A critique of Capital (1): The problem with economics

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Hitherto philosophers have had the solution of all riddles lying in their writing-desks, and the stupid, exoteric world had only to open its mouth for the roast pigeons of absolute knowledge to fly into it. Now philosophy has become mundane…But, if constructing the future and settling everything for all times are not our affair, it is all the more clear what we have to accomplish at present: I am referring to ruthless criticism of all that exists… — Marx

by Sanjay Perera

[Preamble: Due to length and to enhance its accessibility, the original essay will be published as three separate parts. This is the first part. The second part is “A critique of Capital (2): The metaphysics of economics.” And the final part will be — “A critique of Capital (3): Toward a moral economy.”]

In the introductory lines of a textbook on economics are these words: “Are Marxists correct in arguing that only vast expenditure on arms saves the capitalist countries from a return of mass unemployment? Or have we now learned…how to avoid forever such devastating situations? Why, then, in the late 1970s, did unemployment in Britain, the United States and several other countries reach the highest levels ever attained since the Great Depression of the 1930s?” (Lipsey 3). These lines from over a generation ago are still apt for the situation of the 21st century. The point is that the neoclassical economists are still impotent in being able to give a proper explaination for, or offer a way out of, the world’s never-ending economic crises. And it is indeed a historical irony that with all the great economic theorizing and Nobel prizes given out in the field, the world has spiraled into an economic trough that Marxians keep reacting to with: ‘I told you so.’

With that in mind, we also continue the examination of radical and revolutionary ideas using the Kantian critique, but this time starting to apply it to the idea of economics in a broad manner and in the process look at the notion of Capital and the Economy. We refer to ‘capital’, in lower-case, when it is a ‘factor of production’; and it is ‘Capital’ when taken in the Marxian context of that which exerts power, control and is purely exploitative. In a previous piece, “The economy of violence”, the destructive aspects of Capital began to come into relief. This too is an underlying idea in this essay and will be developed further in subsequent ones: And so the present piece takes us a step forward in looking closer at the notion of Capital itself. This is part of a process of revealing how and why Capital is an expression of power; how it is a handmaiden to the assertion of socio-economic control and disruption: And thereby, how it is also a means in facilitating the ambitions and goals of those imbued with a service-to-self ideology and power-over-others mentality.

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A. The trouble with economics

One of the principal problems we face in understanding Capital, which also obscures its role and function in the greater scheme of things, is the dilution of it in the weak solution of economics. It is primarily neoclassical economics that has cudgeled so many into the theoretical trap of discussing in abstraction, and as a specific entity, this thing called Capital without clarifying what exactly it is and what precisely is its impact on our lives. And in this process economics has lulled us into thinking that Capital is that which purely enhances economic growth and is so a great boon to society; it even seems child friendly (like a cuddly teddy bear made of dollar bills). Unsurprisingly, economics brings about opacity rather than clarity as to how it regards and treats Capital. This is arguably the greatest single failure of economics: So an attempt is made here to try and sketch how this has happened, and perhaps through that to also try and open a way which may encourage others to forge ahead and hopefully take us out of this debacle.

For starters then, what indeed is it with neoclassical economics that even some of its practitioners are finally wising up to and speaking up against? In an introductory piece to an insightful book of essays, D.A.R. George spells out some problematical aspects of his field:

Many economists feel that, unless things change, their subject will end up in utter sterility, with rewards going to those who can count the number of Bayes-Nash equilibria that can dance on a locally compact pin-head. Apart from intellectual vacuity and irrelevance there is also the prospect that, in countries where academic research is state funded, the tax-payer may object to her taxes being spent on sterile formalism and seek to withhold further contributions (George 2).

Unfortunately, tax-payers’ money and funding from other self-interested power-players keep coming in to support the destructive drive of neoclassical economics; for in trying to promote the socio-economic workings of humans in relation to their world via treating everything as a quantifiable resource, economics has provided the blueprint for capitalist theorizing and socio-environmental hegemony of life forms by Capital. It would be quite difficult to work out a capitalist paradigm and mode of exploitation of all that exists on our planet without economics. And economics supplies the doctrine that backs-up any system of extraction which leaves all living things and the planet in dire straits and a state of irreversible depletion. In other words, neoclassical economics provides the dogma for capitalist manifestos that keep the elites well at the expense of everyone and everything else in the most unsustainable manner possible.

