The Rhetoric of the Economy and the Polity, Whether or Not "In Crisis"

The first thing to understand is that there is no world "crisis," not in the horror-movie form your newspaper implies. The "crisis" was a fall of 3 or 4 percent in US national income peak to trough (as against ten times that amount from 1929 to 1933), by now made up. A high percentage of the new unemployed are Americans — unsurprisingly considering that the core optimism was overbuilding in the American Sun Belt (with supplements on the Spanish Costa del Sol and the Irish Coast of Much Rain). The panic of the Americano-centric crisis shifts like a balloon pressed down in one place, pushing up in another: Nevada, Iceland, Illinois, Estonia. But real incomes in the wider world are at all-time highs, and their rates of growth impressive. India, China, Australia, Chile in the past few years have done just fine.

"Crisis" comes from Greek krīnein, to separate, to judge, as at a trial, later extended to the decisive turning point of a disease, the turn towards death or recovery. Some people fear that our Great Recession of 2007-2009 is a prelude to death, the Last Crisis of Capitalism. The left regards such a death as a consummation devoutly to be wished, and has been heralding every recession since 1857 as The End. A recent cartoon in the New Yorker showed a couple looking back at a bearded man who had just walked past them in a prophet's robes, holding a sign: "The End is Still Near." Says the woman: "Wasn't that Paul Krugman?" During the 1980s the late Richard Rorty would go around claiming that the Savings-and-Loan "Crisis" was just that, the last judgment of capitalism. He could not be persuaded to think of it as a bad bet by owners of shopping malls, tiresome but normal in an innovative economy. "Dick, their bets proved wrong, and surely there was a good deal of scamming, too. But the magnitude relative to all economic activity is too small to be a world crisis, or even a national one. We Americans are selling Rockefeller Plaza to the gullible Japanese. Good for us. Quit worrying." "No, no: look at these amazing numbers. Billions, billions! Capitalism is finished!"

The rhetoric of a "crisis" takes the headline today as the outcome tomorrow. Thus the Marxist geographer David Harvey points to the crisis in Southeast Asia in 1997 as typical of IMF-sponsored cuts in real wages (Harvey 2010). Fair enough. Yet he does not acknowledge the long-run good of the innovation thus secured — even in Southeast Asia, whose incomes for poor people now exceed what they were before the "crisis." The Mexican debt crisis of 1982 was followed by a decade of stagnation, true, and very nasty, though not the fault of the IMF. But now the real income per head of ordinary Mexicans is above its level in 1981, and is growing pretty smartly.

People want to think of our recent troubles as portentous, revealing deep scandals about the sinners amongst us, or to be exact amongst you-bad-not-us. The rhetoric sells newspapers, because we like being told that Bad People Did It. It is the master narrative of journalism, after all, from Rachel Maddow to John Stossel. The Democrats point to the greed on Wall Street during Bush II, and want you to draw the inference that Wall Street needs to be regulated much more closely. And anyway bankers are bums. They do not acknowledge that banking is already the most regulated industry in the country, and the stock market is not far behind. The Republicans point to the congressional instructions to Fanny May during the Clinton administration to offer mortgages to poor folks, and want you to draw the inference that subsidies to the poor are dangerous. And anyway the poor are bums. They do not acknowledge that Bush II also pushed for wider home ownership.

About all this an economic historian will tell you to quit worrying, or rejoicing, or scolding. The capitalist business cycle seems to have started in the eighteenth century (Ashton 1959). Since 1800 — the onset of manic innovation in the world's economy — we have experienced some three dozen business cycles, roughly half a decade from peak to peak (Reinhart and Rogoff 2009). The very word "cycle" embodies the scientific hope that the ups and downs could be seen as a pulse, a regularity that can be predicted and therefore to some degree smoothed, as ventricular tachycardia can with procainamide, amiodarone, or sotalol. But a more reasonable diagnosis, suggested by the parallel onset in the eighteenth century of financial crises and unprecedented innovation, a new thing under the sun, is that booms and busts arise from uncorrectable optimism and pessimism about novelties — housing in 2007, dot-coms in 2000, shopping malls in the 1980s, stretching back to the housing-and-auto boom of the 1920s, the merger boom of the 1890s, the railway booms of the 1840s and 1850s, the canal boom of the 1830s (after which many American states defaulted on bonds sold to the gullible British; and Americans traveling in Britain were made to feel unwelcome). People make mistakes. The economic historian asks, cheekily, "So what else is new?" She has seen the capitalist economy revolutionize life for poor people over the past two centuries, raising real incomes by 2000 percent and more. It's been a factor of 21 and more, much more. The merely 2 percent that median real per capita GDP has stood below its levels in 2007 for all the advanced economies (with the non-advanced economies of India and China, containing about 40 percent of the world's people, still rising) is not nice. Because of the wealth effect of slumped housing prices it may persist longer than we would like (Reinhart and Reinhard 2010, p. 2; Gjerstad and Smith 2009, 2010). But on the scale of modern economic growth — that 2000 percent — 2 percent is hardly a crisis unto death.

Ups and downs, in truth, have always been with us. Crisis is endemic to capitalism. But it is also endemic to non-capitalism. It is endemic to human lives, for time and chance happeneth to them all. One could achieve zero variability in an economy by forcing people to do in the future exactly what they did in the past, in an endless Groundhog-Day routine. But nature and violence upset even this conservative paradise. Earlier economies had war-disease-and-harvest ups and downs, as do nowadays rigorously centrally planned economies like North Korea's. Seven years of plenty gives way to seven years of famine. In medieval England, with incomes per head at about $1 a day in U.S. 2010 prices, killing famines occurred every decade or so (McCloskey 1976).

The central peculiarity of capitalism is not the accumulation of capital, which has always taken place since the Romans built roads and the Chinese canals. That sounds paradoxical, but only because the word "capitalism" was adopted by its enemies a century and a half ago, and then was adopted perversely even by its friends, before we had gotten straight what was going on. The central peculiarity, we at last discovered starting the in mid-20th century, is not piling brick on brick, but innovation (Solow 1957; Pollard 1964; McCloskey 2010, p. 138). We are in the Age of Innovation, and the Age of Capital is a consequence, not a cause. Astounding novelty in machines and organizations is what has enriched us by a factor of 10 or 21 or 100 (depending on which "us" you are talking about), anywhere from 900 to 9900 percent. Innovation is of course about the future, the optimism of a new steam engine or of a new way of handling inventories. The ups and downs happen because people sometimes make mistakes. In fact they usually do: who could have predicted the future of the internet in 1990? As Yogi Berra said, prediction is difficult, especially about the future.

The big news an economic historian can bring is that in long historical perspective the temporary busts are not getting worse and are not leading to a reserve army of unemployed — though any economist is alarmed by the upward trend over the past few recessions in the number of people unemployed for more than 26 weeks (some of whom are my personal friends). Business cycles are nasty. But they are routine, and have not with one exception been the catastrophes implied by the headlines, and never the Last Crisis. Because they originate in human optimism about innovation they cannot be eliminated without damaging the engine of innovation. We need to help their victims (Rachel Maddow applauds), while worrying, too, about how much the help, such as minimum wages and generous unemployment insurance, causes people to wait too long for better jobs (John Stossel applauds).

