Post-Autistic Economics Network
from Soundings spring 2005
© Copyright: Edward Fullbrook 2005
days people like to call neoclassical economics
‘mainstream economics’ because most universities offer nothing else. The name
also backhandedly stigmatizes as oddball, flaky, deviant, disreputable,
perhaps un-American, those economists who venture beyond the narrow confines
of the neoclassical axioms. In an attempt to understand how this has
happened, the first half of this article very roughly traces the strange
history of economics from the 1870s through to the recent challenge to the
neoclassical hegemony from the Post-Autistic Economics movement, henceforth
origins of neoclassical economics are not what an outsider might think.
Though today it cavorts with neoliberalism, it
began as a honest intellectual and would-be
scientific endeavour. Its patron saint was neither an ideologue nor a
political philosopher, nor even an economist, but Sir Isaac Newton. The
founding fathers of neoclassical economics hoped to achieve (and their
descendants living today believe they have) for the economic universe what
*the human material with which the inquiry is concerned is conceived in hedonistic terms; that is to say, in terms of a passive and substantially inert and immutably given human nature … The hedonistic conception of man is that of a lightning calculator of pleasure and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact. He has neither antecedent nor consequent. He is an isolated definitive human datum …1*
With this construct at its centre, the dream of a determinate model of the economic universe was realised in the 1870s by William Stanley Jevons and, especially, by Léon Walras, both of whom were in part physicists by training: it was called the model of general equilibrium. And this elaborate mechanistic metaphor, proudly devoid of empirical content, remains today the grand narrative of economic theory, for students and economists everywhere.
The model, which invariably is expressed in language so metaphorical that it would make a good poet blush, works by laying down a priori, like Euclidean geometry, a set of axioms:
Veblen and Keynes
At the very end of the nineteenth century, Thorstein Veblen launched a counter-revolution against the growing domination of the neoclassical approach in economics. Besides critiquing the neoclassical assumptions, he analysed institutions as well as isolated individuals, emphasised emergent social phenomena, argued that habit influenced economic choice more than rational calculation, rejected all forms of reductionism, and stressed the importance of knowledge in economic evolution. This approach steadily gained adherents in the years leading up to the first world war, and in 1917 one its leaders, John R. Commons, was elected president of the American Economics Association (AEA). The following year this new school was christened ‘institutional economics’ at the AEA meetings, and was embraced by the association as a means of making economic theory capable of addressing the problems of economic development that would follow the conclusion of the war.2 In the 1920s the Institutionalists came to rival the Neoclassicals in the US, but in the 1930s their numbers declined. Like neoclassical economics, institutional economics had no explanation of, or solution to, the calamity that had befallen capitalist economies.
In stepped John Maynard Keynes. He offered a new theoretical interpretation of capitalist economies, which both explained their collapse and pointed to practical measures that would - without interfering with their general principles - get them going again and keep them functioning smoothly. Given the dire straits of capitalism and the growing fear of revolution, not even neoclassical economists dared for long to keep Keynes’s theory from being given a try. When it was shown to work, that, at one level, ended the argument. Henceforth, in the basic management of the economy, all American presidents would be Keynesians. But at the theoretical level, which in the neoclassical tradition means theory that is axiom-led rather than empirically-led (otherwise their axioms would have been abandoned long ago), the argument had only just begun. In 1946 Keynes died and neoclassical economists began their counterinsurgency. This time they would not be satisfied until most economics departments in the world had been cleansed of economists who voiced non-neoclassical ideas.
