A Critique of Economic Theology (Political Economy, 97 pp.)

A CRITIQUE OF ECONOMIC THEOLOGY Kelly Maeshiro 10 May 20141 “Our scientific political economy has long been an oracle of the false god. It has taught us to approach economic questions from the point of view of goods and not of man.” — Walter Rauschenbusch2 PRIESTS, PHARISEES, AND FALSE PROPHETS. As scholars have begun to recognize, capitalism exhibits many of the features of what are traditionally associated with religions, including its own set of religious beliefs, practices, institutions, symbols, myths, and so on.3 Among these features, perhaps the most striking is its theological system. Like many other religions, Capitalism has its own theology in the form of mainstream economic theory, replete with its own doctrines, dogmas, symbolic language, constituted by its own unique forms of discursive practices, disseminated through its own theological institutions. Within this system, economists perform the function of the high priests of what is perhaps the world’s largest religion. As Robert Nelson suggests in a provocative review of these issues, economists constitute “a new priesthood” which dispenses what he calls “economic theology,” in a manner functionally equivalent to that of theologians in other religious traditions. 4 It “is not enough,” Nelson writes, “to say that economics is influenced by theology. In many cases it is more correct to say that economics … becomes even the heart of secular theology itself … economics is not ‘influenced’ by theology but actually takes the place of traditional theology. The laws of economics are substituted for the laws of God. Professional economists are the relevant priesthood, that group which through its knowledge of secrets of economic growth now holds the keys to salvation.”5 Karl Marx only half-jokingly called economists the “Pharisees of political economy,”6 but 1 Revised 11 July 2016. Walter Rauschenbusch, Christianity and the Social Crisis, ed. Paul Rauschenbusch (New York, Harper Collins, 2007), p.301. 3 Far and away the best material I have read on this subject is a short essay by David Loy, “The Religion of the Market,” Journal of the American Academy of Religion, vol.65, no.2 (01 July 1997), pp.275-290. See also, M. Douglas Meeks, God the Economist (Minneapolis: Fortress Press, 1989); Robert Nelson, Economics as Religion: From Samuelson to Chicago and Beyond (University Park: Pennsylvania State Press, 2001); Kathryn Tanner, Economy of Grace (Minneapolis: Fortress Press, 2005); Sallie McFague, Life Abundant: Rethinking Theology and Economy for a Planet in Peril (Minneapolis: Fortress Press, 2001). For further discussion and sources, see my “What Gods We Worship,” Papers, 21 October 2014, www.academia.edu/kellymaeshiro; “The Capitalist Religion and the Production of Idols,” Papers, 06 December 2015, www.academia.edu/kellymaeshiro, accessed 11 July 2016. 4 Nelson, Economics as Religion, pp.228-9. 5 Ibid., p.235. 6 Karl Marx, Capital, vol.1, ed. Friedrich Engels, trans. Samuel Moore and Edward Aveling (New York: Modern Library, 1906), p.324. 2 perhaps a more apt term is “false prophets,” a prophet being, as Deuteronomy suggests, one “who speaks in the name of other gods” (Deut 18:20). Similarly, Walter Rauschenbusch observed, “Our scientific political economy has long been an oracle of the false god,” true enough if we understand the suggestion with reference to Capital.7 As Jeremiah suggests, the false prophets “fill you with false hopes. They speak visions from their own minds, not from the mouth of the Lord. They keep saying to those who despise me, ‘The Lord says: You will have peace.’ And to all who follow the stubbornness of their hearts they say, ‘No harm will come to you’” (Jer 23:16-18) — all more or less an accurate description of what mainstream economists are in the business of doing. Economists “tell us pleasant things, prophesy illusions” (Isaiah 30:10). As the Harvard economist John Kenneth Galbraith once wrote, “[a] recurring and not unsubstantiated charge against economics over the last century has been its employment not as a science but as a supporting faith.” “Economics,” he writes, “has been not a science but a conservatively useful system of belief defending that belief as a science.”8 Galbraith was not original in suggesting this, and may have been echoing the sentiment held by one of his great influences. In The General Theory, Keynes writes, “One recurs to the analogy between the sway of the classical school of economic theory and that of certain religions. For it is a far greater exercise of the potency of an idea to exorcise the obvious than to introduce into men’s common notions the recondite and the remote.”9 Even the famed economist Milton Friedman once described himself as “an old-fashioned preacher delivering a Sunday sermon.”10 In what follows when I use the term “false prophets” to describe economists, it is primarily because they are, though often unwittingly, prophets, mouthpieces of the false god Capital. As Jeremiah says, “The [false] prophets … are prophesying to you false visions, divinations, idolatries, and the delusion of their own minds,” (Jer 14:14). The statement characterizes modern economics accurately enough. This is not to suggest that all economists are false prophets — there are a good many of them (too many to name) who would not fall into this category — but rather that economics considered as a field rather than as individuals more or less fits the mould of the false prophet. Therefore, in what follows, I treat the economist only insofar as he is economics personified, just as Marx, for instance, treats capitalists not as individuals, but as capital personified, and is concerned with individual capitalists only inasmuch as they outwardly exemplify the inner nature of capital.11 Given the critical attention which has recently been turned on economics, it is perhaps somewhat superfluous to point out that it has served principally to idealize, reify, thereby legitimize 7 Walter Rauschenbusch, Christianity and the Social Crisis, ed. Paul Rauschenbusch, New York, Harper Collins, 2007, p.301. 8 John Kenneth Galbraith, “Economics as a System of Belief,” Economics Peace and Laughter, ed. Andrea Williams, Boston: Houghton Mifflin Company, 1971, pp.60, 64. 9 John Maynard Keynes, The General Theory of Employment, Interest, and Money (San Diego: Harcourt Brace Jovanovich, 1964), pp.350-1. 10 Milton Friedman, Inflation: Causes and Consequences (New York: Asia Publishing House, 1963), p.1. 11 “As a capitalist, he is only capital personified. His soul is the soul of capital,” and as Marx makes clear elsewhere, the capitalist is not the subject of his analysis, but rather the laws to which he is subjected: “Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist.” (Karl Marx, Capital, Vol.I, pp.257, 297). the present system of private property, with its historical configurations of capital, labour, and the market. The economist Richard Wolff has said, “The job of economics, to be blunt but honest, is to rationalize, justify, and celebrate the system. To develop abstract theories of how economics works to make it all like it’s a stable, equilibrium that meets people’s needs in an optimal way.”12 As the political philosopher Roberto Unger suggests, within the discipline of economics, “rationalization rules: the explanation of the workings of contemporary society becomes a vindication of the superiority or necessity of the arrangements now established in the rich countries.”13 There are reasons for this which I will touch upon later. Despite their solemn self-adulations, economists are not necessary for good economic 14 policy. We might simply reflect on the fact that while the miracle economies of Japan and South Korea were designed and run by lawyers, China and Taiwan by engineers, the chief architects of that disaster-by-design known as Pinochet’s Chile were prominent American-trained economists, who have achieved similarly catastrophic results with virtually every neoliberal structural adjustment scheme they have devised. More than that, though not much is known about development generally, the preponderance of historical experience here seems to suggest that the absence of American economists is a necessary if not sufficient condition for developmental progress. As the Cambridge economist Ha-Joon Chang has suggested, the economic planners and bureaucrats who have been met with the most success are typically not economists but lawyers, engineers, and the like. For Chang, this is because while economists may exemplify a certain kin of specialist knowledge, they very often lack the kinds of general intelligence which are needed. “It may be that the economics taught in university classrooms,” he writes, “is too detached from reality to be of practical use.”15 But economics has been far from useless. Recent economics, Chang suggests, “has been positively harmful for the economy.” Top economists have “played an important role in creating the conditions” of crisis “by providing theoretical justifications for financial deregulation and the unrestrained pursuit of short-term profits.” One need only think of someone like Larry Summers, a Harvard University Professor and former Treasury Secretary who, along with his predecessor Robert Rubin, pushed the effort to deregulate volatile finance and to destroy the wall between investment and commercial banking, collapsing them into that higher synthesis known as ‘casino capitalism’ (Robert Reich). On a more general view, they have “advanced theories that justified the policies that have led to slower growth, higher inequality, heightened job insecurity and more frequent financial crises that have dogged the world in the last three decades.”16 Really-existing economics, then, is not, like the arguably more respectable discipline of astrology, useless and irrelevant, but is positively harmful. Why then do we continue to pay luxuriously high salaries to our failed Nostradamuses? Perhaps because, as the Harvard economist John Kenneth Galbraith once reflected, “economics is 12 Richard Wolff, “Taming Capitalism Run Wild,” interview on Bill Moyers and Company, 09 August 2013, transcript available online: http://billmoyers.com/episode/encore-taming-capitalism-run-wild-2/. 13 Roberto Unger, The Left Alternative, London: Verso, 2009, p.4. 14 Paul Krugman, “How Did Economists Get It So Wrong?” New York Times, 06 September 2009. 15 Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism, New York: Bloomsbury Press, Ch.23. 16 Ibid. extremely useful as a form of employment for economists.”17 QUALIFICATION TO SPEAK ON ECONOMIC MATTERS. Perhaps the more interesting question is why, despite our understanding of the failures of economics, we continue to defer to them, why we are so often afraid to challenge their absurd claims. A part of the answer, I think, lies in one of the oldest sociological truisms, that in our social interactions, confidence often counts for more than accuracy, knowledge, or any kind of genuine credibility. As the philosopher Simone Weil has suggested, agreement between several people “brings with it a feeling of reality.”18 As long as enough people act as if the naked emperor is clothed, we are tempted to believe is is clothed, tempted to doubt our own intelligence. Of course it does not help that economics intimidates others, presenting itself as a kind of esoteric specialist discipline the high truths of which cannot be apprehended except by the adept, but even a cursory familiarity with the observable facts will show this to be flatly untrue. It might be worth noting that economists are hardy the first to present themselves in this way, initiates into a truth beyond the grasp of the intelligence of the common person. This is quite a familiar practice in certain religious traditions. In one of these traditions, it was supposed that only those who had been formally trained in the esoteric wisdom were qualified to make pronouncements on it. This view was criticized by a man named Jesus Christ, who challenged the scribes and Pharisees who were the most learned, erudite, and respected scholars of his time. The story of Jesus’s ministry is only one of many which demonstrated what so often turns out to be illegitimate authority. In our attempt at criticism, then, it will of course be objected that we are not “qualified” to speak on such issues, but historical experience teaches us to view such claims with suspicion, and there a number of reasons, moreover, why such claims have very little validity in this case. For one, the objection appeals to the very authority which we are calling into question. To avoid being circular, therefore, the objection must be reserved until our claims have been more fully explicated. The objection may be valid if our standards of “qualification” were the same as the economist’s. The objection may be valid if what qualifies someone to speak about economics is a certain kind of formal training which allows one to put a series of formal letters after one’s name on a resume. But this standard of qualification is rejected. We do not think the letters which follow a person’s name genuinely qualify a person to speak on economics. On the other hand, if what qualifies someone to talk about economics is accuracy, then we are perhaps more qualified to speak on such issues than the economists. We may not have a track record, but we do also do not have a bad one. We have never by our theories consistently led economies into various kinds of disaster as economists have. But even if we concede the notion that formal training in a discipline constitutes genuine qualification to speak about it, the notion that economists are the only ones qualified to speak on economic issues makes an implicit assumption about its fundamental content. Economists assume 17 John Kenneth Galbraith, qtd. in Ha-Joon Chang, 23 Things They Don’t Tell You About Capitalism; John Kenneth Galbraith was a prominent Harvard economist and public intellectual. 18 Weil, Anthology, p.114. that economics is a science and therefore deserves to be studied by those who are trained in the scientific methods of the discipline. But as I will argue in this section, economics is not so much a science as it is a theology, and on those grounds, someone who has studied theology is perhaps more qualified to speak on certain issues in economics than an economist is, for someone formally trained in theology is familiar with the common forms of theological discourse, of their historical variants, and is practiced in the interpretation of their meaning, at least to a greater degree than your typical economist would be. Likewise, someone formally trained in Marxist theory, familiar with the common forms of ideology and discursive distortion, may be more qualified to speak here if it turns out that economics is a form of ideology, which I think does turn out to be a valid claim. In either case, the determination of proper qualification can only be made through a careful observation of the facts, and not by dismissal. This principle generalizes more broadly. A rejection of the qualification to discuss economics requires an observation of the specific nature of the arguments being made. In addition to what has already been suggested, one of the reasons I think one may be qualified to discuss economic ideology or economic theology even if one is not trained in economics or ideological criticism or theology owes to the nature of this ideology. As I will argue in this chapter, the species of ideology which economics represents is operative at a level at which it is possible for anyone equipped with a modicum of common sense and a certain amount of tenacity to understand. For this kind of ideology, the reason we are not able to see what is true is not (as economists would have it) that the truth is too complex but rather that we are too dishonest. The reason we fail to grasp the truth is not that it is too difficult for our simple minds to comprehend the complex truth but rather that it is too easy for our complex minds not to comprehend the simple truths. This was implicit in Jesus’s criticism of the Pharisees straining out gnats while swallowing camels (Matthew 23:24). Now this may or may not be true in our situation, in which case we may or may not be qualified to speak on such issues, at least on this basis. But such a determination, in any case, still requires a careful consideration of the relevant facts. In every case, the objection to our qualification begs a further question, which always refers in the final analysis to the claims we have made. In no case, therefore, is a simple dismissal warranted by the normal standards of intellectual honesty. To put the objection into perspective, consider it in the context of politics. We might imagine that we made an attempt at some kind of political criticism and in response to this, someone said our criticism is invalid because we do not hold doctorate degrees in political science. And we have already observed the claim in the context of religion. Very few accept such objections in these contexts. As they say, politics is too important to be left to politicians, still less to professors of political science, and the bible is too important to be left to the biblical critics. But the objections hold just as little validity in the context of economics, and should therefore be viewed in a similar way. Now having made the case for our own qualification to speak on the issues at hand, having established that a careful consideration of the facts is unavoidable, let us proceed with our criticism. DISCURSIVE DISTORTION. PRINCIPAL INTELLECTUAL ERRORS OF MODERN ECONOMICS. LIBERALISM AS INSTITUTIONALIZED INADEQUACY. There are a number of ways in which economics rationalizes the status quo, various forms of discursive distortions, typically through hypostatization and reification of certain key notions. In order to arrive at satisfactory understanding of how economics rationalizes the present arrangement of society, it will be necessary to analyse the discourse of economics, to situate it as a paradigm and to examine its nature, so a preliminary word about discourse is appropriate here. Owing to the nature of discourse, it is not possible, however desirable it might be, to take systematic account of these discursive distortions. To do so presupposes a kind of unity which does not exist in discourse. Discourse is not established or perpetuated by discursive acts that display any kind of coherent or homogenous pattern, and so does not permit of such analysis. Instead, the discursive acts, out of which both discourse and its distortions arise, are of many types, and of qualities, quite distinct, which are not reducible to each other. Discourse is constituted of an intricate, heterogeneous network of discursive acts, elements, functions unique to that discourse, and out of which arise a network of distortions which are, in their structure, unique to that discourse. At best, then, we might hope to discern certain similarities, structural homologies, certain family resemblances in the discursive distortions and the discursive acts which institue them. But this is not to say we cannot discern, if it exists, a certain general effect which these distortions, taken as a whole, amount to, and though there may in fact be many effects, perhaps the dominant one, and the one which is therefore of most interest to us, is rationalization. In other words, even though discursive distortions are of many different kinds, irreducible to each other, the general effect of them in this case, taken as a whole, is to rationalize the existing socioeconomic order, thereby the present configuration of social relations which are presupposed by it. Before returning to more general remarks about this process of rationalization, which would otherwise be overly-abstract, I would like to provide definite content to these abstractions by giving some specific examples of the kinds of intellectual errors and elisions which economics makes. In the criticism of economics, where should one begin? The answer is clear. In the criticism of economics, as in the criticism of religion, it is surely reasonable to begin with those beliefs which are most central to the religion, those doctrines and creeds which, in a sense define the religion, and are the necessary, if not sufficient, conditions of it. If the profession of faith in Christianity is the divinity of Jesus Christ, then in economics, then the profession of faith in economics is that markets are good, i.e., that they allocate resources efficiently and rationally — and I use the term “faith” here not derisively but descriptively, as it is the way some economists themselves describe it. This faith holds a central position in modern economics. As Krugman writes, “the basic presumption of ‘neoclassical’ economics … was that we should have faith in the market system.”19 But this, we will see, is true of mainstream economics as a whole, and not just neoclassical economics. The point of such an assertion is not, of course, to overlook the significant differences in opinion among economists, especially between liberal and conservatives. This is an important issue, and we will return to it later in our discussion of the limits of debate within economics, but for now, in order to establish a starting point for our inquiry, it is important simply to recognize the point on which liberals and conservatives alike agree, that is, their profession of faith, belief in the market. Let us begin, then, with an analysis of markets and the way they allocate resources. An 19 Paul Krugman, “How Did Economics Get It So Wrong?” New York Times, 06 September 2009. anomaly immediately presents itself.20 It consists in the fact that while economists talk so much about markets, they hardly exist, or at least certainly not to the extent to which it is commonly believed they do. It is very curious that economics should make something which hardly exists in the real world the center of their faith. But this curiosity is perhaps accounted for by the observation that the element of mythology is indeed quite a common one in many religions. “Myths are always present in every act of faith,” Tillich writes “because the language of faith is the symbol.” The myth “puts the stories of the gods into the framework of time and space although it belongs to the nature of the ultimate to be beyond time and space,” but these myths are not to be taken literally, for it must be understood that the language of faith remains symbolic. Myths are, as Tillich would say, “broken.” We must not therefore take the Capitalist myths too literally. When it is maintained that capitalist market economies developed through the mechanism of free trade, this should not be taken to contradict the fact that, for reasons we will explore later, capitalism relies on, and has historically relied on, a very powerful and active state sector. Corporate welfare, for example, is massive. As the economist Dean Baker suggests, “welfare is about having the government do everything it can to make the rich absolutely as rich as possible.”21 Bailouts, far from being anomalies, are in fact a perfect regularity in state-capitalist systems. An extensive study of transnational corporations by Winfried Ruigrock and Rob van Tulder, for instance, found that “virtually all of the world’s largest core firms have experienced a decisive influence from government policies and/or trade barriers on their strategy and competitive position,” and “at least twenty companies in the 1993 Fortune 100 would not have survived at all as independent companies if they had not been saved by their respective governments.”22 According to a report by the CATO institute, corporate welfare costs taxpayers nearly $100 billion per year through subsidies that “distort economic activity and create even larger failures than might have existed in the marketplace.”23 And this doesn’t include $200 billion per year in tax breaks to corporations.24 If free markets do not really exist, and existing markets rely very heavily on the apparatus of the state, there is a very simple reason for that. It is that markets are not efficient at allocating resources. Every truly free market which has ever existed has, without exception, been a total disaster. Markets require a very active state sector to survive for any sustainable period of time. This was well understood by top American officials, who learned from the Great Depression that real, free market capitalism could not work, which is why “every one of the rich countries hit upon more or less the same method of getting out,” turning to state spending which was done more or less by instinct before but later had a theory for it, plucked from the brain of John Maynard 20 This paragraph is based on my “For Socialism,” Harvard Ichthus, 11 March 2014, accessed 28 July 2014, www.harvardichthus.org. 21 Dean Baker, “Welfare As We Know It Now,” Common Dreams, 14 August 2007, accessed 05 March 2014, https://www.commondreams.org/archive/2007/08/14/3163 22 Quoted in Noam Chomsky, Profit Over People: Neoliberalism and Global Order, New York: Seven Stories Press, 1998, p.38. 23 Ted De Haven, Corporate Welfare in the Federal Budget, (No.703), Washington, D.C.: CATO Institute, 25 July 2012, accessed 05 March 2014, http://object.cato.org/sites/cato.org/files/pubs/pdf/PA703.pdf 24 Bill Quigley, “Ten Examples of Welfare for the Rich and Corporations,” Huffington Post, 14 January 2014, accessed 05 March 2014, http://www.huffingtonpost.com/bill-quigley/ten-examples-of-welfare-forthe-rich-and-corporations_b_4589188.html Keynes.25 As Reich points out, by the 1970s, the Defense Department was covering 70 percent of cost for research and development in the aircraft industry and half of the R&D funding for the telecommunications industry, which had enough of an effect that “within a few years, the entire economy began to shift. Within two or three decades, a new economy was replacing the old.”26 The economists Robert Heilbroner and Lester Thurow suggest very bluntly in their introductory economics book that “[e]conomic malfunction has brought public intervention.” As they explain, “Fifty or seventy-five years ago the prevailing attitude toward the economy was a kind of awed respect. People felt that the economy was best left alone, that it was fruitless as well as ill-advised to try to change its normal workings. That attitude changed once and for all with the advent of the Great Depression. In the ensuing collapse, the role of government was greatly enlarged, to restore the economy to working order.”27 Every developed country has taken a similar approach. According to one business journal, the White House reports total government expenditure as a percentage of GDP at 35% for fiscal year 2010, while countries like Denmark, France, and Sweden have government spending levels around 52% of GDP. The average for the European Union in 2010 was 50.3%.28 The 2014 Index of Economic Freedom by the Heritage Foundation and the Wall Street Journal, right-leaning organizations, reports the following percentages of government spending as a percentage of GDP, different but not entirely inconsistent with those already suggested: United States, 41.6%; Japan, 42%; Germany, 45.4%; United Kingdom, 48.5%; Sweden, 51.2%; France, 56.1%; Denmark, 57.6%.29 In addition to this, Heilbroner and Thurow suggest that across the spectrum of “capitalisms,” “virtually all of them rely heavily on government-private cooperation to attain desired macro and micro goals, and to minimize the problems of capitalism’s own workings.”30 This has nothing to do with laissez-faire free markets. The market is supposed to explain the rational allocation of resources in a society, but this presupposes that there is a rational allocation of resources within market societies, which does not appear to be true. Observation of the historical facts suggests that the market does not allocate resources rationally in any sense of the term with which we are familiar. As Chomsky suggests, “there’s a ton of work to be done in the world — everywhere you look there’s work that ought to be done. And the people who don’t have work would be delighted to do it. So what you’ve got is a huge number of idle hands, a vast amount of work that ought to be done, and an economic system that is incapable of putting those two things together.”31 The market, in other words, is in no meaningful sense efficient. There is a very simple test for this. If the market did efficiently allocate resources according to society’s preferences, even remotely, then there would not be such a huge gap between society’s preferences and the market’s 25 For discussion and extensive footnotes, see Chomsky, Understanding Power, pp.73-4. Robert Reich, Supercapitalism, New York: Knopf, 2007, p.59. 27 Robert Heilbroner and Lester Thurow, Economics Explained, New York: Simon & Schuster, 1987, p.66. 28 Eric Fox, “Countries With the Highest Government Spending to GDP Ratio,” Investopedia, 12 September 2011, http://www.investopedia.com/financial-edge/0911/countries-with-the-highestgovernment-spending-to-gdp-ratio.aspx. 29 2014 Index of Economic Freedom, Heritage Foundation and the Wall Street Journal, accessed 29 July 2014, http://www.heritage.org/index/explore. 30 Heilbroner and Thurow, Op. cit., p.229. 31 Noam Chomsky, Understanding Power, New York: New Press, 2002, p.329. 26 allocation, as there is. A January 2014 Gallup poll, for example, finds that 67% of Americans are dissatisfied with income and wealth distribution in the country; that includes 75% of Democrats and 54% of Republicans.32 But that’s just for income and wealth distribution; the same is true for the entire economy. A Pew survey in the same month finds that 60% of Americans “see a basic injustice inherent within our economic system,” and think that “the economic system unfairly favors the wealthy” (my emphasis).33 These polls seem to indicate that Americans at least, and presumably all people, favor some level of wealth and income equality, or at least not the kind of gross inequality which exists in the world. But, contrary to myths of economics, markets, especially free markets, do not allocate resources according to people’s preferences. That is why, despite a majority of American society’s irrelevant preferences, the richest 1% of Americans own 40% of the wealth.34 And it’s not much better for the rest of the world either. A recent Oxfam report, for example, found that the world’s 85 richest people control as much wealth as half of the total population of the world.35 How in the face of these facts economists continue to persist in their fantastical belief in the market’s rational allocation of resources remains a mystery. The basic facts alone — the radical divergence between society’s preferences and the market’s allocation — should be enough for anyone with common sense to disregard their reality-divorced theories, and if not to disregard them, then at the very least to call them into question. But even to call this into question is regarded as heretical by economists. Chang suggests, “Belief in the virtue of free trade is so central to the neoliberal orthodoxy that it is effectively what defines a neo-liberal economist. You may question (if not totally reject) any other element of the neo-liberal agenda … and still stay in the neo-liberal church. However, once you object to free trade, you are effectively inviting ex-communication.”36 One could of course make the argument that it’s not fair to judge free markets on the basis of American markets because American markets are hardly “free,” which is in fact correct, as we have seen.37 A fairer analysis, then, would look at the much rarer phenomenon of really-free markets — rare because they are so destructive, in fact far more destructive and irrational than quasi-free markets. As Marx understood, “Free competition brings out the inherent laws [tendencies] of capitalist production,” which should tell us something about the nature of capitalist production. There are not many examples of really pure free-markets, perhaps because most countries are smart enough and most circumstances advantageous enough, not to allow economists to design their economies. But there are some exceptions, of which we will only consider the most 32 Rebecca Rifkin, “In U.S., 67% Dissatisfied With Income, Wealth Distribution,” Gallup, 20 January 2014, http://www.gallup.com/poll/166904/dissatisfied-income-wealth-distribution.aspx. 33 Harold Mandel, “New poll finds most Americans feel the economic system is unfair,” Examiner.com, 24 January 2014, http://www.examiner.com/article/new-poll-finds-most-americans-feel-the-economic-systemis-unfair. 34 Joseph Stiglitz, ‘Of the 1%, by the 1%, for the 1%,’ Vanity Fair, May 2011, http://www.vanityfair.com/society/features/2011/05/top-one-percent-201105.print. 35 Graeme Wearden, “Oxfam: 85 richest people as wealthy as poorest half of the world,” The Guardian, 21 January 2014, http://www.theguardian.com/business/2014/jan/20/oxfam-85-richest-people-half-of-theworld. 36 Ha-Joon Chang, Bad Samaritans, London: Random House, 2007, p.67. 37 Cf. Kelly Maeshiro, “For Socialism,” Harvard Ichthus, 11 March 2014, http://www.harvardichthus.org/fishtank/2014/03/for-socialism/; Noam Chomsky, Understanding Power, New York: New Press, 2002, pp.70-76, 255-258; Chomsky, World Orders Old and New. characteristic, Chile, which I select because of how much it might teach us about really-existing capitalism. A FREE MARKET TEST-CASE: CHILE When the socialist Salvador Allende was elected president in Chile after a decade of destabilization and propaganda (to say the least) by the United States, the U.S. supported an illegal coup which succeeded in overthrowing the democratically elected government and installing a brutal dictator, Augusto Pinochet, who went on to murder and torture thousands of citizens, converting the national soccer stadium into a concentration camp in the process, the entire way through backed by the United States, which supported the opposition on the pretext of preserving opposition rights when it was convenient and didn’t bat an eyelash as the opposition now was being mutilated and killed in Pinochet’s dungeons.38 But disasters just like this are seen as opportunities for the sick minds of neoliberal economists like Milton Friedman to bend reality to the elegant ideas in their brains. As Friedman wrote, “only a crisis — actual or perceived — produces real change. When that crisis occurs, the actions that are taken depend on the ideas that are lying around. That, I believe, is our basic function: to develop alternatives to existing policies, to keep them alive and available until the politically impossible becomes politically inevitable.”39 When Allende was overthrown, with Chileans in a state of panic, Friedman’s dreams had their chance, a blank canvas. The ‘Chicago Boys,’ a group of Miltonite Chilean economists, funded by the CIA and trained at the University of Chicago since the 1950s as part of an “anti-communist” program affiliated with business elites, had a rare opportunity: with a totally blank canvas, they “restructured the economy according to their theories,”40 which meant, as it always does, a selective freedom: freeing capital from regulations while literally imprisoning labour in a “flexible” labour system that “tortured, assassinated, imprisoned, or exiled” union and party leaders while workers were “stripped … of any right to organize and bargain collectively.” The obvious effect of this was to weaken the bargaining power of labour relative to capital, as a result of which “[p]ower shifted to the employers.” 41 Friedman went on in January 1982 to call this new neoliberal economy “an economic miracle,”42 just before the worst recession in Chile’s history, an economic wreck so disastrous that it forced the “conservative” Pinochet to nationalize more of the economy than the socialist Allende “had dared dream of,” leading some commentators to describe the Allende-Pinochet transition as “a transition from utopian to scientific socialism, since the means of production are ending up in the hands of the 38 William Blum, Killing Hope, Monroe: Common Courage Press, 1995; Kelly Maeshiro, “What is At Stake in Venezuela?” Essays, 04 April 2014, accessed 14 May 2014, http://kellymaeshiro.wordpress.com/2014/04/04/what-is-at-stake-in-venezuela/. 39 Milton Friedman, Capitalism and Freedom, Chicago: University of Chicago Press, 1982, p.ix, qtd. in Klein, The Shock Doctrine, p.7. 40 David Harvey, A Brief History of Neoliberalism, Oxford: Oxford University Press, 2007, p.8. 41 James Cypher, “Is Chile a Neoliberal Success?” Dollars and Sense 255, September/October 2004, http://dollarsandsense.org/archives/2004/0904cypher.html. 42 Milton Friedman, qtd. in James Cypher, “Is Chile a Neoliberal Success?”. state.”43 “The initial effects of introducing free market policies,” writes one critic, “was a shockinduced depression which resulted in national output falling by 15 percent, wages sliding to onethird below their 1970 level and unemployment rising to 20 percent. This meant that, in per capita terms, Chile’s GDP only increased by 1.5% per year between 1974-80 … considerably less than the 2.3% achieved in the 1960’s. The average growth in GDP was 1.5% per year between 1974 and 1982, which was lower than the average Latin American growth rate of 4.3% and lower than the 4.5% of Chile in the 1960’s. Between 1970 and 1980, per capita GDP grew by only 8%, while for Latin America as a whole, it increased by 40% … By the end of 1986 Gross Domestic Product per capita barely equaled that of 1970.”44 Slowed growth was symptomatic of neoclassical monetarist policies, the primary result of which “was a contraction of demand, since workers and the families could afford to purchase fewer goods,”45 with their wages plummeting, an obvious and predictable effect of the assault on labour. “By 1976, the third year of Junta rule, real wages had fallen to 35% below their 1970 level. It was only by 1981 that they has risen to 97.3% of the 1970 level, only to fall again to 86.7% by 1983,” and “after nearly 15 years of free market capitalism, real wages had still not exceeded their 1970 levels.”46 As a result, the “proportion of the population that fell below the poverty line … increased from 20 percent to 44.4 percent from 1970 to 1987.”47 The social effects were predictable. Among many other things, “increased stress and individualism … damaged [Chile’s] traditionally strong and caring community life … suicides have increased threefold between 1970 and 1992 and the number of alcoholics has quadrupled in the last 30 years.” 48 This was Friedman’s “economic miracle.” Perhaps more interesting than the fact that free market policies led here, as virtually everywhere else, to economic disaster is the fact that this economic disaster was considered to be a miracle — a feat of intellectual contortionism and economic doublespeak which might have impressed Orwell himself, and a point to which we will return shortly. Since its economic “miracle,” Chile has adopted a different approach, and has done quite successfully. Naturally, apologists for freemarkets, who do this regardless of the health of the economy, attribute the economic success to neoliberal policies. Even Stiglitz counts Chile among the exceptions to the general destruction of neoliberalism, an anomaly, a miracle of the market’s “Invisible Hand” — this time real. Last time, we saw, it wasn’t really a miracle at all. This time, the ostensible miracle consists in its deviation from the general and by now well-established law, namely that adherence to neoliberal policies has, virtually without exception, created massive economic failure. But economic miracles do not exist, and there is in fact a very good explanation for this “anomaly,” namely that it is not an anomaly at all and there is no exception to the rule. There is a very good explanation for the “miracle”— not the Invisible Hand of the market, but the very visible 43 Economist Intelligence Unit, and David Felix, qtd. in Noam Chomsky, World Orders Old and New, p.189. 44 Iain MacSaorsa, “Chile, capitalism and liberty for the rich,” Spunk Library, accessed 16 May 2014, http://www.spunk.org/texts/otherpol/critique/sp001280.html. 45 Skidmore and Smith, qtd. in MacSaorsa, “Chile, capitalism and liberty for the rich.” 46 MacSaorsa, “Chile, capitalism and liberty for the rich.” 47 Chomsky, World Orders Old and New, pp.190-1. 