|
sanity,
humanity and science
post-autistic economics
review
Issue no. 19; April 2, 2003 back issues at www.paecon.net
Subscribers: 5,833 in approximately 140 countries
Subscriptions are free, To subscribe, email "subscribe". To
unsubscribe, email "unsubscribe". To subscribe
a colleague,
email" subscribe colleague" and give their email
address. Send to: pae_news@btinternet.com
Special
all-student issue:
- Autisme-Économie Reaches Harvard
- The Harvard Student Petition
- Daniel Gay
Politics Versus Economics:
Keeping It Real
- Asatar Bair
Form and Content in Neoclassical Theory
-
Nathaniel Chamberland
Of Textbooks: In Search of Method
- James Bondio
4 New Assumptions for a New
Economics
- Jared Ferrie
Toward a Holistic Economics
- Goutam U. Jois
Consumer Sovereignty Re-examined
- The Crisis
in Economics
Autisme-Économie
Reaches Harvard
The student rebellion against unreality and dogmatism in
economics that began in France in June 2000, spreading to Cambridge UK and
reverberating around the world, has now erupted at Harvard. In recent weeks over 700 Harvard students
and alumni have signed a petition addressed to the Harvard Economics
Department asking it to approve a new introductory economics course proposed
by Professor Stephen Marglin that would cover
“a broader spectrum of views”, “examine the assumptions of
economics”, and “challenge students to think critically”.
“The point,” said Marglin to the New
York Times (4 March 2003), “is not to substitute one set of biases
for another. It’s to provide a
more balanced approach.” The Boston
Globe (9 March) reported that Marglin’s
course would “encourage the critique of mainstream economists’
assumptions” and that Marglin and Samuel
Bowles, now at Amherst, first proposed a similar course at Harvard almost 30
years ago. Students, said Bowles to
the Globe, would “benefit from knowing that economics, like most
sciences, is not a settled doctrine, but a lively and much-debated set of
hypotheses.”
Daniel DiMaggio, one of the student leaders of the Harvard reform movement,
says that Harvard’s existing introductory course “is fairly
ideological, if not completely ideological.
We’ve been leafleting it with articles that have a different
perspective, but we’ve been hoping that something like this [Marglin’s proposed course] would come along. We’ve had a pretty amazing level of
response so far. I’ve been
pretty excited about the number of people who have signed [the
petition].”
Michael Y. Lee, the petition’s author, says that “there is a
strong student demand for an alternative intro economics course. The free market principles that economists
worship should also apply to these courses to a certain degree, and right now
Ec 10 holds a monopoly on intro courses.”
Benjamin B. Collins, another student, says that his main complaint is not the
ideological spin, but rather the apathy.
“Students just copy down what’s on the board”, he
said. “What excites me about
this new class is that Prof. Marglin seems to be
really interested in building and teaching a new course that will force
students to learn actively. If he
succeeds in getting students engaged and thinking critically about not only
mainstream economic theory itself, but about the philosophy and history of
economics, the problem of bias will fix itself, because students will be
forced to think for themselves about economics.”
The Harvard Crimson reports (17 March) that the
university’s Undergraduate Council has postponed until April a
debate on the proposal for Marglin’s
post-autistic introductory course.
Meanwhile the Harvard students have issued a “mission
statement”. It includes the
following passage, highly reminiscent of the initial petition from the French
students.
We believe that the field
of economics plays a critical role in shaping the basic organizational
structure of society and informing policies (both domestic and international)
that strongly affect individual welfare. Because of the practical impact of
economics, we believe economics education has important human
consequences. Economic models are
lenses through which students are taught to view how society should
function. We believe that Harvard, by
only providing one model of economics, fails to provide critical perspectives
or alternative models for analyzing the economy and its social
consequences. Without providing a true
marketplace for economic ideas, Harvard fails to prepare students to be
critical thinkers and engaged citizens.
We believe that the values and political convictions inherent within
the standard economic models taught at Harvard inevitably influence the
values and political convictions of Harvard students and even the career
choices that they make. Finally, by
falsely presenting economics as a positive science devoid of ethical values,
we believe Harvard strips students of their intellectual agency and prevents
them from being able to make up their own minds.
The Harvard students’ full manifesto is available here. Students at other universities wishing to
launch similar PAE initiatives would do well to
consult this document, as well as the French Students’ Open
Letter, the Cambridge Students’
Proposal and the international Kansas City Proposal.
The Harvard Student Petition
To: The Faculty Members of the
Harvard Economics Department
We, the undersigned, believe that Harvard has a responsibility to provide its
eight hundred introductory economics students with a more balanced perspective
than is currently offered in Social Analysis 10: Principles of Economics,
commonly known as Ec 10.
We are therefore delighted that Stephen Marglin, the Walter S. Barker
Professor of Economics, has proposed to teach a one-semester alternative introductory
microeconomics class. This proposed class will cover the same material as the
first semester of Ec 10 and use the same text as Ec 10 does, but it will
attempt a better balance and coverage of a broader spectrum of views in the
Readings/Workbook. It will also examine the assumptions of economics
critically, so that students can assess the limits as well as the strengths
of economics. Taken with the second semester of Ec 10, we believe that
students would receive a solid introduction to the principles of economics.
We believe that a liberal arts education should not only teach students the
accepted modes of thinking, but also challenge students to think critically
and deeply about conventional truths. In the spirit of a liberal-arts
education, we urge the esteemed members of the Harvard Economics Department
to approve Professor Marglin's proposed course.
Sincerely,
The Undersigned
Politics Versus Economics: Keeping It
Real
Daniel Gay (PhD student at the University of Stirling, UK)
For someone who previously thought of duality as part of
the Kama Sutra and the business cycle as an
environmentally-friendly way of getting to work, the last year has been a
struggle. A struggle not foremost in understanding complicated mathematical
techniques and learning theory (although these tasks were far from easy), but
a battle to understand why otherwise clever people devoted so much time to
limiting their horizons.
Following my British undergraduate education in politics, philosophy and
economics I completed a mainstream masters degree in political theory. After
a few years as a journalist trying to decode the pronouncements of the dismal
science, I returned to university to study a masters in economics. But if I
hoped for a clearer understanding of how real people share out scarce
resources, I was maximising the wrong function. If I thought I would gain a
better understanding of real economies, I was sorely mistaken. If I believed
I would at last hear the God Oikonomos, I was surely beyond redemption.
Here, I would like to compare my experiences of learning politics and
economics as a postgraduate. I found that three features of mainstream
economics teaching made it less helpful for understanding real life than
political theory: its shortage of rigour, the dogmatic way it uses concepts
and its lack of usefulness.
Rigour not figures
Rigour, according to the latest edition of the Oxford
English Dictionary, means “the quality of being extremely thorough,
exhaustive or accurate”. Usually someone is considered rigorous if they
have delved into an issue and thought about every angle, arriving at a
conclusion that attempts to tie up loose ends.
Mainstream economics, as is well known, prides itself on its rigour. Applying
a general equilibrium approach requires showing with numbers how demand and
supply interact simultaneously in several markets to produce prices for all
goods. The practitioners of mainstream economics castigate those in other
social sciences for “hand waving” and failing to quantify
variables. Political theory, like sociology, is particularly vulnerable since
many strands of the discipline openly dispute the idea of measuring society.
For instance much of Marxism denies the possibility of reducing human society
to individuals that can be added or subtracted.
