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<title>Section C - What are the myths of capitalist economics?
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<h1>Section C - What are the myths of capitalist economics?</h1>
Within capitalism, economics plays an important ideological role. Economics
has been used to construct a theory from which exploitation and oppression
are excluded, by definition. We will attempt here to explain why capitalism
is deeply exploitative. Elsewhere, in <a href="secBcon.html">section B</a>, we have indicated why
capitalism is oppressive and will not repeat ourselves here.
<p>
In many ways economics plays the role within capitalism that religion
played in the Middle Ages, namely to provide justification for the dominant
social system and hierarchies. <i>"The priest keeps you docile and subjected,"</i>
argued Malatesta, <i>"telling you everything is God's will; the economist
say it's the law of nature."</i> They <i>"end up saying that no one is responsible
for poverty, so there's no point rebelling against it."</i> [<b>Fra Contadini</b>,
p. 21] Even worse, they usually argue that collective action by working
class people is counterproductive and, like the priest, urge us to tolerate
current oppression and exploitation with promises of a better future (in
heaven for the priest, for the economist it is an unspecified "long run").
It would be no generalisation to state that if you want to find someone
to rationalise and justify an obvious injustice or form of oppression
then you should turn to an economist (preferably a "free market" one).
<p>
That is not the only similarity between the "science" of economics
and religion. Like religion, its basis in science is usually lacking
and its theories more based upon "leaps of faith" than empirical
fact. Indeed, it is hard to find a "science" more unconcerned about
empirical evidence or building realistic models than economics. Just
looking at the assumptions made in "perfect competition" shows that
(see <a href="secC1.html">section C.1</a> for details. This means that economics is immune to
such trivialities as evidence and fact, although that does not stop
economics being used to rationalise and justify certain of these
facts (such as exploitation and inequality). A classic example is
the various ways economists have sought to explain what anarchists
and other socialists have tended to call <b><i>"surplus value"</i></b> (i.e.
profits, interest and rent). Rather than seek to explain its origin
by an empirical study of the society it exists in (capitalism),
economists have preferred to invent "just-so" stories, little
a-historic parables about a past which never existed is used to
illustrate (and so defend) a present class system and its inequalities
and injustices. The lessons of a fairy tale about a society that has
never existed are used as a guide for one which does and, by some
strange co-incidence, they happen to justify the existing class
system and its distribution of income. Hence the love of Robinson
Crusoe in economics.
<p>
Ironically, this favouring of theory (ideology would be a better
term) is selective as their exposure as fundamentally flawed does
not stop them being repeated. As we discuss in
<a href="secC2.html">section C.2</a>, the
neoclassical theory of capital was proven to be incorrect by
left-wing economists. This was admitted by their opponents: <i>"The
question that confronts us is not whether the Cambridge Criticism
is theoretically valid. It is. Rather the question is an empirical
or econometric one: is there sufficient substitutability within
the system to establish neo-classical results?"</i> Yet this did not
stop this theory being taught to this day and the successful critique
forgotten. Nor has econometrics successfully refuted the analysis,
as capital specified in terms of money cannot reflect a theoretical
substance (neo-classical "capital") which could not exist in reality.
However, that is unimportant for <i>"[u]ntil the econometricians have
the answer for us, placing reliance upon neo-classical economic theory
is a matter of faith,"</i> which, of course, he had [C. E. Ferguson, <b>The
Neo-classical Theory of Production and Distribution</b>, p. 266 and p.
xvii]
<p>
Little wonder that Joan Robinson, one of the left-wing economists who
helped expose the bankruptcy of the neo-capital theory of capital,
stated that economics was <i>"back where it was, a branch of theology."</i>
[<b>Collected Economic Papers</b>, Vol. 4, p. 127] It
remains there more than thirty years later:
<p><blockquote><i>
"Economics is not a science. Many economists -- particularly those who
believe that decisions on whether to get married can be reduced to an
equation -- see the world as a complex organism that can be understood
using the right differential calculus. Yet everything we know about
economics suggests that it is a branch and not a particularly advanced
one, of witchcraft."</i> [Larry Elliot and Dan Atkinson, <b>The Age of
Insecurity</b>, p. 226]
<p></blockquote>
The weakness of economics is even acknowledged by some within the
profession itself. According to Paul Ormerod, <i>"orthodox economics
is in many ways an empty box. Its understanding of the world is
similar to that of the physical sciences in the Middle Ages. A few
insights have been obtained which stand the test of time, but they
are very few indeed, and the whole basis of conventional economics
is deeply flawed."</i> Moreover, he notes the <i>"overwhelming empirical
evidence against the validity of its theories."</i> It is rare to see
an economist be so honest. The majority of economists seem happy
to go on with their theories, trying to squeeze life into the
Procrustean bed of their models. And, like the priests of old,
make it hard for non-academics to question their dogmas as
<i>"economics is often intimidating. Its practitioners . . . have
erected around the discipline a barrier of jargon and mathematics
which makes the subject difficult to penetrate for the
non-initiated."</i> [<b>The Death of Economics</b>, p. ix, p. 67 and p. ix]
<p>
So in this section of our FAQ, we will try to get to the heart of
modern capitalism, cutting through the ideological myths that
supporters of the system have created around it. This will be a
difficult task, as the divergence of the reality of capitalism
and the economics that is used to explain (justify, more correctly)
it is large. For example, the preferred model used in neo-classical
economics is that of "perfect competition" which is based on a
multitude of small firms producing homogenous products in a market
which none of them are big enough to influence (i.e. have no market
power). This theory was developed in the late 19th century when the
real economy was marked by the rise of big business, a dominance
which continues to this day. Nor can it be said that even small
firms produce identical products -- product differentiation and
brand loyalty are key factors for any business. In other words,
the model reflected (and still reflects) the exact opposite of
reality.
