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post-autistic economics review
Issue no. 22,  24 November 2003                         back 
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            In this issue: 
                - Herman E. Daly
                       The Illth of Nations and the Fecklessness of 
Policy: An Ecological Economist's
                       Perspective
                - Kyle Siler
                       The Social and Intellectual Organization and 
Construction of Economics
                - Jacques Sapir
                       Seven Theses for a Theory of Realist Economics
                       Part II: Theses Five to Seven
                - Richard D. Wolff
                       The Critique of Economic Policy
                - Kepa M. Ormazabal
                        Neo-classical Economics Is Not "Neo", but 
"Anti"-classical
                - Antonio Garrido
                       Joan Robinson and the Post-Autistic Economics Movement

The Illth of Nations and the Fecklessness of Policy:
An Ecological Economist's Perspective
Herman E. Daly   (School of Public Policy, University of Maryland, USA)

Our traditional economic problems (poverty, overpopulation, 
unemployment, unjust distribution) have all been thought to have a 
common solution, namely an increase in wealth. All problems are 
easier if we are richer. The way to get richer has been thought to be 
by economic growth, usually as measured by GDP.  I do not here 
question the first proposition that richer is better than poorer, 
other things equal. But I do question whether what we persuasively 
label "economic growth" is any longer making us richer. I suggest 
that physical throughput growth is at the present margin and in the 
aggregate increasing illth faster than wealth, thus making us poorer 
rather than richer. Consequently our traditional economic problems 
become more difficult with further growth. The correlation between 
throughput growth and GDP growth is sufficiently strong historically 
so that in the absence of countervailing policies even GDP growth 
frequently increases illth faster than wealth.

What we conventionally call "economic growth" in the sense of "growth 
of the economy" has ironically become "uneconomic growth" in the 
literal sense of growth that increases costs by more than it 
increases benefits. I am thinking here of the North rather than the 
South, because in many poor countries where the majority lives close 
to subsistence the benefits of production growth, even if badly 
distributed, justify incurring large costs. But since the South is 
striving with encouragement from the IMF and World Bank to become 
like the North, I am not really neglecting the South by focusing on 
the North.

One will surely ask how do I know that growth has become uneconomic 
for many Northern countries? Some empirical evidence is referenced 
below.1   But more convincing to me is the simple argument that as 
the scale of the human subsystem (the economy) expands relative to 
the fixed dimensions of the containing and sustaining ecosystem, we 
necessarily encroach upon that system and must pay the opportunity 
cost of lost ecosystem services as we enjoy the extra benefit of 
increased human scale. As rational beings we presumably satisfy our 
most pressing wants first, so that each increase in scale yields a 
diminishing marginal benefit. Likewise, we presumably would sequence 
our takeovers of the ecosystem so as to sacrifice first the least 
important natural services. Obviously we have not yet begun to do 
this because we are just now recognizing that natural services are 
scarce. But let me credit us with capacity to learn. Even so, that 
means that increasing marginal costs and decreasing marginal benefits 
of expanded human scale will accompany increasing human scale. The 
optimum scale, from the human perspective, occurs when marginal cost 
equals marginal benefit.  Beyond that point growth becomes uneconomic 
in the literal sense of costing more than it is worth.

It is interesting to know empirically if we have reached that point 
(I think we have in many countries), but even if we have not, it is 
obvious that continued growth of a dependent subsystem relative to a 
finite sustaining total system will inevitably reach such an optimal 
scale. If we add to the limit of finitude of the total system the 
additional limits of entropy and complexity of ecological 
interdependence, then it is clear that the optimal scale will be 
encountered sooner rather than later. Additionally, if we expand our 
anthropocentric view of the optimum scale to a more biocentric view, 
by which I mean one that attributes not only instrumental but also 
intrinsic value to other species, then it is clear that the scale of 
the human presence will be further limited by the duty to reserve a 
place in the sun for other species, even beyond what they "pay for" 
in terms of their instrumental value to us. And of course the whole 
idea of "sustainability" is that the optimal scale should exist for a 
very long time, not just a few generations. Clearly a sustainable 
scale will be smaller than an unsustainable scale. For all these 
reasons I think that for policy purposes we do not need exact 
empirical measures of the optimal scale. If one jumps from an 
airplane it may be nice to have an altimeter, but what one really 
needs is a parachute.

So what policies constitute a parachute? Briefly, they are policies 
that limit aggregate throughput, the metabolic flow beginning with 
depletion and ending with pollution, by which we and our economy 
live.  Although market cannot itself set that aggregate limit, it can 
allocate the limited throughput - assuming the market is competitive 
and confined to some limited degree of inequality in the distribution 
of wealth and income. Such policy instruments are evolving now, e.g., 
cap-and-trade systems for extraction rights, pollution emission 
rights, fishing rights, etc. Also ecological tax reform limits 
throughput by making it more expensive. It shifts the tax base from 
value added (something we want more of) on to "that to which value is 
added", namely the throughput (something we want less of). In 
differing ways each of the above "parachutes" would limit throughput 
and expansion of the scale of the economy into the ecosystem, and 
also provide public revenue. I will not discuss their relative 
merits, having to do with price versus quantity interventions in the 
market, but rather emphasize the advantage that both have over the 
currently favored strategy. The currently favored strategy might be 
called "efficiency first" in distinction to the "frugality first" 
principle embodied in both of the throughput-limiting mechanisms 
mentioned above.2

"Efficiency first" sounds good, especially when referred to as 
"win-win" strategies or more picturesquely as "picking the 
low-hanging fruit". But the problem of "efficiency first" is with 
what comes second. An improvement in efficiency by itself is 
equivalent to having a larger supply of the factor whose efficiency 
increased. The price of that factor will decline. More uses for the 
now cheaper factor will be found. We will end up consuming more of 
the resource than before, albeit more efficiently. Scale continues to 
grow. This is sometimes called the "Jevons effect". A policy of 
"frugality first", however, induces efficiency as a secondary 
consequence; "efficiency first" does not induce frugality--it makes 
frugality less necessary, nor does it give rise to a scarcity rent 
that can be captured and redistributed.

So far I have briefly outlined what I take to be the problem of the 
"illth of nations" (apologies to both Adam Smith and John Ruskin), 
and indicated some policy guidelines for avoiding the uneconomic 
growth that increases illth faster than wealth. I probably do not 
need to tell readers of post-autistic economics that these views do 
not find favor with mainstream neoclassical economists. The concepts 
of throughput, of entropy, and even of optimal scale of the 
macroeconomy are foreign to them. The last is especially odd since in 
microeconomics the concept of the optimal scale of each micro 
activity is central. Yet the sum of all micro activities, the macro 
economy, is not thought to have an optimal scale relative to its 
sustaining ecosystem. Probably this is because macroeconomists think 
of the macroeconomy as the Whole, not as a Part of some larger Whole. 
For them nature is not a containing envelope, but just a sector of 
the macroeconomy - mines, wells, croplands, pastures, and fisheries. 
When the Whole grows it expands into the Void encroaching on nothing 
and incurring no opportunity cost. But of course the real economy is 
a Part and it grows not into the Void, but into the rest of the 
ecosystem, and really does incur opportunity costs. I have long 
considered this Whole versus Part difference to reflect different 
preanalytic visions (Schumpeter) or different paradigms (Khun). 
Different preanalytic visions cannot, of course, be reconciled by 
further analysis. I still believe this is fundamental.

Recently, however, my experiences of teaching in a policy school and 
of dealing with ecologists and biologists as well as economists, has 
led me to see an additional problem at the level of policy in 
general. In other words, even if we could agree on the right 
preanalytic vision of the basic way the world works, would we then be 
able to enact and follow effective policies, such as the "parachutes" 
briefly discussed? So far, our capacity to enact policies of 
"frugality first" seems very weak. Indeed, even "efficiency first" 
policies are not easy to enact. So let us turn our attention to the 
question of policy in general, and policy fecklessness in particular.

What are the presuppositions we must make before we can reasonably 
and seriously discuss policy--policy of any kind? There are two that 
I can see.

First we must believe that there are real alternatives among which to 
choose. If there are no alternatives, if everything is determined, 
then it hardly makes sense to discuss policy--what will be will be. 
No options, no responsibility, no need to think.

Second, even if there were real alternatives, policy dialogue would 
still make no sense unless there was a real criterion of value by 
which to choose from among the alternatives. Unless we can 
distinguish better from worse states of the world then it makes no 
sense to try to achieve one state of the world rather than another. 
No value criterion, no responsibility, no need to think.

In sum, serious policy must presuppose: (1) non-determinism-- that 
the world is not totally determined, that there is an element of 
freedom which offers us real alternatives; and (2) non-nihilism-- 
that there is a real criterion of value to guide our choices, however 
vaguely we may perceive it.

To be sure, not every conceivable alternative is a real alternative. 
Many things really are impossible. But the number of viable 
possibilities permitted by physical law and past history is seldom 
reduced to only one. Through our choices, value and purpose lure the 
physical world in one direction rather than the other. Purpose is 
independently causative in the world.

