On understanding economic reality at the beginning of the twenty-first century: an essay in remembrance of Professor Laski

Falkinger, Josef Article On understanding economic reality at the beginning of the twenty-first century: an essay in remembrance of Professor Laski European Journal of Economics and Economic Policies: Intervention (EJEEP) Provided in Cooperation with: Edward Elgar Publishing Suggested Citation: Falkinger, Josef (2019) : On understanding economic reality at the beginning of the twenty-first century: an essay in remembrance of Professor Laski, European Journal of Economics and Economic Policies: Intervention (EJEEP), ISSN 2052-7772, Edward Elgar Publishing, Cheltenham, Vol. 16, Iss. 3, pp. 403-419, https://doi.org/10.4337/ejeep.2019.0051 This Version is available at: https://hdl.handle.net/10419/277459 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ On understanding economic reality at the beginning of the twenty-first century: an essay in remembrance of Professor Laski Josef Falkinger* Department of Economics, University of Zurich, Switzerland Economic objects are objects which are produced by employing inputs and valued by applying a valuation procedure. In a market economy the valuation is performed by the price mechanism. Ideally market prices reflect the scarcity values corresponding to individual preferences. This article argues that new technologies and business models call the separation of production and valuation into question and thereby challenge the theoretical foundation of the market economy. In particular the finance and data industry turns beliefs and preferences from exogenous individual characteristics into produced objects. As a result, at the beginning of the twenty-first century economic activity shifts from the production of objects to the production of values and prices. The paper adopts a classical perspective and uses the production and reproduction scheme to outline a model of the smart economy. A smart economy is an Internet-based economy which employs (artificially intelligent) robots to produce sensor-enabled objects via which the behavior of consumers can be tracked and directed. The robots are owned by capital-owners who employ agents for developing the robots, designing databased devices and business models, managing them, and financing them. The owners and their agents employ workers to complement robots and to provide personal services. The paper proposes investing more into the production and reproduction of consumer sovereignty, active citizenship, and the res publica, in order to avoid a dystopic brave new world. The author sketches an agenda for the maintenance and renewal of the institutions of a free and democratic society by confronting the smart economy with core concepts of European enlightenment: secularization, constitution and rule of law, separation of powers, nation state, education, and market order. Keywords: economic realism, smart economy, big data, market failure JEL codes: B51, D40, D46, B80 1 INTRODUCTION Laski has been a compass in my life as economist. Besides humanity, a belief in scientific analysis, and robust modeling, it is in particular his real view of the world that provided one with a sense of orientation for complex relationships. But what is a realistic approach to an economy dominated by beliefs in financial markets and attention focused through the internet or wisdom inferred from big data? * Email: [email protected]. I want to thank two anonymous referees for their helpful comments. My particular thanks go to Michel Habib for many valuable discussions. Received 29 December 2018, accepted 09 July 2019 European Journal of Economics and Economic Policies: Intervention, Vol. 16 No. 3, 2019, pp. 403–419 First published online: October 2019; doi: 10.4337/ejeep.2019.0051 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd The Lypiatts, 15 Lansdown Road, Cheltenham, Glos GL50 2JA, UK and The William Pratt House, 9 Dewey Court, Northampton MA 01060-3815, USA I got to know Laski in the 1970s as one of my formative teachers in economics (the other one was Professor Rothschild) and later as co-author and colleague. From him I learned that a good way to start with economic realism is to approach economics from the perspective of production. It is the classical approach: Individual actors in the economic process ‘were classified by means of turning the social groups known to common experience into the three categories of economic types (or ‘functional’classes): landowners, laborers, and capitalists’; the types represent the ‘factors, or requisites –or instruments (Senior) –of production’(Schumpeter 1954: 554 and 557). So one question to be answered for understanding economic reality at the beginning of the twenty-first century would be: What are the current common-sense categories of participants in the economic process and how are they linked to their role in economic production? Obviously production in our times is quite different from production in the times of Smith, Ricardo, or Marx. In particular, economic activity is not bound to physical production. Somehow, all