<p>
In spite of the theoretical models of economics having little or
no relation to reality, they are used to both explain and justify
the current system. As for the former, the truly staggering aspect
of economics for those who value the scientific method is the
immunity of its doctrines to empirical refutation (and, in some
cases, theoretical refutation). The latter is the key to
not only understanding why economics is in such a bad state but
also why it stays like that. While economists like to portray
themselves as objective scientists, merely analysing the system,
the development of their "science" has always been marked with
apologetics, with rationalising the injustices of the existing
system. This can be seen best in attempts by economists to show
that Chief Executive Officers (CEOs) of firms, capitalists and
landlords all deserve their riches while workers should be
grateful for what they get. As such, economics has never been
value free simply because what it says affects people and society.
This produces a market for economic ideology in which those
economists who supply the demand will prosper. Thus we find many
<i>"fields of economics and economic policy where the responses of
important economic professionals and the publicity given economic
findings are correlated with the increased market demand for
specific conclusions and a particular ideology."</i> [Edward S.
Herman, <i>"The Selling of Market Economics,"</i> pp. 173-199, <b>New
Ways of Knowing</b>, Marcus G. Raskin and Herbert J. Bernstein
(eds.), p.192]
<p>
Even if we assume the impossible, namely that economists and their
ideology can truly be objective in the face of market demand for
their services, there is a root problem with capitalist economics.
This is that it the specific social relations and classes produced
by capitalism have become embedded into the theory. Thus, as an
example, the concepts of the marginal productivity of land and
capital are assumed to universal in spite the fact that neither
makes any sense outside an economy where one class of people owns
the means of life while another sells their labour to them. Thus
in an artisan/peasant society or one based around co-operatives,
there would be no need for such concepts for in such societies,
the distinction between wages and profits has no meaning and, as
a result, there is no income to the owners of machinery and land
and no need to explain it in terms of the "marginal productivity"
of either. Thus mainstream economics takes the class structure of
capitalism as a natural, eternal, fact and builds up from there.
Anarchists, like other socialists, stress the opposite, namely
that capitalism is a specific historical phase and, consequently,
there are no universal economic laws and if you change the system
the laws of economics change. Unless you are a capitalist economist,
of course, when the same laws apply no matter what.
<p>
In our discussion, it is important to remember that capitalist
economics is <b>not</b> the same as the capitalist economy. The latter
exists quite independently of the former (and, ironically, usually
flourishes best when the policy makers ignore it). Dissident economist
Steve Keen provides a telling analogy between economics and meteorology.
Just as <i>"the climate would exist even if there were no intellectual
discipline of meteorology, the economy itself would exist whether or
not the intellectual pursuit of economics existed."</i> Both share <i>"a
fundamental raison d'etre,"</i> namely <i>"that of attempting to understand
a complex system."</i> However, there are differences. Like weather
forecasters, <i>"economists frequently get their forecasts of the
economic future wrong. But in fact, though weather forecasts are
sometimes incorrect, overall meteorologists have an enviable record
of accurate prediction -- whereas the economic record is tragically
bad."</i> This means it is impossible to ignore economics (<i>"to treat
it and its practitioners as we these days treat astrologers"</i>) as it is
a social discipline and so what we <i>"believe about economics therefore
has an impact upon human society and the way we relate to one another."</i>
Despite <i>"the abysmal predictive record of their discipline,"</i>
economists <i>"are forever recommending ways in which the institutional
environment should be altered to make the economy work better."</i> By
that they mean make the real economy more like their models, as
<i>"the hypothetical pure market performs better than the mixed economy
in which we live."</i> [<b>Debunking Economics</b>, pp. 6-8] Whether this
actually makes the world a better place is irrelevant (indeed,
economics has been so developed as to make such questions irrelevant
as what happens on the market is, by definition, for the best).
