AnarWiki/markdown/C.1_(An_Anarchist_FAQ).md

**C.1 What is wrong with economics?** is the first chapter of [Section
C](Section_C:_What_are_the_myths_of_capitalist_economics?_\(An_Anarchist_FAQ\) "wikilink")
of [An Anarchist FAQ](An_Anarchist_FAQ "wikilink").

## Chapters

C.1.1 Is economics really value free?

C.1.2 Is economics a science?

C.1.3 Can you have an economics based on individualism?

C.1.4 What is wrong with equilibrium analysis?

C.1.5 Does economics really reflect the reality of capitalism?

C.1.6 Is it possible to a non-equilibrium based capitalist economics?

## Transcript

In a nutshell, a lot. While economists like to portray their discipline
as “scientific” and “value free”, the reality is very different. It is,
in fact, very far from a [science](science "wikilink") and hardly “value
free.” Instead it is, to a large degree, deeply ideological and its
conclusions almost always (by a strange co-incidence) what the wealthy,
[landlords](Landlord "wikilink"), [bosses](Boss "wikilink") and managers
of capital want to hear. The words of
[Kropotkin](Peter_Kropotkin "wikilink") still ring true today:
“Political Economy has always confined itself to stating facts
occurring in society, and justifying them in the interest of the
dominant class ... Having found \[something\] profitable to capitalists,
it has set it up as a principle.” [\[The Conquest of
Bread]([The_Conquest_of_Bread "wikilink"), p. 181\]

This is at its best, of course. At its worse economics does not even
bother with the facts and simply makes the most appropriate assumptions
necessary to justify the particular beliefs of the economists and,
usually, the interests of the ruling class. This is the key problem with
economics: it is not a science. It is not independent of the class
nature of society, either in the theoretical models it builds or in the
questions it raises and tries to answer. This is due, in part, to the
pressures of the market, in part due to the assumptions and methodology
of the dominant forms of economics. It is a mishmash of ideology and
genuine science, with the former (unfortunately) being the bulk of it.
The argument that economics, in the main, is not a science it not one
restricted to anarchists or other critics of capitalism.

Some economists are well aware of the limitations of their profession.
For example, Steve Keen lists many of the flaws of mainstream
(neoclassical) economics in his excellent book Debunking Economics,
noting that (for example) it is based on a“dynamically irrelevant and
factually incorrect instantaneous static snap-shot” of the real
[capitalist](Capitalism "wikilink") economy. \[Debunking Economics, p.
197\] The late [Joan Robinson](Joan_Robinson "wikilink") argued
forcefully that the neoclassical economist “sets up a ‘model’ on
arbitrarily constructed assumptions, and then applies ‘results’ from it
to current affairs, without even trying to pretend that the assumptions
conform to reality.” \[Collected Economic Papers, vol. 4, p. 25\]

More recently, economist Mark Blaug has summarised many of the problems
he sees with the current state of economics: “Economics has increasing
become an intellectual games played for its own sake and not for its
practical consequences. Economists have gradually converted the subject
into a sort of social mathematics in which analytical rigor as
understood in math departments is everything and empirical relevance (as
understood in physics departments) is nothing ... general equilibrium
theory ... using economic terms like ‘prices’, ‘quantities’, ‘factors of
production,’ and so on, but that nevertheless is clearly and even
scandalously unrepresentative of any recognisable economic
system...“Perfect competition never did exist and never could exist
because, even when firms are small, they do not just take the price but
strive to make the price. All the current textbooks say as much, but
then immediately go on to say that the ‘cloud-cuckoo’ fantasy land of
perfect competition is the benchmark against which we may say something
significant about real-world competition ... But how can an idealised
state of perfection be a benchmark when we are never told how to measure
the gap between it and real-world competition? It is implied that all
real-world competition is ‘approximately' like perfect competition, but
the degree of the approximation is never specified, even vaguely...
“Think of the following typical assumptions: perfectly infallible,
utterly omniscient, infinitely long-lived identical consumers; zero
transaction costs; complete markets for all time-stated claims for all
conceivable events, no trading of any kind at disequilibrium prices;
infinitely rapid velocities of prices and quantities; no radical,
incalculable uncertainty in real time but only probabilistically
calculable risk in logical time; only linearly homogeneous production
functions; no technical progress requiring embodied capital investment,
and so on, and so on — all these are not just unrealistic but also
unrobust assumptions. And yet they figure critically in leading economic
theories.”\[“Disturbing Currents in Modern Economics”,Challenge\!, Vol.
41, No. 3, May-June, 1998\]

