Home > Economics Curriculum, economics profession, Real-World Economics Review, students > We need economic theories fit for the real world

We need economic theories fit for the real world

from The Guardian

Jon Super

The Post-Crash Economics Society at Manchester University. Photograph: Jon Super for the Guardian

The Association for Heterodox Economics welcomes student initiatives for fundamental reform of the economics curriculum, as do our post-Keynesian colleagues (Letters, 19 November). Heterodox economists, drawing on a range of theorists, including Keynes, Marx, Minsky and others, have consistently argued for greater pluralism in both economics curricula and economics research evaluation. We recognise the clear benefits of pluralism in economics: it encourages, by exposing them to alternative perspectives, the development of students’ critical thinking and judgment. Also, by drawing on a range of views, pluralism offers greater power to explain real-world events and provides the tools to solve real-world complex problems.

We support initiatives from within economics for curriculum reform (Report, 12 November). The proposed reform incorporates much of what we regard as desirable for the future of the subject: an appreciation of the complexity of the world, the importance of economic history and the history of economic thought, a recognition of the importance of environmental limits to economic activity, and a broader base of economic ideas than is taught currently. However, we are also concerned that this new initiative is too narrow, advocates evidence without the theoretical frameworks to understand it, and may simply replace one orthodoxy with another.

The Manchester students’ proposals (Report, 25 October) are the latest in a long line of appeals by student bodies for a more pluralist and relevant curriculum, following actions by students at Harvard, Cambridge and Paris. In the early 1970s an active protest by students at the University of Sydney led to the reform of the university curriculum, to include “political economy”, ie economics that takes into account, power, politics and a contest of ideas. What all of these student protests share is the demand for economics that illuminates the real world, takes in multiple perspectives and engages them. Moreover, as the recent protests have shown, students recognise the value of it to them. Fortunately, even within the monoculture of the UK economics curriculum, there are institutions in which pluralist, realistic, relevant economics is taught.

Prof Victoria Chick University College London, Prof Bruce Cronin University of Greenwich, Prof Alan Freeman London Metropolitan University, Dr Andrew Mearman University of the West of England, Dr Jamie Morgan Leeds Metropolitan University, Dr Ioana Negru Anglia Ruskin University, Dr Wendy Olsen University of Manchester, Dr Bruce Philp Nottingham Trent University, Prof Molly Scott Cato Roehampton University, Dr Pritam Singh Oxford Brookes University


  1. F. Beard
    November 22, 2013 at 12:21 pm

    A realistic economic theory has to include the banks and money/credit creation but common knowledge of that would probably enrage the population as Henry Ford once opined.

    It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford from http://www.brainyquote.com/quotes/quotes/h/henryford136294.html#mwRJw4RSzouXAdCu.99

    But eventually the population will understand. I suggest we reform the money system along truly ethical lines and provide genuine restitution to its victims before that happens.

  2. chdwr
    November 22, 2013 at 3:25 pm

    Great idea! What these academics are suggesting is taking the perspective of Wisdom which is precisely what economics and every human system actually needs at this time. Wisdom is interdisciplinary and inclusive. It integrates and synthesizes. The ultimate result of Wisdom is the renewal and transcendence of current structures not their elimination. This may take time and contemplative “effort” on the part of an individual, but for systems and their policies it is instantaneous, enabling and encouraging. Therefore, systemically, it is not correct to see it as a long or laborious process. Luckily for us all the contemplation has been done a long time ago. Consequently all that is really necessary is to take the most powerful condensations of that Wisdom and craft policies that accurately reflect them. Ironically, the biggest stumbling block to this may be the conservative and cautious mindset of science itself. But if scientists understand that Wisdom in no way rejects science but rather integrates and synthesizes it with the psychological/spiritual perspective in the interest of a greater whole perhaps we can avoid any delay at a time when humanity faces coalescing crises.

  3. November 22, 2013 at 4:48 pm

    This effort should start with understanding the dynamics of money created as a DEBT-OF ITSELF which is then LENT AGAIN as existing money. This is the ROOT of the money system.


    • chdwr
      November 22, 2013 at 7:59 pm

      The money creation process is endogenous and ex nihilo. Savings are invested much more than they are “twice lent”. Reserves (which are not savings) as collateral are relent over and over as in the insanity of derivatives creation and which of course must be either VERY tightly regulated or banned, and never allowed to become the responsibility of anyone except those making such bets.

      However, the true problem of money and the economy is actually the true and total assessment of both monetary cost to the individual and total prices needing to be liquidated in order for equilibrium to be possible and actual. This can be deciphered by looking at the empirical data on individual incomes and total costs found in any business’s cost accounting data, aggregated and then understanding the economic significance of their relationships and the ever presentness of that elemental reality in the economy as well as the entire productive process which means equating incomes and total costs/prices can only be accomplished by raising individual incomes without first injecting such actually into the economy because that re-initiates the disequilibrium which is the problem. That can only be done via a direct GIFT of money to the individual so it does not incur a cost either to the system or the individual. The concept of monetary grace, the free gift is what will enable economics and finance to evolve in order to liberate and serve mankind….instead of enslaving us.