48 Duncan Green, qtd. in MacSaorsa, “Chile, capitalism and liberty for the rich.” hand of the state. This is quite consistent with how economists use words. If economic “miracle” meant economic disaster, then pragmatic “neoliberalism” means pragmatic state coordination. As the economist James Cypher suggests, “Chile’s economic performance has been mixed, and its successes owe more to state intervention than to the invisible hand of the free market. In fact, it would be hard to find any major sector of the economy that did not owe much of its existence to state intervention — intervention which continued in a variety of forms under the nominally neoliberal Pinochet dictatorship.”49 Those free market cheerleaders known as American economists attribute Chile’s economic success to neoliberal policies, but that is not how some dissident economists see it. Nor, incidentally, is it the way the “developmentalist” military officials, who actually ran this economy, saw it. Like the pragmatic architects of the Japanese economy, which also developed by very consciously violating the rules of neoliberal dogma, these Chilean officials believed that the “economic growth of Chile was partly a by-product of an agile and creative state,” which explains why the copper giant CODELCO, which has been pivotal to Chile’s economic success, remained a state-owned corporation after the coup.50 It also explains why CORFO, the institution created to carry out Chile’s ISI strategy, still exists and, after the 1982 recessions, “became more active in the funding and development of new resource-sector firms.” In the forestry and fishing industries, “while private capital lacked the initiative,” CORFO “provided credits and subsidies, financed projects for technological development and labor training, and fostered … development.” As Cypher writes, “it was not the invisible hand of the market that caused the new boom in resource-based exports. Most of the credit belongs to the state: most of the strategies — such as new product development, risk capital, technical training/advising, marketing, quality control — and many of the personnel involved in the new Chilean ‘miracle’ were products of the old, and much derided, state interventionism of the ISI era.”51 The example of Chile should teach us something about that species of “economic miracles” known as a “neoliberal success,” namely that it is a contradiction in terms. It was not a “neoliberal success” when Friedman praised the “economic miracle” in 1982 — because it was not a success. It is not a “neoliberal success” now, when the free market economists praise Chile — because it is not neoliberal. In Chile, then, real neoliberalism, pure and unadulterated capitalism, survived for about a 9 years (1973-1982),52 which is, incidentally, just about the same amount of length of time between the deregulation of financial markets in the U.S. under Clinton and the 2008 economic crash, which would, at least in a rational society, tell us something about inherent instability of capitalist economies. As we have already seen, because of its inherent instability and its grossly inefficient allocation resources, real capitalism relies on, and has historically relied on, a powerful state for its very existence. The results of free market policies in Chile are of course specific to Chile, anecdotal, and do not tell us much about the nature of the capitalist free market itself unless: (1) these results generalize, and (2) there is a reasonably good explanation for this generalization (to be more certain 49 James Cypher, “Is Chile a Neoliberal Success?” Dollars and Sense 255, September/October 2004, http://dollarsandsense.org/archives/2004/0904cypher.html. 50 Even up to 1995, for example, state copper accounted for 40.5% of exports. 51 Cypher, “Is Chile a Neoliberal Success?”. 52 7 years, if you are less generous, counting only from 1975, when the reforms really took shape. that the generalization is no coincidence). Both of these conditions are easily met. As Chomsky suggests, “there is not a single case on record in history of any country that has developed successfully through adherence to ‘free market’ principles: none.”53 Disastrous results have been replicated, with virtually no exceptions, everywhere free market policies have been adopted, and, more than that, the extent of the disaster is proportional to the extent to which free market policies are implemented, as the last forty years of neoliberal policy across the globe suffice to demonstrate, a topic which will be discussed in greater detail elsewhere. It is no accident that this version of “economic liberty” has almost never been democratically opted for but has almost always been accompanied by authoritarian states — people don’t want it. Not only is the association which economics professors like to make between capitalism and democracy a contradiction in terms (because capitalism is, by definition, economic autocracy), but is also historically false. There is also a very simple and very good explanation of why free markets do not allocate resources rationally and why, in fact, markets allocate resources more or less irrationally according as the market is “free.” Karl Marx made the strongest and most detailed argument for this basic thesis in his three volumes of Capital. It was his in fact his aim to demonstrate how, under the conditions both theorized and advocated by the classical economists like Smith and Ricardo, i.e., unregulated, perfectly functioning free markets would, for various factors like accumulation and centralization which we cannot go into here, lead not to the general prosperity promised, but instead to increasing wealth for a few, increasing poverty for the majority, and increasing inequality which results from this — exactly what we have seen everywhere, and to the extent that, free market policies have been implemented, as Piketty’s work has reconfirmed to the economists who have been laughing at Marx for 150 years. It was the sweeping conclusion of Capital that, in Marx’s own summary, capitalism “rivets the labourer to capital more firmly than the wedges of Vulcan did Prometheus to the rock. It establishes an accumulation of misery, corresponding with accumulation of capital. Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, agony of toil, slavery, ignorance, brutality, mental degradation, at the opposite pole, i.e., on the side of the class that produces its own product in the form of capital.”54 In Capital Marx goes into much greater detail in an explanation of this historically quite accurate thesis, an explanation regarding technological change, accumulation, the changing composition of capital, and centralization, and we will return later to an explanation for why capitalist free markets allocate resources so irrationally. We have observed, then, two salient propositions for which there is at least circumstantial evidence: (1) that the free market does not allocate resources rationally or efficiently by any reasonable or generally accepted standard, and allocates resources less rationally and more inefficiently the “freer” the market is; and (2) that the terminology of economics is in some cases nearly the opposite of ordinary terminology, that most would consider to be a grossly irrational and inefficient allocation is considered rational and efficient in the terminology of economic discourse, and on the other hand, that the irrational allocation of resources in the free market is abetted by this terminological curiosity. Given these observations, we might inquire further into their causes. Why do markets not allocate resources efficiently in any familiar sense? And why does this familiar sense 53 54 Noam Chomsky, Understanding Power, New York: New Press, 2002, p.255. Marx, Capital, Vol.I, p.709. diverge so greatly from the sense in which economics says markets are efficient? These two lines of inquiry are related but distinguishable, and for our purposes may be useful to pursue separately. Both observations suggest distinct lines of inquiry, to which we may now turn our attention. Because the second of these observations is the partial cause for the first, it is reasonable to begin here. TERMINOLOGICAL DIVERGENCES: EFFICIENCY, RATIONALITY, ETC. We have seen, as those like Chomsky have pointed out, that economists by no means share generally accepted standards of terminology, and have standards which are not only quite distinct from those of nearly everyone else, but standards which appear, in many cases, to be the exact opposite — that what economists call efficient, everyone else thinks is inefficient, and vice-versa. Here, we might also observe something very peculiar, and almost certainly not coincidental: the discrepancy in terminological standards falls with striking accuracy along the lines of socioeconomic class. What is “rational” and “efficient” from the point of view of the owners of capital is irrational and inefficient from the point of view of labour. Those for whom the terms “rational,” “efficient,” “successful,” etc. have diametrically opposite meanings are, in general, labour and capital respectively. Those for whom the terms have opposite meanings are not principally distinguishable by industry, gender, age, intelligence, or any other demographic category, but are principally distinguishable by class. Thus we have good provisional reason to believe that there is an implicit class bias in standard economics, woven somehow into its very fabric. We have seen the operation of Orwellian doublespeak in economics, and we have seen that it embeds an implicit class bias. What remains, then, is to explain this, to describe its causes in the way that economics is theoretically structured. What remains to be explained is how the theoretical architecture of economics, its discursive apparatus, lends itself to the kinds of Orwellian doublespeak and the implicit class bias it embeds. For this it will be necessary to take a closer look at the structure of economic discourse, and perform a certain kind of critical discursive analysis. In our discursive analysis, we will find that there are two principal classes of discursive distortions which account for the divergence of modern economics from generally accepted standards of terminology. The first class of discursive distortions deals primarily with hypostatization of elements of the market, abstracting them from the material conditions in which they exist. The second class of distortions arises from a reification which causes one version of the market to appear more natural than others. FIRST CLASS OF DISCURSIVE DISTORTIONS: HYPOSTATIZING THE MARKET The first class of discursive distortions which give rise to the terminological divergence described earlier relates to a series of hypostatizations centered on the market. Above all, they center on the hypostatization of the individual economic actor from the material conditions of his existence. The economic actor which neoclassical economics proceeds from is a rational consumer who enters freely into exchanges with other economic actors in the market. This assumption, in turn, presupposes that the market is, in fact, free. But the relevant facts seem to contradict this supposition. We have already observed one sense in which markets, with their heavy reliance on an active state, are not free. Another sense in which markets are free, according to economists, is the sense that people, “rationally” seeing the nonexistent benefits of the market, choose to have free markets. As Klein writes, according to the official story, “after Reagan and Thatcher peacefully and democratically liberated their respective markets, the freedom and prosperity that followed were so obviously desirable that when dictatorships started falling, from Manila to Berlin, the masses demanded Reaganomics alongside their Big Macs.”55 This is false and historically demonstrable: free markets have rarely been chosen by people. Instead, they have been imposed on them by authoritarian regimes. We have already seen so in the case of Chile. As Klein so elegantly and scrupulously documents in case after case in her 700 page monograph, “this fundamentalist form of capitalism has consistently been midwifed by the most brutal forms of coercion, inflicted on the collective body politic as well as on countless individual bodies. The history of the contemporary free market … was written in shocks.”56 That is why free markets so often come hand in hand with the worst thugs and dictators, more often than not supported or even installed by the U.S., from the Shah in Iran in 1953 and the Somozas in Nicaragua to Suharto in Indonesia in 1965 and Pinochet in Chile in 1973, to name just a few. Capital and its free markets hate genuine democracy. Dictators are much better for American investments. Let’s not forget that six years after the U.S. government took Saddam Hussein off the U.S. terrorists list in 1982 in order to continue funding him, it put Nelson Mandela on it. But there is a more fundamental sense in which markets are not free, which bears more directly on the hypostatization of the individual from the real conditions of his existence. Markets are free, it is maintained, the contract between capital and labour is free, or in other words, workers enter freely into contracts with their employers. Even Keynes argued that markets, for all their defects are fundamentally good because the individualism which it preserves “is the best safeguard of personal liberty,” meaning that is “greatly widens the field for the exercise of personal choice.” 57 another point on which their theories violently diverge from reality. As John Stuart Mill has suggested, “The generality of laborers … have as little choice of occupation or freedom of locomotion, are practically as dependent on fixed rules and on the will of others as they could be on any system short of actual slavery.”58 Modern economics, nevertheless proceeds from the assumption that workers enter freely into a contract with their employers. It is partially on the basis of this implicit assumption that in the discourse of modern economics it is commonly argued that unions, or “cartels” of workers, as Mankiw calls them, distort markets. We may let Mankiw speak for himself: “[U]nions are a cartel. When cartels exert their monopoly power, they raise wages above the equilibrium level, leading to a variety of inefficiencies and inequities,” he goes on to quote Larry Summers, who suggests that one “cause of long-term unemployment is unionization. High union wages that exceed the competitive market rate are likely 55 Klein, The Shock Doctrine, p.22. Ibid., p.23. 57 John Maynard Keynes, The General Theory of Employment, Interest, and Money (San Diego: Harcourt Brace Jovanovich, 1964), p.380. 58 John Stuart Mill, Principles of Political Economy (Book II, Ch.1), in Essential Works of Socialism, ed. Irving Howe, New York: Bantam, 1970, p.409. 56 to cause job losses in the unionized sector of the economy.”59 As Mankiw goes on to explain for us in his textbook, which is the standard one used, “[n]ormally, explicit agreements among members of a cartel are illegal. When firms selling similar products agree to set prices high, the agreement is considered a ‘conspiracy in restraint of trade,’ and the government prosecutes the firms in civil and criminal court for violating the antitrust laws. By contrast, unions are exempt from these laws.” 60 The very clear, thinly-veiled implication of this comparison is that unions distort the market because they are monopoly cartels of workers, the labour equivalent of monopoly firms, which are prohibited by law. To be fair, Mankiw does go on to explain the reason advocates support unions, but he leaves out all of the relevant context. Thus he suggests that union advocates believe “that workers [need] greater market power as they bargained with employers” i.e., greater bargaining power. By simple inference, one of these union advocates was Adam Smith, who writes: “Whenever the legislature attempts to regulate the differences between masters and their workmen, its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable,” a position curiously omitted when Smith is invoked to support the unregulated free market.61 But unlike Mankiw, Smith does provide the relevant context for why union advocates think workers need greater bargaining power — viz., because employers, by virtue of their numerical minority, have a natural advantage in disproportionate bargaining power, de facto, and on the other side of this equation are the workers, who, conversely, are naturally disadvantaged by their overwhelming majority and maintain, as a result, disproportionately less bargaining power. As Smith writes: “It is not … difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily … In all such disputes the masters can hold out much longer. A landlord, a farmer, a master manufacturer, a merchant, though they did not employ a single workman, could generally live a year or two upon the stocks which they have already acquired. Many workmen could not subsist a week, few could subsist a month, and scarce any a year without employment. In the long run the workman may be as necessary to his master as his master is to him; but the necessity is not so immediate.”62 Capital always already has this advantage over labour. In addition to this de facto advantage, the “masters” often consolidate their power of labour through combination, and “whoever imagines,” Smith writes, “that masters rarely combine, is as ignorant of the world as of the subject, because the truth is, “Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.”63 Adam Smith assumed that capitalist society, which he called a “Society of Perfect Liberty,” only allocated resources justly under conditions of “perfect liberty, and where every man [is] perfectly free both to chuse what occupation he thought proper, and to change it as often as he thought proper,” which is, rather needless to say, certainly not the case in the real world, where 59 N. Gregory Mankiw and Summers, qtd. in, “Cartels and the Secret Ballot,” Greg Mankiw’s Blog, 01 March 2009, accessed 24 June 2014, http://gregmankiw.blogspot.com/. 60 N. Gregory Mankiw, Principles of Economics, 5th ed., Mason, OH: Cengage, 2009, p.630. 61 Adam Smith, The Wealth of Nations, New York: Prometheus Books, 1991, p.151. 62 Ibid., p.70. 63 Ibid. people work so that they do not starve, not because they are free.64 In fact, some economists like Casey Mulligan believe that some workers are so free that they “are choosing to remain unemployed because that improves their odds of receiving mortgage relief.”65 And the economist John Cochrane, who thinks unemployment is a good thing, has written, “We should have a recession. People who spend their lives pounding nails in Nevada need something else to do.” 66 This is so ridiculous only a modern economist could say it. If workers were “perfectly free” to choose their work, then Gallup would not have reported, as it did, that “70 percent of them either hate going to work or have mentally checked out to the point of costing their companies money.”67 Marx, who breathed less deeply of unreality than did and do classical and neoclassical economists, suggested that labour is “a commodity which its possessor, the wage-worker, sells to capital. Why does he sell it? In order to live,” as any worker of ordinary intelligence would be able to tell you.68 That is to consider real human beings in reality. But economics, classical as well as neoclassical, does not consider humans in reality. It considers them, as so many things, in the abstract, as a fiction from which it then proceeds, proclaiming that markets are fair because human beings are free.69 In their criticism of this idea, the behavioral economists, for all their shortcomings, are incisive. The economic actor presupposed in neoclassical analysis, “Economic Man,” Craig Lambert writes, “makes logical, rational, self-interested decisions that weigh costs against benefits and maximize value and profit to himself. Economic Man is an intelligent, analytic, selfish creature who has perfect self-regulation in pursuit of his future goals and is unswayed by bodily states and feelings.” “Economic Man,” he observes, “is a marvelously convenient pawn for building academic theories. But Economic Man has one fatal flaw: he does not exist.”70 As Marx so eloquently argued in his essay “On the Jewish Question,” in the conception of classical economics, “man is the imaginary member of an imaginary sovereignty, divested of his real, individual life, and infused with an unreal universality.” As a result, “man leads, not only in thought, in consciousness, but in reality, in life, a double existence — celestial and terrestrial.”71 Human beings may not be free or equal in reality, but they are, in the conception of economics, allowed to be free and equal in the eyes of the law, that is to say, as an abstraction, a legal fiction. The state then becomes, like religion, the medium through which human beings realize their ideal existence, the price of which perfection is its abstraction, its divorce from reality. A person who is perfectly free as a political subject, as a citizen of the state, may in reality, as is most often the case, be entirely unfree. One need hardly be so abstract. Consider the fate of the average citizen in a capitalist economy. He 64 Adam Smith, op. cit., p.105. Krugman, “How Did Economists Get It So Wrong?”. 66 John Cochrane, qtd. in Krugman, “How Did Economists Get It So Wrong?”. 67 Timothy Egan, “Checking Out,” New York Times, 20 June 2013, http://opinionator.blogs.nytimes.com/2013/06/20/checking-out/. 68 Karl Marx, Wage Labour and Capital, in The Marx-Engels Reader, ed. Robert C. Tucker, New York: Norton, 1978, p.204. 69 This paragraph is adapted from Kelly Maeshiro, “How Shall We Be Free?” Essays, 08 April 2014, http://kellymaeshiro.wordpress.com/2014/04/30/how-shall-we-be-free/. 70 Craig Lambert, “The Marketplace of Perceptions,” Harvard Magazine, March-April 2006. 71 Karl Marx, “On the Jewish Question,” in The Marx-Engels Reader, ed. Robert C. Tucker, New York: Norton 1978, p.34. 65 gets to be free and equal, gets to realize his political freedom, once every two years at the ballot box. Otherwise, he spends the majority of his waking life unfree and unequal, working in a capitalist firm with decisions made by a few individuals on the board of directors, forced to work by the dictates of survival. This abstract citizen is then accorded certain inalienable rights and freedoms, among them the freedom of speech and expression, the freedom of assembly, and the freedom of religion, all the better to express his unfree condition. Marx’s criticism highlights a central contradiction of capitalism between its economic system and the political system which it requires to function, between economic autocracy on the one hand and political democracy on the other. Later we will see how this contradiction, and the bifurcation of the individual which it occasions, forms the basis of liberalism’s inadequate conception of the relation of economics to politics. One palpable effect of hypostatizing economic actors and markets from the real conditions in which they exist is to hypostatize value as well, a hypostatization which, as we will see, has the greatest consequences for economic analysis, and is particular discursive distortion which is the source of so many theoretical misconceptions and errors in modern economics. Value is hypostatized by abstracting and hypostatizing human beings from the material conditions in which they determine value, i.e., ascribe value to particular goods in the market, valuate particular commodities. In treating human beings, economic actors as legal fictions, economics abstracts the concept of value from the definite historical conditions out of which value, or the concept of value, arises, and only within which it is intelligible, i.e., assumes the way human beings value something to be constant and unchanging for different historical circumstances. A necessary consequence of hypostatizing economic actors, then, is to hypostatize value and the process of valuation as well. For, though modern economics does not bother to ask the question, what, after all, is value? It is, one might say, nothing other than the measure of how much a particular thing is desired, the expression of preference. This is by no means a constant determination, but a social determination that, like all social facts, changes according to definite historical circumstances. Human beings do not value a given object in the same way or in the same measure in all circumstances, but value a given object differently according to those circumstances. For instance, one does not “value” a given commodity in the same way when he is relatively free as when he is relatively starving. How much an individual values, say, bread, differs according according to these circumstances. Of course one values bread much more when he is dying of starvation than when he does not have to worry about it. This is only to suggest how value differs for each individual, according to the varying circumstances in which he finds himself over time — to say nothing of how value differs according to different individuals, for each of whom the same problematic of valuation obtains. None of this is taken into consideration in the determination of value, or to the extent that that it is, economics maintains that it cannot be measured, therefore cannot be put into one of their mathematical models, and as a result, is effectively ignored, a non-problem in economic models however real and serious a problem it is in actual real world. In order to construct functional mathematical models, economists must strip away confounding variables which are too complicated for computation, but as such variables constitute the greater portion of what obtains in the real world, economics thus strips itself away from reality. In omitting variables which are too complicated for precise modeling, economics succeeds in simplifying its subject, but also strips the subject of its reality to such an extent that only a residual sliver of this subject is left over, disfigured beyond recognition. Economics strips its subject, the individual down to an informed economic actors who makes rational decisions, without regard to his real circumstances. Economics may have its subject, but he hardly resembles a human being. And it may have its mathematical precision, but only at the price of reality. Despite the notion, then, that complex mathematics makes economics more precise, more accurate, just the opposite is true: it makes economics less, not more, accurate, as it pulls it ever farther away from the real world. Economics neglects all the relevant variables of economic analysis and scorns those who do not neglect them, those who take these variables into consideration, as “sociologists,” who are in many cases, by virtue of this fact, simply respectable versions of economists, who participate in a field that economics would be like if it were a serious discipline. The hypostatization of value, in turn, raises some rather illuminating questions. We know that in the real world that economic actors value things differently according to their circumstances, and that this is not taken into account in economic models. But because these facts are nevertheless true, economics must, if implicitly, presuppose some material circumstance from which it proceeds in determining value. Economics cannot be impartial on this account, for, as we have established, the very determination of value necessarily, ipso facto, by definition, presupposes a given historical circumstance in which that valuation is made and from which it proceeds. One question that arises, therefore, is what kind of historical circumstance is implicit in the way economics treats the concept of value. I.e., what counts, or to be more precise, what does economics count as the “real” value of a thing, its relevant value, the value which is taken into consideration in economic analysis? What is the implied material condition corresponding to the value which is taken into account in subsequent analysis? Another question that arises is how much or little that implicit assumption approximates really-existing conditions. To take up our earlier example, suppose an individual values bread differently in different circumstances — one the one hand, in conditions of relative privation, on the other hand, in conditions of relative abundance and security. If this individual even remotely resembles an actual human being, he will value a loaf of bread more dearly when he is starving than when he is not. There are thus at least two values which we might proceed from in our economic analysis — that value which is determined under relative unfree conditions, and that value which is determined under relatively free conditions. Which value would it be rational to reckon its real or relevant value? Which value does economics, implicitly, take to be its real value? There is a considerable difference. The value that would be rational to count as the real value and with which one should therefore proceed with economic analysis, the more accurate, more realistic measure of how much an individual desires a given commodity, is of course the value which is ascribed under conditions of relative freedom, which is perhaps why Smith proceeded from this assumption, however at odds it is with reality. The measure of how much an individual values a given item is accurate according as this valuation is made by the free choice and conscious volition of that agent, not given by conditions under which he is compelled by material necessity and therefore materially unfree, but by those conditions under which he is relatively free from the dictates of material necessity. That the value which is the real measure of how much a person desires a given object is the value ascribed under relatively free conditions may be clarified by a more obvious example of how this is true, in a different field. Suppose, for example, that a country were to hold two political elections, some years apart from each other. The first election runs like one would expect any election to run in a free, democratic society, but after the first election, the country is invaded by an occupying army which resorts to routine terror on the population, threatening to inflict greater damage if the citizens of that country fail to vote for the candidate that it, the occupying power, prefers. Surely no rational person would accept the results of the second election as legitimate, and any rational person would conclude that the results of the first election more accurately reflect the preferences of the population than the results of the second election, viz. because the first election was conducted under the auspices of relative freedom. No rational person, on this account, would recognize as legitimate, for example, the 1990 elections in Nicaragua, in which the population voted with a gun to its head after a decade of U.S.-backed aggression. Only American intellectuals who were “united in joy” at the results of the election would.72 And modern economics displays a similar kind of logic in its conception of value and in what it suggests constitutes the accurate measure of value — not the value which is determined under conditions of meaningful freedom, but instead the value which is determined under relatively unfree conditions, an assumption that is apparent in the widely-held belief in economics that markets accurately reflect prices. The implicit logic of modern economics concerning the question of value is shared not only by contemporary American intellectuals but stretches to at least as far back as the medieval theologian and founding figure of scholasticism, Saint Anselm, whose conception of freedom is unwittingly maintained by modern economists — another way in which economics to a certain extent resembles classical theology. In his dialogue on the freedom of choice, Anselm concludes that no temptation can compel anyone to sin against his will, which is true by virtue of its broader generalization — that nothing can compel anyone to do anything against their will, for such is the nature of free will that “everyone who wills, wills his own willing.”73 Anselm maintains, for instance, that a sin like lying is still is a sin even when it is done for the sake of one’s life, because he has chosen to do it. As he explains very soberly, “although it is necessary that he either lie or be killed, it is not necessary that he be killed, since he can avoid being killed if he lies; and it is not necessary that he lie, since he can avoid lying if he is killed.” In an absolute sense, Anselm is right, but a more nuanced view considers the difference between a meaningful choice and a meaningless choice, between substantive freedom and nominal freedom — a distinction which neither Anselm nor modern economics makes, proceeding, as we have seen, on the grossly unrealistic assumption that economic actors freely buy and freely sell their commodities in the free market. As a result of the conception of freedom which its shares with Saint Anselm, economics disregards the material conditions under which value is accurately measured, in so doing, implicitly maintains the view that value is accurately measured (and accurately reflected in price) under relatively unfree conditions. This economic logic has important ramifications for economic analysis. We might consider, for example, the implication of this logic for the wages of labor. The free condition of contract is the entire premise of the determination of the value of labour power, wages, as well as economists’ 72 Chomsky, World Orders Old and New, pp.47-49. Anselm, “On Freedom of Choice,” Three Philosophical Dialogues, trans. Thomas Williams, Indianapolis: Hackett, 2002, p.39. 73 definition of and opposition to “distortion” in the labour market. Under this conception, the natural market price of labour, or wage, is the accurate measure of the value of labour, and it naturally follows from this that any deviation from this price, by collective bargaining for instance, represents a distortion from its accurate measure, the more so the further it deviates from this price. But as we have seen, this conception is implicitly predicated on the notion that value is accurately measured under relatively unfree conditions, a notion no rational person accepts. A rational view maintains that value is accurately measure under conditions of relative freedom, accurate in proportion to the relative degree of freedom, i.e., more accurate the freer the conditions under which value is determined. From this point of view, the natural market price of labour, which is determined under relatively unfree conditions because of the disproportionate bargaining power of capital, is not an accurate measure of value. Instead, the wage negotiated in collective bargaining by a union of workers, which decreases the disproportion in bargaining power of capital by increasing the relative bargaining power of labour, is, if not perfectly so, still the more accurate measure of value than its free market price because it was determined under relatively freer material conditions. From this point of view, the natural market value of labour is a distortion from the negotiated price, exactly the opposite of what is maintained by modern neoclassical economics. To summarize our discussion about the first class of discursive distortions, we have seen that in its conception of the economic actor, economics proceeds from a legal fiction, a juridical abstraction, namely that of the free economic actor, who turns out not to be free in any meaningful sense. In consequence, valuation is also hypostatized, stripped of its materiality in economic discourse, which in turn informs the conception of what constitutes, on the one hand, “distortions,” on the other hand, “efficiencies” in the market — both of which diverge considerably from their generally accepted meaning. SECOND CLASS OF DISTORTIONS: REIFICATION OF THE MARKET. The second class of discursive distortions which give rise to the terminological differences between economists and most others relates to a reification of the conception of the market. So far, we have discussed theoretical misconceptions as they relate to economic actors and the material conditions under which they carry out their transactions within the market. We may now turn our attention to theoretical misconceptions bearing more directly on the market itself, a different and quite distinct, though not unrelated, set of discursive distortions which work together in a different way than than those just discussed, but nevertheless in parallel and in conjunction with them. The second class of distortions relates to theoretical misconceptions which are fundamental to contemporary economic analysis. So far, even in criticizing certain elements within the market — its actors, the nature of and the conditions under which they carry out their transactions, etc. — we have maintained certain assumptions about the market itself which we may now take occasion to question with greater scrutiny. Among the assumptions that modern economics proceeds from, one of the most important, central to the entire discourse, is not simply that free markets allocate resources efficiently, but also that they exist. We have already seen three ways in which markets are never free in practice and in reality — that is, when the relevant material conditions are taken into consideration — however free these markets might be in theory. But free markets do not even exist in theory. In fact, the very idea of a free market is a logical contradiction. Robert Reich’s observations on this topic are particularly astute, as he does not fall prey to the same misconceptions as most modern economics on this issue (as on others). He writes, “the free market is an oxymoron. Markets don’t exist without laws and rules. Markets are human artifacts, the shifting sum of a set of judgments about how we should live together. What is mine, what is yours, and what is ours? … Different cultures, at different times, have answered these questions in different ways.”74 We might even add that the reason markets do not exist without laws and rules is that the “market” itself, in its entirety, is a set of laws and rules, as Reich suggests, a human artifact, a social and legal construct. “One of the most deceptive ideas continuously sounded by the Right,” he continues, “is that the ‘free market’ is natural and inevitable, existing outside and beyond government. So whatever inequality or insecurity it generates is beyond our control. And whatever ways we might seek to reduce inequality or insecurity — to make the economy work for us — are unwarranted constraints on the market’s freedom, and will inevitably go wrong. By this view, if some people aren’t paid enough to live on, the market has determined they aren’t worth enough. If others rake in billions, they must be worth it. If millions of Americans remain unemployed or their paychecks are shrinking or they work two or three part-time jobs with no idea what they’ll earn next month or next week, that’s too bad; it’s just the outcome of the market. According to this logic, government shouldn’t intrude through minimum wages, high taxes on top earners, public spending to get people back to work, regulations on business, or anything else, because the ‘free market’ knows best.” But in reality, as Reich continues, “the ‘free market’ is a bunch of rules about (1) what can be owned and traded (the genome? slaves? nuclear materials? babies? votes?); (2) on what terms (equal access to the internet? the right to organize unions? corporate monopolies? the length of patent protections? ); (3) under what conditions (poisonous drugs? unsafe foods? deceptive Ponzi schemes? uninsured derivatives? dangerous workplaces?) (4) what’s private and what’s public (police? roads? clean air and clean water? healthcare? good schools? parks and playgrounds?); (5) how to pay for what (taxes, user fees, individual pricing?). And so on. These rules don’t exist in nature; they are human creations. Governments don’t ‘intrude’ on free markets; governments organize and maintain them. Markets aren’t ‘free’ of rules; the rules define them.”75 Ha-Joon Chang, similarly, writes, “The free market doesn’t exist. Every market has some rules and boundaries that restrict freedom of choice.”76 Again we can make the simple modification: markets not only have sets of rules, but are a sets of rule. For evidence of the fact that the market is a social construct, it is only necessary consider the many variations of what has considered the free market over time. It was not too long ago capitalists were arguing against the abolition of child labour on the grounds that such a course of legislation would infringe upon the free market. Today, we consider those who would advocate this to be insane. To suggest, or to imply, that the free market is some kind of immutable natural entity forgets this history. The whole history of the free 74 Robert Reich, Reason, New York: Knopf, 2004, pp.113-4. Robert Reich, “The Myth of the ‘Free Market’ and How to Make the Economy Work For Us,” Huffington Post, 16 September 2013. 76 Ha-Joon Chang, “There Is No Such Thing as a Free Market,” Truthout, 07 June 2011. 75 market gives lie to the notion that it is some natural state, and we fool ourselves to forget that all of the humane improvements in the market, what we now take for granted as being part of the free market itself — shortening the workday, abolition of child labor, creation of a minimum wage, etc. — come not from market forces but from political legislation. We will see later how the working day was the product of a more or less protracted civil war between capital and labour which resulted in the factory acts of the early to mid- 1800s. The prohibition on child labour was enacted through legislation, not through market forces, and it is scarcely possible for us to imagine a time when, as Broughton Charlton, a county magistrate, described in 1860, “Children of nine or ten years are dragged from their squalid beds at two, three, or four o’clock in the morning and compelled to work for a bare subsistence until ten, eleven, or twelve at night, their limbs wearing away, their frames dwindling, their faces whitening, and their humanity absolutely sinking into a stone-like torpor, utterly horrible to contemplate,” such was the free market.77 The minimum wage, likewise, was not introduced until 1896; in the United States, it was 1938. And worker’s compensation, health, and retirement benefits are all relatively new legacies of New Deal legislation, not market forces. 