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The Market and Nobels

from Peter Radford

As I awake from my self-imposed slumber and re-survey the state of economics:

Nothing has changed.

This is predictable, and, I submit, is the most predictable phenomenon within the ambit of the discipline. Economics is in disrepute, and its current elite are determined to keep it there.

The latest ersatz Nobel prize went to a couple of guys who theorize a lot about contracts. This is the kind of work that now dominates much of economics. Tinkering with mathematics, incentives, and other aspects of minutiae whilst steadfastly turning away from the rapidly approaching storms that threaten the lives of real people outside the tenured redoubts professors hide within.

I have come to think that economics itself is one of the greatest impediments to returning us all to a prosperous and sustainable path. It is one of those moribund institutions that festers away living in a long-ago past, secure in what little it knows, and terrified of what it might not know.

I don’t think people realize just how historical contingent economic is. It was invented in the aftermath of the onset of industrialization, it was an afterthought as a growing chorus of politically motivated observers sought to identify a body of thought to be deployed to defend modernization and to attack the old order.

That old order was the entire system of life built around the stability of an agricultural economy in which land was paramount, aristocrats carved out precious freedoms from the older-still order of monarchs and autocrats, and, by and large, regular people lived as many generations of their ancestors had. The entire social and political structure can be encapsulated in the word: tradition.   

It was a tradition where the concept of an “economy” was foreign. Social, political and cultural lives were set. They depended upon acceptance of fate and acceptance of what had gone before being somehow proper. Religion played a heavy hand in keeping order. In return religion was allowed to have a privileged place in the world it helped keep in check.

That all changed, as we know, as our ancestors threw off the shackles of ignorance. They began to assert rights to freedoms previously unheard of. Some of them turned those new rights into commerce. And from this new commerce came an urge to rebel even more against the dead hand of autocracy and aristocracy.

This was the intellectual space that economics was created to fill. It was not from an urge to explore economies as they occurred in the real world, but, rather, it was an attempt to organize an intellectual opposition to the state.

Hence the relentless, and now submerged into subliminal zombie like repetition, exegesis from something we call free markets.

All mainstream economics begins with the proposition that there exist markets endowed with utopian qualities. These magical places are populated with people who behave in only one way: they exercise rational choice. Indeed, so rational are they that they exhibit no choice in any real world sense of the word choice. When presented with an array from which to choose these people will make only one choice. They are, thus, perfectly predictable. They can be accorded incentives to induce predictable behavior. They will never err. They will never fail prey to human weaknesses. Nor will they alter. They are, in sum, the perfect grist for the mathematical modeling mill. Which is why they were invented.

With this nirvana thus established, economists systematically explore various forms of relaxation of their utopian rules. This, they argue, allows them to home in on sundry “inefficiencies”. For it can only be that a fall from the sublime grace of utopia is to decline into a less than sublime underworld. That underworld inevitably includes the state.

So, from its very inception, economics was designed to “prove” that state intervention into markets was inherently to disrupt the utopian order.

This religious like argument from unreality into reality gave economics great power. It was, for instance, particularly useful post-1848 in forming a bastion against the Marxist critique of early industrialization. After all, if the so-called immutable laws of economics gave no pity to the workers being crushed by early capitalism how much more useful could this pseudo-science be? To capitalists anyway.

And also please recall: the early years of economics coincided with the establishment of liberal but not yet democratic politics. The siren call of commercial freedom beckoned the likes of JS Mill, Ricardo, Bentham et al, but democracy was still an anathema to them. Democracy, that is, in its current form. It was only later, in the early 1900’s, that democracy was fully formed as a method of counter-balancing the degradations of red-blooded capitalism.

So it ought be unsurprising to us that economics retains to this day its undercurrent of anti-democratic thought. Its roots are still in utopia, and that utopia can only be debased by a government. Even if that government represents the will of the people.

