The close to monopoly position of neoclassical economics is incompatible with normal ideas of democracy.Economics has some of the qualities of a science, but because of the very nature of its subject matter it is forever and fundamentally ideological.It is best not to deceive oneself and others about that.Economics’ preoccupation with values and worldly acts means that in a democratic society it has a moral responsibility to promote the exploration of economic knowledge from more than one point of view so as to make possible the informed and intelligent debate and discussion that democracy requires.But the hegemony of neoclassical economics means that departments of economics have become political propaganda centres.In 2002, Joseph Stiglitz, a recent winner of the so-called Nobel Prize for Economics, wrote in The Guardian that economics as taught “in America"s graduate schools . . . bears testimony to a triumph of ideology over science.”Is this a legitimate use of public funds?What is certain is that it is a dangerous state of affairs, but one that is now being challenged.The PAE movement immodestly seeks over the next ten years a revolution: the transformation of economics into a genuinely pluralistic enterprise wishing to contribute to, rather than subvert, democratic processes.The movement’s success depends in part on other disciplines and professions withdrawing their patronage from the neoclassical hegemony in favour of the now thousands of economists working for the new order.

Note

* A Guide to What’s Wrong with Economics, edited by Edward Fullbrook, Anthem Press 2004

The Strange History of Economics

怪异的经济学历史

These days people like to call neoclassical economics “mainstream economics” because most universities offer nothing else.The name also backhandedly stigmatizes as oddball, flaky, deviant, disreputable, perhaps un-American those economists who venture beyond the narrow confines of the neoclassical axioms.To understand the powerful attraction of those axioms one must know a little about their origins.They are not what an outsider might think.Although today neoclassical economics cavorts with neoliberalism, it began as a honest intellectual and would-be scientific endeavour.Its patron saint was neither an ideologue nor a political philosopher nor even an economist, but Sir Isaac Newton.The founding fathers of neoclassical economics hoped to achieve, and their descendents living today believe they have, for the economic universe what Newton had achieved for the physical universe.

This brief article roughly traces the strange history of economics from the 1870s through to the beginning of Post-Autistic Economics movement in the summer of 2000.

Physics Envy

Neoclassical economics began as a project to fashion an economic model in the image of Newtonian mechanics, one in which economic agents could be treated as if they were particles obeying mechanical laws, and all of whose behaviour could, in principle, be described simultaneously by a solvable system of equations.This narrative required the treatment of human desires as fundamental data, which, like the masses of physical bodies in classical mechanics, are not affected by the relations being modelled.It was to this end -- not to the understanding of economic phenomena -- that homo economicus or economic man and the hedonistic calculus were invented.Thorstein Veblen sums up the core metaphysic as follows:

the human material with which the inquiry is concerned is conceived in hedonistic terms; that is to say, in terms of a passive and substantially inert and immutably given human nature.. . .The hedonistic conception of man is that of a lightning calculator of pleasure and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact.He has neither antecedent nor consequent.He is an isolated definitive human datum . . . 1

With this construct at its centre, the dream of a determinate model of the economic universe was realized in the 1870s by William Stanley Jevons and, especially, by Léon Walras, both of whom were in part physicists by training.Called the model of general equilibrium, this elaborate mechanistic metaphor, proudly devoid of empirical content, remains the grand narrative of economic theory for students and economists everywhere.

The model, which invariably is expressed in language so metaphorical that it would make a good poet blush, works by laying down a priori, like Euclidean geometry, a set of axioms.

The economic universe is determinate.

It exists in a void rather than in an ecosystem.

All relations in an economy are self-regulating, in the sense that any disturbance “sets in motion forces tending to restore the balance”.

These “forces” result exclusively from the behaviour of isolated individual agents.

The behaviour of these agents conforms to certain mathematical properties. For example, consumer choice is characterized by transitivity (if X is preferred to Y and Y to Z, then X is always preferred to Z), completeness (out of the set of all possible bundles of goods given her income, she considers her preference between every pair of them) and independence (consumers are not influenced by the choices of other consumers).

To their credit, few economists have tried to provide empirical support for these axioms.Instead this is a realm in which formalistic expediency rules.The entities of the model and relations between them must be conceived in a way that makes them isomorphic to those ofNewton’s model of the physical universe.The exigencies of the grand metaphor rule even when the model is, as in the pedagogically popular Marshallian tradition, applied piecemeal and non-mathematically to individual markets.For example consider the elementary and ubiquitous notion of market demand for a product X. Because a macro mass is in fact an additive function of its micro masses, neoclassical economics defines market demand as the additive function of the demands for X of individual agents.But this assumes that everyone’s demand for a product is independent of everyone else’s demand for that product, for example, that one’s choice of a disco is not influenced by whether it is crowded or dead empty.Without this independence (that is, the absence of all intersubjective effects) market demand as understood by mainstream economics does not exist.But as everyone knows – even neoclassical economists when they are off-duty-- in consumer societies strong intersubjective effects in markets are the rule rather than the exception.

Veblen and Keynes

At the very end of the 19th Century, Thorstein Veblen launched a counter-revolution against the growing domination of the neoclassical approach in economics.Besides critiquing the neoclassical assumptions, he analysed institutions as well as isolated individuals, emphasized emergent social phenomena, argued that habit influenced economic choice more than rational calculation, rejected all forms of reductionism, and stressed the importance of knowledge in economic evolution. This approach steadily gained adherents in the years leading up to WWI, and in 1917 one its leaders, John R. Commons, was elected president of the American Economics Association (AEA).The following year at the AEA meetings this new school was christened “institutional economics” and embraced by the association as a means of making economic theory capable of addressing the problems of economic development that would follow the conclusion of the war.2 In the 1920s in the US the Institutionalists came to rival the Neoclassicals, but in the 1930s their numbers declined.Like neoclassical economics, institutional economics had no explanation of or solution to the calamity that had befallen capitalist economies.

In stepped John Maynard Keynes.He offered a new theoretical interpretation of capitalist economies that both explained their collapse and pointed to practical measures that would, without interfering with their general principles, get them going again and keep them functioning smoothly.Given the dire straights of capitalism and the growing fear of revolution, not even neoclassical economists dared for long to keep Keynes’ theory from being given a try.When it was shown to work, that, at one level, ended the argument.For example, henceforth all American presidents would in the basic management of the economy be Keynesians.But at the theoretical level, which in the neoclassical tradition means theory that is axiom-led rather than empirically-led (else their axioms would have been abandoned long ago), the argument had only just begun.In 1946 Keynes died and neoclassical economists began their counterinsurgency.This time they would not be satisfied until most economics departments in the world had been cleansed of economists who voiced non-neoclassical ideas.

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