This seems pretty obvious to common sense--so what is the point of 
stating the obvious? The point is that many members of the 
intelligentsia deny one or both presuppositions, and yet want to 
engage in a policy dialogue. I don't mean that we disagree on exactly 
what our alternatives are in a particular instance, or about just 
what our value criterion implies for a concrete case. That is part of 
the reasonable policy dialogue. I mean that determinists who deny the 
effective existence of alternatives, and nihilists or relativists who 
deny the existence of value beyond the level of subjective personal 
tastes, have no right to engage in policy dialogue--and yet they do! 
This is my cordial invitation to them to remember, and to reflect 
deeply upon their option of remaining silent--at least about policy.

Who are these people? In the sciences I am thinking about the 
hard-line neodarwinists and sociobiologists; in the humanities, the 
post-modern deconstructionists; and in the social sciences, the 
evolutionary psychologists, and those economists who reduce value to 
subjective individual tastes any one of which is as good as another.

No one can in practice live by the creed of determinism or nihilism. 
In this sense no one takes them seriously, so we tend to discount any 
effect on policy of these doctrines. We tend to dismiss them as 
academic posturings. However, we halfway suspect that the many 
learned people who publicly proclaim these views might be right--and 
that is enough to enfeeble policy. For example, many people tell me 
that globalization is inevitable; any attempt to counter global 
economic integration is futile. If I manage to convince them that it 
might not be inevitable, the next line of defense is, how do we know 
that globalization will be any worse than the alternative? We cannot 
tell, we don't really know that it won't be good for us (because we 
don't know what is good in the first place), so there is no point in 
opposing it.  Either it is inevitable, or if not then we can have no 
reason to believe that any alternative would be better. Forget 
policy, go back to sleep.

Perhaps I can clarify my point by distinguishing four categories 
based on acceptance or non-acceptance of each of the two 
presuppositions identified.

(1) Perennial wisdom (e.g. Judeo-Christianity in the West) - there 
exist real alternatives from which to choose by reference to 
objective criteria of value.
(2) Criterionless choice-- alternatives are real options, but there 
is no objective criterion for choosing among them. (Existentialist 
angst)
(3) Providential determinism--there are no real options, but there is 
an objective criterion of value by which to choose, if only we had a 
choice. Fortunately providence has chosen for us according to the 
objective criterion, which we would not be wise or good enough to 
have followed on our own. (Theological predestination; technological 
providentialism)
(4) Criterionless determinism--there are no real alternatives to 
choose from, and even if there were, there is no objective criterion 
of value by which to choose. All is mechanism - random variation and 
natural selection, as claimed by the hard-line neodarwinists.

People engaged in policy, yet holding to positions (2), (3), or (4) 
are in the grip of a severe and debilitating inconsistency. Their 
participation in policy dialogue should be subject to the injunction 
of  "estoppel"--a legal restraint to prevent witnesses from 
contradicting  their own testimony.3  It should be applied in 
academia as well as in the courtroom!

To summarize: Avoiding the uneconomic growth that is increasing the 
illth of nations will require clear and forceful policy. All policy, 
especially such a radical one, requires a belief in both objective 
value and real alternatives. The fact that many people engaged in 
discussing and making policy reject one or both of these 
presuppositions is, in Alfred North Whitehead's term, "the lurking 
inconsistency", a contradiction at the basis of the modern worldview 
which enfeebles thought and renders action feckless. If we even 
halfway believe that purpose is an illusion foisted on us by our 
genes to somehow make us more efficient at procreation, or that one 
state of the world is, for all we can tell, as good as another, then 
it is hard to get serious about real issues. Whitehead noted, 
"Scientists animated by the purpose of proving that they are 
purposeless constitute an interesting subject for study". He went on 
to say that, "It is not popular to dwell on the absolute 
contradiction here involved".

I think, 75 years later, that it is high time we dwelt on this 
absolute contradiction. We pay a price for ignoring 
contradictions--in this case the price is feebleness of purpose and 
half-heartedness in policy. Citizens really must affirm that the 
world offers more than one possibility to choose from, and that some 
choices really are better than others. Determinists and nihilists 
have a right to exist, but an obligation to remain silent on policy. 
If hard-line, neodarwinist, deterministic materialists refuse to be 
silent, then they should be invited to explain why the survival value 
of such neodarwinism is not negative for the species that really 
believes it!

Notes

1. For critical discussion and the latest revision of the ISEW, see, 
Clifford W. Cobb and John B. Cobb, Jr., et al., The Green National 
Product, University Press of America, New York, 1994. For a 
presentation of the ISEW see Appendix of For the Common Good, H. Daly 
and J. Cobb, Boston: Beacon Press, 1989; second edition 1994. See 
also Clifford W. Cobb, et al., "If the GDP is Up, Why is America 
Down?, Atlantic Monthly, October, 1995. See also Manfred Max-Neef, 
Economic Growth and Quality of Life: A Threshold Hypothesis, 
Ecological Economics, 15, (1995), pp. 115-118. See also,Clive 
Hamilton, Growth Fetish, Allen and Unwin, 2003, NSW Australia.

2. By "frugality" I mean "non-wasteful sufficiency", rather than 
"meager scantiness".

3. estoppel = a bar or impediment preventing a party from asserting a 
fact or claim inconsistent with a position that the party previously 
took, either by conduct or words, esp. where a representation has 
been relied or acted upon by others. (Random House Dictionary of the 
English Language)

______________________________
SUGGESTED CITATION:
Herman E. Daly, "The Illth of Nations and the Fecklessness of Policy: 
An Ecological Economist's Perspective", post-autistic economics 
review, issue no. 22,  24 November 2003, article 1, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

The Social and Intellectual Organization and Construction
of Economics*
Kyle Siler   (Department of Sociology, McMaster University, Canada)

Most of the articles published in the Post-Autistic Economics Review 
focus on challenging and/or refuting mainstream economic theory. This 
tacitly serves as a means of precipitating further thought about 
economics, and in most cases, also functions as a means of promoting 
change in the discipline. However, as evidenced by history, be it the 
notion that the Earth revolves around the Sun, the double-helix model 
of DNA, or the hegemony of mainstream neoclassical economics today, 
merely having innovative, or possibly better ideas, does not 
necessarily equate with the ability to establish immediate scientific 
and societal acceptance of those ideas, or "truth." Hence, changing 
economics will be a "social" process, in addition to being a 
"scientific" process. Or, as per Stephen Cole's (1992) work, 
economics, like any "science", is comprised of both 
socially-constructed and "scientific" components. The Post-Autistic 
Economics Review has, and will continue to deal with the latter 
extensively. I propose to introduce the former to its readership.

My account of the social construction of economics is largely derived 
from British sociologist Richard Whitley's (1984) seminal work, The 
Social and Intellectual Organization of the Sciences. The crux of 
Whitley's argument is that, in addition to what they study 
empirically, scientific fields are shaped and affected by the degrees 
and types of mutual dependence and task uncertainty they possess. The 
next two sections will explain how these characteristics exist and 
function in mainstream neoclassical economics.

Mutual Dependence

Whitley (p. 88) broadly defined mutual dependence as "
the need to 
adhere to particular standards of competence and criteria of 
significance in order to reward important reputations for 
contributions." More specifically, mutual dependence is comprised of 
two analytically distinct agents: functional and strategic 
dependence. Economics has high functional dependence, as economists 
generally have to adhere to a dominant neoclassical strategic 
paradigm to be taken seriously. Conversely, it also has low strategic 
dependence, as due to this consensus, economists generally spend 
little time arguing over theoretical issues. Hence, most debates 
about theoretical issues outside of the dominant orthodoxy usually 
occur outside of mainstream economic forums (such as is the case with 
the Post-Autistic Economics Review).

Whitley (p. 31) also adds that "intellectual fields must have 
distinctive work procedures if they are to function as reputational 
work organizations." These distinctive work procedures set the 
context for self-conscious and self-regulating colleague groups being 
based "on their power to validate the expertise, and thus mediate the 
careers of, members (p. 20)." The arcane and esoteric mathematical 
nature of neoclassical economics is a powerful context, contributing 
to a very strong, unified organizational discipline, thus influencing 
both the profession and "science" of economics. Mathematics is not 
only an effective means of creating scholarly hierarchies, but also 
makes economic work difficult to comment on (at least in the 
mainstream economists' domain and language) for non-mathematical 
economists. This places control over the discipline largely into the 
hands of the most advanced mathematical economists, while insulating 
and empowering the discipline as a whole. Social and cultural norms 
which value abstractness, theoretical complexity, esoteric science 
and quantification also help make economics trusted, well-supported 
and respected.

As mutual dependence (which is the basis for much of economics' power 
and prestige) increases, local and individual circumstances tend to 
become irrelevant. Hence, it is not surprising that economics tends 
to privilege abstract thought, shunning context and historically 
dependent work. There are a number of factors that are indicative of 
the high mutual dependence in economics. These include:

The existence of a relatively small, concentrated, theoretical 
disciplinary core of economists.
Shunning of cross-disciplinary and heterodox thought.
Agreed upon hierarchies of competence and knowledge.
Insulation from the "lay public" and most other academics.
The existence of a "Nobel Prize", which serves to galvanize the 
discipline, and confer significant prestige upon economics as a whole 
in public perception, and upon the winning economists, who tend to 
further perpetuate the prevailing orthodoxy.
It is difficult to ascertain whether these characteristics are causes 
and/or effects of high mutual dependence (or each other). Regardless, 
this complex interweaving of social characteristics is a strong 
factor helping create, insulate and empower mainstream economics.