But if political theorists are idle gesticulators, then mainstream economists
are invisible hand-wavers. Their version of economics is, in fact, unrigorous because it leaves out so many possibilities.
It is not thorough because it mostly analyses only things it can measure. It
isn’t exhaustive because it is implicitly bound by an uncritically
positivist and strictly utilitarian worldview that precludes uncertainty. It
is inaccurate; economists themselves endlessly repeat the mantra that they
are no good at forecasting levels – only directions – and often
even these are wrong.
And if accuracy is judged by explanation rather than prediction, then many
important parts of economics only appear rigorous insofar as they assume
their results. For example that jewel in the crown of the new classical
tradition – real (surreal?) business cycle theory – simply assumes
a close approximation of real economic fluctuations and therefore produces
similar predictable output movements to the data. Nelson and Plosser’s well-known test disputing predictable
trends in GDP over time might be one part of the argument against government
intervention but it surely shouldn’t be considered a conclusive piece
of evidence when teaching the theory of economic fluctuations.
If I had handed in a politics essay containing within its argument only the
blind empiricism of econometrics, it would have been graded a
‘D’. In politics, years are spent drumming in the need to combine
facts, theory and values in the correct combination to achieve a compelling
syllogism. Simply pointing out a historical relation between several
variables, however complicated the maths, is considered insufficient to prove
a case. True rigour is achieved only through a combination of argumentative
forms and evidence; empirical, theoretical, epistemological, ontological. To
misquote Paul Krugman: a half-hearted cheer for
formalism, and reserve the other two for broad-mindedness.
Creative concepts
The analytical pretensions of economics derive in large
part from the dogmatic way it uses concepts. Where politics frequently strays
into the never-never land of creativity, economics steadfastly sticks to its
tried and badly-tested tools. In political theory we read the creative
writing of Hilaire Belloc
and GK Chesterton for their espousal of community values, or the novels of
Jean-Paul Sartre for their subjectivist approach to existentialism, concepts
that couldn’t be communicated through standard philosophical works. But
in economics we paced the well-worn treadmill of Samuelson, Solow and Sargent –
geniuses no doubt, but hardly the free-thinkers of their generation.
Economics sticks to prefabricated concepts because it thinks it is gradually
improving its grip on the world. But what it fails to recognise is that the
real world is dynamic and elusive, and that understanding it requires an
ever-changing and nuanced approach. A variety of human activities that can be
described as economic cannot be understood by strictly analytical tools. Does
it clarify matters to label the Indonesian exchange rate between 1997 and
2000 – a period during which it swung between 2,500 and 15,000 to the US
dollar and back again – by an ageing metaphor borrowed from physics? Or
would it make more sense to question and redefine the concept of equilibrium
in crisis situations?
Because economics builds up an edifice of analytics, it is simply hard to
understand. That is why so many undergraduates drop out early on and take up
more intuitive subjects. It is easier to grasp subjects that obviously relate
to changing, everyday life. Most of the physical sciences change their views
of the world around us, as do the humanities and social sciences. Economics
is almost alone in the way it clings so tightly to past ideas. If it was open
to wholesale re-evaluation – like physics accepted the quantum
revolution – it would be much easier to understand and more popular.
Most students can see straight through the attempts of economists to present
the subject as a seamless whole. I remember countless post-lecture whinges:
about how if Akerlof and co. say that information
is distributed asymmetrically then why does general equilibrium theory assume
that it isn’t? Or about why many Brander-Spencer type arguments for
strategic trade think that assumptions should be realistic, while the rest of
macroeconomics argues precisely the opposite.
Not that there’s anything wrong with contradiction. Reality is
contradictory. The point is that economics would be much more honest
explicitly to admit its points of difference, and would arrive at better
conclusions if it was creative in its use of concepts. The only compulsory
course on my political theory MSc was entitled: “Methods and
Controversies in the History of Political Thought.” Method,
controversies and history are all practices studiously avoided by
conventional economic thought. But arguing about and redefining concepts is
part of good science.
Useful or toothless?
A lack of rigour and rigid use of concepts might be excusable if economics
was useful. It isn’t. Even though many students study economics to
postgraduate level instrumentally – usually to gain a career in finance
– they rarely use the tools they learn. Nobody would become an
investment analyst if the strong form of the efficient markets hypothesis
were true. Many financial professionals carry at the back of their minds a
vague intuition that supply and demand are supposed to equilibriate,
and so on, but much more useful is a practical understanding of how real
exchange rates move, and of how stock and bond markets work in different
countries.
Even some students academically interested in economics grumble about its uselessness.
It is an oft-heard refrain that microeconomics is a cosy exercise easily
performed in an exam, but trying to pin it down in research is much harder
because reality starts to intrude. For me, microeconomics asserted a kind of
Stockholm syndrome – in the end I grudgingly indulged my imprisoner. But it was less useful than the techniques
learnt in politics.
You might think that political theory was about as abstract as it is possible
to be. How can a discipline whose sole intent is – by definition
– theory, have anything to offer everyday life? But because political
theory is self-critical and pluralistic, it offers tools that are much more
useful. Economics may purport to get down to the nitty-gritty details, but
because of its rigidity it remains hopelessly stuck in its own nether world
of axioms, lemmas and symbols.
Reading the business pages of a newspaper becomes a lot more informative if
you have studied Marx’s theory of ideology, whereas much of academic
financial economics is irrelevant. Michel Foucault’s definition of
power relations says more about the behaviour of actors within the capitalist
firm than does microeconomics. The Weberian theory
of legitimacy offers a broad and adaptable understanding of the political state because it doesn’t
depend on unusual assumptions and can therefore be applied in a variety of
situations. As a number of authors have shown, using unrealistic assumptions
as an heuristic device often robs economic concepts of real world validity.
Students often accuse academics of being out of touch, but it is university
economics above all that refuses to engage with the ordinary world.
Conclusions
Of course a lot of economics is realistic. As I have suggested, applying some
models from the new trade theory requires realism of assumptions. John
Maynard Keynes gives a nod to real people by making uncertainty central to
the general theory; the more uncertain agents are, the more likely they are
to hold money and the higher the interest rate. Critical realists identify the
existence of a deeper level of economic reality of which we can gain
open-ended knowledge.
Political theory is only more realistic than economics because of certain
features common to all broad-minded sciences – including pluralism and
disagreement over certain basic issues. It has no inherent superiority. Parts
of political theory can be woolly, distant and difficult to use. It is
plainly harder to apply the knowledge of a diverse discipline. The so-called
analytical thinking of economics at
least has the merit of being able to supply answers, albeit in a
limited sense.
But therein lies the problem: reality is messy and difficult to grasp.
Usefully comprehending messiness and difficulty requires intuition, an open
mind and common sense. And just because a discipline is hard to apply, it
doesn’t mean we shouldn’t try. What are we doing, if not trying
to understand real life? Are our ivory-tower proclamations aimed at
constructing a cosy scheme that holds internal
consistency, or are we highlighting and explaining useful features of real
life with a view to changing them?
Rigour, flexibility and usefulness are linked. A
discipline must at least show willingness to comprehensively rethink its use
of terms if it is to remain objective and rigorous. If it doesn’t, it
is not as useful as it could be. If it can’t incorporate a number of
different tools then it is neither fully rigorous nor useful. If it
isn’t useful, it should surely think again about the concepts it uses.
Avoiding rigour, dogmatically adhering to old
concepts and forgetting that knowledge must be useful, all ultimately deny
realism.