78 Just as Freud suggested society’s rules tell you something about, are a negative expression of, the natural tendencies the rules restrict,79 the fact that these humane improvements in the market were not achieved through market forces but through legislation which countered the effects of market forces, the fact that virtually all of the humane improvements in economic life have come from reducing the role and restricting the scope of the market, that all of the significant improvements in the market have come from restraining its natural tendencies — would suggest something about the natural tendencies of the market. “What could possibly show better the character of the capitalist mode of production, than the necessity that exists for forcing upon it, by Acts of parliament, the simplest appliances for maintaining cleanliness and health?” Marx asks.80 But the point is that there is no such thing as a free market; in fact, no such thing as a market at all; only markets, many, many varieties of them, which are constituted by different sets contingent rules which change over time. As Chang writes, “A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them.”81 The existing regulations on markets, among them those just mentioned, hardly exhaust the possible rules which might constitute a market system. To give just one illustrative example of how the market can assume different institutional forms, consider the structure of the wartime economy during World War II. Significant sectors of the economy were more or less run by the government, and in place were strict price and wage controls. Or, to give another example, the Rehn-Meidner plan in Sweden was a regulation, ultimately failed, which proposed to transfer a portion of profits into a worker-owned share in companies, a share which would increase with the profitability of the company. If there is no such thing as a free market, if, among the many variations of the market and 77 Broughton Charlton, qtd. in Marx, Capital, vol.1, p.268. Cf. Krugman, Conscience of a Liberal. 79 Sigmund Freud, Totem and Taboo, trans. James Strachey, New York: Norton, 1950, pp.40-41. 80 Marx, Capital, vol.1, p.527. 81 Chang, op. cit. 78 the rules which constitute it, there is no version which is more natural than others, then the determination of the naturalness of a market only proceeds along certain assumptions about what constitutes naturalness (which is of course artificial), and thus tells us more about these assumptions than it tells us about the market itself, or how “natural” it might be. As Chang writes, “the ‘freedom’ of a market is, like beauty, in the eyes of the beholder.”82 If this is true, then markets are always constituted by a configuration of contingent and malleable rules and regulations which, if they are not already explicit, be deduced from the structure of the market, which it will be our point, later in the discussion, to do. To summarize the preceding discussion, we have seen that there are two classes of discursive distortions which give rise to the divergence of economics from the generally accepted standards of terminology, especially as such standards bear upon notions of efficiency and distortion. The first series of discursive distortions, relating to hypostatization from the material conditions of markets, led to a conception of distortions which diverge from the commonly understood notion of distortions. The second series of discursive distortions reinforced this conception by again proceeding from a series of assumptions considerably different from those commonly held. In both of these classes of discursive distortions, we observe that it is on account of a fundamental divergence in theoretical assumptions which gives rise to the divergence of economics from the generally accepted standards of terminology, an observation which will be of great import for our analysis, as we will shortly see, because it suggests the gulf which separates the world of economic discourse from the everyday reality of individuals. We have also seen how this normative terminological and semantic divergence arises out of a series of assumptions which diverge considerably from those of most people, embedding in economics an implicit class bias, but we have yet to explain why these assumptions diverge from those of most people and diverge in such a way as to create this implicit class bias — an explanation which will be undertaken in the following section. EFFECTUAL DEMAND. THE ALLOCATION OF RESOURCES. DISTRIBUTION OF WEALTH. INADEQUACY OF LIBERALISM. Through an account of different classes of discursive distortions, we have sought to explain why the terminology of economics diverges in its sense from generally accepted standards of terminology, why economists call “efficient” what most people would call inefficient, a distortion, and consider to be a “distortion” what most people would call efficient. It is largely owing to this terminological divergence that markets, which we have seen allocate resources inefficiently, are said to allocate resources efficiently — this conception tacitly legitimizing an allocation of resources which is inefficient and irrational from the point of view of most people. What still requires explanation, however, is why markets, or the market form of appropriation, allocates resources inefficiently and irrationally (in the common senses of those terms) in the first place. As it turns out, there is a very plausible explanation for why markets do not allocate resources rationally which remains inaccessible to modern economists because of another set of fundamental theoretical 82 Ha-Joon Chang, “There Is No Such Thing as a Free Market,” Truthout, 07 June 2011. misconceptions. According to the standard doctrine of modern economics, the laws of supply and demand determine the allocation of goods in market economies. While this is fact, the meaning of this fact is obscured by the theoretical apparatus of modern economics. It is true that, ceteris paribus (a very crucial qualification in this case), market economies allocate resources according to the dynamics of supply and demand, and it is true that this allocation is “efficient” in the sense in which this term is standardly employed in the discourse of modern economics, but it is not true that this allocation is efficient in any sense of the term with which we are familiar. The basic conception of supply and demand was described by Smith, who writes, “The market price of every particular commodity is regulated by the proportion between the quantity which is actually brought to the market, and the demand of those who are willing to pay the natural price of the commodity …”83 When either the supply or the demand for a given commodity changes, the market changes its allocation accordingly. “When the quantity of any commodity brought to the market falls short of the effectual demand, all those who are willing to pay the whole value of the rent, wages, and profit, which must be paid in order to bring it thither, cannot be supplied with the quantity which they want. Rather than want it altogether, some of them will be willing to give more. A competition will immediately begin among them, and the market price will rise more or less above the natural price … When the quantity brought to the market exceeds the effectual demand, it cannot be all sold to those who are willing to pay the whole value of the the rent, wages, and profit, which must be paid in order to bring it thither. Some part must be sold to those who are willing to pay less, and the law price which they give for it must reduce the price of the whole. The market price will sink more or less below the natural price.”84 It is in this way that market is taken to be self-correcting. And Smith’s description is quite true, but the distortion lies in its interpretation. A significant part of the obfuscation lies in the distinction, typically elided between absolute and effectual demand. It might even be argued that, more than anything else, it is the conflation of absolute and effectual demand which accounts for the implicit class bias of economic discourse. As Adam Smith recognized, demand is only made effectual by wealth: “effectual demand … is different from the absolute demand. A very poor man may be said in some sense to have a demand for a coach and six; he might like to have it; but his demand is not an effectual demand, as the commodity can never be brought to the market to satisfy it.”85 My desiring something is not enough to create effectual demand; I must have the wealth to effectuate that demand. In the allocation of resources, one votes with the dollar. Therefore, those who have more dollars, more wealth, have a greater say in determining the allocation of society’s resources, regardless of what the “absolute demand” of the vast majority of the population might be. Consider what this might mean in really-existing capitalist societies with its grotesquely unequal distributions of wealth. Common sense tells us that in a society with a highly unequal distribution of wealth, the market will respond to the demand of concentrated wealth, and as a result will disproportionately reflect the needs of concentrated wealth, 83 Smith, op. cit., p.59. Ibid., p.60. 85 Ibid., p.59. 84 i.e., the needs of elites. The same basic principle holds for any given distribution of wealth: resources are allocated according to wealth. We need not be so abstract. There is a perfect example of this in the commodity market known as American politics, in which, as in every other real market, resources are allocated according to wealth, not preference. The reason is simple: rich donors like the Koch brothers and large financial institutions can buy their candidates. The average American cannot; she doesn’t have enough money. As David Clifton writes in the Harvard Crimson, “The average citizen cannot compete with the likes of Sheldon Adelson, who spent at least $98 million on Republican candidates in 2012.”86 The political market, then, is a good example of how real markets work. The frightening part about this is not that politics is a commodity market, but rather that it is in principle no different from any other market, in which resources are allocated according to wealth. That is why capitalism works exceedingly well — for a few people.87 As Heilbroner and Thurow explain, in market economies, those “with income and wealth are entitled to the goods and services that the economy produces; those without income and wealth receive nothing.” 88 They go on: “the market is an inefficient instrument for provisioning societies — even rich societies — with those goods and services for which no price tag exists, such as education, or local government services, or public health facilities.” We might add that the market is also an inefficient instrument for provisioning those goods for which price tags do exist, but we can put that aside for the moment. “A market society buys such public goods by allocating a specific amount of taxes for these purposes. Its citizens, however, tend to feel these taxes as an exaction in contrast with the items they can voluntarily buy. Too easily, therefore, a market society under-allocates resources to education, city government, public health, or recreation, since it has no means of bidding funds into these areas, in competition with the powerful means of bidding them into autos or clothes or personal insurance.” The two last sentences are true, if by “citizen” we mean, in accordance with American legal theory, transnational corporations. But if “citizen” is taken to include the population, the statement is false. Public polling routinely reveals that a majority of the public supports funding things like education, even if it means increasing taxes. It is not generally the citizens who “feel these taxes as an exaction,” but the “citizens,” properly understood. Nevertheless, their conclusion is correct: “ the result of market allocation is all too often “private opulence and public squalor: New York, the city of the richest people in the world, lacks the money to keep its streets clean and safe.” As they go on to elaborate:“The market is an assiduous servant of the wealthy, but an indifferent servant of the poor. It presents us with the anomaly of a surplus of luxury housing existing side by side with a shortage of inexpensive housing, although the social need for the latter is incontestably greater than the former. Or it pours energy and resources into the multiplication of luxuries for which the wealthier classes offer a market, while allocating more basic 86 David Clifton, “Rome and the Supreme Court,” The Harvard Crimson, 07 April 2014. Chomsky, for example, writes, “our economic system ‘works,’ it just works in the interests of the masters, and I’d like to see one that works in the interests of the general population. And that will only happen when they are the ‘principal architects’ of policy, to borrow Adam Smith’s phrases” (Chomsky, Understanding Power, p.140). 88 Robert Heilbroner and Lester Thurow, Economics Explained, New York: Simon & Schuster, 1987, p.164. 87 needs of the poor to go unheeded.”89 That, in short, may serve as a summary for what I will refer to as the problem of effectual demand. ELISION OF THE DISTRIBUTION OF WEALTH. We see, therefore, how so many errors arise out of the conflation of absolute demand and effectual or relative demand. But we also recall that the source of this conflation is the elision of the distribution of wealth. When the wealth distribution is omitted, the crucial distinction between absolute demand and effectual or relative demand is lost. From the point of view of evaluating the rationality, justness, and efficiency of society’s resources, then, arguably the most important issue for economic analysis, the issue of how wealth is distributed warrants the greatest seriousness of attention, and should be of paramount significance for serious economists. Would that things were so in reality. Only we cannot be so sanguine. For all of its significance, the distribution of wealth is an issue given scant attention in modern economics. Juliet Schor, a dissident economist who left Harvard for that reason, recently spoke on the issue at a teach-in lecture during the Occupy Harvard protests in 2011. In “the standard model,” which comes out at the graduate level she says, “either there is no assumption about the distribution of assets or the distribution of income that comes into the market, or there is some fictional assumption made about what it is … in terms of economic outcomes, theory has no way of saying anything about the relative merits of a distribution in which the one percent have as much as the ninety-nine percent … in which it’s a fifty-fifty,” etc. “It doesn’t have a way of talking about that.”90 Instead, Schor suggests, “what the field does is worry about efficiency, that is, what the most efficient outcome in the market [is] and then says we can worry about the distribution later … It’s not an input variable into the system; it’s something that … comes out … an endogenous rather than exogenous variable.” Instead of wasting its time discussing distribution, economists discuss efficiency. But, as we have already shown, it is meaningless to conceptualize efficiency without reference to distribution of wealth, for without an understanding of what this distribution is, one cannot interpret the results of the analysis, one can say a thing is efficient, but cannot understand what this means. One conducts analysis in gross ignorance. Economics in fact reverses the real relationship of efficiency and wealth distribution, views it in camera obscura. For it is distribution, not efficiency, which is the independent variable, efficiency the dependent variable. In preaching this inversion, economics abstracts efficiency from the variables which constitute its own real conditions, the distribution of wealth, without reference to which the term “efficiency” can mean either everything and nothing, but cannot mean anything definite. It is not difficult to perceive the implicit class bias in this. A given distribution of wealth is always, as a logical necessity, presupposed in any notion of efficiency because efficiency is relative a given distribution of wealth and is only intelligible in relation to it. By eliding from analysis and from discourse the definite distribution of wealth to which a given efficiency corresponds in a 89 Ibid., p.227. Juliet Schor, “Economics for the 99%” (Lecture, Occupy Harvard Teach-in, Harvard University, Cambridge, MA, 07 December 2011). 90 discussion of that efficiency, economics thereby implicitly defines a given distribution of wealth as efficient, in this case, a distribution of wealth in which the richest one percent own forty percent of all wealth and fifty percent of all investment assets. By omitting from consideration the contingent conditions of efficiency, it implicitly presupposes those conditions in determining whether not a given allocation of resources is efficient. From the point of view of socially-optimal allocation of resources, it is meaningless to discuss the market’s allocation, the market price, or the equilibrium price without reference to the distribution of wealth. Therefore, economics does not study it. Economics justifies this elision (of the distribution of wealth) on the assumption, taken for necessary and a priori fact, that the distribution of society’s resources is just because it necessarily reflects the value of one’s contribution to society, a premise which is incorrect, itself predicated on a set of erroneous assumptions. What is the reasoning behind this erroneous thinking? Robert Heilbroner summarizes the position of so many economists: “Just as the market regulates both prices and quantities of goods according to the final arbiter of public demand, so it also regulates the incomes of those who cooperate to produce those goods … If wages are out of line in one kind of work, there will be a rush of men into the favored occupation until it pays no more than comparable jobs of that degree of skill and training. Conversely, if profits or wages are too low in one trade area, there will be an exodus of capital and labor until the supply is better adjusted to the demand.”91 And so, the argument goes, because the market allocates income in this way, it is just and cannot be accused on this score of unfairness. Presumably, most people would not consider a system which allocates resources in this way ethical. Indeed, as we have already shown, recent public opinion surveys find that 60% of Americans “see a basic injustice inherent within our economic system,” and think that “the economic system unfairly favors the wealthy” (my emphasis).92 The majority of people, therefore, do not seem able to provide any ethical justification for a system in which, to use Rousseau’s words, “the privileged few should gorge themselves with superfluities, while the starving multitude are in want of the bare necessities of life” That is why we have economists — who justify the allocation of resources in this way on the premise that under this configuration, people get what they “deserve,” that, i.e., what the market allocates to them reflects the value of their contribution to society, according to the . This justification is problematic in a number of ways. Firstly, this assumes that the market distributes wealth according to society’s preferences, which we have already observed to be erroneous on the basis of the distinction between effectual and absolute demand, if the term “society” is taken to include the vast majority of people who constitute it. Secondly, this justification assumes that people enter freely into contracts, which we have also observed to be , if not false, then meaningless if by “freedom” we mean the degree to which one can exercise her will without starving as a result. If these reasons are not sufficiently obvious, one might simply consider the intellectual justification in light of observable facts. We might ask whether most people would in 91 Heilbroner, The Worldly Philosophers, p.57. Harold Mandel, “New poll finds most Americans feel the economic system is unfair,” Examiner.com, 24 January 2014, http://www.examiner.com/article/new-poll-finds-most-americans-feel-the-economic-systemis-unfair. 92 fact find the distribution of society’s resources to actually reflect the value of their contribution to society. I think most people would agree that the market allocation of resources does not in fact allocate resources according to the value of one’s contribution to society. I think Reich speaks for most people in his suggestion that “[w]hat someone is paid has little or no relationship to what their work is worth to society.”93 Reich observes that those whose efforts vastly enrich society are skimping by on meagre wages — social workers (making $38,000 a year), personal care aides ($20,000), hospital orderlies ($24,000), child care workers ($28,000), and kindergarten teachers ($54,000). Meanwhile, at “the other extreme are hedge-fund and private-equity managers, investment bankers, corporate lawyers, management consultants, high-frequency traders, and top Washington lobbyists. They’re getting paid vast sums for their labors,” though “it seems doubtful that society is really that much better off because of what they do.” “I don’t mean to sound unduly harsh,” Reich says, “but I’ve never heard of a hedge-fund manager whose jobs entails attending to basic human needs ...”94 The reason for this has been explained: in a market system in which resources, including wages and incomes, are allocated according to effectual demand, i.e., according to the distribution of wealth, the allocation of these resources will naturally and disproportionately reflect the preferences of those who disproportionately own its wealth. And because in our society, wealth is disproportionately controlled by the capital-owning class, the wages of society naturally reflect their needs, diverging significantly from the needs and preferences of the majority of people, who control a disproportionately small amount of society’s wealth. The influence of one’s real preferences on the allocation of resources in a market system is directly proportional to the magnitude of that person’s disposable wealth. While it may not be true, therefore, that the market allocates resources according to the value of one’s contribution to society, it does appear to be true that the market disproportionately allocates resources according to the value of one’s contribution to “society,” if by the term we mean the extremely small group of people who wield a disproportionate amount of society’s wealth. As Reich’s observations suggest, those who do the bidding for the opulent minority — stock brokers, financiers, corporate attorneys, and the like — are duly rewarded for their efforts. And because, in the discourse of neoclassical economics, a market allocation is “efficient” according as it approximates the distribution of resources according to wealth rather than to need, there is no necessary contradiction between economic “efficiency” and massive waste. As Reich observes, “It’s said that by moving money to where it can make more money, these games make the economy more efficient. In fact, the games amount to a mammoth waste of societal resources.”95 There is no contradiction here. We see, then, the significant implications the elision of this element, the distribution of income, has for the way we consider the way society allocates its resources, from goods and services to income. We see that when the elided element is considered, the conclusions we come to regarding the efficiency and justness of this allocation are not only radically different, but even in some real sense the opposite of what we are accustomed to believe. We had earlier seen on a factual 93 Robert Reich, “The Disconnect Between Workers’ Pay and Social Worth,” Truthdig, 04 August 2014, http://www.truthdig.com/report/item/the_disconnect_between_workers_pay_and_social_worth_20140804 94 Ibid. 95 Ibid. level that, by the standards of presumably most people, capitalist market economies allocate resources inefficiently, and here we have just explained why this is so in theory as well, what was missing from classical theory which prevented it from reckoning these facts. We have seen that when the distribution of wealth, which is typically elided, is taken into consideration, and when that distribution of wealth is highly uneven, it is rational to expect that a market economy will allocate resources inefficiently, as we have seen it does. When the element of wealth is omitted, the crucial distinction between absolute demand and effectual demand is lost. In the standard model of supply and demand, the point representing the price and the quantity at which supply and demand intersect is called the equilibrium point. But, considering the distinction we have just made, it is important to keep in mind that this intersection is the intersection of supply and effectual, or relative, demand; that it is not the point of intersection of supply and absolute demand. Therefore, let us call the point of intersection between supply and effectual demand, that point which is involved in standard models, effectual or relative equilibrium, and let us call the point of intersection between supply and absolute demand absolute equilibrium. In the terms introduced here, modern neoclassical economics has assumed that the socially optimal allocation of resources is represented by the effectual equilibrium, that equilibrium allocation of resources according to the magnitude of wealth which one commands such that the more closely the market approximates this allocation for a given commodity market, it approximates this equilibrium. But we have already shown what is problematic in this interpretation, namely that, under conditions in which society’s wealth is grossly maldistributed, a market which approximates the effectual equilibrium allocates resources so that the rich get what they want while everyone else suffers in varying degrees of privation, and that this, we have agreed, is not socially optimal. Instead, we would maintain that the absolute equilibrium represents, for a given commodity market, the socially optimal allocation of resources. Here, however, we run into a theoretical difficulty, but one which is nevertheless easily overcome. The problem is that absolute equilibrium cannot be modeled perfectly, if only because, were wealth not an issue, demand would be infinite. For the purposes of modeling, effectual demand is all we have to work with. In order to evaluate, therefore, the efficiency of allocation with respect to its socially optimal level, we must establish some manner of using effectual equilibrium to approximate absolute equilibrium. This is not impossible if only we recall what it is that distorts effectual equilibrium as an approximation of absolute equilibrium in the first place: the maldistribution of wealth. It is because wealth is so unevenly distributed that effectual equilibrium does not reflect the socially optimal allocation of resources, and its reflects the socially optimal allocation less in proportion as the distribution of wealth is uneven. Inversely, effectual equilibrium reflects the socially optimal allocation of resources according as the distribution of wealth is even, i.e. according as the distribution of wealth is more or less equal. We can therefore use that effectual demand which corresponds to a perfectly equal distribution of wealth as a functional proxy for absolute demand. One might think of this in concrete terms. The suggestion being made here is that, assuming there were two markets for a given commodity, one in which there is a highly uneven distribution of a given amount of wealth and another in which there is a more or less equal distribution of the same amount of total wealth, the market allocation in the market in which there is a more or less equal distribution of wealth would be more socially optimal than that allocation which would result from the other, and that therefore, the hypothetical allocation of the market in which there is a more equal distribution of wealth should be the standard by which we judge the efficiency of a market allocation. Such a standard would more closely approximate the ethical suppositions of most people than the present economic standard does. It is on account of the divergence of absolute and relative or effectual equilibrium that, in capitalist market economies, use-value, the utility of a given commodity, often radically diverges from its exchange-value, or its price. This divergence was recognized by Smith, who observes that “things which have the greatest value in use have frequently little or no value in exchange; and on the contrary, those which have the greatest value in exchange have frequently little or no value in use,” although Smith is unable, in my view, to provide an adequate account of why this is so.96 Smith explains the divergence of use and exchange value by reference to the market mechanism. For Smith, the price of a thing often diverges from the utility of a thing in part because the market simply reflects people’s demands and preferences and people do not always demand or prefer what is useful; indeed they often demand what is perfectly useless. While this may be true, it cannot alone account for the magnitude of the divergence, and in all likelihood accounts for the lesser portion of it, not least if we consider that the vast majority of people do not have a whole lot of money to waste on superfluities, though they might have some. Now, if people do not have enough money to buy such great amounts of useless articles, then the divergence between use and exchange value must arise from a different source, and the preferences of people in general can at beats provide a partial account. Where, then, does this divergence arise from? If the divergence does not arise from the preferences of people in general, then it must come from the preferences of particular people, a particular subset of people who (1) are more inclined than the average person to purchase useless articles, i.e., have more superfluous preferences, and (2) have the financial means of effectuating these preferences. And we all know that there is such a class of people. But such a class of people can produce a significant divergence between use and exchange value only when they command a significant enough portion of society’s wealth, i.e., only when the distribution of wealth is highly uneven and effectual equilibrium diverges from absolute equilibrium as a result. Therefore, in an economic system in which wealth is so grossly maldistributed, the equilibrium price of a given commodity, i.e., will not accurately reflect the needs and preferences of the majority of economic actors, and will thus not represent the socially-optimal price. As the economist Oskar Lange writes, “Under such conditions demand price does not reflect the relative urgency of the needs of different persons and the allocation of resources determined by the demand price offered for consumers’ goods is far from attaining the maximum of social welfare.”97 This is the opposite of what is maintained by modern neoclassical economics, which proceeds on the assumption that exchange-value reflects use-value. Because modern neoclassical economics largely elides the issues of wealth distribution and in so doing conflates effectual and absolute equilibrium, it assumes, on the basis of these faulty theoretical suppositions, that prices are an accurate measure of value, though this is not the case. Once again, common experience would suggest as much, but in the strange logic of economics, it is not theory which accommodates itself to empirical reality, fact 96 97 Smith, Wealth of Nations, p.35. Lange, “The Economist’s Case for Socialism,” in Basic Writings of Socialism, pp.700-1. and experience, but empirical reality which accommodates itself to theory. It does not matter if experience tells us that prices do not accurately reflect value; our theory tells us it must be so; therefore, QED, it is so. Hardly ever does the absurdity of the economist’s claim call into question its meaning. But for those who have not been professionally conditioned to be allergic to reality, prices very often do not accurately measure the value of a thing. Having identified the conflation of absolute and effectual demand as the principal cause of implicit class bias in economic discourse, we may now inquire as to the causes of this conflation itself. Why does economics conflate effectual and absolute demand? What about the nature of economic discourse contributes this conflation? We find that the theoretical misconception which lends itself to this conflation may be traced as least as far back as Smith. Though Smith understood the principle of effectual demand, he failed to consider its implications, just described, for how society’s resources will be mis-allocated, a failure attributable to his flawed, abstract, hypostatized, in the end, mystified conception of “society” — important if only because modern economics inherited this error and perpetuates it. Smith is quite correct in his belief that “competition will result in the provision of those goods that society wants, in the quantities that society desires, and at the prices society is prepared to pay,” but we must be clear about what this “society” is and consists in. 98 This hypostatized conception of “society” hides a good deal about what is going on in the “rational” allocation of resources. As we have already established, demand is only made effectual by wealth. On this basis, if wealth is very unequally distributed, are we to say that “society” is getting what it demands — or only those who can afford to? If 1% of Americans, for example, control as they do 43% of all wealth, and as a result, 43% of all effectual demand, would we say that American “society” is getting what it wants in the quantities that it desires and at the prices it is willing to pay? Or would we say that the rich are? American society is like this. Suppose you have a city with 100 people in it; one person, Mr. Moneybags, has $43.00 and the rest combined have $57.00, an average of $0.57 per person. Now suppose they create a market of goods among themselves. It is true that competition in the market would result in the provision of goods that this city, in the aggregate, wants, in the quantity that this city, in the aggregate, desires, and at prices that this city, in the aggregate, is willing to pay — but this hides the fact that Mr. Moneybags has disproportionate market power. From the point of view of wants, desires, willingness and ability to pay, “society” is not an entity. Nor is “the United States” or “Japan,” etc. To treat these societies as singular abstract entities is to gloss over their internal differences, particularly those of class. Consider this in another context. One might say that since the 2008 economic crash, the income of American “society” has significantly recovered, but that obscures the fact that “95% of income gains since 2009 have accrued to the top 1%.”99 By following Smith in abstracting society, modern economics ideologically dissimulates the way markets allocate resources. When the hypostatized “law” of supply and demand, based on an abstract and fictitious conception of society, does not take wealth into account, it functions as a smokescreen: it hides the fact that the wealthy get to decide what is 98 Robert Heilbroner, summarizing Smith in The Worldly Philosophers, New York: Simon and Schuster, 1980, p.53. 99 Josh Barro, “95% of Income Gains Since 2009 Went to The Top 1%,” Business Insider, 12 September 2013. produced in a society by reifying it, by making it seem natural. Thus does economics commit what John Kenneth Galbraith calls “innocent fraud,” — innocent because they do not commit it intentionally, fraud because it is “quietly in the service of special interest.” He explains: “The approved reference now is to the market system. This shift minimizes — indeed, deletes — the role of wealth in the economic and social system … Instead of the owners of capital or their attendants in control, we have the admirably impersonal role of market forces. It would be hard to think of a change in terminology more in the interest of those to whom money accords power.”100 Economics thus dissimulates the problem of effectual demand: in the market, resources are allocated according to wealth and because capitalist societies have such unequal distributions of wealth, the rich have a disproportionate say in the allocation of society’s resources. One might say, then, that a significant theoretical misconceptions of economics owes to its hypostatization of “society.” In a certain sense, economics was treating its subject too broadly, too generally, and in so doing, failed to make the distinctions which would have shed light on a significant number of economic phenomena, especially those that deal with issues of class interest and class struggle. But if economics was too general in one sense, there is another sense in which it is too specific — and it is both of these at the same time. The sense in which it is too specific is in its identification of individuals rather than classes as the primary economic actors, a misconception which in part follows from its hypostatization of society. In treating society as one indeterminate mass of individuals rather than as classes, economics lends itself to this individualistic conceit. And while perception of economic phenomena from these points of view is undoubtedly necessary and useful, an excessively abstract level of generalization on the one hand coupled with an excessively specific level of detail on the other, precludes the observation of a large class of phenomena which is perceivable neither from the point of view of society as a whole, or the individuals which collectively constitute it, but from the point of view of classes with definite, often antagonistic interests within it. There are reasons why economics fails to consider the agents of economic activity from the point of view of class, namely its absent conception of power, and we will return to this later, but for the moment it suffices simply to recognize the fact of this deficiency, if not its causes. It is perhaps relevant to observe that the irrational allocation of resources is not a problem with the market per se, but of effectual demand, of the market’s enabling conditions. The market does not allocate resources inefficient under all conditions. It will only allocate resources rationally and market prices will only accurately reflect the preferences of society under certain enabling conditions, namely a relatively equal distribution of wealth. A more rational allocation of society’s resources to accord with people’s preference thus requires a more equal distribution of wealth. But how is that to be done? What determines the distribution of wealth in a society? In a capitalist economy, ownership of the means of production. As Lange writes, “In any system with private ownership of the means of production, the distribution of incomes is determined by the distribution of ownership of the ultimate productive resources.”101 If the richest 1% of Americans owns 43% of 100 John Kenneth Galbraith, “Free Market Fraud,” The Progressive Magazine, January 1999. Oskar Lange, “The Economist’s Case for Socialism,” in Basic Writings of Socialism, ed. Irving Howe, New York: Bantam, 1970, p.700. 101 the wealth, this reflects in part the fact that they also own 50% of all investment assets.102 How does this social relation, capital, determine the allocation of wealth? Simply consider the economic dynamics of a single firm. In this firm, there are, on the one hand, a few capitalists who own all the capital of the firm, and the other hand, many workers, who own none of it, who own only their labour. The worker, owning no capital, no property but his own labor power, must rent out his own mind and body and time to capitalists, who then, because they are fewer in number and therefore maintain the stronger bargaining position, are able to take a disproportionate amount of the profit. In the battle between classes, capital always seeks higher profits and lower wages, while workers always seek higher wages. Because of this, Smith observed, “High wages of labour and high profits of stock … are things, perhaps, which scarce ever go together …” 103 Rauschenbusch rightly recognized that this creates an inherently precarious social equilibrium: “The labor movement seeks to win better terms for the working class in striking its bargains. Yet whatever terms organized labor succeeds in winning are always temporary and insecure, like the hold which a wrestler gets on the body of his antagonist,” namely because “labour is always in an inferior position in this struggle. It is handicapped by its own hunger and lack of resources.” 