TheDaak review

PERSPECTIVE

Jacob Joshy

The field of economics is all about developing theoretical explanations for real-life economic activities and connecting them with various theoretical tools and frameworks. Nevertheless, a closer study reveals that economics, as taught in universities and used in policymaking that aims to ‘efficiently allocate scarce resources to ensure the greatest welfare’, has never been able to achieve its goals of reducing global inequality or poverty. Economic crises of magnitude, small and large, have become a common phenomenon, bringing more misery to the lives of ordinary people. Not only are mainstream economists preoccupied with “perfecting their increasingly esoteric and formalistic” (Milonakis & Fine 2009) models, but they have also neglected the very history of this field. This disregard for history is evident in how economics is carried out. Consequently, if one wishes to bring about a paradigm shift in economic thinking, it is crucial to dig into the evolution of economic thought, too. This exercise will expose where many attempts to build modern economics solely as ‘the mechanics of utility and self-interest’ originated.

The emergence of the standardised study of economics as a distinct discipline may be traced back to the seventeenth and eighteenth centuries when Europe underwent many radical changes in how its commodity production was organised. However, references to issues now commonly attributed to economic problems were already present from classical antiquity to the Middle Ages. From Plato, Aristotle, Xenophon, or Kautilya in classical antiquity to the various schools of thought throughout the later periods, including the Patristic Thought consisting of Christian thinkers until the eleventh century, the Scholastics in the twelfth and thirteenth centuries, and the Bullionists and Mercantalists in the seventeenth century, all analysed one or more of the limited economic challenges before them. The great leap happened when the study of all sciences and techniques was hugely impacted by the significant discoveries in natural sciences, from Galileo’s contributions in astronomy to the discovery of blood circulation by Harvey, from Newton’s physics to Lavoisier’s quantitative chemistry. For instance, Francis Bacon (1561–1626), writing in 1623, proposed an inductive method, a fusion of empiricism and rationalism, in studying social phenomena. Economics was also heavily affected by it, thus shifting it from a combined study of morals to a more ‘scientific’ plane.

William Petty (1623 – 1687), often regarded as the founder of the political economy, was in charge of this endeavour. After retiring from his services as a medical practitioner who studied anatomy along with Thomas Hobbes, he spent hours formalising and exploring the various economic affairs at his Irish estates. Petty, heavily influenced by the quantitative methods proposed by Bacon, naturally used his medical expertise to theorise the economic phenomenon and came up with a political and anatomical analogy: just as blood circulates throughout the human body, so do we now have the circularity problems in economics concerning the realisation of prices of production. Though economics underwent many transformations from Petty’s “Body Politic” to the time of classical economists, they were not exclusively economists either. For instance, this period saw philosophers like David Hume and John Locke, physicians like Francois Quesnay, and doctors like Richard Cantillon and Bernard de Mandeville study, debate, and write on economics to lay some of its now widely accepted foundations.

This evolution finally culminated in the works of Adam Smith (1723 – 1790), who is credited with bringing up the “conceptual scheme that characterised subsequent economic science”. Smith was not an economist but a professor of logic, theology, philosophy, and ethics. Gradually, owing to the works of Malthus, Say, Sismondi, Bentham, and Ricardo, political economy was now officially raised as a field of study. Consequently, in 1754, the first chair in political economy was established in Naples. Gradually, universities across Europe followed this trend. Max Weber (1864 – 1920), regarded as the father of modern sociology, was also a chair of political economy. Economics, the new science that emerged, was primarily influenced by the unifying models of Newtonian approaches of the seventeenth century. Even the great Karl Marx (1818 – 1883), who studied law and philosophy, used “metabolism”, a biological analogy, to study commodities in his magnum opus Das Kapital’.(Marx, 1976, p198)

Towards the end of the nineteenth century, the inability of the existing political economy to effectively tackle recurring economic crises, coupled with a consistent demand for formalisation, led to the emergence of the neoclassical school of thought in economics. This movement marked a pivotal shift, establishing the groundwork for the utilitarian and rational principles characterising the present mainstream economics. Jevons, Walras and Menger laid its foundation, where individual consumer and their utility, determined in the neutral, apolitical terrain of the market, became the basic unit of analysis. Later, Marshal and Pareto played a significant role in welding them into the mainstream discourse. Hereon, curricula and pedagogy in economics were carefully designed to provide consistent teachings of economics globally. On top of that, publishing research papers was prioritised to advance the fresh trajectory that economics was taking. Thus, economics evolved from a social science to a positive science concerning individual choices, or, to put it another way, ‘a problem of maximisation subject to constraints.’ This transformation unfolded gradually, evolving over an extended period and intricately weaving into the fabric of time, concurrently overlapping with various other events. It was a process characterised by a gradual unfolding rather than an abrupt occurrence, demonstrating a nuanced and intricate progression.

