Anto Fine & Milenokis Crisis

Koninklijke Brill NV, Leiden, 2011 DOI: 10.
1163/156920611X573770
Historical Materialism 19.2 (2011) 331 brill.nl/hima
Useless but True:
Economic Crisis and the Peculiarities
of Economic Science
*

Ben Fine
a
and Dimitris Milonakis
b
a
SOAS, University of London
bf@soas.ac.uk
b
University of Crete
milonakis@econ.soc.uoc.gr
Abstract
Te recent economic crisis has brought to the fore another crisis that has been going on for many
years, that of (orthodox) economic theory. Te latter failed to predict and, after the event, cannot
ofer an explanation of why it happened. Tis article sketches out why this is the case and what
constitutes the crisis of economics. On this basis, the case is made for the revival of an
interdisciplinary political economy as the only way for ofering an explanation of the workings
of the (capitalist) economy in general and of economic crises in particular.
Keywords
capitalism, crisis, economic theory, political economy
1. Introduction
It is a great honour and a privilege to have been awarded the Deutscher
Memorial-Prize for From Economics Imperialism to Freakonomics: Te Shifting
Boundaries Between Economics and Other Social Sciences, not least because it
refects the considered judgement of a set of highly-regarded Marxist scholars.
To be acclaimed by ones peers is as good as it gets in the realm of scholarship
apart from seeing intellectual work exercise an infuence on practice.
Unfortunately, socialism is not on the performativity-agenda, as opposed to its
understandable infatuation with fnance. But we might anticipate future
studies of Marxism as inefective performativity, not least as the latters chief
* Delivered as the Isaac and Tamara Deutscher Memorial-Lecture, London, 12 November
2010. Te Deutscher Prize was awarded for Fine and Milonakis 2009.
4 B. Fine, D. Milonakis / Historical Materialism 19.2 (2011) 331
inspiration is drawn from Michel Callon who perceives capitalism as non-
existent and a mere conceptual invention of radicals for their own ideological
purposes.
1
For us, as such, the Deutscher award is also particularly rewarding
because it has been accompanied by the Gunnar Myrdal prize for our
marginally earlier volume, From Political Economy to Economics: Method, the
Social and the Historical in the Evolution of Economic Teory.
2
Tis award
refects the acceptance of our work by a diferent constituency, formally the
European Association for Evolutionary Political Economy (EAEPE), but
essentially heterodox economists, something we fnd particularly encouraging
and to which we will return.
Tis is only the third time that the award has gone to co-authors, previously
to Ian Gough and Len Doyle in 1992 and Paul Walton and Andrew Gamble
in 1972, so we seem to have beaten the twenty-year gap for co-authors by
three years. One of us recalls attending the Memorial-Lecture for Walton and
Gamble at the LSE almost forty years ago, as part of a large audience excited
with the prospects for Marxist political economy as the fault-lines in the post-
war boom had become apparent. Equally signifcantly though, their book,
From Alienation to Surplus Value, not least in its title, refected what has since
proved to be something of a hiatus in Marxist political economy in terms of
the close attention to it across the social sciences. Signifcantly, the two authors
hailed from criminology and political science, respectively. And, whilst Marxist
political economy has been prominent in the Deutscher awards over the past
forty years, only three other economists as such have been recipients,
Wodzimierz Brus, Bob Rowthorn, and Michael Lebowitz.
3

Te position of Marxist political economy within social science is a theme
to which we will also return. Its decline, if unevenly across disciplines and
topics, in the wake of the stagfation of the seventies and the subsequent
slowdown to todays crisis, is a salutary warning that hard economic times are
not necessarily conducive to the prospects for Marxist political economy. To
assess these, though, we begin with a short overview of contemporary
capitalism, which is both the object of analysis of Marxism and, to some
degree at least, one of its determinants.
1. See Callon, Madel and Rabeharisoa 2002 and Fine 2003 for a critique.
2. Milonakis and Fine 2009.
3. See <http://www.deutscherprize.org.uk/Past%20Recipients.htm> and its references to the
books for which prizes were awarded.
B. Fine, D. Milonakis / Historical Materialism 19.2 (2011) 331 5
2. From the crisis of capitalism . . .
Our starting point in the midst of crisis is a stunningly obvious but paradoxical
observation:
4
that material conditions for capital-accumulation would appear
to have been extraordinarily favourable and even to have become increasingly
so more recently. Briefy listed and unduly over-generalising for brevity: the
capacity for productivity-increases arising out of a huge diversity and range of
application of new technologies; the decline in the strength and organisation
of working-class and progressive movements, especially across trade-unions,
political parties and anti-imperial struggles; huge increases in the global
labour-force through migration, the Chinese road to capitalism, and increasing
female labour-market participation; high levels of inter-imperialist cooperation
under the hegemony of the USA, not least with the collapse of the Soviet bloc;
and the triumph of neoliberalism, not least in the form of containment of the
social as well as the monetary wage. Tis paradox raises three questions for
Marxists: why slowdown, why crisis, and what rle for class-struggle?