104 The relative strength of capital to labour in bargaining power was, incidentally, understood by Smith, who suggested that the “masters [Smith’s term for capitalists], being fewer in number, can combine much more easily.” He also, surprisingly, goes on to suggest that “whoever imagines … that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour …”105 Thus does ownership of capital determine the distribution of wealth in a society. This is crucial. It means that capital, more than wealth, is the key. It means that if we are serious about the rational allocation of society’s resources, we must transform not only the distribution of wealth, but also what determines that distribution itself: capital. And because capital is a particular relation between the owners and workers of a firm, this means fundamentally altering a social relation.106 Unless the mechanism which determines the distribution of wealth in society and the root cause of an unequal distribution (ownership of the means of production), is substantively transformed, the market will continue to allocate resources inefficiently. KEYNES THE LIBERAL THEOLOGIAN. THE INADEQUACY OF PROGRESSIVE LIBERALISM. Consider, in this light, the inadequacy of the typical liberal economist’s solution to the problem of effectual demand (irrational allocation of resources). The basic premise of this proposal 102 G. William Domhoff, “Wealth, Income, and Power,” Who Rules America?, accessed 15 January 2013, http://www2.ucsc.edu/whorulesamerica/power/wealth.html. 103 Smith, Op. cit., Book I, Ch. IX, p.97. 104 Walter Rauschenbusch, Christianity and the Social Crisis, New York: Harper Collins, 2007, p.327. 105 Adam Smith, The Wealth of Nations, New York: Prometheus Books, 1991, p.70. 106 Marx, for example, writes, “Capital … is a social relation of production. It is a bourgeois production relation, a production relation of bourgeois society.” (Karl Marx, Wage Labour and Capital, in The MarxEngels Reader, ed. Robert C. Tucker, New York: Norton, 1978, p.207). was formulated by Keynes, who proposed to close the demand gap created by savings with increased government spending and decreased interest rates. And now, economists with their perpetual self-smugness, are of the opinion that all of the great problems of economics were solved in the brain of John Maynard Keynes, whose theories now appear as the summum bonum of the history of economic thought. As the liberal economist Paul Krugman, for example, writes in an article entitled “Why Aren’t We All Keynesians Yet?”, “it was Keynes, not Marx, who cracked the code of crisis economics and explained how recessions and depressions can happen. As Japan and the rest of Asia have gone into an economic tailspin, it is Keynesianism, not Marxism, that offers useful guidance about how they might save themselves.” So enthralled is Mr. Krugman by Keynes that he even “often wondered why Keynes — unlike, say, Freud — has never become a pop culture icon.”107 To a certain undeniable degree, Keynesianism is crucial in solving our economic problems, but it is not sufficient. The Keynesian solution only treats the topical symptoms of the problem of effectual demand without addressing its root cause, namely the ownership of capital. At best, it attempts to redistribute wealth without altering the structure of production or the distribution of capital, thereby leaving entirely in-tact and completely untouched the source of wealth inequality. As Unger so perfectly criticizes, this Keynesian “pseudo-democratization of credit” is “a creditdemocracy in the place of a property-owning democracy.”108 “Such a Keynesianism,” he writes, “tries to democratize consumption without knowing how to reorganize production.”109 A more adequate solution to the problem of the market’s misallocation of resources due to a problem of effective demand is to fundamentally alter the enabling conditions of the market, namely the distribution of wealth, by equalizing it through a transformation of ownership of capital. To the extent that wealth is equally distributed among the majority, to that extent will the market begin organically to reflect their needs, desires, and free preferences, thereby eliminating much (though by no means all) of the inefficiencies in its allocation of resources. But this possibility remains unexplored in modern economics, which is as devoid of solutions as it is of understanding. Nor is Keynesianism the only woefully inadequate proposal in progressive liberalism’s familiar repertoire of solutions. Consider its proposal to use political democracy to compensate for the inequalities inherent to the economic autocracy of capitalism, using the democratic process to harmonize capital and labour. To take just a recent example of this, consider French economist Thomas Piketty’s new, highly-praised book, Capital in the Twenty-First Century, lauded by leading economists like Krugman as “sweeping, magnificent … a truly superb book” that “will change both the way we think about society and the way we do economics.”110 But what is all the rave about? It was a “revelation,” Krugman says, “when Piketty and his colleagues showed that incomes of the now famous ‘one percent,’ and of even narrower groups, are actually the big story in rising inequality” — something any socialist, including Karl Marx, could have told you more than a century 107 Paul Krugman, “Why Aren’t We All Keynesians Yet?” Fortune, 17 August 1998, accessed 18 March 2014, http://money.cnn.com/magazines/fortune/fortune_archive/1998/08/17/247057/. 108 Unger, The Left Alternative, p.xiv. 109 Roberto Unger, Democracy Realized, London: Verso, 1999, p.129. 110 Paul Krugman, Review of Thomas Piketty, Capital in the 21st Century, Cambridge: Harvard University Press, 2014, in The New York Review of Books, 08 May 2014. ago. So when Krugman says this was a “revelation” that will change the way “we” think about society, one should be clear he means professional economists, that strange species of academics paid outrageously high salaries to laud themselves for discovering the stuff of centuries-old common sense. Nor are Piketty’s proposed solutions to his “revelation” novel either, and certainly not sufficient. Krugman, summarizing his predictable proposal, suggests that “public policy can make an enormous difference, that even if the underlying economic conditions point toward extreme inequality, what Piketty calls ‘a drift toward oligarchy’ can be halted and even reversed if the body politic so chooses,” and the particular form which this takes is the favorite of the liberal’s: “progressive taxation — in particular taxation of wealth and inheritance — can be a powerful force limiting inequality.” Thus, says Krugman, “Piketty ends Capital in the Twenty-First Century with a call to arms — a call, in particular, for wealth taxes, global if possible, to restrain the growing power of inherited wealth.”111 The inadequacy of this approach is, if not perceived, then at least tacitly conceded by liberal economists like Krugman, who recognize that the tax increases which accounted for the sharp decline of the wealthy in national income in the 1950s did not alter pretax income.112 Krugman recognizes, in other words, that the progressive taxes did not alter the cause of income maldistribution, but its symptoms. Thus he suggests that “one way to reduce inequality in America is to … expand and improve our aftermarket policies,” policies which, he explicitly concedes, “take the inequality of market income as given but act to reduce its impact” (my emphasis).113 That summarizes, by implication, the inadequacy of progressive taxation in a single line, written no less by an ardent proponent of it. There is another way in which progressive liberalism, quite without knowing it, implicitly concedes its own inadequacy, more generally. As Krugman writes, the kind of progressive agenda which he advocates “would require major changes in public policy, but it [the progressive agenda] would be anything but radical,” an interesting concession if we understand what the word “radical” means.114 As Marx understood, “to be radical is to grasp things by the root.”115 To not be radical, then, is not to grasp things by the root, perhaps instead to address topical symptoms — which indeed quite accurately describes progressive liberalism. But, even aside from ignoring the root of the problem, there is a minor problem with progressive taxation via democratic politics, namely that the use of political democracy to mitigate the inequalities of capitalism presupposes the existence of democracy, which is largely mythical in any really-existing capitalist “democracies.” Immediately after Piketty’s book was released in the United States for example, saying our one hope of diminishing inequality lies in our political democracy, a study by Martin Gilens and Benjamin Page concluded that “the United States isn’t a democracy any more” and “in fact, America is basically an oligarchy.”116 As Gilens and Page 111 Ibid. Krugman, The Conscience of a Liberal, p.47. 113 Ibid., p.253. 114 Ibid., p.271. 115 Karl Marx, Contribution to the Critique of Hegel’s Philosophy of Right: Introduction, in The MarxEngels Reader, p.61. 116 Tom McKay, summarizing their conclusions, “Princeton Concludes What Kind of Government America Really Has, And It’s Not a Democracy,” PolicyMic, 16 April 2014, accessed 29 April 2014, 112 suggest, “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy,” which means, as Tom McKay writes, “your opinion literally does not matter.”117 Aside from the non-existence of political democracy, the familiar solution which liberals like Piketty advocate again predictably fails to address its institutional causes, and such a solution — harmonizing the interests of capital and labour — is bound to be temporary, as the legacies of both the eviscerated American New Deal and deteriorating European social democracy so clearly demonstrate. The defectiveness of progressive liberalism on these counts owes in part to modern economics’ inadequate conception of the relation between economics and politics, which relation it sees only in an ad hoc and incidental manner. With its theoretical scalpel, modern economics slices political economy in two and treats economics and politics as two spheres independent of each other. This is especially apparent in program of liberalism. Consider this in the work of Robert Reich, for example, an American political economist and former Secretary of Labor in the Clinton administration. Addressing the widening wealth inequalities of the past few decades, Reich suggests that “[s]trictly speaking … these are not the failings of capitalism. Capitalism’s role is to enlarge the economic pie. How the slices are divided and whether they are applied to private goods like personal computers or public goods like clean air is up to society to decide. This is the role we assign to democracy … a system for accomplishing what can only be achieved by citizens joining together with other citizens” to determine the common good (my emphasis).118 For Reich, as for Krugman, there is nothing inherent to capitalism which causes inequality; inequality, for Reich, is created through politics, just as, for Krugman, the middle class is also a creation of politics. This theoretical misconception owes in large part to the lack of structural comprehension in modern economic quite generally, and a lack of structural comprehension as to the root causes of inequality in particular, which we have just described. But it is also worth recognizing how this conception is, as I have emphasized, predicated on the liberal conceit suggested earlier. The bifurcation of the individual into a private and communal being here reappears, almost entirely unaltered, as the private economic consumer on the one hand and the communal political citizen on the other. Reich writes, “Capitalism has become more responsive to what we want as individual purchasers of goods, but democracy has grown less responsive to what we want together as citizens … The last several decades have involved a shift of power away from us in our capacities as citizens and toward us as consumers and investors.”119 In The Jewish Question, Marx described how in the conception of his contemporaries, the individual was divided into a communal being on the one hand, a private egoistic individual on other; a free political citizen on the one hand, a subjugated economic consumer on the other. To reiterate: “man leads, not only in thought, in consciousness, but in reality, in life, a double existence — celestial and http://www.policymic.com/articles/87719/princeton-concludes-what-kind-of-government-america-reallyhas-and-it-s-not-a-democracy. 117 Ibid. 118 Robert Reich, Supercapitalism, New York: Knopf, 2007, p.4. 119 Ibid., p.5. terrestrial.”120 As Marx immediately adds, “He lives in the political community, where he regards himself as a communal being,” but in his economic existence, “he acts simply as a private individual, treats other men as means, degrades himself to the role of a mere means, and becomes the plaything of alien powers,” what he elsewhere refers to as “the division of man into the public person and the private person.”121 As stated somewhat earlier, Marx’s criticism highlights a central contradiction of capitalism between its economic system and the political system which it requires to function, between economic autocracy on the one hand and political democracy on the other. This fundamental contradiction was well understood by John Dewey for example, who suggested that without economic democracy for example,122 politics would be “the shadow cast on society by big business.”123 But this view is not shared by modern economists, who instead see none of the manifest contradiction between political democracy on the one hand and the economic autocracy of capitalism on the other, and are thus able to speak of “democratic capitalism” as if it were not a contradiction in terms. In fact, they often see one as the condition for the other. Reich, for example, writes, “Capitalism is almost certainly a precondition for democracy, as Milton Friedman argued,” which is perhaps why he is surprised to discover that “[f]ree market capitalism has triumphed” while “democracy has weakened.”124 Because they see no fundamental contradiction, they believe that political democracy can be integrated with economic autocracy, which forms the basis of their ad hoc and incidental conception of the relation of politics to economics. In fact, this contradiction is the basis of the bifurcation of the individual into a public citizen and a private consumer. If democracy and capitalism were commensurate, as liberalism maintains, there would be no division within the individual; for there would be no need to distinguish between his egoistic existence on the one hand and his communal existence on the other. This is all the more ironic because, while economists deny the existence of any fundamental contradiction, their own assumption regarding the dual existence of the individual is predicated on it. Economics thus stands in an ambivalent relation to the contradiction outlined above. We might observe the contradiction in its analysis. While it maintains that political democracy is commensurate with capitalism, or economic autocracy, the bifurcation of the individual which it accepts is predicated on the exact opposite assumption — their utter incompatibility. In its misunderstanding the relation of politics to economics, economics as a field severs from itself any conception of power, and with that, any connection to reality. As Arthur MacEwan, a former Harvard economist, wrote in a Harvard Crimson op-ed, “The narrowness of economics … has had some substantial implications … By and large, now as then, when economists do recognize our society’s economic problems, they see those problems as calling at most for some adjustments around the edges. Economic ills are dealt with as technical difficulties. Issues of power are pretty much absent from the discussion. We tried to bring issues of power to the forefront 40-some years 120 Karl Marx, “On the Jewish Question,” in The Marx-Engels Reader, ed. Robert C. Tucker, New York: Norton 1978, p.34. 121 Ibid. 122 Or what he called “industrial democracy.’ 123 John Dewey, qtd. in Chomsky, World Orders Old and New, p.87. 124 Reich, Supercapitalism, pp.3,9. ago, and we are still trying.”125 Surely the most obvious example of this is the lack of class analysis in modern economics. With its hypostatization of society either into one homogenous mass with respect to economic interests, preferences, roles, etc., or into atomized individuals, economics, in one of its gravest theoretical deficiencies, overlooks class. As Lange writes, “The institutional datum, which is the corner-stone of the Marxian analysis of capitalism, is the division of the population into two parts, one of which owns the means of production while the other own only labour power … the question arises whether this institutional datum which is the basis of the Marxian definition of capitalism has any bearing on economic theory. Most of modern economic theory is based on the tacit assumption or even flat denial that any such bearing exists.” THE ABSENT CONSIDERATIONS OF POWER IN MODERN ECONOMICS. The elision or miscomprehension of power relations, viz. the class struggle, in economics is perhaps most obvious in the mystified speculations on the relations of productivity and wages, which are a variation of classical political economy’s intellectual errors. According to the standard economic textbook by Mankiw, “theory and history both confirm the close connection between productivity and real wages.”126 Even Krugman writes, “One last assertion that may bother some readers is that wages automatically rise with productivity … Is this realistic? Yes.”127 And, in a qualified sense, it is correct to say that theory and history confirm the close connection between productivity and wages — standard economic theory and standard economic history. But serious economic theory and actual economic history are a different story. “Economic history,” Krugman wrote “offers no example of a country that experienced long-term productivity growth without a roughly equal rise in wages.” As he was writing this, actual economic history was offering an “example of a country that experienced long-term productivity growth without a roughly equal rise in wages,” Greider correctly points out. As one New York Times headline suggested, “Real Wages Fail to Match a Rise in Productivity.”128 Another article in the Times recently reported, “From 1973 to 2011, worker productivity grew 80 percent, while median hourly compensation, after inflation, grew by just one-eighth that amount, according to the Economic Policy Institute, a liberal research group. And since 2000, productivity has risen 23 percent while real hourly pay has essentially stagnated.”129 “For millions of workers, wages have flatlined … Wages have fallen to a record low as a share of America’s gross domestic product,” while “a sizable — and growing — chunk of overall wages goes to the top 1 percent: senior corporate executives, Wall Street professionals,” etc. — a strikingly clear example of how, in the eyes of standard economics, “theory and history both confirm the close connection between productivity and real wages” and how, in the eyes of standard 125 Arthur MacEwan, “‘What We Do’ in Economics,” The Harvard Crimson, 03 December 2012, http://www.thecrimson.com/article/2012/12/3/Harvard-MacEwan-Economists/. 126 Mankiw, Principles of Economics, p.405. 127 Krugman, qtd. in William Greider, “Why Was Paul Krugman So Wrong?” The Nation, 01 April 2013. 128 Steven Greenhouse and David Leonhardt, New York Times, 28 August 2006. 129 Steven Greenhouse, “Our Economic Pickle,” New York Times, 12 January 2013. economics, “history offers no example of a country that experienced long-term productivity growth without a roughly equal rise in wages,” which in turn gives one good reason to follow Krugman’s advice, that “you should always be skeptical and … should never rely on supposed authority,” not least because “workers on the factory floor recognized this … long before conventional economists figured it out.”130 The same is true of the amount of work. Because the productivity dividend resolves itself, on the side of labour, not only into increased wages, but also into decreased hours, economists have also believed that increased productivity would decrease the amount of work we do. Keynes, for instance, predicted that by virtue of increases in economic productivity, his grandchildren “would only work 15 hours a week, exploiting their greater productivity not to make more money but to have more leisure time.” Keynes believed that by utilizing the economic productivity of society, human beings, having significantly freed themselves from the drudgery of labor, would be able to “cultivate into a fuller perfection the art of life itself.”131 As Dylan Matthews of The Washington Post rightly pointed out, Americans today are “more than twice as productive as we were in 1964. That means that we could work less than half as much as we did then and still have 1964-style living standards.” But, Matthews goes on, we in fact do not work “half as much,” despite “growth actually exceeding Keynes’ forecast.” We now in fact work more, and with no appreciable gain in living standards, namely because “all the growth in recent decades — and more — has gone to those at the top” (Joseph Stiglitz).132 How do we account for the inability of economics to account for these major and very obvious economic realities? The economists, like Krugman, Keynes, and Mankiw all assume, incorrectly, that increased productivity will benefit everyone, that along with capital, labour will benefit from productivity either in the form of increased wages or decreased work. This is, as we have seen, not true. As Erik Brynjolfsson of the Massachusetts Institute of Technology suggests, correctly, “There is no economic law that says technological progress has to benefit everybody or even most people. It’s possible that productivity can go up and the economic pie gets bigger, but the majority of people don’t share in that gain.”133 It is owing to its lack of an adequate conception of power relations, viz., class struggle, that standard economic theory confounded a historical correlation (between productivity and wages) with a causal relationship. For various historical reasons, because of specific circumstances, including, importantly, the relation of capital to labour, wages did for decades increase with productivity, but once these circumstances altered, so did this relation. But in typical fashion, standard economics hypostatized this relation from its historical circumstances. The intellectual deficiency here would be more understandable if thinkers like Marx did not address it more than 150 years ago, when the classical political economists were making the same, incorrect claims on the basis of the same inadequate theories. “Are growth of productive 130 Paul Krugman, “Marches of Folly,” Op-ed, New York Times, 17 March 2013, qtd. in Greider, “Why Was Paul Krugman So Wrong?” 131 John Maynard Keynes, qtd. in Dylan Matthews, ‘Why are we all working so much?’ The Washington Post, 23 August 2012. 132 Joseph Stiglitz, ‘Of the 1%, by the 1%, for the 1%,’ Vanity Fair, May 2011. The preceding paragraph is adapted from my “Socialism is the Plain Meaning of the Text,” Harvard Ichthus, 05 December 2013 133 Erik Brynjolfsson, qtd. in Greenhouse, “Our Economic Pickle.” capital and rise of wages really so inseparably connected as the bourgeois economists maintain?” Marx asks. “We must not take their word for it.”134 As Marx understood, wages are the result of class struggle. “Wages will rise and fall according to the relation of supply and demand, according to the turn taken by the competition between the buyers of labour power, the capitalists, and the sellers of labour power, the workers.”135 And so also with the length of the working day. “The establishment of a normal working day is the result of centuries of struggle,” “the product of a protracted civil war, more or less dissembled, between the capitalist class and the working class.” 136 But economics, in its considerations of such matters, almost entirely elides the element of class struggle. Instead of class struggle, economics offers different explanations for things like wages and the working day. In some versions of their theories, wages increase thanks to the benevolence of capitalists, which is “rather like arguing that any advances made by feminists are due entirely to the benign influence of their fathers.”137 Words like “class struggle,” “proletariat,” “Karl Marx,” and “capital” are taboo in economics. Krugman, reviewing Piketty’s Capital in the 21st Century, is surprised by his choice of title. “Piketty throws down the intellectual gauntlet right away,” Krugman writes, “with his book’s very title: Capital in the Twenty-First Century. Are economists still allowed to talk like that? It’s not just the obvious allusion to Marx that makes this title so startling. By invoking capital right from the beginning, Piketty breaks ranks with most modern discussions of inequality.”138 Economics’ inability to pronounce the word “capital,” let alone comprehend the relation of capital and labour, further explains its theoretical misconceptions. Consider the progressive liberal economist’s predictable solution to economic problems: through taxes or spending or regulations, always an attempt to achieve some harmonious balance between the interests of capital and labour. Piketty’s was a perfect example of this. The obvious problem of this approach, as with the economist’s general mode of thinking, is that it ignores the principal cause of so many economic problems, namely the inherent antagonism between capital and labour, well understood by Adam Smith, who suggests that the interests of the workers and the interests of the “masters” as he candidly called them “are by no means the same. The workmen desire to get as much, the masters to give as little as possible. The former are disposed to combine in order to raise, the latter in order to lower the wages of labour,” although, he goes on, “It is not, however, difficult to foresee which of the parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into compliance with their terms. The masters, being fewer in number, can combine much more easily … ”139 Because of this, “High wages of labour and high profits of stock … are things, perhaps, which scarce ever go together …”140 Walter Rauschenbusch rightly recognized that this creates an inherently precarious social equilibrium: “The labor movement seeks to win better terms for the working class in striking its bargains. Yet whatever terms organized labor succeeds in 134 Karl Marx, Wage, Labour and Capital, in The Marx-Engels Reader, p.211. Ibid., p.206. 136 Marx, Capital: Vol.I, pp.297, 327. 137 Terry Eagleton, Reason, Faith and Revolution, New Haven: Yale University Press, p.97. 138 Krugman, Review of Piketty, Capital in the 21st Century, in The New York Review of Books. 139 Smith, The Wealth of Nations, p.70. 140 Ibid., Book I, Ch. IX, p.97. 135 winning are always temporary and insecure, like the hold which a wrestler gets on the body of his antagonist,” namely because “labour is always in an inferior position in this struggle. It is handicapped by its own hunger and lack of resources.”141 Hence the insufficiency of the proposals of progressive liberalism which in no way alter the root of the problem, the artificial division of capital and labour, leaving the fundamentally opposed interests of capital and labour in a superficial harmony, a precarious, thereby temporary, equilibrium, as Marx recognized 150 years ago. “Even the most favorable situation for the working class … however much it may improve the material existence of the worker, does not remove the antagonism between his interests and the interests of the bourgeoisie, the interests of the capitalists. Profit and wages remain as before in inverse proportion.”142 As a result, such solutions are at best temporary. In response to the systemic crisis of capitalism in 2008 Larry Summers, a prominent Harvard economist, writes, “I believe the evidence overwhelmingly supports” the view that the problems of capitalism (namely employment and living standards) “can be addressed with proper fiscal and monetary policies … I suspect that if and when macroeconomic policies are appropriately adjusted, much of the contemporary concern will fade away,” though by what necromancy this is supposed to happen Summers does not care to explain.143 Because such an approach, leaving the relation of capital to labour unchanged, achieves such a precarious equilibrium, we can only put the Keynesian bandaid on the capitalist cancer for so long, and the very decision to do so only begs the question: why are compensatory Keynesian fiscal policies necessary in the first place? Supposing Summers is right that these compensatory measure are enough to humanize capitalism, this only implies that capitalism has to be humanized in the first place, that it naturally generates poverty and inequality, which, as we have seen, economics does not comprehend. Politics and economics were not always artificially divided. One need only think of the classical political philosophers, who studied economics and politics as inseparable. Modern economics’ inadequate conception of the relation of economics to politics is the result perhaps of another flaw, the parochial hyper-specialization of the discipline, which, to be fair, is by no means unique to economics, but characterizes the whole contemporary academy. When Adam Smith wrote about the division of labour in society, he did not restrict it to material labour, but understood that even the academic professions, like philosophy, would subdivide into more and more specialized units: “In the progress of society, philosophy of speculation becomes, like every other employment, the principal or sole trade and occupation of a particular class of citizens. Like every other employment too, it is subdivided into a great number of different branches …” 144 The great irony of this is that while Smith paises the division of labour for saving time and energy, he himself is one of the most comprehensive thinkers in all of economics, not trying to understand isolated elements of an economy, but the economy as a whole. Economics is, with regard to this mental division of labour, no different from all the other disciplines, which suffer from a universal drive toward hyper-specialization. 141 Walter Rauschenbusch, Christianity and the Social Crisis, New York: Harper Collins, 2007, p.327. Marx, Wage, Labour and Capital, in The Marx-Engels Reader, p.211. 143 Lawrence Summers, “Why Isn’t Capitalism Working,” Reuters, 09 January 2012. 144 Smith, The Wealth of Nations, pp.15-16. 142 INSTITUTIONAL CAUSES OF DISCURSIVE DISTORTION. HYPOSTATIZATION. REIFICATION. AHISTORICISM. We have only very briefly considered some of the theoretical misconceptions of economics, errors, mystifications, obfuscations, and distortions woven into the very fabric of contemporary economic discourse. These manifold flaws are not occasional but systematic, and have less to do with errors on the part of individual economists than with the conceptual apparatus by which he thinks, the structure of economic discourse itself, a conceptual apparatus the individual economist inherits and adopts from the discipline of economics which perpetuates this particular mode of discursivity, this particular conceptual apparatus. What remains to be explained is how the discipline of economics perpetuates this mode of discursivity which embeds conceptual distortions and leads economists into intellectual errors, how the practices, mental as well as material, of academic institutions reinforce this mode of discursivity. One of the ways in which it does this is by reifying and hypostatizing from its historical and contingent social relations economic patterns which only arise therefrom and which then falsely assume the character of a natural law — falsely because these social relations can be changed, as Albert Einstein, for example, so well understood. Explaining why he was qualified to write about economic matters, Einstein argued in an essay entitled “Why Socialism?” that the “discovery of general laws in the field of economics is made difficult by the circumstance that observed economic phenomena are often affected by many factors which are very hard to evaluate separately,” namely historical factors like malleable social relations. The “observable economic facts,” Einstein suggests, belong to a particular historical phase, and “such laws as we can derive from them are not applicable to other phases,” which insight economics fails so comprehensively to grasp.145 The historical nature of knowledge was also well understood by Marx, who suggested that “economical categories” and laws “bear the stamp of history.”146 “The categories of bourgeois economy,” he says, “are forms of thought expressing with social validity the conditions and relations of a definite, historically determined mode of production, viz., the production of commodities.”147 These laws are themselves “a product of historic relations, and possess their full validity only for and within these relations.” 148 But economics treats economic patterns as universally valid abstractions. “The simplest abstraction, then, which modern economics places at the head of its discussions, and which [supposedly] express an immeasurably ancient relation valid in all forms of society, nevertheless achieves practical truth as an abstractions only as a category of the most modern society.”149 To give just one example, consider, in this connection, the supposed trade-off between equity and efficiency, treated by economists as a universally valid law of economics though it is demonstrably untrue in other forms of society than the capitalist. As the Harvard economist Gregory Mankiw writes in the standard introductory economics textbook, one of the main 145 Albert Einstein, “Why Socialism?” Monthly Review 1 (1949). Marx, Capital: Vol.I, p.188. 147 Ibid, p.87. 148 Karl Marx, The Grundrisse, in The Marx Engels Reader, p.241. 149 Ibid. 146 “principles of economics” is the trade-off between efficiency and equality.150 Even under present circumstances, in capitalist society, such a principle is at best questionable,151 but we will set this concern aside and take the modern economist at his word, consider it, as he does, in theory, abstracted from real conditions. If, in a typical firm, workers were paid higher wages, for example, the wages would cut into a greater part of the profits of the owners, and from their point of view, such an increase would be inefficient. Greater equality here means less efficiency. Though it is treated as a natural antagonism in standard neoclassical economics, there is no good reason to suppose it would exist at all, or if it does, then to the same extent, in an economy in which the division of capital and labour were overcome and workers were their own owners. The practical basis of this was expressed by Adam Smith, who suggested that “Nothing can be more absurd … than to imagine that men in general should work less when they work for themselves, than when they work for other people. A poor independent journeyman will generally be more industrious than even a journeyman who works by the piece. The one enjoys the whole produce of his own industry; the other shares it with his master.”152 But one need hardly be so hypothetical about this. The trade-off between equity and efficiency, universally valid, is demonstrably untrue in different configurations of social relations. As Chomsky writes, if the “doctrine that moves toward equality of condition entail costs in efficiency and restrictions of freedom” is true, “one would expect to find that worker-owned and -managed industry in egalitarian communities is less efficient than matched counterparts that are privately owned and managed,” but research on the matter, while not extensive, “tends to show that the opposite is true.”153 In fact, “there is a body of empirical evidence” which supports the conclusion that “when workers are given control over decisions and goal setting, productivity rises dramatically.”154 The “gains in productivity made possible” by economic democracy, Gary Dorrien writes, make sense given that people “often work harder and more efficiently when they have a stake in the company,”155 and the very fact that upwards of 12,000 worker-owned cooperatives exist in the United States and can compete with standard capitalist firms suggests that they are at least as productive as their traditional counterparts.156 The trade-off between efficiency and equality, to the extent that it is a real tradeoff at all, is principally the result of a particular configuration of social relations, namely the division between capital and labour inherent to private property, but there is nothing natural or necessary about it. As Marx writes in his Economic and Philosophic Manuscripts of 1844, “Political economy 150 N. Gregory Mankiw, Principles of Economics, 6th ed., Cengage Learning, 2012, p.5. Consider, for example, the instances, even under present circumstances, where equity and efficiency coincide. Some countries are, ceteris paribus, more equitable and more efficient than others. Just as are some historical periods for a given country. In its golden years of embedded liberal capitalism (1950s70s), the US achieved growth that was faster and more equitable than in recent decades. 152 Adam Smith, The Wealth of Nations (Book I, Ch.8), New York: Prometheus Books, 1991, p.88. 153 Noam Chomsky, “Language Development, Human Intelligence, and Social Organization,” in The Chomsky Reader, ed. James Peck, New York: Pantheon, 1987, p.185. 154 Herbert Gintis, "Alienation in Capitalist Society," in R.C. Edwards, M. Reich, and T.E. Weisskopf, eds., The Capitalist System, Englewood Cliffs, N.J.: Prentice-Hall, 1972, qtd. in Noam Chomsky, “Language Development, Human Intelligence, and Social Organization,” in The Chomsky Reader, ed. James Peck, New York: Pantheon, 1987, p.185. 155 Gary Dorrien, Economy, Difference, and Empire, New York: Columbia University Press, 2010, p.170. 156 Gar Alperovitz, ‘Everyday Socialism, American-Style, Is Happening Now,’ Truthout, 14 May 2013. 151 proceeds from the fact of private property, but it does not explain it to us.” 157 In fact, it still hasn’t. Marx goes on: political economy “expresses in general, abstract formulae the material process through which private property actually passes, and these formulae it then takes for laws. It does not comprehend these laws — i.e., it does not demonstrate how they arise from the very nature of private property. Political economy does not disclose the source of the division between labour and capital …”158 All of these criticisms, without exception, still apply to modern economics. Economics, in ahistorically hypostatizing economic laws from their particular historical conditions, fails to explain how these laws themselves come into existence only under definite historical circumstances. Earlier we cited Lange’s observation of the fact that modern economics flatly denies the relevance of the institutional datum of class for economic analysis. As he goes on to explain, the basis for this rejection lay in precisely the ahistorical hypostatization we are describing here: “It is generally assumed that, however important the concept of capitalism (as distinct from a mere exchange economy), may be for sociology and economic history, it is unnecessary for economic theory, because the nature of the economic process in the capitalist system is not substantially different from the nature of the economic process in any type of exchange economy.”159 Marx strongly disagreed with this view, and for him the reason it was so important to comprehend and to explain economic laws themselves was that only such an examination would reveal their source, the inner nature of capitalist production, which Marx believed to be the extraction of surplus value, a process which can only occur under definite historical circumstances, i.e., bourgeois relations of production; private property; wage-labour. The observable laws of economics arise out and correspond to these definite historical conditions, and are only valid inasmuch as these conditions obtain. THE DEUS EX MACHINA OF CAPITALIST THEOLOGY: FREE CHOICE, CULTURE, SOCIOLOGY, POLITICS, THE INDIVIDUAL. Comprehending this structural and historical relationship, moreover, allows one to see the relations which obtain between the various observable laws, allows these to be seen in their inner connection, i.e., as arising out of the same definite source, out of the same definite social relations. Not to grasp this inner connection is to see only the surface appearance of things, the observable economic laws, laws which, because their inner connection is not grasped, appear to stand in only ad hoc, or arbitrary, incidental, and superficial relations to each other, awkwardly pasted together in a kind of strained, collage version of economic theory. The “economists’ real concern,” writes Marx, is to present economics “as encased in eternal natural laws independent of history, at which opportunity bourgeois relations are then quietly smuggled in as the inviolable natural laws on which society in the abstract is founded.”160 It was this theoretical inadequacy which Marx felt led to a 157 Karl Marx, Economic and Philosophic Manuscripts of 1844, in The Marx-Engels Reader, ed. Robert C. Tucker, New York: Norton, 1978, p.70. 158 Ibid. 159 Oskar Lange, “Marxian Economics and Modern Economic Theory,” in The Essential Writings of Socialism, p.729. 