aspects of modern life seem to be the object of economic activity. In Section 2 I will therefore take a stand on the notion of economics and economic production. Then I will try to discipline myself, in a kind of experiment, by adopting the classical scheme of production and reproduction to new economic realities. I could get some acquaintance with the role of this scheme for the theory of value and distribution as co-author of Laski (in Falkinger/Laski 1983) and of course as a student of macroeconomics in the Kaleckian tradition. There is another important element in this tradition which should be kept in mind. When asking what economic production is and what its prerequisites are, we should in particular distinguish ‘between those components … which are active determinants …and those which rather passively follow’(Laski 1987: 9). 2 ON THE APPROPRIATE NOTION OF ECONOMICS AND PRODUCTION: A PROPOSAL In my view, economics is the science of economic objects. An economic object is an object plus a value attached to the object. As a rule, the objects are produced objects. So one could also say economics deals with the production and valuation of objects. From a social perspective the value of an object depends on who has access to the object. Therefore ‘valuation of objects’includes ‘distribution of objects.’ For classical economists, the nature of objects was more or less obvious: basic goods (corn) for the mass of workers, produced means of production (steel, machinery) for increasing the capacity of production, and things for the amusement of the rich. ‘The poor, in order to obtain food, exert themselves to gratify those fancies of the rich, and to obtain it more certainly, they vie with one another in the cheapness and perfection of their work’(Smith 1776: 183). Since resources, in particular labor, determine the wealth of nations and its distribution, the costs of production were considered as the basic anchor for assigning values to objects. In richer economies the diversity of economic objects rises. This explains why the notion of choice became important when the so-called neoclassical school took over. 1 Resources, means of production and their distribution were considered as givens; the question was how to use them efficiently. In the words of Jevons (1871: 267, emphasis in original): ‘The problem of Economics may, as it seems to me, be 1. Of course, there may be other reasons as well –ideological ones or the desire to be acknowledged as a natural science. The latter is explicitly expressed by Walras (1874: 75): ‘It is absolutely impossible for us …to include the question of the production of social wealth, any more than the question of its distribution, within the scope of natural science.’ 404 European Journal of Economics and Economic Policies: Intervention, Vol. 16 No. 3 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd stated thus: Given, a certain population, with various needs and powers of production, in possession of certain lands and other sources of material: required, the mode of employing their labour which will maximize the utility of the produce.’Individual preferences are now the anchor for valuing objects. They are taken for ‘ultimate data,’which ‘constitute the irrational element in our universe of discourse’(Robbins 1932: 38, emphasis in original). 2 The ‘givens’in Jevons’s quote are of course no ultimate data, nor are the individual preferences. Humans are social beings formed by education and exposed to social influences; advertising played a role in the twentieth century, too. Still, the notion of individual preferences as subjective determinants of economic value captured an important feature of reality: Choices have become feasible. To outsource the problem of valuation to subjective factors is legitimate in the course of scientific progress by specialization under two conditions: First, that utility or preferences are not themselves core matter of business activity, that is, produced objects. Second, that the outsourcing is not an act of denial, and economics takes into account what other disciplines such as philosophy, psychology, or sociology have to say on preferences and their formation. The second condition may be quite often missed in practice, but not in principle; accounting for it is a matter of scientific professionalism and intellectual honesty. The first condition, however, changes with economic reality. In my view a characteristic feature of economic reality at the beginning of the twenty-first century is that the production of preferences and value assignments has become a significant economic industry. Therefore it must be integrated into the scientific economic analysis just as is the production of commodities. Valuation of present and future objects on the basis of individual preferences requires mature and autonomous personalities who choose in their interest. Yet to be mature and reasonable is not enough. In addition, people must be able to arrange all existing and potentially producible objects in a complete order. Assuming such completeness may be acceptable as long as the set of all possible alternatives is poor. But who would honestly claim to account for all consequences of the full set of globally available possibilities nowadays? We all rely, knowingly or not, on experts and tools which filter and evaluate opportunities instead of us. In other words, in an informationand variety-rich economy, professional businesses emerge for bringing objects and values to our attention. At the beginning of the twenty-first century such businesses are as generic as the production of commodities. Salient examples are: the new finance industry, message control, production of media attention, and personalized marketing. I will address them in more detail after the next section, which deals with the production of commodities. 