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Sadly, one of the chief culprits in helping to perpetrate the deception that economics is of some value and should be taken seriously is the almost indiscriminate and inappropriate use of mathematics in the field. As we find out,

The most important skill an economist can have…is a good command of a relatively narrow range of mathematical techniques…[which] provide the means to construct those objects which are central to the professional life of every orthodox economist (and some heterodox ones), namely mathematical models. At the simplest, such models start from mathematical assumptions and, after several pages of tortured mathematics, arrive at some conclusions. The laws of logic dictate that these conclusions were embodied in the assumptions, so the precise purpose of such an exercise is not immediately obvious. It does, however, provide a good opportunity for economists to demonstrate how clever they are, and simultaneously to provide a useful barrier to entry to the market for ideas (George 3).

One could hardly state it better. As those words reveal the underlying scam of using mathematics to help justify the self-proclaimed ‘scientific’ status of a set of ideas – a.k.a. economics — that are barely reflective of the reality it purports to examine. It is also pointed out that –

A further problem arises for those who wish to transplant empirical testing from the natural sciences to economics. Experiments are typically replicable, whereas the statistics used by economists are usually generated in particular, non-replicable, historical circumstances. They more closely resemble the data of the economic historian or sociologist than those of the physicist. Given these data restrictions, perhaps economists should drop their attempts at grandiose, all-encompassing theories and accept that they can only offer theories which are restricted to particular historical and political circumstances. The theory of gravity may hold as good on the moon as on the earth, but the theory of inflation does not (George 5).

And who would have guessed? This nails it on the head. The important role mathematics plays in tricking us into thinking something important is being said through it by economists will hopefully be the subject of a subsequent piece here. Meanwhile, we will examine how certain central economic notions under the scrutiny of the Kantian critique have sidelined clear thinking into one of perpetrating a delusional game plan that has facilitated in bringing us to the brink of socio-economic destruction.

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B. Transcendental economics

What then is economic theory? Extending the ideas from “Revolutionary constructivism,” the Kantian critique helps crucially in giving us a better idea of what economic ideas are. Many key ideas put forward in trying to create economic theory are synthetic ones; the notion of the “economy” itself is such an instance. For the idea of an ‘economy’ is just that, an idea posited; but it is a concept that has been treated as if there is an actual entity — ‘The Economy’ — and it is dealt with accordingly. This will be looked at closer as we go along.

Not all economic ideas would neatly fall into the category of being synthetic a priori as they would be synthetic ideas at best: For instance, terms such as ‘land’, ‘labour’, ‘capital’, ‘entrepreneurship’, ‘demand’, ‘supply’ etc. The ‘factors of production’ as promulgated by neoclassical economics work within a transcendental logic of its own that defines the capitalist bias of the theorizing itself. There cannot be any basis for the promotion and ascendancy of capitalist theorizing without the traditional notions of economics. Its dehumanizing bent is a perfect fit for inhumane capitalist musings that people and the world are but means to an end, and that production implies someone must control things and have superiority over others.

This is enhanced by the often self-fulfilling mathematical models used to try and give the impression that they meaningfully provide an analysis or somehow support the synthetic economic ideas. The mathematics used are in themselves synthetic constructs which are consistent within itself, and this self-referencing consistency is somehow supposed to show the validity of economic ideas that have been stripped of human agency and crunched into computable figures. But how this can be relevant to human welfare and the social relations between people is a great mystery.

In any case, much of the discussion that follows will draw from Screpanti and Zamagni’s useful and comprehensive An outline of the history of economic thought.

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The marginalism of neoclassical economics stems from the late 19th century towards the end of Marx‘s life. Men like Menger and Walras not only promoted the “hypothesis of decreasing marginal utility” but also “modified the utilitarian foundation of modern political economy” (Screpanti and Zamagni 166). We are further told that their “marginalism gave credit to a special version of utilitarian philosophy, one for which human behaviour is exclusively reducible to rational calculation aimed at the maximization of utility. They considered this principle to be universally valid: alone, it would have allowed the understanding of the entire economic reality” (Screpanti and Zamagni 166).