Economics could easily rise from the status of idiot, to idiot savant of the
social sciences. And elucidating economics could be at least as rewarding as
pontificating about politics. But only when economists remove their blinkers.
Bibliography
Akerlof, G.
(1970) ‘The Market for Lemons: Quality Uncertainty and the Market
Mechanism’, The Quarterly
Journal of Economics, 84:
488-500
Brander, J. and B. Spencer (1985) ‘Export Subsidies and International
Market Share Rivalry’, Journal of
International Economics, no.
18: 83-100
Foucault, M. (1980) Power/Knowledge (London, Harvester Wheatsheaf) (Ed. Colin Gordon)
Keynes, J. M. (1936) The General Theory
of Employment, Interest and Money (London, Macmillan)
Krugman, P. (1998) ’Two Cheers for
Formalism’, The Economic Journal, 108 (Autumn): 1829-1836
Lawson, T (1997) Economics and Reality (London, Routledge)
Samuelson, P. (1947) Foundations of Economic Analysis (Cambridge,
Harvard University Press)
Sargent, T. (1987) Macroeconomic Theory (Boston,
Academic Press)
Solow, R. (1956) ’A Contribution to the
Theory of Economic Growth’, The Quarterly Journal of Economics,
vol.70, Issue 1 (February):
65-94
______________________________
SUGGESTED CITATION:
Daniel Gay, “Politics Versus Economics: Keeping It Real“, post-autistic
economics review, issue no. 2 April 2003, article 1, http://www.btinternet.com/~pae_news/review/issue19.htm
Form and Content in Neoclassical
Theory
Asatar Bair (Doctoral
Candidate, University of Massachusetts at Amherst, USA)
I find it fascinating that those
of us who are critical, in one way or another, of neoclassical economics
would accept uncritically a defense of the theory
offered by one of its most famous modern proponents. I refer to Milton Friedman’s essay on
methodology, where he basically argues that the theory should not be judged
on the basis of whether or not its assumptions are realistic, but whether it
is practical.
This is sort of like saying, since supply and demand analysis explains
prices, we can forget about the excesses that are so easy to find in the
stringent assumptions necessary to obtain perfect competition and general
equilibrium. For example, the
omniscient Auctioneer who oversees the exchange of commodities in the general
equilibrium model of Arrow and Debreu.
If we accept the terms of this argument, it becomes very simple for the
proponents of neoclassical theory to defend it, such as Deirdre
McCloskey’s defense of the criticisms of
Bernard Guerrien in Post-Autistic Economics
Review, Issue No. 15:
It just won't do, therefore, to say as Guerrien
does that price theory (as we Chicago types prefer to call it)
"obviously contradicts almost everything that we observe around
us." Huh? When OPEC (viz., Saudi Arabia) cut the supply of
oil in 1973, didn't the relative price of oil rise, just as a simple
supply-and-demand model would suggest?
Isn’t this is a bit like saying “Supply and demand works, so the
theory must be correct”? (By the
way, I am not attributing this position to McCloskey, a sophisticated and
original thinker, who, although committed to the small-s science of microeconomics, is also in her own way one of
its most ardent critics. This is
evinced by her writing not just in the PAE
Review, but many other places, including the recent volume Postmodernism, Economics & Knowledge,
edited by Cullenberg, Amariglio,
and Ruccio.
It is not against the McCloskeys of the
world that we must primarily debate, for I believe that if she had her way,
the terms of the debate would in fact be much more open.) The point is, there are so many ways to
criticize neoclassical theory – why use the criticisms that are the
easiest to brush off, simply by reference to already existing arguments?
The issue is not whether supply and demand analysis can be used to explain
the movement of prices. Even Marx uses
supply and demand analysis to make certain points about the movement of
prices. (See, for example his 1865
work Value, Price and Profit).
The issue is, what are the assumptions that form the basis of the theory and
what are its conclusions? This is
deeper than merely criticizing the form of the theory, for neoclassical
theory can be formulated without math – see The Economist or The Wall
Street Journal – or with a lot of math – see any graduate
program in economics or The American
Economic Review. To me, the debate
in these pages and elsewhere about formalism only scratches the surface. Sure, it’s a problem that
neoclassical economics tends to be dry as dust because it relies on abstract,
formal mathematical proofs, and indeed, sometimes the emphasis on technical
minutiae means that even its advanced practitioners can’t communicate
(or maybe even don’t fully grasp themselves) the big philosophical
ideas of neoclassical economics. These
are the ideas that have been around for a long time. Such as, how can a society maximize its
wealth? What is the relationship
between economic categories of production, consumption and distribution and
the fulfillment of human happiness and human
potential? How should we produce
things? Does capitalism involve
exploitation? And perhaps, the newer
question: is there only one correct answer to each of these questions? I will go out on a limb and label these as
interesting questions. Unfortunately,
they are not often discussed in economics, despite the appearance of some of
them on page 2 of most introductory textbooks. Could this absence have something to do
with many students’ hatred of economics? The proofs and formulae of modern
neoclassical theory have not made the questions go away, merely elaborated
one position out of many that are possible.
What about pluralism? Is neoclassical
economics the truth, and the other theories false? This would be the only position that
justifies the exclusion of other theories from economic discourse, but as so
many have pointed out, including McCloskey in The Rhetoric of Economics or Wolff and Resnick
in Economics: Marxian versus
Neoclassical, such a position is untenable. There simply is no external standard by
which to judge the veracity of contending theories.
Instead of looking at the form of the theory, we should look at its
content. Any theory can be
formalized. Take for example, one of
my favorites: Marxian theory. This approach to economics is sometimes
formulated in terms of proofs and theorems.
What is produced is merely a mathematized
version of Marxism. Of course there
are many kinds of Marxism, sharing some points of agreement and differing on
other points. But despite being formal
in the mathematical sense (which may make it rather dry, for those not
mathematically inclined), it will still be quite different in its content
from neoclassical theory.
My sense is that debates over form and content have been collapsed because
many students find both the form and content of neoclassical economics to be
objectionable. For example,
let’s consider one of the central assumptions of the theory: human
beings behave in their own narrow self interest. Many of my own students find this idea repellant as a separate matter from their dislike of
indifference curves. I happen to
agree. There is no reason to assume
that there is such a thing as human nature that exists independently of
one’s culture, language, politics, economic circumstances, etc. Is it not remotely possible that if people
seem to often act selfishly it is at least partly due to our societal
elevation of greed to a virtue?
Isn’t it a kind of debasement of human beings to assume the
worst of ourselves – indeed, to argue that whenever a human being seems
to be acting unselfishly, sacrificing herself for the sake of another, this
is really just the same old greed in disguise, charmingly called by microeconomists ‘warm-glow altruism’?
Of course, the amusing thing about this assumption – if we accept
Friedman’s formulation that we should overlook the realism and look at
its predictive value – is that it turns out to have very limited value
when it comes to actually predicting human behavior. It seems that people are actually quite
concerned with the welfare of others, even when it conflicts with their own
pecuniary interest, as experimental results have demonstrated. By now these results are well known -
perhaps the simplest evidence comes from the Ultimatum Game, in which one
experimental subject is given a sum of money, to be divided between himself
and the other player, who has the ability to veto the division, in which case
both get nothing. Self interest would
dictate that the second player accept any offer, because something is better
than nothing, and you don’t care what the other player gets, because
his utility has no effect on your own.
Would you pick up a dollar on the street? Then you also wouldn’t turn down an
offer of a dollar, even if it meant the other player got $999. Well, it turns out people do care, and are
willing to give up substantial sums of money to punish the other
player’s greed.