So neoclassical ideology is based upon special, virtually ad hoc,
assumptions. Many of the assumptions are impossible, such as the popular
assertion that individuals can accurately predict the future (as
required by “rational expectations” and general equilibrium theory),
that there are a infinite number of small firms in every market or that
time is an unimportant concept which can be abstracted from. Even when
we ignore those assumptions which are obviously nonsense, the remaining
ones are hardly much better. Here we have a collection of apparently
valid positions which, in fact, rarely have any basis in reality.

As we discuss in [section C.1.2](C.1.2_\(An_Anarchist_FAQ\) "wikilink"),
an essential one, without which neoclassical economics simply
disintegrates, has very little basis in the real world (in fact, it was
invented simply to ensure the theory worked as desired). Similarly,
markets often adjust in terms of quantities rather than price, a fact
overlooked in general equilibrium theory. Some of the assumptions are
mutually exclusive. For example, the neo-classical theory of the supply
curve is based on the assumption that some factor of production cannot
be changed in the short run. This is essential to get the concept of
diminishing marginal productivity which, in turn, generates a rising
marginal cost and so a rising supply curve.

This means that firms within an industry cannot change their capital
equipment. However, the theory of perfect competition requires that in
the short period there are no barriers to entry, i.e. that anyone
outside the industry can create capital equipment and move into the
market. These two positions are logically inconsistent. In other words,
although the symbols used in mainstream may have economic sounding
names, the theory has no point of contact with empirical reality (or, at
times, basic logic): “Nothing in these abstract economic models actually
works in the real world. It doesn’t matter how many footnotes they put
in, or how many ways they tinker around the edges. The whole enterprise
is totally rotten at the core: it has no relation to reality.” [\[Noam
Chomsky]([Noam_Chomsky "wikilink"), [Understanding
Power](Understanding_Power_\(Book\) "wikilink"), pp. 254–5\]

As we will indicate, while its theoretical underpinnings are claimed to
be universal, they are specific to capitalism and, ironically, they fail
to even provide an accurate model of that system as it ignores most of
the real features of an actual capitalist economy. So if an economist
does not say that mainstream economics has no bearing to reality, you
can be sure that what he or she tells you will be more likely ideology
than anything else. “Economic reality” is not about facts; it’s about
faith in capitalism. Even worse, it is about blind faith in what the
economic ideologues say about capitalism. The key to understanding
economists is that they believe that if it is in an economic textbook,
then it must be true — particularly if it confirms any initial
prejudices. The opposite is usually the case. The obvious fact that the
real world is not like that described by economic text books can have
some funny results, particularly when events in the real world
contradict the textbooks.

For most economists, or those who consider themselves as such, the
textbook is usually preferred. As such, much of capitalist apologetics
is faith-driven. Reality has to be adjusted accordingly. A classic
example was the changing positions of pundits and “experts” on the East
Asian economic miracle. As these economies grew spectacularly during the
1970s and 1980s, the experts universally applauded them as examples of
the power of free markets. In 1995, for example, the right-wing Heritage
Foundation’s [index of economic
freedom](Index_of_Economic_Freedom "wikilink") had four Asian countries
in its top seven countries. [The
Economist](The_Economist_\(Magazine\) "wikilink") explained at the start
of 1990s that [Taiwan](Taiwan "wikilink") and [South
Korea](South_Korea "wikilink") had among the least price-distorting
regimes in the world. Both the [Word Bank](Word_Bank "wikilink") and
[IMF](International_Monetary_Fund "wikilink") agreed, downplaying the
presence of industrial policy in the region. This was unsurprising.
After all,their ideology said that free markets would produce high
growth and stability and so, logically,the presence of both in East Asia
must be driven by the free market.

This meant that, for the true believers, these nations were paradigms of
the free market, reality not withstanding. The markets agreed, putting
billions into Asian equity markets while foreign banks loaned similar
vast amounts. In 1997, however, all this changed when all the Asian
countries previously qualified as “free” [saw their economies
collapse](East_Asian_Economic_Crisis_\(1997\) "wikilink"). Overnight the
same experts who had praised these economies as paradigms of the free
market found the cause of the problem — extensive state intervention.
The free market paradise had become transformed into a state regulated
hell\! Why? Because of ideology — the free market is stable and produces
high growth and, consequently, it was impossible for any economy facing
crisis to be a free market one\! Hence the need to disown what was
previously praised, without (of course) mentioning the very obvious
contradiction.

