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This article originally appeared, under the
title “Post-Autistic Economics”, in issue 29, Spring 2005 of Soundings: A Journal of politics and culture. Over the
next few issues it is having a series of articles on the state of economics
and its impact on society. Details at
www.lwbooks.co.uk
The Rand Portcullis and PAE Edward
Fullbrook (University of West of
England, UK) © Copyright: Edward Fullbrook 2005 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. In an attempt to
understand how this has happened, the first half of this article very roughly
traces the strange history of economics from the 1870s through to the recent
challenge to the neoclassical hegemony from the Post-Autistic Economics
movement, henceforth PAE. The second half surveys
some of the substantive dimensions of PAE, a
movement that began in Paris in the summer of 2000 and now involves thousands
of economists worldwide in a long-term effort to free economics from its
neoclassical straitjacket. Physics
envy The origins of neoclassical economics are
not what an outsider might think. Though today it 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
descendants living today believe they have) for the economic universe what
Newton had achieved for the physical universe. Its aim was to fashion an economic model in the image of Newtonian
mechanics - in which economic agents
could be treated as if they were particles obeying mechanical laws. In
principle it would be possible to describe the behaviour of such agents
simultaneously, by a solvable system of equations. This narrative required
the treatment of human desires as fundamental data: like the masses of
physical bodies in classical mechanics, they would not be 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 realised in the
1870s by William Stanley Jevons and, especially, by
Léon Walras, both of whom
were in part physicists by training: it was called the model of general
equilibrium. And this elaborate mechanistic metaphor, proudly devoid of
empirical content, remains today 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:
Veblen and Keynes At the very end of the nineteenth 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, emphasised 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 the first world war, and in 1917 one its
leaders, John R. Commons, was elected president of the American Economics
Association (AEA). The following year this new
school was christened ‘institutional economics’ at the AEA
meetings, and was 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 the Institutionalists came to rival the Neoclassicals
in the US, 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, which 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 straits of capitalism and the
growing fear of revolution, not even neoclassical economists dared for long
to keep Keynes’s theory from being given a try. When it was shown to work,
that, at one level, ended the argument. Henceforth, in the basic management
of the economy, all American presidents would be Keynesians. But at the theoretical
level, which in the neoclassical tradition means theory that is axiom-led
rather than empirically-led (otherwise 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. The
Pentagon Keynes had trained at Cambridge University
as a mathematician. In his mid-twenties he wrote Treatise on Probability, a book that was lauded by Whitehead and Russell (‘it is impossible to praise too
highly’), and launched what has become known as the ‘logical-relationist’ theory of probability. When he turned his
attention to economics, he was shocked by the way mathematical economists
abused mathematics, especially when they applied them in meaningless ways to
unsuitable phenomena, and he made no secret of his professional contempt for
their empty pretentiousness. But these economists were soon to have their
revenge. Led by Paul Samuelson in the US and John Hicks in the UK, they set
about mathematicising Keynes’s theory. Or, more
accurately, a part of his theory. They left out all those bits that were
inconsistent with the neoclassical axioms. Their end product was a formalised
version of Keynes that is like a Henry Miller novel without sex and
profanity. This bowdlerised version of Keynes, called ‘Keynesianism’, soon
became standard fare in undergraduate courses. Even graduate students were
discouraged from reading the primary text. With the real Keynes out of the
way and Veblen and all the other free spirits
forgotten, the road was now clear to establish a neoclassical tyranny. Following the second world war, the United
States increasingly came to determine (one might say dictate) the shape of
economics worldwide, while within the United States the sources of influence
became concentrated and circumscribed to an absurd degree. This state of
affairs, which persists to the present day, was engineered in significant
part by the US Department of Defence, especially its Navy and Air Force.3