This experiment is very simple. For
God’s sake, why wasn’t it done in the 1880’s instead of the
1980’s? Could it be that the
assumption of self interest was adopted in part to obtain the grand
conclusion of neoclassical economics, elaborated by Adam Smith? Namely: if individuals are free to act in
their own self interest and society has established private property and
competitive markets, then that society will be guided as if by an invisible
hand, to the maximum wealth it can attain.
Forget whether or not this is true or realistic: this is a powerful
idea. We want this idea to be
true. We want it to be okay to be
selfish, to pursue our own goals, and to have it work out that instead of this
being inimical to the social good, it ends up being the very same thing as
working for the good of society.
So this is my first suggestion: in teaching economics, we should really
discuss the meaning of the assumption of self-interest, including its appeal
and its limitations, rather than merely adopting it unquestioningly.
My second suggestion is that we should think about and talk about theories of
distribution. The neoclassical theory
of distribution says that each productive input, for example, labor, land and capital, receives a reward that is equal
to its marginal productivity: wages, rent and profits respectively. We should discuss this with our students in
a serious way. What does it mean? The implications are clear: provided that
markets are competitive, workers, landlords, and capitalists deserve exactly
what they get. Each receives a reward
perfectly commensurate with his or her contribution to production. You can’t get anything more fair than
this. Any suggestion that capitalists
or landlords exploit or somehow take unfair advantage of their workers or
tenants is expunged.
It sure looks good on paper. But it
seems to go wrong somehow when applied.
Say we are considering the situation of the landholders of European
descent in Zimbabwe. They represent
10% of the population, and they own 90% of the land. Do they deserve the rents and profits they
obtain, which in neoclassical theory came from the land and capital they
contributed to production? How did
they come to own this land anyway?
Pretty much the same way property rights in land were established
everywhere at various times in history: theft accompanied by force.
What about the capitalists? Do they
deserve to live off the profits, as my conservative students sometimes tell
me, because they take risks, are responsible for workers, work hard
themselves, and contribute to the economy?
Or more in line with neoclassical economics, because they make the
capital that they own available for production, and thus the capital receives
a reward equal to its marginal product of capital? This makes sense. I guess the machines, tools, and raw
materials that make up the capital really should get a reward. Throw some cash on the lumber pile! Open up the back of the machine and throw
in a handful of coins! There you go
– and thanks! Or do capitalists
receive profits not from the productivity of the capital they own, but
because of the unpaid surplus labor they unjustly
steal from their workers?
This brings me to my third suggestion, that we discuss and take seriously
theories of class. I admit that I am
particularly interested in the Marxian notion of class defined as an
individual’s relationship to the surplus labor
performed at a given productive site.
This is fertile ground for exploring how production and the class
processes therein affect individual development, social and political
dynamics, economic fluctuations, and so forth – and how each of these
realms in turn shapes the class processes.
Not only can class help to illuminate society and the economy in new
ways, most of these insights have been excluded from mainstream economics.
The issue – as McCloskey and others have pointed out – is not
whether or not the theory is true, so much as does it persuade. Neoclassical
economics prefers to hide its excesses in math, where people are less likely
to understand the role of the assumptions being used. Is it embarrassment?
The dull, stifling formalism of neoclassical economics persuaded many people
in its heyday, when more people believed that math equals truth. People are less apt to believe that now, so
there can be no more retreating into the safety of proofs with unquestioned
assumptions. Perhaps this means we
will go back to debating substantive ideas rather than muddling through
endless comparative statics. I hope so.
If we want economics to fulfill its promise, to be
a serious scholarly field of inquiry that considers all points of view rather
than excluding certain theories and approaches on ideological grounds, we
must begin in the classroom, at the introductory level. To me, the post-autistic economics movement
has made this clear in the most basic way: students have dramatically shown
that they are not persuaded by mainstream economics.
References
Cullenberg, Stephen, Jack Amariglio, and David Ruccio
(2001) Postmodernism, Economics, and
Knowledge.
New York: Routledge.
McCloskey, Deirdre. (2002) "Yes, There is Something Worth Keeping in
Microeconomics", post-autistic
economics review, issue no.
15, September 4, 2002, article 1.
http://www.btinternet.com/~pae_news/review/issue15.htm
McCloskey, Deirdre. (1985) The
Rhetoric of Economics. Madison:
University of Wisconsin Press.
Wolff, Richard D. and Stephen A. Resnick. (1986) Economics: Marxian versus Neoclassical.
Baltimore: Johns
Hopkins Press.
______________________________
SUGGESTED CITATION:
Asatar Bair, “Form and Content in Neoclassical Theory“, post-autistic
economics review, issue no. 2 April 2003, article 2, http://www.btinternet.com/~pae_news/review/issue19.htm
Of Textbooks: In Search
of Method
Nathaniel
N. Chamberland
(graduated 2002 from Trinity
College, USA)
Interestingly, within the social sciences there are hierarchical views
regarding the efficacy or usefulness of certain disciplines. Economics is not only much more predictive
than, say, sociology, but more useful.
The more scientific a discipline, the more valued it apparently
is. The view of science as technology
thus underpins not only the relative valuation of science versus social
science, but also of the disciplines within the social sciences. It is an interesting view of the world: one
that values the means (science) over the ends (society).
—Henrietta More from the Summer 2002 edition of Anthropological Quarterly
With four drafts already in the trash can, Henrietta More’s
(2002) article came to pinpoint (by its ambiguity) a question that sat with
me throughout my undergraduate experience as a student: how does economics relate to other academic disciplines while
assessing and influencing the economy?
According to the quote from More above, economics seems to be a popular,
means driven, predictive science that takes its object of study to be
different than sociology, but is nonetheless termed a social science by
course catalogs.
Economics is also, we are told, popularly valued for its predictive
technology. Quite simply, economics is
often identified as a set of tools devoted to determining price (that is,
price knows a unit of measure to which all aspects of life are
reducible). So why then keep up the
charade of broad inquiry and explanation implied by the umbrella of
‘social science’? Why not
discard the chaff, that is, everything that has little to do with
finance? So long as the economy is
portrayed as an incredibly broad, although shallow, entity, economics, as an
academic discipline, remains relatively simplistic. The mindset of financial
study is maintained as a methodology (call it ‘mainstream economic
theory’) and Xeroxed across a burgeoning academic and political
territory.
For example, recall the opening pages of any undergraduate textbook. Faced with the task of describing
economics, the author(s) relapse into an ahistorical
account of price theory. Images of swapping apples for oranges,
choosing between the production of pizza and robots, instill
in the student the belief that they can derive the evolution of both society
and economics from that of exchange.
Exchange, here, is a pristine term.
It knows no history, politics, bloodshed, or lie; exchange is marked
simply by numbers and graphs, preferences and supplies. In so doing, economics lacks any kind of
deep, causal realism in its account of the economy. Shirking this sort of analysis, the
discipline has come to muddle its base terminology (economy and economic). An economics that reaches for more than
financial accounting cannot proceed without reading its own history,
accessing it method of inquiry, and articulating its object of study.
Undergraduates certainly do not read books, and rarely an article. Although students and professors alike may
confide in these mediums, the thing that drives departments across the USA
and made a fixture of every economics course on the way to a Bachelors degree
is, of course, the textbook. Where
other social sciences have a timeline, economics
has simply a table of contents.