Economics and Task Uncertainty

The social sciences are generally characterized by a greater degree 
of task uncertainty than most of the natural sciences. Laboratory 
controls and manipulation of research subjects are generally not 
viable options in social science research. Economists cannot 
manipulate the behavior of governments, firms and actors in various 
contexts in order to test and re-test hypotheses about economies.1 
 Whitley (p. 120) observes that "
the more paradigm-bound a field is, 
the more predictable, visible and replicable are research results, 
and the more limited is permissible novelty." Hence, the degree of 
task uncertainty in a field is influenced by a socially constructed 
component, via the social organization of a given discipline, apart 
from empirical, data-based, or "scientific" considerations.

Whitley (ch. 4) identifies three major contextual factors that 
influence task uncertainty:

Reputational Autonomy   This alludes to the degree to which a given 
field can adjudicate standards of quality and worthiness without 
influences from other interests. Mainstream economics is empowered 
with a very high degree of reputational autonomy. As an example of 
this, while the government and the lay public are generally unwilling 
(or unable) to engage in dialogue with academic economists on their 
own terms, they are willing to be "amateur" sociologists on such 
issues as inequality and culture. Further, while some social science 
departments are prone to being subsumed by "topical" or 
"interdisciplinary" studies in universities, economists are generally 
immune. In addition, when economists do participate in 
interdisciplinary work (i.e. for the government), they usually do so 
"on their terms", and are consequently more of a "consultant" than 
"collaborator."

Concentration over the means of intellectual production and 
dissemination   Economics has relatively high concentration in 
journals, paradigmatic thought, prestige and universities. This is in 
part a result of (or contributor to) its aforementioned high 
reputational autonomy. As an example of the degree of concentration 
of intellectual production in the United States, Pieper and Willis 
(1999: 86) show that 54% of economics faculty at doctoral 
universities, and more than two-thirds of the thesis supervisors at 
the 47 top-ranked programs in the United States come from one of the 
"top ten" schools. These "top ten" schools include Chicago, Harvard, 
Stanford, and MIT; among the strongest purveyors of highly 
mathematical neoclassical economics. As Devine (2001) observed, the 
more famous the university, journal or student, the more likely they 
are to adhere to the rigid positivism of neoclassical economics. The 
degree of control these schools have over economic education is well 
evidenced by a report done by, the Commission on Graduate Education 
in Economics in the United States, which concluded that "the content 
and structure of graduate programs is amazingly similar" (Hansen, 
1991: p. 1085).

Audience Plurality and Diversity  Economics has relatively low 
audience plurality and diversity, largely due to the practice of 
conducting esoteric, mathematical research published in academic 
journals kept largely away from public scrutiny. Economists seldom 
write books, and if they are written in a publicly accessible 
fashion, they are often derided as "lacking rigor", or as mere 
"Galbraithism." Further, academic economics is also "shielded" by the 
fact that most public "economic" debate occurs outside of the 
academic sphere, far removed from the behavioral assumptions and 
arcane analyses couched in powerful academic economics journals, and 
textbooks. This will be discussed further shortly.

All of the above serve to "socially" reduce mainstream economics' 
(perceived) task uncertainty, despite the fact that it operates in 
the complex, contextual realms of the human sciences. This apparent 
contradiction will be explored in the next section.

Economics as a Partitioned Bureaucracy

Economics is extremely unusual in academia in that it combines the 
high technical task uncertainty of the social sciences, with very low 
strategic task uncertainty. Whitley (181) states that this mix should 
be highly unstable unless the central core of conceptual orthodoxy is 
partitioned away from empirical sources of uncertainty. Hence, 
privileging theoretical data (informed by the "central core"), at the 
expense of empirical considerations is a necessary condition for 
maintaining strategic consensus in the discipline. Mainstream 
economics does exactly that. As in many facets of economics, there is 
a clear hierarchy (made possibly by high mutual dependence) of 
sub-fields in economics, with the more theoretical endeavors enjoying 
epistemological, and organizational superiority. This occurs both 
within and outside of economics. Within economics, econometrics, 
labor, and health economics, and other relatively "applied" work 
remains subordinated to, and to a certain extent, derivative of the 
dominant paradigm, couched in the theoretical core of the discipline. 
Doing "applied", or socially relevant work is acceptable to 
mainstream economists, provided you adhere to the dominant 
neoclassical paradigm (i.e. Gary Becker). Outside of economics, much 
"applied" or context-dependent work is actually done in 
business/finance or other social science departments in universities, 
and by businesses and governments outside of academia. In the case of 
business and finance departments using economic theory, there appears 
to be somewhat of a symbiotic relationship, where business schools 
use neoclassical economics for a methodological and moral 
legitimation, while economics gets insulated from empirical concerns 
and uncertainty that could undermine their strategic consensus, and 
call the dominant orthodoxy into question. This symbiotic 
relationship also may help contribute to maintaining (if not 
reinforcing) the "bourgeois" focus of mainstream economics, which 
tends to trumpet the virtues of capitalism far more than it 
criticizes the economic, social and moral shortcomings it may possess.

Concluding Thoughts

John Kenneth Galbraith (1984: 3) remarked that the shortcomings of 
contemporary economics are not necessarily due to original error, but 
"uncorrected obsolescence." Given the intricate tapestry of social, 
empirical, and organizational factors buttressing mainstream 
economics today, it is no wonder that the neoclassical paradigm is 
not evolving with the times or evidence. While the Post-Autistic 
Economics Review illustrates many of the excellent thoughts and 
debates that, at the very least, challenge the dominant economic 
paradigm, merely being "right" scientifically and morally, is not 
sufficient to significantly modify a discipline, especially one as 
powerful and entrenched as economics. Not only does Whitley's model 
help explain why mainstream economics is so powerful (in addition to 
factors extraneous to his model, such as bourgeois ties and values), 
but also how it can remain so in the face of inconsistent empirical 
evidence. Although I cannot profess to know the best strategy for 
reforming economics, knowledge of the social construction of 
"science" and "economics" should be a vital part of constructing any 
such strategy. As opposition to mainstream economics burgeons, it 
should be kept in mind by such dissenting groups that scientific 
change is not entirely a "scientific" endeavor. This could aid the 
construction of strategy for social and scientific change, both in 
academic and lived realms, as the two are inexorably linked.

Notes
*  The author thanks Neil McLaughlin for support and suggestions on 
earlier drafts of this project.
1. This limitation also characterizes the natural sciences to varying 
degrees, especially biology.

References

Cole, Stephen. Making Science: Between Nature and Society. Cambridge: 
Harvard University Press, 1992.

Devine, James G. "Psychological Autism, Institutional Autism and 
Economics". Post-Autistic Economics Review. Issue no. 16, September 
16, 2002, article 2. 
<http://www.btinternet.com/~paenews/review/issue16.htm>http://www.btinternet.com/~paenews/review/issue16.htm

Galbraith, John Kenneth. The Affluent Society. 4th ed., Boston: 
Houghton Mifflin, 1984.

Hansen, W.L. The education and training of economics doctorates: 
Major Findings of the American Economics Association commission on 
graduate education in economics. Journal of Economic Literature, 
1991, 31, 3, pp. 1054-87.

Pieper, Paul J. and Willis, Rachel A. "The Doctoral Origins of 
Economics Faculty and the Education of New Economics Doctorates". 
Journal of Economic Education. Winter 1999, pp. 80-89.

Whitley, Richard. The Social and Intellectual Organization of the 
Sciences. Oxford: Oxford University Press, 1984.

_________________________
SUGGESTED CITATION:
Kyle Siler,  "The Social and Intellectual Organization and 
Construction of Economics", post-autistic economics review, issue no. 
22,  24 November 2003, article 3, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

Seven Theses for a Theory of Realist Economics
Jacques Sapir    (L'Icole des Hautes Itudes en Sciences Sociales, Paris)  

In Part I, which appeared in the last issue, Jacques Sapir argued 
that post-autistic or realist economics needs to develop a coherent 
research program.  To this end he proposed to offer seven theoretical 
theses and introduced the first four.

Thesis 1: The central issue in economics is the co-ordination of 
decisions and interactions generated by decentralised, heterogeneous 
and interdependent agents whose decision-making abilities are 
constrained by limited cognitive capacities.

Thesis 2: If money is a necessity in an uncertain world, money also 
introduces a specific form of uncertainty, casting doubts on the 
market's ability to efficiently process information.

Thesis 3: Time and money are at the very heart of the interchange 
between the individual and collective levels.

Thesis 4: Any attempt to negate the theoretical status of time and 
money leads to non-scientific assumptions and transforms the 
economist himself into a producer of ideology.

Part II: Theses Five to Seven

Thesis 5: To regard money as the one central institution in a market 
economy fails to break free from the neo-classical framework. 
Emphasizing only money could be as theoretically misleading as 
ignoring money.