What has not been routine, and is the Great Fact of modern life, the most surprising secular news since the domestication of plants and animals, is the rise of real income per head from $3 a head in 1800 to $30 a head worldwide now, and to $137 a head in a thoroughly innovative and educated (and oil-blessed) Norway, and over $100 a head in any of the twenty or so modern economies. Corrected for the improved quality of modern medical treatment and transportation and housing the figure is in fact to be accounted much larger. How much would Carnegie have paid in 1886 for the undiscovered penicillin that would have cured his mother's fatal pneumonia? How much would an ordinary person have paid in 1850 for a Model T Ford? Two centuries after 1800 the world supports more than six-and-half times more souls. Yet contrary to a pessimistic Malthusian belief that population growth would be the big problem, the average person nowadays earns and consumes (conservatively measured) almost ten times more goods and services than in 1800. In Norway forty-two times more. Despite the disturbing pauses for the forty recessions that have roiled the world's economy since 1800, nearly every trough of a business cycle has been followed in a few years by a new all-time peak in the welfare of the wretched of the earth. The cases of very long recoveries were those from the two world wars, now distant (Maddison 2006, pp. 439-441). Starvation worldwide is therefore at an all-time low, and falling (Ó Gráda 2009). Literacy and life expectancy are at all-time highs, and rising. Liberty is spreading. Slavery is retreating, as is a patriarchy enslaving of women.

The course of capitalism has been jagged. But it has been jagged markedly upward. The optimism of the upswings has left us with real innovations, such as steam railways or hedged mortgages, which we do not want to lose. Let us therefore not become panicked by every "crisis," and set about dismantling such an engine of relief for poverty. The past two centuries of economic growth have done more to help the world's poor than any activity by governments or charities or trade unions. Consider trade unions. The struggle by unions for higher wages and better working conditions have inspired many good songs and many good people. But the struggle to get a higher share of the pie for union members leaves out non-union members, who have always been a high percentage of the workforce in the United States. The notion that a better deal for union workers will somehow spill over into better deals for the rest of us is bad economics. If the size of the pie is pretty much fixed — the underlying assumption of classical economics and of union logic — then higher pay for auto workers implies lower pay for auto mechanics — which is not on its face an event to be celebrated in songs by Woody Guthrie and history books by progressive historians. The economist H. Gregg Lewis painstakingly estimated the effect of unions 1967-1979 on wages of their members relative to comparable non-members and found it to be, as an upper bound, rather small: some 14 percent (Lewis 1986). My uncle, who was himself a union electrician in Michigan, paid high union wages for his employees gladly, he said, because he passed on the expense to the factories and hospitals and school buildings that he wired. Oh, good. But who pays that? Other workers. There's no one else to pay it. As Pogo the Possum said wisely in Walt Kelly's cartoon strip, "We has met the enemy, and he is us."

And if the pie was not fixed but in fact expanded explosively, as it did 1800 to the present, and especially 1900 to the present, then a shift solely in the size of the slice going to workers as a whole (setting aside that it would in fact go only to the minority of union members) would anyway play a small role in their betterment. Workers in the United States and elsewhere grew radically better off from 1800 on, and 1900 on, and even from 1970 on — start to finish 2000 percent better off as a lower bound — not because they went down and joined the union but because of innovations that made the pie larger. For one thing the maximum of 14 percent of "concessions" extracted by bargaining or strike don't come close to accounting for the great magnitude of rise in the real wage. It's two orders of magnitude too small. And for another the non-union people shared nearly equally in the explosive gain, even though they were paying as consumers for the fancier wages for union electricians in Michigan. And for still another there's not enough profit at any one time — usually 10 or 15 percent of national income — to raise the level of the laboring rest of national income by a factor of even two, that is, 100 percent, much less the factor of twenty-one it in fact rose after 1800. Expropriating 15 percent of national income claimed by the wretched profiteers and transferring it to the 85 percent earned by us workers — if that was all that was happening —  would raise our income only 18 percent. It's a long, long way from 2000 percent.

Even so Romantic and conservative and pessimistic an observer as Samuel Taylor Coleridge in the pessimistic year of 1817 could write — while setting the gain beside the loss from the business cycle so evident in that dismal year — "I am not ignorant that the power and circumstantial prosperity of the nation has been increasing during the [past sixty years], with an accelerated force unprecedented in any country, the population of which bears the same proportion to its productive soil; and partly, perhaps, even in consequence of this system. By facilitating the means of enterprise, it must have called into activity a multitude of enterprising individuals and a variety of talent that would otherwise have lain dormant" (Coleridge 1817 [1858], p. 235). Just so.

Attacking the markets in financial derivatives (say) would be like attacking the markets in grain — which of course has been done regularly in political economy. We were optimistic about railways and mortgage-backed securities. We therefore overbuilt in the 1840s and in the 2000s. So? What could we have done otherwise, without an extraordinary foresight denied to anyone under the sun? The philosopher Stanley Cavell notes that "certainty must mean invulnerability to the future." But, he goes on, it is unattainable because of "our exposure to the world" (Cavell 2010, p. 359). If the impending crisis was obvious, as so much of the scolding rhetoric of retrospection implies, why did we suffer it to happen? And if we knew in our hearts that the rascals in the 2000s were overbuilding housing and overselling the mortgages on them, why didn't we profit from such wisdom? We should have sold short in 2007, and would now be as rich as John Paulson (Lewis 2010). I've not heard of any economist or financial journalist who did so, not even Paul Krugman or Michael Lewis.

And the second thing to understand is that the economy is always already rhetorical, and therefore the talk around banking and stocks and inventories and unemployment is of course rhetorical. Market chatter, Federal Reserve Board minutes, "Coke is the Real Thing," Krugman columns, bargaining for a job, persuading a banker to back an invention, negotiations for the next shopping mall — all are rhetoric.

That is, they are non-violent attempts to change peoples' minds. "Rhetoric" is not to be used as a term of contempt. A headline such as "Senate Campaign Mired in Rhetoric" is a misuse of an ancient and admirable practice of changing people's minds by sweet words rather than by jailing them or waterboarding them. The very word "persuade" has the same Indo-European root as "sweet." Sweet talk is often good, not bad, and anyway it is sweeter than the violent alternatives.