Our general method of approach to these questions, drawing on our own
interpretation of Marxs political economy, is to emphasise the conditions
under which the accumulation and restructuring of capital takes place as a
whole, globally, in the production and circulation of (surplus-) value, and in
the social, political as well as the ideological arenas. Tis involves attention
to the structures, agencies, relations and processes of capital-accumulation,
and the historical forms in which they are unevenly combined and through
which power is exercised and confict conducted. Marxs Capital provides,
across its three volumes, the methodological and theoretical basis for such
investigation. But, at a more concrete and historically informed level than
such abstract posturing, our emphasis is upon the extent to which the past
forty years have been marked by the processes of fnancialisation.
Tis is a new concept in which Marxists have played a leading, if by far from
exclusive rle, themselves displaying considerable disagreements in terms of
the nature and efect of fnancialisation. We cannot review the corresponding
literature here, but we can highlight the extent to which fnance has become
distinctively prominent in the restructuring of capital in depth and breadth. It
has reduced overall levels of accumulation through the subordination of real
to fctitious capital, driving a wedge between the two; it has reduced the
efcacy of the restructuring of real capital; and it has been detrimental to the
social, political and ideological conditions under which accumulation has
proceeded.
4. For a fuller account of what follows, see Fine 2011, forthcoming.
Te way of phrasing these propositions, let alone their meaning and validity,
is controversial. But this is not our concern here so much as emphasising how
fnancialisation is the key-factor in the slowdown over the past thirty years (as
opposed to some reductionist notion of the law of falling proftability, for
example) as well as in explaining the crisis, despite working-class acquiescence
and other favourable conditions for capitalism. And fnancialisation is crucial
in understanding both the cause and course of the crisis itself.
Tis is not, however, to put aside agencies other than fnance in the processes
of restructuring. But industrial capital itself has been embroiled in the
speculative proft-making attached to fnancialisation (with more-or-less half
of the profts of non-fnancial corporations being made out of fnancial
dealings in the USA). And the state has played an active rle in promoting
fnancialisation at the expense of, and as the form taken by, the accumulation
and restructuring of capital, not only through liberalising fnancial markets
and regulation but also through privatisation, commercialisation, and so on.
Such slavish devotion to the cause of fnance is indicative of the shifting
nature of contemporary politics or, at least, its increasing fexibility in dealing
with the dysfunctions of fnancialisation. Underpinning this is the emergence
and/or strengthening of national- and international-fnancial lites. Tis works
not only through the pressure of the markets, rating agencies and so on, but
through the changing form and nature of politics itself as fnancialisation
displaces the location of decision-making to the vagaries of fnancial markets
and fnanciers. Tis is what has sustained what we call neoliberalism over the
past thirty years the imperatives of fnance with commitment to free markets
or not as a matter of more-or-less convenient mythology without which
neoliberalism in practice seems incomprehensibly heterogeneous and has been
rejected as such by some progressive scholars for being a simple vernacular of
abuse and an incoherent descriptor of contemporary reality.
To the contrary, to sustain fnancialisation, the state has pressed, if unevenly,
for imposition of the classical aspects of neoliberalism, associated with
authoritarianism, privatisation, fscal discipline and, in the context of
developing countries, the Washington Consensus. Equally, though, each of
these aspects is expendable in response to shifting requirements, not least in
the current crisis. Indeed, neoliberalism might best be seen as falling roughly
into two phases the frst as the shock-therapy associated with Reagan and
Tatcher, Latin America, and the Soviet bloc, and the second with the social
market, Tird-Wayism and the post-Washington-consensus. Tis second phase
has been rationalised and promoted as a reaction against the frst phase in light
of the latters horrendous dysfunctions beyond fnance, but essentially is
concerned to keep fnancialisation going. As Stiglitz, pioneer of the post-
Washington consensus, so clearly puts it:
5
Te left now understands markets,
and the role they can and should play in the economy . . . the new left is trying
to make markets work. What this means is: how do we keep globalisation,
fnancialisation and capital-accumulation going? And, again, unduly
generalising, the more centre- rather than right-leaning political parties are
better able to deliver the imperatives of fnance, as this is then the sole objective,
as opposed to authoritarianism. Irrespective of ideological form, the coalition-
government in the UK, PASOK in Greece, and so on make Tatcher seem like
a snatcher of sweets from the pram.
We will return to Stiglitz later, but observe for the moment what, at least for
him, the new left, as he calls it, has become. To the contrary, the crisis is
indicative of the strongest possible case for socialism and not just because a
bigger-than-ever crisis has hit. Te simplest and single most telling aspect of
the crisis is that as observed by Naud in commenting on a G-20 Summit:
6

Many have already remarked on the fact that huge amounts of money have been
found at short notice to bail out banks, but that money to bail out the worlds
bottom billion can never be mobilised. Contrast, for instance, the $50 billion
agreed on for developing countries at the summit with the estimated $8.4 trillion
for bailing-out banks. As Oxfam recently remarked, the latter amount is sufcient
to end extreme poverty worldwide for 50 years.