It is clear that understanding money's relevance is a cornerstone of 
economic theory.  Yet this position can evolve into a mistaken one no 
less dangerous than the neo-classical denial of money's relevance: 
monetary essentialism. It is the path taken by two French authors 
with whom otherwise I generally agree, Michel Aglietta and Andri 
Orlian, the latter a well-known and long-standing PAE contributor. 
Because they claim to have developed a workable alternative to the 
money denial strategy favoured by neo-classical and some Marxist 
authors alike34, an alternative giving monetary policy and Central 
Bank independence a strong legitimacy, monetary essentialism is worth 
serious investigation. As a matter of fact, if one could demonstrate 
that money is as pivotal as monetary essentialism pretends it is, 
then one would have a pretty good argument for asserting the 
superiority of monetary authorities over political ones.

Monetary essentialism moves beyond acknowledging money relevance 
against the neo-classical cum monetarist tradition to the point of 
proclaiming money the central, pivotal, market economy institution35. 
It acknowledges the fact there is a deeply entrenched violence in 
monetary relations which cannot be reduced to just an allocative 
process. Monetary essentialism is innovative in its aim of linking 
economics to anthropology and it is grounded on what Aglietta and 
Orlean call the Fundamental Girardian Theorem from the French 
catholic philosopher and anthropologist Reni Girard36.

Years ago Girard developed an anthropological theory of violence that 
he opposes to one emphasizing the social roots of conflicts. His 
theory is grounded on the genesis of violence erupting from an 
undifferentiated mob driven by a demand for wealth. This word 
resonates in the economist's ears. However in Girard's works wealth 
is an all-encompassing notion running from material goods and money 
to social status and parental love. Because it is such a global, all 
encompassing notion, it makes it possible to conceive of a universe 
of one-dimensional choices where "wealth" is the measure of 
everything. This conception resembles the neoclassical concept of 
price which is supposed to carry all needed information. In a 
Girardian world an economist would be, to paraphrase Oscar Wild, a 
cynic who knows the wealth of everything and the value of nothing. In 
this universe of one-dimensional choices, individual preference 
transitivity could then be logically demonstrated and the 
neoclassical theory of preference and rationality given a new 
rationale. One could then forget that in the real world, and 
specifically when money is at stake, it has been demonstrated that 
violations of transitivity are systematic37.

It is, however, perfectly clear that the Girardian genesis of 
violence is no less unrealistic and anti-social than the Robinson 
Crusoe metaphor that Austrian marginalists were so fond of. All the 
perfumes of Girardian wealth could not sweeten the neo-classical 
price.  Aglietta and Orlian run into a serious contradiction. 
Admirably they profess their willingness to break with the 
neo-classical logic. However as they pretend to reject the view of a 
fully determined world - a position I completely share with them - 
they fall into another fallacy, the one of pretending that there are 
no so central rules but money. To do so they have to stick with 
violence as understood by Reni Girard38. Then they have to pretend 
that there is no stable social relation between agents, that they are 
un-socialised social actors39. This is one dimension of the 
neoclassical fallacy. The so-called Fundamental Girardian Theorem is 
supposed to say that unanimity could be the result of a spontaneous 
convergence, hence the undifferentiated demand for wealth could give 
birth to a global social agreement. However Orlian remarks with some 
ingenuity that if we introduce one differentiation level in the 
primitive wealth-driven population then unanimity is no longer a 
spontaneous result40. Change here unanimity for equilibrium and you 
would have an exact restatement of the Grossman-Stiglitz paradox41. 
The Girardian Theorem's sensitiveness to heterogeneity is another 
proof that it is a next of a kin to the neo-classical equilibrium and 
Girardian wealth to Walrasian price. Anyone here cruel enough into 
introduce in the picture the endowment effect and the framing effect 
would lead the Girardian Theorem to its self-destruction and monetary 
essentialism to its methodological collapse.

What is problematical with monetary essentialism is not its emphasis 
on violence or its attempt to link economics to anthropology. The 
problem lies with the anti-social anthropology that it mobilises, a 
theory leading not to a definitive break with neo-classical orthodoxy 
but to the reverse, a return toward typical neoclassical 
simplifications and methodological unrealism.

Thesis 6: The idea that there is one pivotal institution for a market 
economy is devoid of meaning. Institutions cannot be assessed in 
isolation.  What matter are institutional systems or precisely 
defined hierarchical clusters of institutions.

If money cannot be seen as the central institution of a market 
economy, then maybe property rights could be seen as an 
alternative42. After all, without property rights it is difficult to 
understand market transactions. However when one discusses property 
rights it is frequently private property which is at stake. But, as 
explained years ago by Richard Nelson, private property does not work 
as an operational concept enabling us to delineate differences 
between forms of social organisation43. To oppose private to 
collective ownership is to run quickly into an interesting, if 
frequently forgotten, paradox.

If property rights are to be defined inside a society, then we have 
more than one economic agent to think about. Hence, what agent (a) is 
doing could affect in an unintentional way the wealth and position of 
agent (b). The latter could sue the former who then would think twice 
before doing anything if the penalty were significant by comparison 
to the expected result form his own action. This is nothing more than 
a restatement of the Shackle Paradox, explaining that decentralised 
decision-making gives birth to uncertainty and that uncertainty could 
prevent decentralised agents from making decisions44. To prevent 
unintentional effects from paralysing the whole social life, every 
society has developed a different set of rules for actually 
constraining our individual freedom to use and abuse our properties. 
Rules, without which no individual action is possible in a society, 
are nothing less than collective property rights. Hence, individual 
property rights can't exist without collective ones. And if to avoid 
this problem we attempt to define individual property rights from the 
Robinson Crusoe metaphor, then we define something that does not 
exist. Before the landing of Friday, Robinson, alone on his island, 
owns everything that is nothing. Property rights here have no meaning.

Private and collective property rights can't be opposed and are 
actually closely integrated. But, if we have to think about 
collective ownership to understand private ownership then it is 
mandatory to think about the way human collectivities are organised. 
Political issues (how legitimacy and legality interact) matter then 
as much as property rights. They cannot be substituted for money as 
the pivotal market economy institution, and I hope that this 
discussion had made a case against the whole idea of defining any 
"pivotal" institution.

Let us now return to the problem of money.  We have to reckon with 
the fact that barter trade can exist simultaneously with money, 
meaning that there is more to be considered than just the fact that 
money is a more effective and rational transaction medium than 
barter45. The development of barter trade in Russia from 1993 to 
1998, a period when inflation was actually decelerating (barter was 
at its highest point early 1998 when inflation was down to 12% a 
year), raises an important theoretical issue. The use of money 
receded not because the value of money was disappearing as happens 
during a hyperinflation crisis (remember Weimar and the wheelbarrows 
full of banknotes) but because institutions, without which money 
cannot be used, were missing46. The development of barter trade in 
Russia was the result of a lack of financial institutions, the result 
of the liberal monetary policy implemented from October 1993 
onwards47. It was also the result of a lack of trust48 resulting from 
the weakening of State institutions through the particular 
privatisation process then implemented by Anatolyi Chubays and his US 
crony advisers49. Money, as an institution, needs both technical 
institutions (mostly in the finance sector) and political ones to 
support it and make it effective. In turn, after the August 1998 
crash, barter receded not because of any hard monetary policy 
(actually inflation rose) but because Primakov's government worked 
hard to rebuild state legitimacy and institutions50.

Money can be relevant when two specific freedoms or rights can be 
found in any transaction: the freedom to engage in a transaction with 
whom one wants and the freedom to engage when one wants. Both these 
freedoms do not exist for every possible transaction. Sometimes 
technical constraints drastically reduce the first one, so that 
vertical integration, that is the substitution of a hierarchy for a 
market, is then the logical evolution. And social constraints can 
reduce both the first and the second freedoms.  In any case, these 
freedoms or rights imply a whole set of institutions which, in turn, 
defines the place and form money can take at a given time in a given 
market economy.

The central issue is then not the functionality of a single 
institution but how institutions in a given set can be mutually 
supportive. In the end it is the coherence level achieved by the 
institutional system that is the analytical key of statistical 
stabilities and medium-term trends. When money is at stake, it is the 
coherence (or the lack of) between managing institutions (central 
bank, financial markets, banking system, international financial 
institutions) and related ones (public regulations, labour-management 
relations, balance of property rights between individual and 
collective ownership, institutional forms of the social protection 
system, regulation of human, material and financial trans-border 
flows) which really matters. The coherence issue, be it static or 
dynamic, is then the central one for realist economics.

Thesis 7: The embededness of any institutional system in a given 
territory, itself a social and historical construction, is an 
omission of mainstream economics that is hidden behind the denial of 
time and money relevance.

Time and money have led us to institutions. Not just the usual 
discussion about institution functionality but to the understanding 
that an institution cannot be considered in isolation. Institutional 
systems, coherent and hierarchal sets of institutions, are the main 
issue. Rejecting the functionalist fallacy about institutions means 
also rejecting any functionalist understanding of the birth of 
institutions51. The Hayekian view of spontaneous selection raises 
many methodological and theoretical problems. Among them the two most 
vexing are:

(a)     the Hayekian selection process introduces a methodological 
holism dimension into an otherwise individualist theory (institutions 
are selected through groups) and

(b)     that without assuming temporal monotony of individual 
preferences it is impossible to prove that selection has not been 
accidental unless one assumes a stationary universe.