The concepts annunciated in chapters two and
seventeen are of diverse origin and intention, but synthesized; historically
anachronistic, but timeless; the result of numerous debates between authors
and varying fields of study, but codified and distilled into problem sets. The titles of textbooks are simple, saying
little more than Economics even
though the most popular versions are in constant revision and flux: economics
is presented as a science of grand architecture and vast consistency. It is not that dissenting pages have not
been authored or that thought has gone stale across the globe, but rather
that economics constructs its place within the college and within politics by
institutionalizing a kind of economics that makes no home for debate.
Now, this paper is written not to implicate ranks of teachers and cow their
students, but rather to motion toward the divide between a teachers’
own research and seminars with colleagues or small groups of students and the
classes required by the department.
Caught up in a ‘non-profit’ institution driven by the
market and pride, departments and professors alike reserve endowed chairs and
research monies for socioeconomically conservative
and conciliatory personages and projects.
And perhaps more importantly, the jump from academia to politics is of
varying length: that is, one page devoted to the mainstream economic project
is not equalized by another directed toward critical realism or
institutionalism or what-have-you.
Liberalism and critical thought is cast as entertainment, a fantasy
kept to one side of reality: Michael More tops book lists and box office
ratings, and Martin Sheen plays a president from the left on the smash
television program, The West Wing.
It seems to me that these inequalities are propagated by the
discipline’s ineffectual articulation of the economy and the economic—the
facet of life that has (and has had) to do with production and exchange and
the thing which comes to both observe and participate in its unfolding. The ‘mainstream’ economic project
retains its title by restraining the political and educative salience of
ideologies (as well as techniques) that impugn the discipline’s
‘science envy’ and, secondarily, a neoconservative
allegiance. Simply put, the economic
textbook has its finger on the pulse of the community and workplace, all else
is academic, peace-nic fluff.
Now, when an undergraduate reads an article from The Economist or The New
York Times as an assignment for an economics course, he or she gleans in
a particular way. The graphs,
equations, vocabulary, and explanations found in the supported textbook are
to be conjured from the article at hand—if nothing else, they are there. First of all, the situation depicted is but
an excerpt. The institutions,
politics, and histories brought to the fore are relevant only in so far as they can be drawn into a quantifiable
relationship with a particular monetary or material variable. The narrative of the article is rewritten
or read as immediately explicable by a concurrently assigned lesson from the
economics textbook. Thus, economics
visits the economy. Imagine an
economics student reading a report detailing Ortega and Associates, an Arthur
Anderson subsidiary, undervaluing the Dominican Republic’s power
facilities by 907M dollars prior to the industries privatization (Enron, et
cetera) (Vallette and Whysham
2002). What hope is there for an economics textbook or free-market ideology
here? Are we to allow a generation of
budding economists to familiarize themselves with the price theory in such a
light? No. Of course not. For here, the economy is contrary, a rogue, and as a field of study, miscast by
economics. At once, the motive for profit is depicted
as coming unlatched from governmental and market regulations while subsisting only in their assistance:
Enron could not have conquered (and fallen) without a number of national and
international organizations. This line
of argumentation is not defeated by the evidence of the criminalization of
the white-collar crimes committed herein, but is rather vanquished by the
solution which has arisen in the aftermath.
As with the IMF and World Bank debacles,
economics suggests measures devoted toward improved transparency. But
what is it that we have come to see?
Harvey Pitt steps down, but can the Securities and Exchange Commission
institutionalize real change?
An economics that seriously attempts to relate to and progressively impact on
the economy, cannot take shape simply by compiling written and jocular
support against mainstream economics.
There has always been debate within the discipline. That debate must be heard and
harnessed. What if undergraduates read
a book like Geoffrey Hodgson’s How
Economics Forgot History: The Problem of Historical Specificity in Social
Science (2001) or Paul Downward’s Pricing Theory in Post Keynesian
Economics: A Realist Approach (1999)?
What if undergraduates engaged with the community, both social and
economic, that surrounds their school?
Again, it is not that high school, college, or graduate-school
teachers necessarily lack the interest or education, but rather the
classroom. Courage must be garnered to
push toward institutionalizing community or academically heterodox
orientations that already exist in students and teachers alike. As economists, we must know both humility
and potency; mainstream economics and a neoconservative economy survives this
article, yet instigates it and
others like it; teachers and students have long been involved
progressively and critically in the economy and in academia, yet examples of
those lives and thoughts seem horribly new.
The economics textbook, both as a medium and by its generally accepted
contents, lacks a grasp of the economy that could be afforded by broad
readings and community participation.
Works Cited or Influential
Bhaskar, Roy. 1993.
Dialectic: The Pulse of Freedom. London: Verso.
Downward, Paul. 1999. Pricing
Theory in Post Keynesian Economics: A Realist Approach. Cheltenham:
Edward Elgar.
Fleetwood, Steve. 2001. “Conceptualizing Unemployment
in a Period of Atypical Employment: A
Critical Realist
Perspective.” Review of Social Economy, vol. 59, no.
1. Pages 45-69.
Kuhn, Thomas S. 1996. The
Structure of Scientific Revolutions [1962]. 3rd edition. Chicago: Chicago UP.
Lawson, Tony. Economics & Reality.
London: Routledge.
Mirowski, Philip.
1991. “The philosophical bases of institutional
economics.” Lavoie, Don ed.
Economics and Hermeneutics.
Pages 76-112. London: Routledge.
____ 2002. Machine Dreams: Economics
Becomes a Cyborg Science. Cambridge: Cambridge UP.
Moore, Henrietta L. 2002. “The Business of Funding: Science,
Social Science and Wealth in the
United Kingdom.” Anthropological
Quarterly vol. 75, no. 3. Pages
527-535.
Setterfield, Mark.
2000. “Expectations,
Endogenous Money, and the Business Cycle: An Exercise in
Open Systems Modeling.” Journal of Post-Keynesian Economics,
vol. 23, no. 1. Pages 77-105.
____ 2002. “Critical Realism and
Formal Modeling: Incompatible Bedfellows?”
Unpublished manuscript
first presented at the Workshop
on Realism and Economics at the University of Cambridge in May 1999.
Vallette, Jim and Whysham,
Daphne. 2002. “Enron’s Pawns: How Public
Institutions Bankrolled
Enron'’ Globalization
Game.” Unpublished report for
the Institute for Policy Studies.
Wolfram, Stephen. 2002. A New Kind of Science. Champaign, IL: Wolfram Media.
______________________________
SUGGESTED CITATION:
Nathaniel Chamberland, “Of Textbooks: In Search of Method“, post-autistic
economics review, issue no. 2 April 2003, article 3, http://www.btinternet.com/~pae_news/review/issue19.htm
4 New Assumptions for a New Economics
James Bondio (undergraduate
at University of Queensland, Australia)
I hope to add to the kindling that has been laid to ignite a new
economics. The ideas in this paper are
not original but their combination as an economic theory came to me while I
was waiting in various airports recently.
I have reached this point of view through combining studies in
philosophy and history of economic thought, behaviourism, social psychology,
sociology, theology, and the beautiful people around me.
I am not an expert at economics and know less of writing theories, but it is
my opinion that economics has a noble greater purpose, making people happy,
and an economic theory should explain ways to achieve this. At present the theory I am taught teaches
profit maximisation, utility maximisation and (individually summed
utilities) social welfare, which are achieved through self-love and
greed. Then the fear created by
competition forces us to do the best we can for each other to fulfil our
selfish motives. My common sense tells
me that a society dominated by fear and greed will not be happy and my
experiences provide me with enough evidence to believe that selfish and
scared people are never happy. The
ideas for a new theory that I present here are assembled in an effort to
create a more realistic theory, to better understand people’s
behaviours and decisions, how prices are set and to explain ways people can
be happy.