Beginning in the 1950s it lavishly funded university research in mathematical
economics. Military planners believed that game theory and linear programming
had potential use for national defence. And, although it now seems
ridiculous, they held out the same hope for mathematical solutions of
‘general equilibrium’, the theoretical core of neoclassical economics. In
1954 Kenneth Arrow and Gerard Debreu achieved for
this mathematical puzzle a solution of sorts, and it has been the central
showpiece of academic economics ever since. Arrow’s early research had been
partly, in his words, ‘carried on at the RAND Corporation, a project of the
United States Air Force’.4 In the 1960s, official publications of
the Department of Defense praised the Arrow-Debreu project for its ‘modeling
of conflict and cooperation whether if be [for] combat or procurement
contracts or exchange of information among dispersed decision nodes.’ In
1965, RAND created a fellowship program for economics graduate students at
the Universities of California, Harvard, Stanford, Yale, Chicago, Columbia
and Princeton, and in addition provided postdoctoral funds for those who best
fitted the mold. These seven economics departments,
along with that of MIT - an institution long regarded by many as a branch of
the Pentagon - have subsequently come to dominate economics globally to an
astonishing extent. Two examples will show what I mean. The
American Economic Review
(AER),
the Quarterly Journal of Economics
(QJE),
and the Journal of Political Economy
(JPE)
have long been regarded as the world’s three most prestigious economics
journals; being published in these journals adds the most value to an
economist’s CV, and most helps an economics department’s ranking and research
funding. A study has been made of the affiliation of the authors of
full-length articles appearing in these journals from 1973 through 1978.5
For the QJE
it found that the eight departments with the most articles were the seven
favoured through RAND by the US Department of Defence plus MIT, and that this
Big Eight accounted for 77.3 per cent of the articles published. In the JPE all of the
RAND Seven were in the top ten and, together with MIT, accounted for 63.1 per
cent of the articles published. In the AER the top eight contributing
departments were again the RAND Seven plus MIT, which together accounted for
59.3 per cent of the articles published. Even within this Big Eight there was
an astonishing concentration of success. In the QJE, which is controlled by
Harvard, 33.3 per cent of the articles were by Harvard-affiliated authors. In
the JPE,
controlled by Chicago, 20.7 per cent of the articles were by
Chicago-affiliated authors. In the AER, nearly half of whose editorial board during these
years was from, in rank order, Chicago, MIT and Harvard, 14.0, 10.7 and 7.1
per cent of the articles were by authors from these departments respectively.
About 70 per cent of the board members were from the Big Eight, as were
nearly 60 per cent of the members of the nominating committees for officers.
As Canterbery and Burkhardt
argue, it is unsurprising that these departments are seen as ‘distinguished’:
‘The “best” departments are those who publish in their own journals, which
are “best” since they publish the “best” departments. As they comment, this
academic incest would be considered genetically unsound if it involved
biological reproduction (p28). A glance through the 2003 edition of
Penguin’s Dictionary of Economics
illustrates the accentuated continuation of this tiny all-powerful closed
shop. The dictionary has entries for 29 living economists. Of these, 26 -
89.7 per cent - are from the US, or have had all or the most important part
of their careers there. Think about that: 26 for one country and 3 for the
rest of world. And that is in a British publication by a team of three
British authors. And what are the affiliations of the 26 US economists? 100
per cent of them have either taught at or received their PhD from one of the
Big Eight. The
post-autistic economics movement In Paris in June 2000, a group of
economics students wrote a short petition lambasting their curriculum and
stating what they wanted instead. They passed their document among friends
and posted it on the web. To everyone’s amazement, especially the students,
their little protest has turned out to be a tipping point of sorts. Like the
late Soviet Union, mainstream economics is caught in a time warp, and when reality
catches up with such worlds the events that follow nearly always take
everybody by surprise. There was a bit of conceptual genius at
work in the French students’ petition. For forty years most critiques of
economics had been filtered through sets of ideas such as Popperian
falsification, Kuhnian paradigms, Lakatosian research programmes and related notions. The
students’ petition ignored all that. Instead it assailed mainstream economics
for failing to illuminate most of economic reality (hence the term