A few lines below this we are told in effect that the underlying assumption is that people are economic agents whose role is to maximize utility and profit in all things as the realization of their individual goals. Or, they are at minimum “social aggregates…[and] decision-making unit[s], such as households and companies.” This rules out “the collective agents, the social classes and ‘political bodies’ [that]…the classical economists and Marx had placed at the centre of their theoretical systems” (Screpanti and Zamagni 166). This already conveniently pares down the individual into an automaton devoid of any richness and roundedness of actual human beings and is, perhaps, the point at which the economic shebang starts to go awry.

Then we have a fundamental aspect of theorizing that mires the entire problem of economics in the morass we find ourselves in today. We are told (my emphasis):

Economics was likened to the natural sciences, physics in particular, and economic laws finally assumed that absolute and objective characteristic of natural laws. The pervasiveness of the problem posed by the neoclassical economists, the problem of scarcity, establishes the universal validity of the economic laws. But for this to make sense, it is necessary to remove social relations from the field of economics, exorcizing them as a superstition, a waste of time, a subject not in line with the new scientific achievements. With the marginalist revolution also originated that reductionist project of economics which has marked all the successive neoclassical thought, a project according to which economics has no other field of research than technical relationships…between man and nature” (Screpanti and Zamagni 166-167).

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One can already see how trouble is brewing in that while the hard sciences, like physics, deal with the phenomenal world, economics has made the fallacious move of assuming that the human world is the physical world. Economics then begins a process of pretending that is has extra value because it is a ‘science’. It then wallows in theoretical self-indulgence, while delusionally claiming that it exists to make things better for human beings. While an attempt to understand physical, chemical and biological functions of the world and life in the form of scientific activity as we know it is easily grasped by most, the attempt to pretend that there are human and social laws per se devoid of actual human and social relations in themselves is the perfect example of wasting human life force, energy and resources on a bootless exercise from which no good can ever come: And this has proven to be the case with neoclassical economics.

While other fields that claim to be social sciences are not being critiqued here as such, suffice it to say in this context that there is indeed some value and use from (let us say) sociology and political science. Certainly many of us are influenced by ideas from such fields. But we also know that in significant instances policies, politics and international intrigue have hardly anything to do with the academics of it and everything to do with power play, self-interestedness and the abuse of the state apparatus (and are quite separate from the ‘laws’ of social science). What is curious is that these very power-brokers and manipulators of nation-states and the world do seem to use neoclassical economic theories to justify their shenanigans. Perhaps because their self-interestedness is given justification by that self-same drive in economics. This is how dangerous the situation has become: While every other ‘expert’ may sit on some panel and air their views and their perspectives may be listened to in various contexts, the running of states and the socio-political aspects of the world do seem be more than reasonably influenced by so-called economics. This aspect of policymaking bears serious thought. Why would anyone supposedly managing people and resources on national and global levels apply theories that operate in a vacuum specifically predicated on being divorced from human affairs? This crucial and alarming issue will be further looked at.

(It must be noted that while science itself is also concerned about quantifying and measuring, this aspect of science and its limitations are not under discussion here. It is rather economics’ pretense at being a science and its added limitation of being obsessed with the measurable-quantifiable that makes it doubly inaccurate in the area of human relevance, agency and values.)

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i. The lack of traction with reality 

To use Kantian terms, the synthetic ideas of the neoclassicists work within the transcendental logic of capitalism: “Even Walras…had to use notions such as capital, interest, entrepreneur, wages – notions which make sense only in reference to the capitalist system” (Screpanti and Zamagni 167). As long as such neoclassical ideas are the basis of capitalist ideology in terms of its ‘intellectual discourse’, and they have almost entirely corrupted education curricula and are supported unequivocally by most governments and the corporate world – is it surprising that any objections to such ideas are met with some resistance by the mass media and anyone of any tangible influence in the world (that is, those who also subscribe to neoclassical theory and the opinions of economists who are deemed ‘experts’)?

