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Controversial Economics

from Peter Radford

A number of us have grown tired of shouting – in my case endlessly repeating myself – about current economic policy. I am sure we have worn out our welcome. We sound shrill. We sound partisan. We risk making ourselves irrelevant because our repetition doesn’t seem to add to the debate. Indeed we appear to be destructive and not constructive critics as our elite and leadership struggle to steady the leaking boat that is our economy.

I do not apologize.

Not one bit.

I do not apologize because this is not some arcane bureaucratic squabble being played out in board rooms or the conference rooms of big businesses. Nor is it the polite, but nonetheless cutting, discourse within academia. It is the denouement of a movement. It is the end game of a clash begun in the height of the Great Depression, which like a dormant virus, has sprung back in a more virulent and potentially dangerous form. 

Back during that time, in the 1930′s, the intellectual world was heavily engaged in practical politics. It was a time of momentous change, and depending on your point of view, either danger or opportunity. The collapse of western economics was a threat, not just to political stability, but to the theoretical framework that lent credence to the governing principles that fed into policy. Theory and practice were being tested. And when policy failed the need to articulate new theory became not just evident, but urgent.

It was within this heated forum that modern economics was formed. It may have taken a while for the various alternatives then developed to to be formally worked out – to reach their final specification – but the seeds were all sown. Everything that came later was an effort to clarify or to synthesize the ideas presented during those years.

Thus we recall the great arguments over the feasibility of central planning. We see for the first time the argument that economics is strictly interested in allocation. We see the Keynesian revolution and the emergence of uncertainty as crucial, and his use of aggregation in methodology. We see the beginnings of the modern Austrian school and its emphasis on entrepreneurialism. The list goes on. This was a high point for economic theorizing. The arguments were both public and severe. Great divides opened up that have never been bridged adequately despite the efforts in the post war era to accommodate pieces of Keynes within the classical project. The divisions were so deep that the landscape of the social sciences generally was re-written: sociology peeled away and reserved certain aspects of behavior, very often economic behavior, for itself.

This huge rewriting of what economics was and what its focus should be was the second such upheaval. The first being the so-called marginal revolution of the late 1800′s.

It is my belief that each of these two sea-changes were driven by political events and pressures as much as by developments within economics alone. The great marginalist thinkers sought to begin the cleaving of economics from its political economy roots. They wanted to make economics scientific. The great revolutions in hard science of the mid and late 19th century inspired them to establish economics in that same vein. But they were also reacting to the social upheavals of Europe. The revolutions and unrest of 1848 called forth the need for an economics based on more scientific, positive, precepts so that it could claim to be untainted by attachment to a political perspective. Even though it was.

In the 1930′s the same pressure built. The Depression brought capitalism to the brink of extinction. The rise of fascism and communism as apparently successful politico-economic alternatives, and the obvious destitution that laissez faire had brought to tens of millions of people, created the context for new ideas. Capitalism needed a defense. Just as in the marginal revolution economics rose to the challenge. It doubled down on its move into scientism in an effort to present itself as apolitical. It embraced mathematics even more than before to create a greater aura of rigor. It went to extraordinary lengths to make entrepreneurial activity not just important, but essential. These efforts fractured the subject in the way I described above. Different schools of thought emerged with an emphasis on different solutions and with different degrees of willingness to delineate themselves within the capitalist camp. All of them sought to avoid too much of a political taint. Even though they were so tainted.

Thus, in each great upheaval within economics one of the forces at work was to protect and carry forward the central belief in the efficacy of capitalism and its various intellectual core components. Each strand of thought had its own emphasis on those core components. Each had an attitude towards the state. Each adopted a view of individual behavior. Each incorporated more or less mathematics. Each varied in the space it gave to institutional structures. But underneath them all was the driving force that private enterprise was the essential engine upon which we should most rely for the generation of wealth.

