Appendix # 1: Imagination in a Market Society

In a market society, things are first dreamt then they are produced sold and bought. That things are first dreamt is not obscure nor is it particular to the market organization. As thinking organisms, humans by their nature imagine the design of the objects and institutions they produce before they go about producing them. This first kind of imagination is simply the step of planning that we go through in the process of producing making the things around us. The act of planning out a physical form before going on to produce it is what many see as the characteristic that distinguishes human production from that of animals.[1] But while imagination might be one thing in the individual act of production, as soon as individual men step forth into society, their collective plans take on another form. In an economic setting, men first imagine and second produce a good or a service. But in the market economy, a more elusive act of imagination occurs when a good is made into a commodity - when it is bought and sold. To become a commodity, a good is prepared by the seller as an object that has value. To be bought as a commodity, the good and its promises are accepted by the masses as a valuable entity.

Sometimes the act of thinking about a commodity is as mundane as the promise that a farmer makes about the quality of his grain, or the value a supermarket customer sees in a familiar label on rice. In this type of a transaction, the promises made by a producer and accepted by a consumer concern the use value or utility of the good: the value obtained when the material is put to use or consumed. In the parlance of political economy, these mundane commodities might be defined as those for which use value sets an equilibrium value at which the good is exchanged.[2] Even the transaction of such mundane commodities already requires a complex process of collective thought so baffling that modern thinkers continue to describe it in terms of Adam Smith’s ‘invisible hand.’ Markets for commodities like grains and rice are mundane in that they are relatively well understood by microeconomic models of the costs of supply and the utility of demand. But despite the modern quantification of microeconomics, there remains beneath the theories a mystical quality even in the most simple of markets. Only a true cultural conundrum[3] could sustain an explanation as imaginative as Smith’s ‘invisible hand’ among the scientific aspirants of economics.[4]

Yet no real transaction ever takes place in a microeconomic marketplace. From the perspective of the modern economist, this realization stems from the view of quantitative microeconomics as a set of models that only approximate the real nature of economic phenomena. From the viewpoint of a political economist without the scientific aspirations of the modern economist, this same realization stems precisely from the impossible nature of the mythical ‘invisible hand.’ But for the purposes of this study, it is valuable to differentiate between those ‘mundane’ commodities, which are best considered microeconomic, from other more complicated commodities, which only a delusional scientist or a foolhardy philosopher would think of as mundane. This second type of commodity may be defined as one whose transaction is so dependent on the state of the economy as a whole that its values are nearly independent of the costs of production and the utility of consumption. Whereas cognitive planning is constitutive in the production of all physical things, and all commodities possess a certain mystical quality, it is in the transaction of these complex commodities that the economy comes to rely on the assurances of a distinct collective imagination.[5]

In the modern economy, the practice of investment is so routine that the purchase of stocks and bonds often takes on the language of consumption. In one sense, the notion of consumption is relevant even to commodities that will never be consumed: exchange value allows us to think about commodities as possessing an equivalent utility even if they have no material use. Investments have a finite monetary value set by risk and potential gain that can be transferred in the consumption of any other commodity in the market. Modern economists have developed a suite of theoretical mechanisms that quantify confidence and uncertainty in the same way that one might quantify the use value of a sack of rice. These tools are useful to professional economist because they allow him to speak about complex commodities with the same language as Gregory Mankiw when he describes the economics of guns and butter in Principles of Economics.

Since the actual value of an investment can arise only when it is exchanged for mundane goods with actual utility, we might call economists expectations about the value a statistical value: it is the result mathematical calculations that quantify each uncertainty to produce an estimation of the utility the investment can purchase. Although the calculation of a statistical value requires its own sort of imaginative process, mathematical logic gives endows the process of estimation with a certain confidence. But while the investment can stand on its own with a certain statistical value, when it is thought of in relation to all other investments its value melts into the collective imagination. Taken as a whole, confidence in the market value stands not upon real utility or mathematical rigor but drifts like a dream in society.

[1] This notion of the imagination implicit in the productive process comes from Marx’s Capital Volume 1, Chapter 7 Section 1: “A spider conducts operations that resemble those of a weaver, and a bee puts to shame many an architect in the construction of her cells. But what distinguishes the worst architect from the best of bees is this, that the architect raises his structure in imagination before he erects it in reality. At the end of every labor-process, we get a result that already existed in the imagination of the laborer at its commencement.” Available online at http://www.marxists.org/archive/ marx/works/1867-c1/ch07.htm

[2] Use value and exchange value have a long history in the various traditions of Political Economy. In this context, use value is in line with the 19^th century definitions of Marx or Ricardo and also 20^th century conceptions of utility.

[3] For an indulgence in the mystification of what I call mundane commodities, one need look no further than Marx’s essay on Commodity Fetishism in Capital Volume 1. However, as we will see later on in this section, Commodity Fetishism is really quite a different notion from that which I am developing in this piece.

[4] For the manifesto of the modern aspirant scientist, read Milton Friedman’s “The Methodology of Positive Economics,” in Essays in Positive Economics ed. Milton Friedman, 1953.

[5] While the distinction between mundane and complex commodities is made in order to develop a theory of imagined confidence, it is maintained as an arbitrary division. Any good can take on this second more abstract form because any market can be the subject of speculation. There is no such thing as the mundane commodity. However, the values of many commodities are dominated by the microeconomic forces of supply and demand and are only rarely subject to more abstract forces of speculation.