Even people who should know better, though, use "rhetoric" as a way of attacking the words of people they do not like. I of course argue by means of true facts and cogent logic. You, however, descend to a merely tricky rhetoric of stories and metaphors. Even the estimable Albert Hirschman, among the few economists with humanistic tastes and a classical gymnasium education, wrote a book called The Rhetoric of Reaction (1991), in which he criticized conservatives for using stories and metaphors to persuade, being "rhetorical," when he, a progressive, was of course not (he does in a final chapter note that progressives have their own rhetorical foolishness; but throughout his book a rhetoric is to be seen through, to Reality). We already have an ample supply of words in English for bad speech — exaggeration, hyperbole, embellishment, misrepresentation, lie, prevarication, falsehood, deceit, deception, fraud, con, swindle, hoax, dishonesty, bull shit — and don't need another. Yet the rhetorical tetrad of fact, story, logic, and metaphor characterizes all human thought. Models in physics are, after all, metaphors (Cartwright 1983). We need a neutral word for "non-violent persuasion" by fact, story, logic, and metaphor. It might as well be the word used for 2500 years in the West, with Eastern analogues. Sneering at rhetoric as "mere" is like sneering at parliaments as "talk shops" or "debating societies," as for example the Italians did in 1922, or as people do nowadays about the United Nations. We have no other way to negotiate, avoiding physical violence. Better keep talking, and know it.

Since Thomas Kuhn we have known that science is rhetorical. If science studies since him and his children and grandchildren had to be summarized in one phrase it would be, "Scientists [for example economic or political scientists] are human speakers." We are still working out the consequences. Even mathematics has a rhetoric, that is a rise and fall and rise again of, say, geometric or algebraic or calculative methods of proof. I wrote a book in 1985, on the back of all this, arguing that economics, too, was rhetorical in no shameful sense, a persuasive community of rhetors" (McCloskey 1985). Niels Bohr remarked once that physics is what we humans can say about the physical world. An economic science, like a physical science, is words all the way down.

But I gradually realized that the economy, too, is rhetorical. An economy is continuously negotiated with words. It is an old discovery, one that Adam Smith made his own and that later economists could have remembered. Since the 1870s we so-called "neoclassical" economists for example have realized that economics is about what happens between people's ears, which should have alerted us to the crucial rhetoric of the economy. People have preferences, matters of discourse and delight, which constitute one side of determining the value of things. They have technological ideas, arising from open conversations, which constitute the other sides of determining the value of things. Preferences and technologies change continuously in an innovative society. The innovations are new ideas. That is to say, an economy is a conversation. (Some of our cousins among the Marxist economists have come to the same conclusion, after Gramsci [Ruccio and Amariglio 2003]).

The point is that that the economy is very largely about persuasion, because it is negotiated and innovative and above all because it is about a future to which we are vulnerable. That, as I said, is why there are business cycles. It is irritating, of course, that economists can't predict the future. But they can't, and for a deep reason that ought to be more widely appreciated among political scientists: if you were so smart you would be rich. If you think the subprime mortgages were so obviously "insane," as the retrospective rhetoric puts it, I repeat, why ain't you rich? You are a fool, therefore, to listen to predictions on CNBC. But likewise (I say to the political scientist) you are a fool to predict with regression analysis the outcome of elections, beyond the obvious. Or to spurn words because of your great love for a tough-guy "realism" in international relations.

There is something strange about neoclassical economics of the "Samuelsonian" sort practiced in most departments of economics these days, and in many departments of political science, too, and in a large swath of political theory since Machiavelli as well. It is: nobody is supposed to talk — except to say yes/no to offers expressed in numbers of dollars. Meaning, and the ethics of a good conversation, are absent. "Toyota Avalon in good condition: $9,600." "No." The automobile customer might feel moved to add, "Because I can get the same for $9,400 down the street, you creep: shame on you for charging more than he does!" The seller might be similarly moved to say something like, "My good friend, that would be a mistake: the seller down the street is a liar and cheat." But in the economic theory of markets such ethical remarks lack point. They are, as the game theorists put it, mere "cheap talk." They do not signal anything of import, precisely because they are cheap. If they worked, and if there were no more constraints by verbal agreement than Machiavelli or Hobbes or Mandeville or Bentham or Gary Becker or Judge Richard Posner posit, then everyone would use them, and therefore they would stop working.

Is it a scientific problem that Samuelsonian economics and its mathematics of social entities has no room for talk, which humans do so much? Not necessarily. That some people are left-handed is not something that economics needs to acknowledge, unless perhaps an economist were studying the market for scissors. Institutional economists of an older variety often claim that Samuelsonian economics is, say, bourgeois, and suitable therefore only to the Bourgeois Era. You will hear them claiming that an African economics suits Africa, and an Indian economics India. The Samuelsonian economist merely smiles and carries on taking her first partial derivatives.

But if a certain activity bulked very large in the economy — larger than most foreign trade, say, or larger than investment expenditure — then a scientific suspicion would be aroused. And that is the case for talk. In particular, meaningful persuasion beyond mere transmittal of offers and acceptances and information is in fact a startlingly large item in a modern economy. We economists might have to stop ignoring the rhetorical fact.

Is it a fact? David Lodge's novel, Nice Work, shows an English professor, Robyn Penrose, seeing that the managing director she was assigned to watch was first and last a persuader:

It did strike [her] that Vic Wilcox stood to his subordinates in the relation of teacher to pupils. . . . She could see that he was trying to teach the other men, to coax and persuade them to look at the factory's operations in a new way. He would have been surprised to be told it, but he used the Socratic method: he prompted the other directors and middle managers and even the foremen to identify the problems themselves and to reach by their own reasoning the solutions he had himself already determined upon. It was so deftly done that she had sometimes to temper her admiration by reminding herself that it was all directed by the profit-motive. (Lodge, 1988/1990, p. 219).

About a quarter of national income, to be statistical about it, and to speak of many people motivated by profit of a Max U character, is earned from such merely bourgeois and feminine persuasion: not orders or information but persuasion, sweet talk. One thinks immediately of advertising, but in fact advertising is a tiny part of the total. Take the detailed categories of employment and make a guess as to the percentage of the time in each category spent on persuasion, as against physical manipulation or even information transmitting or even the giving and getting of direct orders. For example, read down the roughly 250 occupations listed in "Employed Civilians by Occupation" for 2005 (Table 602, pp. 388-391) in the Statistical Abstract of the U. S. (2006) looking for the jobs with a lot of sweet-talking, or on the contrary the jobs without any of it. The 125,000 "appraisers and assessors of real estate" are not in an honest economy open to human persuasion, as any American knows who has had a house appraised recently, though in an extended sense their whole job is to listen to the market for housing talk. The 243,000 firefighters just do their jobs, with little talk — although one sees here the depth of sweet talk in a modern economy, because of course a firefighter with colleagues in a burning building does actually a good deal of talking, and sometimes engages in urgent persuasion. The 121,000 aircraft pilots and flight engineers persuade us to keep our seat belts fastened until the plane arrives at the gate and the seat-belt sign is turned off. But that's a trivial part of their job — though again think of the supervisory roles they often assume, and the sweet talk needed to keep the crew cooperating. Malcolm Gladwell notes that co-pilots from hierarchical societies cannot bring themselves to warn their senior pilots, even unto literal death. Bad sweet talk, "mitigated speech," causes crashes (Gladwell 2008, p. 194). The 1,491,000 construction laborers are not known for persuasive language, except in the old days when a pretty girl walked by, such as Dil in the movie The Crying Game. But anyone who has actually worked in such a job knows the necessity to get cooperation from your work mates, to soothe the feelings of the boss, to be a regular guy or gal: sweet talk. But set all those jobs aside.