I, of course, have done massive injustice to the history of economics in this highly simplified narrative. The divisions that carve economics apart are extraordinarily deep. But very often they are political in their origins. They creep into economics only after having been formed in politics. Economics is hopelessly ideological.

Thus the Austrian school agrees with the neoclassical camp that government intervention in an economy is almost always a negative effect. The Keynesians adamantly disagree.

But the Austrians also embrace uncertainty. That splits them part from the neoclassicists who build their theories on presumptions of varying degrees of certainty. The Keynesians have uncertainty at the core of their ideas, so they agree on this with the Austrians.

Money disappears from neoclassicism which is, essentially, a theory of barter, while Keynes brings money into the center. But he, rather curiously, ignores banks.

The Austrians, via Hayek, have a great deal to say about the centrality of knowledge and its evolution which makes them close to evolutionary economics and more comfortable with behavioral economics, yet they have a naive view of production and entrepreneurial activity which means they fall short of embracing complexity and thus have nothing much to say about the modern firm.

Which is odd, since institutions play a greater role in Austrian theory than in either Keynes or neoclassicism. This leaves new institutional economics straddling the gap between neoclassicism and the Austrian school.


Of course you are.

Within this enormous range of thought are the seeds of a more comprehensive synthesis, but none has emerged.

The really strange aspect to these controversies is that it was the school with the least relationship to actual economic activity – the neoclassical school – that dominated recent history. Perhaps this was inevitable. Perhaps it was precisely because the neoclassicists ignored vast swathes of reality and adopted an extraordinarily narrow view of human behavior that they were able to keep up some momentum and rise to the top. Everyone else was bogged down in the complexity of actual economies. The neoclassicists carried on in a series of ever decreasing circles, narrowing down their borders rather than tackling the tough issues. Eventually they could claim to have resolved everything. Of course they had, their goals were so limited, and their assumptions so ascetic and restrictive, they had assured themselves of success. They created a great big tautology. If you make a series of pro-market asumptions, sooner or later your theory will claim markets are magical. The simple world described by neoclassical economics bears no relation to the world you and I inhabit. Yet they presume to transfer what they glean from their models and provide advice to policy makers everywhere.

Their work has a strangely supernatural air to it. It vaults over problems and establishes itself midair. Where it cannot explain, it assumes. Where it meets complexity, it simplifies. It makes the uncertain certain and the irrational rational. It eliminates time. It ignores space. It floats free of geography and is utterly bereft of cultural and institutional differences. It tolerates no power structures, and eliminates social constructs. It is neutral. It is positive. It is free.

And by so being it is inevitably ideological.

Which brings me back to the beginning.

This orthodox economics set out to be the most apolitical ever devised. It was simply the study of how a certain kind of system allocates resources efficiently. To an Austrian, Keynesian, or any other kind of economist, practically every word in that sentence: “system”, “allocates”, “resources”, “efficiently” are contentious. They are laden with preconceptions of the world and values that cannot be left aside. To pretend that these words are value free, and that economics has this arrived at an apolitical nirvana, that its theorizing can be teased apart totally from politics, is just nonsense. It denies reality. It denies humanity. Worse: to define them antiseptically as if they can be cleansed of ideology is to treat reality with contempt.

An economic system is not just a piece of machinery humming away. It is seething mass of humanity. It is a collective enterprise. It is the outcome of millions, billions, of individual actions every moment of every day. It is in ceaseless motion. It is intractable and opaque. That it may or may not allocate efficiently is happenstance. That it effects every one of us is undeniable. That it consists of us, variously competing and cooperating, as we try to match our ever changing means against equally volatile ends, implies that it is irrevocably political. Choice can never be perfectly value free.