160 Ibid., p.225. “series of interconnected theoretical misconceptions.”161 Lacking an adequate conception of the organic relation of observable economic laws and the structures, institutional configurations, and historical social relations out of which they arise and within which they have their validity, economics must, like historical theology, smuggle in ad hoc explanations for those phenomena which remain unaccounted for in the general theory, for those aporias in the theoretical account. If what I’m describing sounds excessively abstract, one might, to give an illuminating analogy, say that this smuggling of ad hoc explanations into economic theory is rather like what the Ptolemaics did to justify irregularities their conception of the circular motion of the planets. The intellectual historian Richard Tarnas writes: “the solutions proposed by Ptolemy and all his successors [to describe erratic planetary movements], solutions based on the deocentric Aristotelian cosmos, had required the employment of increasingly numerous mathematical devices — deferents, major and minor epicycles, equants, eccentrics — in the attempt to make sense of the observed positions while maintaining the ancient rule of uniform circular motion. When a planet’s movement did not appear to move in a perfect circle, another, smaller circle was added, around which the planet hypothetically moved while it continued moving around the larger circle. Further discrepancies were solved by compounding the circles, displacing their centers, positing yet another center from which motion remained uniform, and so on.”162 To account for the irregularities in their theory, the Ptolemaics had to conjure up ad hoc explanations. These were the deferents, major and minor epicycles, equants, eccentrics, etc. For similar reasons, economics has its own equivalents of these. Let us consider a few of them. In Christian theology, very often that which is not understood is ascribed to God. As Bonhoeffer recognized, the word “God” so often simply becomes a substitute for what we do not understand, a deus ex machina he called it. In Capitalist theology, this function is preserved, though it is expressed in different forms. The function which “God” often serves in Christian theology is served in a similar way by terms like “individual choice” or “culture” in economics. We have seen how modern economics lacks an adequate conception of the organic relation of observable economic laws with the social relations, couched in institutions, out of which they arise. Therefore, what our economists cannot explain in terms of economical laws or the economic structures to which they correspond, they ascribe and attribute to the individual and to his free choice. That is why, in the domain of economics, there is so much talk of an abstract individual choice which, we have already observed, does not in any substantive way exist in reality. “Individual choice” is the economical theologian’s term for mysterium tremendum in his own apophatic theology, a discursive function in every way the same as the theologian’s. Like the terms “God” or “mystery” are often used in apologetics, the term “individual choice” is invoked every time economics fails to understand something. That these terms serve the exact same function within their respective discourses is palpable by the fact that the terms the religious apologist uses, terms like “God” or “mystery,” are, at the level of the sentence, directly replaceable with those of the economist, “individual choice” or, in its collective variation, “culture.” With the appropriate modifications, 161 Geoff Pilling, Marx’s Capital: Philosophy and Political Economy, 1980, Ch.2, Marxists Internet Archive, accessed 23 June 2014, www.marxists.org. 162 Richard Tarnas, The Passion of the Western Mind, New York: Harmony Books, 1991, p.248. substituting the word “mystery” for “individual choice” for example, the criticism of this apologetic function in religion in every way applies to it in economics: “Why is [individual choice] considered an explanation for anything? It’s not — it’s a failure to explain, a shrug of the shoulders, an ‘I dunno’ dressed up in spirituality and ritual. If someone credits something to [individual choice or culture], generally what it means is that they haven’t a clue, so they’re attributing it to an unreachable, unknowable sky-fairy.”163 We have already seen one particularly extreme example of this, in the claim of some economists that unemployment is voluntary, made on the by individual choice on the basis of a cost-benefit analysis. Or consider the familiar claim that Americans work so much more because they are “workaholics,” because, i.e., a peculiarity of their culture. If it were really individual choice and culture rather than economic laws arising out of given social relations which accounts for why Americans, for example, work so much, then it is rather a curiosity that they complain so much about it. After all, it is their own choice. Individual choice cannot account for the fact, unless one is take all Americans for fools, that Americans themselves feel they work too much. As Schor suggests, “Americans are literally working themselves to death — as jobs contributes to heart disease, hypertension, gastric problems, depression, exhaustion, and a variety of other ailments.”164 Thirty percent of adults report experiencing high levels of stress daily. A majority of Americans are sleep deprived. Half the population reports not having enough time for their families. Working couples have less time for each other, corroding marriages. Children too are left alone, and get less attention from their parents.165 An op-ed in the Times suggests the culture of busy-ness, the “world’s endless frenetic hustle” which is generated in this nauseating rat-race of ever-increasing work: “Almost everyone I know is busy. They feel anxious and guilty when they aren’t either working or doing something to promote their work. They schedule in time with friends the way students with 4.0 G.P.A.’s make sure to sign up for community service because it looks good on their college applications.”166 Naturally, people wish to have more leisure, to have some space in their lives to breathe. As 1989 poll found that more than two-thirds of people were even willing to forfeit some portion of their salaries, by an average of 13 percent, to work less. 167 Why would one complain of being so overworked if they have freely elected it? That would be rather like preferring ketchup to mustard and then complaining when you get ketchup. The obvious answer is that people do not prefer to work more, nor do they freely choose to. Their freedom is a substitute explanation, and a bad one, for the laws of structure which economics is largely unable to comprehend. The pseudo-explanation of “culture” and “individual choice” finds its most influential expression in the sociologist Max Weber’s The Protestant Ethic and the Spirit of Capitalism, where, again, culture particularity compensates for a lack of the innate dynamic of the laws which arise out of particular configurations of social relations. What economics cannot explain in terms of structure, it attributes to the individual, which is not its job to study, but that of “sociology,” its code-word, 163 J. Coyne and R. Dawkins, “One side can be wrong,” The Guardian, 1 September 2005, qtd. in Richard Dawkins, The God Delusion, Boston: Mariner Books, 2008, p.161. 164 Ibid., p.11 165 Ibid., pp.11-12 166 Tim Kreider, “The ‘Busy’ Trap,” New York Times, 30 June 2012. 167 Juliet Schor, The Overworked American, New York: Basic Books, 1992, p.10. Robert Kuttner writes, for anything which is in its view unscientific. Krugman for instance writes, “The most important causes of the growth in the underclass … like the sources of the productivity slowdown, lie more in the domain of sociology than of economics.”168 By this he means that the explanation lies in the domain of individual choice and of culture, and therefore, within the domain of sociology. We may observe very clearly here how individual choice, culture, and sociology all become convenient substitutes for the inability of economics to explain a given phenomenon. The individualistic conceit in economics is observable in its conception of education. 169 Because economics lacks any adequate comprehension of structure, of the organic laws which are inherent to it, it assumes these are inherent, eternal qualities of the social mechanism and cannot, therefore, be changed. Now, because it is assumed, explicitly or implicitly, that the social structure cannot be changed, what must change is the individual. Hence the almost singularly important role of education in the political program of liberalism. Yes, they seem to say, it is unfortunate that capitalism produces poverty, but that cannot be helped, that is part of the nature of things. But we can combat poverty by educating fine young minds! In 2005, for example, the Federal Reserve Chairman at the time, Alan Greenspan, commenting on how the obscenely wide income gap in the United States threatened the dissolution of democratic capitalism, suggested that the lack of income growth for U.S. workers is due to a lack of education.170 Conservative economists like Greenspan, however, are not to be taken for exceptions. Even liberal economists like Piketty, for instance, have suggested that the best possible solution to inequality is education. The poor, he suggests, “catch up with the rich to the extent that they achieve the same level of technological know-how, skill and education … Above all, this knowledge diffusion depends on a country’s ability … to encourage large-scale investment in education and training.”171 The compensatory conception of education, as we might call it, can be traced as far back as Adam Smith, whose conception of education was shaped largely by his conception of the division of labour. Like Marx, Smith both praised and criticized the division of labour. He praised the division of labour for increasing the productivity of human labour but criticized it on the grounds that it would make a human being “as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life.”172 Marx agreed with this, suggesting the division of labour “converts the labourer into a crippled monstrosity, by forcing his detail dexterity at the expense of a world of productive capabilities and instincts.”173 But unlike Marx, Smith assumes that this cannot be changed, that, far from being a 168 Paul Krugman, qtd. in Robert Kuttner, “Peddling Krugman,” American Prospect, September 1996. Parts of this paragraph are adapted from Kelly Maeshiro, “Poverty and Underfunding in Hawaii’s Schools,” Essays, 01 December 2013, accessed 18 September 2014, www.wordpress.com. 170 Theresa Capra, ‘Poverty and its Impact on Education: Today and Tomorrow,’ Thought & Action, Fall 2009, p.76-77. 171 Thomas Piketty, Capital in the 21st Century, qtd. in John McDermott, “Piketty is no Piketty,” Counterpunch, 20 June 2012. 172 Smith, Wealth of Nations, Book V, Ch.1. 173 Marx, Capital, vol.I, p.396. 169 contingent characteristic which changes according to social relations and to historical circumstances, it is an inalterable fact of the division of labour. Therefore, because this is a necessary and inalterable evil of capitalist production, it is the responsibility of society, through the state, to provide for the education of the young, its expenses being defrayed by taxes, primarily on the rich. “For preventing the complete deteriorisation of the great mass of people by division of labour,” Marx writes, “Smith commends education of the people by the State, but prudently, and in homeopathic doses.”174 Within the theoretical imagination of the economist, education becomes a compensation for the necessary ills of capitalist civilization, for its reduction of human beings into crippled monstrosities. It its more modern iterations, education is the cure for the expression of these necessary evils in the forms of inequality and poverty. The problem in this conception is that it, like so much else in the discourses of liberalism and of economics, inverts the true relationship.175 In the relation between education and poverty, poverty is the independent, not the dependent variable. Diane Ravitch, a champion turned critic of the present education reforms, writes: “Wendy Kopp, Bill Gates, and Arne Duncan have all said on many occasions that if there is a ‘great’ teacher in every classroom, that will take care of poverty. Or, in a variation, fix the schools first, then fix poverty. They never explain how a great teacher overcomes homelessness, hunger, poor health, and other conditions associated with poverty.”176 It has been known since at least the 1960s that economic status has a huge impact on student achievement, demonstrably and measurably greater than any in-school variable, including teachers, the organizational structure of the educational system, principals, salaries, etc. In the groundbreaking ‘Coleman Report’ (1966), research found that as far as student achievement is concerned, more than one-third of it is attributable to school factors, while no less than two-thirds is attributable to family characteristics like socioeconomic status.177 It is no secret that socioeconomic status remains among the strongest predictors of SAT scores. Recent research by Stanford scholar Sean Reardon has concluded that what he calls the ‘income achievement gap’ is now nearly twice as large as the achievement black between black and white students. 178 That is to say, family income is now a stronger predictor of educational outcome than race, even in a society like ours, which remains strongly discriminatory when it comes to race. From these data, and a great deal more like them, it should be clear to us that economics reverses the causal relationship of poverty and education and that this reversal is predicated on their individualist conceit, informed by their lack of any adequate comprehension of social structure.179 174 Ibid., p.398. This paragraph is adapted from Maeshiro, op. cit. 176 Diane Ravitch, ‘Can Great Teaching Overcome Poverty?’, Online: <http://dianeravitch.net/2012/09/16/can-great-teaching-overcome-poverty/> 177 Joanne Barkan, cited in David Sirota, ‘New Data Shows School Reformers are Full of It,’ Salon, 03 June 2013. 178 Sean Reardon, ‘The Widening Academic Achievement Gap Between the Rich and the Poor,’ Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances, July 2011. 179 Of course, there is some reciprocality, but it is clear which of these causal relations is the more dominant. I.e., while it is true that a better education can, as Piketty suggests, attenuate the level of inequality, i.e., that the quality of education largely determines economic conditions, it is even more true that the inequality exacerbates the educational gap, i.e., that economic conditions, viz. socioeconomic 175 The inadequate structural comprehension and the resulting individualist conceit also, I think, account for the renewed interest in behavioral economics taken up by the field, and by extension, the recent preoccupation within the field with questions of individual rationality and the like. As Craig Lamberth reports in Harvard Magazine, where as recently as 15 years ago, behavioral economics was a “marginal, exotic endeavor,” today the field “is a young, robust, burgeoning sector in mainstream economics, and can claim a Nobel Prize, a critical mass of empirical research, and a history of upending the neoclassical theories that dominated the discipline for so long.”180 To be quite sure, behavioral economics is an improvement on the fiction of rationality in markets and in economic actors form which the field typically assumes, but it is a superficial one, for just about anything would be an improvement on these grounds. Only in a field as backwards, as divorced from reality as economics can an insight which is obvious to any fifteen year old constitute a “revolution.” I say it is a superficial improvement because it is easily becomes an excuse for economists to continue ignoring the the deeper theoretical problems, a kind of theoretical quick fix. Consider the convenience of this improvement. If only we fix this isolated theoretical problem in the otherwise quite coherent field of economics, then we will be well off and we can proceed as normal. But no, we must respond, the theoretical problem is not that particular elements of its theoretical apparatus are wrong; it is that the entire theoretical apparatus is deeply problematic. Economics does not need tweaking; it needs fundamental rethinking, a reorientation of its theoretical foundations. Benjamin Kunkel’s criticism is, I think, quite accurate: “behavioral economics has generated much of the excitement in the field, but it too is better equipped to make sense of individual economic actors than of the mutually determining trajectories of social classes and national economics.”181 It may be worth adding that, in a more general sense, the superficiality of this criticism is also what makes standard liberal or classical, or even some heterodox, critiques of classical and neoclassical economics fundamentally inadequate, and in the final analysis, toothless. It is not radical enough, does not go to the roots of the problem. This superficial version of criticism lets neoclassical economics off the hook, as it were, too easily. As with education, or the pre-occupation with individual behavior more generally, behavioral economics becomes a kind of paltry compensation for inadequacy of economic theory to comprehend structure, another theoretical deus ex machina. The compensatory logic is implicit in some of the arguments put forth. In the latest edition of the Harvard Economics Review, for example, Sara Lowes writes, “How do we reconcile models that predict the convergence of growth rates across countries with what we observe in the world — large variations in growth rates and high levels of inequality?”, implicitly acknowledging, in a rare moment of candor, the divorce of these models from reality.182 After acknowledging that these models diverge from reality and the need to “reconcile” them, Lowes suggests that economics can apply insights from other fields, as it has status, determines the quality of education. The individual becomes a functional explanation for what the economist cannot comprehend. 180 Lambert, op. cit. 181 Benjamin Kunkel, “Paupers and Richlings,” Review of Thomas Piketty, Capital in the 21st Century, in The London Review of Books (36), no.13, 03 July 2014. 182 Sara Lowes, “Possibilities in Development Economics,” Harvard Economics Review, Spring 2014, p.24. recently begun to do. Over the past few decades, Lowes says, there has been “an exciting expansion” in the methods used by economists to meet these deficiencies, methods that “emphasize incorporating insights from other disciplines” and “offer a promising path forward.” Lowes opines, “I think economics … should care about the perspectives of other disciplines, such as anthropology, psychology, history, political science and even evolutionary biology and genetics.” This commentary, in a few phrases, betrays the inherent inadequacy of the approach. Aside from implying, once again in a rare moment of candor, that economics normally does not care about perspective from other fields, it implies the application of insights from other fields as a compensation for the deficiencies of economics. Instead of “God” or “nature,” anthropology, psychology, history, political science, and biology become the filler for the aporias in economic theory, the equivalent of deferents, major and minor epicycles, equants, eccentrics in the Ptolemaic system of astronomy. Lowes’ article is, at least for this reason, quite instructive. By its own, perhaps unintended candor, it discloses the definite link between, on the one hand, the psychology which behavioral economics makes use of, and on the other, the deficiencies of normal economics theory, without reference to which it is not possible to fully appreciate the role which psychology and behavioral economics plays in modern economic theory, or by extension, to appreciate the degree of inherent inadequacy in this approach. For all the criticism we have made of neoclassical economic theory on these grounds, we must not excuse others who, in making the same mistakes, share a good deal more in common with neoclassical theory than would perhaps like to. Even progressives and leftists implicitly assume much of the behaviorist assumptions of economics, most apparent in the discourse on “corporate greed,” which was especially prevalent after the big bank bailouts in 2008 and the Occupy protests. We must stop corporate greed, they would say, corporate greed is corroding our social life, and we must bring those greedy bankers to justice. While of course this is all undeniably true, it misses the important point, viz., that the problems of capitalist society are problems of institutions, of social structures, and not (primarily) of individuals. Marx, for instance, harbored a good deal of animus toward capitalist and surely cannot be accused of any surfeit of magnanimity towards them, but even he recognized that, due to the inherent dynamics of the capitalism, the capitalists cannot bear the burden of the blame for the problems of capitalist society, for even the worst, most execrable and venal creatures, those ethical monstrosities known as capitalists, have little agency in such a system. In one of his prefaces, Marx suggests that in Capital, “I paint the capitalist … in no sense coloeur de rose. But here individuals are dealt with only in so far as they are the personifications of economic categories, embodiments of particular class-relations and class-interests.”183 This is because, for Marx, the dynamics of capitalism express themselves as external coercive laws independent of the aims of the individual capitalist. Competition, he writes, “makes the immanent laws of capitalist production to be felt by each individual capitalist, as external coercive laws.” 184 Marx does not concern himself with questions of individual agency because, unlike economics even in its explicitly behaviorist form, he has some conception of the organic laws which are inherent to capitalist production and assert themselves independently of the will of any individual. 183 184 Marx, Capital, p.15. Ibid., p.649. Like sociology, politics is another domain into which the explanation that economics is unable to provide is siphoned off. We have already seen this in connection to economics’s inadequate conception of its relation to politics. The example was given that for liberal economists like Krugman, Reich, and Piketty, inequality is not caused by anything inherent to capitalism, is not the result of any of its inner dynamics, but is instead caused by “politics.” Here again, what economics is, owing to its lack of structural comprehension, unable to provide adequate explanation for, it avoids, shifting the responsibility for explanation onto one or another deus ex machina. For Marx, this collage version of economic theory, rooted in an ahistorical and hypostatized conception of economic laws without regard to their organic connection with historical institutions and malleable social relations, was the point of departure of many of classical political economy’s serious errors. For modern economics, this is the point of departure of its “science.” They are not separate things, which is why it is not incorrect to say that modern economics has made a science out of the errors of classical political economy, and not in the sense that it has revised these errors, but in the sense that it has proceeded from them. THE FLAWED ASSUMPTIONS OF ECONOMICS. MARGINALIST ECONOMICS AS A KIND OF METAPHYSICS. MATHEMATICS AS ITS FORM. JEVONS AS A METAPHYSICAL THEOLOGIAN. We have seen, then, that modern economics assumes the contingent social configurations of a particular society and proceeds from these facts; it never examines them. It then places a legitimizing gloss over this by allowing debate only within the range of these assumptions. Without a doubt, the particular form which this legitimizing gloss takes today is mathematics, or what the famed economist Piketty has called a “childish passion for mathematics,”185 which hardly exaggerates the field’s strange obsession with numbers and graphs. The phrase “childish passion” is perhaps apt, given the general general futility of these efforts in mathematics, or as Keynes characteristized it, “mathematics,” with scare quotes. In the General Theory, Keynes writes, “I do not myself attach much value to manipulations of this kind; and I would repeat the warning, which I have just given above, that they involve just as much tacit assumption as to what variables are taken as independent … as does ordinary discourse, whilst I doubt if they carry us any further than ordinary discourse can.”186 As Krugman writes, “the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth … economists fell back in love with the old, idealized vision of an economy in which rational individuals interact in perfect markets, this time gussied up with fancy equations,”187 something Professor Krugman understands only too well from his own experience. Commenting on a class on international trade at M.I.T., Krugman says, “There was this kind of platonic beauty to the whole thing … The way all these pieces fitted 185 Thomas Piketty, qtd. in Paul Krugman, Review of Thomas Piketty, Capital in the 21st Century, Cambridge: Harvard University Press, 2014, in The New York Review of Books, 08 May 2014. 186 John Maynard Keynes, The General Theory of Employment, Interest, and Money (San Diego: Harcourt Brace Jovanovich, 1964), p.305. 187 Krugman, “How Did Economists Get It So Wrong?”. together into a Swiss-watch-like mechanism was beautiful. I loved it.”188 The reference to Platonism is quite apt, given the discursive similarity of Platonic metaphysics and formalist mathematical economics, what Keynes referred to . Both are complex, self-enclosed, self-referential semiotic systems. When Plato suggests in The Republic that “the true philosopher … whose mind is on higher realities, has no time to look at the affairs of men … His eyes are tuned to contemplate fixed and immutable realities,”189 he could well have been describing not only the generations of theologians and Church Fathers who were influenced by his thought, but also modern economists. And in his further suggestion that the “whole procedure involves nothing in the sensible world, but moves solely through forms to forms, and finishes with forms,” 190 he could easily be mistaken for describing the practice of modern economics, given the way modern economics proceeds in its mathematical formalism and the structure of the metaphysical discourse it represents. And indeed, some have described economics, with no evidence of an intended allusion, in terms whose meanings bear striking resemblance to Plato’s, as “a closed economic-historical dynamic in which the relationships between economic aggregates are guided by other economic aggregates, and they by the former.”191 From forms through forms to forms appears here in a different guise: from economic aggregates through economic aggregates to economic aggregates, and the reason such a transposition is possible is very simple, namely that these economics aggregates are simply a unique species of Platonic forms, which function in essentially the same way. Thus the sense in which modern economics, inasmuch as it is a kind of pure formalism, resembles a certain kind of Platonism is not meant figuratively. But if we are interested in understanding this issue at its roots, more than simply characterizing it in a general way, we must understand where it came from. Where did this mathematical formalism come from? For it is clear, as even a cursory glance would reveal to us, that the childish passion for mathematics is something of a novel phenomenon, and one looks in vain for it in the writings of the classical economists or the founders of the discipline. One does not find it Smith or Ricardo or Mill or in Marx. One hardly finds it Keynes, and even there only in moderation, not the way one finds it in the modern economists. What, then, is its origin? In Christianity, the importation of Platonic and other forms of Greek philosophy into the theology of the Church Fathers was a long process beginning, one might say, with John the Evangelist, including, among others, Philo, Justin Martyr, Origen, and Augustine.192 But it is difficult to doubt that the consummation of this process finds its most powerful expression in Aquinas, who brings together Greek philosophy and Christian theology into a kind of high formalism, known as scholasticism. Likewise, it is difficult to trace mathematical formalism in economics to any one definite source, but surely it finds one of its strongest expressions in the work of an economist by the name of William Stanley Jevons, an exponent of the free market, and a man described as having 188 Paul Krugman, qtd. in Larissa MacFarquhar, “The Deflationist: How Paul Krugman Found Politics,” The New Yorker, 01 March 2010. 189 Plato, The Republic, trans. Desmond Lee (New York: Penguin, 2007), p.223. 190 Ibid, p.239. 191 John McDermott, “Piketty is no Piketty,” Counterpunch, 20 June 2012. 192 See, for example, Andrew Louth, Origins of the Christian Mystical Tradition (Oxford: Clarendon Press, 1981). “a Pythagorean faith in the power of numbers.”193 David Noble suggests that where Smith, Ricardo, Mill, and Marx had attempted to describe the dynamics of the economic system in abstract, Jevons took this a step beyond, “replacing metaphors and models with mathematics,” translating market exchanges into the “ethereal equations of the divine economy.”194 As with Aquinas in the Christian tradition, it is Jevons in whom theology finds its purest formalist expression. As Noble writes, “Jevons’s theory was utterly abstracted from the material and the concrete, completely divorced from the actual lives of actual people. Here, at last, in the stark symbols of mathematics, was the perfectly ordered universe, the divine economy, the transcendent template for the transformation of the worlds: the market.”195 In the manner in which Jevons employed mathematics to express the dynamics of economic interaction, Jevons set the example for the rest of the profession, proceeding from assumptions which were, as Noble suggested, entirely divorced from reality. The exchanges which are ostensibly replicated in Jevons’s models assume the ideal of “perfect competition” in a free and “open market,” with rationally self-interested individuals making informed decisions based on the possession of “perfect knowledge.” Jevon’s deep-seated sense of reality was also observable in his attitude toward trade unions, which he despised. In a lecture to a working-class audience, Noble reports, Jevons denounced the “truculence and tyranny on the part of the workmen,” complaining that their unions, or to use Mankiw’s terms, those “cartels” of workers, were “becoming every day more arrogant in their attempts to coerce their employers,” said Jevons, articulating a view much closer to Mankiw’s than to Smith’s. Smith’s suspicion toward the intentions of the capitalists, who “seldom meet together … but the conversation ends in a conspiracy against the public,” have been psychologically transferred to the greedy and ignorant workers.196 As a kind of cure to this ignorance and lack of education on the part of the workers, Jevons suggests that they be given “appropriate knowledge of natural laws which they cannot escape from, and must ultimately obey.”197 It is worth noticing Jevons’ reference here to natural laws. Even Marx, the so-called determinist, believed that the “iron laws of history” were subject to mutability and change, given that they were laws arising out of human institutions, historical laws, and not, therefore, natural laws, which are not subject to these qualifications. But one gets quite a different, dare one say more deterministic, sense in reading Jevons. Within Jevons’ formalist system, the variables in his equations do not so much resemble human beings as they do inanimate bodies of mass, subject to the impersonal laws of physics, and with this observation, one begins to suspect that it is no accident that Jevons began his career in the natural sciences. Having come from chemistry, Jevons believed he could apply the methods of the natural sciences to political economy and in so doing to give it an exactitude which its social scientific methods could not afford it. “Just as in Physical Science there are general and profound principles deducible from a great number of apparent phenomena,” he writes, “so in treating of Man or Society there must also be general 193 David Noble, Beyond the Promised Land (Ontario: Between the Lines, 2005), p.109. Ibid. 195 Ibid., p.115. 196 Jevons, qtd. in Noble, op. cit., p.110; Smith, Wealth of Nations, p.137. 197 Jevons, qtd. in Noble, op. cit., p.111. 194 principles and laws which underlie all the present discussions and partial arguments.”198 This is exactly where Jevons, and the rest of the profession after him, goes wrong, the reason of course being that human beings are not like rocks and trees and planets, they do not display the kind of predictable regularity which rocks and trees and planets do and therefore cannot be described by the same kinds of laws. One finds a similar error of the sort committed by Jevons repeated by B.F. Skinner in the field of psychology, in an analogous, and similarly flawed, attempt to apply the methods of the natural sciences to the social sciences. In Skinner’s so-called “behaviorist” model of psychology, people respond, positively or negatively, to stimuli, and are in this way like rocks, the behavior of which a scientist can, as a result, describe with natural laws. In a sense, Skinner was merely repeating what Jevons had said before him, that “each individual man must be a creature of cause-effect,” just like any other lump of matter in the universe.199 Thus for Skinner, it is problematic that social scientists continue to refer to the “internal states” of human subjects. It was only when natural scientists, he says, stopped anthropomorphizing and personifying things, attributing their observable behavior to wills, impulses, feelings, etc., that their field made progress. Science progressed when, instead of referring to the internal states of these objects, it simply described its external behavior. Analogously, Skinner believes, what needs to be described in psychology are simply the external behavior of subjects.200 There is of course a crucial difference, as Chomsky pointed out, viz. that rocks and the like do not have “inner states” which it might make sense to refer to, whereas human beings do. As Chomsky writes, “No doubt physics advanced by rejecting the view that a rock’s wish to fall is a factor in its ‘behavior,’ because in fact a rock has no such wish. For Skinner’s argument to have any force, he must show that people have wills, impulses, feelings, purposes, and the like no more than rocks do,” or, we might add, that if these factors exist in human beings, they are not a relevant factor in the behavior exhibited, but if “people differ from rocks in this respect, then a science of human behavior will have to take account of this fact.”201 It is does not make sense to refer to the inner psychological states of rocks because such states do not exist in rocks and cannot therefore be a relevant factor in the behavior exhibited by the rock. They do, however, exist in human beings and should therefore be taken into account if they constitute a relevant factor in the external behavior of human beings, as they do. Skinner’s theory has been more or less discredited in the field, which has since made the necessary changes in its theoretical conception: human beings, it has realized, are not rocks. Here, incidentally, it is worth asking why this advance made in this field of the social sciences, psychology, has not been carried on in another, economics. Psychology and economics are both social sciences and do not fundamentally differ in this regard. Why then should a methodological advance in one field not be replicated in others in which equally applicable and equally desirable? How do we account for this curious difference? Does this perhaps suggest 198 Ibid., p.113. Jevons, qtd. in Noble, op. cit., p.114. 200 B.F. Skinner, Beyond Freedom and Dignity (New York: Alfred A. Knopf, 1971). 201 Noam Chomsky, “Psychology and Ideology,” in The Chomsky Reader, ed. James Peck (New York: Pantheon, 1987), p.161. 199 something about the paradigm with which this field operates, or perhaps the relations of power which structure it? These are important questions to bear in mind, and we will return to them later, as their answers bear implications which are equally important. For the moment, it is important simply to note the confusion of social and natural phenomena, consequently, the confusion of social and natural science, which Jevons introduces into the discipline. As Chomsky has suggested, this is based on a fundamental misapprehension about the nature of the causal relation involved in the natural sciences on the one hand and those involved in the social sciences on the other. Chomsky is right in pointing out that the fundamental difference of the subject matter, inanimate objects on the one hand and living human beings on the other, requires a different methodological approach. Human beings and rocks exhibit different behavioral regularities. The behavior of the human beings is not the behavior of a rock. This is not, of course, to suggest that there are no observable regularities in the behavior of human subjects. We know for a fact that there are. It is rather to suggest that this regularity is of a different type, one subject to greater qualifications than those to which natural regularities are subject. Jevons is indeed quite right in suggesting that every individual must be a “creature of cause-effect,” but this observation is subject to the qualification — ignored by Jevons — that the cause-effect relation observed is valid only for those conditions, historical and contingent, under which the relation is observed. In this connection it is helpful to recall the general observation we made at the earlier in this chapter with respect to the ahistoricism of economics, its tendency to abstract observable relation from the historical conditions under which they are valid, for the error we accuse Jevons of making here is nothing but a certain species of this general one, and is subject therefore to all the criticisms we have already made about the general error. We might recall Einstein’s observation that “such laws as we can derive from” a given historical phase “are not applicable to other phases.” 202 This may be compared to Jevons’s “scientific” model which proceeds “in the abstract, independent of, and indifferent to, institutions or the particulars of place.”203 The connection with Jevons now established, it is worth repeating Marx’s observation: “The simplest abstraction, then, which modern economics places at the head of its discussions, and which [supposedly] express an immeasurably ancient relation valid in all forms of society, nevertheless achieves practical truth as an abstractions only as a category of the most modern society.” Jevons’s error is no less significant for the single major concept which he introduces into the discourse of economics along with it: that specific “cause-effect” relation known as marginal utility, an abstraction which represents the relation of a commodity to an individual, more precisely, the value in the last degree of utility offered by the possession of that commodity. If we recall that the problem in conflating natural and social phenomena is that natural phenomena exhibit predictable regularity under more or less all circumstances whereas social phenomena exhibit behavior which changes according to material circumstances, we immediately see why Jevon’s theory becomes especially problematic, namely because utility, being a relationship between a commodity and an individual, which is to say, a social phenomenon as opposed to a natural one, does not exhibit fixed regularity, but changes according to the historical circumstances in which here this relation is 202 203 Einstein, op. cit. Noble, op. cit., p.115. defined, and cannot therefore be accurately or adequately described by natural laws such as those Jevons proposes. The problem in Jevon’s theory lies, in other words, in reifying the schedule of marginal utility, especially as that schedule relates to the demand schedule. “Political economy,” Jevons said, “is not yet an exact science,” and with his contributions, he ensured it would never, for a long time, become one.204 There is of course a great deal of irony in this. Precisely in his attempt to convert economics into a science, he prevented it from ever becoming one — by assuming social phenomena reducible to observable principles in the same manner in which natural phenomena are. In summary, we might, for our purposes, enumerate the relevant contributions of Jevons to the field in the following way: (1) he introduced a high formalism into the study of economics, expressed in mathematical models which (2) proceed from assumptions entirely divorced from reality; (3) he instituted the confusion between natural and social phenomena, and with that, the confusion between natural and social sciences; and (4) he introduced the preoccupation with marginal utility. In short, with a special focus on marginal utility, Jevons inaugurated the formalization of economic rationality through a mathematics and a science divorced from the material conditions in which they have their validity, thereby reifying marginal utility. None of this is to suggest that mathematics as such is problematic, only the manner in which it is frequently employed. It is possible to conceive of a way in which mathematical models, or more broadly speaking, mathematical rationality, might be more fruitfully employed in the investigation and analysis of economic phenomena. This would be if mathematical models proceeded on more realistic assumptions about economic phenomena, or if this is not possible, to reckon the meaning of these assumptions in the interpretation of the data. It would not be unreasonable to suggest that mathematical models are useful according as their assumptions more or less approximate the real conditions of economic reality, and are valid according as the meaning of these assumptions is reckoned in the interpretation of the data. People like Keynes, and more recently, Piketty, provide examples of mathematics used in these ways. But as we have seen, economic theories, for the most part, do not meet those qualifications which would render them valid or useful. In his General Theory, Keynes writes, “Too large a proportion of recent ‘mathematical’ economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.”205 Consider, for example, work by the economist Edward Prescott, whose unbelievably stupid argument was accepted as valid because he dressed it up in fancy mathematics. Prescott argued that “the business cycle reflects fluctuations in the rate of technological progress, which are amplified by the rational response of workers, who voluntarily work more when the environment is favorable and less when it’s unfavorable. Unemployment is a deliberate decision by workers to take time off.” Despite the fact that this argument is “foolish” and “silly,” completely divorced from reality, Prescott’s stupid theory was “embedded in ingeniously constructed mathematical models” using “sophisticated statistical techniques.” Therefore, “the theory came to dominate the teaching of macroeconomics in 204 Ibid., p.113. John Maynard Keynes, The General Theory of Employment, Interest, and Money (San Diego: Harvest Brace Jovanovich, 1964), p.298. 