3 DETERMINING VALUES AND PRICES BY FUNDAMENTALS Laski’s economic thinking has been clearly shaped by Kalecki, about whom he writes in a powerful portrait for the New Palgrave:Kalecki‘was impressed especially by Marx’s schemes of reproduction’which he used in a modified form to explain his approach; but he ‘was rather allergic to the labour theory of value and to dogmatic Marxism altogether’(Laski 1987: 9 and 10). I think it is fair to say that Laski was equally allergic to the labor theory of value. This becomes apparent in his review (Laski 1978) of Steedman’s 2. A broad survey of the views on wealth and wants in the history of economic thought can be found in part one of the book on Satiation: Moral and Psychological Limits to Growth (Falkinger 1986). Economic reality at the beginning of the twenty-first century: in remembrance of Professor Laski 405 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd book Marx After Sraffa (Steedman 1977). 3 In this review, after paying tribute to the decisive role of Sraffa’sProduction of Commodities by Means of Commodities (Sraffa 1960) in the refutation of the neoclassical distribution theory, Laski emphasizes Steedman’smeritin showing how Sraffa’s book also undermines the labor theory of value. In classical economic thinking, economic values were based on objective grounds. Techniques of production and subsistence requirements of workers are the fundamentals which determine prices and distribution in an economy in which workers produce goods with the help of intermediate materials and machinery. Because materials and machines are themselves goods produced by workers, labor is the ultimate productive force. In its simplest form (without fixed capital), the production technique of such an economy can be described by an (n×n)-matrix Aof inter-industry coefficients and a (1 ×n)-vector a of direct labor coefficients. 4 Then the ‘prices of production’are given by the (1 ×n)-vector p¼ð1þrÞ½pA þwa;(1) where pA is the cost of the intermediate input requirements and wa is the cost of the direct labor input at money wage rate w. On top of these costs, prices have to cover the profit claims of the capitalists represented by costs times profit rate r. Solving equation (1) for p, we obtain p¼ð1þrÞwa½I−ð1þrÞA−1:(2) Adding to (2) a numeraire condition, for instance p1¼1, we can calculate for each feasible profit rate the corresponding producer prices as well as the wage rate. The latter is a strictly monotonously decreasing function of the profit rate. At r¼0 the wage rate reaches its maximal value, wmax, that is, the wage rate (in units of the numeraire) which results if all income goes to workers. Evaluating (1) and (2) at r¼0 and w¼wmax;we have the (1 ×n)-vector vof ‘(labor) value prices’: v¼wmaxa½I−A−1:(3) These value prices are proportional to labor values, which measure the value of a good by the units of total labor required –directly and indirectly –for producing one unit of the good. In (3), labor values would result with w¼1 instead of w¼wmax. By using wmax; values are adjusted to the same numeraire ðv1¼1Þas producer prices ðp1¼1Þ. Like producer prices, labor value prices also vary with technical change (that is, changes in Aor a). Goods are produced by direct and indirect labor. Yet labor itself is a ‘produced good,’ too. In order to live and to be productive, the labor force has to be nourished. This gives us a further type of fundamental: the goods basket consumed by workers. Let bbe an (n×1)-vector representing the basket per unit of labor. Of course, to be affordable, b must satisfy the workers’budget constraint w¼pb. In contrast to the money wage rate w, which equals the value of basket bin terms of production prices, the value of this basket in terms of labor value prices is given by ω¼vb;(4) where ωis the value wage rate. This shows, if workers spend their wage wfor a different bundle of goods b′, also satisfying budget constraint w¼pb′, then the value wage rate changes to ω′¼vb′. 3. See also Laski (1976) and Laski (1979). 4. The following exposition follows Falkinger/Laski (1983). 