So here we are in the midst of our crisis once again confronted by the question: if all economics is inherently political, whose interest does orthodoxy serve? After all it provided the core of thought behind the shareholder value based method as taught at our business schools; it informs the models used by the banks to manage risk; it is the essence of the argument presented by some to dismantle the New Deal; it is the basis upon which profits are protected over to wages; it is the underpinning for deregulation and the shrinkage of government; it is used to justify austerity to protect creditors; it also justifies the reduction of wages as the palliative for recession; it advocates that all unemployment is voluntary; and it calls for tight money in the face of incipient inflation even during a period of high unemployment.

And this is apolitical? It is scientific? It is positive, not normative?

And when I argue against this I am introducing politics? I am biased in some way and they are not?

The last two great convulsions in economics sought to eliminate politics in order to create a theory that was immune to the charge of ideological bias. That effort failed. It failed totally. It failed predictably.

Perhaps this third convulsion will set us on a different course: the reversion back to a more comprehensive social science that accounts for all the features of the social activity that is economic transacting within a cultural, geographical, institutional, epistemological, technological, and, yes, political context.

Pure economics is a failure. Long live political/social/cultural/economics.

  1. July 15, 2011 at 2:02 pm

    You are right, as far as we limit ourselves to the negative arguments. But no revolution, I think, ever succeeded on destruction alone. You must have some constructive goal, too.

    Your deficiency: goal of society is not creation of wealth but long-term sustainable survival. In two preceding centuries simplistic paradigms of economics were more or less tolerable, because no immediate catastrophes were pending. In these interesting times, the reverse is true. That’s why I am trying to develop the New Socio-Economics of Survival.

    It goes beyond Keynes. Keynes focused on uncertainty, but did not know what to do about it. I say — not much, but Risk-Constrained Optimization (RCO) goes as far as we can. It says, subjective individual decisions are the center of universe. Everything else, economics included, is just an auxiliary part of intermediate analysis.

    It also retains the positive components of the market mechanism, but imposes on it social correctives.

  2. July 15, 2011 at 3:02 pm

    I should have said: ‘econimcs and NSES included.”

  3. July 15, 2011 at 4:33 pm

    I think the “new (old) socio-economics of survival” is a small farm with a few chickens, a couple of pigs and goats and lots of sweat equity. It is a tried and true model. No need to re-invent the wheel.

    • July 18, 2011 at 10:36 am

      I know you realize you have an accurate magnitude description of how different a surviving human culture will be from what we see in corporatist metropolitan areas in every country on earth. Yes, we know that indigenous agroecological techniques relieve stress on the environment because they outproduce corporate style farms at about twice per unit of land area, still, the all consuming effort accompanying a lone individual family in survival mode on a small farm is severe enough that some thought for modern economic versions involving education, technology and social work sharing for fun is needed lest we revert to large families as a source of labor.

  4. July 15, 2011 at 6:25 pm

    Sure, that is one of possible alternatives. But you cannot generate the market correctives needed for survival of a society, unless you breed pigs as big as the society.

    And sure, no need to re-invent the wheel. But new carts for the old wheel are invented every day.

  5. Alice
    July 17, 2011 at 9:53 am

    Peter says
    “The really strange aspect to these controversies is that it was the school with the least relationship to actual economic activity – the neoclassical school – that dominated recent history.”

    Perhaps we ignore the influence of cheap statistical computer technology from the 1970s om. Economics and a whole lot of other sciences elevated its output to a throne it didnt deserve and in the process…forgot their morals and ethics…after all, what can cheap computer statistical technology say about ethics? Only humans can do that and we forgot economics is a science with its roots in sociology, history and actually..ethics.

    Nice toy but it doesnt work on its own that well.

    • July 18, 2011 at 11:05 am

      Yes. Ethics is the crux of cultural decline toward ecological collapse. Justice and equity for all, justice for the future, and justice with nature; this is the moral compass heading that leads from disaster to healthy civilization. The Ecocide Trial in London is a neat idea to help us evolve modern ethics http://www.crowdfunder.co.uk/investment/the-ecocide-trial-242

  6. July 17, 2011 at 5:05 pm

    “Thus the Austrian school agrees with the neoclassical camp that government intervention in an economy is almost always a negative effect.” That is true for the Austrian school, but a puzzling statement for the neoclassical camp, since every neoclassical textbook has a section on market failure for externalities, public goods, information asymmetry, and monopoly.

