Up to the 1970s, economics was populated by a diverse range of ‘schools’ containing different visions and research methods – classical, Marxist, neoclassical, Keynesian, developmentalist, Austrian, Schumpeterian, institutionalist, and behaviouralist, to name only the most significant. These schools of economics – or different approaches to economics – had (and still have) distinct visions in the sense that they had conflicting moral values and political positions, while understanding the way the economy works in divergent ways. I explain the competing methods of economists in my book Economics: The User’s Guide (2014), in a chapter called ‘Let a Hundred Flowers Bloom – How to “Do” Economics’.
Not only did the different methods coexist but they interacted with each other. Sometimes, the competing schools of economics clashed in a ‘death match’ – the Austrians vs the Marxists in the 1920s and ’30s, or the Keynesians vs the neoclassicals in the 1960s and ’70s. At other times, the interactions were more benign. Through debates and policy experiments tried by different governments around the world, each school was forced to hone its arguments. Different schools borrowed ideas from each other (often without proper acknowledgement). Some economists even tried the fusion of different theories – for example, some economists fused the Keynesian and the Marxist theories and created ‘post-Keynesian’ economics. (...)
Since the 1980s, however, economics has become the British food scene before the 1990s. One tradition – neoclassical economics – is the only item on the menu. Like all other schools, it has its strengths; it also has serious limitations. This ascent of the neoclassical school is a complex story, which can’t be adequately considered here.
If told, the story would have many ingredients. Academic factors – like the merits and demerits of different schools, and the increasing dominance of mathematics as a research tool (which advanced knowledge of particular kind while suppressing others) – have mattered, of course. However, the ascent has also been critically shaped by power politics – both within the economics profession and in the outside world. ... In terms of power politics beyond the profession, the neoclassical school’s inherent reticence to question the distribution of income, wealth and power underlying any existing socioeconomic order has made it more palatable to the ruling elite. The globalisation of education during the post-Second World War era, in which the disproportionate ‘soft’ cultural power of the United States has been the biggest influence, has played a crucial role in spreading neoclassical economics, which had become dominant in the US first (in the 1960s).
But, whatever the causes, neoclassical economics is today so dominant in most countries (Japan and Brazil, and, to a lesser extent, Italy and Turkey are exceptions) that the term ‘economics’ has – for many – become synonymous with ‘neoclassical economics’. This intellectual ‘monocropping’ has narrowed the intellectual gene pool of the subject. (...)
Some readers may legitimately ask: why should I care if a bunch of academics become narrow-minded and engage in intellectual monocropping? However, you should all care, because, like it or not, economics has become the language of power. You cannot change the world without understanding it. In fact, I think that, in a capitalist economy, democracy cannot function effectively without all citizens understanding at least some economics. These days, with the dominance of market-oriented economics, even decisions about non-economic issues (such as health, education, literature or the arts) are dominated by economic logic. I have even met some British people who are trying to justify the monarchy in terms of the tourist revenue it allegedly generates. I am not a monarchist, but how insulting is it for the institution to be defended in that kind of way?
When so many collective decisions are formulated and justified with the help of the dominant economic theory, you don’t really know what you are voting for or against, if you don’t understand at least some economics. (...)
We all know that economic theories affect government policies regarding taxes, welfare spending, interest rates and labour market regulations, which in turn affect our daily material lives by influencing our jobs, working conditions, wages and the repayment burdens on our mortgages or student loans. Economic theories also shape the long-term collective prospects of an economy by influencing policies that determine its abilities to engage in high-productivity industries, to innovate, and to develop in an environmentally sustainable way. But beyond even that: economics doesn’t just influence economic variables, whether personal or collective. It changes who we are.
Economics shapes us in two ways. First, it creates ideas: different economic theories assume different qualities to be at the essence of human nature, so the prevailing economic theory forms cultural norms about what people see as ‘natural’ and ‘human nature’. The dominance in the last few decades of neoclassical economics, which assumes that human beings are selfish, has normalised self-seeking behaviour. People who act in an altruistic way are derided as ‘suckers’ or are suspected of having some (selfish) ulterior motives. Were behaviouralist or institutionalist economic theories dominant, we would believe that human beings have complex motivations, of which self-seeking is only one of many; in these views, different designs of society can bring out varying motivations and even shape people’s motivations in diverse ways. In other words, economics affects what people see as normal, how people view each other, and what behaviour people exhibit to fit in.