‘autistic’), and identified the causes as the establishment’s commitment to
viewing the world only through the narrow neoclassical point of view; its
prohibition of critical thinking towards that system of belief; and its
preoccupation with meaningless formalism. The solution was simple and
realisable if given the political will: dump most of the maths, drop the
prohibition on critical thinking and introduce ‘a plurality of approaches
adapted to the complexity of objects analysed.’ The students were making - they may not
have realised it but their mentor Bernard Guerrien
must have - a major epistemological point. They were breaking with the
previous century’s philosophy of science (which had included its application
to economics), which had preoccupied itself with situations of transition -
transition between theories that highlighted the same aspects of some corner
of reality, but offered different conclusions and agendas. Thus Karl Popper’s
The Logic of Scientific Discovery
argued for falsification as the ideal and operative criteria for change of
theory allegiance; others, most notably Imre Lakatos and Thomas Kuhn, argued for other criteria. The
epistemological concern of the French students is a fundamentally different
one. They have identified a situation in which one theory illuminates a few
facets of a domain, while its practitioners suppress other theories that
illuminate some of the many facts that their theory leaves in the dark. In
such a situation the solution is not abandonment of a theory or research
programme, or a paradigm shift, but pluralism. The history of economics is diverse, but
the idea of pluralism is nevertheless anathema to economists. Beginning with
the French Physiocrates in the mid
eighteenth-century, economists of all varieties have been inclined to believe
that their approach to economic phenomena reveals, if not the whole truth, at
least all of it that is worth knowing. It is with these broad
conceptualisations, which are called ‘schools’, rather than with subject
areas, that economists form their primary professional identity. The assorted
teachings and members of these schools are labelled orthodox or heterodox
depending on whether their school is the dominant one or not. Until very
recently economists of all varieties have been comfortable with this
quasi-theological scheme of things. The French students asked that their
economics education be oriented primarily toward understanding the world’s
economic problems (globalisation, inequalities, environment, technical
progress, etc). Any ‘school’s’ teaching would be welcome to the extent that
it threw light on the real world. Likewise, implicitly, a school’s members
would not be welcome if they did not place the pursuit of empirical
understanding ahead of the inculcation of articles of faith. Furthermore, and
this is extremely important, the inclusion of different ‘schools’, with their
different conceptual viewpoints, would neutralise the ideological
implications that every conceptual system, by design or accident, contains.
No strong precedent existed for this demand, and its novelty, coupled with
its self-evident reasonableness, came as a shock for economists, orthodox and
heterodox alike. Traditionally non-neoclassical schools of
economics have quarrelled among themselves hardly less than with the
neoclassical. But in the mid-1990s a peace movement began. Under the banner ICARE (Confederation of Associations for the Reform of
Economics) (later changed to ICAPE, with
‘Pluralism’ substituted for ‘Reform’), it sought ‘to promote a new spirit of
pluralism in economics, involving critical conversation and tolerant
communication among different approaches’. ICAPE’s
pluralism in the mode of a council of churches was several giant steps away
from what the French students were proposing, but it helped to decontaminate
the p-word and breakdown blind acceptance of the simplistic Popperian and Kuhnian, us or
them, notions of science. So when the ideas of the French students were
spread through the profession internationally by the Post-Autistic Economics Newsletter (now Review) they fell on partially prepared ground. The speed with which the free
email-delivered PAE Newsletter/Review picked up
subscribers and became a focal point for the radical reform of economics
surprised everyone, especially its editor. Nor does the momentum show signs
of decreasing. The journal now has 8000 subscribers, mostly academics but
also many economists employed in other capacities. Its website - www.paecon.net – receives 5,000 visitors a
month. Policy
implications The neoclassical monopoly in the classroom
and its prohibition on critical thinking has meant that it has brainwashed
successive generations of students into viewing economic reality exclusively
through its concepts, which more often than not misrepresent or veil the
world, especially today’s world. Nearly all of these neoclassical notions
have a bearing on judgements about social, cultural and economic policy.
