How Economics Lost Sight of Its Goal

In 2000, economics students in Paris sent an open letter to their professors, rejecting the dogmatic teaching of mainstream theory. ‘We wish to escape from imaginary worlds!’ they wrote, ‘Call to teachers: wake up before it is too late!’ A decade later, a group of Harvard students staged a mass walk-out of a lecture by Professor Gregory Mankiw—author of the world’s most widely taught economics textbooks—in protest against the narrow and biased ideological perspective that they believed his course espoused. They were, they said, ‘deeply concerned that this bias affects students, the University, and our greater society’. (Raworth 2017, 2, Kindle Edition)

When the financial crisis hit, it galvanised student dissent worldwide. It also spurred Yuan and her fellow rebels to launch a global network connecting over 80 student groups in more than 30 countries—from India and the United States to Germany and Peru—in their demand for economics to catch up with the current generation, the century we are in, and the challenges ahead. ‘It is not only the world economy that is in crisis,’ they declared in an open letter in 2014:

The teaching of economics is in crisis too, and this crisis has consequences far beyond the university walls. What is taught shapes the minds of the next generation of policymakers, and therefore shapes the societies we live in . . . We are dissatisfied with the dramatic narrowing of the curriculum that has taken place over the last couple of decades . . . It limits our ability to contend with the multidimensional challenges of the 21st century—from financial stability, to food security and climate change.

The more radical among these student protestors have been targeting highbrow conferences with their counter-cultural critiques. In January 2015, as the American Economic Association’s annual meeting got under way in Boston’s Sheraton Hotel, students from the Kick It Over movement plastered accusatory posters in the hotel’s corridors, elevators and toilets, projected giant subversive messages on to the conference centre’s street facade, and stunned the incredulous conference-goers by occupying their sedate panel discussions and hijacking question time. (Raworth 2017, 2-3, Kindle Edition)

‘The revolution of economics has begun,’ the students’ manifesto declared. ‘On campus after campus we will chase you old goats out of power. Then in the months and years that follow, we will begin the work of reprogramming the doomsday machine.’ (Raworth 2017, 3, Kindle Edition)

It’s an extraordinary situation. No other academic discipline has managed to provoke its own students—the very people who have chosen to dedicate years of their life to studying its theories—into worldwide revolt. Their rebellion has made one thing clear: the revolution in economics has indeed begun. Its success depends not only on debunking the old ideas but, more importantly, on bringing forth the new. As the ingenious twentieth-century inventor Buckminster Fuller once said, ‘You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.’ (Raworth 2017, 3-4, Kindle Edition)

This book takes up his challenge, setting out seven mind-shifting ways in which we can all learn to think like twenty-first-century economists. By revealing the old ideas that have entrapped us and replacing them with new ones to inspire us, it proposes a new economic story that is told in pictures as much as in words. (Raworth 2017, 4, Kindle Edition)

~ ~ ~

Back in Ancient Greece, when Xenophon first came up with the term economics, he described the practice of household management as an art. Following his lead, Aristotle distinguished economics from chrematistics, the art of acquiring wealth—in a distinction that seems to have been all but lost today. The idea of economics, and even chrematistics, as an art may have suited Xenophon, Aristotle and their time, but two thousand years later, when Isaac Newton discovered the laws of motion, the allure of scientific status became far greater. Perhaps this is why, in 1767—just 40 years after Newton’s death—when the Scottish lawyer James Steuart first proposed the concept of ‘political economy’, he defined it no longer as an art but as ‘the science of domestic policy in free nations’. But naming it as a science still didn’t stop him from spelling out its purpose (Raworth 2017, 28-29, Kindle Edition):

The principal object of this science is to secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance which may render it precarious; to provide every thing necessary for supplying the wants of the society, and to employ the inhabitants (supposing them to be free-men) in such a manner as naturally to create reciprocal relations and dependencies between them, so as to make their several interests lead them to supply one another with their reciprocal wants (Raworth 2017, 29, Kindle Edition).

A secure living and jobs for all in a mutually thriving community: not bad for a first stab at defining the goal (despite the tacit disregard of women and slaves that came with the times). A decade later, Adam Smith had a go at his own definition but followed Steuart’s lead in considering political economy to be a goal-oriented science. It had, he wrote, ‘two distinct objects: to supply a plentiful revenue or subsistence for the people, or, more properly, to enable them to provide such a revenue or subsistence for themselves; and secondly, to supply the state or commonwealth with a revenue sufficient for the public services’. This definition not only defies Smith’s ill-deserved modern reputation as a free-marketeer but also keeps its eyes firmly on the prize by articulating a goal for economic thought. But it was an approach that would not last (Raworth 2017, 29, Kindle Edition).

Seventy years after Smith, John Stuart Mill’s definition of political economy started the shift in focus by recasting it as ‘a science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth’. With this, Mill began a trend that others would further: turning attention away from naming the economy’s goals and towards discovering its apparent laws. Mill’s definition came to be used widely but by no means exclusively. In fact for nearly a century, the emerging science of economics was defined rather imprecisely, leading the early Chicago School economist Jacob Viner, in the 1930s, to quip simply that ‘Economics is what economists do.’ (Raworth 2017, 29, Kindle Edition)

Not everyone found that a satisfactory answer. In 1932, Lionel Robbins of the London School of Economics stepped in with intent to clarify the matter, clearly irritated that ‘We all talk about the same things, but we have not yet agreed what it is we are talking about.’ He claimed to have a definitive answer. ‘Economics,’ he declared, ‘is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.’ Despite its contortions, that definition seemed to close the debate, and it stuck: many mainstream textbooks still start with something very similar today. But although it frames economics as a science of human behaviour, it spends little time enquiring into those ends, let alone into the nature of the scarce means involved. In Gregory Mankiw’s widely used contemporary textbook, Principles of Economics, the definition has become even more concise. ‘Economics is the study of how society manages its scarce resources,’ it declares—erasing the question of ends or goals from the page altogether (Raworth 2017, 29-30, Kindle Edition).

It is more than a little ironic that twentieth-century economics decided to define itself as a science of human behaviour and then adopted a theory of behaviour—summed up in rational economic man—which, for decades, eclipsed any real study of humans, as we will see in Chapter 3. But, more crucially, during that process, the discussion of the economy’s goals simply disappeared from view. Some influential economists, led by Milton Friedman and the Chicago School, claimed this was an important step forwards, a demonstration that economics had become a value-free zone, shaking off any normative claims of what ought to be and emerging at last as a ‘positive’ science focused on describing simply what is. But this created a vacuum of goals and values, leaving an unguarded nest at the heart of the economic project. And, as every cuckoo knows, such a nest must be filled (Raworth 2017, 30, Kindle Edition).

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