To Kant, natural laws about the world posited via scientific theories are synthetic ideas that are formulated to explain things. However, not only do they have empirical content and are about the world, e.g. physical objects, the result of force imposed on them and their motion etc., but they are also designed for empirical verification: Which is an important characteristic of scientific endeavour. Otherwise, much scientific work would be self-defeating if not for the strength of its empirical corroboration. This synthetic construction of ideas and testing is the basis of knowledge creation via science. Moreover, scientific laws — like the one for gravity — are then taken to apply not only on earth but even the moon. We can also discuss meaningfully the gravitational pull between planets and their satellites. Under the right conditions, many scientific theories can be tested effectively. The universality in their application and empirical corroboration allows them to be given some form of objective status.

But would that possibly work for laws about inflation, demand-supply, interest rates or taxes? To say that such ideas would be relevant here as on the moon is already too much; to say that this would apply to other civilizations in other solar systems (perhaps one with a similar human species) may not always be seen as making scientific claims. Unless, of course, economists are willing to state that their claims are related to the economies of extraterrestrial civilizations as well. Statements from scientific theory made about other planetary systems are accepted as the scientific practice of astronomy/astrophysics, but no one purports that economic theory holds elsewhere beyond earth. It has caused enough havoc here such that those of us still humane will not want some other civilization to be plagued by the disease of economics.

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Just the lack of any semblance to what is commonly seen as the universality and objectivity of scientific theorizing in economics belies that it is scientific in any way. It is, in effect, the most unrealistic set of ideas ever to hide, like a murderous virus, in the intellectually decaying and morally insipid halls of academia. Economic theories fail miserably compared to the sciences on as many counts as one can imagine: For how can coming up with laws on human behaviour, intention and how money should be spent and utilized have any semblance to certainty? There are as many variations to human outcomes depending on the myriad conditions and contexts we are placed in.

But the human factor is precisely what economists are frightened of — for they want a weird system devoid of human interference, or any genuine value placed on the environment. To posit conditions like human agency is unrealistic and to value the environment is to be affected by externalities: And if for some reason these are factored in, the scenario is often analyzed in terms of cost-benefit. Ethical issues are gleefully kept out as far as possible. In the final analysis, the world and the rest of us and all life forms are but resources and fodder for consumption.

This is part of the fundamental criminality underlying economic principles: Everything is nothing but a means to an end, which is closer to the values of gangsters and other mischievous types. Yet, somehow while criminal organizations may not be starry-eyed about themselves, economists and their acolytes tend to be caught up with their own spiel and self-aggrandizement.

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The economists are playing a game among themselves, banks, corporations and governments that unfortunately has been foisted on the rest of us. Part of this game that economists play involve a whole array of theories that help them further pretend that people are principally other than they are and then insisting that they be treated as these fictional characters (that figure in their economic narrative). It is beyond the ken of economists to grasp that there are no such things as consumers per se; people are but forced into a Procustean box, classified, and treated as such. We are subsequently expected to behave as such too. So we then, for our own good, are compelled into conforming to the role of consumers with the full support of the socio-economic-political systems of our time. We are forced to behave that way by a system that is self-reinforcing in terms of a debt-based monetary system. People are then further cajoled/induced by the media, advertising and marketing into trying to literally become this concept (‘consumers’) which they are not in essence. Nor are people digits of production, but they are treated and expected to behave that way.

After sanitizing their theories of all that is human and complex about society and the world, the economists insist that their theories hold within their own structures as long as no one upsets them: So the theories hold under all conditions except when imperfections set-in thanks to people and acts of God and whatnot. If it was not for the fact that the world does not operate the way their theories describe, their theories would hold, and that is why they should be accepted – economics is but a reductio ad absurdum wherein its lack of workability, due to the human and external factors impacting it, only implies its veracity and value. From another viewpoint, the theories are valid and sound because they can never be proven to be false: For any attempt to make them false by robust testing would damage the integrity of a theory that in itself is supposedly coherent; what has reality to do with it? Once that is clear, you can then apply these theories as government policies. How this is supposed to be helpful is anyone’s guess.

No self-respecting scientist would subscribe to the above as a means of scientific theorizing-testing, much less knowledge creation. There is a constant mismatch with what economics thinks it says and the reality of what happens to us, thanks largely to its lack of any form of traction with the world we live in. We have yet to hear of economic theories that are shown to be blatantly false; economists are that special breed who can hardly ever be proven wrong.