406 European Journal of Economics and Economic Policies: Intervention, Vol. 16 No. 3 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd From a Marxian perspective, the real nature of capitalistic production is shown by the labor value prices, in particular by the surplus value, that is, per unit of labor, the value produced by labor, wmax;minus the value of what labor actually gets, ω:This gives the rate of exploitation: e¼wmax −ω ω:(5) Obviously, as well as ω;the rate of exploitation ealso changes if the consumption structure of workers changes. The labor theory of value is refused on the basis of two main arguments. First, in general labor value prices cannot be transformed into producer prices without going back to their common sources: technology (A,a) and subsistence requirements (b). And, second, the rate of exploitation, or other distributional measures using labor value prices, gives no appropriate guidance for class struggle or distribution policy. If technology and consumption structure change in the course of development, the situation of workers may worsen in terms of producer prices even though it improves in terms of value prices, and vice versa. 5 Kalecki –as well as Laski –based his distributional analysis on technology and power relations, in particular market power. Firms set prices by charging on variable unit costs, c, a mark-up to cover fixed costs and profit claims. Accounting for material costs, on top of wage costs, the price of final output, p, is given by the equation p¼ð1þμÞcwð1þιÞ;cw¼wa;ι¼cM=cw;(6) where μis the mark-up ratio, wand aare the wage rate and labor coefficient, respectively, and ιis the ratio of unit material cost, cM;to wage cost. While cwis the wage income, μcwð1þιÞis the profit earned per unit of output. For the wage share, this gives us: 6 α¼1 1þµð1þιÞ:(7) Mark-up ratio µis determined by the power relations in the economy such as market power in the goods or factor markets, bargaining power, lobbying power, or information advantages. In a Marxian labor value interpretation, µwould mirror the degree of exploitation. With the familiar neoclassical workhorse model of monopolistic competition (Dixit/Stiglitz 1977), power is pushed aside and µreduced to a preference parameter: the elasticity of substitution. Despite my Laskian education, to a large extent my professional life as an economist took place within the framework of general equilibrium theory. So let me conclude with a short discussion of prices in this framework. In a Walrasian equilibrium, prices are determined by an economy’s endowments, E, the distribution of endowment, Ei;the distribution of income, ϑi;production techniques, T, and individual preferences, ≾i: 7 p¼p½E;Ei;ϑi;T;≾i:(8) 5. What remains is that the profit rate is positive if and only if the rate of exploitation is positive –a fact which was called ‘Fundamental Marxian Theorem’(see, apart from Steedman 1977, Morishima 1973 and Roemer 1981). 6. The exposition follows Laski (1987: 10). Note that, per unit of output, total income is cwþµcwð1þιÞ: 7. The notation is quite loose; it should record in an easily readable way the full list of price determinants in general equilibrium theory. A thorough presentation of the theory is given in the textbook of Mas-Colell et al. (1995). Economic reality at the beginning of the twenty-first century: in remembrance of Professor Laski 407 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd It is evident that present-day mainstream economics is to a large extent far off the standard model of general equilibrium analysis. In particular, the role of wealth and income distribution for the allocation and pricing of goods is often ignored. But here I want to point to a different aspect: The Walrasian equilibrium assumes markets for all goods and pricetaking in all markets. In reality, we have imperfect competition in many markets, and not all economically relevant activities are fully covered by markets –markets are incomplete. In my view, a rational approach to economic analysis must account for these two facts. In contrast to the equilibrium prices in an ideal market economy, in a realistic model of a market economy prices are distorted by two factors: market power and missing markets. We can keep this in mind by modifying (8) to: p¼ð1þδÞp½E;Ei;ϑi;T;≾i;δ¼µþξ;(9) where δis a vector with µrepresenting mark-up ratios due to market power and ξrepresenting distortions coming from incompleteness. 8 At this point it might be worthwhile to say a word on (post-)Keynesian versus neoclassical economics. I had the privilege of becoming acquainted with both paradigms at their best and have no mission to promote or defend one school against the other. Economic thinking is relevant if it is rigorous and captures essential features of reality. In the context of this essay, to use the wage basket language (b) or the preference language (≾) is a matter of convenience. The essential point, in my view, is: Neither reproduction requirements nor preferences have ever been exogenous in a strict sense. Yet exogeneity of b,and later of ≾, has been an acceptable abstraction. This is no longer true in an informationand variety-rich economy dominated by ‘smart’business models and technologies. Recent technological developments and business models have led to important new channels through which companies influence market power and preferences, or create markets and quasi-markets. In terms of pricing equation (9): µ,ξ, and ≾become produced objects. In the remainder of this essay I want to elaborate this point and discuss its consequences. 