Up to now the only realist theory of institution generation has been 
Frangois Guizot's. Social conflicts of opposing human groups have 
been the historical process of institutional development and 
selection52. The dynamic of these conflicts develops in the space of 
sovereignty, which is then shaped by the development of conflicts. 
Such a process makes the distinction between rules and the principles 
on which rules are founded a pervasive necessity.

Social density implies the necessity of rules, as individual agents 
are unable to forecast all possible unintentional effects of their 
own actions. This makes then unable to write complete and perfect 
contracts. Contract incompleteness and imperfection make rules a 
necessity. Institutions generate rules but individual institutions 
are incomplete as shown above. To make institutional systems work in 
a coherent way, rules of a greater magnitude are needed. They are 
laws as produced by political institutions. But the human agent's 
inability to write complete and perfect contracts applies here too. 
It is then to be expected that laws are to be contested even if the 
process under which they have been produced has respected its own 
rules. Hence, the rule of Law is not enough or we have to prove that 
the concerned human community is perfectly homogeneous and composed 
only of people driven by the best set of sentiments possible53. The 
emphasis put on the rule of Law, as in the British and American 
mainstream tradition, reveals a deep negation of the heterogeneity 
principle54.

The legality of the process does not confer to a law the legitimacy 
it needs. Legitimacy proceeds from principles, which characterises a 
political community which, historically, is territorially defined. In 
turn one can see how the neo-classical view of a perfect information 
world is congruent to an understanding of institutions reduced to 
their functionality and to the negation of the legitimacy principle 
for the sake of making the rule of Law the one and only one 
benchmark55.

If we agree to the fact that economics is not a natural science, and 
to the contrary that economic processes are embedded in social and 
historical construction, then the institution building process is as 
much political as it is economic. It cannot be understood separately 
from links between a given territory and a political community. Even 
in the globalisation age, Nation-State matters. It matters when it 
exists as well as when, weakened by decades of neoliberal policies, 
it is no more able to play its part. The difference between the way 
Malaysia rode the financial storm in 1998 when Indonesia sank is not 
just a difference between a wise and an unwise economic policy. The 
Malaysian state was still functional whereas the Indonesian one had 
been dramatically weakened. Malaysian economic and political elites 
were then in a position to resist the IMF policy and implement 
effective decisions (like the currency control) when Indonesian 
elites were so fragmented and deprived of legitimacy that they had to 
abide by IMF prescriptions with their usually catastrophic results56.

If institutional systems cannot be understood in a dynamic way 
without including in the picture the way space has been shaped by 
centuries of social and political processes and conflicts, economics 
has no meaning but the one of political economy. This political 
economy needs to seriously address the Nation-State issue as well as 
the fact that every Nation-State is not fully homogeneous and that 
institutional differentiation can be found inside their own 
perimeter. Institutional differentiation inside a given Nation-State 
can explain why regional competitiveness is frequently different and 
why some regions develop faster than others do at a given time. In 
turn this can be understood only on the basis of acknowledging the 
social dimension of any institution, including given sets of markets. 
The development of an effective market economy ("effective" and not 
"efficient" because out of the neo-classical theoretical frame this 
word is devoid of meaning) always is the result of a given social 
process. Markets are socially constructed objects57. The development 
of regional sciences is then a logical and necessary addition to a 
comprehensive research program for realist economics58.

Notes

34. M. Aglietta et A. Orlian, La Violence de la monnaie, PUF, Paris, 
1982; Idem, La Monnaie entre violence et confiance, Odile Jacob, 
Paris, 2002. Both authors explicitely state their theory is not just 
a refutation of neo-classical assumptions but also of the Marxian 
Theory of Value.

35. M. Aglietta et A. Orlian, La Monnaie entre violence et confiance, 
op.cit., p. 81.

36. A. Orlian, "Monnaie et spiculation mimitique" in P. Dumouchel 
(ed.), Violence et viriti autour de Reni Girard, Paris, Grasset, 
1978, pp. 147-158.

37. L. Ausubel, "The Failure of Competition in the Credit-Card 
Market", in American Economic Review, vol. 81, n01/1991, pp. 50-81

38. M. Aglietta, "L'institution de base des sociitis marchandes" in 
Alternatives Iconomiques, n057, 2003, p. 32.

39. A. Orlian, "Monnaie et spiculation mimitique", op.cit., p. 148.

40. A. Orlian, "Monnaie et spiculation mimitique", p.151 and 152.

41. S.J. Grossman et J.E. Stiglitz "On the Impossibility of 
Informationally Efficient Markets" op.cit..

42. O. Hart et J. Moore, "Property Rights and the Theory of the 
Firm", in Journal of Political Economy, vol. 98, n06, 1990; E.G. 
Furobtn et S. Pejovich, "Property Rights and Economic Theory: a 
Survey of Recent litterature", in Journal of Economic Litterature, 
vol. 10, 1972, n04.

43. R.R. Nelson, "Assessing Private Enterprise: An Exegesis of 
Tangled Doctrine", in Bell Journal of Economics, Vol. 12, n01/1981, 
printemps, pp. 93-111.

44. G.L.S. Shackle, Decision, Order and Time in Human Affairs, 
Cambridge University Press, Cambridge, 1969.

45. This opinion has been developed in A. Alchian, "Why Money?", in 
Journal of Money, Credit and Banking, vol. IX, n01/1977, pp. 133-140. 
For the opposite view and a discussion of the simultaneous presence 
of both money and barter, J. Sapir, "Le troc et le paradoxe de la 
monnaie" in Journal des Anthropologues, n090-91, dicember 2002, pp. 
283-304.

46. D. Woodruff, Money Unmade: Barter and the fate of Russian 
Capitalism, Cornell University Press, Cornell, 1999.

47. J. Sapir, "A l'ipreuve des faits...Bilan des politiques 
macroiconomiques mises en oeuvre en Russie", in Revue d'itudes 
comparatives est-ouest, vol.30, n02-3/1999, pp 153-213.

48. D. Marin, "Trust Vs. Illusion: what is driving demonetization in 
Russia?", Discussion paper Series, n02570, CEPR, Londres, september 
2000.

49. J. Sapir, "La crise financihre russe comme rivilateur des 
carences de la transition libirale" in Dioghne, n0194, April-June 
2001, pp. 119-132.

50. J. Sapir, "Russian crash of August 1998: Diagnosis and 
prescriptions", Post-Soviet Affairs (ex-Soviet Economy), Vol. 15, 
n0 1/2000, pp. 1-36.

51. On the functionalist fallacy, see Stiglitz's Nobel Lecture, J.E. 
Stiglitz, "Information and the Change in the Paradigm in Economics", 
in American Economic Review, vol. 92, n03, juin 2002, pp. 460-501.

52. F. Guizot, Histoire de la civilisation en France depuis la chute 
de l'Empire Romain, Didier, Paris, 1869. 7th lesson, 1828.

53. This argument has been well demonstrated by Carl Schmitt. 
Although one may reject his conclusion and be disgusted by his 
political positions between 1920 and 1945, he certainly is a founding 
father for a realist understanding of paradoxes of a democratic 
society. See C. Schmitt, Legalitdt und Legitimitdt,  Duncker & 
Humblot, Berlin 1932 (there is one French translation of this book as 
Ligaliti et Ligitimiti but, to the best of my knowledge, none in 
English); Idem, The Crisis of Parliamentary Democracy, MIT Press, 
Cambridge, Mass., 1985 (1926).

54. See C. Mouffe, "Carl Schmitt and the Paradox of Liberal 
Democracy" in C. Mouffe (ed.), The Challenge of Carl Schmitt, Verso, 
London & New York, 1999, pp. 38-53.

55. J. Sapir, Les iconomistes contre la dimocratie, Albin Michel, Paris, 2002.

56. For a good discussion about the Asian crisis and different 
responses put by different governments, R. Wade, "The Coming Fight 
Over Capital Controls" in Foreign Policy, vol. 113, hiver 1998-1999, 
pp. 41-54; R. S. Rajan, "Sands in Wheels of International Finance: 
Revisiting the Debate in Light of the East Asian Mayem", Institute of 
Policy Studies working paper, Singapour, Avril 1999 and B.J. Cohen, 
"Contrtle des capitaux : pourquoi les gouvernements hisitent-ils ?", 
in Revue iconomique, vol. 52, n02/mars 2001, pp. 207-232.

57. A. Bagnasco & C. Trigilia, La construzione sociale del mercato. 
Studi sullo sviluppo di picola imprese in Italia, Il Mulino, Bologna, 
1988.

58. G. Benko & M. Dunford, (eds.), Industrial Change and Regional 
Development, Pinter/Belhaven Press, London, 1991. G. Benko & U. 
Strohmayer (eds.), Space and Social Theory, Blackwell, Oxford, 1997. 
G. Benko, La Science Rigionale, PUF, Paris, 1998.

______________________________
SUGGESTED CITATION:
Jacques Sapir, "Seven Theses for a Realist Economics; Part II: Theses 
Five to Seven", post-autistic economics review, issue no. 22,  24 
November 2003, article 3, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

The Critique of Economic Policy
Richard D. Wolff   (University of Massachusetts, Amherst, USA)

Now more than ever, the watchword in economics is "policy." 
"Decision-makers" demand - and sometimes pay well for - "the 
appropriate policy" to solve those economic problems that strike them 
as important. Economists interested in "practical relevance" respond 
by "applying" their theories to supply such a policy. What goes 
unquestioned is the plausibility of "policy" itself. Yet, the very 
notion of policy is questionable. This analysis seeks to show that 
"policies" are now fashionable disguises for partisan ideologies. 
While the victims of policies have long suspected this, I propose to 
validate their suspicions in logical terms.

