The ‘euro-crisis’ has a philosophical origin


(original publication: Catallaxy Institute)

If every night at the same time you looked at a planet in the sky you would notice that, night after night, its position generally tends to move Eastwards. At a certain point, however, that planet will gradually stop, invert the direction of its motion (it will start moving Westwards), then it will stop again and invert once more the direction of its motion (it will start moving Eastwards again), creating a sort of loop. This phenomenon, which is called “retrogression of the planets”, is caused by the fact that that planet’s orbit is around the (“steady”) Sun, not around the (moving) Earth from which you are watching it. There is no retrogression: this phenomenon is created by a reference system centred on the Earth rather than on the Sun. Before Kepler, that is in the geocentric astronomic model, this phenomenon was a problem, a very serious one. (Geocentric) astronomy was resting on the Platonic assumption of uniform circular motions. If the retrogression of the planets could not be explained, and could not be explained within the limits of that assumption, the geocentric astronomic model would fall – and with it cosmology, physics, chemistry, religion, culture, political power, scientific authority, etc.

In order to avoid such a disaster, pre-Copernican scientific authority tried to confront the problem of the retrogression of the planets, but it tried to do it not by addressing its cause (the reference system: i.e. the geocentric model) but by reinforcing it. In other words, it tried to solve this problem within the geocentric model that caused it and within the assumption of uniform circular motions, of course in vain.

Natural sciences (such as astronomy) and social sciences (such as economics) have nothing in common and, as Hayek argues in his The Counter-Revolution of Science, the attempt to apply to the latter the methodology which is valid only for the former (an approach which started in the 19th century with Saint-Simon and has since become the dominant or rather universal approach to social sciences and in particular to economics) is necessarily bound to fail. However, I do believe that the current crisis of the euro-zone has some points in common with the crisis of the geocentric astronomical model, namely: 1) in both cases the origin of the problem lies in a reference system; 2) in both cases the solution of the problem is looked for within the reference system that caused it (and mainly through arbitrary and particular measures).

On November the 28th The Economist wrote: «There are many facets to the crisis in the euro zone, but at heart the problem is fairly straightforward. The euro zone developed a balance-of-payments problem; some of the countries in the single currency accumulated large external debts. To service those debts, the deficit countries need to become surplus countries, which is difficult to do without the flexibility of a floating currency. The difficulty of adjustment has led markets to doubt the solvency of some institutions, and these doubts have, in the absence of a lender-of-last-resort, metastasised into a contagion that threatens to leave banks and sovereigns bankrupt». So at the heart of the problem there would be the large debts accumulated by some of the countries of the euro-zone. OK, but why did these countries accumulated such large debts? More precisely, what created the incentives and the possibility for these debts to become so large? The immediate answer appears to be “governance”: «broken governance» (The Economist, same article) in some countries such as Italy would be the particular cause of the accumulation of large debts and therefore the main cause of the euro-zone trouble. In my opinion, it is exactly the opposite: good governance in countries such as Germany is the particular reason why these countries have so far managed to limit the expansion of public debt. In both good-governance-countries and bad-governance-countries (i.e. in the modern state) there is a general reason why the dimension and the activities of the state necessarily tend to expand in the long term and therefore also why the public debt necessarily tends to expand.

This general reason is purely philosophical: it regards the idea of law (which carries with it other ideas such as that of equality before the law, that of certainty of the law and that of democracy, just to name some of the most important ones) and in its essence this reason is about a reference system.

In Law, Legislation and Liberty Hayek argues that «[In modern times] law, which in the earlier sense of nomos was meant to be a barrier to all power, becomes instead an instrument for the use of power»; that «today legislatures are no longer so called because they make the laws, but laws are so called because they emanate from legislatures»; and that «it would […] probably be nearer to the truth if we inverted the plausible and widely held idea that law derives from authority and rather thought of all authority as deriving from law -not in the sense that the law appoints authority, but in the sense that authority commands obedience because (and so long as) it enforces a law presumed to exist independently of it». It could be possible to intuitively and somehow “visually” illustrate the meaning of these sentences by saying that in the modern state, especially in continental Europe, it is not the political power that revolves around the law (it is not the law that produces authority) but rather it is the law that revolves around political power (it is the authority that produces the “law”).