  7. July 18, 2011 at 4:11 pm

    When does the discussion begin on how to allocate land efficiently? Or do we believe that this has already been achieved?

  8. Guilherme da Fonseca-Statter
    July 21, 2011 at 6:38 pm

    Back in the 19th century, the old bearded oracle of Trier has explained at length most of the current controversies in «Economics» (ah the good old name of «Political Economy»…). Since he did experience some difficulties in getting his analytical ideas thru, he has been declared «wrong» and/or «redundant». Specially after Bohm-Bawerk (a «genius» through and through…) declared that «the closing of the Marxian system». As the coffin of Marx analysis was buried not deep enough in the historical archives of economic thinking, Mr Okishio then came along and proved «once and for all» that there is no falling tendency for the rate of profit. The «greed of bankers» (and other «speculators»…) must be some kind of a disease that has afflicted mankind over the last 30 years or so…

  9. August 4, 2011 at 1:00 pm

    For a number of years now, I’ve been developing a theory of economics based on thermodynamic principles, and recently published a book entitled ‘Thermoeconomics a Thermodynamic Theory of Economics’ [second edition]. I don’t profess to have all the answers, but I hope it makes people think afresh. Chapters 1, 3, 5 and 8 are available free on the internet on the website http://www.vocat.co.uk.

  10. October 7, 2011 at 11:15 pm

    Peter, Bravo & major kudos for a brilliant, very readable overview. Even if some of your critics are partly right in some points, I think you’ve done us all a big favor (moi, anyway). I also think that you make it all much less confusing, and your last line clearly expresses your very positive, rational assessment, validating the approach. Helge, Dr. Jared Diamond’s extensive research & reporting in “Collapse: How societies choose to fail or succeed” convinced me of my prior hunch that Mayan civilization didn’t suddenly fall & disappear mysterously. It turned into a bunch of jungle chicken farmers. Alice, Gary, those are very well put points. How can a non-autistic/non-psycho economist fail to appreciate the crux? Indeed, maybe we can call both orthodox economics & N-CE “psychonomics” or sociopathic economics to be more precise. Guilherme, I trust you will appreciate the gems in Zarlenga’s “History of Money” & banking (great excerpts & supporting docs at the AMI website), and Griffin’s “The Monster from Jekyll Island” on the spawning of Club Fed. John, I appreciate any such fresh, lateral thinking on this big stinking morass. Have you looked into fluid dynamics for supplementary revelations? Yet, without resolving the psychospiritual (moral) schism & ethical-epistemic deficiency at the core of economics, all the abstractions & IT super-gadgets in the world will fail to exorcise its ruling devils & corporate mega-demons. Peter, thanks again. Hopefully, this marks the beginning of the long over-due eco/house cleaning (and rehab) needed to make way for next-gen economics. Blissings & best of everything to one & all…

  11. October 7, 2011 at 11:29 pm

    PS: Peter, I would love to add the content of this post to my Greenbook’s appendix, also to the online version (as a comment under the section on Green Credit & Commonwealth), it would also be a great reference to have online at Ecotecture NOW: The journal of responsible policy, planning, and design > my nascent e’zine at: ecotecturenow. wordpress. com < May I have your permission to repost/republish your little overview? Thanks, M

  12. October 7, 2011 at 11:44 pm

    PS: With our population zooming toward 9 billion or more, despite all the potentials for colossal catastrophe & massive depopulation, neo-survivalist economics for smallish family farmsteads & eco-co-housing communities will probably remain an unlikely option on this planet. Now — if we get to use a viable transluminal, electrogravitic hyper-drive & some decent new astrophysical theory & appropriate computational navigation — humanity may be better off on chicken farms, on other planets. That is an ultra-colossal if. Even if it is possible, that project could take longer than getting us into a fleet of orbiting giant space colonies or large colonies on the moon. Yet, no one can say whether we have time for either option. So, whichever possibility happens to have the most probability, putting our own little oikos in order ASAP looks like the best way to get to a more livable future with a higher quality of life for all or most earthlings.