As Homer Simpson might have pondered: Bail out the banks or eliminate
world-poverty for ffty years hard choice! And this is just the tip of the
iceberg in terms of the mismatch between the productive capacities of
contemporary capitalism and its record of delivery, whether for the environment
or stability of food- and energy-prices, whilst there is, uniquely for this crisis,
a total absence of blame on the part of working people who must, nonetheless,
bear the costs. Te implication of the need for alternatives is irrefutable. Yet
the very factors that have sustained neoliberalism for so long in terms of
fnancialisation, the growing hegemony of fnance, and the decline of
progressive opposition also serve as major obstacles to the emergence of, and
struggle for, alternatives. Tis is, then, a crisis within, not of, neoliberalism,
which has already emerged, at least so far, strengthened from the crisis in
terms of the politics and policies of governance. Neoliberalism remains
everywhere, but its contradictory and shifting combination of ideology, policy
in practice and scholarship across time, place and issue needs to be carefully
5. Stiglitz 2008, p. 2. For critique of the continuing shenanigans of the World Bank, see
Bayliss, Fine and van Waeyenberge (eds.) 2011, forthcoming.
6. Naud 2009.
unpicked. And it is to scholarship to which we now turn, and economics in
particular, for which we must carefully distinguish neoliberal economics from
the economics of neoliberalism. So what was the rle of the economics-
profession in the current crisis and what are the likely efects of the crisis in the
way economists see the world?
3. . . . to the crisis of economic theory . . .
Generally, in science, when some rare event occurs which has a major impact,
a black swan, in Talebs terminology,
7
which was not predicted by the current
state-of-the-art scientifc tools, or some new evidence is discovered which
cannot be explained by these tools, representing an anomaly, in Kuhnian
terminology, then the scientifc feld may be shaken and new proposals, tools,
theories, etc. are put forward to explain the hitherto inexplicable event or new
evidence.
One could name countless examples from the history of science. Just a
couple will sufce. Take the example of oceanography. On New Years Day in
1995, the Draupner oil-rig radar-sensor in the North Sea recorded, for the
frst time in history, a giant wave 26 metres in height which, until then,
according to all scientifc knowledge based on the linear models in use, was
thought practically impossible. According to the bell-shaped curves derived
from this model, an unusual event, a so-to-speak freak-wave of, say, 30 metres
in height, could only occur once every 10,000 years. Tis new discovery caused
an upheaval in oceanography with some scientists turning to the strange world
of quantum-mechanics to fnd part of the explanation to the riddle of the
existence of monster waves.
8
Similarly, when, back in the 1960s, neuroscientists
discovered that if some parts of the brain failed, then sometimes other parts
can take over their functions, the scientifc community was shaken and a new
theory, neuroplasticity, was developed to cope with these new fndings.
9

Now, the recent economic crisis does represent a huge anomaly with respect
to all existing mainstream-theories. A huge wave has hit the world-economy, a
crisis that was thought impossible by (and still denied by some) mainstream-
economic theorising based mostly on mathematical modelling and the twin
assumptions of representative rational agents and the efcient-market
hypothesis.
10
Te Gaussian bell-shaped curves used by economists and based
7. Taleb 2007, pp. xviixviii.
8. Cf. Broad 2006; Te Economist 2009; <http://en.wikipedia.org/wiki/Rogue_wave>.
9. Doidge 2007.
10. For Buiter 2009, Tis is the hypothesis that asset prices aggregate and fully refect all
relevant fundamental information, and thus provide the proper signals for resource allocation.
on these assumptions preclude the possibility of such an event taking place.
Not only was the crisis not predicted (nor could it have been by these models),
but, after the event, no explanation remains possible within mainstream-
neoclassical economics other than as what might be termed the inefcient-
market hypothesis. So, will there be a similar freak-wave efect in economic
science?
On top of the (epistemological) diferences involved between these (natural)
sciences and economics, there is another big diference. All the events
mentioned above, which caused the upheaval in the respective sciences, refer
to newly-available evidence. What is remarkable, in the case of our scientifc
feld, is that the occurrence of big crises and deep recessions (unlike the freak-
waves of the deep ocean) are not a newly-observed phenomenon. As is well-
known, similar crises have hit the world-economy in the 1870s, the 1930s and
the 1970s. As for more-restricted fnancial crises, recent economic history is
full of such cases.
11
Indeed, unlike the physical sciences, economics is
dominated by such rare and extreme events.
12
What is astonishing is that the
sector most prone to such phenomena, viz. the fnancial sector, has until
recently, and to some extent even now, been considered by mainstream-
fnancial economists as the Mecca of rationality and market-efciency.
In the past similar, signifcant events have proved to be the midwives of
important developments in economic science, like the birth of Keyness
General Teory following the Great Depression of the 1930s. Will something
similar happen this time around? Richard Posner of the University of Chicago
and, until recently, a staunch supporter of the neoliberal Chicago school, but
now turned Keynesian, thinks so. According to him, what is happening in
economics following the crisis is reminiscent of what happened to cosmology
after Edwin Hubble discovered that the universe was expanding, and was
much larger than scientists believed. Te profession fell into turmoil, with
some physicists sticking to existing theories, while others came up with the big
bang theory.