The original concepts of freedom emerging from the straight jacket of the old order have given us two separate lineages: one that is represented in economics as freedom of market exchange, i.e. capitalism; and another that is the freedom of association and equality that is democracy. The two are in conflict. They clash. They are different interpretations of the same root. But only one is accounted for inside economic theory.


Because economics was invented before democracy. It is very difficult, therefore, to bend mainstream economics into a ‘socially democratic economics’. For such an economics does not start in utopia. It starts in the real world. And the intersection between reality and the real world is only a faint echo nowadays.

As I said: economics is one of those institutions all these bright young mainstream economists ought to be looking at and devising ways to re-construct so as to support rather than hinder sustainable growth. But I doubt they will: they would be declared heretics. There’s no Nobel for a heretic.

  1. October 12, 2016 at 1:22 pm

    Maybe look at my brand-new book, Avner Offer and Gabriel Söderberg *The Nobel Factor: The Prize in Economics, Social Democracy and the Market Turn* (Princeton University Press, Oct. 2016), which delves into these very issues at length. Also a launch event at the New School University in New York on 25 October 2016 at 18.00, under the title ‘Social Democracy Suppressed’. You and everyone else most welcome!

  2. October 12, 2016 at 3:36 pm

    See my letter to Paul Krugman Blog # 12 http://www.InquiryAbraham.com

  3. October 12, 2016 at 5:33 pm


    Yes, this latest prize and the subject being studied, contracts, struck me exactly as you have written: get our minds off the dismal performance of the economy since the late 1990’s Asian crises. If Piketty focused on the heart of the matter, with his own methodological difficulties, at least he got most of the questions right; contracts…how many workers were pleased, and how much genuine freedom did they have to sign on to retail contracts being offered, 1980-2016, with the likes of Target, Walmart…Amazon… the trajectories of the minimum wage since the late 1960’s, and median incomes says it all…not much freedom…contracts not worth very much…in China, we have reports of two completely different sets of books, one to what is really going on with labor and the firm’s finances, the other to please Western monitoring expectations…as written about by the former Asian editor for a major Western capitalist enterprise.

  4. October 14, 2016 at 7:26 am

    Peter, just a bit off the mark. You comment, “That all changed, as we know, as our ancestors threw off the shackles of ignorance.” First, there was no ignorance to throw off. While they were dominated by aristocratic manor lords, medieval farmers, craftsmen, and traders were not ignorant. They invented and used agricultural, metal-smithing, and animal husbandry, and wood working tools and process. They invented and used “modest” war-making tools and invented new social arrangements that made their villages and their manors both more efficient and more comfortable. They expanded weather forecasting and negotiated for better arrangements with the manor lords. They may not have been able to read or write but they were smart and creative, and a lot more practical than the aristocrats who ran their lives. While the aristocrats’ major interest was warfare, honor, and personal glory.

    “This was the intellectual space that economics was created to fill. It was not from an urge to
    explore economies as they occurred in the real world, but, rather, it was an attempt to organize an intellectual opposition to the state.” Not the state but rather democracy is what economics and the philosophers who justified it was meant to displace. The liberal philosophers got on board the bandwagon of overthrowing feudalism, monarchy, and aristocratic organization because they wanted the new commercial sector to have full and complete freedom to do as it wanted without inference from voting, parliaments, and popular sentiment. They wanted a very narrow and limited freedom. Commerce, markets should be free. Religious and political freedom was okay, too. So long as it did not interfere with commerce. Economics was just a tool for this goal. And thus far an effective one.

    Finally, democracy was actually invented before economics. Humans lived as foragers (hunter-gathers) for 90% of their time on earth. Hunter-gather society was generally small, tight-knit, and democratic. So for 180,000 years humans lived democratically. And that doesn’t even consider what the Athenians did with democracy in 500 BCE. The social science discipline of economics justified commercially-oriented changes to democracy. These need to be reversed.

    • robert locke
      October 14, 2016 at 9:23 am

      Right on the mark, Ken.

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