had trained at
the second world war, the United States increasingly came to determine (one
might say dictate) the shape of economics worldwide, while within the United
States the sources of influence became concentrated and circumscribed to an
absurd degree. This state of affairs, which persists to the present day, was
engineered in significant part by the US Department of Defence, especially
its Navy and Air Force.3 Beginning in the 1950s it lavishly funded
university research in mathematical economics. Military planners believed
that game theory and linear programming had potential use for national
defence. And, although it now seems ridiculous, they held out the same hope
for mathematical solutions of ‘general equilibrium’, the theoretical core of
neoclassical economics. In 1954 Kenneth Arrow and Gerard Debreu
achieved for this mathematical puzzle a solution of sorts, and it has been
the central showpiece of academic economics ever since. Arrow’s early
research had been partly, in his words, ‘carried on at the
The American Economic Review (
glance through the 2003 edition of Penguin’s Dictionary of Economics illustrates the accentuated continuation of
this tiny all-powerful closed shop. The dictionary has entries for 29 living
economists. Of these, 26 - 89.7 per cent - are from the
The post-autistic economics movement
There was a bit of conceptual genius at work in the French students’ petition. For forty years most critiques of economics had been filtered through sets of ideas such as Popperian falsification, Kuhnian paradigms, Lakatosian research programmes and related notions. The students’ petition ignored all that. Instead it assailed mainstream economics for failing to illuminate most of economic reality (hence the term ‘autistic’), and identified the causes as the establishment’s commitment to viewing the world only through the narrow neoclassical point of view; its prohibition of critical thinking towards that system of belief; and its preoccupation with meaningless formalism. The solution was simple and realisable if given the political will: dump most of the maths, drop the prohibition on critical thinking and introduce ‘a plurality of approaches adapted to the complexity of objects analysed.’
The students were making - they may not have realised it but their mentor Bernard Guerrien must have - a major epistemological point. They were breaking with the previous century’s philosophy of science (which had included its application to economics), which had preoccupied itself with situations of transition - transition between theories that highlighted the same aspects of some corner of reality, but offered different conclusions and agendas. Thus Karl Popper’s The Logic of Scientific Discovery argued for falsification as the ideal and operative criteria for change of theory allegiance; others, most notably Imre Lakatos and Thomas Kuhn, argued for other criteria. The epistemological concern of the French students is a fundamentally different one. They have identified a situation in which one theory illuminates a few facets of a domain, while its practitioners suppress other theories that illuminate some of the many facts that their theory leaves in the dark. In such a situation the solution is not abandonment of a theory or research programme, or a paradigm shift, but pluralism.
The history of economics is diverse, but the idea of pluralism is nevertheless anathema to economists. Beginning with the French Physiocrates in the mid eighteenth-century, economists of all varieties have been inclined to believe that their approach to economic phenomena reveals, if not the whole truth, at least all of it that is worth knowing. It is with these broad conceptualisations, which are called ‘schools’, rather than with subject areas, that economists form their primary professional identity. The assorted teachings and members of these schools are labelled orthodox or heterodox depending on whether their school is the dominant one or not. Until very recently economists of all varieties have been comfortable with this quasi-theological scheme of things.
The French students asked that their economics education be oriented primarily toward understanding the world’s economic problems (globalisation, inequalities, environment, technical progress, etc). Any ‘school’s’ teaching would be welcome to the extent that it threw light on the real world. Likewise, implicitly, a school’s members would not be welcome if they did not place the pursuit of empirical understanding ahead of the inculcation of articles of faith. Furthermore, and this is extremely important, the inclusion of different ‘schools’, with their different conceptual viewpoints, would neutralise the ideological implications that every conceptual system, by design or accident, contains. No strong precedent existed for this demand, and its novelty, coupled with its self-evident reasonableness, came as a shock for economists, orthodox and heterodox alike.
Traditionally non-neoclassical schools of economics have quarrelled among themselves hardly less than with the neoclassical. But in the mid-1990s a peace movement began. Under the banner ICARE (Confederation of Associations for the Reform of Economics) (later changed to ICAPE, with ‘Pluralism’ substituted for ‘Reform’), it sought ‘to promote a new spirit of pluralism in economics, involving critical conversation and tolerant communication among different approaches’. ICAPE’s pluralism in the mode of a council of churches was several giant steps away from what the French students were proposing, but it helped to decontaminate the p-word and breakdown blind acceptance of the simplistic Popperian and Kuhnian, us or them, notions of science. So when the ideas of the French students were spread through the profession internationally by the Post-Autistic Economics Newsletter (now Review) they fell on partially prepared ground.
speed with which the free email-delivered
neoclassical monopoly in the classroom and its prohibition on critical
thinking has meant that it has brainwashed successive generations of students
into viewing economic reality exclusively through its concepts, which more
often than not misrepresent or veil the world, especially today’s world.