My theory goes something like this: the economy is not made up of individual
rational utility and profit maximisers; it is made
up of people. Traditionally, what
makes human beings as a species different from other animals is two things:
the power to reason and the power to communicate through language. We are creatures eternally looking for
reason, meaning, and value in everything around us (economics itself is
evidence of this) and most importantly in our own existence. If we find meaning and worth in ourselves,
then our own existence is valuable and can be appreciated. It is when our existence is meaningful that
we are happy. Of course, the greatest
human expression of value and appreciation is love. So my first assumption of economic
behaviour is:
People search for meaning and value in their own existence and everything
around them.
Our ability to communicate value and meaning between each other enables
values to be agreed and disagreed upon, reinforced and rejected by those
around us, and learnt and taught to those we have contact with. People who communicate to each other
(verbally, through body-language, clothing, or anything else that can
communicate meaning) create a social group and a social context. Groups can be formal and established or
informal, but groups have common and recognisable values and reason. These common values and reasons within a
group are referred to as, habits, culture, stereotypes and social norms. They communicate meaning and value. They exist within friendships, families,
firms, political parties, university faculties, religions, age groups, and
football teams. My second assumption
is:
We are all subject to
social norms.
It is the values and meanings we learn from groups and individuals important
to us that define what is meaningful.
Our values are dependent on the groups we are members of. Group membership is maintained and
established with groups that provide and communicate meaning or value. To be members of a group people then adopt
what is important and representative of that group, and can be recognised as
group members. Being recognisable
means an identity has been established, which communicates meaning to
others. My third assumption is:
People will adopt the norms of the groups most important to them at any point
in time.
What is important to people will
depend on what context they are in.
Different contexts will demand needs that need to be satisfied. Individuals will behave within norms that
will satisfy their needs according to a hierarchy. Importantly, people will satisfy their
needs within the boundaries of the norms (values & beliefs) of the groups
vital to their identities. For
example, a strictly Jewish man dying of starvation would not eat pork. The hierarchy operates such that lowest
order needs of physical survival must be satisfied, then pleasure needs,
self-fulfilment, social fulfilment and spiritual/universal fulfilment, each a
higher order of needs. The orders
represent levels of personal development.
The level that people have reached will determine what they value and
consider meaningful. The more
developed person experiences a deeper meaningfulness and reason. This fuels our desire to develop. Therefore, my fourth assumption:
The importance of groups (and their norms, which are followed) will
depend on two, sometimes opposing, forces – personal development and
context.
Those are the basic assumptions I need, thus far, to explain behaviour within
economies. I feel that the current
assumptions in economic theory should be replaced by a set of assumptions
similar to these. I want to direct
this paper from here towards explaining how people can behave according to
the assumptions, how behaviour could be modelled, and the implications of a
theory based on these assumptions.
Perhaps, to follow in the footsteps of our ancestors, an example of how
the butcher’s love provides us with meat is appropriate.
According to these assumptions the butcher can provide us with meat for a
number of reasons. The butcher can
provide us with meat for his survival, purely out of self-love. His job provides him with income that lets
him buy food, shelter and clothing.
However, the butcher could do a number of jobs that will satisfy his
survival needs. He may choose to be a
butcher, over other trades, simply because he finds pleasure in cutting and
preparing meats. If the
butcher’s father was also a respected butcher then the son may have
followed his fathers valued footsteps to gain the same self-respect. Further he can provide us with meat because
of the pride it gives himself when others recognise him as a skilled
tradesman and a hard worker. He may
work to support his family. The
butcher may love the fact that he can provide fresh food as a source of life
and enjoyment for his customers and community, which means he may take extra
care in ensuring quality, not just for his own profits, but for the people
around him. The butcher can choose to
provide us with different meat. He can
choose to supply ‘free range’ chicken, beef grazed in pastures
that have not caused deforestation, and non-genetically modified meat because
of the values he places on animal life, the environment or god’s
creation. The butcher can provide us
with meat for any number of reasons and loves. Why he does will depend on what is
meaningful to him.
How then is this behaviour modelled? I
haven’t given this a huge amount of thought; however, I think the
supply and demand model can remain, with a few modifications. What follows is a list of ideas instead of
a structured argument. The simple supply and demand model can no longer be viewed
as the relationship between utility and profit according to the axioms of
price and quantity. Equilibriums will
no longer represent optimal outcomes and equilibriums will only be context
specific. Equilibriums could be viewed
more as contextual agreements and instead of equilibrium points they could be
modelled as intervals. Agreements can
be made within the intervals depending on the salience (contextual relevance)
of group norms. This is where
advertising and salespeople come into play, they attempt to increase the
salience of norms that will most benefit sales and prices.
This then gives power to the people who influence norms (group leaders,
respected institutions, publications, advertising and media figures). Therefore, there does not have to be
perfect competition. Nor does the assumption
of perfect information need to be kept, indeed it is because there is not
perfect information that we adopt group norms, relying on the perceptions and
judgements of each other to guide our decisions (i.e. “if everybody
else whom we see as important thinks it is good there must be something good
about it.”). Hence outcomes are
not always optimal and people do not have to be modelled according to
subjective expected utility theory as rational economic agents. Nor do firms have to be modelled as profit maximising
juggernauts. Instead people (on both
the supply and demand curves) are behaving in order to achieve something
meaningful to find reason so that we have value and can be appreciated by
others.
To find what is meaningful we then look to those people we respect and regard
as important, and they are determined by our context and development. Therefore if we are to understand the
behaviour of different markets, identifiable groups with observable group
norms, we can benefit from understanding these processes. Importantly, what order of needs, according
to the hierarchy, are being satisfied need to be identified explicitly. I think this is already done implicitly in
analysis but is left largely outside of analysis that I have been
taught. This would require empirical
research out in the wide-open ‘playing fields,’ finding out why
people do what they do. Present theory
restricts motivations for behaviour purely to the lower order needs of survival,
pleasure and self. If this were true,
then everybody would live according to fear and greed – not a happy
situation! Progressing the theory in
the way I have suggested here means analysis can also include the value and
benefit of things greater than our individual existence. This is what my common sense tells me will
make the world a happier place, and this paper is the draft of a theory that
says the same.
The implications of a theory based on these foundations are many and I am
sure to think of others after I have written this paper. But primarily these foundations:
- bring
both consumer and producer analysis together through the analysis of
people;
- require
less emphasis on mathematical logic and more on observing reality;
- shift
methodology towards group analysis away from individualism (this is
important in explaining group hostility and cooperation, gender, class,
societal and cultural characteristics) and;
- require
explicit historical perspectives when analysing the development and
emergence of groups and their norms.
Importantly, economics will need
to move to analysing actual contexts that groups
exist in. We will need to broaden our
analysis from contextual factors (e.g. income, welfare, savings, standard of
living) to include personal development factors (e.g. education, the family unit,
group membership, judgements and perceptions). Economists will need to ensure that the
economy creates a context, by including normative analysis and policy, where
people are not solely concerned with survival and self, a context where
people value each other, our environment, the miracle of life on this planet,
the power of love, and the existence of things greater than ourselves. It’s time to make economic teachings
relevant again.