<p>
Here we expose the apologetics for what they are, expose the
ideological role of economics as a means to justify, indeed ignore,
exploitation and oppression. In the process of our discussion we
will often expose the ideological apologetics that capitalist
economics create to defend the status quo and the system of
oppression and exploitation it produces. We will also attempt to
show the deep flaws in the internal inconsistencies of mainstream
economics. In addition, we will show how important reality is when
evaluating the claims of economics.
<p>
That this needs to be done can be seen by comparing the promise
of economics with its actual results when applied in reality.
Mainstream economics argues that it is based on the idea of
"utility" in consumption, i.e. the subjective pleasure of individuals. Thus production is, it
is claimed, aimed at meeting the demands of consumers. Yet for
a system supposedly based on maximising individual happiness
("utility"), capitalism produces a hell of a lot of unhappy
people. Some radical economists have tried to indicate this
and have created an all-embracing measure of well-being called
the Index of Sustainable Economic Welfare (ISEW). Their
conclusions, as summarised by Elliot and Atkinson, are
significant:
<p><blockquote><i>
"In the 1950s and 1960s the ISEW rose in tandem with per capita
GDP. It was a time not just of rising incomes, but of greater
social equity, low crime, full employment and expanding welfare
states. But from the mid-1970s onwards the two measures started
to move apart. GDP per head continued its inexorable rise, but
the ISEW started to decline as a result of lengthening dole
queues, social exclusion, the explosion in crime, habitat loss,
environmental degradation and the growth of environment- and
stress-related illness. By the start of the 1990s, the ISEW was
almost back to the levels at which it started in the early 1950s."</i>
[Larry Elliot and Dan Atkinson, <b>Op. Cit.</b>, p. 248]
</blockquote><p>
So while capitalism continues to produce more and more goods and,
presumably, maximises more and more individual utility, actual
real people are being "irrational" and not realising they are,
in fact, better off and happier. Ironically, when such unhappiness
is pointed out most defenders of capitalism dismiss people's
expressed woe's as irrelevant. Apparently <b>some</b> subjective
evaluations are considered more important than others!
<p>
Given that the mid-1970s marked the start of neo-liberalism, the
promotion of the market and the reduction of government interference
in the economy, this is surely significant. After all, the <i>"global
economy of the early 21st century looks a lot more like the economic
textbook ideal that did the world of the 1950s . . . All these
changes have followed the advance of economists that the unfettered
market is the best way to allocate resources, and that well-intentioned
interventions which oppose market forces will actually do more harm
than good."</i> As such, <i>"[w]ith the market so much more in control of
the global economy now than fifty years ago, then if economists are
right, the world <b>should be</b> a manifestly better place: it should
be growing faster, with more stability, and income should go to those
who deserve it."</i> However, <i>"[u]nfortunately, the world refuses to dance
the expected tune. In particularly, the final ten years of the 20th
century were marked, not by tranquil growth, but by crises."</i> [Steve
Keen, <b>Op. Cit.</b>, p. 2]
<p>
These problems and the general unhappiness with the way society is
going is related to various factors, most of which are impossible to
reflect in mainstream economic analysis. They flow from the fact that
capitalism is a system marked by inequalities of wealth and power and
so how it develops is based on them, not the subjective evaluations of
atomised individuals that economics starts with. This in itself is
enough to suggest that capitalist economics is deeply flawed and
presents a distinctly flawed picture of capitalism and how it
actually works.
<p>
Anarchists argue that this is unsurprising as economics, rather than
being a science is, in fact, little more than an ideology whose main
aim is to justify and rationalise the existing system. We agree with
libertarian Marxist Paul Mattick's summation that economics is <i>"actually
no more than a sophisticated apology for the social and economic
<b>status quo</b>"</i> and hence the <i>"growing discrepancy between [its] theories
and reality."</i> [<b>Economics, Politics and the Age of Inflation</b>, p. vii]
Anarchists, unsurprisingly, see capitalism as a fundamentally exploitative
system rooted in inequalities of power and wealth dominated by hierarchical
structures (capitalist firms). In the sections that follow, the exploitative
nature of capitalism is explained in greater detail. We would like to point
out that for anarchists, exploitation is not more important than domination.
Anarchists are opposed to both equally and consider them to be two sides
of the same coin. You cannot have domination without exploitation nor
exploitation without domination. As Emma Goldman pointed out, under
capitalism:
<p><blockquote><i>
"wealth means power; the power to subdue, to crush, to exploit, the power
to enslave, to outrage, to degrade . . . Nor is this the only crime . . .