205 many university departments” — which should tell us something about the intellectual caliber of the discipline.206 If an absurd theory can be accepted by economists because it can be dressed up in fancy mathematics, then a good theory can be rejected if it is unable to contort itself into some mathematical conjuration. As Larissa MacFarquhar of The New Yorker writes of one of Krugman’s theories, “because it had not been well modelled, the idea had been disregarded by economists for years,” even though it was “pretty obvious.”207 All this because “failure to represent reality accurately is rarely a fatal flaw in an economics model — what’s valued is the model’s usefulness as an analytic tool,” regardless of whether that analysis corresponds to reality. Despite the fact, for example, that his paper on target zones was “completely wrong,” it was “the most successful paper Krugman ever wrote.” “Empirically, it doesn’t work at all,” Krugman admits, but “people,” by which he means professors of economics, “loved it as an academic thing,” even though its “very strong predictions … all turned out to be wrong.” 208 And one need hardly consider how convenient is this bastardized standard of reality for the interests of those whose wealth depends on realities that, however real and obvious, cannot be fit by economists into pretty little charts. Some in economics even sometimes implicitly acknowledge the fact that economic models have little relation to reality, which divergence puzzles them endlessly. In the latest edition of the Harvard Economics Review, for example, Sara Lowes writes, “How do we reconcile models that predict the convergence of growth rates across countries with what we observe in the world — large variations in growth rates and high levels of inequality?”209 The question might be generalized for the entire discipline of economics: how do we reconcile the economic models with what we observe in the real world? Mathematical models, their results, and most importantly, the meaning of their results, all rest on a series of basic assumptions — assumptions about human beings, the market, society, etc. The models are therefore only useful if and to the extent that these assumptions are accurate. That is why this mathematical hocus-pocus, however complicated, still proceeds from (and never explains) the same rudimentary assumptions. To paraphrase Jesus Christ, the profession of economics strains gnats — mathematical econometrics — while it swallows camels — its own basic notions and assumptions, which includes, among others, some already discussed: private property, freedom, the market, and demand. It is worth mentioning that it is above all because economics proceeds from false assumptions that it falls into the kinds of theoretical misconceptions that it does. This gives economics a unique and very specific form of systematic distortion, which might reasonably be compared to metaphysics, if we conceive metaphysics broadly enough to mean any symbolic or semiotic system with internal consistency, irrespective of the correspondence of that system to empirical reality. In Yves Smith’s well-known online publication Naked Capitalism, one journalist, Philip Pilkington, asks “Is ‘higher’ economics really a metaphysical construct?” Yes, he answers. The reason he gives is that, among other things, “metaphysics is opposed to empirical verification ... Metaphysicians tend to create airy 206 Krugman, “How Did Economists Get It So Wrong?”. MacFarquhar, “The Deflationist: How Paul Krugman Found Politics.” 208 Ibid. 209 Sara Lowes, “Possibilities in Development Economics,” Harvard Economics Review, Spring 2014, p.24. 207 constructs of how the world works – and they often do this entirely in their own head.” Economics, he goes on, “is pure metaphysical reasoning. The economists concoct an idea in their heads which they then use to construct a theoretical edifice which falls apart when the original idea is shown to be false.”210 The metaphysical nature of economics thus expresses itself in a certain self-referentiality. When Jon Stewart, criticizing Fox News, described its self-referential system of fabricated facts as “air-tighter than an otter’s anus,” I could not help but think of that slightly more arcane version of absurdity which is modern economics.211 To proceed from false assumptions, or assumptions divorced from reality, is already, ipso facto, to separate reality from the system of significations that proceeds from these assumptions. Therefore, because economics proceeds from false assumptions, it will bear little relation to reality, less according to the degree of its inaccuracy — even when the results are internally consistent, which they often are. These internal consistencies mistaken for real results, as the success of the field is cheerfully proclaimed. What the field perhaps fails to recognize is that every discourse, including economics, is a kind of closed-system in the sense that each determines its own standards of proof and standards of rationality, what Foucault called “structures of rationality,” “patterns that have their own consistency, laws of formation and autonomous disposition.”212 What counts for evidence in one paradigm does not in another, and vice-versa. “When paradigms enter, as they must, into a debate about paradigm choice, their role is necessarily circular. Each group uses its own paradigm to argue in that paradigm’s defence,” writes the philosopher of science Thomas Kuhn, whose observations regarding the nature of scientific paradigms may, because they quite accurately describe much of modern economics, serve as a useful framework for further inquiry. FACTS AND THEIR MEANINGS: ECONOMICS AS A SCIENTIFIC PARADIGM. ECONOMIC RATIONALITY. A paradigm for Kuhn is in many ways comparable to what Foucault calls a discourse. 213 It is a kind of theoretical apparatus established by the methods and conventions of a particular discipline which determines the standard of rationality and evidence within a given species of knowledge. Discourses are not just important to the expression of knowledge; they are logically necessary as they are the only way in which knowledge is, or ever can be, expressed. As the cultural critic Edward Said has suggested, “Discourse is a regulated system of producing knowledge within certain constraints — whereby certain rules have to be observed. To think past it, to go beyond it, not to use it, is virtually impossible, because there is no knowledge which isn’t codified in this way — about that part of the world.”214 The existence of paradigms is therefore important because it counters the 210 Philip Pilkington, “Economics as Metaphysics and Morals,” Naked Capitalism, 17 June 2011, accessed 26 September 2014, http://www.nakedcapitalism.com/. 211 “Jon Stewart Takes on Chris Wallace’s Excuses for Fox News,” Daily Kos, 28 June 2011, accessed 26 September 2014, www.dailykos.com. 212 Michel Foucault, “On the Archaeology of the Sciences,” The Essential Foucault, ed. Paul Rabinow and Nikolas Rose, New York: New Press, 2003, pp.415-417. 213 We will note the difference between paradigms and discourses later, when the distinction becomes more relevant for our analysis, and more necessary to make. 214 Edward Said, “Edward Said on Orientalism,” Youtube.com, accessed 26 September 2014, notion that anyone is ever ‘just reporting the facts.’ There is no such thing as ‘just facts,’ because these facts only have their meaning within a given paradigm, with its own theoretical apparatus and its own standards of rationality. As Kuhn writes, “Philosophers of science have repeatedly demonstrated that more than one theoretical construction can always be placed upon a given collection of data. The history of science indicates that, particularly in the early developmental stages of a new paradigm, it is not even very difficult to invent such alternates. But that invention of alternates is just what scientists seldom undertake except during the pre-paradigm stage of their science’s development.”215 Different theoretical constructions, in other words, can make sense out of the a given set of facts, can give this set of facts different meanings and interpretations, but, in the normal progress of things, one of these many and varied theoretical constructions is typically adopted as the paradigm of a given discipline, and the discipline enters into a phase which Kuhn calls “normal science,” a phrase characterized less by competing theoretical constructions than by a collection of facts — because one of these theoretical constructions has already been assumed to be better, more useful, and more accurate in interpreting the facts than others. And it is precisely this phase which, I offer, economics is currently in. This should not be altogether surprising. “Mopping-up operations” of this sort, Kuhn suggests, “are what engage most scientists throughout their careers. They constitute what I am here calling normal science.”216 The basic attitude of normal science, in other words is, more or less that all of the major theoretical questions have been solved, are well behind us, and not worth our time as we turn our efforts toward the practical application of theoretical constructions which are well-proven. We have a theory; now we must simply apply it. The general attitude of economists was summarized in what the view of what Francis Fukuyama called the “End of History,” or what Daniel Bell has called the “End of Ideology,” the idea that all of the big metaphysical narratives have come to an end, and with them their ambitious experiments in understanding; all that is left to us are minor practical questions, a little bit of theoretical tweaking here and there. In this sense, the conceit of economics or what is called “economic science” as a hegemonic discourse is, despite economics hardly passing for a science, little different from the general conceit of modern science as a whole, which flatters itself as the only valid way of comprehending the world and the basic attitude of which is more or less that all of the major theoretical questions have been solved, are well behind us, and not worth our time as we turn our efforts toward the practical application of our well-proven theories and our undisputable theoretical frameworks which only idiots, not reasonable people, call into question, an attitude of pompous insularity which finds its grotesque, perhaps comic, exaggeration in those fine specimens of 21st century Victorian Rationalism like Richard Dawkins, A.C. Grayling, Stephen Pinker, and Daniel Dennett. We have perfected theory; now we must simply apply it. The phase of economic theory is over; now we are in a phase of economic science. Consider, for example, the difference in modern economics and historical economics. Where thinkers like Smith, Ricardo, Mill, Marx, and others continued to http://www.youtube.com/watch?v=fVC8EYd_Z_g. 215 Thomas Kuhn, The Structure of Scientific Revolutions, 2nd ed., Chicago: University of Chicago Press, 1970, p.76. 216 Ibid. pp.23-4. question and challenge the most basic assumptions and theoretical frameworks, the basic attitude of modern economics is that all the big theoretical questions were already solved, depending on whom one asks, either in the brain of John Maynard Keynes or in what passes for a brain in Milton Friedman’s skull, that our task now is simply the scientific one. It is difficult to think of any text in modern economics since Keynes’ General Theory which can even be compared to The Wealth of Nations or Principles of Political Economy or Capital, not even in its ambition or importance, but in its intent. Theory is done, modern economics proclaims, and Science, now Mathematics, is begun! Oh Reason! Oh Progress! Oh Keynes! The “state of macro is good,” proclaimed Blanchard in 2008, just as the economy was about to collapse, a telling demonstration of how sound the fundamental assumptions, the whole theoretical framework of modern economics, really is. Blanchard’s comments reflect, I think, some of the palpable effects of the conceit to which discursive hegemony lends itself, the most significant of which is a false and deeply dangerous sense of intellectual complacency. There is now no such thing as economic rationality as an identifiable and contingent form of knowing, only rationality as such. Economic rationality becomes rationality as such, and no longer sees itself as one among many forms of rationality, as one of the many “theoretical constructions” that “can always be placed upon a given collection of data,” to use Kuhn’s phrase. Economics fails, in other words, to recognize, as Foucault writes, that “knowledge, as the field of historicity in which the sciences appear, is free of any constituent activity, disengaged from any reference to an origin or to a historico-transcendental teleology, detached from any reliance upon a foundational subjectivity.”217 To appeal to rationality or to describe something as “logical,” always already presupposes some standard of rationality which are “beyond any proof and before any analysis.”218 Because they are presupposed, they are implicit in the discourse whether not its practitioners are conscious of the fact. As Foucault suggests, the “conditions of scientificity” are “internal to scientific discourse in general and cannot be defined other than through it.”219 Because there is no foundational subjectivity, no transcendental rules of formation or standards of rationality, of proof, of scientificity, the more important question to ask is not whether something is true or not, rational or not, but what “true” and “rational” signify within the framework of a given paradigm, and how these terms differ in meaning within the context of different paradigms, how they transpose into other paradigms, one’s own paradigm, for example, or the paradigm of the generality of people in a given historical context. I.e., what does “rational” mean in the context of economic discourse, versus what it means to the general public, or what does “rationality” as it is defined within the context of economic discourse mean to the generality of people, how does it translate into their terms. Such questions are especially significant if only because modern economics, as we have seen, is radically divorced from the reality of most people, and as a result, the discourse of modern economics divorced from the discourse of the generality of people. For example, what counts as “rational” or “efficient” for economics is very different from what it means for most people, often the very opposite, irrational and inefficient, as in the case of 217 Ibid., p.422. Ibid., p.410. 219 Ibid., p.416. 218 the allocation of resources by the free market. It is, more than anything else, the difference in the discursive assumptions of economics as opposed to those of everyone else that accounts for the divorce of economics from reality, the vast difference between the way economics comprehends the world and the way most people do. And yet it must be observed that in the phase of normal science which their field’s hegemony allows them, economists, failing to recognize that some theoretical construction is presupposed in any interpretation of a given set of facts, no longer see themselves as applying, or even having, a definite theory, but only as “reporting the facts,” “logically.” It is thus without the slightest sense of irony that Krugman suggests “Greider’s theorizing is all the more speculative and simplistic because he is an accidental theorist, a theorist despite himself — because he and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day.”220 For Krugman, the accidental theorist is the amateur, the journalist, the non-economist, the “policy peddler.” But the truth, if we may be so bold as to assert, is quite the opposite. The accidental theorists are the economists. REINFORCEMENT OF ASSUMPTIONS THROUGH INSTITUTIONAL PROCESSES. LIMITATION OF THE BOUNDARIES OF DEBATE. DISCIPLINE. INTELLECTUAL POLICING. LIBERALISM AND CONSERVATISM IN ECONOMIC THEOLOGY. KEYNES AND FRIEDMAN. Proceeding from these false assumptions, economics then reinforces them, and does this in essentially the same way the media do — as Chomsky writes, they “take the set of assumptions which express the basic assumptions” of particular social order, “and then present a range of debate within that framework — so the debate only enhances the strength of the assumptions …” 221 What then is the framework of debate in modern economics? Krugman, reviewing the field of economics before the 2008 crisis, suggests, “the main division was between those who insisted that free-market economies never go astray and those who believed that economies may stray now and then but that any major deviations from the path of prosperity could and would be corrected by the all-powerful Fed.” Now, macroeconomics is divided into “two great factions”: “saltwater” economists, “who have a more or less Keynesian vision of what recessions are all about,” and “freshwater” economists, “who consider that vision nonsense,” labels which are perhaps unfair — salt or fresh, bodies of water touch the earth; economics does not.222 The intellectual choices offered to us in modern economics are rather like the choices offered to us by the magnificent free market. Here, coke and pepsi appear as “saltwater” and “freshwater” economics. On this point, it is worth noting how similar the views of conservative and liberal economists are, despite all of their disagreements. Especially in the United States, where the political spectrum is quite limited compared to that of other developed nations, we are used to thinking of 220 Krugman, “The Accidental Theorist.” Noam Chomsky, Understanding Power, New York: New Press, 2002, p.13. 222 Krugman, “How Did Economists Get It So Wrong?”. 221 liberal and conservative economists as being very different, and while that is surely true to an extent, such thinking overlooks the striking similarities beneath what turn out to be in comparison minor disagreements, overlooks the shared framework of assumptions held by both liberals and conservatives, as well as their shared faith in the market, though it is expressed in different forms. It might also be worth observing here the striking parallel to the discourse of modern theology, divided by its warring camps, conservatives on the one hand, liberals on the other. We have already pointed out their distinction. In the Christian religion, while there is more or less unanimous agreement on the fundamental content of faith, viz. that Jesus Christ is the Lord, there is variation, often considerable, as to the interpretation of this fundamental content, variation, in particular according to the degree to which one is to qualify this claim. Broadly speaking, conservatives accept these theological claims with considerably fewer historical, hermeneutic, theological, or exegetical qualifications while broadly speaking liberals tend to qualify these theological claims to a much higher degree. While in theological discourse generally there is agreement on the one hand, then, there is debate on the other, and it is worth noting the structural similarity with which this debate is carried on in economic discourse specifically, as a species of that broader category (theological discourse). For in economic discourse, as in theological discourse more generally, the debate is between the liberals on the one hand, the Keynesians, and the conservatives, the market fundamentalists, on the other. Indeed, the difference between a liberal economist and a conservative one is not dissimilar to the difference between a liberal Christian and conservative Christian fundamentalist. Certainly, their respective views are very different — and it is a difference which I do not mean either to deny or to understate — but, crucially, they share the same profession of faith, the central doctrine and defining credo, namely that Jesus Christ is the Lord. It is only that the liberal holds with view with more qualifications than the conservatives. Likewise, conservative and liberal economists, for all of their significant differences, share in the fundamental profession of faith, in this case, that markets are good — again, a view held with more qualifications by the liberals, and fewer qualifications by conservatives. Summarizing the difference between the two viewpoints, Robert Reich, a left-leaning political economist, writes, “Liberals tend to emphasize the need for protection; conservatives, the need for responsibility.”223 While this difference exists, notice that both alike share the assumption that markets are good, even if they need to be qualified with “protections” for the liberal. As Krugman writes, “Even liberal economists have a healthy respect for the effectiveness of markets as a way of organizing economic activity.”224 Conservative economics is a less qualified, more fundamentalist version of the economic faith, and just as in Christianity, the liberals try to distance themselves from those fundamentalists. In fact, the analogy I am extending here is not my own. Reich suggests that the radically conservative supply-side economist “might be called a market fundamentalist” and suggests that for these people, “the free market has the same intoxicating quality that religion has to born-again Christians. Facts aren’t especially relevant. The perfection of the market has to be accepted as a matter of faith. And like religious fundamentalism, market fundamentalism offers the promise of redemption to those who adhere to its gospel. Allow the 223 224 Robert Reich, Reason, New York: Knopf, 2004, p.111. Paul Krugman, The Conscience of a Liberal, New York: Norton, 2009, p.116. market free rein and civilization will be saved.”225 Conservatives accept this claim in a more or less unqualified sense, and believe that the market, left to its own devices, is capable of bringing about economic salvation. In the Christian religion, the leading conservative theologians of this brand are people like Ravi Zacharias, R.C. Sproul, Timothy Keller, and John Piper, though there is also considerable variance even here and I should not like to give the false impression of them being reducible to each other. In the Capitalist religion, the position maintained by market fundamentalists is expressed by those who adhere to more strictly neoclassical dogmas, the Austrian School and the Chicago School, represented by people like Hayek and Friedman, and more recently by people like John Taylor, John Cochrane, Thomas Sowell, and Martin Feldstein. Liberals also profess salvation through the Markets, but in a more qualified sense than that in which the market fundamentalist does. In Christianity, liberal theology accepts all the fundamental claims of the religion, professes the central elements of the faith, but in a more qualified manner than the conservative, and it finds its most powerful expression in the work of thinkers like Schleiermacher, Ristchl, Harnack, and Fosdick, and more recently, by thinkers like the biblical scholar Marcus Borg, Bishop John Shelby Spong, among others. Liberal theology in the Capitalist religion plays essentially the same function, accepting the major tenets of the faith in markets, while qualifying the claims. If Schleiermacher was the father of liberal Christian theology, then it is above all John Maynard Keynes who can be credited with having been the father of liberal economic theology, and the views of the liberals in the Capitalist religion indeed find their most powerful articulation in the Keynesian school, by people like John Kenneth Galbraith and Paul Samuelson, more recently by people like Paul Krugman, Joseph Stiglitz, Robert Reich. Keynes stressed that left to its own devices, the market would not be able to maintain adequate level of employment, and that what he called a “somewhat comprehensive socialisation of investment” would be necessary to stimulate the economy with a view to “securing an approximation to full employment.”226 But just as the liberal theologian is, with however many qualifications, still fundamentally a Christian, Keynes was still fundamentally a Capitalist — in the sense of being an adherent of this faith, and not necessarily as an owner of capital, though he was a remarkably skilled investor. However much Keynes qualified the postulates of classical political economy, at the end of the day, he was still able to proclaim the central profession of Capitalist faith, i.e., that markets are good, on the basis of his belief that individualism, which at least in its liberal conception is maintained by the market form of appropriation, “is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.”227 We see, then, how limited is the debate between liberal and conservative economists. We see how, despite all of their ostensible differences, they agree in the fundamental profession of their faith: markets are good. Debate within this framework of assumptions is allowed, even encouraged, but debate outside of these limits is scarcely tolerated. To challenge these basic assumptions is to court professional ex-communication. According to Wolff, who is a tenured economist, within 225 Reich, op. cit., p.113. Keynes, General Theory, p.378. 227 Ibid., p.380. 226 academic economics departments, to assume a set of beliefs beyond those expressed within the acceptable range of opinion is “dangerous to your career. If you went in that direction, you would cut off your chances of getting a university position or being promoted and getting your works published in journals and books, the things that academics need to do for their jobs.” As MacEwan writes, “at Harvard and in the economics profession generally” there has been “minimal opening to alternative ideological approaches — and, don’t kid yourself, economics is a highly ideological field.”228 For Wolff, this is indicative of the general lack of substantive debate about the systematic problems of capitalism, where to raise such questions is understood by mainstream economists to be unacceptable: “For 50 years, when [the question of] capitalism is raised, you have two allowable responses: celebration, cheerleading. Okay, that’s very nice. But that means you have freed that system from all criticism, from all real debate.”229 Similarly, Stephen Marglin, a dissident economist at Harvard, and perhaps it is also worth noting, the only one, suggests: “The striking thing about economics texts across the board, mainstream economics texts, is how similar they are, not how different they are, whether they’re written by Republicans like Mankiw or Democrats like Bill Baumol and Alan Blinder, or for that matter Paul Krugman. The ideology is Republican; it is Democrat; it is a faith in markets that is unshaken by any encounters with reality.”230 There is a very simple way to test the validity of these claims: simply compare the amount and kind of references to theorists who operate within the same framework of assumptions to those who do not in standard economics courses. It is not uncommon for a Ph.D student in economics, for example, never to have read a single word of the mature Marx. In its defense, economists argue that Marx has no useful explanation of how the economy works. But how they know Marx has no explanation is rather a mystery given that they do not read him. There was an interesting article in The Chronicle of Higher Education recently, highlighting the work of the prominent Marxist political economist and geographer David Harvey, well-known outside the U.S., but virtually unheard-of in it. The author of the article writes: “Most economists I contacted gave one of two responses when asked about Harvey’s work: They knew he was important but had never read him, or they had never heard of him at all … in the supercharged capitalist culture of the United States, being a Marxist intellectual — even, according to Thomson Reuters, as one of the most frequently cited academics in the world — means often being overlooked in the public square,” and other intellectuals who fall outside the common set of assumptions fare no better, like the anarchist Chomsky, who is the mostcited living author in the humanities on the planet, ranking above Hegel and just beneath the Bible, Plato, and Freud, but whose work is met with a conspiracy of silence in the academy.231 Or consider the basic introductory economics course at Harvard, which, because it is taught by the author the standard introductory textbook (Mankiw, Principles of Economics) we can take to be more or less indicative of the field. In the course reading list, he includes a host of opinion, beginning with Alan 228 Arthur MacEwan, “‘What We Do’ in Economics,” The Harvard Crimson, 03 December 2012, http://www.thecrimson.com/article/2012/12/3/Harvard-MacEwan-Economists/. 229 Richard Wolff, “Taming Capitalism Run Wild,” interview on Bill Moyers and Company, 09 August 2013, transcript available online: http://billmoyers.com/episode/encore-taming-capitalism-run-wild-2/. 230 Stephen Marglin, “Heterodox Economics: Alternatives to Mankiw’s Ideology” (Lecture, Occupy Harvard Teach-in, Harvard University, Cambridge, MA, 07 December 2011). 231 Scott Carlson, “Mapping a New Economy,” The Chronicle of Higher Education, 12 May 2014. Greenspan, working through Alan Roth, Arthur Okun, Julio Jorge Elias, and a whole range of others — exactly zero percent of whom fall outside of the basic framework of assumptions which modern economics makes. When the critics accuse teachers of economics of failing to engage with alternatives points of view, with criticism, they reply that there is simply not enough time in introductory high school courses to introduce alternative viewpoints. Marglin recounts a paper delivered at an Allied Social Sciences meeting in January 2012 regarding national standards in economics education. He quotes from the material: “The final standards reflect the view of a large majority of economists today in favor of a neoclassical model of economic behavior. Including strongly held minority views of economic processes and concepts would have confused and frustrated teachers and students who would then be left with the responsibility of sorting the qualifications and alternatives without a sufficient foundation to do so,” which Marglin goes on to compare, not unjustifiably, to the attitude of the Catholic church to ordinary people reading the bible in the middle ages. 232 The elitist, not to mention absurd, views and attitudes of economists, the contempt with which they judge the intelligence of the average person who perhaps suffers from a surfeit of common sense, are nothing new. As Keynes quips, “The extraordinary achievement” of the classical economists “was to overcome the beliefs of the ‘natural man’ and, at the same time, to be wrong.”233 We can drop the “classical” qualification. To our point, teachers of economics say they simply don’t have enough time to engage alternative viewpoints in high school courses. That seems fair enough. But it turns out there is not enough time in college or in graduate or post-graduate study either, and by all appearances, the professors of economics don’t have time to engage with criticism either. Perhaps engaging with alternative view would have “confused and frustrated” them too. So they simply never do. As Marglin suggests, “[t]he economists are all for critical thinking — just not today.” SKETCH OF A CONTEMPORARY ECONOMIST: KRUGMAN AGAINST THE HERETICS. To engage with the criticism of one’s own ideas and their most basic assumptions is an elementary principle of intellectual honesty. But this modicum of intellectual honesty is apparently too much to ask of tenured university professors. Unlike most modern economists, Karl Marx, for example, deeply and widely and generously engaged classical economics. Before scribbling out Capital, Marx sat down to read, then engage in criticism, all of the major political economists before him — Quesnay, Smith, Say, Ricardo, Locke, Berkeley, Hume, Malthus, and others — compiling his review of the entire history of economic thought in his three-volume Theories of Surplus Value, a monumental review since then only matched by the efforts of a few like Schumpeter. Otherwise, unlike Marx, who deeply engaged profoundly different ways of conceiving the world, most modern economists insouciantly dismiss their critics. As Keynes once wrote, “Marxian Socialism must always remain a portent to the historians of Opinion — how a doctrine so illogical and so dull can have exercised so powerful and enduring an influence over the minds of men, and 232 233 Ibid. Keynes, General Theory, p.350. through them, the events of history.”234 Taking the cue of The Master, Krugman suggests, “Karl Marx made about as much of a contribution to economics as Zeppo Marx made to comedy” (which is so ignorant it is astounding), and describes the effort to re-engage with that “discredited prophet” as “phooey,” which rather more accurately characterizes his ten-year-old’s reading of Marx than it does Marx himself, especially surprising because Krugman is otherwise a very intelligent economist and a careful analyst.235 “Never mind the dismal track record of Marxism as a governing ideology,” Krugman writes, what “he never managed to do was offer either a comprehensible explanation of why such upheavals happen or any suggestions about what to do about them (except abolish capitalism),” which is in fact untrue, as Krugman would know if he read the third chapter of Capital, volume one, which anticipated Keynes’ basic ideas long before Keynes himself, all of which Krugman would know if he had ever seriously engaged with Marx. In a sense, Paul Krugman gives us, more than any other, a sketch of the contemporary economist, and shows the limitations of this mode of thinking. I use Krugman as an example for a number of reasons: first, because I think he is extremely capable and intelligent, and a very good economist; second, because he is unapologetically progressive, both of which conditions will demonstrate the limitations of mainstream economics even at its most intelligent and most progressive; and lastly because, as James Galbraith writes, no other economist of his generation “better exemplifies the club spirit than … Paul Krugman.”236 It is one thing to read the Communist Manifesto and decide Marx was a buffoon; it is quite another thing to read him on his own terms, to seriously engage him, which Krugman shows no signs of having done, all the more deplorable because this is exactly what Krugman denounces in economists who don’t share his “saltwater” views: “Freshwater economists who inveighed against the stimulus didn’t sound like scholars who had weighed Keynesian arguments and found them wanting. Rather, they sounded like people who had no idea what Keynesian economics was about,” all of which, with the proper modifications, applies to Krugman’s understanding of Marxism. As Krugman so perfectly demonstrates, economics does not even refute opposing views; even refutation requires some level of engagement, which economics has refused to do. To refute a view is one thing; it something else to simply ignore or dismiss it. What Chomsky suggests regarding the common assumptions of international affairs in academic discourse applies to the profession of economics: “disagreement on these basic doctrines is so slight that it’s considered unnecessary even to provide evidence or to consider alternative views, just as you don’t trouble to refute the belief that the earth is flat — there are some things that are too absurd to waste time on.”237 As little tolerance as economics has for dissent within the profession, it tolerates dissent from outside the profession even less. For non-economist critics, economics has no mercy, and attacks them viciously. Krugman again serves as an instructive example, having made a part of his 234 John Maynard Keynes, qtd. in Krugman, “Why Aren’t We All Keynesians Yet?”. Krugman, “Why Aren’t We All Keynesians Yet?”. 236 James Galbraith, op. cit. 237 Noam Chomsky, “Declining U.S. Hegemony,” lecture, Université de Montréal, salle Claude Champagne, Montreal, Canada, 26 October 2013, available online, YouTube, 17 May 2014, accessed 25 June 2014. https://www.youtube.com/watch?v=_Tnb6I-2XVk. 235 career out of his contempt for those he calls “policy entrepreneurs,” non-economist peddlers who have not been initiated into esoteric mysteries of this science. As Robert Kuttner, one of Krugman’s victims, writes, “Krugman’s deepest scorn is reserved for non-economist trespassers and he has a particular animus for those on the moderate left,” like Robert Reich and William Greider, both of whose senses of reality (though I am not uncritical) offend Krugman, for whom “bizarre arguments and extreme views … pass muster as economic science, even if they turn out to wildly wrong,” so long as they are “dressed up in formal models.” 238 Not that Krugman does not criticize his fellow adepts along with everyone else, as he does, but “always with a respectful disclaimer when the malefactor is a fellow economist.” As the economist James Kenneth Galbraith, something of a dissident, writes, Krugman “has never seriously dissented from the core orthodoxies of his peers. Krugman is concerned, first and foremost, with his own standing among the club’s leaders. And he has come to function as a kind of guard dog for their dogma, savagely attacking dim-witted outsiders while remaining generally quiet, if not always completely silent, about acts of illogic committed inside the profession.”239 And not only does Krugman respect economists even when they are wrong; he also, conversely, disdains non-economists when they are right, as they were, for example, about globalization, for which Krugman had been an early apologist, but has since repented. For economical thought-police, non-economists are even more threatening than colleagues with whom they happen to disagree. Economists are just wrong; non-economists, on the other hand, are thought-criminals. When one of these though-criminals, William Greider, wrote a book warning of the baneful effects of globalization, Krugman derided him, lamenting, “I have little hope that the general public, or even most intellectuals, will realize what a thoroughly silly book Greider has written,” based on a “transparent fallacy.”240 If only we mortals had the eyes to see and ears to hear. Dismissing this scurrilous journalist, Krugman enunciated modern economics’s own backward and equally fallacious version of the iron law of wages, according to which wages increase with productivity. Greider argued that multinational corporations would seek higher productivity through lower wages in low-wage countries, displacing workers, which would depress their wages. Krugman said this was a “fallacy of composition,” and argued that “[p]roductivity growth in one sector can very easily reduce employment in that sector. But to suppose that productivity growth reduces employment in the economy as a whole is a very different matter.” Krugman pointed to history, namely the fact that “the U.S. economy has added 45 million jobs over the past 25 years — far more jobs have been added in the service sector than have been lost in manufacturing.” Greider’s suggestion, meanwhile, “is a purely theoretical prediction … speculative and simplistic,” and a history would later show, correct. The serious Economist was wrong; the “simplistic” journalist was right. Wages decreased as productivity increased, just as Greider predicted, and by 2007, “the facts were so visible and overwhelming, Krugman and other economists were compelled to alter their conclusions.” The suggestion that wages would go down, which Krugman once 238 Robert Kuttner, “Peddling Krugman,” American Prospect, September 1996. James Kenneth Galbraith, “How the Economists Got it Wrong,” American Prospect, 19 December 2001. 