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ii. The illusion called general economic equilibrium

A central issue in economic theory is general economic equilibrium as proposed by Léon Walras. It is a concept that works well within the closeted world of economic thinking. We have an ideal situation wherein “prices are such as to allow all individuals to maximize simultaneously their own objectives, with excess demand vanishing” (Screpanti and Zamagni 181). So there is a perfect match of demand and supply. To put it another way (authors’ emphases):

The central aim of Walras’s theory is to show how the voluntary exchanges among individuals who are well-informed (each is perfectly aware of the terms of his own choices), self-interested (each thinks about himself), and rational (each tries to maximize his goals) will lead to an organization of the production and the distribution of income which is efficient and mutually beneficial. The peculiarity of the problem is this: that the sole form of social interaction which is admitted is that realized on the market by means of anonymous and impersonal exchanges. Neither trade unions nor pressure groups nor cartels nor other types of social groupings are allowed, as this would violate a fundamental requirement of the general-equilibrium model, that of perfect competition (Screpanti and Zamagni 183).

There you have it – a truly bizarre notion by Walras and happily lapped up by economists. An idealized situation is fantasized about and economic theories are then formulated to be applied to the actual world which is unavoidably affected by human agency and ‘externalities’ — that which is hived away unconscionably by economists. In this completely dehumanized and highly artificial theoretical set-up which is supposed to apply to humanity, we have gaseous hypotheticals that cannot hold a candle, much less light a bunsen burner, to even the most controlled conditions of proper laboratory work. Yet, economists think they are on some grand scientific endeavour. They think they are enacting the new Copernican revolution; but all they are doing is enacting the pretense that in human interaction within a socio-economic framework, human agency should be eliminated. How is this supposed to be an intelligent enterprise?

Also, what is assumed in this idea of equilibrium is that there is a system of prices in the production phase of commodities, and the supply-demand aspect of things in the ‘marketplace’, where the price is always right for smooth and balanced and equitable exchanges to take place – while maximizing everyone’s satisfaction in this process. There are fairy tales that contain greater wisdom than this. But, it gets better. Walrasian competitive equilibrium implies: “(1) in each market the demand equals the supply; (2) each agent is able to buy and sell exactly what he planned to do; (3) all the firms and consumers are able to exchange precisely those quantities of goods which maximize, respectively, profits and utilities” (Screpanti and Zamagni 184).

What would be the value of such a chimera? It only serves to try and prove a point that cannot be proven as it has no traction with reality in the first place, and so can never be even proven false. Even Freudian psychoanalysis — which has its fair share of criticism — comes across as rich, complex, interesting, useful and even scientific compared to this.

In fact, Walras’s idea of equilibrium is based on an exceedingly crude concept of auctioneering: Wherein people bargain for what they want till there is an agreement on prices, and no matter what they are always satisfied. So prices will always be adjusted such that prices of goods increase for excess demand and decrease when there is excess supply: “This trial and error process, which Walras called tatonnement, will continue until all excesses of supply and demand have been eliminated” (Screpanti and Zamagni 184). This is how the equilibrium of prices is attained.

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In case one wonders why Walras came up with such strange ideas, we discover that his “main objective was to construct a model of an ideal economy which could be used as a solid base for political applications. He knew that this objective would hardly be realized in an authentic market economy. However, he nurtured the hope that the latter could be reformed along the lines of the model” (Screpanti and Zamagni 184). Now we know that the road to hell is certainly paved with good intentions. Even more naive is Walras’s assumption of ‘Sisyphus entrepreneurs’ who are mere coordinators of production who take prices as given and never manipulate anything. In fact, for Walras if there is a state of equilibrium in production, entrepreneurs make neither profit nor loss. “Profit depends on exceptional circumstances; from a theoretical point of view it must be considered as a signal of disequilibrium” (Screpanti and Zamagni 185).

Some of us may be aware of Tressell’s The ragged-trousered philanthropists: But Walras has given us the non-raggedy ‘Sisyphean’ entrepreneurs who are the real ‘philanthropists’ in his perfect world of perfect equilibrium where the balancing of all economic forces is the prime goal of these generous and self-sacrificing fellows, not profit.

