Cambridge economist Ha-Joon Chang frequently makes the case for the priority which should be given to a pluralist social science of political economy rather than a ‘pure’ (neoclassical) economics and its pretensions to be more like a natural science.
Political economy, a branch of the study of man in society, an interdisciplinary social science, incorporating the economic, social, political, ethical and even philosophical, can often provide us with richer insights than are on offer from modern mainstream economics alone.
That is not to say that we should ignore the arguments of neoclassical thinking. Economics, the ‘science of rational choice’, as it is sometimes defined these days, does tell us that individuals respond to incentives: change the incentives and our behaviour may change. But it tends to neglect much that I have just mentioned in its quest to be scientific, and therefore somehow apolitical and asocial. It also tends to lack an awareness of its own methodology and how this has evolved in ways shaped by economic and social history.
Along this vein is another insightful quote from Chang’s Economics: The User’s Guide, (p. 393-6), which takes to task economics’ pretension to be apolitical:
“The government failure argument asserts that economics, or the logic of the market, should trump politics – and indeed other domains of life, such as arts, academia and so on. This argument is these days so widely accepted that most people take it for granted. But it is a seriously flawed argument.
First of all – and this is a point that seems obvious to non-economists but that many economists find difficult to accept – there is no reason why the market logic should prevail over other domains of life. We do not live by bread alone.
Moreover, the argument is based on the implicit assumption that there is one correct, ‘scientific’ way of deciding what should belong in the domain of politics. For example, the proponents of the government failure argument say that things like minimum wage legislation or tariff protection for infant industries are intrusions of ‘political’ logic into the sacrosanct sphere of the market logic. But there are economic theories that justify such policies. Given this, what these economists are doing is, in effect, labeling other economic theories as ‘political’, and therefore lesser, arguments while claiming that their own economic theory is somehow the right economic theory – or even ‘the’ economic theory.
Even if we accepted that the economic theory that the proponents of the government failure argument adopt is the ‘correct’ one, it is not possible to draw a clear boundary between economics and politics. This is because the very boundary of the market is in the end determined by politics and not by an economic theory – of whatever variety.
Before we even begin market transactions, we need (explicit and implicit) rules on what can be traded, who can trade them and how they can be traded in the market. All of these rules are restrictive in some ways, and therefore no market is genuinely ‘free’. And these ground rules cannot be determined by economic logic. There is no ‘scientific’ list of what should (or shouldn’t) be bought and sold in the market. The decision is a political one.
All societies keep certain things off the market – human beings (slavery), human organs, child labour, firearms, public offices, health care, qualifications to practise medicine, human blood, educational certificates and so on. But there is no ‘economic’ reason why any of these should not be bought and sold in markets. Indeed, all of them are or were legal objects of market transactions in different times and places.
At the other end of the spectrum, we have made certain things into objects of market transaction that had not been so before. Before the introduction of the laws to protect patents, copyrights and trademarks in the eighteenth and the nineteenth centuries, ‘ideas’ (intellectual property) were not traded in markets. Today we buy and sell the rights to pollute (‘carbon trading’) or bets on notional economic variables (e.g., derivatives based on stock market index or on inflation rate), but these things did not even exist until one or two generations ago.
The government also sets the basic rules regarding what economic actors can and cannot do even within the domain of the market. False advertising, sales based on misleading information, insider trading and other practices are all prohibited. Regulations regarding minimum wages, workplace health and safety and working hours set boundaries on how firms can treat workers. Emission standards, carbon quotas and noise pollution controls regulate how firms may produce their outputs. And so on.
So politics is creating, shaping and reshaping markets before any transaction can begin.”
The Political Economy of Development 