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: Continue reading
Another extract in this occasional series from Michael Hudson’s J is for Junk Economics (p.128-129). It defines a well-known term in economics, co-opted by the right, often misleadingly, in order to provide support for ‘free’ markets:
“Invisible Hand: The term dates back to Adam Smith’s Theory of Moral Sentiments (1759) postulating that the world is organized in a way that leads individuals to increase overall prosperity by seeking their own self-interest. But by the time he wrote The Wealth of Nations in 1776, he described hereditary land ownership, monopolies and kindred rent-seeking as being incompatible with such balance. He pointed to another kind of invisible hand (without naming it as such): insider dealing and conspiracy against the commonweal occurs when businessmen get together and conspire against the public good by seeking monopoly power. Today they get together to extract favors, privatization giveaways and special subsidies from government.
Special interests usually work most effectively when unseen, so we are brought back to the quip from the poet Baudelaire: “The devil wins at the point he convinces people that he doesn’t exist.” This is especially true of the financial reins of control. Financial wealth long was called “invisible,” in contrast to “visible” landed property. Operating on the principle that what is not seen will not be taxed or regulated, real estate interests have blocked government attempts to collect and publish statistics on property values. Britain has not conducted a land census since 1872. Landlords “reaping where they have not sown” have sought to make their rent-seeking invisible to economic statisticians. Mainstream orthodoxy averts its eyes from land, and also from monopolies, conflating them with “capital” in general, despite the fact that their income takes the form of (unearned) rent rather than profit as generally understood.
Having wrapped a cloak of invisibility around rent extraction as the favored vehicle for debt creation and what passes for investment, the Chicago School promotes “rational markets” theory, as if market prices (their version of Adam Smith’s theological Deism) reflect true intrinsic value at any moment of time – assuming no deception, parasitism or fraud such as characterize today’s largest economic spheres.”
Free-market economists espouse an ideal: eliminate market distortions, and the economy will flourish. This makes them somewhat starry-eyed. Show me a capitalist economy, especially a successful one, without such distortions. They can occur as market ‘imperfections’ such as imperfect competition in the form of oligopoly or monopoly, or as externalities such as the costs of pollution. Continue reading