Consequently, if society were to learn to think about economic matters
outside the neoclassical conceptual system, it would almost certainly choose
different policies. One of PAE’s projects has been
to expose some of the many conceptual lunacies of today’s mainstream, both in
terms of the concepts it uses and the concepts it lacks. Drawing on recent
essays by PAE economists in A Guide to What’s Wrong with Economics (especially the chapters
by Michael A. Bernstein, Geoffrey Hodgson, Peter Söderbaum,
Hugh Stretton, Richard Wolff, Robert Costanza, Herman E. Daly, Jean Gadrey,
and myself), I am going to briefly consider some of these concepts.6
Neoclassical economics regards competition as a state rather than as
a process. It defines perfect competition as a market with a large number of
firms with identical products,
costs structures, production techniques and market information. But in real
life competition is a process by which firms continually seek to re-establish
the conditions of their own profitability. To compete in a market requires
firms to seek out and exploit differences between them in production,
technology, distribution, access to information and awareness of trends in
consumption. These differences are the essential dimensions in which
competition takes place. However, once the neoclassical conception of
competition becomes embedded in the student’s mind, appreciation of
real-world competition, and hence the policies that might enhance it, becomes
logically impossible. Neoclassical economists love to talk about
freedom of choice. But this is pure
rhetoric, because they define rationality in a way that eliminates free
choice from their conceptual space. By rationality they mean that an agent’s
choices are in conformity with an ordering or scale of preferences. The
‘rational’ agent chooses from among the alternatives available the one which
is highest on his ranking. Rational behaviour simply means behaviour in
accordance with some ordering of alternatives in terms of relative
desirability. In order for this approach to have any predictive power, it
must be assumed that the preferences do not change over some period of time. So the basic condition of neoclassical
rationality is that individuals must forego
choice in favour of some past reckoning, thereafter acting as automata. This
conceptual elimination of freedom of choice, in both its everyday and
philosophical meanings, gives neoclassical theory the hypothetical
determinacy that its Newtonian inspired metaphysics require. Without
indeterminacy there can be no choice. Without determinacy; there is no
neoclassical model. This is far from just an academic matter, because society
needs an economics that is able to address questions regarding freedom of
choice. No terms in
neoclassical economics are more sacrosanct than rational choice and rationality.
Everyone identifies with these words, because everyone wants to think of
themselves as rational. But few people realise that economists give these
words an ultra eccentric meaning. Neoclassical economics begins with an a priori conception of markets and
economies as determinate systems that, by the action of individual agents
alone, tend towards an efficient and market-clearing equilibrium. This
requires that the individual agents, like the bodies in Newton’s system,
behave in a prescribed manner. Neoclassicalists
have then gone on to deduce the particular pattern of behaviour that would
make their imagined world logically possible, and named it ‘rational choice’
or ‘rationality’; they have then declared that that is the way real people behave.
But, thankfully, they don’t. Everyday economic actors do many things that, in
the neoclassical meaning of ‘rational’, are ‘irrational’. Many common
consumer behaviours are prohibited under the neoclassical notions of rational
choice and rationality, including: looking to the choices of other consumers
as guides to what one might buy; buying a stock because you believe other
people will be buying it and so increase its value; spending your money in a
spirit of spontaneity rather than stopping to calculate the consequences and
alternatives up to the limits of your cognitive powers; indulging a taste for
change, that is, buying something that you did not previously prefer. All
these actions are considered outside the scope of analysis of neoclassical economics.
These failings all
connect with another. For neoclassical economics is by its own axioms
incapable of offering a coherent conceptualisation of the individual or economic agent. It cannot explain where the preferences that
supposedly dictate the individual’s choice come from. The preferences cannot
be explained through interpersonal relations, because if individual demands
were interdependent they would not be additive, and thus the market demand
function - neoclassicalism’s key analytical tool -
would be undefined. And they cannot come from society, because neoclassicalism’s Newtonian atomism translates as
methodological individualism, meaning that society is to be explained in
terms of individuals and never the other way around. This leaves an awful lot unexplained. For
in the main, despite the neoclassical axioms, we all tend to categorise and
classify according to prevailing cultural norms. Likewise our tastes and
preferences for this and that reflect the social conventions and institutions
with which we interact. Consequently individual choice is unavoidably and
inextricably bound up with historically and geographically given social
worlds. An economics that has nothing to say about the formation of economic
tastes and preferences is silly and irresponsible, especially in an age of
consumer societies, and in a world now threatened with climate change or
worse. For half a century neoclassical economics
has hidden its ideology behind the notion that it calls positive economics. This is the idea that it contains no value
judgements because it mentions none. Of course such a notion belongs to an
intellectually more naive age than today, but it nonetheless persists as an
effective tool of indoctrination of undergraduates. The fact that
neoclassical economics requires a highly restricted focus in order to
maintain its atomist and determinist metaphysics compels it to make many
extreme judgements about what is and is not economically important. There is
not space here even to list them. But one key example is its notion of
‘economic man’ - an acutely ideological term, as it emphasises some roles and
relationships and excludes others; by allowing only decisions based on
utility maximisation, it excludes other forms of ethics. As an economic
agent, each individual acts in many roles, not just market ones, and is
guided by his or her ‘ideological orientation’. That orientation may be
founded on utilitarianism or not. It may, for example, be based on social and
environmental ethics. PAE economists do not believe
that economists have the right to select one ethics as the ‘correct’ one for
framing economic analysis. Furthermore, the neoclassical insistence upon the
utilitarian ideology legitimises a kind of ‘market ideology’ and
‘consumerism’ that increasingly appears dangerous to society, and sidelines
the debate about sustainable development. Like rationality, nearly everyone thinks efficiency is a good idea.