  4. Lyonwiss
    November 22, 2013 at 8:34 pm

    No economic theory currently fits the real world. Teaching economic theories is a bad way to start an economic education, because economics is not like physics. The academic battle between different economic theories merely produces a type of trained incapacity to think about economics or to find economic solutions.

    The teaching of economic theories as ALTERNATIVE ways to analyze or manage an economy is just simply wrong and harmful, because the division of ideas is untrue in reality and it prevents the synthesis of what’s useful into a more coherent and accurate view of reality. In other words, it is not a case of choosing between neoclassical or Keynesian or Marxist or whatever theories.

    What’s important is the teaching of the concepts of the market, the government and money as essential elements for solving economic problems. The reality today is we have all those elements playing essential roles in our world. Any one of the many theories is incapable of understanding the reality. It is not pluralism we need; it is synthesis.

    The idea that neoclassical economics has failed and therefore the market concept has failed is simply absurd. The belief that markets have failed and “we are all Keynesians now” has allowed those in charge to conduct wild experiments in market manipulation, fiscal recklessness and money debasement, which will virtually guarantee a bigger and more serious crisis in the near future.

    • chdwr
      November 22, 2013 at 9:18 pm

      “The teaching of economic theories as ALTERNATIVE ways to analyze or manage an economy is just simply wrong and harmful, because the division of ideas is untrue in reality and it prevents the synthesis of what’s useful into a more coherent and accurate view of reality. In other words, it is not a case of choosing between neoclassical or Keynesian or Marxist or whatever theories.”

      Wisdom! It is integrating them that is necessary. Wisdom is the essence of such integration.

  5. F. Beard
    November 22, 2013 at 9:06 pm

    The belief that markets have failed Lyonwiss

    What does not exist cannot fail. A free market CANNOT exist in the presence of a government-backed credit cartel so we have not had a free market.

    and “we are all Keynesians now” has allowed those in charge to conduct wild experiments in market manipulation, fiscal recklessness and money debasement, Lyonwiss

    Since we have no free market, the need for government intervention CANNOT be ruled out. Indeed, simple justice may require government intervention on the behalf of victims to counter the previous government intervention on the behalf of villains, the banking cartel.

    which will virtually guarantee a bigger and more serious crisis in the near future.

    Not necessarily, since we have not had a free market. Indeed, some sort of just releveling is probably necessary before we can even have a true free market.

    Austrians are philosophically inconsistent at several points but one of them is to insist government backing for the banks is unjust (correct) yet insist that no restitution is possible or even desirable!

    • Lyonwiss
      November 23, 2013 at 12:20 am

      Your remarks are based on the false premise that “markets” mean free or unregulated markets. I never said nor implied “free market”, which assumes everyone is honest or moral. It was an unwritten assumption by Adam Smith, who should have emphasized it, but only qualified it somewhat by remarks about collusion in business.

      But there are real markets which work quite well when they are well-informed and properly regulated. Markets, by increasing individual welfare through exchange, also provide vital information for efficient resource allocation. But unregulated markets often fail, particularly financial markets, when information asymmetry leads to serious fraud.

      Deregulation of financial markets was the major policy error of the last century. But government regulation does not mean government intervention or secretive manipulation. A referee should not become a player and take sides.

      The recent government interference in markets has led to grotesque distortions in market prices, which in turn have misled resource allocation decisions, resulting in asset bubbles and other economic imbalances.

      • BFWR
        November 23, 2013 at 1:02 am

        Excellent analysis. All it lacks is the further insight found in the economic relationships between the datums to be found in cost accounting which lead one to understand that the necessary policies for the solution to our present problems include individual monetary grace in the form of a dividend and a general discount on prices. This addresses the deepest problem of our current crisis and maintains and adjusts that solution by insuring that it brackets the entire economic/productive process from initial production through to the true end of that process at retail sale to an individual.

  6. chdwr
    November 22, 2013 at 9:27 pm

    The step by step process of wise monetary and economic theory:
    Cost Accounting/money Economics/relationships between correct data Philosophy/symmetry Wisdom/ethical integration of Philosophy and policy

    In other words collect the basic data, decipher it’s economic meaning, understand the symmetrical philosophical framework of nature and then integrate all of the data, relationships and understandings so as to create wise policies.

    The process of looking and seeing…internally and externally: Collect, decipher, integrate, synthesize, understand, align and apply thought and deed/philosophy and policy/cause and effect in a humanly ethical way.

    Very curiously, the above are actually the process of BOTH ACQUIRING Wisdom AND DOING Good science. Which implies that Wisdom is indeed an internal science. It is also a mindset which in fact encompasses and combines BOTH science AND intuition. The latter is also the hallmark of true scientific breakthroughs.