Nearly all of these neoclassical notions have a bearing on judgements about
social, cultural and economic policy. Consequently, if society were to learn
to think about economic matters outside the neoclassical conceptual system, it
would almost certainly choose different policies. One of
Neoclassical economics regards competition as a state rather than as a process. It defines perfect competition as a market with a large number of firms with identical products, costs structures, production techniques and market information. But in real life competition is a process by which firms continually seek to re-establish the conditions of their own profitability. To compete in a market requires firms to seek out and exploit differences between them in production, technology, distribution, access to information and awareness of trends in consumption. These differences are the essential dimensions in which competition takes place. However, once the neoclassical conception of competition becomes embedded in the student’s mind, appreciation of real-world competition, and hence the policies that might enhance it, becomes logically impossible.
Neoclassical economists love to talk about freedom of choice. But this is pure rhetoric, because they define rationality in a way that eliminates free choice from their conceptual space. By rationality they mean that an agent’s choices are in conformity with an ordering or scale of preferences. The ‘rational’ agent chooses from among the alternatives available the one which is highest on his ranking. Rational behaviour simply means behaviour in accordance with some ordering of alternatives in terms of relative desirability. In order for this approach to have any predictive power, it must be assumed that the preferences do not change over some period of time. So the basic condition of neoclassical rationality is that individuals must forego choice in favour of some past reckoning, thereafter acting as automata. This conceptual elimination of freedom of choice, in both its everyday and philosophical meanings, gives neoclassical theory the hypothetical determinacy that its Newtonian inspired metaphysics require. Without indeterminacy there can be no choice. Without determinacy; there is no neoclassical model. This is far from just an academic matter, because society needs an economics that is able to address questions regarding freedom of choice.
No terms in neoclassical economics are more sacrosanct
than rational choice and rationality. Everyone identifies with
these words, because everyone wants to think of themselves as rational. But
few people realise that economists give these words an ultra eccentric
meaning. Neoclassical economics begins with an a priori conception of markets and economies as determinate
systems that, by the action of individual agents alone, tend towards an
efficient and market-clearing equilibrium. This requires that the individual
agents, like the bodies in
These failings all connect with another. For neoclassical economics is by its own axioms incapable of offering a coherent conceptualisation of the individual or economic agent. It cannot explain where the preferences that supposedly dictate the individual’s choice come from. The preferences cannot be explained through interpersonal relations, because if individual demands were interdependent they would not be additive, and thus the market demand function - neoclassicalism’s key analytical tool - would be undefined. And they cannot come from society, because neoclassicalism’s Newtonian atomism translates as methodological individualism, meaning that society is to be explained in terms of individuals and never the other way around.
This leaves an awful lot unexplained. For in the main, despite the neoclassical axioms, we all tend to categorise and classify according to prevailing cultural norms. Likewise our tastes and preferences for this and that reflect the social conventions and institutions with which we interact. Consequently individual choice is unavoidably and inextricably bound up with historically and geographically given social worlds. An economics that has nothing to say about the formation of economic tastes and preferences is silly and irresponsible, especially in an age of consumer societies, and in a world now threatened with climate change or worse.
half a century neoclassical economics has hidden its ideology behind the
notion that it calls positive economics.
This is the idea that it contains no value judgements because it mentions
none. Of course such a notion belongs to an intellectually more naive age
than today, but it nonetheless persists as an effective tool of
indoctrination of undergraduates. The fact that neoclassical economics
requires a highly restricted focus in order to maintain its atomist and
determinist metaphysics compels it to make many extreme judgements about what
is and is not economically important. There is not space here even to list
them. But one key example is its notion of ‘economic man’ - an acutely
ideological term, as it emphasises some roles and relationships and excludes
others; by allowing only decisions based on utility maximisation, it excludes
other forms of ethics. As an economic agent, each individual acts in many
roles, not just market ones, and is guided by his or her ‘ideological
orientation’. That orientation may be founded on utilitarianism or not. It
may, for example, be based on social and environmental ethics.