240 Paul Krugman, “The Accidental Theorist,” The Dismal Scientist, http://web.mit.edu/krugman/www/hotdog.html#Bio. 239 dismissed as “based on … a transparent fallacy,” now had, in Krugman’s own words, “a real basis in both theory and fact.” So perhaps Paul Krugman would have done well to have heeded the words of Paul Krugman, who suggests that though we know little about development, policy entrepreneurs often make “sweeping generalizations,” even though they turn out to be “unstable, regularly shifting to something else, perhaps the opposite of the latest phase” and it “commonly agreed in retrospect that the policies didn’t ‘serve their expressed goal’ and were based on ‘bad ideas’”(Chomsky, summarizing Krugman’s view).241 Krugman’s merciless attacks on people like William Greider, Robert Reich, or even Ralph Nader, as well as his humble prostrations before his colleagues, are not about ingratiation but about intellectual credibility, respectability within the profession, a concern Krugman candidly admits he had. Commenting on his reaction to the Reagan administration, he says, “I was into career-building at that point and not that concerned.”242 And the obvious way to gain some professional respectability for a unapologetically liberal economist who might otherwise be seen as too far to the left, is to criticize those to his left, thereby distancing himself from those whose association might call his intellectual credibility into question. Professional respectability, it is worth observing, serves a definite discursive function, and its effect should not be underestimated. One of the thinkers Krugman is fond of quoting,243 George Orwell (whose politics certainly warrant Krugman’s preferred term of abuse, “radical”) suggested one of the ways in which thought control in democratic societies achieves very similar results to thought control in totalitarian societies is through respectability, knowing what is appropriate to say, and to think. It is important, Orwell writes, “to distinguish between the kind of censorship that the English literary intelligentsia voluntarily impose upon themselves, and the censorship that can sometimes be enforced by pressure groups.” “The sinister fact about literary censorship in England,” Orwell writes, “is that it is largely voluntary. Unpopular ideas can be silenced, and inconvenient facts kept dark, without the need for any official ban. Anyone who has lived long in a foreign country will know of instances of sensational items of news — things which on their own merits would get the big headlines — being kept right out of the British press, not because the Government intervened but because of a general tacit agreement that ‘it wouldn’t do’ to mention that particular fact.” He goes on: “the same kind of veiled censorship also operates in books and periodicals, as well as in plays, films and radio. At any given moment there is an orthodoxy, a body of ideas which it is assumed that all right-thinking people will accept without question. It is not exactly forbidden to say this, that or the other, but it is ‘not done’ to say it, just as in mid-Victorian times it was ‘not done’ to mention trousers in the presence of a lady. Anyone who challenges the prevailing orthodoxy finds himself silenced with surprising effectiveness,” as someone like William Greider knows very well. “A genuinely unfashionable opinion is almost never given a fair hearing, either in the popular press or in the highbrow periodicals.”244 And those who enforce the rules of respectability by punishing those who challenge the prevailing orthodoxy are the thought police like Krugman. 241 Chomsky, Profit Over People, p.25. Krugman, qtd. in MacFarquhar, “How Paul Krugman Found Politics.” 243 Cf., for example, Paul Krugman, The Great Unraveling, New York: Norton, 2003, pp.206,373. 244 George Orwell, Preface to Animal Farm, accessed 01 July 2014, http://home.iprimus.com.au/korob/Orwell.html. 242 It is a common feature of theological systems to have their own forms of institutionalized thought-policing, scholarly authorities who determine the limits of what is proper to think. In the Judeo-Christian tradition, this has included institutions like the Sanhedrin, in the later church, institutions like the Congregation for the Doctrine of the Faith, the doctrine-keeping organ of the Vatican once known more colloquially as the Holy Office of the Inquisition. In this sense, the institutional structure of economic theology is no exception, with its own “politburos for correct economic thinking,” to use James Galbraith’s terms. It has its own versions of these institutions. The Board of Governors of the Federal Reserve is a close analogue to the ancient Sanhedrin, constituted of the most respected scholars of the theology, entrusted to uphold the dictates of their respective divinities, and William Greider suggestively entitles his book on the Federal Reserve Secrets of the Temple. Similar institutions are the U.S. Treasury, the World Bank, and the International Monetary Fund, all run by more or less the same econologians, to use Cox’s term. Academic departments are another form of these institutions, some of the leading and most characteristic among them including the Harvard, MIT, and Chicago departments of economics, from whose ranks so many pundits and policy advisors are enlisted. Within the academic setting, perhaps no institution is more characteristic of the spirit of a theological supervisory committee or more representative of the profession than the American Economic Association, whose meeting, we should not be surprised to find out, feature “almost no one with a record of criticizing the institutions that gave us” various economic crises, instead “dominated — in session after session — by the architects of the present world order” like Andrei Shleifer and Lawrence Summers, writes James Galbraith in a harshly critical article. “Of course they don’t want to discuss ideas,” he writes, “Would you, with the record of this professoriate?” and goes on to enumerate the “five leading ideas” of the profession, scarcely distinguishable in their function from traditional theological doctrines, including the belief that inflation is invariably a monetary phenomenon; that full employment is impossible with inflation; that technological change is the cause of rising inequality; that unemployment is caused by rising minimum wages; and that 2.5 percent per year is the absolute maximum rate of sustained growth — all of which are contradicted by the available evidence, Galbraith says, but nevertheless continue to be believed. Even though the “evidence flatly contradicts each of the five dogmas,” and they are no longer explicitly discussed, “they haven’t been abandoned either” and “continue to form part of the core ideology of the economics profession.” Why does this happen?, Galbraith asks. “The reason is fairly clear,” he says, prefacing a damning condemnation of his own profession, expressed stronger and more forcefully than anything I have written, and worth quoting at length: “Leading active members of today's economics profession, the generation presently in their 40s and 50s, have joined together into a kind of politburo for correct economic thinking. As a general rule — as one might expect from a gentleman’s club — this has placed them on the wrong side of every important policy issue, and not just recently but for decades. They predict disaster where none occurs. They deny the possibility of events that then happen. They offer a ‘rape is like the weather’ fatalism about an ‘inevitable’ problem (pay inequality) that then starts to recede. They oppose the most basic, decent, and sensible reforms, while offering placebos instead. They are always surprised when something untoward (like a recession) actually occurs,” all quite consistent with what we have already observed. “And when finally they sense that some position cannot be sustained, they do not re-examine their ideas. Instead, they simply change the subject. No one loses face, in this club, for having been wrong,” he writes — lending credibility to the claim made by his father, John Kenneth Galbraith, who, to reiterate, suggested that “economics has been not a science but a conservatively useful system of belief defending that belief as a science.”245 It should perhaps come as no surprise that an institution like the American Economic Association functions as a kind of theological institution, given its historical roots. Nelson tells us that 20 of the 50 who joined in its first meeting were former or practicing ministers.246 If economists are like false prophets, then, there is also a sense in which they are so much like Pharisees as well, not only straining gnats while swallowing camels, but also in their social function within the secular priesthood as thought police, the supposed authorities. Thought policing is hardly a new practice, and stretches to at least as far back as Jesus’s time. We might recall this relevant scene from the scriptures: “When [Jesus] had come into the temple, the chief priests and the elders of the people came to him as he was teaching, and said, ‘By what authority do you do these things? Who gave you this authority?’” (Matthew 21:23) The Pharisees, it is worth recalling, were the most respected scholars of the Law, its generally undisputed authorities. And the authority of those modern Pharisees known as economists is about as legitimate as that of their ancient counterparts. How seriously, then, should we take Krugman’s suggestion to leave it all to the experts? Not very. After all, Krugman doesn’t seem to take it too seriously himself, as he regularly ventures into politics and history and foreign policy, for example, even though he holds a Ph.D in none of these field. We might instead follow the advice of Chomsky who suggests that “you should decide whether something makes sense by its content, not by the letters after the name of the person who says it,” a radical concept for professional economists like Krugman. The advice is especially relevant when those with the letters after their names are so often wrong, as is especially true of economists. Another characteristic, incidentally, which the ancient and modern Pharisees share in common is their hypocrisy. If Chomsky, for example, is too radical for our taste, we might simply follow the advice of a famous economist named Paul Krugman who writes (to reiterate) that “you should always be skeptical and … should never rely on supposed authority,” except, apparently, when that authority is Paul Krugman.247 At this point, we may, if only crudely, summarize the institutional process of discursive distortion as proceeding roughly along the following lines: (1) it makes false assumptions; (2) it proceeds from these false assumptions in the construction of mathematical models; (3) it allows debate within the boundaries of these assumptions, thereby reinforcing them, but does not allow debate outside the framework of these assumptions; (4) it punishes those within the profession who challenge these assumptions; (5) those who challenge these assumption from outside the profession are attacked and dismissed, while (6) their criticisms are not even refuted, but systematically ignored. If this supposedly scientific discipline is able to exempt itself from the merest self-scrutiny, 245 James Kenneth Galbraith, op. cit; John Kenneth Galbraith, op. cit. Nelson, op. cit., p.232. 247 Paul Krugman, “Marches of Folly,” Op-ed, New York Times, 17 March 2013, qtd. in Greider, “Why Was Paul Krugman So Wrong?” 246 from economists or non-economists, that is in part because it is a hegemonic discourse. Marginal discourses, like Marxian or any other form of heterodox economics, any form of discourse, i.e., which falls outside the basic framework of assumptions of modern economics, does not have the luxury blithe self-ignorance. Because so much is taken for granted in hegemonic discourses and standards of evidence are as a result much higher for marginal discourses, feminism or ethnic studies or critical legal studies or postcolonialism or any other kind of marginal discourses, Marxism in general and Marxian economics in particular, do not have the luxury of not knowing their own basic assumptions, theoretical foundations, methodological limitations, etc. — all the things which dominant discourses can, and always do, take for granted. Whereas marginal discourses must always define itself in relation to the hegemonic discourse, the hegemonic discourse has no such need. It is free, therefore, of these constraints on marginal discourses. In The Second Sex, Simone de Beauvoir writes, “man represents both the positive and the neutral, as is indicated by the common use of man to designate human beings in general; whereas woman represents only the negative, defined by limiting criteria, without reciprocity.”248 The same relation obtains between modern, neoclassical economics, which designates economics in general, and any branch of heterodox economics, which only represents some divergence from this normal, neutral standard. Its utter inability to see itself as one among many different paradigms, or discursive modes, or knowing the world counts for one of the greatest deficiencies of insight characteristic of economics is. In this, it is unaware. As with the views of its critics, economics does not so much refute other paradigms as it fails to recognize they even exist. This is the result, in large part, from the failure of economics to face criticism, substantive criticism, criticism not simply of some elements within a commonly held discursive framework, but criticism from outside that framework altogether, and conversely, much of the blindness and insularity of economics would not exist were it to engage with its critics. Economics, as a discourse, a paradigm, a self-consciousness, has not gone through what Hegel called the “process of Recognition.”249 As Hegel explains in his famous master-servant dialectic, knowledge cannot come to full self-consciousness without an encounter with that which is other to it, until it recognizes its own otherness in relation to other forms of selfconsciousness. The price that modern economics pays for its insouciant dismissal of its critics is a profound lack of self-knowledge, a deep ignorance of its own basic assumptions. We may find it useful to return to Krugman as an example. In a piece entitled, “How Did Economists Get It So Wrong?” referring to the 2008 crisis, Krugman subjects his field and his colleagues to a searing critique. They were too optimistic about the rationality of human beings and the efficiency of markets. Their “romanticized and sanitized vision of the economy led most economists to ignore all the things that can go wrong.” Neoclassical purists like Alan Greenspan, with their faith in the efficiency of markets, didn’t think bubbles were possible. But nor did they think their faith was nullified even after it turns out they were. Some economists “maintained that the fact that freshwater economists had failed to predict the financial crisis was not an 248 Simone de Beauvoir, The Second Sex, trans. H.M. Parshley, New York: Bantam, 1961, p.xv. G.W.F. Hegel, Phenomenology of Spirit, trans. A.V. Miller, Oxford: Oxford University Press, 1977, p.111. 249 embarrassment to their theories but a confirmation of them.”250 And perhaps dinosaur bones are a confirmation of old school creationism. But all of this was understood by Keynes, Krugman argues, and if only we were more faithful to Keynes, we would understand the way out: more public spending. After 2008, the prescriptions of neoclassical monetary policy failed to stimulate the economy on their own. Even a zero interest rate, it turned out, wasn’t enough. Therefore, we must have public spending to stimulate demand, as Keynes suggested. That is the extent of Krugman’s criticism. In effect, it amounts to little more than saying we had not followed Keynes’ advice closely enough. For Krugman, the great lesson of the economic crisis of 2008 was that a more “Keynesian view is the only plausible game in town.”251 The problem with this criticism its is limitation: like the neoclassical purists it criticizes, it still sees and treats the main economic problems as macroeconomic problems, just in a different way. It understands the fundamental economic problems of society to be macroeconomic — an insufficiently low interest rate, or insufficient public spending, or some other contrivance of their brains. Such a conception fails not only to address the economic problems at their microeconomic roots, but fails to even see them. When the economics profession was congratulating itself, when Federal Reserve Chair Ben Bernanke said economic indicators “reflect strong economic fundamentals,” when economists like Larry Summers mocked those who warned of the unstable levels of risk, they were perceiving only the surface appearances; they did not comprehend the depths. Like the face of Madame Buddenbrooks in Thomas Mann’s novel, physically decaying and deteriorating but masked by a thick patina of gaudy make-up, the economy gave the appearance of health while beneath this shining surface, all was rot. Our economists saw the healthy epiphenomena of the macroeconomy under which lurked, and which they failed to perceive, a rotten edifice, the microeconomy, the firm, the location of class struggle and the point of departure of class analysis — tragic, not least because this was observed 150 years ago by Marx, who writes, “we therefore take leave for a time of this noisy sphere [the market], where everything takes place on the surface and in view of all men, and [ … go] into the hidden abode of production, on whose threshold there stares us in the face ‘No admittance except on business.’” 252 It might be understandable that classical political economy stopped, stood with holy awe, at the gates of the factory, but that modern economics still does this is what is difficult to understand. Still, all the laws of macroeconomics it takes for granted; it does not comprehend them, does not see how they arise from or are related to the microeconomic structures of society (the relations in the individual firm between capital and labour, private property, etc.), does not grasp the organic relation of microeconomic structures and macroeconomic trends, or the organic relation of these to a given configuration of social relations. Modern economics artificially divides the study of microeconomics and macroeconomics because it does not comprehend their inner connection. We earlier described how modern economics proceeds unwittingly along behaviorist assumptions because it does not comprehend the inner connection of social relations, institutions, and the observable laws of economics. It is clear from the limitation here in Krugman’s argument 250 MacFarquhar, “The Deflationist: How Paul Krugman Found Politics.” Krugman, “How Did Economists Get It So Wrong?”. 252 Marx, Capital, vol.I, p.195. 251 how the lack of such a conception arises out of economics’s ignorance of its own basic assumptions, in this case its behaviorist assumptions, and this in turn was the result of economics refusing to engage with substantive criticism on the part of those who do not share its basic assumptions. If the profession of economics, for example, had engaged with structuralist or institutionalist critics who questioned its implicit behaviorist assumptions, then perhaps it would have been more aware of the weaknesses of this approach and perhaps as a result would have had a better conception of the inner connection of economic laws to the institutional configurations out of which they arise. SUMMARY OF THE INSTITUTIONAL PRACTICES OF ECONOMICS. By ahistorically proceeding from a set of deeply unrealistic assumptions and then dressing them up in torturously complicated mathematics, subsequently reinforcing these assumptions by allowing debate within a very limited framework of common assumptions, ignoring that which falls outside of it, i.e., dismissing substantive criticism, the whole discipline of modern economics puts a patina of legitimacy on a particular, contingent form of social relations. As Unger writes, “We are taught to sing in our chains. The silent partnership of these rationalizing, humanizing, and escapist tendencies in university culture leaves the field open for forms of practical political thinking that are as deficient in insight as they are bereft of hope.”253 As a result of the kinds of institutional and discursive practices explored above, “The ideas of the ruling class are in every epoch the ruling ideas: i.e., the class which is the ruling material force of society, is at the same time its ruling intellectual force,” Marx writes.254 To which our economist objects: “but what I study is a science! What I practice is free scientific enquiry!” Yet as Marx realized, in the “domain of Political Economy, free scientific enquiry meets not merely the same enemies as in all other domains. The peculiar nature of the material it deals with, summons as foes into the field of battle the most violent, mean and malignant passions of the human breast, the Furies of private interest. The English Established Church, e.g., will more readily pardon an attack on 38 of its 39 articles than on 1/39 of its income,” a sentiment shared by Jesus Christ, who, like Marx, understood that the the faculties of human reason are subordinate to the “passions of the human breast.”255 He understood that the enabling condition of reason is ethical concern. “The heart is deceitful above all things and desperately wicked” (Jeremiah 17:9). That is why, one might notice, the people Jesus criticizes the most harshly, calling them things like “children of hell,” are the most learned, erudite scholars of the law, the ancient equivalent of tenured professors. It’s not that they were unintelligent. Indeed, they were considered among the most intelligent. It’s rather that their hearts were in the wrong places. Their intellectual blindness was a result of their moral blindness. The reason we so often do not see the truth is not because the truth is complex — it is often quite obvious and simple — but because we are dishonest. The reason we fail to see the truth, in large part, is not that it is too difficult for our simple minds to make the subtle distinctions, but rather that it is too easy for our subtle minds not to make the simple — and obvious — distinctions. 253 Roberto Unger, The Left Alternative, London: Verso, 2009, p.4. Marx, The German Ideology, in The Marx-Engels Reader, p.172. 255 Marx, Capital, vol.1, p.15. 254 The economic matters which economists fail to understand, just like the legal matters the Pharisees failed to understand, are the most simple, basic, and obvious — its fictitious and abstract conception of the human being, its distorted notion of freedom, its fantastical idea of the market and the allocation of resources, its obfuscatory conception of society, its absent considerations of power and class — all render economic theory divorced from reality. Recall Chang’s suggestion that “what is needed in those who are running economic policy is general intelligence, rather than specialist knowledge in economics. It may be that the economics taught in university classrooms is too detached from reality to be of practical use,” the key phrase being “detached from reality.” 256 The observation that economists lack common sense is hardly new. In his General Theory, Keynes writes, “The part played by orthodox economists, whose common sense has been insufficient to check their faulty logic, has been disastrous to the latest act,” and, when it came to interest rate policies, “these economists have taught that a restoration of the former shackles is a necessary first step to general recovery.”257 Ignoring the mercantilist theorists, perhaps not unlike the way they ignore their critics today, these economists created “a cleavage between the conclusions of economic theory and those of common sense.”258 Before Keynes, Marx had made a similar critique of the German philosophers. “It has not occurred to any one of these philosophers,” he writes, “to inquire into the connection of German philosophy with German reality, the relation of their criticism to their own material surroundings.”259 This might be adapted to the case we are considering: it has not occurred to any one of these economists to inquire into the connection of American economics with American reality. It is important to recognize the divergence between intention and effect here. If we take the economist at his word, it may very well be that his intention is to pursue free, disinterested scientific inquiry. How is it, then, that his views so consistently ally themselves, through an implicit class bias, with the interests of business (as opposed to labor)? As Marx might have said, he does not know it, but nevertheless he does it. It is conscious, not intentional. But if economists are unaware of the implicit class bias of the views they overwhelmingly espouse, if they are blithely ignorant functional and convenient utility of their theories, if, i.e., economists largely lack class consciousness, there is another class of people who are not, a class of people, highly class-conscious, who are keenly aware of how useful the opinions of economists are. They are the capitalists themselves, from whose perspective the economist is, Marx suggests, his unwitting “ideological representative,” in layman’s terms, what is called a “useful idiot.”260 While the economists may laugh at the stupidity of Marxian class analysis, for example, the capitalist class is instinctively Marxist, using basically Marxian class analysis, only with reversed values. As Chomsky nicely summarizes, “elites are basically Marxist — they believe in class analysis, they believe in class struggle, and in a really business-run society like the United States, the business elites are deeply committed to class struggle and are engaged in it all 256 Chang, 23 Things They Don’t Tell You About Capitalism, Ch.23. Keynes, General Theory, p.349. 258 Ibid., p.350. 259 Marx, The German Ideology, in The Marx-Engels Reader, p.149. 260 Ibid., p.627. 257 the time. And they understand. They’re instinctive Marxists; they don’t have to read [Marx].”261 The divergence between the intention of the economist and the effect of his work is instructive, and perhaps suggests there is something more than individual agency which is at play here, that perhaps there are potent interactions of power, larger social forces, more systematic and structural forces involved. THE PRODUCTION OF THEOLOGICAL DISCOURSE Marx has said that the owners of the means of material production are at the same time the owners of the means of mental production. Let us tease out the meaning of this assertion. How do the owners of material production also own the means of mental production? We might begin with the fact that discourse is something produced. But at the same time, its production is not like the production of all other commodities. Discourse is not produced like cars and computers. It is not the sort of thing that one can go to the grocery store to pick up. Unless one is at a seriously strange convenience store, one doesn’t ring up “discourse” at the cash register alongside toothpaste and deodorant and the like. Nevertheless, recognizing at the outset that discourse is a form of production is a helpful way of looking at things, because there are still meaningful homologies to draw from more generic kinds of production. Discourse may not be exactly like others forms of production, but it shares enough of their general characteristics to make such a comparison useful. The literary critic Edward Said has suggested that discourse is “a regulated system of producing knowledge within certain constraints — whereby certain rules have to be observed. To think past it, to go beyond it, not to use it, is virtually impossible, because there is no knowledge which isn’t codified in this way — about that part of the world.”262 Now, assuming this to be true, how is the analogy we have constructed useful? Well, in the first place, it suggests that, as with other goods, discourse goes through a certain process of production. In the foregoing sections, we had some glimpse of the inner workings of this process in economics. We saw the theoretical tools, or to be insufferably Marxist about, the means of theoretical production which are at work in producing a certain kind of discourse. In addition to this subspecies of the factors of theoretical production, we have also seen the role played in this process by the labour inputs, the direct producers of economic discourse known as economists. Secondly, the analogy allows us to recognize that, like other kinds of products, theological discourse is, though of course in its own way, sold on the market. Although the laws which govern its exchange differ from others, we must make no mistake about this. Economic discourse is a commodity. But why does its being a commodity have an interest for us? The theoretical value of this fact is that inasmuch as economic discourse is a commodity, the laws which govern the production and allocation of commodities, about which we have already enquired into at some length, apply to economic discourse as a species of the commodity form. In our earlier discussions 261 Noam Chomsky, “The Business Elites … Are Instinctive Marxists,” Interview with Keane Bhatt, Truthout, 19 November 2010. 262 Edward Said, “Edward Said on Orientalism,” Youtube, accessed 01 October 2014, http://www.youtube.com/watch?v=fVC8EYd_Z_g. of the market, and of the principle of wealth which governs the distribution of resources within a market, I might have given the market for economic discourse as an illustrative example of the basic principles operative in commodity markets. If one wishes to understand the dynamics which characterize commodity markets, one need look no further than the market for economic discourse, in which one may observe all of the salient principles at work. Like any kind of commodity within a capitalist market economy, the amount and kind of economic discourse produced is determined by market forces, and according to the same basic principles we have already set out, that is to say, production according to effectual demand, which in turn refers to wealth. In our earlier analysis, we saw that this meant that those who own a disproportionate amount of wealth in a given market also have a disproportionate say in the production of that commodity. This is no different in the market for economic discourse. The market for economists and economic discourse will reflect the preferences of those who can afford it, this typically being the business community. It is natural to expect, as it is observed in fact, that the business community will create a demand for professors and for theories which accord with their needs. That should not be surprising. It would be absurd to expect that the business community which generates the overwhelming portion of the effectual demand in this market would desire pro-labour, or worse yet, Marxist professors. And indeed, this is what we observe. In 1982, Edward Herman, professor emeritus of finance at the Wharton School of Business, whom some may know as a collaborator with Chomsky, wrote a valuable article touching perceptively on these themes. In the piece, entitled, “The Institutionalization of Bias in Economics,” Herman suggested that the supply for economic discourse and for professional economics responded, exactly as classical economic theory predicts, to market forces, namely the demand of the business community for an ideological economic discourse.263 He pointed out the hypocrisy with which the economists claim the ability of market forces explain the provision of all goods and services, except their own, which they present as a disinterested and objective academic study untainted by market forces, in particular, by the demand for a certain kind of economic discourse. These professors extend the logic of economic rationality — self-interest responding to the market forces of supply and demand — to virtually anything one can think of, with a single exception — economists. Gary Becker, for instance, extends the logic of rational self-interest, utilitymaximization, and cost-benefit analysis even to “previously sacrosanct areas” like “choices as the number of children, marriage and divorce, the selection of spouses, sexual behavior, cheating and lying, crime and addiction,” Herman reports, “But Becker and his associates have not applied this new search for plausible applications of the economic calculus to themselves.”264 As Herman points out, the supply of economic discourse, far from being disinterested, has historically responded to the “demand for the services of economists” by a particular class with a definite interest.265 He explains that Ricardo’s Principles of Political Economy, for instance, was in some sense merely a more theoretically refined and systematic expression of his earlier propagandistic 263 Edward S. Herman, “The Institutionalization of Bias in Economics,” Media, Culture and Society 4 (1982), pp.275-291. 264 Ibid., p.276. 265 Ibid., p.281. efforts regarding the Corn Laws. Ricardo wasn’t the only one; the principle generalizes rather broadly for the whole range of economic theorists, whose theories we cannot suppose “just happened” to coincidentally meet the definite policy preference, including Smith, Mill, Marx, and Keynes, among others. The principle holds good well into the present. In 1977, Businessweek called the economic consulting business “the capital’s fastest growing industry,” with many economists having “turned entrepreneur and selling their professional skills,, their contacts, their expertise — and, some claim, their souls — in the murky world of Washington policymaking.”266 One might argue that things have not gotten any better in the intervening years. Schor suggests it is not an exaggeration to characterize the strong interrelationships between the economics profession and the financial industry a “corruption of the profession by financial interests,” a “corporatization of the profession,” and others like the documentary filmmaker Charles Ferguson, have explored this in greater detail. In Ferguson’s documentary, Inside Job, he documents the many conflicts of interest in the profession, including the most prestigious economics departments, lending perhaps some credence to Marx’s characterization of the economist as the “ideological representative” of the capitalist.267 Others have been quite frank in acknowledging the market for economic discourse, and spoke very candidly about “selling” the idea of free enterprise to the American public. In April 1947, the American Advertising Council launched a $100 million campaign to educate the public about the “economic facts of life.” Fortune magazine reports that businesses “started extensive programs to indoctrinate employees,” subjecting them to “Courses in Economic Education.” The motivation behind this is given by a survey of business leaders which reported that business leaders held that “we want our people to think right.”268 THE STATE OF ECONOMICS AS A REFLEX OF THE DEVELOPMENT OF CLASS STRUGGLE. NEOLIBERALISM. CONCLUSION. There is another sense in which the state of economic discourse is deeply influenced by larger power dynamics, and more potent structural forces. For Marx at least, the state of the discipline of economics is a reflection of the state of class struggle for a given society. If economics is divorced from reality, that is, in part, a reflection of the fact that so much of reality, or reallyexisting people, are invisible. That reality has not asserted itself in the form of class struggle. In his own context, Marx observes: “In France and in England the bourgeoisie had conquered political power. Thenceforth, the class-struggle, practically as well as theoretically, took on more and more outspoken and threatening forms. It sounded the knell of scientific bourgeois economy. It was thenceforth no longer a question, whether this theorem or that was true, but whether it was useful to capital or harmful, expedient or inexpedient, politically dangerous or not. In place of disinterested enquirers, there were hired prize-fighters; in place of genuine scientific research, the bad conscience and the evil intent of apologetic,” which I quote at length because, point by point, it describes our 266 Businessweek, 07 March 1977, qtd. in Herman, op. cit., p.281. Marx, Capital, vol.1, p.627. 268 Qtd. in Chomsky, World Orders, p.90. 267 own recent history.269 Making the necessary adjustments, you have a description of our recent neoliberal period. If economics is so divorced from reality, that is because, in this neoliberal period, labour has taken a beating by capital. If we are to understand, then, the present condition of economic thought, we must understand the present conditions of economic reality, the regime of neoliberalism. Neoliberalism is the prevailing political economic paradigm of our time, the hegemonic economic discourse with effects on our thought so pervasive that “it has become incorporated into the common-sense way many of us interpret, live in, and understand the world.”270 Though it goes by various names, including “free trade,” “Reaganomics,” “classical economics,” and “globalization,” neoliberal policies share certain common characteristics, among them the “elimination of the public sphere, total liberation for corporations and skeletal social spending,” according to Klein, as well as the liberalization of trade and finance, the mitigation of inflation, and mass privatization.271 Or as McChesney puts it, neoliberalism refers to “policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit.”272 We might consider the roots of liberalism in classical liberalism. The same impulse behind neoliberalism animated classical liberalism, namely an expanded free market, untampered by the state. Only then, supposedly, can the Invisible Hand of the market magically allocate resources efficiently (which we have already seen to be false). Neoliberalism sees itself as based on the theories of Adam Smith’s theories of trade and its notion of the Invisible Hand. Paul Samuelson writes, “Smith proclaimed the principle of the ‘invisible hand’. It says that every individual, in selfishly pursuing only his or her personal good, is led, as if by an invisible hand, to achieve the best good for all. In this best of all possible worlds, any interference with free competition is certain to be injurious,” which is interesting because that is not what Smith wrote.273 In the single reference to an Invisible Hand in The Wealth of Nations, Smith writes, “As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it. By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his 269 Ibid., p.19. David Harvey, A Brief History of Neoliberalism, Oxford: Oxford University Press, 2005, p.2. 271 Naomi Klein, The Shock Doctrine, New York: Picador, 2007, pp.17-18; Noam Chomsky, Profit Over People, New York: Seven Stories Press, 1999, p.20. 272 Robert McChesney, Introduction to Noam Chomsky, Profit Over People, New York: Seven Stories Press, 1999, p.7; Harvey has defined it alternately as “a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, free markets, and free trade.” (Harvey, A Brief History of Neoliberalism, p.2). 273 Paul Samuelson, William Nordhaus, Economics, New York: McGraw-Hill, 1988, 12th ed, p.41, quoted online: http://adamsmithslostlegacy.blogspot.com/2009/10/paul-samuelsons-nuanced-assessment-of.html 270 intention.”274 Smith here is making the rather limited claim that in the specific case of deciding whether to deploy his capital abroad or domestically, the capitalist will, “upon equal or nearly equal profits” prefer “the home-trade to the foreign trade of consumption” for a number of self-interested reasons. So in this specific case, Smith is indeed saying that the self-interest supports the public good (of the domestic market). Therefore, Samuelson paraphrases Smith as follows: “[E]very individual …neither intends to promote the general interest, nor knows how much he is promoting it. He intends only his own security, his own gain; and he is in this, led by an invisible hand to promote an end which was no part of his intention. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it,” 275 rather curiously leaving out anything that refers to foreign trade (which is what Smith, uncontroversially, was talking about), thereby omitting any reference to what would make Smith’s claim limited and circumstantial. Incidentally, it is worth noting that Smith’s single mention of the Invisible Hand was a critique of what is today called neoliberal globalization. Therefore, naturally, today the notion is used to support neoliberal globalization. Now the Inviolable Doctrine of the Invisible Hand means, in the most generally applicable terms that selfishness and greed lead to the good of all. Consequently, government “intervention” in the market — that is to say, social spending on health, education, infrastructure, and insurance — violates against the divine law. Instead, everything is to be privatized, everything from education and health to military spending, elections (effectively), and water. Based on its misreading of Smith, neoliberalism has, at least in theory (though not quite in practice), favored a very limited state, one which protects the basic legal apparatus of free markets. It is by now almost superfluous to notes that this is a vision of the state designed for the interests of capital as opposed to the interests of the vast majority of the population, which may in part explain why neoliberalism has more often than not been accompanied by profoundly anti-democratic regimes. Milton Friedman, one of the principal intellectual architects of the neoliberal vision, felt that the sole functions of the state were “to protect our freedom both from the enemies outside our gates and from our fellow-citizens: to preserve law and order, to enforce private contracts, to foster competitive markets.”276 There is a sense in which Friedman is quite right. We just have to be clear about what this “freedom” consists in and whose freedom it is, distinctions which are necessary if only because the application of the term is so selective in this case. This is all the more necessary given what we already know about whose interests the discourse of mainstream economics typically supports. Neoliberalism, after all, does mean freedom — for capital. It means freedom for capital, not for human beings — this being just another instance of what we have seen to be a central principle of economic analysis, namely that Capital, not humanity, is taken to be the measure of things. As Unger suggests, neoliberalism is a system in which “capital is to be free to roam the 274 Adam Smith, The Wealth of Nations, ed. Edwin Cannan, London: Methuen & Co., Ltd., 1904, 5th ed., Book IV, Ch. 2, Section 9, accessed online: http://www.econlib.org/library/Smith/smWN13.html. 275 Paul Samuelson, William Nordhaus, Economics, New York: McGraw-Hill, 1989, 13th ed, p.825. To be fair to Samuelson, though he does clearly misrepresent Smith, he does not himself subscribe to the infallibility of the Invisible Hand and is, in fact, rather critical of it. 276 Milton Friedman, Capitalism and Freedom, Chicago: University of Chicago Press, 1982, p.2, qtd. in Klein, The Shock Doctrine, p.6. world while labor remain imprisoned in the nation-state,” and he goes on: “They call this selective unfreedom freedom.”277 Capital is unshackled, made free to roam the world in search of cheap labour (low wages) while labour is barred from roaming the world in search of higher wages, which again gives a careful observe some clue as to that for which, not for whom, this economic system is designed. This rather curiously selective notion of freedom is hardly new. It was understood at least as far back as Marx and Engels, who write in the Communist Manifesto that the bourgeoisie “has set up that single, unconscionable freedom — freetrade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.”278 And in Capital, Marx reiterates the meaning of bourgeois “freedom”: the “free” labourer, he says, is “free in the double sense, that as a free man he can dispose of his labour-power as his own commodity, and that on the other hand he has no other commodity for sale, is short of everything necessary for the realisation of his labour-power,” in other words, free to rent himself to capital in order to survive because he owns no commodities except his own labour-power.279 On the one hand, neoliberal free trade is the freedom of capital to exploit labour and, on the other hand, it is the freedom of labour to be exploited by capital. Free trade holds a special interest for Marx because it “brings out the inherent laws of capitalist production,” because it demonstrates, in a sense, what the essential nature of capitalism is.280 The results of free trade policies like neoliberalism thus take on a certain theoretical significance and are therefore worth inquiring into. The obvious effect of this “selective unfreedom,” as the merest common sense would suggest, is to weaken the bargaining power of labour relative to capital, which was perfectly obvious to that inveterate radical Adam Smith, whom we have already quoted as saying that, in the contest of force between capital and labour, “[i]t is not … difficult to foresee which of the two parties must, upon all ordinary occasions, have the advantage in the dispute, and force the other into a compliance with their terms. The masters, being fewer in number, can combine much more easily.” Capital always already has this advantage over labour. The “selective unfreedom” of neoliberalism only exacerbates it. In addition to this de facto advantage, the “masters” often consolidate their power of labour through combination, and “whoever imagines … that masters rarely combine, is as ignorant of the world as of the subject, Smith writes, because the truth is, “Masters are always and every where in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate.”281 It was on this basis, among others, that Smith supported government legislation favorable to labour: “Whenever the legislature attempts to regulate the differences between masters and their workmen,” Smith writes, “its counsellors are always the masters. When the regulation, therefore, is in favour of the workmen, it is always just and equitable,” a position curiously omitted when Smith is invoked to support neoliberal policies — a part of Smith’s writings curiously left out in the discourses in which 277 Roberto Unger, The Left Alternative, London: Verso, 2009, p.139. Karl Marx and Friedrich Engels, Manifesto of the Communist Party, in Marx and Engels: Basic Writings on Politics and Philosophy, ed. Lewis Feuer, New York: Fontana, 1971, p.51. 279 Karl Marx, Capital: Vol.I, ed. Friedrich Engels, trans. Samuel Moore and Edward Aveling, New York: Modern Library, 1906, pp.187-8. 280 Ibid., p.297. 281 Ibid., pp.187-8. 278 Smith is invoked.282 Smith’s suspicions about the machinations of the “masters” are hardly irrelevant, or particularly conspirational. In August 1971, a corporate attorney named Lewis Powell sent a confidential memorandum to the U.S. Chamber of Commerce “calling on corporations and their CEOs,” Magdoff and Foster write, “to organize a concerted attack on labor, the left academy, and the liberal media — and to use their financial leverage to dominate government.”283 In the secret memorandum, Powell argued that “the time had come — indeed it is long overdue — for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it,”284 a task to be executed by conservative institutions like the National Chamber of Commerce, the Business Roundtable, the American Legislative Exchange Council, the Heritage Foundation, and the Cato Institute, which were to “lead an assault upon the major institutions — universities, schools, the media, publishing, the courts — in order to change how individuals think ‘about the corporations, the law, culture, and the individual.’”285 David Harvey, a Marxist geographer and one of the most widely cited scholars in the humanities, suggests that neoliberalism is, at bottom, about “the restoration or reconstitution of naked class power.”286 In his review of the political economy of neoliberal policy, Havey suggests neoliberalism may be traced back to a group of intellectuals, centered on Friedrich Hayek, called the Mont Pelerin Society, which included others like Milton Friedman and Ludwig von Mises, who used the neoclassical economics developed by people like Alfred Marshall, William Stanley Jevons (to whom we have already been introduced) and Leon Walras, to advocate free market policies. It remained more or less marginal until the 1970s when it received funding by major conservative think tanks like the Heritage Foundation. But its big year, Harvey suggests, was 1979, when Margaret Thatcher became Prime Minister in Britain. She attacked the trade unions, rolled back the welfare state, reduced taxes, privatized public enterprise, among other things. In a moment which if particular interest for us, Thatcher said, “Economics are the method, but the object is to change the soul.”287 It was only a year later when Thatcher’s American counterpart, Ronald Reagan, was elected President, only to introduce the same kinds of policies. Because the interests of capital and labour are “by no means the same” as Smith suggested, the neoliberal assault on labour was bound to lead to a high-profit, low-wage, low-growth economy, as many economists rightly predicted.288 The uniform effects of neoliberal policies everywhere have been “a massive increase in social and economic inequality, a marked increase in severe deprivation for the poorest nations and peoples of the world, a disastrous global environment, an unstable 282 Ibid., p.151. Fred Magdoff and John Bellamy Foster, “The Plight of the US Working Class,” Monthly Review 65, no.8 (2014), accessed 18 March 2014, https://monthlyreview.org/2014/01/01/the-plight-of-the-u-sworking-class. 284 Lewis Powell, qtd. in Harvey, A Brief History of Neoliberalism, p.43. 285 Magdoff and Foster, “The Plight of the US Working Class”; Harvey, A Brief History of Neoliberalism, p.43. 286 Harvey, A Brief History of Neoliberalism, p.119. 287 Margaret Thatcher, qtd. in Harvey, op. cit., p.23. 288 Chomsky, Profit Over People, p.24. 283 global economy and an unprecedented bonanza for the wealthy.”289 As Harvey suggests, it is the “universal tendency” of neoliberalism to increase social inequality with results that are “quite spectacular” for the mega-rich.290 For everyone else, neoliberalism has meant decreasing wages, increasing unemployment and poverty, a decline in labour’s share in income, a deterioration of health and education, and slowed growth, what economists call an “economic miracle.”291 A recent report by the Center for Economic and Policy Research reviews the results of 20 years of neoliberal globalization.292 Among its findings is that neoliberal policies have been correlated with lower growth rates, reduced progress in life expectancy, reduced progress in diminishing infant mortality, and reduced progress in education. The authors suggest that “by almost every measure, the progress achieved in the two decades of globalization has been considerably less than the progress in the period from 1960 to 1980.” While the authors are cautious in introducing a causal hypothesis where correlation was observed, the results, they write, “are overwhelmingly in one direction: in every category, the comparisons show diminished progress overall in the period of globalization as compared with the prior two decades.” 293 At the very least, “there is certainly no evidence in these data that the policies associated with globalization have improved outcomes for most low to middle-income countries,” and “the data presented here certainly contradict any claims that the last two decades of the twentieth century were a time of extraordinary progress for people living in the less affluent countries of the world — they were not.”294 Particularly embarrassing for the “ideologues” of neoliberal economics are the slower growth rates achieved under neoliberal policies. “The poor growth record of neo-liberal globalization since the 1980s is particularly embarrassing,” writes Chang. “Accelerating growth — if necessary at the cost of increasing inequality and possible some increase in poverty—was the proclaimed goal of neo-liberal reform. We have repeatedly been told that we first have to ‘create more wealth’ before we can distribute it more widely and that neo-liberalism was the way to do that. As a result of neoliberal policies, income inequality has increased in most countries as predicted, but growth has actually slowed down significantly.”295 On this score, the Keynesians cannot be faulted as the neoclassical economists can who have repeated the lie that there is a definite trade-off between equality on the one hand and efficiency on the other. The fact is, this is simply untrue, or at least we have no sound evidence for believing so. Reaching a similar conclusion as Chang, a recent IMF paper suggests that “there is a strong case for considering inequality and an inability to sustain economic growth as two sides of the same coin.” The report finds that “from the perspective of the best available macroeconomic data, there is not a lot of evidence that redistribution has in fact 289 McChesney, Introduction to Profit Over People, p.8. Harvey, A Brief History of Neoliberalism, pp.118-9. 291 Chomsky, op. cit. p.32. 292 Mark Weisbrot, Dean Baker, Egor Kraev, Judy Chen, The Scorecard on Globalization: Twenty Years of Diminished Progress (Briefing Paper, Washington, D.C.: Center for Economic and Policy Research, 11 July 2001). 293 Ibid., p.14. 294 Ibid., pp.2-5. 295 Chang, Bad Samaritans, p.28. 290 undercut economic growth (except in extreme cases). One should be careful not to assume therefore … that there is a big tradeoff between redistribution and growth. The best available macroeconomic data do not support such a conclusion.”296 The fact that the kind of inequality which neoliberal policies have universally generated has coincided with lower rates of growth is quite consistent with its observable inverse, that the countries with more equal distributions of wealth also grow relatively quickly. As Kunkel suggests, the “Scandinavian economies,” for instance, “grew faster than more unequal counterparts along the Mediterranean, just as comparatively egalitarian East Asia,” which, we might add, consciously violated the advice of the American experts, economically “outpaced more oligarchic Latin America,” which had the advantage of decades of tutelage from the United States, whose advice it closely followed, though often not voluntarily. “The pattern prevails generally across the 20th century,” Kunkel adds.297 Somehow the economists who maintain this fictitious trade-off between equality and growth overlook the fact that, even in the United States, “the era of equality was also a time of unprecedented prosperity,” just like, in praising the virtues of the free market and condemning centralized planning, they somehow overlook the fact that every free market experiment has been an utter disaster and that the period which achieved the single highest growth rate in American history was basically a command economy — during the war years, with GDP nearly quadrupling.298 That equality and growth appear in many cases to converge rather than diverge may have to do with what is known in the technical literature as a problem of underconsumption. The idea is not complicated. Economic growth requires a sufficient level of demand to justify any given level of output, and much of this demand is generated by workers. If workers, therefore, lack the money to purchase goods and stimulate demand, economic output will not be as great as it might be if they had more money. Because inequality falls largely on class lines, societies with large inequalities of wealth tend to grow more slowly because the wealthy have a lower propensity to consume than the rest of the population, who are inclined to spend a larger portion of their income. Theorists like Marx and Keynes have suggested that a “top-heavy income distribution can hamper the investment on which growth depends. Too much money in the hands of the rich, who save more of their income than others, may curtail demand for both consumer goods and the capital goods necessary to furnish them.”299 In the Wealth of Nations, Smith wrote, “Servants, labourers and workmen of different kinds, make up the far greater part of every great political society. But what improves the circumstances of the greater part can never be regarded as an inconveniency to the whole. No society can surely be flourishing and happy, of which the far greater part of the numbers are poor and miserable,” though he himself did not come to a consciousness of the results of his own analysis, having left that to later theorists like Keynes to more systematically account for. But that was still only the practical premise of a prosperous labour force. Smith immediately goes on to 296 Jonathan David Ostry, Andrew Berg, and Charalambos G. Tsangarides, “Redistribution, Inequality, and Growth,” IMF Staff Discussion Notes, New York: International Monetary Fund, 17 February 2014, https://www.imf.org/external/pubs/cat/longres.aspx?sk=41291. 297 Kunkel, op. cit. 298 Quote from Krugman, Conscience of a Liberal, p.54; comments on war economy, pp.51-53. 299 Kunkel, op. cit. invoke its moral premise: “It is but equity, besides, that they who feed, cloath and lodge the whole body of people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, cloathed and lodged.”300 Here it is worth paying close attention to Smith’s logic. It is only fair, Smith says, that labourers should have enough of the produce of their own labour to be able to live decently. This is certainly more ethical and humane than the conservative view that labour should have such produce of its own labour that the market directly allocates to it, because the latter is a form of pure, unmitigated robbery. We say it is robbery because the produce of labour is being expropriated from labour, and it is receiving only the slimmest portion of it back. But on this basis, we recognize that Smith’s proposal is also robbery, only in slightly less horrific form. As opposed to the free market fundamentalists, Smith advocates a milder, mitigated form of robbery, in more homeopathic doses. Oscar Wilde detested this robbery adorned in the garbs of liberal ethics. On this basis, he asked, “Why should they [the workers] be grateful for the crumbs that fall from the rich man’s table?”301 That the crumbs are bigger does not change the ethical situation. Again Smith did not come to a consciousness of the results of his own analysis, having left the task for theorists like Marx, who would go on to argue that labour does not deserve a bigger portion of the product of its own labour but, quite logically, all of it, that in order for this to happen, it would be necessary to get rid of the economic leeches who, through a system of legalized robbery, take a portion of the value which is created by labour for itself, leaving for labour, only a portion of the product of its own labour, that class of property owners, capitalists, “who have no occupation but to consume the labour of others,” and that, in order for this to happen, in turn, it would be necessary to abolish class property, that configuration of social relations, “which makes the labour of the many the wealth of the few.”302 But we are getting ahead of ourselves. For the moment, it is only necessary to recognize why the kinds of inequality which have everywhere accompanied this less mitigated form of robbery, neoliberal policy, have coincided with lower growth rates, that the whole of this effect is neatly, if perhaps accidentally, summarized in Smith’s suggestion that “[n]o society can surely be flourishing and happy, of which the far greater part of the numbers are poor and miserable,” which has been the unspoken aim of neoliberal policy for a generation. If modern economics has been more divorced from reality than usual, then, it may be because labour has been taking a beating by capital over the past few decades. Magdoff and Foster suggest, “there has also been a long-term decline in the relative power of the working class, with capital increasingly gaining the upper hand,” evident in the declining share of labour in total income.303 “A vast redistribution of income — Robin Hood in reverse — is occurring that is boosting the share of income to capital, even in a stagnating economy.” That modern economics breathes so deeply of unreality is a reflection of the development of the class struggle, the intellectual products of which are our own economical false prophets. 300 Smith, Wealth of Nations, p.83. Wilde, op. cit. 302 Marx, Capital, vol.1, p.487; idem., “The Civil War in France,” in Feuer, ed., Basic Writings on Politics and Philosophy, p.409. 303 Fred Magdoff and John Bellamy Foster, “Class War and Labor’s Declining Share,” Monthly Review 60, no.10 (2014). 301 A CHANGING TIDE. NEW ECONOMIC MOVEMENTS. We have reviewed very briefly the economic effects of neoliberalism which have now been going on for a generation. Neoliberal policies have resulted virtually everywhere in higher rates of inequality and lower rates of growth. But in this, it has had unintended though perhaps not unforeseen consequence of eroding its own social base. Not only the increased frequency with which economic crises occur as a result of neoliberal policy, but also the increased and unprecedented stakes, including the possible destruction of the planet, has brought inequality and the class divide into sharper relief. After the 2008 crisis, Occupy Wall Street transformed the public discourse, with far more emphasis on inequality than perhaps could have been anticipated before the crash, not least if we recall that issues like inequality and wealth distribution were at best marginal within the discourse of mainstream economics. Earlier, we mentioned that because of its almost unique status among the social sciences as a hegemonic discourse, economics had almost been discursively frozen in the what Kuhn called the period of “normal science.” Since the crisis of 2008, this has all changed, and even people like the former Chair of the Federal Reserve Board Paul Volcker have said that a “rethinking of the economic profession” is in order. Martin Wolf of the London Financial Times, and perhaps the most respected economics commentator in the world, has suggested that economics is currently in a stage of intellectual revolution, where members of the paradigm have recognized that there is something wrong with the existing body of knowledge, and where this recognition has allowed new debates to occur. It is good time for the economic profession, Stiglitz says, because “people can question the reigning paradigm.”304 Though much of this must remain speculative, it appears, at least based on our circumstantial observations, that the crisis of 2008 has occasioned a new opening up of economic conversation which had been closed for decades, has occasioned the thawing of a paradigm which had been frozen and crystallized in its “normal science” phase. Or one might think of the crisis as a rather akin to kind of heat applied to a given solid, loosening the bonds which hold its molecules together, softening the solid and rendering it into a more malleable form so that it might be more easily reshaped. This has opened a range of possibilities which would scarcely have been conceivable before the crisis. A particularly indicative example of this opening up of economic discourse was the publication of Piketty’s Capital in the 21st Century, already discussed. In its subject matter at least, there is nothing particularly revolutionary about Piketty’s book. Various people, especially on the left, had been discussing inequality for a long time, pointing out, if not in as systematic a fashion, the unprecedented levels of inequality. Virtually every major critic from the left had been saying this before Piketty. The idea that the principal locus of wealth inequality was class is hardly new either, Marx having elaborated it a long time ago. These elements, therefore, do not seem to be able to account for the massive popularity of the book, which has topped book sales since its release, unprecedented for a book of its kind. What is different is the timing. Piketty’s book struck a nerve. He put into words and numbers the hitherto expressed consciousness of those who had lived 304 INETeconomics, “Introduction: Institute for New Economic Thinking,” Youtube.com, 01 December 2010, accessed 04 October 2014. through a generation of neoliberal reforms, and who had the magic caps pulled from their eyes with the 2008 crisis. While Piketty’s book is undoubtedly significant in this regard, it is neither the only nor even the most important example of the shift in consciousness which has spilled over into economic discourse. Of both greater importance and promise, I think, are the new movements to fundamentally rethink the way economics is thought, discussed, and taught. The obvious limitations of Piketty’s approach are those of progressive liberalism more generally, which we have already mentioned — its conceptions inherently inadequate to provide any account for the economic life of society. Many sense, and some have said, that “the master’s tools will never dismantle the master’s house,” (to borrow from Audre Lorde), that something more than a modest correction is necessary, that a fundamental rethinking is in order. Where the earlier conceit had been that our thinking was too theoretical and not practical enough, the new sense is that our thinking has in fact been too practical in a sense, and not theoretical enough, that we must begin to ask the big questions again. In June 2014, hundreds of students, lecturers, professors, and interested citizens converged on the campus of University College London for the Rethinking Economics Conference, all of them sharing the belief, Philip Pilkington writes, “that economics education in most universities had become narrow, insular and detached from the real world.”305 However secure tenured faculty and the older members of the profession may feel in the theories they have inherited, “students have sensed that something is wrong,” and “have been organizing across 60 countries,” Pilkington reports, to force “the vampire that is the economics profession into the light of day” and to demand a more pluralistic approach to the way economics is taught. Students in the United Kingdom, India, Brazil, Germany, France, the United States, Chile, and other countries have joined in, and they have even begun a global alliance through the formation of the International Student Initiative for Pluralistic Economics.306 Nor are the students alone. Ha-Joon Chang and John Adelson wrote in a recent Guardian piece that in England, they have been joined by employers like the Bank of England and the City, who have complained that “recent economics graduates, while being technically proficient, know very little about the real world. Bereft of historical, institutional, and political insight, “they end up being idiot savants — they can manipulate most complicated mathematical models but cannot translate their insights into business strategies and economic policies in the real world.” “To summarise bluntly,” Chang and Adelson write, many feel that they way economics is typically taught “is irrelevant to understanding real economies, incomprehensible to the target audiences for economic advice, and often just plain incorrect.” But as Chang and Adelson hasten to add, the kinds of changes which have been suggested by students are scarcely impossible. Not only are more pluralistic and empirical approaches been adopted in many other disciplines in the social science, but were once themselves the manner in which economics was once “routinely taught” in undergraduate economics courses. While it is perhaps too early to tell where developments like these will lead, Pilkington says the “students are well-organized, and their numbers are growing; their commitment is unlikely to go away anytime soon. They are focused in a manner that is impressive 305 Philip Pilkington, “The fight to reform Econ 101,” Opinion, Al Jazeera America, 16 July 2014. Jonathan Aldred and Ha-Joon Chang, “After the crash we need a revolution in the way we teach economics,” The Guardian, 10 May 2014. 306 for a protest movement, willing to transcend their political differences in order to fight for a common goal. Every week a new group springs up.” There have also been more organized forms of this agitation. In the past few years, there has been a burgeoning if nascent series of movements seeking to fundamentally rethink economics. As Gar Alperovitz writes, “a deepening sense of the profound ecological challenges facing the planet and growing despair at the inability of traditional politics to address economic failings have fueled an extraordinary amount of experimentation by activists, economists and socially minded business leaders … As the threat of a global climate crisis grows increasingly dire and the nation sinks deeper into an economic slump for which conventional wisdom offers no adequate remedies, more and more Americans are coming to realize that it is time to begin defining, demanding and organizing to build a new-economy movement.”307 The movement has begun to seriously rethink some of the most fundamental problems of economics, including questions relating, among other things, to ownership, distribution, growth, our relation to nature, not least, the paradigm which frames all of these conceptions. This dispersion of burgeoning movements includes groups like the Institute for New Economic Thinking and New Economy Coalition, which merged the New Economics Institute, the New Economics Foundations, and the E.F. Schumacher Society. The Institute for New Economic Thinking began, in part, out of a series of conversations between people like George Soros and Anatole Kaletsky, at the World Economic Forum in January 2009. While the spectre of the global economic crisis still loomed large in the minds of many, “it was becoming increasingly evident” Kaletsky says, “that the economic profession not only had been responsible for causing the crisis, but also had nothing instructive to say about how to pull the world out of it.”308 Out of an initial investment by Soros, the movement has built itself up through grants for research, through taskforces and conferences, and through partnerships at the top universities — all with the aim of enabling a new generation of young economists to think more broadly, think bigger, think better for a world which increasingly demands this of us. The movement appears to be quite promising. At its first meeting at King’s College, Cambridge, where Keynes revolutionized the field a generation ago, the Institute brought together economists of different strands and schools, from mainstream Chicago School and mainstream Harvard economists to Keynesians, even Marxists. The Institute for New Economic Thinking has been more practically-oriented, but appears no less promising. The member organizations of the Institute have begun to look at alternative forms of ownership, including workers’ cooperatives and B corporations, which provides the beginnings of a legal and institutional framework for an economy which is not solely oriented profit, but also to things like social and environmental responsibilities. As Alperovitz, who has been a central figure in this, explains, the movement has begun to steadily pick up momentum. Out of the coalescence of movements, organizations like the American Sustainable Business Council have sprung up, which pools resources, shares information among its members, and lobbies for more sustainable policies. Recently, the group met with the Labor Secretary to make it clear that the 307 Gar Alperovitz, “The New-Economy Movement,” The Nation, 25 May 2011. Anatole Kaletsky, INETeconomics, “Introduction: Institute for New Economic Thinking,” Youtube.com, 01 December 2010, accessed 04 October 2014. 308 American Business Roundtable does not represent the interests of the entire business community. Other efforts like the Business Alliance for Local Living Economies, which consists of more than 22,000 small businesses, facilitate efforts to create sustainable “living economies” with the larger aim of “developing a global system of interconnected local communities that function in harmony with their ecosystems.” The Institute for New Economic Thinking has also partnered with the progressive think tanks like Demos to rethink alternative measures of economic progress, recognizing fundamental problems with traditional GDP and GNP measures, which do not take things like externalities (environmental pollution, for instance) into account. Groups like the New Economy Working Group, a collaboration between the Institute for Policy Studies and YES! Magazine, are attempting to create more highly detailed arrangements for publicly-owned banks as part of the crucial institutional infrastructure of a new economy. This is only a sampling of the kinds of movements that have begun to spread on these fronts. Alperovitz believes it is “possible, even likely, that the explosion and ongoing development of institutional forms, along with new and more aggressive advocacy, will continue to gather substantial momentum as economic and ecological conditions worsen,” though neither he nor anyone else can say whether this will lead to the kinds of systemic change which are necessary. He goes on to suggest some of the problems and challenges facing these movements, not least of which are the multiplicity of often conflicting voices in the movement. But if somehow the seriousness of the situation with which we are faces can force this plurality of voices from noise into some kind of more coherent polyphony, if these conflicting movements and organizations can find what is common in their causes and overlook the more minor aspects of their dispute, then these movements wield great and necessary promise.309 We see then that, especially since the economic crisis of 2008, there has been a widespread shift in consciousness, and while the new consciousness which is being formed is still in a very germinal stage, begging of a more definite form, it has the potential to open up a range of possibilities which could hardly have been conceivable before the crisis. There are many movements, and of many sorts. In some there are students, in other there are professors. Some movements, like the Institute for New Economic Thinking are more theory-oriented and appear to be dealing with problems bearing more directly on macroeconomic questions while other movements like the New Economy Coalition, seem to be more practically-oriented and deal with problems bearing more directly on grass-roots, microeconomic, and institutional changes. All of these movements and all of their approaches are necessary, each having a limited validity of its own and a potential to gain from engagement with others. What is necessary for these movements to succeed in their aims? We may infer from our criticism a number of rather specific ways in which economics can begin to rethink itself. Broadly speaking, economic must do the opposite of that for which we have criticized it. We have seen that, not only as they relate to its mathematical abstractions, but also as it relates to its foundational concepts like “efficiency,” “rationality,” “distortion,” “society” and the like, the errors of economics are located not principally at the level of fact, but at the level of their meaning, at the level of their interpretation, which suggested to us that the principal genus of economic misconception is theoretical in nature, inherent in the paradigm and in the discursive architecture of the discipline, for it is theory 309 Alperovitz, op. cit. which gives facts their meanings. We found, further, that the theoretical inadequacies proceeded from assumptions and that the reason these assumptions were able to go unchallenged was a series of interconnected discursive practices, not least of which was the monoculture of the discipline and its unwillingness to engage with its critics, which made economics impervious to refutation, and in the final analysis, to reality as well. This was more or less, the general shape of our criticism. More specific proposals proceed along these lines. For one, economics must come back to the ground, adopt a sense of reality in the interpretation of its models, learn to deal with assumptions in a more realistic way. This does not imply that it is necessary for economics to do away with its models in their entirety, only that it learn to interpret the meaning of these models in light of the assumptions made. Inasmuch as economic requires the use of models, our criticism does not even imply that the models, mathematics or any other sort, should not make certain assumptions. All models, after all, require that certain simplifying assumptions be made, and that is what their principal theoretical strength consists in. Our criticism only implies that where such assumptions are needed, they must be properly taken into account in the interpretation of the meaning of the results of the analysis, that because certain simplifying assumptions were introduced into the model for practical reasons, the results of that model only have a validity under certain conditions, according to the assumptions taken. That being said, such assumptions as are seen to be necessary should also be reasonable, as may be determined by the specific use to which the model and its assumptions are being put. And it is not as if economists are without guidance here. Many great economists have been able to, indeed have been forced to, introduce certain simplifying assumptions and abstractions into their mode of inquiry. But they have also been able to recognize the inherent limitations of the approach, and with these limitations in mind, they have been able to interpret the meaning of their models and abstractions. Marx and Keynes are not only particularly self-aware in this regard, but also particularly explicit. But in order for economics to understand the implicit assumptions from which its models proceed, it will be necessary for economics to engage more broadly — with its own theoretical foundations, with its critics, with other disciplines. So long as economics is a hegemonic discourse, it has the luxury of blithely ignoring all of its own implicit assumptions, and proceed on a profound ignorance of them, as we have seen it has done. This is not acceptable if we are to have a kind of economics which is capable of teach us about anything remotely resembling reality. We must therefore de-center economic discourse, disclose not only its fallibility, its contingency, and its historical nature, but also the causes for these characteristics. For this, a number of engagements will be necessary. The discipline must — which should be an elementary premise of all inquiry — engage with criticism, not only internal but also external, and not only those who criticize certain elements within its theoretical system, but also those who criticize its system altogether. Within the discipline, it must engage with the various heterodox schools of economics, including the institutionalists, the post-Keynesians, the feminists, etc. In this engagement, Marx is unavoidable, not least because Marx’s theories persist in their relevance as the crises of capitalism become ever more destructive. Economics must engage with theory once more. The conceit that the big theoretical problems have all been accounted for is no longer tenable. It will be necessary, therefore, to engage once more with the great theorists, the intellectual architects who laid the theoretical foundations of the field upon which later generations have built, to engage once more with Smith, Ricardo, Mill, Marx, List, Veblen, Keynes, Hayek, Jevons, Friedman, etc. In order to de-center economic discourse, which maintains its hegemonic status by virtue of its being, at least in its own conception, a science, it may also be necessary to engage with the philosophers more generally and the philosophers of science in particular. Philosophers like Foucault and Kuhn who demonstrate the contingency of forms of knowledge, of paradigms, and of science in all their various forms are of especial value here. Most disciplines are found to be relatively strong in either theory or history, and relatively weak in their other, and the weakness is therefore remedied by its engagement with what it requires. Economics, unfortunately, has the distinction of being very weak in both theory and history. An engagement with theory alone is therefore not enough; it must engage history as well, not only the history of economic thought, but also economic history more generally, not least because the present ideological form under which economics suffers is an abstract metaphysics which makes minimal reference to the real world. But while it may be reasonable to expect that the introduction of these changes, which can be undertaken only within the discipline itself, to have an effect which is not insignificant, we must recognize, on the basis of what we have already established, that these changes are by no means sufficient either. For we have seen that the discipline of economics and the way the economy is studied are not isolated phenomena, but always already exist within certain social context which influence their content. We have see that economics is profoundly influenced by the social and economic circumstances in which it finds itself, that to a certain degree, the state of economics is but a reflection of the power struggles which happen outside the gates of the academy. We can recall that when the United States moved to the political right, econonomics moved to the right with it. Schor recounts that when she first entered the discipline, it was a relatively liberal profession, with many people who wanted in some way to make the world a better place and who saw a role for government policy in that. Liberals dominated the discipline then, she says, because it was the dominant political force of the day. We have already seen how Occupy has changed the discourse of economics in meaningful ways. If the reform of economics is to succeed, however, it will require external pressure from social movements.310 310 Schor, op. cit.