In reality, these economies had always been far from the free market.
The role of the state in these “free market” miracles was extensive and
well documented. So while East Asia “had not only grown faster and done
better at reducing poverty than any other region of the world ... it had
also been more stable, "these countries" had been successful not only in
spite of the fact that they had not followed most of the dictates of the
[Washington Consensus](Washington_Consensus "wikilink") \[i.e.
[neo-liberalism](Neoliberalism "wikilink")\], but because they had not.
”The government had played“ important roles ... far from the
minimalist \[ones\] beloved” of neo-liberalism. During the 1990s, things
had changed as the IMF had urged a“excessively rapid financial and
capital market liberalisation ”for these countries as sound economic
policies. This “was probably the single most important cause of the
\[1997\] crisis ”which saw these economies suffer meltdown,“the greatest
economic crisis since the [Great
Depression](Great_Depression "wikilink")” (a meltdown worsenedby IMF aid
and its underlying dogmas). Even worse for the believers in market
fundamentalism,those nations (like [Malaysia](Malaysia "wikilink")) that
refused IMF suggestions and used state intervention has a “shorter and
shallower” downturn than those who did not. \[Joseph Stiglitz,
[Globalisation and its
Discontents](Globalisation_and_its_Discontents_\(Book\) "wikilink"), p.
89, p. 90, p. 91 and p. 93\]

Even worse, the obvious conclusion from these events is more than just
the ideological perspective of economists, it is that “the market” is
not all-knowing as investors (like the experts) failed to see the
statist policies so bemoaned by the ideologues of capitalism after
1997.This is not to say that the models produced by neoclassical
economists are not wonders of mathematics or logic. Few people would
deny that a lot of very intelligent people have spent a lot of time
producing some quite impressive mathematical models in economics. It is
a shame that they are utterly irrelevant to reality. Ironically, for a
theory claims to be so concerned about allocating scarce resources
efficiently, economics has used a lot of time and energy refining the
analyses of economies which have not, do not, and will not ever exist.
In other words, scarce resources have been inefficiently allocated to
produce waste.

Why? Perhaps because there is a demand for such nonsense? Some
economists are extremely keen to apply their methodology in all sorts of
areas outside the economy. No matter how inappropriate, they seek to
colonise every aspect of life. One area, however, seems immune to such
analysis. This is the market for economic theory. If, as economists
stress, every human activity can be analysed by economics then why not
the demand and supply of economics itself? Perhaps because if that was
done some uncomfortable truths would be discovered? Basic supply and
demand theory would indicate that those economic theories which have
utility to others would be provided by economists. In a system with
inequalities of wealth, effective demand is skewed in favour of the
wealthy.

Given these basic assumptions, we would predict that only these forms of
economists which favour the requirements of the wealthy would gain
dominance as these meet the (effective) demand. By a strange
co-incidence, this is precisely what has happened. This did and does not
stop economists complaining that dissidents and radicalswere and are
biased. As [Edward Herman](Edward_S._Herman "wikilink") points out:
“Back in 1849, the British economist Nassau Senior chided those
defending [trade unions](Trade_Union "wikilink") and [minimum wage
regulations](Minimum_Wage "wikilink") for expounding an ‘economics of
the poor.’ The idea that he and his establishment confreres were putting
forth an ‘economics of the rich’ never occurred to him; he thought of
himself as a scientist and spokesperson of true principles. This
self-deception pervaded mainstream economics up to the time of the
Keynesian Revolution of the 1930s. [Keynesian
economics](Keynesian_School_of_Economics "wikilink"), though quickly
tamed into an instrument of service to the capitalist state, was
disturbing in its stress on the inherent instability of capitalism, the
tendency toward chronic [unemployment](unemployment "wikilink"), and the
need for substantial government intervention to maintain viability. With
the resurgent capitalism of the past 50 years, Keynesian ideas, and
their implicit call for intervention, have been under incessant attack,
and, in the intellectual counterrevolution led by the [Chicago
School](Chicago_School_of_Economics "wikilink"), the traditional
laissez-faire (’let-the-fur-fly’) economics of the rich has been
re-established as the core of mainstream economics.” [The Economics of
the Rich]([The_Economics_of_the_Rich_\(Article\) "wikilink")\]

