Article by Frank Rotering on the state of economics today

If you didn’t read The Peak this summer, you missed a dandy head-butting contest about the state of economics.

Muhammad Amir, a business administration student, wrote an article for the July 11 issue titled “Economics is Dead.” He confessed to being an “anti-economist” and called the discipline “dehumanising, unfounded, naive, and most of all, irrelevant.”

Before starting, let me say that economics is a highly ideological field. Unlike the physical sciences and many other social disciplines, its subject matter involves questions of wealth, power, and class. Although many in the field try to skirt these factors, they are inexorably present. That said; the first step is to place economics in its historical context.
The economics we study today was developed during a unique period of human history that began with the advent of capitalism around 1500. At that time, the planet had abundant natural resources, a relatively clean environment, and continents ripe for colonisation.

Capitalism radically transformed this world through a prolonged burst of economic growth and “creative destruction.” That period is now coming to an end. A wealth of scientific evidence indicates that our pollution and wastes have begun to breach ecological thresholds. While many resources are still abundant, the most critical of these – oil and natural gas – are starting their inevitable declines. The colonies have been plucked clean and left to their fates.
Economics thus co-evolved with the temporary historical phase of expansion and exploitation. As a result, it reflects the main factors associated with this phase: the growth burst itself, the realities of the capitalist system that made this burst possible, and the interests of the system’s dominant force – the capitalist class. This broad claim can be substantiated by noting how economics today defines, or avoids, its most fundamental original concepts: use-value, exchange-value, and cost.

Use-value is based on the realities of capitalism. A commodity’s use-value, or utility, is measured by the strength of personal wants, in so far as these are backed by money. This definition is non-ideological; Karl Marx said essentially the same thing in the opening pages of Capital. Use-value is also an important element of the historical growth burst. The subjective desires of consumers, as manipulated by producers, is a key driver of economic expansion.

Exchange-value refers to the factors that underlie, or regulate, the market prices of commodities. Adam Smith stated in Wealth of Nations that the “exchangeable value” of a commodity depends on the labour required to produce it. Marx sharpened and deepened this concept, and then used it to explore capitalism’s class relations and internal dynamics. The economics profession responded to this politically dangerous development by abolishing exchange-value as a legitimate concept and by diverting attention to price. The absence of exchange-value in today’s economics is thus an unambiguous expression of capitalist class interests.

Cost is currently interpreted as opportunity cost – the value of the best alternative action. Opportunity cost adequately captures the sacrifice of potential benefits associated with a production choice, but suppresses the damage to humankind and nature incurred during production itself. The concept thus has two faces: It faithfully reflects the realities of capitalism with respect to allocation, but it bows to capitalist class interests with respect to production.
The second step in addressing the polarisation of views on economics is to note that multiple theoretical branches have arisen from the mainstream source. This has occurred because of differences in the worldviews and political orientations of economic analysts.

Some analysts embrace the capitalist perspective and therefore interpret mainstream concepts conservatively. This major branch can be called standard economics.

Other analysts question the logic of capitalism or the motives of its supporters, and therefore interpret the same concepts progressively. The numerous minor branches in this category (post-Keynesian, agent-based, social, evolutionary, etc.) are referred to collectively as heterodox economics.

A third group bases its views not on its attitude to capitalism, but on the system’s ecological consequences. This has given rise to ecological economics, which is unique because of its emphasis on optimal economic scale and its rejection of irrational growth.

In brief, almost all economic theories today can be classified as mainstream or Marxist. Mainstream theories accept the core concepts specified, and can be subdivided into three branches: standard, heterodox, and ecological. Marxist economics largely rejects the mainstream concepts and bases its analysis on exchange-value rooted in labour-time.

So: how is it possible for one person to pronounce economics dead while others insist that it’s very much alive? The short answer is that they’re looking at the subject from different sides of the fence.

Article by Frank Rotering.