(Roughly) Daily

… so the quality of those thoughts matters– as does their diversity. Ha-Joon Chang surveys the monoculture of current economic thinking, explains why that’s problematic, and proposes a remedy…

… Up to the 1970s, economics was populated by a diverse range of ‘schools’ containing different visions and research methods – classical, Marxist, neoclassical, Keynesian, developmentalist, Austrian, Schumpeterian, institutionalist, and behaviouralist, to name only the most significant. These schools of economics – or different approaches to economics – had (and still have) distinct visions in the sense that they had conflicting moral values and political positions, while understanding the way the economy works in divergent ways. I explain the competing methods of economists in my book Economics: The User’s Guide (2014), in a chapter called ‘Let a Hundred Flowers Bloom – How to “Do” Economics’.

Not only did the different methods coexist but they interacted with each other. Sometimes, the competing schools of economics clashed in a ‘death match’ – the Austrians vs the Marxists in the 1920s and ’30s, or the Keynesians vs the neoclassicals in the 1960s and ’70s. At other times, the interactions were more benign. Through debates and policy experiments tried by different governments around the world, each school was forced to hone its arguments. Different schools borrowed ideas from each other (often without proper acknowledgement). Some economists even tried the fusion of different theories – for example, some economists fused the Keynesian and the Marxist theories and created ‘post-Keynesian’ economics.

Economics until the 1970s was, then, rather like the British food scene today: many different cuisines, each with different strengths and weaknesses, competing for attention; all of them proud of their traditions but obliged to learn from each other; with lots of deliberate and unintentional fusion happening.

Since the 1980s, however, economics has become the British food scene before the 1990s. One tradition – neoclassical economics – is the only item on the menu. Like all other schools, it has its strengths; it also has serious limitations… neoclassical economics is today so dominant in most countries (Japan and Brazil, and, to a lesser extent, Italy and Turkey are exceptions) that the term ‘economics’ has – for many – become synonymous with ‘neoclassical economics’. This intellectual ‘monocropping’ has narrowed the intellectual gene pool of the subject. Few neoclassical economists (that is, the vast majority of economists today) even acknowledge the existence, never mind the intellectual merits, of other schools. Those who do, assert the other varieties to be inferior. Some ideas, like those of the Marxist school, they will argue, are ‘not even economics’. It’s claimed that the few useful insights these other schools once possessed – say, for instance, the Schumpeterian school’s idea of innovation, or the idea of limited human rationality from the behaviouralist school – have already been incorporated into the ‘mainstream’ of economics, that is, neoclassical economics. They fail to see that these incorporations are mere ‘bolt-ons’, like the baked potato beside a Pizzaland pizza, rather than genuine fusions – like Peruvian cuisine, with Inca, Spanish, Chinese and Japanese influences, or the dishes by the Korean American chef David Chang (no relation), with American, Korean, Japanese, Chinese and Mexican influences…

The problem… is the almost total dominance of one school, which has limited the scope of economics and created theoretical biases and blindspots. In the same way in which the country’s refusal to accept diverse culinary traditions made Britain before the 1990s a place with a boring and unhealthy diet, the dominance of economics by one school has made economics limited in its coverage and narrow in its ethical foundation…

Economics… influences who we are by affecting the way the economy develops and thus the way we live and work, which in turn shapes us… economics influences the kind of society we have. First, by shaping individuals differently, varying economic theories make societies of contrasting types. Thus, an economic theory that encourages industrialisation will lead to a society with more forces pushing for more egalitarian policies, as explained above. For another example, an economic theory that believes humans to be (almost) exclusively driven by self-interest will create a society where cooperation is more difficult. Second, different economic theories have different views on where the boundary of the ‘economic sphere’ should lie. So, if an economic theory recommends privatisation of what many consider to be essential services – healthcare, education, water, public transport, electricity and housing, for example – it is recommending that the market logic of ‘one-dollar-one-vote’ should be expanded against the democratic logic of ‘one-person-one-vote.’ Finally, economic theories represent contrasting impacts on economic variables, such as inequality (of income or wealth) or economic rights (labour vs capital, consumer vs producer). Differences in these variables, in turn, influence how much conflict exists in society: greater income inequality or fewer labour rights generate not just more clashes between the powerful and those under them but also more conflicts among the less privileged, as they fight over the dwindling piece of pie available to them.

Understood like this, economics affects us in many more fundamental ways than when it is narrowly defined – income, jobs and pensions. That is why it is vital that every citizen needs to learn at least some economics. If we are to reform the economy for the benefit of the majority, make our democracy more effective, and make the world a better place to live for us and for the coming generations, we must ensure some basic economic literacy…

Economics is the language of power and affects us all. What can we do to improve its impoverished menu of ideas? The case for economic literacy: “The Empty Basket,” in @aeonmag. Eminently worth reading in full.

* John Maynard Keynes

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As we go to school, we might spare a thought for a candidate for study, David Ricardo; he died on this date in 1823.  A political economist, he developed a labor theory of value in his seminal Principles of Political Economy and Taxation, published in 1817; he was instrumental in the development of theories of rent, wages, and profits; and at a time of mercantilist sentiment, he introduced the theory of competitive advance and advocated free trade.  Indeed, most economists rank Ricardo as the second most influential economic thinker working before the 20th century, after Adam Smith.

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