Herman goes on to ask “\[w\]hy do the economists serve the rich?” and
argues that “\[f\]or one thing,the leading economists are among the
rich, and others seek advancement to similar heights. Chicago School
economist Gary Becker was on to something when he argued that economic
motives explain a lot of actions frequently attributed to other forces.
He of course never applied this idea to economics as a profession ... ”
There are a great many well paying think tanks, research posts,
consultancies and so on that create an “‘effective demand’ that should
elicit an appropriate supply resource.” Elsewhere, Herman notes the
“class links of these professionals to the business community were
strong and the ideological element was realised in the neoclassical
competitive model ... Spin-off negative effects on the lower classes
were part of the ‘price of progress.’ It was the elite orientation of
these questions \[asked by economics\], premises, and the central
paradigm \[of economic theory\] that caused matters like unemployment,
mass poverty, and work hazards to escape the net of mainstream economist
interest until well into the twentieth century.” Moreover, “the
economics profession in the years 1880–1930 was by and large strongly
conservative, reflecting in its core paradigm its class links and
sympathy with the dominant business community, fundamentally anti-union
and suspicious of government, and tending to view competition as the
true and durable state of nature.” \[Edward S. Herman,“The Selling of
Market Economics, ”pp. 173–199, New Ways of Knowing, Marcus G.Raskin and
Herbert J. Bernstein (eds.),p. 179–80 and p. 180\]

Rather than scientific analysis, economics has always been driven by the
demands of the wealthy (“How did \[economics\] get instituted? As a
weapon of class warfare.” \[Chomsky,Op. Cit.,p. 252\]). This works on
numerous levels. The most obvious is that most economists take the
current class system and wealth/income distribution as granted and
generate general “laws” of economics from a specific historical society.
As we discuss in the next section, this inevitably skews the “science”
into ideology and apologetics. The analysis is also (almost inevitably)
based on individualistic assumptions, ignoring or downplaying the key
issues of groups, organisations, class and the economic and social power
they generate. Then there are the assumptions used and questions raised.

As Herman argues, this has hardly been a neutral process: “the theorists
explicating these systems, such as [Carl
Menger](Carl_Menger "wikilink"), Leon Walras, and Alfred Marshall, were
knowingly assuming away formulations that raised disturbing questions
(income distribution, class and market power, instability, and
unemployment) and creating theoretical models compatible with their own
policy biases of status quo or modest reformism ... Given the choice of
‘problem,’ ideology and other sources of bias may still enter economic
analysis if the answer is predetermined by the structure of the theory
or premises, or if the facts are selected or bent to prove the desired
answer.” \[Op. Cit., p.176\]

Needless to say, economics is a “science” with deep ramifications within
society. As a result,it comes under pressure from outside influences and
vested interests far more than, say, anthropology or physics. This has
meant that the wealthy have always taken a keen interest that the
“science” teaches the appropriate lessons. This has resulted in a
demand for a “science” which reflects the interests of the few, not the
many. Is it really just a co-incidence that the lessons of economics are
just what the bosses and the wealthy would like to hear? As
non-neoclassical economist [John Kenneth
Galbraith](John_Kenneth_Galbraith "wikilink") noted in 1972: “Economic
instruction in the United States is about a hundred years old. In its
first half century economists were subject to censorship by outsiders.
Businessmen and their political and ideological acolytes kept watch on
departments of economics and reacted promptly to heresy, the latter
being anything that seemed to threaten the sanctity of property,
profits, a proper tariff policy and a balanced budget, or that suggested
sympathy for unions, public ownership, public regulation or, in any
organised way, for the poor.”\[The Essential Galbraith, p. 135\]

It is really surprising that having the wealthy fund (and so control)
the development of a“science” has produced a body of theory which so
benefits their interests? Or that they would be keen to educate the
masses in the lessons of said “science”, lessons which happen to
conclude that the best thing workers should do is obey the dictates of
the bosses, sorry, the market? It is really just a co-incidence that the
repeated use of economics is to spread the message that strikes, unions,
resistance and so forth are counter-productive and that the best thing
worker can do is simply wait patiently for wealth to trickle down?This
co-incidence has been a feature of the “science” from the start.

