press, Cambridge Mass, 1982, p.98.

11. Richard Dawkins, The Selfish Gene, Oxford University Press, New York, 1989, ch.11.

12. Stuart Kauffman, The Evolution of Economic Webs in Philip Anderson, Kenneth Arrow and David Pines (eds.), The Economy as an Evolving Complex System, Addison-Wesley, 1988.

13. Jane Jacobs, Cities and the Wealth of Nations, Random House, New York, 1984, p.133.

14. The dichotomy Meshwork/Hierarchy is a special case of what Deleuze and Guattari call Smooth/Striated or Rhizome/Tree. Gilles Deleuze and Felix Guattari, 1440 : The Smooth and the Striated in A Thousand Plateaus, University of Minnesota Press, Minneapolis, 1987, ch.14.

15. John R. Munkirs and James I. Sturgeon, Oligopolistic Cooperation : Conceptual and Empirical Evidence of Market Structure Evolution in Marc. R. Tool and Warren J. Samuels (eds.), The Economy as a System of Power, Transaction Press, New Brunswick, 1989, p.343.