From now on I will call a political system in which it is the law that revolves around authority a cratocentric system (from kratos, power) and a political system in which it is authority that revolves around the law a nomocentricsystem (from nomos, law).

Naturally, the law which produces authority is something very different from (in fact opposite to) the “law” that is produced by authority. The first is a general and abstract principle, i.e. a rule of just individual conduct which is the result of a spontaneous and dispersed process of cultural selection of uses and conventions, and the role of the legislator is to discover it, to guard it and to protect it, but not to “make it” (in other words, the role of the legislator is similar to that of an archaeologist, not to that of a building constructor). Nobody “decided” that theft, for example, is unjust; and nobody can decide that it is just, even though, in a cratocentric system, a sufficiently strong political power (e.g. a sufficiently strong majority) can make it legal, that is conforming to the commands of political power.

Vice-versa, the “law” that is produced by authority is a decision by particular individuals of the day which can be anything (a norm defending a principle, a norm violating it, or a measure that does not have anything to do with principles) as long as the procedure by which it is taken is legal and as long as the authority that makes it is legally constituted and has sufficient power (e.g. votes in parliament). In a cratocentric system the “legislator” is a building constructor or, more often, a hand raiser.

In a nomocentric system, the law is distinguished from measures: i.e. limits to arbitrary power are distinguished form the instruments of power. In modern cratocentric systems, on the contrary, there is no distinction between law and measures: the norm which prohibits theft and the budget are called in the same way (“laws”) and the state (i.e. those who control it) can make theft, or discrimination or other crimes legal in particular cases.

In other words, the particular idea of law universally dominant today (which is one particular philosophical idea of law) deletes the difference between political power and the power to limit it, and it places both powers in the same hands (the archaeologist and the building constructor became the same). The result is an expansion of the state at the request of the most numerous groups whose votes the political power needs in order to govern, and therefore (especially where currency devaluation is not possible) an expansion of sovereign debt. This expansion cannot go on forever. At some point the bill is presented. And it seems that this is what is happening now.

Good governance (well devised, particular and arbitrary measures) can delay the moment at which the bill is presented just as Ptolemy’s epicycles could delay the moment at which the crisis of the geocentric astronomic system would become undeniable, but they cannot invert the necessary tendency of a cratocentric political system to expand the size and the role of the state. In the long run, the problem of the sovereign debts (as well as that of the use of political power for particular, and often collective, ends) cannot be solved in a cratocentric model in the same way as the problem of the retrogression of the planets could not be solved in a geocentric astronomic system.

And yet hardly anyone is trying to solve the problem by questioning the reference system, i.e. the idea of law, the conflict of interest of parliaments, the confusion between political power and legislative power, in short the assumption that the law revolves around authority. However different their interests and their ideas may be, almost everyone is addressing the euro-zone crisis within the current reference system, and of course in vain.

It may well be that the collapse of the Euro will somehow be avoided; that thanks to some arbitrary and particular measures (euro bonds, better governance of some countries, ECB’s more “active” role as The Economist strongly suggests, some form of fiscal integration) the catastrophe is averted, but this will be only a delay. Even if, out of a miracle, at the end of this crisis a country such as Italy had a sustainable pension system, reduced privileges and costs of politics, reduced size and role of the state, etc., as long as its political system remains cratocentric the incentives and the possibility for the state to expand without limit would remain intact. As a consequence, as soon as the immediate risks of catastrophe are not there anymore (and indeed as soon as the government of these countries will be again one that has been chosen by the citizens, which in Italy will happen in little more than one year), the business as usual will start again.

If we want to address the root of the euro-crisis, sooner or later we’ll have to question the reference system in which we are trying to solve our economic and political problems. But this requires, among other things, a long-term perspective that those who are in power for only a few years and need votes at the next elections have no incentive or reason to have.


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