Thursday, May 2, 2013

Economics: Dismal Science or Powerful Dogma?

- Anirban Kar

“Most people take capitalism for granted…From this point of view one can understand and criticize what happens within the framework of the system; one can neither understand nor evaluate what happens to the system itself.” - Paul Sweezy; The Theory of Capitalist Development.

In this short note, I shall try to sketch the role of Economics as a discipline in the capitalist world order. I shall argue that the prominence and the crisis of Economics are organically linked with the dynamics of capitalism and hence a critique of its present state of pedagogy and research must be situated within this broader framework. This note has three sections. In the first section, as a prelude, I briefly discuss how Economics originated as a separate discipline from Political Economy during the heyday of laissez-faire capitalism. The second and the third section look at the role of Economics as a tool and an ideology of Capitalism, respectively.

Origin of Economics

“In fact, the whole world may be looked upon as a vast general market made up of diverse special markets where social wealth is bought and sold. Our task then is to discover the laws to which these purchases and sales tend to conform automatically.”

Leon Walras, one of the founders of Economics, wrote in 1874, while setting the agenda for Economics as a discipline. This was the time when capitalism was blooming in Western Europe and North America. For the first time in human civilization, indeed, wealth of a society appeared in the form of commodities which was produced at a massive scale, was bought and sold in market places and was circulated around the world. As soon as production decisions came to be determined by market conditions, it became important to understand ‘the laws’ of market. Focus shifted away from understanding the dynamics of social relations, which are governed by material conditions to the study of individual behaviour and optimal use of scarce resources. Economic system came to be understood not in terms of relation between men and men but in terms of relation between men and commodities; Political Economy gave way to Economics. It is not a coincidence that the book by Leon Walras, mentioned above, was titled ‘Elements of Pure Economics’.

Economics as a tool

Through the peak and trough of capitalism, different schools of thought made its way into mainstream Economics. However the central debate revolved primarily around the same set of issues: Does market allocate scarce resources efficiently? If and when this is not possible, can efficiency be achieved through a degree of state control? Can institutions and regulations be designed for this purpose? And finally, how aggregate level economic phenomenon (such as prices, production and consumption) arises from individual actions, essentially limited to economic decision making (capturing atomistic relation between men and commodities)? To summarize, Economics got busy with ‘smaller’ questions; about adjusting the Economy to suit the need of the hour. Understanding the dynamics and contradiction of capitalism, its historical path of development, increasingly, got relegated to back seat. Economics became a tool for capitalism. This had multifarious effects on the pedagogy and research of Economics. I shall touch upon a couple of issues.

Increasing specialization: With advancement of knowledge, a degree of specialization is perhaps inevitable. But the degree of specialization Economics has witnessed is simply astounding. For instance, the current issue of American Economic Review (considered to be the top Economics Journal) listed papers under following categories; Recessions and Retirement, Economics of Automobile Sector, Law and Economics, Labour Economics etc., not to mention exotic categories, such as, Wine Economics and Economics of Arts. However this was expected. Since Economics was preoccupied with repairing parts and components of capitalist economy, knowledge of each component became a specialized field. Incentives and punishments were also realigned to support this form of fragmented studies. For instance, research works in Economics now appear primarily as standalone articles and not as a body of knowledge in the form of thesis or books. In a competitive market for academic positions, where researchers are evaluated by number of publications, specialization is naturally more remunerative than development of a broader perspective.

Obsession with technique: After the recent financial crisis, one of the leading Economists of this era, Paul Krugman, took a critical look at the discipline. He wrote, “What happened to the economics profession? And where does it go from here? As I see it, the economics profession went astray because economists, as a group, mistook beauty, clad in impressive-looking mathematics, for truth.” What Krugman refused to see is that fascination for tools is not the disease but one of its symptoms. Since Economics restricted itself to investigate the relation between men and commodities, quantification of human behaviour became inevitable. Certain tools such as Game Theory and Econometrics became prominent. These tools were certainly useful but their dominance came at the cost of neglecting other useful tools such as Ethnography and studies on Economic history. Moreover, development of tools itself became more important than issues at hand. Today in Economics, it is impossible to publish a paper in international journal without sophisticated techniques, no matter how important the issue is. Economic thought should have dictated the choice and development of tools but unfortunately the reverse happened; tools started determining the trajectory of economic thought. Just to give an idea, in MA Economics at Delhi University, out of 27 optional papers offered last year, there were only four papers related to Economic History and Development Economics, whereas Econometrics had three and Mathematical Economics (including Game Theory) had five papers.

Economics as an ideology

Economics also provide one of the strongest channels of ideological indoctrination. Ariel Rubinstein, one of the top Game theorists, conducted a classroom experiment involving undergraduate students of different disciplines. The main survey question involved a conflict between profit maximisation and the welfare of the workers who would be fired to achieve it. Significant differences were found between the choices made by Economics students and the rest. Economics students were more eager to forsake workers welfare in order to maximise profit. Rubinstein argued that this is a consequence of overly mathematical methods used in Economics. Students are indoctrinated to see economic problem not as material conflict between men and men but as a set of mathematical formulae.

Another important source of indoctrination is the ahistorical view of Economics. Axiomatic foundations of human behaviour and presence of market society are presented in a manner of immutable laws of nature. Hence dynamics of capitalism become non issue, omnipotence of market become indisputable. Students are trained to believe in ‘There Is No Alternative’. 

A few disgruntled voices within the profession:

Ariel Rubinstein: Dilemmas of an economic theorist
Anirban Kar teaches Economics at Delhi School of Economics, University of Delhi


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