Economics also influences who we are by affecting the way the economy develops and thus the way we live and work, which in turn shapes us. For example, different economic theories offer contrasting views on whether developing countries should promote industrialisation through public policy intervention. Different degrees of industrialisation, in turn, produce a variety of types of individuals. For example, compared with those who live in agrarian societies, people who live in more industrialised countries tend to be better at time-keeping, as their work – and consequently the rest of their lives – is organised according to the clock. Industrialisation also promotes trade union movements by amassing large numbers of workers in factories where they also need to cooperate much more closely with each other than in farms. These movements in turn create centre-Left political parties that push for more egalitarian policies, which may be weakened but do not disappear even when factories disappear, as has happened in most rich countries in the past few decades.
We can go further and assert that economics influences the kind of society we have. First, by shaping individuals differently, varying economic theories make societies of contrasting types. Thus, an economic theory that encourages industrialisation will lead to a society with more forces pushing for more egalitarian policies, as explained above. For another example, an economic theory that believes humans to be (almost) exclusively driven by self-interest will create a society where cooperation is more difficult. Second, different economic theories have different views on where the boundary of the ‘economic sphere’ should lie. So, if an economic theory recommends privatisation of what many consider to be essential services – healthcare, education, water, public transport, electricity and housing, for example – it is recommending that the market logic of ‘one-dollar-one-vote’ should be expanded against the democratic logic of ‘one-person-one-vote’. Finally, economic theories represent contrasting impacts on economic variables, such as inequality (of income or wealth) or economic rights (labour vs capital, consumer vs producer). Differences in these variables, in turn, influence how much conflict exists in society: greater income inequality or fewer labour rights generate not just more clashes between the powerful and those under them but also more conflicts among the less privileged, as they fight over the dwindling piece of pie available to them.
Understood like this, economics affects us in many more fundamental ways than when it is narrowly defined – income, jobs and pensions. That is why it is vital that every citizen needs to learn at least some economics. If we are to reform the economy for the benefit of the majority, make our democracy more effective, and make the world a better place to live for us and for the coming generations, we must ensure some basic economic literacy.
by Ha-Joon Chang, Aeon | Read more:
Image: Christopher Furlong/Getty
[ed. Also, from the comments:]
"The effect of economics on politics is an important force which is mentioned in this piece. However, the effect of politics on economics is an idea which doesn’t seem to get much attention anywhere despite, as this article points out, the fact that neoliberalism has reached a point of largely unchallenged orthodoxy.
At least at one time, there was a saying that if you want to find the truth follow the money. Can it be entirely coincidental that neoliberalism, which inherently skews the distribution of wealth massively towards the wealthy, has reached ascendancy independant of political considerations?"
Since the 1980s, however, economics has become the British food scene before the 1990s. One tradition – neoclassical economics – is the only item on the menu. Like all other schools, it has its strengths; it also has serious limitations. This ascent of the neoclassical school is a complex story, which can’t be adequately considered here.
If told, the story would have many ingredients. Academic factors – like the merits and demerits of different schools, and the increasing dominance of mathematics as a research tool (which advanced knowledge of particular kind while suppressing others) – have mattered, of course. However, the ascent has also been critically shaped by power politics – both within the economics profession and in the outside world. ... In terms of power politics beyond the profession, the neoclassical school’s inherent reticence to question the distribution of income, wealth and power underlying any existing socioeconomic order has made it more palatable to the ruling elite. The globalisation of education during the post-Second World War era, in which the disproportionate ‘soft’ cultural power of the United States has been the biggest influence, has played a crucial role in spreading neoclassical economics, which had become dominant in the US first (in the 1960s).
But, whatever the causes, neoclassical economics is today so dominant in most countries (Japan and Brazil, and, to a lesser extent, Italy and Turkey are exceptions) that the term ‘economics’ has – for many – become synonymous with ‘neoclassical economics’. This intellectual ‘monocropping’ has narrowed the intellectual gene pool of the subject. (...)
Some readers may legitimately ask: why should I care if a bunch of academics become narrow-minded and engage in intellectual monocropping? However, you should all care, because, like it or not, economics has become the language of power. You cannot change the world without understanding it. In fact, I think that, in a capitalist economy, democracy cannot function effectively without all citizens understanding at least some economics. These days, with the dominance of market-oriented economics, even decisions about non-economic issues (such as health, education, literature or the arts) are dominated by economic logic. I have even met some British people who are trying to justify the monarchy in terms of the tourist revenue it allegedly generates. I am not a monarchist, but how insulting is it for the institution to be defended in that kind of way?