13

As Krugman has said, just before the crisis erupted economists were
congratulating themselves over the success of their feld.
14
After all, this
was the era of great moderation the substantial decline in economic
11. No less than 139 banking and currency-crises have been identifed between 1973 and
1997, that is, during the earlier phase of fnancialisation, as compared with only 38 fnancial
crises during the so-called golden age of regulated capitalism between 1945 and 1971 (cf.
Eichengreen and Bordo 2002). See also Wolf 2009, p. 31. Te diference between these crises
and the most recent one is that they did not become global.
12. Taleb 2007.
13. Cassidy 2010a, p. 28.
14. Krugman 2009, p. 52.
volatility that the chairman of the Federal Reserve Board, Ben Bernanke, has
partly attributed to improved performance of macroeconomic policies.
15
Tis
was also the era of the emerging consensus in macroeconomics. A consensus
based on the most-horrendously unrealistic assumptions of the representative
agent holding rational expectations and the market-efciency hypothesis. As
Greenspan himself has admitted, all of this collapsed in September 2008.
Before coming to current theoretical developments, let us frst take a look
at what happened back in the thirties. Although the interwar-period was an
era of pluralism in economics, with diferent schools of thought using vastly
diferent types of organon and with diferent conceptual frameworks
fourishing, for the whole period until the 1929 Wall Street crash, the view
that was dominant within neoclassical economics was that markets are
efcient, and, if left alone, they would tend to get back to full-employment
equilibrium. Te result of these beliefs was that, after the 1929 crash,
the market was left on its own to cope with the consequences of the crisis. Te
ensuing deepest crisis and depression of the twentieth century shook the
credibility of neoclassical theory and the belief in the self-regulating abilities
of the market almost beyond repair. Tis whole intellectual edifce collapsed
after the 1929 crash. Or so it seemed at the time.
Te theoretical gap was flled by John Maynard Keyness General Teory.
Tis is one instance for which it can safely be said that the dramatic changes
in the economic sphere brought about signifcant changes in economic
thought. Keyness aim was to save capitalism from its own excesses, putting as
his central goal the achievement of full employment. Another reason why
Keyness work had the potential for a revolutionary-scientifc paradigm-shift
la Kuhn was that, despite its weaknesses, the changes it could potentially
bring about were changes from without, in the sense that it broke with
neoclassical economics in important and radical ways. Firstly, he got rid of
the individualistic, utilitarian overtones of neoclassical economics as well as
the representative individual. Secondly, he denounced the self-equilibrating
tendency of the economy through the concepts of defcient demand and
unemployment equilibrium. Tird, he placed emphasis on the rle of systemic
uncertainty. Tese are certainly radical innovations. But did they revolutionise
economics?
Although Keyness work did have a signifcant efect policy-wise, at least for
the period 194570, its revolutionary efects on economic science in the
longer run are more questionable, and certainly limited. As far as economic
policy is concerned, Keyness new ideas did gain considerable currency after
World-War Two. Te Beveridge Report of 1942 in Great Britain and the
15. Bernanke 2004.
Employment Act of 1946 in the United States provided blueprints for
government involvement in the macroeconomy along Keynesian lines.
16
For
a couple of decades after the publication of the General Teory, Keynesian
economics was considered work at the edge.
17
Even then, however, Keynesian
economics was already something diferent from Keyness own economics. In
the longer term, however, and contrary to conventional wisdom, the impact
of Keyness economics on economic theory has been even more limited,
especially in relation to Keyness own methodology and theoretical frame.
For, just after Keyness book appeared, another process was set in motion. It
was associated with the increasing mathematisation, axiomatisation and
formalisation of economics which was boosted by the Great Depression and
also, as Mirowski has shown, by the War through the militarisation of scientifc
research it brought about, leading to the development of advanced mathematical
tools, what later became known as operations-research, but also artifcial
intelligence and information-theory. Tese were then applied to economics,
leading to a new economic methodology.
18
Deduction and mathematical
modelling gradually gained the upper hand at the expense of other modes of
analysis and reasoning.
Tis process of formalisation and mathematisation has as a prerequisite the,
at least implicit, if putative, excision of the social and the historical element
from economic theorising, as manifested in the transition from political
economy to economics, leading to an almost brand-new scientifc body totally
detached from its historical and social setting. In other words, the aim was the
construction of a universally-valid theoretical corpus irrespective of the social
and the historical. Nowhere is this detachment more apparent than in the
tendency of the fnancial sector nowadays to hire physics- and mathematics-
graduates, totally innocent of the actual workings of the economy, what the
Wall Street Journal reporter Scott Patterson has called in his recent book the
quants, where he describes how the new breed of math whizzes conquered
Wall Street and nearly destroyed it.