Out of the 142 million civilian employment in 2005 it seems reasonable to assign 100 percent of the time of the 1,031,000 lawyers and judges to persuasion, or being an audience for persuasion; and likewise all the 154,000 public relations specialists and the large number of "Social, recreational, and religious workers" (such as counselors, social workers, clergy), 2,138,000 of them persuading people how to live.

Managers and supervisors of various sorts are the biggest category to which it seems reasonable to assign a somewhat lower figure, 75 percent of income earned from sweet talk. In a free society the workers are not merely peremptorily ordered about, to be beaten with knouts if they do not respond. They need to be persuaded. What the U. S. Census Bureau styles "managerial occupations," such as CEOs, school principals, marketing managers, and the like are a massive 14.7 million, fully 10 percent of the labor force. Adding the "first-line supervisors" scattered over all sectors — which I suppose similarly to be a workforce earning 75 percent of its earnings from persuasion — such as in construction and personal services and gaming (i.e. gambling) workers, adds another big 5.5 million. Add 380,000 for personal financial advisors. The 150,000 editors and (merely) 89,000 news analysts, reporters, and correspondents are probably 75-percent folk. They imagine themselves to be doing "straight reporting," but it doesn't take much rhetorical education to realize that they must select their facts persuasively and report them interestingly in sweet words. Likewise the enormous 13.4 million of salespeople (which excludes 3.1 million cashiers) are reasonably put down as 75-percent sweet talkers. "The dress is you, dear." It may even be true. In my experience, actually, it usually is. We exaggerate the amount of lying that salespeople engage in. People do not like to see themselves as liars. They are not always only prudent in raising their commission.

At 50-percent persuaders we can put down loan councilors and officers (429,000: like judges, they are often professional audiences for persuasion, saying yes or no after listening to your sweet talk, and gathering your information), human resources, training, and labor relations occupations (660,000: "Mr. Babbitt, I just don't think you have much of a future at Acme"), writers and authors (we are merely 178,000), claims adjusters and investigators (303,000), and a big category, the 8,114,000 educational, training, and library occupations, such as college professors (1.2 million alone) and nursery school teachers.

A mere quarter of the effort of the 1,313,000 police and sheriff's patrol officers, detectives and criminal investigators, correctional officers, and private detectives, one might guess, is spent on persuasion. That's what they'll tell you (actually the ones I've talked to put it at higher than a quarter; one way of backing all this up would be to do in-depth interviews, probing in a job for sweet talk as against mere information or coercion or physical activity; or riding along in the squad car and listening). In health care anyone who has worked in it knows that sweet talk is important, to get the patient to stay on his medicine, of course, and to coordinate with other care-givers, to advocate for the patient, to deal with insurance companies and hospital administrators (some of whom are included above in the managerial category). But the large group of "health care practitioners and technical occupations" needs to have the technical occupations (x-ray technicians, medical records technicians, and so forth) removed, leaving physicians, dentists, nurses, speech pathologists, and so forth actually talking to patients and each other, for a total of 7,600,000 talkers persuading for a quarter of their economic value. Perform the mental experiment (which is still another way to back it up): imagine a speech pathologist, an occupation I am familiar with, with no persuasive skills whatever, a mere transmitter of the "information" that a child need not be ashamed of being a stutterer when Winston Churchill and Margaret Drabble were, and imagine how much less valuable she or he would be. The 353,000 paralegals and legal assistants figure in the one-quarter category, too. The quarter, I repeat, sounds low.

The occupations I mention alone, without hunting in putatively un-persuasive categories like mail carriers or bus drivers or "life, physical, and social science occupations" (within which are buried many of the persuasive economists and law professors themselves), amount to 36,100,000 equivalent workers — that is, weighted by 1.0, 0.75, 0.50, or 0.25 as the case warrants and then added up. That was in 2005 about a quarter of the income-earning numbers of private employees in the U. S. Weighted instead by dollar incomes, considering the big role for managers and supervisors (about 20 million, remember, out of all the 142 million workers), who are of course paid much more — these days sometimes grotesquely more — than the people they persuade to work hard and long and well, the share would probably be larger still.

In explaining the fact of 25 percent of national income being sweet talk a temptation of the modern economist is to try to model it in the style of Samuelson, as the outcome of still another adventure of the prudent-only person, Mute Max U. (I say "Mute" because we are talking about talking here, and Samuelsonian economics does not talk about it.) The modern Samuelsonian economist does so because it is her only model. If something — love or justice or courage — does not fall within a utilitarian maximization subject to a resource constraint, she has nothing to say. But language, I am suggesting, unless reduced to bits of information, as it cannot entirely be so reduced, cannot be modeled as Mute Max U.

The limits and patterns of human speech do of course limit and give pattern to the economy. Some conversations are impossible in humans. At the most abstract level, some sort of Chomskyan limits of deep structure might possibly apply, though it seems doubtful. Perhaps there are deals, orders, desires, plans that would be possible in a language of another species but are interestingly impossible, or at any rate difficult, in human language. Beings that were not differentiated individually, for example, such as slime mold, would find orders naturally persuasive in a way that humans do not. Wittgenstein said that "to imagine a language is to imagine a form of life" (Wittgenstein, 1953 [2001], remark 19). He might as well have said that to imagine a form of life is to imagine a language. "It is easy," he said in the same place, "to imagine a language consisting only of orders and reports in battle." An army that is something other than a gang of Homeric heroes clashing one-on-one in single combat is a form of life that responds to particular orders issued by particular people. The phalanx on the left flank moves when the general speaks, as though it were an organism and not a collection of free citizens of Athens.

But the binding constraints are much more likely, it seems to me, to be matters of pragmatics and socio-linguistics than matters of syntax and vocabulary. I have a friend, a Dutch woman, who built a vacation home on a Greek island. She found that within Greek society it was impossible, simple impossible, for a woman to tell a male contractor what to do. Her contractor ignored her requests, and she was forced to hire another Greek, a man, to give the orders. Even that did not work perfectly: her indirectly transmitted order to have large waste pipes for the toilets was ignored, with the result that — as is common practice in rural Greece — her soiled toilet paper is not flushable. There's an economic effect.

The formal attempts to extract any interesting constraints that language places on economic behavior from sheer logic or even from an enriched logic of the rules which linguists call conversational implicatures has not borne fruit, and seems unlikely to. The attempt of the game theorist Ariel Rubinstein to do so shows how little can be expected even from very canny ruminations on evolutionarily stable strategies or a supposition that the equation ψ = [φ(x,y)∩φ(y,z)∩T]→φ(x,z) is a tautology (Rubinstein, 2000). The problem is that language is not just about syntax but about semantics, meaning. It's not just about rules of information transmittal, but the changing of minds by sweet talk. It's not just about silent behavior, but rhetoric. When Thoreau was informed by some technophile that on account of the new system of telegraphs "Maine could speak to Texas," he replied: "But does Maine have anything to say to Texas?"