Given the reality that great profits are made by many institutions and the profit motive is part of the foundation on which mega-corporations (and colonial empires) are built, and that it is the nature of elites to hoard wealth and perpetuate asymmetry of influence in their favour (which is reflective of the world as we know it), it is quite clear that disequilibrium is inevitably the order of the day. Thus Walras is, alas, quite irrelevant to what actually takes place daily. But this idea of equilibrium is like an Elysian ideal for economists who see it slip through their fingers just as it haunts them for they keep trying to impose it in their theories. So unsurprisingly, John Hicks came up with a type of inter-temporal equilibrium notion in which he “tried to examine the stability and the comparative statics properties of an economy in temporary equilibrium,…[and] he treated the movement of the economic system through time as a succession of temporary equilibria…” (Screpanti and Zamagni 288). So now we have a shifting equilibrium. These Hicksian ideas too are synthetic and do not prove that what he proposes is in essence the truth about the world.

But the corollary of this would be that disequilibrium is the dominant trend so that if there is ever the illusion of equilibrium then it might seem to be shifting, but what is termed a ‘shifting equilibrium’ is only reflective of a system that is never stable. At least that is how such ideas comport themselves in relation to the socio-economic vagaries of the world we live in. But this recalcitrant illusion of equilibrium still lingers in the minds of economists who try somehow or the other to justify why it is supposed to work in their system.

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The fact is ‘pure’ theories like those of Walras are quite vacuous. As we are informed (authors’ emphasis) —

A pure theory is not an imitation, reflection, or description of reality, but a metaphor, or, in Samuelson’s well-chosen term, a parable. It is this attitude that has justified the neoclassical and all the other theoretical economists in continuing to work on theory by ignoring the problems of the realism of hypotheses.

And from here…the debate moves onto new ground: that of relevance. Any theory, however pure, is never neutral in the types of problem it helps the economist to focus on…The general-equilibrium model has often been criticized as completely inadequate to tackle the really important problems: growth, change, the economic role of institutions, the behaviour of collective agents, etc. Today, while every neoclassical economist is ready to accept this criticism, none will consider it as decisive. The general-equilibrium model, its supporters maintain, is not suitable to tackle these problems, which should be passed over to…sociology, history, and political science; but it is better suited than any other to tackle the problem of efficient allocation of scarce resources. Why should this problem be considered irrelevant?…Is the fact that society has placed its best universities and richest research institutes at the neoclassical economists disposal devoid of all meaning?” (Screpanti and Zamagni 389-390).

This gives rise to some important points that need emphasis.

First, the issue of pure theory that is the basis of much of economics can indeed be seen as a form of narrative. This is why it is quite effective to compare ideas like equilibrium and much of neoclassical economics to a form of fiction as that is what they essentially are. For Walras and others provide interesting scenarios in which humans are a form of automaton, or at least different from what we experience and know of ourselves. Indeed, it would be of greater value to see how neoclassical economics works in the fictional worlds of Bacon’s The new Atlantis, More’s Utopia, Swift’s Gulliver’s travels, Butler’s Erewhon, or Huxley’s Brave new world. This is an area that may be looked into in subsequent posts. Much of neoclassical economics should be viewed as a form of literary device concerning hypothetical situations that diverge from or are a metaphor applied to our world.

Second, we have the issue of funding wasted on supporting the study of economics. Given the endgame scenario of capitalism today and the economic crises it has engendered, we can state confidently that resources should not be given to neoclassical economists who, if anything, are only providing destructive fuel to the ‘economy’ they claim they are trying to improve. They can study it on their own time and personal funding, more like a hobby of sorts. This is reminiscent of a point raised by D.A.R. George cited in the early paragraphs of this essay: That economics is fast becoming a sterile field wasteful of tax-payers’ hard-earned cash. Such funding lost on economics is typical of the capitalist system in focusing on anything other than what is of genuine human-environmental value. Funding should be provided for areas of study intent on coming up with new paradigms to promote just, fair, compassionate and sustainable societies.