The [French Second Empire](French_Empire "wikilink") in the 1850s and
60s saw “numerous private individuals and organisation, municipalities,
and the central government encouraged and founded institutions to
instruct workers in economic principles.” The aim was to “impress upon
\[workers\] the salutary lessons of economics.” Significantly, the
“weightiest motive” for so doing “was fear that the influence of
socialist ideas upon the [working class](Working_Class "wikilink")
threatened the social order.” [The revolution of
1848](Revolutions_of_1848 "wikilink")“ convinced many of the upper
classes that the must prove to workers that attacks upon the economic
order were both unjustified and futile. ”An-other reason was the
recognition of the right to strike in 1864 and so workers “had to be
warned against abuse of the new weapon. ”The instruction“ was always
with the aim of refuting socialist doctrines and exposing popular
misconceptions. As one economist stated, it was not the purpose of a
certain course to initiate workers into the complexities of economic
science, but to define principles useful for ‘our conduct in the social
order.’” The interest in such classes was related to the level of
“worker discontent and agitation.” The impact was less than desired:
“The future [Communard](Paris_Commune "wikilink") Lefrancais referred
mockingly to the economists ... and the ‘banality’ and ‘platitudes’ of
the doctrine they taught. A newspaper account of the reception given to
the economist Joseph Garnier states that Garnier was greeted with shouts
of: ‘He is an economist’ ... It took courage, said the article, to admit
that one was an economist before a public meeting.”\[David I. Kulstein,
“Economics Instruction forWorkers during the Second Empire,” pp.
225–234, French Historical Studies, vol. 1, no. 2, p. 225, p.226, p.
227 and p. 233\]

This process is still at work, with corporations and the wealthy funding
university departments and posts as well as their own “think tanks” and
paid PR economists. The control of funds for research and teaching plays
it part in keeping economics the “economics of the rich.” Analysing the
situation in the 1970s, Herman notes that the “enlarged private demand
for the services of economists by the business community ... met a warm
supply response.” He stressed that “if the demand in the market is for
specific policy conclusions and particular viewpoints that will serve
such conclusions, the market will accommodate this demand.” Hence
“blatantly ideological models... are being spewed forth on a large
scale, approved and often funded by large vested interests”which helps
“shift the balance between ideology and science even more firmly
toward the former.” \[Op. Cit., p. 184, p. 185 and p. 179\]

The idea that “experts” funded and approved by the wealthy would be
objective scientists is hardly worth considering. Unfortunately, many
people fail to exercise sufficient scepticism about economists and the
economics they support. As with most experts, there are two obvious
questions with which any analysis of economics should begin: “Who is
funding it?” and “Who benefits from it?” However, there are other
factors as well, namely the hierarchical organisation of the
[university](university "wikilink") system. The heads of economics
departments have the power to ensure the continuation of their
ideological position due to the position as hirer and promoter of staff.
As economics “has mixed its ideology into the subject so well that the
ideologically unconventional usually appear to appointment committees to
be scientifically incompetent.”\[Benjamin Ward, What’s Wrong with
Economics?, p. 250\]

Galbraith termed this “a new despotism,” which consisted of “defining
scientific excellence in economics not as what is true but as whatever
is closest to belief and method to the scholarly tendency of the people
who already have tenure in the subject. This is a pervasive test, not
the less oppress for being, in the frequent case, both self-righteous
and unconscious. It helps ensure, needless to say, the perpetuation of
the neoclassical orthodoxy.” \[Op. Cit., p. 135\] This plays a key role
in keeping economics an ideology rather than a science: “The power
inherent in this system of quality control within the economics
profession is obviously very great. The discipline’s censors occupy
leading posts in economics departments at the major institutions ... Any
economist with serious hopes of obtaining a tenured position in one of
these departments will soon be made aware of the criteria by which he is
to be judged ... the entire academic program ... consists of
indoctrination in the ideas and techniques of the science.” \[Ward,Op.
Cit., pp. 29–30\]