But economics still has something to say. To Texas. The economist and rabbi Israel Kirzner put his finger on what a free society achieves, from which we can understand how meaningful language works in one. "It [is] highly desirable to choose among alternative social arrangements those modes of organization that minimize [ignorance of knowledge that can be absorbed without decision and search, by the sheer noticing of it]. . . that is, those modes of organization that generate the greatest volume of spontaneous, undeliberate learning" (Kirzner, 1979, p. 147, 145). His assertion runs against the love of explicitness in modern life, the proliferation of handbooks on leadership and of axiomatizations of thinking. Surely, the handbook-writer avers, we need to transmit through a conduit to the student's mind numerous bits of information, and if this can be centrally planned, all the better. Every schoolchild in France is on the same page at the same hour of the same day, thanks to the planners in Paris. But real innovation, Kirzner is saying, entails real ignorance, that us, "knowledge about which nothing is known" (1979, p. 144).

It can be put economically: known knowledge (shades of Donald Rumsfeld) earns its normal reward. If you know how to read a balance sheet you do not on that account alone become Warren Buffett, because so many other people know how to read a balance sheet. Unknown knowledge, on the other hand, generates supernormal profits. When sometime before 1211 an anonymous Florentine invented the idea of a double-entry balance sheet, then he, or his Italian imitators, could pick up the profit from the innovation, and did (Origo, 1957/1986, p. 109). Once the reading of balance sheets is widely known, however, the supernormal profits fell to zero.

It is still a good idea for people to learn to read balance sheets, engaging in "search" that has a known reward to the MBA graduate or law student who engages in it. The opportunity cost of such searching may be good for the society, as against a worthless search for, say, learning to read the stars astrologically. But it is not an innovation. National income does not actually fall, since learning to read balance sheets has a marginal product equal to its opportunity cost, at the margin, and therefore has intramarginal gains ("rents" economists call them, if not the "supernormal" profit of real entrepreneurship), whereas learning to read the stars does not. The intramarginal reward to routine learning sustains the national income. As a matter of fact, as an economist can persuade you in one of her maddening diagrams, it simply is the national income. But national income will not riseunless the innovation is Kirznerian.

"The ease of calculation provided by money," writes Kirzner, "is thus not merely a device for lowering transaction costs relevant to deliberate search," as the Samuelsonians claim (Kirzner, 1979, p. 150). "It represents a social arrangement with the ability to present existing overlooked opportunities in a form most easily recognized and noticed by spontaneous learners." Kirzner makes a parallel point in his writings on entrepreneurship.

Kirzner's analysis is correct so far as it goes. What is missing from it, however, as from most economics after the blessed and humanistic Smith, is language. The alertness that Kirzner thinks of as the essence of entrepreneurship involves language in its fulfillment. Unfulfilled it is just another bright idea. The necessary, next entrepreneurial step — which Kirzner does not treat — of persuading oneself, a banker, a supplier, an employee, a customer, oneself is rhetoric all the way down. In consequence a community of free speech briefly unique to Northwestern Europe after 1700 or so, for example, "represents a social arrangement with the ability to present existing overlooked opportunities in a form most easily recognized and noticed by spontaneous learners" (Kirzner, p. 150).

The crucial point was discovered in 2007 by Sarah Millermaier, who argues in the way of Jürgen Habermas that communication is after all a cooperative game (Millermaier, 2007). A real conversation, "communicative action," in Habermas' words, "specifies which validity claim a speaker is raising with his utterance, how he is raising it, and for what" (1981 [1984/1987], p. 278). I would say that a real conversation entails serious and self-conscious rhetoric. What Habermas calls "strategic" speech is on the contrary a reading through the speech to the "underlying" interests. It is speech meant to achieve a result external to the practice (to use, as Millermaier does, the language of still another student of these matters, Alasdair MacIntyre). Millermaier observes — and here with MacIntyre and myself — that the conversation must be ethical and the ethics must be of the virtues. Therefore what I am calling "real conversation" must draw on the seven principle virtues (McCloskey 2006). Habermas constrains communicative action on the level of logic, pragmatics, and participation.

Think of an academic discussion — perhaps one on how the way that language works in an economy adumbrates a humanomics going far beyond the prudence-only, Benthamite-Samuelsonian routine on which economists have been grinding for so long. Imagine contrary to the urgings of Rawls or Habermas or MacIntyre or McCloskey that the main speaker is not trying earnestly to uncover the truth, say, or to learn from the audience by listening, really listening. Suppose instead that he is focused entirely on some result external to the practice of serious scientific inquiry — getting a job offer that will raise her salary at home, perhaps; or demonstrating to the admiring audience how very intelligent she is. Imagine that the audience is similarly engaged in a non-cooperative game (the old Industrial Organization seminar held at the Law School of University of Chicago in the 1970s was like this when certain members were present, and others absent). Such a boys' game may be fun to play. But it is not serious conversation. It is not science — except in those cases in which the science is run on boys' rules.

If speech is merely strategic, a non-cooperative game, then the only virtue in play is prudence. Every attempt to characterize speech by a well-trained Samuelsonian economist is going to try to reduce it to such prudent tactics. Economics is after all the pure theory of prudence. It is natural to the rhetoric of economics since Bentham and especially since Samuelson to imagine that all behavior is reducible to that of the charmless, amoral, unloving, and above all calculating fellow, Mute Max U.

Millermaier's point is that such a reduction is corrupting of real conversation. It makes impossible the mutual formation of meaning which much of our economic life is about, and depends on. We engage in polite chatting around the water cooler and are able thereby to cooperate with our colleagues. If we engage in it obviously for that purpose, though, people catch on, and we find it more difficult to gain cooperation. An economistic way to make the point is a paper by Paul Ingram and Peter Roberts in the American Journal of Sociology, "Friendship Among Competitors in the Sydney Hotel Industry." They find that the friendships among competing hotel managers in the 40 Sydney hotels in their study generate about $2.25 million Australian more of gross revenues per year per hotel — for example, through recommendations of the competing hotel when it is fully booked — than would be generated by a hotel with friendless managers (p. 417). So far so good for Max U and Judge Richard Posner. They add, however, "the critical caveat that the instrumental benefits of friendships are inextricably tied to the affective element," that is, you can't successfully fake friendship (p. 420; compare Mueller 1999, p. 39). The faithless ones get found out. Considering the depth of skill among primates in performing and detecting falsehood, this is not surprising. Both Prudence and Solidarity work. "Individuals who try to form and maintain friendships solely as a means to material gain will fail to evoke trust and reciprocity." That is, Prudence Only will not work, and so "those who would limit the intrusion of society into economy by . . . characterizing embedded relationships between buyers and suppliers as predictable outcomes of a repeated, non-cooperative game" are mistaken (Ingram and Roberts 2000, p. 418).