Like rationality, nearly everyone thinks efficiency is a good idea. Neoclassical economists adore using this word, especially when addressing the public. But the meaning of ‘efficiency’ always depends on what you choose to count. For example, suppose five firms all manage to lower by the same amounts the production cost and selling price of a standard product that they all produce. One does it by cutting its workers’ pay, another by working them longer hours, another by getting materials at lower prices from a poorer country, another by replacing some of its workers with robots, and another by inventing machinery improvements that allow it to cut work hours with no loss of output, profit, jobs or pay. Are all of these changes equally efficient (or inefficient)? A neoclassical economist will answer yes, because the five firms all end up producing the same product at the same cost and selling it at the same price. For them that is all that matters.
The prevailing mainstream also holds that in the realm of public affairs this concept of ‘efficiency’ can and should determine the net balance between the positives (total benefits) and negatives (total costs) that would result from an economic policy or act. In place of public debate, economists would substitute ‘cost-benefit analysis’. But any such analysis depends on the consequences selected and the kinds of ‘measurements’ made. No efficiency claim is ever based on an identification of all the consequences, and quantitative guesstimates of the future inevitably have a crystal-ball dimension. In the final analysis, ‘efficient’, like ‘beautiful’, is little more than a way of expressing a positive opinion.
Mainstream economics, and in consequence most policy dialogue, also conflates two very different meanings of economic growth that are in common usage, with GNP mistakenly taken to be a measure of both. There is quantitative growth, meaning an increase in the quantity of production and consumption, and there is qualitative growth, meaning an improvement in well-being. For example, an epidemic may lead to growth of medical expenditure and hence increase GNP but not well-being. Pollution and congestion lead to huge expenditures to escape them (e.g. commuting from the suburbs, double glazing, air filters, security measures), the creation of new industries and an ever larger GNP, but they also decrease well-being. Quantitative growth that causes negative qualitative growth can also be called uneconomic growth. This is both a reality and a concept with which policy-makers must come to terms, the sooner the better.
Closely related to these new anti-neoclassical concepts is another one, sustainable development. This refers to the physical scale of the economy relative to the ecosystem. Ecological economists view the economy as an open subsystem of the larger ecosystem which is finite, non-growing and, except for solar energy, materially closed. This point of view compels asking questions regarding scale. How large is the economic subsystem relative to the earth’s ecosystem? What is its maximum possible size? What is its most desirable size in terms of human welfare? These questions, around which policy decisions will and must increasingly be made, are not found in standard economics textbooks. Neoclassical economics can not accommodate the concept of sustainable development, because, if it was adopted as a goal it would require that goods be valued in part by their contribution to that goal and not solely on their contribution to individual utility maximisation.
close to monopoly position of neoclassical economics is incompatible with
normal ideas of democracy. Economics has some of the qualities of a science,
but because of the very nature of its subject matter, it is forever and
fundamentally ideological. It is best not to deceive oneself and others about
that. The preoccupation of economics with values and worldly acts means that
in a democratic society it has a moral responsibility to promote the
exploration of economic knowledge from more than one point of view, so as to
make possible the informed and intelligent debate and discussion that
democracy requires. But the hegemony of neoclassical economics means that
departments of economics have become political propaganda centres. In 2002,
Joseph Stiglitz, a recent winner of the Nobel Prize
for Economics, wrote in The Guardian
that economics as taught ‘in
1. Thorstein Veblen, ‘Why is Economics not an Evolutionary Science?’, Quarterly Journal of Economics, Vol. 12, 1898,
2. Geoffrey M. Hodgson, How Economics Forgot History, Routledge 2001, p155.
3. This paragraph draws heavily on Michael A. Bernstein, ‘Rethinking Economics in Twentieth-Century America’, in
Edward Fullbrook (ed), The Crisis in Economics, Routledge 2003.
4. Kenneth Arrow, Collected Papers of Kenneth J. Arrow: Volume 1: Social choice and Justice, Harvard University Press
5. E. Ray Canterbery and Robert J. Burkhardt, ‘What do we mean by asking whether economics is a science?’, in Alfred
6. Edward Fullbrook (ed), A Guide to What’s Wrong with Economics, Anthem Press 2004.