All this has meant that the “science” of economics has hardly changed in
its basics in over one hundred years. Even notions which have been
debunked (and have been acknowledged as such) continue to be taught:
“The so-called mainline teaching of economic theory has a curious
self-sealing capacity. Every breach that is made in it by criticism is
somehow filled up by admitting the point but refusing to draw any
consequence from it, so that the old doctrines can be repeated as
before. Thus the Keynesian revolution was absorbed into the doctrine
that, ‘in the long run,’ there is a natural tendency for a market
economy to achieve full employment of available labour and full
utilisation of equipment; that the rate of accumulation is determined by
household saving; and that the rate of interest is identical with the
rateof profit on capital. Similarly, Piero Sraffa’s demolition of the
neoclassical production function in labour and ‘capital’ was admitted to
be unanswerable, but it has not been allowed to affect the propagation
of the ‘marginal productivity’ theory of wages and profits. “The most
sophisticated practitioners of orthodoxy maintain that the whole
structure is an exercise in pure logic which has no application to real
life at all. All the same they give their pupils the impression that
they are being provided with an instrument which is valuable, indeed
necessary, for the analysis of actual problems.” \[Joan Robinson,
Op.Cit., vol. 5, p. 222\]

The social role of economics explains this process, for “orthodox
traditional economics ... was a plan for explaining to the privileged
class that their position was morally right and was necessary for the
welfare of society. Even the poor were better off under the existing
system that they would be under any other ... the doctrine \[argued\]
that increased wealth of the propertied class brings about an automatic
increase of income to the poor, so that, if the rich were made poorer,
the poor would necessarily become poorer too.” \[Robinson,Op. Cit., vol.
4, p. 242\] In such a situation, debunked theories would continue to be
taught simply because what they say has a utility to certain sections of
society: “Few issues provide better examples of the negative impact of
economic theory on society than the distribution of income. Economists
are forever opposing ‘market interventions’ which might raise the wages
of the poor, while defending astronomical salary levels for top
executives on the basis that if the market is willing to pay them so
much, they must be worth it. In fact, the inequality which is so much a
characteristic of modern society reflects power rather than justice.
This is one of the many instances where unsound economic theory makes
economists the champions of policies which, is anything,undermine the
economic foundations of modern society.” \[Keen,Op. Cit., p. 126\]

This argument is based on the notion that wages equal the marginal
productivity of labour. This is supposed to mean that as the output of
workers increase, their wages rise. However, as we note in [section
C.1.5](C.1.5_\(An_Anarchist_FAQ\) "wikilink"), this law of economics has
been violated for the last thirty-odd years in the US. Has this resulted
in a change in the theory? Of course not. Not that the theory is
actually correct. As we discuss in [section
C.2.5](C.2.5_\(An_Anarchist_FAQ\) "wikilink"), marginal productivity
theory has been exposed as nonsense (and acknowledged as flawed by
leading neo-classical economists) since the early 1960s. However, its
utility in defending inequality is such that its continued use does not
really come as a surprise. This is not to suggest that mainstream
economics is monolithic. Far from it. It is riddled with argument and
competing policy recommendations. Some theories rise to prominence,
simply to disappear again (“See, the ‘science’ happens to be a very
flexible one: you can change it to do whatever you feel like, it’s that
kind of ‘science.’” \[Chomsky,Op. Cit., p. 253\]).

Given our analysis that economics is a commodity and subject to demand,
this comes as no surprise. Given that the capitalist class is always in
competition within itself and different sections have different needs at
different times, we would expect a diversity of economics beliefs within
the “science” which rise and fall depending on the needs and relative
strengths of different sections of capital. While, overall, the
“science” will support basic things (such as profits,
[interest](Interest_\(Finance\) "wikilink") and [rent](rent "wikilink")
are not the result of exploitation) but the actual policy
recommendations will vary. This is not to say that certain individuals
or schools will not have their own particular dogmas or that individuals
rise above such influences and act as real scientists, of course, just
that (in general) supply is not independent of demand or class
influence. Nor should we dismiss the role of popular dissent in shaping
the “science.”

The class struggle has resulted in a few changes to economics, if only
in terms of the apologetics used to justify non-labour income. Popular
struggles and organisation play their role as the success of, say,union
organising to reduce the working day obviously refutes the claims made
against such movements by economists. Similarly, the need for economics
to justify reforms can become a pressing issue when the alternative
(revolution) is a possibility. As Chomsky notes, during the 19th century
(as today) popular struggle played as much of a role as the needs of the
ruling class in the development of the “science”: “\[Economics\] changed
for a number of reasons. For one thing, these guys had won, so they
didn’t need it so much as an ideological weapon anymore. For another,
they recognised that they themselves needed a powerful interventionist
state to defend industry form the hardships of competition in the open
market — as they had alwayshadin fact.