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In any case, part of the mythology underlying the general equilibrium idea is that of Adam Smith’s inadvertently notorious ‘invisible hand’. For an assumption that undergirds equilibrium is that “…only the market, is able actually to lead the economy towards a state of equilibrium. It must only be the market, and not any social institution or collective agent” that brings this equilibrium/stability (Screpanti and Zamagni 391). In the same paragraph we are told in effect that Walras thought he had worked his way out of invisible forces but only relegated them further into his assumptions by thinking that “he had ’solved’ [it] by assuming that the tatonnement process is regulated by the ghost-like presence of an ‘auctioneer’” – which only makes the spectral entity conjured by tatonnement an ontological necessity.

The fact is (authors’ emphases):

In order to reach a stable equilibrium, it is necessary to advance strong hypotheses on the behaviour of certain aggregate variables; and the knowledge of the criteria of individual behaviour alone is not enough in itself to justify any of these hypotheses. This simply means that an individualistic competitive economy is not granted, for it does not necessarily posses the strength to reach equilibrium, not even when regulated by the auctioneer’s ‘supreme hand’. Thus the ‘scientific’ basis of the theory of laissez-faire and orthodox economic doctrine is simply lacking (Screpanti and Zamagni 391).

Indeed, it is best viewed as a form of fiction for that is what it is in actuality.

Naturally, this reinforces the lack of ‘scientific’ credibility of the equilibrium theory as it works on a basis of individuals coming to terms on prices etc. through an ‘auctioneering’ process whereas it should allow for aggregate variables to provide the basis of hypothesis testing/falsification. Only testing against the notion of aggregate variables would provide enough strength to effect some form of proof to back the equilibrium idea.

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The notion of tatonnement is quite the problem as the “general-equilibrium model owes its strength and its weakness to the metaphor of the auctioneer, a deus ex machina who carries out the co-ordination role necessary to make the plans of the single agents mutually compatible” (Screpanti and Zamagni 395). This makes apparent that much effort is expended through highly questionable assumptions just to try and rationalize the idea of equilibrium, which is then misleadingly used as the basis of theorizing.

It also becomes clearer that equilibrium, tatonnement, market-forces, and the ‘invisible hand’ as used by economists are indeed fictional notions that work within the narrative of neoclassical economics which precipitates the strange concoction of neoclassical man (Homo oeconomicus par excellence): A homunculus who is only free enough to choose what serves his and his interests alone and is satisfied with maximum utility. Any other form of human being which smacks of complexity and moral thinking would be far-fetched in this narrative of economics. What is of serious concern, however, is that often this narrative is taken as sanctified and applied to societies with zealotry.

Screpanti and Zamagni end their book with a quote from Hicks (latter’s emphasis):

‘An economist who is no more than an economist is a danger for his fellow men. Economics is not a thing on its own; it is the study of an aspect of the life of man in society […] The economist of tomorrow (and sometimes of today) will certainly be aware of what to ground his economic advice on; but if […] his economic knowledge is detached from any background of social philosophy, he runs a real risk of becoming a cheat, capable of implementing enterprising stratagems to find his way out of difficulties, but incapable of staying in contact with those fundamental virtues on which a sound society is founded. Modern economic science is subject to a real risk of Machiavellianism: the treatment of social problems as mere technical issues and not as an aspect of the general quest for the Good Life’ (Screpanti and Zamagni 514-515).

Surely, the words speak for themselves.

[Note: The follow-up piece is “A critique of Capital (2): The metaphysics of economics“.  All three parts of this essay are available as one piece: “A critique of Capital: The struggle toward a moral economy“.]

References:

1. George, Donald A.R. “Consolations for the economist: the future of economic orthodoxy.” Issues in heterodox economics (Ed. D.A.R. George). Blackwell Publishing: Oxford, 2008.

2. Bichler, Shimshon and Nitzan, Jonathan. “Capital as power.

3. Lipsey, Richard G. An introduction to positive economics (Fifth ed.). Weidenfeld and Nicolson: London,1980.

4. Rawls, John. A theory of justice (revised ed.). Harvard University Press: Cambridge, Massachusetts, 2003.

5. Screpanti, Ernesto and Zamagni, Stefano. An outline of the history of economic thought (2nd ed.). Trans. David Field and Lynn Kirby. OUP: Oxford, 2005.

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The writer is the editor of Philosophers for Change

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