When so many collective decisions are formulated and justified with the help of the dominant economic theory, you don’t really know what you are voting for or against, if you don’t understand at least some economics. (...)
We all know that economic theories affect government policies regarding taxes, welfare spending, interest rates and labour market regulations, which in turn affect our daily material lives by influencing our jobs, working conditions, wages and the repayment burdens on our mortgages or student loans. Economic theories also shape the long-term collective prospects of an economy by influencing policies that determine its abilities to engage in high-productivity industries, to innovate, and to develop in an environmentally sustainable way. But beyond even that: economics doesn’t just influence economic variables, whether personal or collective. It changes who we are.
Economics shapes us in two ways. First, it creates ideas: different economic theories assume different qualities to be at the essence of human nature, so the prevailing economic theory forms cultural norms about what people see as ‘natural’ and ‘human nature’. The dominance in the last few decades of neoclassical economics, which assumes that human beings are selfish, has normalised self-seeking behaviour. People who act in an altruistic way are derided as ‘suckers’ or are suspected of having some (selfish) ulterior motives. Were behaviouralist or institutionalist economic theories dominant, we would believe that human beings have complex motivations, of which self-seeking is only one of many; in these views, different designs of society can bring out varying motivations and even shape people’s motivations in diverse ways. In other words, economics affects what people see as normal, how people view each other, and what behaviour people exhibit to fit in.
Economics also influences who we are by affecting the way the economy develops and thus the way we live and work, which in turn shapes us. For example, different economic theories offer contrasting views on whether developing countries should promote industrialisation through public policy intervention. Different degrees of industrialisation, in turn, produce a variety of types of individuals. For example, compared with those who live in agrarian societies, people who live in more industrialised countries tend to be better at time-keeping, as their work – and consequently the rest of their lives – is organised according to the clock. Industrialisation also promotes trade union movements by amassing large numbers of workers in factories where they also need to cooperate much more closely with each other than in farms. These movements in turn create centre-Left political parties that push for more egalitarian policies, which may be weakened but do not disappear even when factories disappear, as has happened in most rich countries in the past few decades.
We can go further and assert that economics influences the kind of society we have. First, by shaping individuals differently, varying economic theories make societies of contrasting types. Thus, an economic theory that encourages industrialisation will lead to a society with more forces pushing for more egalitarian policies, as explained above. For another example, an economic theory that believes humans to be (almost) exclusively driven by self-interest will create a society where cooperation is more difficult. Second, different economic theories have different views on where the boundary of the ‘economic sphere’ should lie. So, if an economic theory recommends privatisation of what many consider to be essential services – healthcare, education, water, public transport, electricity and housing, for example – it is recommending that the market logic of ‘one-dollar-one-vote’ should be expanded against the democratic logic of ‘one-person-one-vote’. Finally, economic theories represent contrasting impacts on economic variables, such as inequality (of income or wealth) or economic rights (labour vs capital, consumer vs producer). Differences in these variables, in turn, influence how much conflict exists in society: greater income inequality or fewer labour rights generate not just more clashes between the powerful and those under them but also more conflicts among the less privileged, as they fight over the dwindling piece of pie available to them.
Understood like this, economics affects us in many more fundamental ways than when it is narrowly defined – income, jobs and pensions. That is why it is vital that every citizen needs to learn at least some economics. If we are to reform the economy for the benefit of the majority, make our democracy more effective, and make the world a better place to live for us and for the coming generations, we must ensure some basic economic literacy.
by Ha-Joon Chang, Aeon | Read more:
Image: Christopher Furlong/Getty
[ed. Also, from the comments:]
"The effect of economics on politics is an important force which is mentioned in this piece. However, the effect of politics on economics is an idea which doesn’t seem to get much attention anywhere despite, as this article points out, the fact that neoliberalism has reached a point of largely unchallenged orthodoxy.
At least at one time, there was a saying that if you want to find the truth follow the money. Can it be entirely coincidental that neoliberalism, which inherently skews the distribution of wealth massively towards the wealthy, has reached ascendancy independant of political considerations?"