And beyond that, eliminating people’s ‘right to live’ was starting to
have some negative side-effects. First of all, it was causing riots all
over the place ... Then something even worse happened — the population
started to organise: you got the beginning of an organised labour
movement ... then a socialist movement developed. And at that point, the
elites ... recognised that the game had to be called off, else they
really would be in trouble ... it wasn’t until recent years that
laissez-faire ideology was revived again —and again, it was a weapon of
[class warfare](Class_Struggle "wikilink") ... And it doesn’t have any
more validity than it had in the early nineteenth century — in fact it
has evenless. At least in the early nineteenth century ... \[the\]
assumptions hadsome relation to reality. Today those assumptions have
not relation to reality.” \[Op. Cit., pp. 253–4\]

Whether the “economics of the rich” or the “economics of the poor” win
out in academia is driven far more by the state of the class war than by
abstract debating about unreal models. Thus the rise of monetarism came
about due to its utility to the dominant sections of the ruling class
rather than it winning any intellectual battles (it was decisively
refuted by leading Keynesians like Nicholas Kaldor who saw their
predicted fears become true when it was applied — see [section
C.8](C.8_\(An_Anarchist_FAQ\) "wikilink")). Hopefully by analysing the
myths of capitalist economics we will aid those fighting for abetter
world by giving them the means of counteracting those who claim the
mantle of “science” to foster the “economics of the rich” onto society.
To conclude, neo-classical economics shows the viability of an unreal
system and this is translated into assertions about the world that we
live in.

Rather than analyse reality, economics evades it and asserts that the
economy works “as if” it matched the unreal assumptions of neo-classical
economics. No other science would take such an approach seriously. In
biology, for example, the notion that the world can be analysed “as if”
God created it is called Creationism and rightly dismissed. In
economics, such people are generally awarded professorships or even the
(so-called) Nobel prize in economics (Keen critiques the “as if”
methodology of economics in chapter 7 of his Debunking Economics).
Moreover, and even worse, policy decisions will be enacted based on a
model which has no bearing in reality — with disastrous results (for
example, the rise and fall of Monetarism). Its net effect to justify the
current class system and diverts serious attention from critical
questions facing working class people (for example, inequality and
market power, what goes on in production, how authority relations impact
on society and in the workplace).

Rather than looking to how things are produced, the conflicts generated
in the production process and the generation as well as division of
products/surplus, economics takes what was produced as given, as well as
the capitalist workplace, the division of labour and authority relations
and so on. The individualistic neoclassical analysis by definition
ignores such key issues as economic power, the possibility of a
structural imbalance in the way economic growth is distributed,
organisation structure, and so on.Given its social role, it comes as no
surprise that economics is not a genuine science. For most economists,
the “scientific method (the inductive method of natural sciences) \[is\]
utterly unknown to them.”\[Kropotkin, Anarchism, p. 179\]

The argument that most economics is not a science is not limited to just
anarchists or other critics of capitalism. Many dissident economics
recognise this fact as well, arguing that the profession needs to get
its act together if it is to be taken seriously. Whether it could retain
its position as defender of capitalism if this happens is a moot point
as many of the theorems developed were done so explicitly as part of
this role (particularly to defend non-labour income — see section
[C.2](C.2_\(An_Anarchist_FAQ\) "wikilink")). That economics can become
much broader and more relevant is always a possibility, but to do so
would mean to take into account an unpleasant reality marked by class,
hierarchy and inequality rather than logic deductions derived from
Robinson Crusoe.

While the latter can produce mathematical models to reach the
conclusions that the market is already doing a good job (or, at best,
there are some imperfections which can be counterbalanced by the state),
the former cannot. Anarchists, unsurprisingly, take a different approach
to economics. As Kropotkin put it,“we think that to become a science,
Political Economy has to be built up in a different way. It must be
treated as a natural science, and use the methods used in all exact,
empirical sciences.”\[Evolution and Environment, p. 93\]

This means that we must start with the world as it is, not as economics
would like it to be. It must be placed in historical context and key
facts of capitalism, like wage labour, not taken for granted. It must
not abstract from such key facts of life as economic and social power.
In a word, economics must reject those features which turn it into a
sophisticated defence of the status quo. Given its social role within
capitalism (and the history and evolution of economic thought), it is
doubtful it will ever become a real science simply because it if did it
would hardly be used to defend that system.