Economics has lost its way

Admittedly, economics is a social science engaged in the ‘ordinary business of life’. It is the only social science that attracts a Nobel-like award —the Sveriges Risbank Prize in economic sciences in memory of Alfred Nobel’ instituted by the central bank of Sweden from 1969 onwards. The award is given by the Royal Swedish Academy of Sciences according to the same principles and procedures as for the prestigious Nobel prizes that have been awarded since 1901. To be sure, the knowledge economic ‘science’ creates must not be sophistries, but something relevant and useful to humanity.

People pursue any scientific study “to learn something about the riddle of the world in which we live and the riddle of man’s knowledge of that world”, as the great British philosopher of natural and social science, Sir Karl Popper, puts it.

The basic purpose of the scientific universe — being the project of understanding the riddle of the world, the portrayal of market system by mainstream economics as immutable, inescapable and natural, while it helps to safeguard any effort to subvert it — turns out to be an epistemological incongruity. Copernicus and Galileo proved to the world despite severe odds on the basis of logic, mathematics and facts that the received belief systems were utterly wrong. Since economics has a mission in building useful knowledge for the benefit of society, the persistent pursuit of the discipline to create sophistries to appear ‘scientific’ needs to be continuously interrogated.

During the latter part of the 1970s, I examined economics syllabi of 26 major universities in India and found that they were dominated by neoclassical economics with Marxian epistemology being kept out as poison and propaganda and even subjects such as economic history treated as redundant.

This is true of several universities in other parts of the world today. I wonder why critical scholars are not making it a social issue. It is illogical to dismiss alternate schools of thought as irrelevant. There is a pertinent need to re-articulate economics teaching by bringing together diverse streams of thought which can challenge the hegemony of market-centered economics.

This is precisely what you miss when you uphold competitive pricing based on self-interest of buyers and sellers as logical as Euclid’s geometry as underscored by Harvard Professors such as Paul Samuleson and Gregory Mankiw. Interestingly, economics does not have a theory of distribution and proceeds as if the word exploitation is irrelevant for the discipline. So long as wage is the price of labour and all factors of production (land, entrepreneurship, capital, etc.) are compensated according to their marginal product, exploitation is not raised as an issue to be considered. Several relevant policy issues are ruled out in this manner.

It is instructive to recall what Kaushik Basu, former economic advisor to the Government of India admitted in his Beyond Invisible Hand (2010): “The free market proposition is a powerful intellectual achievement and one of great aesthetic appeal, but its rampant misuse has had huge implications for the world in particular in the way we craft policy, think about globalisation and dismiss dissent”.

Continuing to pursue “powerful intellectual achievements” and “aesthetic appeal” is a serious limitation in developing a discipline that is basically policy-oriented. Although 77 professors in economics have become Nobel laureates, many of them won their awards for mathematical formulations. True, there are conspicuous exceptions such as Gunnar Myrdal, Amartya Sen and a few others. John Nash, a great mathematician shared Nobel prize in 1994 with two other mathematicians “for their pioneering analysis of equilibrium in the theory of non-cooperative games”.

Kenneth Arrow (Nobel in 1972) and Gerard Debreu (Nobel in 1983) are honoured for their contribution to the application of the mathematical theory of convex sets to the general equilibrium theory.

The very first chapter of Debreu’s Theory of Value: An Axiomatic Analysis of Economic Equilibrium is captioned ‘Mathematics’. My simple question is: can physics (economics has borrowed heavily terms from physics evidently to appear scientific) or for that matter any other science where quantitative calculations are involved start like this and then earn a Nobel prize?

Not only that, the rigorous assumptions and deductive methods on which several economic theories are based are not falsifiable. As per the “falsifiability criterion” of Popper a scientist seeks to discover an observed exception to his/her postulated rule. Freudian psychoanalysis for example is not an empirical science because of its failure to adhere to the principle of falsifiability.

What Robert Solow (Nobel in 1987) observed recently (2014) while probing ‘inside the minds of 12 Nobel laureates’ is worth citing: “The fundamental goal of economics as a discipline is to bring organized reason and systematic observation to bear on both large and small economic problems (and to have some intellectual fun on the way)”.

I wonder how can the creation of ‘intellectual fun’ and intellectual game be the vocation of a social science. To be sure, the knowledge that you produce and the intellectual and empirical basis that you build must be useful to human beings.

Thomas Piketty, whose proficiency in mathematics is well acknowledged, reminds his fellow economists in his famous book Capital in the twenty-first century (2014): “To put it bluntly, the discipline of economics has yet to get over its childish passion for mathematics and for purely theoretical and often highly ideological speculation, at the expense of historical research and collaboration with the other social sciences. Economists are all too often preoccupied with petty mathematical problems of interest only to themselves. This obsession with mathematics is an easy way of acquiring the appearance of scientificity without having to answer the far more complex questions posed by the world we live in”.

Economics is a cipher if it ceases to be a human science. While efficient allocation of resources is important, one cannot ignore the question: ‘efficiency for whom and for what’? Robert Fogel (Nobel laureate in 1993) along with Stanley Engerman (see their Time on the Cross ), legitimises Negro slavery on the basis of efficiency.

Modern economics as a discipline is the outcome of industrial capitalism. But we cannot forget that economic activities originated from the pursuit of human beings for food, shelter, clothing and other necessities of life. With the shift of emphasis from creating useful things for society to producing commodities in exchange for profit the discipline has lost its innate character as a human science. Education is the practice of freedom and all social sciences, especially economics have a key role to critically engage in the transformation of the society where people live.

The writer is an honorary fellow at Centre for Development Studies, Thiruvananthapuram

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