4 PRODUCTION OF VALUES AND PRICES BY MEANS OF INVESTMENT I give three examples which illustrate that contemporary economies produce, along with commodities, values and prices by shaping beliefs and preferences. 4.1 Financial markets: spreading beliefs by means of financial products (or innovations) For investing current means into the creation of future opportunities, households and firms rely on financial services provided by the financial sector. The complexity of financial markets brings forth a privileged role for financial agents who design and price financial products. Apart from specific expert knowledge, 9 large funds are the basis of this privileged role. In an efficient market, financial product prices ‘at any time “fully reflect”the information available’(Fama 1970: 383). Hayek is a bit more precise with regard to which information is 8. As to ξ, it is important to see that prices in existing markets are also affected if things go on outside markets. Moreover, in the market-dominated approach to economics, there are many attempts to find quasi-market values for things for which no proper market exists, for instance environment, intangible assets, etc. 9. Gennaioli et al. (2015) speak of ‘money doctors.’ 408 European Journal of Economics and Economic Policies: Intervention, Vol. 16 No. 3 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd available. It is ‘the information that is in fact dispersed among all people involved in the [price formation] process’(Hayek 1945: 526). Now, to be involved in the price formation process in the financial market you need deep pockets. 10 So, in my view, in a realistic picture of contemporary financial markets we have on the one side a group of agents which create financial products and price them by arbitrage trade; and on the other side we have the mass of households and firms who do not participate in this trade. For them, the set of financial products and their prices are givens, produced and set by the financial agents. For the sake of illustration, take for instance a two-period one-good economy with sϵS risky states and a set of Arrow-securities ðzsÞsєS: One unit of asset zs, purchased in period 1, pays one unit of the good in period 2 if state sis realized. Suppose there is a set of riskneutral financial agents ( f) with unlimited access to funds, which trade these assets. Then, in a free-asset market, prices ðqsÞsєSof the Arrow-securities will be given by the condition qs¼πf sQ;(10) where Qis a constant and πf sis the belief of financial agents about the probability of state s. Constant Qfixes the asset price level ðQ¼ΣsqsÞ. A household with savings K, which wishes to insure the future consumption stream out of K, will allocate Kon the Arrow-securities according to the financial agents’beliefs: 11 Ks¼πf sK:(11) In sum, asset prices as well as the investment structure are determined by what financial agents do and believe. 4.2 Competition for attention and interpretation (framing): controlling perception and diversity by media impact In standard economic theory, a requirement of rationality is that preferences are complete; that means that individuals can order the set of all possible goods. Let Udenote this universe of goods and denote by ≾Uthe preference order on U. Contemporary economies offer a tremendous variety of all sorts of objects –from variants of food to convenience and luxuries, from culture and entertainment to more or less useless gadgets and even noxious stuff. Contrary to what is often assumed implicitly, people cannot pick what they like most from the plethora of things. Free choice is only possible among things that we know. Let Mbe the set of perceived objects and denote by ≾Mthe preference order on M. In a variety-rich economy, M⊊U:Preferences and thus the general equilibrium of the economy, in particular the prices (see (8) and (9)), are subject to the filter M. In an information-rich economy, information exposure exceeds the informationprocessing and perception capacity of people. Attention is guided towards salient signals so that prominently placed items have a higher chance to be part of focus M: names and objects presented on the front page or ranked top on a list, links shown first in answers to queries or viral news. So ≾Mis the outcome of competition for attention. In other words, individual preferences are a produced object, produced by the efforts of attention-seeking agents and companies. Under ≾U, an object outside Mmight dominate an object in M; 10. Technically the condition of free arbitrage requires that agents have access to unlimited funds. 