  7. F. Beard
    November 23, 2013 at 1:23 am

    A referee should not become a player and take sides. Lyonwiss

    But the government has taken sides, since 1913 if not before. Perhaps YOU have benefited from government-backed banks but the less or non so-called credit-worthy have not. Workers who have had their jobs automated or outsourced away with their own stolen purchasing power have not.

    Banks, if we need them at all (since they engage in a form of gambling), should be 100% private. But they have not been so government intervention on behalf of their victims is appropriate.

    Regulation? How does one regulate theft? And how many more centuries and world wars must we suffer while fascists figure our how to make their looting scheme stable?

    • BFWR
      November 23, 2013 at 1:41 am

      “How does one regulate theft?”

      Why, by eliminating it. And what is the best and most thorough way to do that? By fixing the theft of business profit and individual purchasing power through a transcendent paradigm changing policy of monetary grace.

      Which do you think Bankers would and should fear more, a reform that only possibly impacts competition amongst themselves but leaves their utterly restrictive monopoly on the form of credit issuance (loans only) untouched, or a transformative, paradigm changing additional monetary form, i.e. individual monetary grace that strikes at their biggest market (consumer finance) which represents 70% of GDP?

    • Lyonwiss
      November 23, 2013 at 3:18 am

      You said, “Banks, if we need them at all (since they engage in a form of gambling), should be 100% private.” Aren’t they already 100% private? The vast majority of banks are private, even though the US central bank has been muddying the waters by buying mortgage securities from banks, effectively becoming the ultimate lender to the US housing market.

      Traditional banks engage in deposit-taking and normal business lending only, while investment banks confound these functions with market-making and financial market speculation, as they “engage in a form of gambling”. Separating traditional bank out from investment bank speculation was the Glass-Steagall Act, which probably ended the Great Depression. A new Glass-Steagall is essential now and for the future.

      You said, “government intervention on behalf of their victims is appropriate”. But government intervention has NOT been on behalf of the victims, rather has been on behalf of the banks, handing out free money to them, in order “to save the financial system”. Haven’t you noticed that Wall Street is celebrating with record bonuses and the the stock markets are at all time highs, while the rest of the economy is threatened with deflation? So much for government intervention.

      You asked, “How does one regulate theft?” We already know and have been successfully regulating theft in most parts of the society, by passing and enforcing laws. But financial theft (you imply) has not had the same regulation, because the false neoclassical economic dogma says market regulation reduces market efficiency due to costs.

      But financial market regulation is virtually costless because it does not mean taxes or subsidies, which are the inefficiencies of economics textbooks, but rather it means providing, or reporting, on information to the public which market participants should already have as part of their own operations. Simple things such as the net profit or loss of the total OTC derivatives books of individual investment banks should be reported in their accounts. This will prevent Enronesque theft on a systemic scale.

      • F. Beard
        November 23, 2013 at 2:33 pm

        Aren’t they [the banks] already 100% private? Lyonwiss

        Of course they are not private and for at least the following reasons:

        1) Government provided deposit insurance instead of a government provided risk-free storage and transaction service for its fiat for all users of US dollars. This service should be free up to normal household limits on account size and number of transactions. The service should make no loans and pay no interest.
        2) A government provided legal tender lender of last resort, the Fed.
        3) Borrowing by the Federal Government when it is monetarily sovereign and has no need to borrow.

        As for gambling, all banks engage in it by borrowing short-term (actually 0 term, demand deposits) to lend long-term. Without the above government privileges, bank runs would quickly destroy (as they should) bubbles before they got too big.

        And no, one does not regulate theft, since that implies that a certain amount is legitimate.

      • Lyonwiss
        November 24, 2013 at 5:31 am

        The way you twist the meanings of words such as “private”, “gambling” and “regulate”, beyond any normal usage, makes any conversation pointless.

      • F. Beard
        November 24, 2013 at 1:13 pm

        Well, just compare banks to any other business and it becomes obvious they are not truly private.

        The debate about banks is centuries old and my word usage is certainly comprehensible within that context. Learn some history, I suggest. You might google “banking quotes” to start.

  8. November 25, 2013 at 8:47 pm

    Why is it so difficult to understand a simple truth: “We the people have legislated the right to ‘print’ our money (via loans) and the right to tax that issuance (via interest) to the Private For Profit Banks (PFPB)? We have done this because we did not wish our governing body t “to have sole control of this awesome power over the people..”. Do you think, maybe, perhaps, we should reconsider? All that the PFPB have done was “earn” almost all of the money issued over the last almost 100 years using the legal taxation called compound interest. Money they called ‘Interest Income’ which they unlike a Real People’s Central Bank, redistributed those gains for their own selfish interest. Doing a great job at maximizing their profits.

    ***** “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha

    “Justaluckyfool”,’Please,please read: http://bit.ly/MlQWNs

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