______________________________
SUGGESTED
CITATION:
James Bondio, “4 New Assumptions for a New Economics“, post-autistic
economics review, issue no. 2 April 2003, article 4, http://www.btinternet.com/~pae_news/review/issue19.htm
Toward
a Holistic Economics
Jared Ferrie (student at Simon Fraser University, Canada)
______________________________
SUGGESTED CITATION:
Jared Ferrie, “Toward a Holistic Economics“, post-autistic
economics review, issue no. 2 April 2003, article 5, http://www.btinternet.com/~pae_news/review/issue19.htm
Consumer Sovereignty Re-examined:
Applications of the Merit Goods
Argument
Goutam U. Jois1 (Undergraduate
at Georgetown University, USA)
Economic thinking has traditionally distinguished between public and
private goods. More recently, however,
a new concept has been introduced into economic thinking, that of merit
goods. Economics has generally
resisted this new concept. Merit
goods, by definition, aim at interference with consumer preference, and this
violates the basic assumption of economics: that individual consumers’
autonomy and preferences have normative value.2 However, a survey of the writings of
various authors shows that the concept of merit goods is unavoidable in
economics. These writers are unable to locate their arguments within the
framework of traditional economics, because their prescriptions fundamentally
involve interference with consumer preference.
In this paper, I will examine articles by a variety of economists and
non-economists. These articles range
from economic theory to a feminist critique of philosophy, but they all
involve some measure of application of the merit goods concept, implicitly or
explicitly. Through this examination,
I will show that the concept of merit good must be introduced not only
because it is theoretically necessary but also because it is practically
unavoidable.
I begin with the article, “Fairness, Hope, and Justice” by
economist James M. Buchanan. In this
article, Buchanan is concerned with creating a theory of economic justice
that derives from a sense of fairness.
To effect this fairness, Buchanan says, he will focus on “the
distribution of rights and claims prior to or antecedent to the market
process itself rather than on some final distribution of the product”
(Buchanan 53). Buchanan wants to keep
his interference with market mechanisms to a minimum; this is why he proposes
interference prior to the market
process. Even still, he is forced to
concede that the “justice” for which he is arguing
“necessarily get[s] mixed up and intermingled with pure
self-interest” (55). Thus even
Buchanan’s very limited intervention in the market violates
self-interest narrowly defined to some extent.
Buchanan argues that the primary source of “unfairness” or
“injustice” in our society is birth (59). Therefore, he proposes the
“imposition of what we may call handicaps so as to [facilitate] . . .
equality in starting positions” (62).
But while he wants to create these handicaps, Buchanan does not at any
point want to interfere with the market directly, either with its process or
its outcome (e.g., 53). Therefore, he
advocates the taxation of asset transfers and public financing of compulsory
education (63-4). However, both of
these prescriptions do violate market preferences. Buchanan says as much; he admits that his
policies “necessarily interfere with the liberties of those person who
are potential accumulators of wealth and potential donors to their
heirs” (63). And the mandate of
education clearly interferes with the preferences of anyone who derives a
negative utility from required attendance at school. Since Buchanan wants to “interfere
with the liberties” of some, his policy must be considered a merit good
prescription.
Examples of merit goods are not limited to explicitly economic examples. In her article, “The Need for More
Than Justice,” Annette C. Baier describes the
shortcomings of a system of ethics based solely on justice (Baier 19). The
solution, Baier says, is the introduction of
“care” as an ethical system to supplement traditional liberal
theories of justice. She contends that
women are more likely to have feelings of care, while men generally claimed
to take only the justice perspective (e.g., 20, 22, 23). Baier argues that
the perspective of caretakers fulfills
people’s emotional needs to be attached to something. Reciprocal equality, characteristic of contractarian liberalism, does not guarantee this
attachment (23).
Baier contends that this attachment (derived from
care) is needed for every human being, and moreover, that it cannot be freely
chosen in the traditional liberal framework.
First, liberalism assumes interaction between equals. More often, care is between unequals: parent and child, doctor and patient, student
and teacher (28). Second, the rules of
liberalism, guaranteeing basic minima, don’t protect “the
relatively powerless against neglect, or [ ] ensure an education that will
form person to be capable of conforming to an ethics of care and
responsibility” (29). Care is
precisely about looking out for the
powerless; it cannot be sustained at merely minimum standards. Finally, liberalism (political and
economic) regards action as free choice.
A moral theory, however, “cannot regard concern for new and
future persons as an optional charity left for those with a taste for it. If the morality the theory endorses is to
sustain itself, it must provide for its own continuers” (29). Here we can see the merit nature of Baier’s critique of liberal ethics. While Baier’s
argument is not directly economic, she is proposing a normative framework (of
care) that necessarily interferes with individual preferences. Morality, Baier
writes, must be “for all persons, for men and for women” —
regardless of choice (31); under her system, a mother cannot “opt
out” and choose to neglect her children — the ethos is universal.
Another argument that does not facially seem to relate to economics is put
forth by Nobel Prize-winning economist Amartya Sen in “More than 100 Million Women are
Missing.” In this article, Sen describes the current situation in South Asia, West
Asia, and China, where the ratio of women to men is less than 0.94, a far cry
from the 1.05 or 1.06 ratio found elsewhere in the world (Sen
61). The prevailing explanations for
this phenomena are either economic or cultural: that the regions in question
are underdeveloped economically or that the cultural context in those regions
devalues the role of women (Ibid). However, Sen
demonstrates that both explanations are inadequate — for example, some
underdeveloped regions have higher ratios, and many countries with expanded
roles for women have lower ratios (62).
Sen contends that some combination of the
two is the real explanation: that women are viewed as inferior due to their
lack of gainful employment and lack of education (64). To remedy this situation, Sen endorses state funding of public education and public
policy that can work to raise the ratio of women to men in these countries
(66). It is important to note here
that Sen does not want to leave this situation to
market mechanisms. His normative
prescriptions do not allow for some society to reject the rights of women to
be educated and employed. Instead, the
policy (particularly of education) is to be carried out even if some derive a
negative utility from the policy.
Thus, Sen’s argument — which
seems at first to have nothing to do with economics — is a merit goods
argument.
The last argument for merit goods would perhaps seem strongest to classical
economists. It is put forth by another
Nobel laureate economist, Joseph E. Stiglitz, in
his article, “Whither Reform? Ten Years of the Transition.” In it, Stiglitz
shows the failure of market reforms in Russia. He argues that the transition to a market
economy lacked the institutional and legal infrastructure that it needed to
take firm root in Russian society (Stiglitz 5). This argument is important because it
delineates a clear departure from classical economics. Adam Smith believed that the economic order
was natural and would establish itself of its own accord. However, Stiglitz
contends that the very reason market reforms failed in Russia was because
Western consultants believed that the market could operate without the
requisite supporting institutions (3).
In Russia, bankruptcy laws and a judiciary to enforce them,
entrepreneurship, and capital (financial, social, and organizational) were
examples of elements presupposed in a market economy that were effectively
nonexistent (4-8). Indeed, Stiglitz is explicit on this point, saying that “a
market system cannot operate solely on the basis of narrow
self-interest” (8). The
interferences in self-interest that Stiglitz argues
for are merit goods: the “implicit or explicit social
contract[s]” (Ibid) to
supplement market mechanisms. The
“credible and enforced laws and regulations” that are needed to
provide the institutional framework for market economics, too, are merit
goods (19).
We started this paper examining Buchanan’s view on economic theory: the
fairness necessary in starting positions.