11. To achieve equal pay-offs across states, the portfolio must satisfy the condition Ks=qs¼const: With (10) the condition is equivalent to: KsQ¼πf sconst:Summing over s, we have const =K/Q and thus (11). Economic reality at the beginning of the twenty-first century: in remembrance of Professor Laski 409 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd nonetheless no value is assigned to them and no market price. I have analysed the principal structure of such an economy from a general equilibrium perspective in Falkinger (2007) and some further work. There is another important issue which is often obscured by the impressive diversity presented in global media like the Internet. Salience is a positional good and prominence tends to be highly concentrated. The ‘ecology of information’in the Web follows a lot of power laws (Huberman 2001) which generate highly concentrated patterns of impact. As a result, in an information-rich economy with global media, individuals tend to have access to a larger variety of objects and ideas, but more individuals depend on the same set of objects and ideas – chosen by the laws of the Web rather than by individual preferences. 4.3 Personalized markets: construction of selves by exploiting data In the first half of the twentieth century, revealed preference theory proposed to recover preferences from observed behavior. The second half of the century pointed to the limits of this approach and showed that, in general, preference revelation is impossible by conventional economic mechanisms. It is kind of an irony of history that economic reality at the beginning of the twenty-first century is full of tools which track our preferences online and via direct sensors attached to our selves. The idea of revealed preferences is to take observed behavior, in a conventional model the quantity offered or purchased at the prevailing price, and look at which preference order could replicate such behavior. Unsurprisingly, the market does not generate sufficient information for recovering individual preferences. But, contrary to markets, current technologies like cookies or sensor-enabled devices make direct tracking of an individual feasible –in all spheres of life, online and offline. This leads to an inversion of the standard economic model, in which preferences are exogenous and markets confront all individuals with the same price (‘law of one price’), to a model in which preferences are produced and prices are tailored to each individual. A good way to illustrate the inversion is the vision of the ‘selfish ledger’presented in an internal Google video which was leaked to the media in May 2018. 12 Under the heading ‘Lamarckian user data’the video picks up Lamarck’s notion of an ‘internal code within every living thing’and informs us: ‘When we use contemporary technology a trail of information is created in the form of data. When analysed, it describes our actions, decisions, preferences, movements, and relationships.’In sum ‘this ledger of our data may be considered …a constantly evolving representation of who we are.’Thus the ledger of user data not only knows our preferences but everything else –what we know, what we are able to do, how we choose, how we interact with others, how we change, and what changes us. Yetthisisnottheendofthe‘Lamarckian user data’story. The ledger representing the information of who we are is not a private matter; individuals are only ‘carriers’of information for the species. This allows Google to add missing data in our ledgers and to combine the information in the individual ledger with collective experience. In a further step, the code of who we are could be enhanced artificially. ‘The ledger could thus be given a focus, shifting it from a system which not only tracks our behavior but offers direction towards the desired result.’ So we move from observed user data on to production of new preferences and the direction of behavior. 12. See https://www.theverge.com/2018/5/17/17344250/google-x-selfish-ledger-video-data-privacy; https://www.youtube.com/watch?v=fvUN6Cbogfo. Quotations from own transcription of text spoken in the video on YouTube. 410 European Journal of Economics and Economic Policies: Intervention, Vol. 16 No. 3 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd 6.4 Nation state The transition from small principalities to a nation state allowed the former to satisfy the desire to belong to an autonomous entity by organizing constitution, rule of law, and separation of powers at a level which was effective in view of the economic and global developments of the time. It was argued that towards the end of the twentieth century a new wave of economic globalization led to a renaissance of small states. The argument was that international economic integration allowed them to exploit the advantages of international labor division and to serve a tighter notion of national identity at the same time. The argument may have some plausibility as long as globalization refers to free trade in international goods markets. But globalization today is much more than that: foreign ownership by international investors; global market power fostered by economies of scale and network effects; dominance of big players in the finance and internet industries. In such circumstances the desire to belong to a self-determined entity requires effective political institutions beyond the national level –on a scale which matches the range of economic power. There is a further lesson we can learn from the role of nation states for modern societies. Despite the global character of the Internet and modern media, it tends to create segregated communities. On the one side, targeting user profiles and registration of clients turns customers into club members. On the other side, economic or ideological motives lead to biased offers of information. Combined with mental laziness and a desire to belong to a group, they nourish isolated bubbles of perception and communication. In this situation, reproducing the nation state means: get out of the bubbles; look for tools to organize public debates. 