Neoclassical economists adore using this word, especially when addressing the
public. But the meaning of ‘efficiency’ always depends on what you choose to
count. For example, suppose five firms all manage to lower by the same
amounts the production cost and selling price of a standard product that they
all produce. One does it by cutting its workers’ pay, another by working them
longer hours, another by getting materials at lower prices from a poorer
country, another by replacing some of its workers with robots, and another by
inventing machinery improvements that allow it to cut work hours with no loss
of output, profit, jobs or pay. Are all of these changes equally efficient
(or inefficient)? A neoclassical economist will answer yes, because the five
firms all end up producing the same product at the same cost and selling it
at the same price. For them that is all that matters. The prevailing mainstream also holds that
in the realm of public affairs this concept of ‘efficiency’ can and should
determine the net balance between the positives (total benefits) and negatives
(total costs) that would result from an economic policy or act. In place of
public debate, economists would substitute ‘cost-benefit analysis’. But any
such analysis depends on the consequences selected and the kinds of
‘measurements’ made. No efficiency claim is ever based on an identification
of all the consequences, and quantitative guesstimates of the future
inevitably have a crystal-ball dimension. In the final analysis, ‘efficient’,
like ‘beautiful’, is little more than a way of expressing a positive opinion. Mainstream economics, and in consequence
most policy dialogue, also conflates two very different meanings of economic growth that are in common
usage, with GNP mistakenly taken to be a measure of both. There is quantitative growth, meaning an
increase in the quantity of production and consumption, and there is qualitative growth, meaning an improvement in
well-being. For example, an epidemic may lead to growth of medical
expenditure and hence increase GNP but not well-being. Pollution and
congestion lead to huge expenditures to escape them (e.g. commuting from the
suburbs, double glazing, air filters, security measures), the creation of new
industries and an ever larger GNP, but they also decrease well-being.
Quantitative growth that causes negative qualitative growth can also be
called uneconomic growth. This is
both a reality and a concept with which policy-makers must come to terms, the
sooner the better. Closely related to these new
anti-neoclassical concepts is another one, sustainable development. This refers to the physical scale of the
economy relative to the ecosystem. Ecological economists view the economy as
an open subsystem of the larger ecosystem which is finite, non-growing and,
except for solar energy, materially closed. This point of view compels asking
questions regarding scale. How large is the economic subsystem relative to
the earth’s ecosystem? What is its maximum possible size? What is its most
desirable size in terms of human welfare? These questions, around which policy
decisions will and must increasingly be made, are not found in standard
economics textbooks. Neoclassical economics can not accommodate the concept
of sustainable development, because, if it was adopted as a goal it would
require that goods be valued in part by their contribution to that goal and
not solely on their contribution to individual utility maximisation. 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. The preoccupation of
economics 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 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 success of this movement 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. Notes 1. Thorstein Veblen, ‘Why is
Economics not an Evolutionary Science?’, Quarterly
Journal of Economics, Vol. 12, 1898, p373. 2.
Geoffrey M. Hodgson, How Economics
Forgot History, Routledge 2001, p155. 3. This
paragraph draws heavily on Michael A. Bernstein, ‘Rethinking Economics in
Twentieth-Century America’, in Edward Fullbrook (ed), The Crisis in Economics, Routledge
2003. 4.
Kenneth Arrow, Collected Papers of
Kenneth J. Arrow: Volume 1: Social choice and Justice, Harvard University
Press 1983, p1. 5. E. Ray
Canterbery and Robert J. Burkhardt,
‘What do we mean by asking whether economics is a science?’, in Alfred S. Eichner
(ed), Why Economics Is Not Yet a
Science, Macmillan 1983. 6. Edward
Fullbrook (ed),
A Guide to What’s Wrong with Economics, Anthem Press 2004. ___________________________ SUGGESTED CITATION: |