That's another reason that prices and meanings cannot be sheer, silent, prudence-only, non-cooperative games. It would be like insisting that married people only deal with each other instrumentally, in the style of a Beckerian marriage between "M" and "F." They never talk to meaning. They are never ethical in any other way than honoring the virtue (as it is) of prudence. As Millermaier observes, for another example, programs of corporate ethics that declare themselves as "using" values to achieve Mute Max U's goals will undermine the cooperative and widely ethical game that makes language and ethics and innovation and an over-$100-a-day economy possible.

The conundrum of language in the economy, then, cannot be solved within Mute Max U models. To the extent that language is reduced to Mute Max U it ceases to exhibit one defining characteristic of human language, which — I hope you believe by now — is not the mere transmission of information but the making of meaning and the imagining of novelties:

The mind, that ocean where each kind
Does straight its own resemblance find;
Yet it creates, transcending these,
Far other worlds and other seas,
Annihilating all that's made
To a green thought in a green shade.

To put it another way, the Mute Max U model fits only with the so-called "conduit metaphor" of communication, which would be good news if human communication were largely a matter of transmitting preformed messages between minds, such as orders or information. But Mute Max U does not fit at all with a rhetorical theory of language. It ignores the scientific/humanistic findings of Ludwig Wittgenstein or Kenneth Burke or J. L. Austin or Philippa Foot or Jürgen Habermas or Alasdair MacIntyre or Richard Rorty, according to which the outcome of a conversation is not just additional propositional information but forms of life, a rhetoric of motives, a speech act, a virtue ethics, a public sphere, a practice, a new pragmatism. If these were just silly theories amusing to the effete snobs in the Department of English but unworthy of the tough, masculine science of economics, and econowannabe sciences like political science or modern finance or law-and-economics, then economics could go on ignoring them. But they are in fact the best thinking about language that the 20th century offered. It would be unscientific to go on insisting that all we economists can talk about is our old, if unreliable, friend, the implacably silent Mute Max U.

The dream of wordless honesty that underlies criticisms by George Soros and others of the wretched rhetoric of The Crisis cannot be fulfilled. That the economy is rhetorical brings the economists and the political scientists and the rest unhappily to language, which they have been fleeing all these years, and to an ethics beyond prudence-only, ditto. For example, one of Martha Nussbaum's amazing once-and-sometimes-twice-a-year books, Frontiers of Justice: Disability, Nationality, Species Membership (2006), attempts eloquently to add the love of others to the accepted axioms of political philosophy. She criticizes on this count the strictly Hobbesian/ Gauthieresque contractarian's assumption of Prudence Only; or the Lockean/ Rawlsian contractarian's Prudence-With-A-Version-of-Justice. In a bumper-sticker version of a complicated project, Nussbaum's book is about love-adding, bringing in our care for others from the start.

She says that such a supplement will preserve the prudence-only, contractarian program in political philosophy — the masculine "strength" and parsimony of which she sometimes admires — yet yield a civil society that treats with appropriate dignity the severely handicapped, the old, the foreigners in poor countries, and the animals. Throughout the book she defers to John Rawls, whom she evidently loved and esteemed. In criticizing David Gauthier's strictly economistic, Prudence-Only contractarianism, however, she makes a point which undermines Rawls and is I think very important in itself. I want to call it the Nussbaum Lemma:

The Nussbaum Lemma

I think it implausible [she writes] to suppose that one can extract justice from a starting point that does not include it in some form, and I believe that the purely prudential starting point is likely to lead in a direction that is simply different from the direction we would take if we focused on ethical norms from the start (p. 57).

The Nussbaum Lemma is profoundly right, and it is — as she shows in her book — devastating to the project since Hobbes in 1651 of pulling a just rabbit out of a purely prudential hat. You can't get virtue J from a starting point consisting only of virtue P. Virtue J has to be in from the start. You have to put the rabbits into the hat if you are going to pull them out.

A technical implication, and Nussbaum's point in effect throughout — although as I say she bows respectfully towards Rawls — is that the Lemma applies also to Rawls' argument. Prudence in Rawls is supplemented by the justice — imitating features of the Veil of Ignorance, similar to the Veil of Uncertainty in the earlier writings of James Buchanan and Gordon Tullock (Buchanan and Tullock 1962). But as can be proven on a blackboard or in actual societies depending on ones intellectual tastes, it is implausible to suppose that one can extract full justice towards the handicapped, the globally poor, or the animals from a starting point that does not already include love of others and full justice, at the start, in some veiled form if you wish. That is Nussbaum's theme.

Another and less friendly technical implication is that the Nussbaum Lemma applies also to her own project in her own book. You can't stop with prudence, justice, and love of others. It is implausible to suppose that one can extract faith, temperance, hope, courage, the fullness of love — which is connection, including connection with nature or science, or God, or the poor —  and other qualities constituting as I have claimed human flourishing from a starting point that does not, in Nussbaum's words, "include them in some form." And it seems likely that attempting to do so will lead in a direction that is simply different from the direction we would take if we focused on ethical norms from the start.

What of it? This: political and economic philosophy needs to be done with all seven of the virtues, not merely with some cleverly axiomatized sub-set. My point, and Nussbaum's if she would but admit it, is that to characterize people with one or another of the boy's-own "models" said since 1651 to suffice for theories of justice or politics will not do. Characterizing humans as Prudent Only, or even as prudent and just, with love of others tacked on, will not do. People also have identities (faith), and projects (hope), for which they need courage and temperance, those self-disciplining virtues. And they all have some version of transcendent love — the connection with God, the traditional object, though the worship of science or humanity or the revolution or the environment or art or rational-choice models in political science have provided modern and Enlightened substitutes for Christianized agape.

The usual reply, as Nussbaum notes, is that political theory is only concerned with the minimum conditions for a peaceful society. The other virtues are supplementary — thus the Humean terminology of "artificial" and "natural" virtues, following Pufendorf. But the reply does not appear to work. The artificial virtues of prudence, temperance, and justice regularly need the protection, so to speak, of the natural virtues of courage, love, faith, and hope. After all, that is Nussbaum's point — that a society without love of handicapped children or of the foreign poor is flawed. Often enough the flaw causes the collapse of the artificial virtues themselves, as when an unloving contempt for animals brutalizes a society in its attitudes towards human justice. Likewise, without what James Buchanan calls an "ethic of constitutional citizenship," a constitution that originates from merely the selected virtues of prudence and justice, even if cleverly axiomatized, will not survive. This pessimistic conclusion has been the theme of much of Buchanan's work, especially since the 1960s. The implication is that the virtues of faith and courage and hope must somehow arise to protect the constitution of liberty.

Beyond the "protective," ancillary role of the natural virtues in sustaining even the minimum conditions for a peaceful society, the entire set of seven virtues is necessary to get the project going in the first place. This is important. Full, speaking human beings — not saints, but people in possession of their own whacky and personal and, alas, often idiotic versions of all seven human virtues — are the only beings who would be interested in forming a human society. The point is similar to the one that the British sociologist of science Harry Collins makes about the ever-receding promises of artificial intelligence (Collins 1990). What we mean by human intelligence, such as the common sense that the AI group in Texas has signally failed to program, arises out of having been a human child. An automaton would have to be raised as a beloved child, with the DNA to respond, in order to have the full-blown human intelligence we seek to replicate. The zoon politikon, in other words, is a human, not an automaton, and has much more than prudence, justice, and a secular version of love.