19
As Greenspan himself has said in his
testimony in front of the US-Congress a month after the fnancial crash of
September 2008,
it was the failure to properly price such risky assets that precipitated the crisis. In
recent decades, a vast risk management and pricing system has evolved, combining
the best insights of mathematicians and fnance experts supported by major
advances in computer and communications technology. . . . Tis modern risk
16. Hoover 2003, p. 412.
17. Colander, Holt and Rosser, Jr. 2004, p. 17.
18. Mirowski 2002; Boland 2006; Rizvi 2001, p. 217.
19. Patterson 2010.
management paradigm held sway for decades. Te whole intellectual edifce
collapsed in the summer of last year.
20
Tis process of formalisation has created a whole generation of so-called idiot
savants, scientists with excellent technical skills but without true knowledge of
the functioning of the economy. As Taleb puts it, these scholars resemble
Lockes defnition of a madman: someone reasoning correctly from erroneous
premises .
21
Tis problem was raised dramatically in a study by Klamer and
Colander of the fve most-distinguished doctoral programmes in economics in
American universities, based upon questionnaires given to Ph.D.-candidates
to answer, and interviews with them. One of the conclusions of the research is
stunning. Of those questioned, only 3.4 per cent thought that knowledge
about the real economy was very important for success in the doctorate-
programme, while 57 per cent thought that excellence in mathematics to be
very important. In other words, the students thought that knowledge of
techniques and not of the real economy was the basic prerequisite for success
in their doctorate-programme.
22
Te sickness of modern economics has been the subject of increasing attack
by a series of leading mainstream-economists from before the crisis. Even
Milton Friedman deplored the way in which, economics has become
increasingly an arcane branch of mathematics rather than dealing with
economic problems.
23
Similarly Buiter, writing after the crisis, talks about the
unfortunate uselessness of most state of the art academic monetary
economics,
24
and, for Paul Krugman, the economics profession went astray
because economists, as a group, mistook beauty, clad in impressive looking
mathematics, for truth. . . . Te central cause of the professions failure was the
desire for an all-encompassing, intellectually elegant approach that also gave
economists a chance to show of their mathematical prowess.
25
What is amazing is that these last words come from one of the main
practitioners of the economics he is criticising and after he had himself been
amply rewarded with a Nobel Prize for this. What is even more amazing is that
Krugman had already tried to make a mockery of this fatal tendency in
economics early on in 1978 when he wrote a sarcastic article entitled Te
Teory of Interstellar Trade. In his abstract we read:
20. Greenspan 2008.
21. Taleb 2007, p. 283.
22. Klamer and Colander 1990.
23. Friedman 1999, p. 137.
24. Buiter 2009.
25. Krugman 2009, pp. 534.
Tis paper extends interplanetary trade theory to an interstellar setting. It is
chiefy concerned with the following question: how should interest charges on
goods in transit be computed when the goods travel at close to the speed of light?
Tis is a problem because the time taken in transit will appear less to an observer
travelling with the goods than to a stationary observer. A solution is derived from
economic theory, and two useless but true theorems are proved.
26
Useless but true: in these three words of Krugman can be found what is
essentially wrong with modern economics: it is all about theoretical exercises,
mostly taking a mathematical form, which may be valid mathematically,
although the analytical robustness of some of these models is also questionable,
but useless in any other sense and empty of any practical relevance. Tis is the
problem of formalism in economics, the triumph of form over substance.
27
Te seeds of the appearance and further development of this tendency
within economic science go back to the marginalist revolution. Te explicit
attempt since then has been to transform economics into a rigorous science
on a par with positive sciences and devoid of any normative statements
or value-judgments. Tis was done partly by borrowing tools and concepts
such as equilibrium and optimisation from the physical sciences, particularly,
to begin with, from static mechanics, and then subsequently from
thermodynamics. Te pure science of economics, says Walras, one of the
protagonists of the marginalist revolution, is a science that resembles
the physico-mathematical sciences in every respect.
28
And, what is more, the
scholar has the right to pursue science for its own sake, equating geometry
with economics in this respect.
29
Such formalism did not become dominant within the profession until after
the Second World-War. It was given a new impetus by the works of Hickss
Value and Capital, and Samuelsons Foundations of Economic Analysis,
culminating in the mathematical proof for the existence of equilibrium by
Arrow and Debreu in 1954.
30
Since then, the Samuelsonian tool of constrained
optimisation borrowed from thermodynamics became the symbol of the new
26. Krugman 1978.
27. Blaug 1999; Blaug 2003.
28. Walras 1954, pp. 712.
29. As Mirowski (quoted in Rizvi 2001, p. 215) puts it, In appropriating the formalisms of
mid-nineteenth-century energy physics and adapting them to the language of utility and prices,
the progenitors and their epigones adopted a certain world view, one that had to stress
the extreme near identity of physics and economics. Veering so close to becoming subsumed in
pure identity could be attractive only to a personality who was convinced of a far-reaching unity
of science, one necessarily founded on the bedrock of natural law external to all human
behaviour.
