How Economics Lost Sight of Its Goal

A different approach: ‘moral economy’

The deregulation and spectacular growth of finance are central to neoliberalism and the rise of the rich and to the biggest economic crisis since the Great Crash of 1929. There has been a small avalanche of books on the financial crisis of 2007, some of them illuminating, many merely providing superficial narratives of successive financial disasters and the key players in them, served up with journalistic brio. Some critiques have targeted the hubris of the financial sector, identifying mismanagement, poor judgement and questionable legality. But some have seen the credit crunch and recession as evidence of something more basic capitalism’s crisis-prone nature. (Sayer 2015, 18-19)

Why We Can’t Afford the Rich isn’t just about the financial crisis, dire though it is. It’s about what underpins and generates such crises the very architecture of our economy. It treats the economy not merely as a machine that sometimes breaks down, but as a complex set of relationships between people, increasingly stretched around the world, in which they act as producers of goods and services, investors, recipients of various kinds of income and as taxpayers and consumers. The problems it identifies are as old as capitalism, though they have become much more serious with the rise of finance over the last 40 years. It goes beyond a focus on irrationality and systemic breakdown, to injustice and the moral justifications of taken-for-granted rights and practices. It’s not only about how much people in different positions in the economy should get paid for what they do, but about whether those positions are legitimate in the first place. Is it right that they’re allowed to do what they’re doing? (Sayer 2015, 19)

There is of course a long history of critiques of capitalism aimed at different targets: alienation, insecurity and poverty; the treadmill of working and consuming; economic contradictions and irrationalities; and environmental destruction. There are useful things to learn from all of these critiques, but at the current time, when the rich have increased their power so much, and inequalities have widened, I believe we need a new line of attack, one that focuses on the institutions and practices that allow this to happen. Too many books on economic justice, and especially on the economic crisis, take as given the very institutions and practices that need questioning. This book is about the injustices of some long-standing economic relations that have come to a head in the crisis. (Sayer 2015, 19)

It could be described as an example of ‘moral economy’. By this I mean not moralising about greed but assessing the moral justifications of basic features of economic organisation. It’s about the huge differences between what some are able to get and what they do, need and deserve. What people should get is a difficult issue, particularly where it’s a matter of what we think people deserve or merit, but in the case of the rich, it can be shown that what they actually get has more to do with power. I shall argue that basically, the rich get most of their income by using control of assets like land and money to siphon off wealth that others produce. Much of their income is unearned. What’s more, over the last 35 years, particularly with the increasing dominance of the economy by finance ‘financialisation’, as it’s sometimes called the rich have become far richer than before by expanding these sources of unearned income. (Sayer 2015, 19-20)

This book is not only about money and goods, but about the very language of economic life, for the history of our modern economy is partly one of struggles over how to describe or categorise economic practices, as this affects what we see as acceptable or unacceptable: words like ‘investment’, ‘speculation’ or ‘gambling’ invite different evaluations. Who wouldn’t prefer to be called an ‘investor’ rather than a speculator or gambler? (….) This struggle over words has been largely won by the rich and powerful, so how we speak about economic life systematically conceals their activities. (Sayer 2015, 20)

(….) Most basically, we need to remember something that has been forgotten in modern mainstream economics: economics is about provisioning. As anthropologists and feminist economists have reminded us, it’s about how societies provide themselves with the wherewithal to live. Provisioning requires work producing goods, from food and shelter through to clothes and newspapers, and services, such as teaching, providing advice and information, and care work. Almost all provisioning involves social relations between people, as producers, consumers, owners, lenders, borrowers and so on. It’s through these relations that provisioning is organised. Some kinds of provisioning take place through markets; some do not. The market/non-market boundary does not define the edge of the economy: unpaid work in preparing a meal for someone is as much an economic act as preparing pizzas for sale or selling computers or insurance. (Sayer 2015, 20-21)

(….) Dependence on others, particularly across generations, is part of being human; It derives from the fact that we are social animals, ‘dependent rational animals’, as the philosopher Alasdair MacIntyre put it; we cannot survive on our own. (Sayer 2015, 21)

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).

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s