From this premise, we derived a merit goods argument for taxing asset
transfers and financing public education.
With the Stiglitz article, we see a merit
goods argument deriving from economic reality:
the harsh failures of market reforms in Russia. As Stiglitz
shows, the lack of institutional frameworks to support the free market doomed
reforms to failure. The economic
order that was to “naturally” establish itself never
materialized. The neoclassical
assumption — that a fully-functioning free market would arise of its
own accord — was proven wrong, because economists failed to prescribe
Pareto-suboptimal remedies, even though they were necessary for the
functioning of the free market.
The arguments of Baier and Sen
are useful to show that interference with the preference mechanism is not
limited to facially economic arguments.
Even feminist critiques (Baier) and
social-cultural studies (Sen) require interference
with consumer preferences to address the issues raised. From this diverse range of disciplines, we
can see that we must, in certain cases, place normative value upon interference
with consumer preferences. This
violation of classical liberalism necessitates — theoretically and
practically, economically and non-economically — the introduction and
acceptance of the new concept of merit good.
Notes
1. The author is a Senior at Georgetown University, enrolled in the Honors Program in Government. He wishes to thank Professor Wilfriend Ver Eecke, Georgetown University Department of Philosophy,
for his comments and feedback on this paper.
2. The introduction of the concept of merit good can be found in Public
Finance in Theory and Practice, by Richard A. Musgrave and Peggy B.
Musgrave (McGraw Hill: 1976-1984).
Additional commentary on the concept (both favorable
and unfavorable), can be found in Rationality,
Individualism, and Public Policy, Geoffrey Brennan and Cliff Walsh, eds.
(Australian National University: 1990), featuring selections by Charles E.
McClure, Jr. and John G. Head, to name a few.
Works Cited
Baier, Annette. “The Need for More than Justice.” Moral Prejudices: Essays on Ethics,
Annette Baier.
Cambridge, Mass: Harvard
University Press, 1994: 19-32.
Buchanan, James M. “Fairness, Hope, and Justice.” New
Directions in Economic Justice, ed. Roger Skurski.
South Bend, Indiana: University of
Notre Dame Press, 1983: 53-89.
Sen, Amartya. “One Hundred Million Women Are
Missing.” New York Review of
Books, 20 December 1990: 60-
66.
Stiglitz, Joseph E.
“Whither Reform? Ten
Years of the Transition.” World
Bank Annual Conference on
Development Economics. Washington, DC. 28-30 April 1999.
______________________________
SUGGESTED CITATION:
Goutam U. Jois, “Consumer Sovereignty Re-examined: Apllications of the
Merit Goods Argument“, post-autistic economics review,
issue no. 2 April 2003, article 6, http://www.btinternet.com/~pae_news/review/issue19.htm
|
Amazon
US
$31.95
Amazon
UK
Ł19.95
Amazon
France
EUR 31,10
Amazon
Germany
EUR 31,53
Amazon
Austria
EUR 31.53
Amazon
Japan
4,140
Amazon
Canada
$47.34
|
The Crisis in
Economics:
The Post-Autistic Economics
Movement:
The first 600 days
To be released April 21, 2003
Review Excerpts:
Amazon UK:
”Economics can be pretty boring. Drier than Death Valley,
the discipline is obsessed with mathematics and compounds this by
arrogantly assuming its techniques can be brought to bear on the other
social sciences. It wasn't going to be long, therefore, before students
started complaining. The vast majority have voted with their feet and
signed up for business and management degrees, but in the past two years
there has grown an important new movement that has decided to tackle those
who think they run economics head-on. This is the Post-Autistic Economics Network.
The PAE Network started in France and spread
first to Cambridge and then other parts of the world. The name derives from
the fact that mainstream economics has been accused of institutional autism
- that is, qualitative impairment of social interaction, failure to develop
peer relationships and lack of emotional and social reciprocity. In short,
economics has lost touch with reality and has become way too abstract. This
book charts the impact the PAE Network has had
and constitutes a manifesto for a different kind of economics. It features
key contributions from major voices in heterodox economics, including Tony
Lawson, Deirdre McCloskey, Geoff Hodgson, Sheila Dow and Warren
Samuels.”
Anonymous referee
”This volume should be on the nightstand of every economist skeptical of the neoclassical edifice, every policy
maker convinced of the limitations of the neoliberal
order, any student wanting to pick up on a new academic protest movement,
and anyone else just wanting to know what all the noise is about.”
“So this book might be a “Report from Iron Mountain” for
this generation, a kind of cult classic.”
“There is of course nothing like this book, it is unique.”
|
EDITOR: Edward Fullbrook
CORRESPONDENTS:
Argentina: Iserino;
Australia: Joseph Halevi, Steve Keen: Brazil: Wagner Leal Arienti;
France: Gilles Raveaud, Olivier Vaury,
J. Walter Plinge;
Germany: Helge Peukert;
Greece: Yanis Varoufakis;
Japan: Susumu Takenaga; United Kingdom: Nitasha Kaul; United
States: Benjamin Balak, Daniel Lien, Paul Surlis: At large:
Paddy Quick
PAST
CONTRIBUTORS: James Galbraith,
Frank Ackerman, André Orléan, Hugh Stretton, Jacques Sapir, Edward
Fullbrook, Gilles Raveaud,
Deirdre McCloskey, Tony Lawson, Geoff Harcourt, Joseph Halevi,
Sheila C. Dow, Kurt Jacobsen, The Cambridge 27, Paul Ormerod,
Steve Keen, Grazia Ietto-Gillies,
Emmanuelle Benicourt, Le Movement Autisme-Economie, Geoffrey Hodgson, Ben Fine, Michael A. Bernstein, Julie A. Nelson, Jeff
Gates, Anne Mayhew, Bruce Edmonds, Jason Potts, John Nightingale, Alan
Shipman, Peter E. Earl, Marc Lavoie, Jean Gadrey,
Peter Söderbaum, Bernard Guerrien,
Susan Feiner, Warren J. Samuels, Katalin Martinás, George M. Frankfurter, Elton G. McGoun, Yanis Varoufakis, Alex Millmow, Bruce
J. Caldwell, Poul Thřis
Madsen, Helge Peukert, Dietmar Lindenberger, Reiner Kümmel, Jane King, Peter Dorman, K.M.P.
Williams, Frank Rotering, Ha-Joon
Chang, Claude Mouchot, Robert E. Lane, James G. Devine,
Richard Wolff, Jamie Morgan, Robert Heilbroner,
William Milberg, Stephen
T. Ziliak, Steve Fleetwood, Tony Aspromourgos, Yves Gingras,
Ingrid Robeyns, Robert Scott Gassler,
Grischa Periono, Esther-Mirjam
Sent, Ana Maria Bianchi, Steve
Cohn, Peter Wynarczyk ___________________________________________________________________________________________
Articles,
comments on and proposals for should be sent to the editor at pae_news@btinternet.com
___________________________________________________________________________________________
Subscriptions
to this email journal are free.
Subscribe a colleague(s) to this journal by
sending their email address to pae_news@btinternet.com
Back issues of this
journal and other material related to the pae
movement are available at www.paecon.net. And also GEN , for global economic news,
analysis, opinion, and special reports.
To subscribe to this journal, send an email with the message
"subscribe" to
pae_news@btinternet.com
To
unsubscribe to this journal, send an email with the message
"unsubscribe" to pae_news@btinternet.com
|
home
page
PAE Review index
|