30. Hicks 1939; Samuelson 1947; Arrow and Debreu 1954.
formalist era, accompanied by Americanisation and standardisation of the
discipline, a truly Fordist intellectualism in which you can have any economics
as long as it is neoclassical. Concomitant with this formalisation-process is
a newly-acquired self-confdence of the practitioners of this method which
was translated into a superiority-syndrome vis--vis the other social sciences,
as exemplifed by the process of Gary-Becker-style Chicago economics-
imperialism, or, in other words, the process of colonisation of other social
sciences using the so-called economic method to analyse all social phenomena.
31

Tis process of formalisation and homogenisation of economics reached a
climax approaching near-total dominance in the 1970s. Tis was also the time
that heterodox approaches in economics made a more dynamic appearance
and heterodox institutions proliferated following the radicalisation brought
about by the Vietnam War, and the developments inside the profession.
32

Following the formalist revolution of the 1950s, only those aspects of
Keyness thought which could be modelled were incorporated into what came
to be known as the neoclassical synthesis. Te subsumption of Keyness
thought to the formalist revolution, starting with Hickss IS/LM-formulation
33

just one year after the publication of Keyness General Teory, meant that all
novel and radical aspects of his thought were either left out altogether or else
reformulated in mathematical or diagrammatical form, beyond recognition.
Tis gave rise to what has variously been called bastard Keynesianism by Joan
Robinson, or hydraulic Keynesianism.
34
As Skidelsky puts it, Keynes imposed
himself on the profession by a series of profound insights into human behaviour
which ftted the turbulence of his times. But these were never could never
be properly integrated into the core of the discipline, which expelled them
as soon as it conveniently could.
35
Substantively, then, Keynes could be
thought of as the frst major victim of the formalist revolution. So much so,
that the one Keynesian school which adhered most closely to Keyness own
core-principles and concepts is nowadays classifed as heterodox and sufers
the same fate from mainstream-economists as any other heterodox school.
Tis process of subsumption, which culminated in the microfoundations
of macroeconomics project, coupled with the monetarist and, later on,
new classical counter-revolution in macroeconomics, propelled by the
stagfation-crisis of the 1970s, led within macroeconomics to the elimination
of Keyness economics and its transformation into the new Keynesianism of
31. Fine and Milonakis 2009.
32. Backhouse 2000, p. 151; Lee 2009.
33. Hicks 1967.
34. Coddington 1983.
35. Skidelsky 2009, p. 55.
microeconomic market-imperfections, and eventually to the almost-total
eclipse of macroeconomics as a distinct feld vis--vis microeconomics.
36
Te
fate of Keynesianism was described vividly and ironically by Nobel laureate
Robert Lucas in 1980, when he remarked that One cannot fnd good, over-
forty economists who identify themselves or their work as Keynesian. . . . At
research seminars, people dont take Keynesian theorising seriously any more;
the audience starts to whisper and giggle to one another.
37
Tis is the
economics of the neoliberal era of Reagan and Tatcher, based on the twin
assumptions of rational expectations and the efcient-market hypothesis. It
signifes a return to the pre-Keynes era, the virtual world of the economists
imagination, inhabited by perfectly rational and egotistic human beings,
forming rational expectations about the future and exchanging their products
in perfectly competitive markets, a virtual world marred only by random
shocks and, of course, far-from-random government.
Te same fate as Keynesianism faced any other attempt at providing a
diferent mode of analysis, so much so that, in our own day, anything that
cannot be modelled is not considered as economics and left out of consideration
altogether. Tis total lack of tolerance is another basic attribute of present-day
economics, alongside a frighteningly intellectually-barbaric treatment of the
history of economic thought and of methodology within the discipline. Not
only is mainstream-neoclassical economics intolerant of alternatives. It exhibits
the same indiference towards any criticism, even internal criticisms that derive
from within its own ranks. Some devastating such criticisms have been, for
example, the so-called Cambridge Capital-Controversy of the 1960s, which
brought into question the validity of the concept of aggregate capital; and the
Sonnenschein-Mantel-Debreu (SMD for short) impossibility-theorem developed
in the 1970s, which showed that aggregate excess-demands were arbitrary and
that there can be no determinateness of general equilibrium. All this led
Christopher Bliss to declare that the near emptiness of general equilibrium
theory is a theorem of the theory.
38
What was the result? Mainstream-
economics simply carried on regardless, as if these critiques had never taken
place. As Rizvi puts it, very few troublesome parts of the theory have been
thoroughly eliminated: social welfare functions, well-behaved aggregate
demands, and Nash equilibria remain prominent in the textbooks.
39
Tus,
whilst orthodoxy prides itself on its rigour and as a science, in part in light of
36. Rizvi 2003, p. 384.
37. Quoted in Kurz 2010, p. 13.
38. Quoted in Rizvi 2003, p. 385.
39. Rivzi 2003, p. 390.
its commitment to mathematical reasoning, that reasoning always takes second
place if its results are unpalatable.