The Absurdity of Policy

A policy is an action proposed as a means to solve a problem. For 
example, for many private and public decision-makers, the US 
economy's decline (since its stock market bubble burst in 2000) is a 
problem. They demand solutions from economists. Predictably, 
economists propose mixes of more or less conventional monetary and 
fiscal policies. The Bush regime chooses to reduce interest rates, 
increase money supply, cut taxes, and so on. In classic fashion, it 
identifies a problem and implements the appropriate policy.

Very particular and partisan presumptions underlie such exercises in 
economic policy. First, proponents of policies presume that the 
problems presented to them have a few "key" (or "essential" or 
"determinant") causes. Second, they presume these key causes to have 
been "found" by economists and hence to be "known". Policies are then 
simply the negations or reversals of these key causes. Having found 
that economic decline is determined by high interest rates, the 
appropriate policy is to lower them. If decline was found to follow 
from high taxes, policy lowers them, and so on.

However, why make such restrictive presumptions? It is much more 
reasonable to presume that many, many causes combine to produce any 
economic problem. For example, American economic decline since early 
2000 has been shaped by all manner of political, cultural, and 
economic causes. These include - but are hardly limited to - shifts 
in consumers' sentiments about saving for retirement; personal, 
corporate and government debt; workers' productivity and attitudes 
toward work; capitalists' expectations about competition, market 
expansion, and union organizing campaigns; bankers' risk assessments 
of domestic and foreign loans; foreign currencies being pegged to the 
US dollar; federal and state regulators' attitudes toward accounting 
standards, pollution control, and auditing of corporate tax returns; 
pentagon arms procurements; Chinese exports' unit-labor costs; young 
Americans' expenditures on housing; consumers' vacation plans; 
changing production technologies; the effects of pre-emptive foreign 
wars; the invention of new commodities; and union strategies for 
bargaining and organizing. Economic decline likely results from an 
infinity of interacting causes.

That decline, in both its qualitative and quantitative dimensions, 
results from the interaction of all the causes. Indeed, the causes 
are so complexly intertwined and interdependent that it is impossible 
to abstract one or a few causes from the totality of causes and 
attribute effects (e.g., economic decline) to those few alone. To do 
so presumes that the effectivity of the selected one or few selected 
causes could somehow be disentangled from and comparatively ranked 
above all other causes. Nothing logically warrants this presumption, 
notwithstanding the desire to produce policy for those who demand and 
pay.

Econometricians glimpse a parallel problem of unwarranted 
presumptions. That glimpse underlies the cautionary argument found at 
the beginning of most econometric texts: that one cannot logically 
infer causality from correlation. Econometricians often forget that 
cautionary argument. They imagine (mistake) themselves to be 
ferreting out causal linkages in their correlation studies. In 
parallel fashion, policy economists imagine (mistake) the few causes 
their work focuses on for being the few key causes of whatever 
problem their policy aims to solve.

Nor is this logical error avoided if economists accept that the 
causes for any economic problem are infinite in number and variety, 
but then proceed to presume that a very few among them - those chosen 
as "the policy tools" - are "the most important causes." To know 
which are the "most important" - or "key" - requires comparing them 
to all the other possibly effective causes. Since the latter are of 
immense number, that comparison cannot be done. It has never been 
done. Whatever basis economists may claim for selecting the 
particular causes that their policies stress, the actual basis for 
that selection simply cannot be that they or anyone else "found" 
those variables to be the most important among all the causes. We 
will need to look elsewhere to explain why different policies select 
the particular causes that they do.

True, decision-makers dislike hearing that the problems concerning 
them (or, if they are politicians, their constituents) have countless 
causative factors whose relative effectivity cannot be ranked. They 
wish to be capable of "solving" economic problems. So they press and 
pay economists to produce policies that promise solutions if just 
this or that (or those) key cause(s) is (are) adjusted. If the 
problem fades after such adjustment, they take credit. If the problem 
persists or worsens, they blame economists. In their defense, the 
economists point to "unusual" or "exogenous" factors that "caused" 
the failure in a policy that is otherwise - in "normal circumstances" 
- effective. Policy economists then argue among themselves over which 
economist's key causes are "the most effective" and so ought to be 
central to proposed policies. Decision-makers may well choose a 
different policy from that which failed and resume the entire 
exercise. Indeed, there may be oscillations among a set of policies 
as decision-makers cycle through them when economic problems elude 
solutions. This has long been the reality of government economic 
policy in much of the modern world.

Thus, for example, interest rates and federal budget surpluses have 
been widely claimed as key causes of the US economic decline since 
early 2000. Correspondingly, lowering interest rates and moving 
federal budgets toward deficits became appropriate policies. Those 
policies would increase consumer spending and business investment, 
solving the problem by turning economic decline into growth. Yet, 
there could be no assurance whatsoever that all the other operative 
causes of economic decline might not overwhelm or negate the impact 
of these policies. Indeed, historically unprecedented interest rate 
reductions by the Federal Reserve over the last two years and Bush's 
tax cuts failed to reverse the decline. Had they "worked", however, 
the logical problem remains. There would be no way to know whether 
the policies pursued or countless other causes had reversed the 
decline. While the economists debate which is the right policy to 
pursue, the deeper problem lies with policy per se.

The Importance of Policy

Having shown how policy depends on unreasonable presumptions about 
key causes, it remains to explain the actual importance of policy. 
Many people want and support policies as solutions to pressing 
problems. Responsible decision-makers demand and rely on specific 
policies. Trained specialists produce, refine, and debate appropriate 
policies. The evident contradiction - policy as theoretically absurd 
and policy as important practically - needs to be acknowledged and 
accounted for.

Returning to the example of recent American economic decline 
illustrates policy's practical importance. Rising rates of 
unemployment, personal bankruptcy, and reduced public services strike 
many as urgent problems requiring solutions. Because the decline 
coincides with the Bush presidency, it poses a problem for his 2004 
re-election campaign. He demands a policy to solve the problem of 
economic decline as do stock market players and businesses facing 
continuing losses, states confronting huge budget deficits, and so 
on. They all demand "policies." The mass media feature experts in 
economic policy proposing, challenging, and debating alternative 
remedies. No doubt something socially important is going on.

What makes any policy important, however, is not the solution it 
promises because, as argued in Part I above, that promise is empty. 
Because each policy focuses on merely one or a few of the vast array 
of any problem's causes (ignoring all the others), its effectivity is 
utterly contingent and unpredictable. Previous declines in the US 
show a simple truth about all policies to reverse them: sometimes 
they work and sometimes they fail.

The clue to unraveling what makes policy practically important lies 
in what differentiates policies. Each policy focuses upon a different 
few of the innumerable causes of a targeted problem. For one policy, 
the key is interest rates and business investment; for another it is 
government budgets and aggregate demand; and for still another, it is 
currency exchange rates.

Each policy focuses the attention, discourse, and actions of a public 
concerned with a problem. It focuses them precisely upon the 
particular subset of the causes selected by that policy. Thus, Fed 
policies on interest rates and Bush policy on budget deficits become 
ways to shape and control how Americans think about a problem such as 
economic downturn. To make the point more sharply, virtually 
exclusive public discussion about interest-rate and budget deficit 
policies keep people from thinking about other causes of decline.

For example, no significant public discourse focuses on how the 
capitalist class structure of business enterprise contributes to the 
current economic decline. This is because no policy aimed at class 
change is permitted entry into public discourse. Similarly, only a 
tiny, marginalised public discourse links Washington's particular 
anti-terrorism program to that decline. Once again, no policy aimed 
at changing Bush's anti-terrorism program obtains a place among the 
hegemonic set of "policies" debated in the overlapping spheres of 
government, business, media, and academy.

Policies "work" by selecting particular causes of any targeted 
problem, focusing exclusively upon them, and thereby moving other 
causes to the edges or altogether out of consideration. The currently 
hegemonic set of debatable policies for reversing US economic decline 
excludes policies focused on class and anti-terrorism. There is no 
logical reason for this exclusion. No analysis exists or could exist 
to prove that all possible causes of economic decline other than 
interest rates, state budgets, business and consumer spending are 
negligible.

There are ideological and political reasons for the exclusions worked 
by all policies. A public excluded from knowledge of, let alone 
debates over, class-focused policies will not likely think about 
changing class structures to reverse an economic decline. That is the 
point. A public concerned about decline may be nicely controlled by 
limiting debate about its causes and remedies to the current 
"appropriate policy alternatives". One way to preclude social 
movements from dealing with economic decline by challenging the 
capitalist class structure of the US is to keep public discourse 
about policies focused on causes other than class.