To put it still another way, suppose you have in mind to make fully flourishing human being (or fully flourishing living beings tout court, if you include the animals, and even the trees). If this is your end, namely, a society consisting of such beings, then your social-scientific means must as Nussbaum says "focus on ethical norms from the start." You have to put the rabbits into the hat. In order to have a society that shows prudence, justice, love, faith, hope, courage, and temperance you need to arrange to have people who are . . . . prudent, just, loving, faithful, hopeful, courageous, and temperate "from the start."

The "start" is called "childhood," mostly ignored in Western political philosophy (it is not, by the way, in the Confucian tradition). A political/ economic philosophy needs to focus on how we get in the first place the people who are prudent, just, loving, etc., and who therefore would care about the capabilities of good health, emotional attachment, affiliation, etc., or about the appropriate constitutional changes to obviate prisoners' dilemmas, or about the categorical imperative, or about the greatest happiness. This is what feminist economics has been saying now for two decades, and what also comes out of some development [note the word] economics, and even, sometimes reluctantly but always persistently and embarrassingly, out of such unpromising-looking fields as game theory, experimental economics, behavioral economics, realist international relations, the new institutionalism, and constitutional political economy.

The excellent little primer on ethics by the late James Rachels begins with a "minimum conception of morality" underlying any ethical system whatsoever. In describing "the conscientious moral agent" at which the analysis must begin Rachels selects unconsciously from the seven virtues. The conscientious moral agent will be in part "someone who is concerned [that is, who has love, connection] impartially [who has justice] with the interests [having prudence to discover these] of everyone who is affected [justice, love, faith]. . . ; who carefully sifts facts [prudence again]. . . ; who is willing to 'listen to reason' [justice plus temperance = humility]. . . ; and who, finally, is willing to act on the results [courage]" (Rachels 1999, p. 19). Since all this is quite an arduous task, a bonum arduum, as Aquinas put it, a hard-to-achieve good, he'd better have hope, too.

That is, ethics, even the political ethics we call political theory, must start from an ethical person imagined as The Ethicist or The Political Theorist — who turns out to have all seven of the Western virtues. The rabbits are already in the hat. Think of how impossible it would be to come to the conclusions of Kantian or utilitarian or Sen-Nussbaum or Buchanan-Tullock political ethics if The Ethicist or The Theorist did not already have the character Rachels praises of concern, impartiality, carefulness, humility, courage, and so forth. Frankly, my dear, he wouldn't give a damn.

Annette Baier made a related point, and one related to Nussbaum's project, about characteristically male ethical theories. "Their version of the justified list of obligations does not ensure the proper care of the young and so does nothing to ensure the stability of the morality in question" (Baier 1994, p. 6). It is not merely a matter of demography. It is a matter of more fundamental reproduction, as the Marxists say. Somehow the conscientious moral agent assumed in the theories of Descartes and Kant and Bentham and Buchanan and Rawls and Nussbaum must appear on the scene, and must keep appearing generation after generation. "The virtue of being a loving parent," Baier says, "must supplement the natural duties and the obligations of [mere] justice, if the society is to last beyond the first generation." Imagine a human society with no loving parents, talking, talking, talking to their kids. We have examples in children war-torn and impoverished, boy soldiers or girl prostitutes. One worries — perhaps it is not so — that the outlook for them becoming conscientious moral agents, and making a society in which humans (or trees, for that matter) can flourish, is not very good.

What is required for any ethics, in other words, is a conscientious moral agent, a virtuous person. Virtuous: namely, having the seven virtues in some idiosyncratic combination. Kant himself said so. In his Reflections on Anthropology he praised "the man who goes to the root of things," and who looks at them "not just from his own point of view but from that of the community," which is to say (wrote Kant), der Unpartheyische Zuschauer. The phrase is precisely the contemporary translation of Adam Smith's ideal character from whom at least the artificial virtues are said to flow, the Impartial Spectator. Adam Smith's system in The Theory of Moral Sentiments was the last major statement of virtue ethics before its recent revival in departments of philosophy and especially among female philosophers. Especially in Part VI of the Theory, added in 1790, he reduced good behavior to five of the seven virtues: prudence, justice, love ("benevolence"), courage ("fortitude"), and temperance (the last two being "self-command") (Smith 1759/90, p. 236). Hope and faith and transcendent love are absent, as monkish, but the ideal bourgeois he praises in the early pages of Part VI slips them in anyway, secularly, as Smith did in his own life.

By admitting that der Unpartheyische Zuschauer begins his system, Kant undermines it, since the impartial spectator is not derivable from maxims justified merely on grounds of pure or practical reason. Kant's system is supposed to ground everything in maxims that a rational being would necessarily follow. It doesn't. What Peter Berkowitz said about Kant's political philosophy could also be said of his ethical philosophy, that he "makes practical concessions to virtue and devises stratagems by which virtue, having been formally expelled from politics, is brought back in through the side door" (Berkowitz 1999). Or as the philosopher Harry Frankfurt puts it,

There can be no well-ordered inquiry into the question of how one has to reason to live [such as Kant's], because the prior question of how to identify and to evaluate the reasons that are pertinent [that is, those favored by a conscientious moral agent, the Impartial Spectator] in deciding how one should live cannot be settled until it has first been settled how one should live. . . . The pan-rationalist fantasy of demonstrating from the ground up how we have most reason to live is incoherent and must be abandoned.

Frankfurt 2004, pp. 26, 28.

It's parallel to the pan-rationalist fantasy that we can achieve a rhetoric outside of rhetoric.

You might well say to all this philosophical heavy lifting, Valley-Girl style, "Duh! We need to raise children with ethical values, a rhetorical task of talk and example? People need to be persuaded by sweet words to be good already in order to want to be good? Double duh!"

I agree. But the intellectual tradition of economists since 1789 and of political scientists since 1969 does not wish to acknowledge — especially at the start — all the virtues in a flourishing being, and certainly does not want to speak of the rhetorical means by which such virtues are formed. It wants to start simply, with a nearly empty hat, such as "Pareto optimality," and then pull from it a complex ethical world. It wants to reduce the virtues to one, ideally the virtue of prudence, and derive the other virtues, such as a just polity, from the prudence. It does not want to talk about how we arrange through speech to have on the scene in the first place an ethical actor who by reason of her upbringing or her ongoing ethical conversations wishes the greatest happiness for the greatest number, or the application of the categorical imperative, or the following of constitutional instructions from behind a veil of ignorance.