Other causes of mainstream-arrogance and intransigence are the institutional
monopoly enjoyed by the lite of the profession over the positions in top
universities and academic journals, attracting the lions share of funding,
occupying central public positions and being awarded 90 per cent of Nobel
prizes in economics. In this respect, this years award of the Nobel prize is a
scandal. As Varoufakis puts it,
Imagine a world ravaged by a plague, and suppose that the years Nobel Prize for
Medicine is awarded to researchers whose whole career is based on the assumption
that plagues are impossible. Te world would have been outraged. Tat is precisely
how we should feel about yesterdays announcement of the recipients of the 2010
Nobel Prize. . . . Interestingly, these three fne mathematical economists have one
thing in common, other than their work on labor markets: in their voluminous
theoretical output on unemployment and the like, there is not a smidgeon of a
hint, of a mention, of an economic crisis which may boost unemployment in
every sector and for all types of workers. Not one!
40
To this should be added the direct vested interests of many academics, especially
in the fnancial sector, a feature that was exacerbated during the
fnancialisation-era. Philip Mirowski asks:
41

Does anyone care that Martin Feldstein was on the board of AIG in the run up
to its disastrous failure? Or that Paul Krugman once consulted for Enron (and got
radicalised after the New York Times made him foreswear such perks)? Is anyone
curious about the tangled history of funding and organisation of the Chicago
School of Economics? Does anyone care that Larry Summers worked for
numerous hedge funds and investment frms before they had to be rescued by an
administration that included . . . Larry Summers?
All of this Charles Ferguson highlights as the convergence of academic
economics, Wall Street and political power, not least through his stunning
flm on the fnancial crisis and economists.
42
Neoliberalism, fnancialisation
40. Varoufakis 2010. One of the laureates, Christopher Pissarides of the London School of
Economics, just a few days before the award was announced, in an article with Azariadis and
Ioannides on the Greek economy advocated the sale of all public enterprises to the private sector
and the reduction of the number of public employees by 400,000 by the year 2015; see Azariadis,
Ioannides and Pissarides 2010.
41. Mirowski 2010, p. 39.
42. Ferguson 2010, p. 3. A recent study has shown that, out of nineteen economists examined
who have played prominent and infuential roles in recent public policy debates, . . . 13 . . . had
private fnancial afliations indicative of some possible confict of interest, but only 5 had clearly
and the growing power and infuence of the fnancial sector that these have
brought about all played an important rle in the latest developments in
economic science. Deep down, however, it is the very nature of the system and
the ideological need for its justifcation that lies behind this type of theory. As
Georg Lukcs has said, [t]he capitalist process of rationalisation based on
private economic calculation requires that every manifestation of life shall
exhibit [an] interaction between details which are subject to laws and a totality
ruled by chance. It presupposes a society so structured.
43
Hence the
conceptualisation of the current crisis as a chance-occurrence, a black swan,
that could not be predicted and, once there, cannot be explained other than as
a chance-occurrence intractable by scientifc knowledge. In short, the interests
of the capitalist system, and of fnance in particular, not only dominate
economic discourse, but the latter also dysfunctionally sufers the orthodoxy
that it deserves, the mindless pursuit of fnancial stability on the basis of
models of both the more-or-less-perfect-market hypothesis and of the more-
or-less perfectly-rational individual.
So what are the chances that this time it will be diferent as far as the impact
of the global crisis on economic science is concerned? Te picture we have
drawn so far of the state of our science does not leave much room for optimism.
Despite some heavy criticism coming mostly, but not exclusively, from the
Keynesian and neo-Keynesian camps (including Krugman, Stiglitz, and
Skidelsky, but also the Chicago economist Richard Posner), the reactions so
far do not lend themselves to much optimism. For Chicago economists like
Eugene Fama (the main modern exponent of efcient-market theory) and
John Cochrane, it is business as usual. As Fama puts it,
We dont know what causes recessions. Now Im not a macroeconomist so I dont
feel bad about that. (Laughs) Weve never known. . . . Economics is not very good
at explaining swings in economic activity.
44
Fama and mainstream-economics, then, cannot explain crises, so we might
just as well pretend that they do not exist. If this is not a direct confession of
the total intellectual bankruptcy of Chicago-style mainstream-economics,
then what is? And for Cochrane, talking after the crisis, rational expectations
and efcient markets theories are both consistent with big price crashes. . . .
and publicly revealed their afliations (Epstein and Carrick-Hagenbath 2010). Tis study has
led 300 economists to sign a letter (written by Epstein and Carrick-Hagenbath) to the President
of the American Economic Association, asking for a new professional code of ethics for
economists (cf. Epstein and Carrick-Hagenbath 2011).
43. Lukcs 1990, quoted in Choonara 2010.
44. Cassidy 2010b.
What [the] efcient markets [hypothesis] says is that prices today contain the
available information about the future.
45
So all the information about the
future is available and yet crises are not just unpredictable from within this
model, they simply cannot happen, just like giant waves within the linear
models of wave-formation.