6.5 Education Economic liberals and libertarians of all sorts tend to take consumer sovereignty and responsible citizenship as givens which are innate to human nature or have emerged in some ‘marvelous’evolutionary process. This has led to a situation in which we have on the one side a public education system teaching people cultural techniques from reading, writing, and mathematics to attitudes like being autonomous, creative, and critical, to reflect things, to be patient, to be involved in society, and to live healthily. On the other, we have a whole set of industries preaching the opposite and exposing people, from their childhood onwards, to gaming and the advertisement of instant joy and consumption of all sorts of things. To some degree this may serve as a vaccination against seduction and hidden persuasion. But to a large extent it remains wasteful and destructive. Now, the smart economy has made advertising and dependence on support a cornerstone of its business model. Key elements of a model consistent with the idea of an economy of autonomous and responsible economic agents would be: (i) keeping business out of educating children; (ii) decoupling the provision of information and the trading of products from advertising; and (iii) guaranteeing offline functioning of devices, with online support on demand by the client. Clearly, goods may become more expensive and we may have to pay for information. But, isn’t it one of the most basic principles of a market economy that valuable things have their price –to be paid for individually or collectively? That a society gets autonomy for free can only be the promise of false prophets. 6.6 Market order It is obvious that an effective market order requires to account for the anticompetitive energy inherent to a system based on the pursuit of self-interest. Adam Smith was clearly Economic reality at the beginning of the twenty-first century: in remembrance of Professor Laski 417 © 2019 The Author Journal compilation © 2019 Edward Elgar Publishing Ltd aware of this fact. ‘To widen the market and to narrow competition, is always the interest of the dealers’is one of the famous quotes of The Wealth of Nations. 23 Apart from market power, the smart economy produces a new source of market disorder. Its business models, which are based on the exchange of data vs goods or services, market invaluable things like personal preferences by tying them to the exchange of commodities. This hybrid type of exchange tends to destroy the information-processing function of the price mechanism. On the one side, it attaches to invaluable goods a pseudo-price in the form of cheaper or better service for conventional commodities. On the other, it distorts the price of these commodities by a kind of cross-subsidization through gains from data. A proper market order has to keep business out of invaluable goods and must separate, as far as data is non-private and can be priced, the business with data from the business with commodities. How then should we process information about invaluable goods or value goods which have no market? By personal reflection, non-price communication with others, discussion, public debate, and democratic decision processes. 7 CONCLUSION At the beginning of the twenty-first century certain developments loom up which turn the standard economic model around. From a theoretical point of view, the most basic tendencies could be summarized by the following three inversions of common reasoning: 1. From exogenous preferences, free choice, and price taking to produced preferences, individually tailored prices and products. 2. From asymmetry between informed agents and clients on the one hand and principals or companies on the other, to an asymmetry where principals (producers) and their agents are better informed than the clients. 3. From decentralized to centrally organized information-processing. The inversions threaten the foundations of the market economy. This essay was an attempt to deal with this threat by refocusing economic analysis and policy debate in two ways: 1. From Walrasian equilibrium analysis back to the classical scheme of production and reproduction forward to Kaleckian/Laskian thinking about active and passive roles of different (groups of economic) agents. 2. From the evolutionary magic of certain laissez-faire prophets to the production and reproduction of virtues and institutions required for free individuals and democratic societies. 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