What is the status quo?

The conception of the economy as a distinct object of study dates back only to the 18th century when the works of Cantillon, David Hume, and especially Adam Smith, reflected the idea that laws regarding the production and distribution existed and were waiting to be discovered (Hausman 2008). This historical construct of economics as an autonomous domain is indicative of the tendency to separate social life into discrete spheres that is a quintessential aspect of modernity (Escobar 1995).

Escobar (1995) states that in its classical formulation , political economy was structured around the notions of production and labour and was founded on the works (in Escobar’s opinion) of Marx, Ricardo and Adam Smith; known as the “father of economics” (Wikipedia 2008).

Smith wrote what the Economist (2008) refers to the “bible of Classical Economics”: ‘An Inquiry into the Nature and Causes of the Wealth of Nations’, in which he proposed the concept of the ‘Invisible Hand’. The ‘Invisible Hand’, as outlined by Hausman (2008) postulates that an individual pursuing self-interest in free markets leads to the most efficient use of economic resources and benefits society generally. In the words of Capra (1982), the individual self-interest of everyone from consumers to entrepreneurs would result in the betterment of all (with betterment being described as the production of material wealth).

Capra (1982) describes Smith as a broad and imaginative thinker who enthusiastically advocated the social and industrial changes he saw happening around him. Capra describes a theorist who was in many ways arguing against the mercantilist economic assumptions of his time: Instead of wealth being increased by foreign trade and the hoarding of valuables, he postulated that wealth was generated by the division of labour.

Capra (1982) argues that Smith based his economic theory on Newtonian physics, embedding within it Newtonian notions of equilibration, laws of motion and scientific objectivity (p200) It is this model of perfect competition undertaken by rational and fully-informed participants that still informs economics today (Capra 1982, 200).

This alignment of economics with science continued with David Ricardo and other classical economists, who “consolidated economics into a set of dogmas…with the “scientific” argument that “laws of nature” were operating” (Capra 1982, p202).

The 19th century was dominated by classical economic reformers, such as the influential John Stuart Mill and the more famous, and more controversial, Karl Marx. Mills built upon the foundations laid down by Ricardo and Malthus to create what Capra (1982) calls a “herculean reassessment” (p202) of the classical economics of his time, entitled ‘Principles of Political Economy’. According to Wilson (2003), Mill proposed that beyond the motive of financial gain and economic self-interest there were other reasons that could motivate people and that, moreover, institutional and societal structures, not to mention sheer force of habit, could determine economic behaviour. Economics was concerned only with production and scarcity of means and the mechanisms for the distribution (of wealth) were determined politically rather than economically (Capra 1982). The laws of production, he argued, “partake of the character of physical truths”, while the distribution of wealth was a “matter of human institution” (Wilson 2003).

Capra (1982) says that this separated out social factors from political economy, narrowing the scope of the science to a pure economics that would later be referred to as “neo-classical” (p203); the school of economic thought that is most influential right up to the present day.

In contrast, Marx, while still pursuing the Cartesian and Newtonian methods of the classical and neo-classical economists (Capra 1982, p208) presented the argument that, by narrowing the scope of economic inquiry to the economic core process, ethical issues of distribution were being evaded (p206).

“In his critique he went beyond social issues and often revealed deep humanistic insights...he also had profound insights into the interrelatedness of all phenomena, seeing society as an organic whole in which ideology and technology were equally important (Capra 1982, p209).

Following the Great Depression, the theories of John Maynard Keynes had a decisive influence on modern economic thought (Capra 1982, p209) by proposing that economic equilibriums were exceptions rather than the rule and that government intervention was necessary to smooth business cycles (Capra 1982). Considering that increased emphasis on Keynesian economics in the modern world (see the Introduction), Capra, writing in the early 1980s is surprisingly dismissive, describing his model as “inappropriate” for the modern world (p211).

Introduction

What is at stake?

What is the status quo?

What are the alternatives?

What happens when different knowledges speak to each other?

References