  13. October 8, 2011 at 12:09 am

    Carol, Thanks for bringing up the land use issue, one of my pet peeves (major concerns). Without wise land use there can be no “best case” long-term sustainability. About 70% of humanity lives in high risk disaster zones, mostly in buildings and communities that have been built with almost total disregard for rational, effective, ecologically responsible land use. If they had been designed/planned for wise, best-case land use, then we would have no energy crisis, no food or water crises, no financial crisis, almost no war, and probably no ecological crisis. Those claims are plausible because if humanity had been wise enough to create communities and cities using wise land-use policy and ecological master planning, that implies enough compassionate, ecological wisdom to avoid all the other insane, wasteful, destructive, sociopathic activities & consequences that have made the world what it is now. The aberrant psychology and sociopathic/psychopathic roots of the plutocracy and its plutonomy are all about the Laws of the Jungle, Animality, and Bad Karma serving the agenda of Randian Darwinism, which is really just Jingoistic Fascism, mobocracy for the ultra-cunning elitists of neo-Mercantilism, i.e., the winner takes all Dog Eat Dog paradigm on corporate steroids. It seems safe to say — as Emperor Mammon struts around buck naked & shameless in front of the whole world — that what we have here is a multi-millennial case of steathed mass-psychosis posing as normality. I guess I could be wrong, but I have given this alot of thought over the last 44 years. I would love to be wrong about all this. So, please, feel free to critique my analysis. Thanks

  14. Dave Taylor
    October 8, 2011 at 10:05 am

    Peter said: “We risk making ourselves irrelevant because our repetition doesn’t seem to add to the debate. Indeed we appear to be destructive and not constructive critics as our elite and leadership struggle to steady the leaking boat that is our economy”.

    Peter, you appear to be a destructive and not constructive critic because you have not been on the lookout for constructive thinking from outside the economic and academic community.

    I myself, a theoretically-minded but practically trained scientist trying for the purpose of teaching future generations to recognise the theoretical wood hidden by the practical trees, was introduced at a young age to contentious philosophy of science then (as a minor player)
    right at the heart of developments in electronic communications and computing hardware, practical evaluation of reliability theory, and of circuital flow systems, typed circuit logic, Chomskyan conceptual language development, have been trying for a dozen years to listen to the arguments for the theory that ECONOMICS IS AN INFORMATION SYSTEM. Of course it doesn’t look like an information system, but nor does a television set look like the ever-changing programs displayed on it.

    Reaction to this has been conspicuous by its absence, mainly, I suspect, because readers interested in economics rather than this find it “all Greek to them” and somewhat indoctrinated in the “not invented here” syndrome.

  15. Dave Taylor
    October 8, 2011 at 10:38 am

    Sorry, the above sent itself before completion. The last para would have read:

    “Reaction to this has been conspicuous by its absence, mainly, I suspect, because readers interested in economics rather than this find it “all Greek to them”, and being afraid of the unknowwn or somewhat indoctrinated in the “not invented here” syndrome are not interested in committing the time necessary time to get the gist of what the Greek is saying.”

    John Bryant @ #11: John, I’ve long understood thermodynamics is where Jevon’s neo-classical theory began. It obscures the key facts that the actors in economics are humans who need biological powering and don’t go in random directions but generally follow paths of least resistance (occasionally creating new ones) by following habits (neural paths) in their own brains. Perhaps as a theory of the survival of firms feeding on money it makes some sense, but that anyway is not real economics, which is about how Dad and Mum can bring up the Kids and help make the Garden outside as well as inside their own garden walls a better and safer place to live in.