The great practical importance of policy is to shape events by 
restricting the public discourse about what steps are appropriate to 
deal with problems. That is why, despite the fact that particular 
policies - e.g., reducing interest rates to reverse economic declines 
- "fail" as often as they "succeed", they remain dominant policies 
across repeated economic declines. People thinking about interest 
rates are not thinking about class transformation. If interest rate 
reductions fall out of favor, then perhaps a policy shift to tax 
cuts, or currency manipulations will occur. In all such cases, these 
policy tools keep people from thinking about class transformation. 
Policies police the public understanding and response to social 
problems.

It is thus important to establish, maintain, and give wide exposure 
to the small "policy community" of political and business leaders and 
their paid experts inside and outside the academy. Distant from 
people's daily lives, its expertise heavily promoted, this community 
invents and debates its carefully restricted set of policies. It 
keeps ready alternative policies for those deemed to have failed. It 
makes sure that policies allowed into the orbit of discussion exclude 
social structures of wealth, power, and class as causes of social 
suffering. This exclusion operates by silence whenever possible. When 
silence is insufficient, exclusion is achieved by denouncing the 
nwanted policies' flawed basis, ineffectivity and/or ulterior 
political motives.

The US policy community functions well these days. Economic decline 
will not likely provoke policies that challenge the class structure. 
The now hegemonic set of  policies will likely see American society 
through yet another of its endemic cycles of instability and mass 
suffering. When the upturn arrives, it can and will be credited to 
one or another within the hegemonic set of policies. Why not?

Policy and Radical Critics

Economic policies have little relevance to actual solutions. Policies 
are relevant to controlling how people think about and act on 
problems. That control function emerges from the limits on what is 
considered as policy, limits accepted and enforced by the "experts". 
Excluding consideration, let alone debate, of alternative policies 
(outside the limits) reinforces the social status quo, especially its 
class structure.

What enables this exclusion to persist, even when challenged by 
supporters of the excluded policies? It is hardly the mediocre 
success rate achieved by official policies (witness the failures of 
monetary and fiscal policies to reverse declines in Japan, Western 
Europe and the US in recent years). What most sustains the limits and 
exclusions operated by the hegemonic policy community is one central 
claim, namely to have "found" those very few "key" causes (within the 
infinity of those that contribute to the targeted problem) that alone 
define and delimit "appropriate" policy. Before radical critics - 
those interested in basic social (including class) change - can 
obtain a hearing, they must deconstruct and persuasively undermine 
that central claim.

Radical critics can do more and better than to design and propose 
policies likely to be ignored or dismissed. Nor need they succumb to 
the policy community's definitions of what counts as "realistic" 
policy, since that amounts to accepting the very limits against which 
their radicalism otherwise struggles. Radicals might best begin by 
criticizing the entire enterprise of "policy solutions," exposing its 
logical absurdity and the partisan ideological and political ends 
served by the currently hegemonic set of policies and policy-makers.

Economic problems confront all economists with danger and/or 
opportunity. An economist's social agenda (e.g., status quo versus 
radical class transformation) may be endangered (compromised or 
defeated) by how the problem is understood and acted upon. 
Opportunity lies in the possibility that the problem will be 
understood and treated in a manner advancing the social agenda of the 
economist. Advocating particular policies as "solutions" for problems 
is a way to advance a particular social agenda.  The claim that 
particular policies actually "solve" the problems is a ruse or 
disguise for - a displacement of - what are actually promotions of 
particular social agendas. Policies promote their proponents' social 
agendas by controlling how people understand and respond to social 
problems that arise. If radicals successfully undermine the absurd 
claim that a policy is "the solution," they could level the policy 
debate playing field. Instead of disputes among carefully limited 
policy options whose "found appropriateness" excludes radical 
policies, policy debates would become explicitly recognized contests 
among alternative social agendas and their correspondingly differing 
ways of understanding and reacting to social problems.

To show that there is no such thing as the "right" policy, but only a 
ceaseless contestation among alternative social agendas is the best 
strategy for opening present and future policy debates. It may also 
be the best strategy for drawing many more people into discussion of 
and decision on social issues. Instead of an elite of credentialed 
"experts" versed in an increasingly arcane and distant terrain of 
"appropriate policy mechanisms," we might expect a return to genuine 
participation. Alternative social agendas and visions - if and when 
people understand that they lie behind the ruse of policy - might 
return to become the stuff of a democratic politics.

Note: I wish to thank Max Fraad-Wolff for valuable comments on an 
earlier draft.

______________________________
SUGGESTED CITATION:
Richard D. Wolff, "The Critique of Economic Policy", post-autistic 
economics review, issue no. 22,  24 November 2003, article 4, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

Neo-Classical Economics Is Not "Neo", But "Anti"-Classical
Kepa M. Ormazabal   (University of the Basque Country, Spain)

The "Neo" in the expression "Neo-Classical Economics" suggests that 
today's prevailing economics, the one that has become "autistic", is 
a continuation or a new edition of Classical Economics. I do not know 
when or why this terminology was originated, but, wherever or however 
it was, it is seriously misleading. Far from being a continuation of 
Classical Economics, current "Neo-Classical" Economics is, in its 
fundamental features, definitely "Anti-Classical". It represents not 
a continuation, but a radical break with Classical Economics. And not 
exactly for the best, as I am going to argue.

What is Classical Economics? To cut a long story short, let me take 
Ricardo as the representative of Classical Economics.

It is well known that the conception of value in exchange as labor 
lies at the heart of Ricardian Economics. It is true that Ricardo 
found serious problems in establishing the connection between value 
and labor, but this was the basis upon which he purported to explain 
the workings of a capitalistic economy. Ricardo had taken the idea 
from Smith, who had the same project and who, also, found problems to 
bring it to fruition. For both economists, the ultimate goal is to 
account for profit. Profit is the name of the game in Classical 
Economics, simply because it is understood to be the name of the game 
in a capitalistic economy. The question about exchange value is 
raised because there is a previous question about the nature of 
profit: what has to be explained is profit, but profit is some kind 
of surplus value. Not surplus value in use, but surplus value in 
exchange. If we want to understand profit, Smith and Ricardo say, we 
must start by understanding what value in exchange is, and, on this 
basis, we will be able to understand what profit, surplus exchange 
value, is.

The "Neo-Classical" approach to value, on the contrary, starts from 
exchange, not from profit. "Neo-Classical" Economics starts from the 
analysis of the concept of exchange, that is, of exchange as such. 
While Classical Economics focuses on surplus exchange value, 
"Neo-Classical" Economics focuses on exchange value. From this 
starting point, it arrives at the hardly surprising conclusion that, 
from the standpoint of pure exchange, the notion of surplus exchange 
value is irrational, a contradiction in terms. Hence the shocking 
"Neo-Classical" thesis that competition annihilates profit. What this 
thesis actually means is that exchange as such excludes logically the 
idea of surplus exchange value. Despite the wording, the thesis does 
not speak of competition and profit, but of exchange and surplus 
exchange value

It is typical of "Neo-Classical" Economics to surreptitiously 
identify the concepts of exchange and competition. This can be seen 
in "Neo-Classical" microeconomics textbooks; the chapters on 
externalities and related themes provide good examples of this 
confusion. For instance, we are told, first, that an exchange of 
money for the right to smoke among smokers and non-smokers may be 
Pareto-optimum. Next, we are told that it has been shown that the 
competitive solution is Pareto-optimum, that the outcome of a 
competitive market for smoking has been shown to be Pareto-optimum. 
The underlying idea is that a perfectly competitive capitalist 
economy does not differ in its essentials from a barter economy in 
which the improvement of utility (and not the endless accumulation of 
exchange value) is the end of exchange. Competition, when it is 
perfect, annihilates profit and, thus, annihilates surplus exchange 
value. What remains is exchange value as a temporary means to use 
value, so that a truly competitive capitalistic economy becomes, in 
the end, a barter economy in which the very notion of profit is 
totally out of place.

While the focus of Classical Economics is to bring to light the 
nature of surplus exchange value, "Neo-Classical" Economics starts 
from the basis that there is no such thing as surplus exchange value. 
That this is best seen under perfect competition does not imply that 
monopoly power gives rise to any surplus value. On the contrary, it 
is a standard thesis in "Neo-Classical" Economics that monopoly 
power, far from giving rise to any surplus exchange value, gives rise 
to a redistribution of an already existing exchange value to the 
monopolist, at the expense of those who pay for the monopolized 
commodity a price higher than its value. Accordingly, monopoly profit 
does not represent any surplus value, but a transfer in which one 
party gains what the other party loses. Moreover; in the end, all 
lose, because monopoly implies a deadweight loss which is a burden 
for the economy as a whole. In the end, no matter whether competition 
or monopoly prevail, "Neo-Classical Economics" sees, rightly, that 
the analysis of exchange as such excludes the notion of surplus 
exchange value. From this truth, it concludes that surplus value in 
exchange is irrational and, therefore, that it does not exist, that 
profit is appearance of surplus value without reality.

In Classical Economics, on the contrary, the end of exchange, (and of 
production, which forms a unity with exchange) is not the improvement 
of utility, but the transformation of commodities into money for the 
sake of profit, that is, the accumulation of wealth in the shape of 
exchange value, money, for the sake of accumulation itself. For the 
Classical tradition, the concept of price is only indirectly related 
to utility, and it is primarily related to profit; in other words: 
price is not a means to improve utility, but a means to surplus 
value, to the accumulation of capital for its own sake.