It hasn't worked, not at all, this boy's game, and it's time that economists and political theorists admitted so. A rhetoric-less social philosophy does not respond to whatever "crisis" we think we are having — because the crises are rhetorical, which is not to say (you will understand by now) that they are inconsequential. So-called "welfare economics" has recently shown some faint stirrings of complexity in ethical thought, as in the works of Amartya Sen, and more in the works of younger economists and philosophers inspired by his tentative forays. But Amartya has not brought his humanistic learning about classical Sanskrit (the first systematic grammar in the world was in that holy tongue) to his social-scientific study of behavior. And most academic economists and political theorists, such as Buchanan and Nussbaum, cultivated as both are (Buchanan in Italian, Nussbaum in Greek) continue working the magician's hat.

The hat does not contain a living theory of moral sentiments. Instead of a nice set of seven cuddly rabbits, the theorists have supplied the hat with a large, Victorian, utilitarian parrot, stuffed and mounted and fitted with marble eye. Sen complained of the "lack of interest that welfare economics has had in any kind of complex ethical theory," and added: "It is arguable that [utilitarianism and]. . . Pareto efficiency have appealed particularly because they have not especially taxed the ethical imagination of the conventional economist" (Sen 1987, p. 50). Time to give the dead parrot back to the pet store — though the economist/salesman will no doubt keep on insisting that the utilitarian parrot is actually alive, that Pareto optimality will suffice, that though the parrot appears to be dead, kapot, over, a former parrot, he is merely pining for the fjords.

Yet there is a criticism of the rhetoric of the financial industry to be made, and the study of rhetoric helps in making it. The philosopher Hilary Putnam has argued that epistemology comes down to ethics: "to claim of any statement that it is true . . . is, roughly, to claim that it would be justified were epistemic conditions good enough. . . . To say that a belief is justified is to say that it is what we ought to believe; justification is a normative notion on its face" (Putnam 1990, pp vii, 115). That is to say, it comes down to speaking honestly. Like Putnam, Cavell, Rom Harré, Paul Feyerabend, J. L. Austin, and William James, I declare that the only scientific method is to honestly seek the light and try to persuade your colleagues by sweet talk.

Consider, for example — and like the wordless realism and behaviorism that has corrupted political theory — the governance of the modern American corporation. The sociologist Rakesh Khurana shows that the "agency theory" of the economists in business schools replaced after the 1970s the "managerialist ideology" that had provided the very reason for business schools in the first place:

Agency theory dissolved the idea that executives should be held — on the basis of notions such as stewardship, stakeholder interests, or promotion of the common good — to any standard stricter than sheer self-interest. How could they if they were incapable of adhering to such a standard in the first place? Students were now taught that managers, as a matter of economic principle, could not be trusted: in the words of Oliver Williamson, they were "opportunistic with guile.". . . [Agency theory, Khurana continues,] represented, within the confines of a "professional school," a thorough repudiation of professionalism.

Khurana 2007, pp. 323-324.

Agency theory in the business-school form can be dated from an article by Milton Friedman, reprinted in the New York Times magazine in 1970, with a truncated title supplied by the editors: "The Social Responsibility of Business Is to Increase Its Profits." Khurana cites the economist Michael Jensen, one of the chief proponents of the new and corrosive theory, as taking Friedman's article as the manifesto of the movement — though, by the way, Khurana and Jensen and most other people have read too hurriedly the crucial sentence, in which Friedman says that managers should increase the stock value of the firm subject to the norms and laws of the society — which is a rather different principle than "the public be damned." They might better have read Friedman — or Mill, or Smith — more widely.

Yet the tendency in the Chicago School of the 1970s cannot be doubted. The same notion that all actors are creatures of Prudence Only had animated the "public choice school" founded at the University of Virginia a decade earlier by James Buchanan (PhD Chicago) and Gordon Tullock (JD, and honorary doctorate in economics, Chicago). It animated, too, the "property-rights" economics inspired by Ronald Coase (who was a bridge between Virginia and the University of Chicago), and perfected by Armen Alchian of UCLA and Harold Demsetz of Chicago and then UCLA. The "law and economics" movement founded then by Coase, Aaron Director (Friedman's brother-in-law, and long at the Law School of the University of Chicago), and in extreme Max U form by Richard Posner (at Chicago and judge of the Seventh Circuit Court) takes Prudence Only as its motto, as does the "economic theory of regulation" founded again in the 1970s by George Stigler and Sam Peltzman at Chicago (with helpful supplements from the left by the historian Gabriel Kolko). My own school of "new economic history," invented by Douglass North at Washington (another Chicago School department at the time) and by Robert Fogel, who was at Rochester (still another Chicago School department) and then at Chicago itself, tried to find out how far Prudence Only would go in history (Fogel at length concluded: only so far). Crucially for our present troubles, the "quantitative finance" invented in the 1970s by Robert Merton at Pennsylvania and by Myron Scholes, Merton Miller, Eugene Fama, and Fischer Black at Chicago was another influential venture in agency theory and Prudence Only. All the Chicago economists strode past meaning — love, temperance, courage, justice, faith, hope — and fixed on the individual agent's prudent self-interest, like a prudent blade of grass. In his study of marriage, for example, Gary Becker elevated self-interested exchange between agents he called "M" and "F" to the whole purpose of the institution, and put the word "love" in scare quotes.)

Yet meaning matters in business as much as love in a marriage or courage in an army or justice in a court of law contrary to agency theory. The Great Recession gave us all some perspective on how agency theory works. The deepest problem in agency theory in any of its forms (public choice, law and economics, finance, whatever) is the same as the problem in prudence-only political theory, subject to the Nussbaum Lemma. The theory declares that one has an "obligation" to make profit (and further that the economic analyst has an "obligation" to articulate such a theory, always, and has an "obligation" not to talk about the ethics of managerial or scientific obligation, since these are matters of value about which one has an obligation not to dispute). But where does the obligation come from? It comes in fact from the ethical responsibilities of a manager to her professionalism, her stewardship, her stakeholders' interests, or her promotion of the common good. The agent is not a pure Prudence Only, Max U creature after all, just as the Hobbesian selfish individual is not. In the very theory that denies ethics to the agent she is imagined to be driven by an ethic, albeit a tacit and abbreviated one. Immanuel Kant fell into a similar self-contradiction when he claimed to base ethics on reason alone, yet gave no account of the reasons an agent would want to act on reason (McCloskey 2006 , pp. 179-280, 338). In truth, the agent wants to act because she attributes meaning to her life, as a manager or a civil servant or an economist or an ethical philosopher. She is a human with an identity, not a Max U calculating machine like grass or bacteria or rats. Ask any businessperson. I know personally a very successful one, a banker, who tells me that she has never been good at "saluting," that is, going along with whatever imprudent or unjust plan her boss proposes. She's not a yes-woman, and is valuable in some businesses precisely because of that ethical identity beyond Maxine U. It's not always good for her career, not always maximizing her personal prudence. But she can look at herself in the mirror in the morning.

And so the scolders have their way in the end. If we have a crisis it is one of ethics. Bad People (mainly Bad Men) did it. But the baddest men are the political theorists and business-school professors who recommend an approach to the politics of life that omits the virtues. Is that you, looking at yourself in the mirror?