    Michael @ #12: Thanks very much for resurrecting this thread, Michael: its a good one. But is “What if?” thinking any more helpful than criticism without advice?

  16. Dave Taylor
    October 8, 2011 at 11:18 am

    I’m finding on-line composition using the box provided here a pain, as I keep getting overwritten by the login panels. My apologies for all the typos in #16 & #17, and though its a bad workman that blames his tools, it’s not beyond the wit of blog programmers to allow us to edit our own contributions, as I’ve seen it done.

    The third para at #16 is so significant and has come out so badly that I’d better repeat that and its sequel too.

    “I myself, a theoretically-minded but practically trained scientist trying for the purpose of teaching future generations to recognise the theoretical wood hidden by the practical trees, was introduced at a young age to contentious philosophy of science, then, as a minor player
    right at the heart of developments in circuital flow systems electronic communications, control and computing hardware, practical evaluation of reliability theory, and of , typed circuit logic and Chomskyan conceptual language development), have by now been trying for a dozen years to get anyone to listen to the arguments for the theory that ECONOMICS IS AN INFORMATION SYSTEM. Of course it doesn’t look like an information system, but nor does a television set look like the ever-changing programs displayed on it.

    “Reaction to this has been conspicuous by its absence, mainly, I suspect, because readers interested in economics rather than this find it “all Greek to them”. Being afraid of the unknown, or somewhat indoctrinated in the “not invented here” syndrome, they are not interested in committing the time necessary time to get the gist of what the Greek is saying.”

  17. Dave Taylor
    October 8, 2011 at 11:39 am

    I’m baffled. I typed #18 off-line, copied it across, kept a copy, and #18 is substantially different! Not just the new line after ‘player’: I’d inserted an ‘of’ before ‘practical evaluation’ and amended the following two phrases to read “of Russell’s logically typed computer logic and of Chomsky’s conceptual language development.” How can that just be a transmission error? Indeed, have we really been making all the typo’s which keep appearing? There’s surely something the matter with the web site.

  18. Dave Taylor
    October 8, 2011 at 2:02 pm

    Alice @#6: “what can cheap computer statistical technology say about ethics?”

    I’m surprised you think of [lies, damned lies and] statistics as technology rather than a usually misunderstood branch of mathematics. What programmers and even “computer scientists” are now rarely taught is that cheap computer technology would not work well without Shannon’s automated detection and avoidance/correction of communication errors and viruses. Which is precisely what morality is all about. Ethics is about ethos: about the programmer’s moral choice between living with such safeguards and trying to circumvent them: e.g. by spreading viruses to cause malicious damage or misdirecting profitable information.

    • Alice
      October 9, 2011 at 6:33 am

      Poor choice of terminology on my part…I agree Dave ( is this technology in the productive sense of the word ?- maybe we need a term for the destructive power of cheap computer technology – sort of inverse to the old fashioned meaning of technology as something that adds value?).

  19. Dave Taylor
    October 9, 2011 at 7:54 am

    Yes, Alice – cheap computer technology has sort of been “swings and roundabouts”: we can do easily things we couldn’t even do before, but on the other hand we tend to lose the ability to do crucial things in any other way.

    That, though, was not the point, was it? You were saying it was irrelevant to morality, and I was saying: on the contrary.

    When you understand where Shannon was coming from (he was trying to design an automatic telephone exchange and realised his switching circuits were performing boolean logic), and where he went on to (automatic correction of garbled messages in transit, i.e. before they reached their destination to damage tempers or worse), then it becomes obvious that computers (using boolean logic) are only as good as the “as it happens” error-correction built into them. I’m saying a society is only as good as the morality built into it: not in terms of what The Law does after the event but in terms of the other-considering habits and respectful attitudes (mores and ethos) of the society taken as a whole.

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