The "Neo-Classical" contention that competition annihilates profit 
amounts to saying that the notion of price as derived from the 
analysis of exchange as such is the only notion of price that makes 
sense in economic analysis. This view is decidedly at odds with 
reality, the observation of which shows that the name of the game in 
the economic system in which we live is profit and the growth of 
capital. Confronted with this conflict, does "Neo-Classical" 
Economics conclude that something is wrong with its theoretical 
conceptions? Surprisingly enough, it does not; it chooses, instead, 
to put the blame on abstraction. Science requires abstraction, says 
the standard "Neo-Classical" apology, but abstraction, sadly, 
involves leaving aside real properties, and, in the end, a loss in 
realism. "Neo-Classical" Economics, we are told, is a very scientific 
endeavor, which implies that it flies high and, therefore, that it is 
"highly abstract". The seeming disagreement between theory and 
reality does not show that the theory is false, but that it is 
abstract.

As we all know, abstraction is an operation of thought; where there 
is abstraction, there is thought. But where there is thought, there 
is knowledge. Being an operation of thought, abstraction is, 
therefore, a mode of knowledge, that is, an operation of thought 
whereby we get to know something about reality, something that 
empirical observation does not reveal to us. The "Neo-Classical" view 
that abstraction involves, in the end, a loss in realism implies that 
abstraction involves a loss in knowledge and, in the end, that 
abstraction is a mode of non-knowledge. In my opinion, this is a 
mistaken notion of abstraction that leads to the paradoxical view 
that abstraction is not an operation of thought whereby we know 
something real about reality, but an operation whereby we ignore 
something real about reality. Abstraction separates us from reality, 
instead of getting us closer to it. Autism?

Looked at from Classical Economics, the problem with the 
"Neo-Classical" conceptions of value and profit is not that they are 
"highly abstract", but to the contrary, namely, that they are "lowly 
abstract", which is why they lead us to deny the evidence. 
"Neo-Classical" Economics makes things still worse by trying to make 
up for its lack of abstraction by focusing on the formality of the 
quantitative relationships among economic phenomena. These, truly, 
are real determinations of economic reality, but accidental 
determinations. It is a significant fact that the separation between 
theory and reality has steadily increased as the so-called 
Mathematical Economics has grown. Mathematics, far from being an aid 
to shed light and to promote rigor and scientific dialogue, has sunk 
economics into schizophrenia and scholasticism. The last culprit in 
this sad story is the old noble science of mathematics; the villain 
is the lack of theoretical abstraction that disguises its weakness 
under the cloak of the formal language of mathematics.

In Classical Economics, "high abstraction" does not lead to the 
employment of the term "competition" as equivalent to "exchange", or 
to saying that, in developed capitalistic economies, profit is 
annihilated. A competitive economy is not one in which surplus value 
has been annihilated. Competition is not the process whereby profit 
(surplus value) is annihilated, but the process whereby profit is 
uniformly distributed among the capitals of the economy, so that the 
profit rate is the same for any capital investment. This is the 
Ricardian conception of competition. Ricardo never thought that 
competition annihilated profit, and never claimed that his theories 
were at variance with facts in so far as they were highly abstract. 
This is not to mean, in any way, that economics has ended with 
Ricardo, but all the contrary.

More perhaps than in other times in its history, economics today 
needs a fresh framework to understand the economic problems of our 
age, some of which are very pressing and of decisive relevance for 
our lives. Let us begin our search for such a new framework by not 
confusing the Classical tradition, in which we may find a lot to 
learn, with the "Anti", not "Neo"-Classical tradition that has led 
economics to its current state of stagnation.

______________________________
SUGGESTED CITATION:
Kepa M. Ormazabal, "Neo-Classical Economics Is Not "Neo", But 
"Anti"-Classical", post-autistic economics review, issue no. 22,  24 
November 2003, article 5, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

Joan Robinson and the Post-Autistic Economics Movement
Antonio Garrido   (Madrid, Spain)

This is Joan Robinson's centenary year.  She died in 1983 after more 
than 50 years of providing  relevant, original and significant 
contributions to economic theory.  As is well-known, unlike many less 
outstanding economists, she never won the Nobel Prize or a peerage. 
(I suspect that she would have declined them both.)  These are facts 
explained by extra-curricular matters: being a woman, lucid, radical, 
nonconformist and dedicating most of her writing to unveiling the 
fallacies of orthodoxy (from liberal to Marxist).  This is a 
difficult mixture for the establishment to digest and a good reason 
why we should read her works today.  Such a reading reveals how much 
Joan Robinson anticipated and developed the analysis that nourishes 
the now mushrooming global challenge in economics to the neoclassical 
tyranny.   Her thoughts are echoed not only in the petitions of the 
students of Paris and the two Cambridges, but also in the articles of 
many distinguished contributors to this journal.  Here are a few 
examples of her PAE thoughts.

1.       The purpose of studying economics is not to acquire a set of 
ready made answers to economic questions, but to avoid being deceived 
by economists. (1951-1980, vol. II, p. 17)

2.       It is often said that one theory can be driven out only by 
another; the neoclassicals have a complete theory (thought I maintain 
that it is nothing but a circular argument) and we need a better 
theory to supplant them. I do not agree. I think any other "complete 
theory" would be only another box of tricks. What we need is a 
different habit of mind - to eschew fudging, to respect facts and to 
admit ignorance of what we do not know. (1951-1980, vol. V, p. 119)

3.       The victory of Keynes' theory over the orthodoxy of sound 
finance was not due to his superior logic but to the pressure of the 
events in the world. Perhaps we shall finally owe the defeat of 
neoclassical complacency to the public indignation at the devastating 
accidents which highly profitable technology is always bringing 
about. (1980, p. 119)

4.       Economic reasoning alone cannot offer a solution for any 
economic problem, for all involve political, social and human 
considerations that can not be reduced to "the lore of nicely 
calculated less and more". The object to an introduction to analysis 
should be, not to propound solutions, but to suggest to the reader 
what he must take into account in trying to make up his own mind 
about the issues presented to him by the age in which he lives. 
(1973, p. 293)

5.       I believe, however, that there is a lot of difference 
between good analysis and bad, apart from ideological tendences. 
Logic is the same for every one (though I could never get Professor 
Samuelson to admit it) and the reading of evidence, though always 
biassed to some extent, can be more or less faire...........Honesty 
and hard work are required of radicals, while the orthodox can doze 
over their dogmas. (1951-1980, vol. V, p. 118-119)

6.       The professional economist keeps up a smoke screen of 
"theorems", and "laws" and "pay-offs" that prevent questions such as 
that (why the USA keeps an appreciable proportion  of its population 
in perpetual ignorance and misery) from being asked . This situation 
is, I think, inevitable. In every country, educated institutions in 
general, and universities in particular, are supported directly or 
indirectly by the established authorities and whether in Chicago or 
in Moscow, their first duty is to save their pupils from contact with 
dangerous thoughts. (1951-1980, vol. V, p. 98)

7.       The task of deciding how resources should be allocated is 
not fulfilled by the market but by the great corporations who are in 
charge of the finance for development.These questions involve the 
whole political and social system of the capitalist world; theycan 
not be decided by economic theory, but it would be decent, at least, 
if the economists admitted that they do not have an answer to them. 
(1951-1980, vol. V, p. 30-31) 

8.       Private enterprise is wonderfully flexible in jumping from 
one profitable market to another, but is very rigid in resistance to 
social control. . . . There is no point in thinking of what we really 
want, such as abolishing poverty and restoring peace. All we can ask 
for is what they choose to give us. We must keep the show going or 
else they won't give us anything at all. (1951-198, vol. V, p. 129)

9.       The student of economic theory is taught to write O= f(L,C) 
where L is a quantity of labour, C a quantity of capital and O a rate 
of output of commodities. He is instructed to assume all workers 
alike, and to measure L in man-hours of labour; he is told something 
about the index-number problem involved in choosing a unit of output; 
and then he is hurried up to the next question, in the hope that he 
will forget to ask in what units C is measured. Before ever he does 
ask, he has become a professor, and so sloppy habits of thought are 
handed on from one generation to the next. (1978, p. 76)

10       A generation well educated, resistant to fudging, imbued 
with the humility and the pride of a genuine scientist could make 
contributions both to knowledge and to the conduct of affairs that no 
one need be ashamed of. (1951-1980, vol. III, p. 6).

              "He who is convinced against his will
               Is of the same opinion still". (1978, p. 125)

References: Works by Joan Robinson

Collected Economic Papers, six volumes. Cambridge, Massachusetts: MIT 
Press, 1951-1980.
(with John Eatwell) An Introduction to Modern Economics.  New York: 
McGraw Hill, 1973.
Contributions of Modern Economics.  Oxford: Blackwell, 1978.
Further Contributions of Modern Economics. :Oxford: Blackwell, 1980

______________________________
SUGGESTED CITATION:
Antonio Garrido, "John Robinson and the Post-Autistic Economics 
Movement", post-autistic economics review, issue no. 22,  24 November 
2003, article 6, 
<http://www.btinternet.com/~pae_news/review/issue22.htm>http://www.btinternet.com/~pae_news/review/issue22.htm

____________________________________________________________________________________________

EDITOR: Edward Fullbrook
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