Now, we will take a slight digression and talk about some economists with backgrounds in science, technology, engineering and maths who left their profession and joined economics studies. Leon Walras left engineering to study literature and journalism and later went on to become one of the forerunners of the marginal revolution. His successor at Lausanne chair, Vilfredo Pareto, was also an engineer whose Pareto optimum principle is a widely used concept in economics. Paretto’s 80-20 rule is applied across fields from computer network theory to income inequality. Even Charles Babbage, commonly hailed as the father of computers, has written a book ‘The Economics of Machinery and Manufactures’ focusing on the issues of production and division of labour. The eminent mathematician John von Neumann founded game theory in economics. Another mathematician, Karl Menger, made a significant contribution to the general equilibrium debates of that time. A substantial proportion of economists during the 20th century either had some mathematical training or desired to use mathematics as the foundation of their economic models. 

Because there were no formal borders between different social sciences in the classical period, it was reasonably usual and anticipated that many people would write and comment on diverse problems, including economics. However, starting from the twentieth century, mathematics and science have had an enormous role in the development of mainstream economics. There is a growing tendency to reduce everything to mathematical models, and a theory is only approved if it is mathematically proven or verified. In pursuing formal rigour, the field has separated itself from the reality of actual-world situations. Keynes identified this phenomenon as early as 1936 and wrote: “Too large a proportion of recent ‘mathematical economics’ are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols”, and the Keynesian revolution initiated in the aftermath of the 1930 Great Depression was a tiny deviation from the clutches of neoclassical economics. This is not to say that formalisation is not required, but it should not forget the real world below. The point is that even if valuable mathematical techniques are used to check empirical results and verify conclusions from non-mathematical reasoning, they should not be used as the sole modus operandi to understand human societies and behaviour.

Even if the pundits of mainstream economics deny that their formalisation is devoid of biases, it has solid ideological undercurrents. What is presented as an ideologically neutral and universal science is rooted within the morals and structures of capitalism. Moreover, over the last century or so, every other school of thought has been systematically removed from curricula across the globe. Browse through the course structure in the Economics Program in any University or College around the world, and one would find that it is entirely dominated by the theories and teachings of the Neoclassical school, which heavily relies on its mathematical models to bolster the idea of Homo Economicus. There has been some clamour about this state of economics teaching but nothing of such which could make any noticeable traction. It also makes sense because it is not easy to overthrow a “vehicle for the ruling ideology of each period” (Robinson 1962) that they used to explain their privileged “position was morally right” (Robinson 1937). The critics have long warned that ethics has no place in mainstream economics. Amitai Etzioni’s 2015 study, ‘The Moral Effects of Economic Teaching’, carefully sketches its impact. Both the mainstream pedagogy and policymaking of economics reflect this morally devoid nature of the discipline. 

To overcome this riddle, economics itself has to be radically transformed to be equipped to address and analyse societal problems with a meaningful perspective. There has been an increased interest in reviving and rejuvenating other schools, too, and this growing interest is sporadically visible in academia. With the unprepared state of our economic machinery when confronted with recurring financial crises and slowdowns, it is high time that we prioritise alternate thinking and its history to bring about a paradigm shift in how we see economic studies and problems. Like Schumpeter once said, economic history should be the focal point of the economics curriculum around which everything else should be organised. Therefore, it is only through the reintroduction of social and historical context into the main corpus of economic theorising that we can succeed in our endeavours to reimagine the discipline of economics.

References:

1. Milonakis, Dimitris., & Fine, Ben (2009, January 1): From Political Economy to Economics. Taylor & Francis.
   
2. Roncaglia, Alessandro (2017, September 14): A Brief History of Economic Thought. Cambridge University Press.
   
3. Marx, Karl., Engels, Friedrich., Mandel, Ernest., & Fowkes, Ben. (1976): Capital. Volume One: A Critique of Political Economy. London: Penguin in association with New Left Review.
   
4. Keynes, John. Maynard  (1936): The General Theory of Employment, Interest and Money.
   
5. Robinson, Joan (1962): Economic Philosophy.
   
6. Robinson, Joan (1937): Essays In The Theory Of Employment.
   
7. Rochon, Louis-Philippe and Rossi Sergio. 2023. “Should we be teaching Neoclassical Economics to undergraduates?”, Monetary Policy Institute Blog.
   

Jacob Joshy is pursuing an MA in Economics at South Asian University, Delhi.