“The current mismanagement of our economy calls into question the basic concepts of contemporary economic thought. Most economists, although acutely aware of the current state of crisis, still believe that solutions to our problems can be found within the existing theoretical framework. This framework, however, is based on concepts and variables that originated several hundred years ago and have been hopelessly outdated by and technological changes. What economists need to do urgently is to re-evaluate their entire conceptual foundation and redesign their basic models and theories accordingly. The current economic crisis will be overcome only if economists are willing to participate in the paradigm shift that is now occurring in all fields” (Capra 1982, p193).
“Mr Rudd calls for a new era of social capitalism and blames the global financial crisis on policies of free market fundamentalism” (ABC News 2009)
Do you ever get that feeling of deja vu?
In 2009, the modern economic world sustained a large shock: both in the literal economic and existential senses of the word. Once again, economists have begun a process of questioning the fundamental assumptions underlying their worldview. Friedman (and his neo-classical Chicago School) is out (Madrick 2008) and Keynes is back in vogue (Kale 2008, Stratton & Seager 2008, Atkins, Giles & Guha 2008) and for many commentators this represents a seismic shift in modern economic theory..
Yet in many ways, economists are simply having the same tired old argument about dead white men who agree broadly on the most fundamental tenets of their theories. When Homan (1927) bemoaned the fact that in the late 19th century, “variations in economic theory consisted largely of disagreements among economists whose generally viewpoints were not widely different,” (p780) he could perhaps have been writing 90 years later. Arguments between proponents of classical or neo-classical economics versus neo-Keynesians re-enforce the sense of pursuing “truth”, while ignoring the historical and cultural antecedents of modern economic thought.
That the concepts underpinning modern economic theory - the market, production and labour - are normal and natural is an assumption deeply rooted in the theory, even though “the economy... is above all a cultural production, a way of producing human subjects and social orders of a certain kind” (Escobar 1995, p59). Economics and culture are inextricably combined, with each informing the other.
Capra (1982) quoting Lucia Dunn, argues that the idealistic picture of the perfect competitive economy that underlies modern economic theory has become so embedded that many economists no longer see them as assumptions (p200). Its basic assumptions - perfect and free information for all participants in a market transaction, the belief that each buyer and seller in a market has no influence on price, the complete and instant mobility of displaced workers, natural resources and machinery - are "violated in the vast majority of today's markets, yet most economists continue to use them as the basis of their theories (Capra 1982, p200).
Escobar (1995) notes that economists don’t see their science as a cultural discourse but as a neutral representation of that world. Homan (1927), writing just before the stock market crash that caused the Great Depression, noted the “widely divergent ideas of the purpose, scope and method of economics” when, in his words, “the objective data upon which economists must base their beliefs are the same for all” (p776). Homan (1927) explained these divergent beliefs on the “difficulties which beset the economic theorist in the complexity of his data or of the inadequate media of thought which men have devised for scientifically explaining their activities” (p776). Economics, Homan (1927) argues, is a valiant search toward an objective truth. For Escobar (1995), it is a socially and culturally-constructed worldview that embodies certain assumptions about truth and reality.
Capra (1982) argues that any re-examination of economics needs to acknowledge and deal with the underlying value system and recognise its cultural context.
Introduction
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