Still more fatal is the crime of turning the producer into a mere particle
of a machine, with less will and decision than his master of steel and
iron. Man is being robbed not merely of the products of his labour, but
of the power of free initiative, of originality, and the interest in,
or desire for, the things he is making."</i> [<b>Red Emma Speaks</b>, pp. 66-7]
</blockquote><p>
Needless to say, it would be impossible to discuss or refute <b>every</b>
issue covered in a standard economics book or every school of economics.
As economist Nicholas Kaldor notes, <i>"[e]ach year new fashions sweep
the 'politico-economic complex' only to disappear again with equal
suddenness . . . These sudden bursts of fashion are a sure sign of
the 'pre-scientific' stage [economics is in], where any crazy idea
can get a hearing simply because nothing is known with sufficient
confidence to rule it out."</i> [<b>The Essential Kaldor</b>, p. 377] We will
have to concentrate on key issues like the flaws in mainstream economics,
why capitalism is exploitative, the existence and role of economic power,
the business cycle, unemployment and inequality.
<p>
Nor do we wish to suggest that all forms of economics are useless or
equally bad. Our critique of capitalist economics does not suggest
that no economist has contributed worthwhile and important work to
social knowledge or our understanding of the economy. Far from it.
As Bakunin put it, property <i>"is a god"</i> and has <i>"its metaphysics. It
is the science of the bourgeois economists. Like any metaphysics
it is a sort of twilight, a compromise between truth and falsehood,
with the latter benefiting from it. It seeks to give falsehood the
appearance of truth and leads truth to falsehood."</i> [<b>The Political
Philosophy of Bakunin</b>, p. 179] How far this is true varies form
school to school, economist to economist. Some have a better
understanding of certain aspects of capitalism than others. Some
are more prone to apologetics than others. Some are aware of the
problems of modern economics and <i>"some of the most committed
economists have concluded that, if economics is to become less
of a religion and more of a science, then the foundations
of economics should be torn down and replaced"</i> (although,
<i>"left to [their] own devices"</i>, economists <i>"would continue to
build an apparently grand edifice upon rotten foundations."</i>).
[Keen, <b>Op. Cit.</b>, p. 19]
<p>
As a rule of thumb, the more free market a particular economist
or school of economics is, the more likely they will be prone to
apologetics and unrealistic assumptions and models. Nor are we
suggesting that if someone has made a positive contribution in
one or more areas of economic analysis that their opinions on
other subjects are correct or compatible with anarchist ideas.
It is possible to present a correct analysis of capitalism or
capitalist economics while, at the same time, being blind to
the problems of Keynesian economics or the horrors of Stalinism.
As such, our quoting of certain critical economists does not
imply agreement with their political opinions or policy
suggestions.
<p>
Then there is the issue of what do we mean by the term "capitalist
economics"? Basically, any form of economic theory which seeks to
rationalise and defend capitalism. This can go from the extreme of
free market capitalist economics (such as the so-called "Austrian"
school and Monetarists) to those who advocate state intervention
to keep capitalism going (Keynesian economists). We will not be
discussing those economists who advocate state capitalism. As
a default, we will take "capitalist economics" to refer to the
mainstream "neoclassical" school as this is the dominant form of
the ideology and many of its key features are accepted by the others.
This seems applicable, given that the current version of capitalism
being promoted is neo-liberalism where state intervention is minimised
and, when it does happen, directed towards benefiting the ruling
elite.
<p>
Lastly, one of the constant refrains of economists is the notion that
the public is ignorant of economics. The implicit assumption behind
this bemoaning of ignorance by economists is that the world should
be run either by economists or on their recommendations. In
<a href="secC11.html">section C.11</a>
we present a case study of a nation, Chile, unlucky enough to have that
fate subjected upon it. Unsurprisingly, this rule by economists could
only be imposed as a result of a military coup and subsequent
dictatorship. As would be expected, given the biases of economics,
the wealthy did very well, workers less so (to put it mildly), in
this experiment. Equally unsurprising, the system was proclaimed
an economic miracle -- before it promptly collapsed.
<p>
So this section of the FAQ is our modest contribution to making
economists happier by making working class people less ignorant
of their subject. As Joan Robinson put it:
<p><blockquote><i>
"In short, no economic theory gives us ready-made answers. Any theory
that we follow blindly will lead us astray. To make good use of an
economic theory, we must first sort out the relations of the
propagandist and the scientific elements in it, then by checking
with experience, see how far the scientific element appears convincing,
and finally recombine it with our own political views. The purpose of
studying economics is not to acquire a set of ready-made answers to
economic questions, but to learn how to avoid being deceived by
economists."</i> [<b>Contributions to Modern Economics</b>, p. 75]
</blockquote>
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