For others, at least willing to recognise that something more by way of
explanation is required, we need better models that would either take into
account market-imperfections like the New Keynesians,
46
or market-dynamics
through the use of a diferent type of mathematics or other sophisticated
models coming from engineering, computing or physics,
47
much like what
happened in wave-theory and oceanography following the discovery of giant
waves and the adoption of models from quantum-mechanics. Tus, for Solow,
there are other traditions in economics which include various market frictions
and imperfections like rigid prices and wages, asymmetries of information,
time lags, and so on which provide better ways of doing macroeconomics.
48
A more genuine return to Keynes is the third escape-route. Tis is done
mostly by emphasising some aspect of Keyness economics which has been
totally forgotten by mainstream-economics. Te aspect most commonly
chosen is radical uncertainty and the animal-spirits of capitalism associated
with it.
49
Tis, especially in the case of Akerlof and Shiller, is associated with
the behavioural school in economics, which seeks the explanation of economic
phenomena by delving deeper into the psyche of individuals. Te emphasis
here is laid on the psychological and even irrational factors infuencing
human behaviour, such as confdence, fairness, corruption, money-illusion,
etc., which are seen as the ultimate drivers of the economy.
50
Of these factors,
only the rle of confdence in the economy has anything to do with Keyness
work. Te usual story is that uncertainty causes sharp changes in expectations
and confdence, which cause major changes in share-prices, bringing about
sharp alterations in consumption, investment and employment. What is not
explained, however, is the source of this uncertainty and the epistemological
foundations of such irrational behaviour, both of which must be sought in
45. Cassidy 2010c.
46. Stiglitz 2009; Solow 2010.
47. Colander, Fllmer, Haas, Goldberg, Juselius, Kirman, Lux and Sloth 2009; Keen 2009,
p. 6.
48. Solow 2010. It is important to note here that Solow does not see microeconomics as the
foundation of macroeconomics, but just as a way of providing stories with which to inform
macroeconomics.
49. Skidelsky 2009; Akerlof and Shiller 2009.
50. Akerlof and Shiller 2009, pp. viiiix.
the structural characteristics of the capitalist system which, however, are
systematically and suspiciously absent from all of these accounts.
Behavioural economics has been one of the main new research-projects
within mainstream-economics in recent years. Other new research-programmes
include (classical, behavioural, evolutionary) game-theory, experimental
economics, evolutionary economics, agent-based complexity-theory and
neuroeconomics. Te appearance of these new research-programmes has led
commentators such as Colander and Davis to talk about the death of
neoclassical economics and the transition from the era of neoclassical
dominance to mainstream pluralism.
51
Tis transition was made possible,
according to Colander, Holt and Rosser,
52
by new technology and especially
developments in computing which allowed for the use of more complex
models. And, although it was brought about by cumulative-evolutionary
changes rather than a sudden paradigm-shift, the end-result will be no less
revolutionary in its efects.
One common element in these new research-programmes is that they
all originate from felds outside of economics, such as mathematics (game-
theory), psychology (behavioural economics), neo-Darwinian biology
(evolutionary economics), neuroscience (neuroeconomics), while the
experimental method has long been applied in the natural and physical
sciences. Tis process of importation of methods and concepts from other
sciences has been called inverse imperialism, and has led Davis to the
conclusion that they represent genuinely diferent approaches.
53
But does this
amount to true scientifc pluralism? Te answer is no. Te reason is that,
despite their diferent outlooks, all of these approaches have two things in
common: frst, their adherence to axiomatic model-building as their preferred
methodological approach and, second, their focus on the individual.
54
Indeed
Colander, following Solow and Niehans, defnes modern or, as he calls it,
New-Millennium Economics, not in terms of its content but its method: the
modeling approach to problems, he says, is the central problem of modern
economics.
55
All of the new research-programmes mentioned above then share a common
language, so to speak, which is none other than that of formalism. Te
formalist revolution, then, reigns supreme, even in this supposedly post-
neoclassical, mainstream-pluralist era, and, other diferences apart, keeps
51. Colander 2000 (reprinted in Colander 2001); Davis 2006.
53. Davis 2006, p. 9.
54. Colander, Holt and Rosser, Jr. 2004, pp. 1011, 17; Rizvi 2003, pp. 3901.
55. Colander 2000, pp. 1378; Solow 1997; Niehans 1990.
itself in line with it. Indicative of this is that, in their book, Te Changing Face
of Economics, Colander et al. have interviewed eleven cutting-edge economists,
as they call them, coming mostly from the ranks of the inside-the-mainstream
heterodoxy-group.
56
Nine of them do highly technical model-building work.
Generally, this is true for both pure-theory models and applied-policy models.
Te old distinction between the science of economics (theoretical economics)
and the art of economics (applied economics) has disappeared under the
impact of the formalist dmodelling method. Indeed, modern economics is
defned by little else. Tis also applies to new felds of research such as
evolutionary game-theory and experimental economics which, in other
respects, may deviate from neoclassical economics, but not from the use of
highly technical model-building.
57
What modern orthodox economists fail to understand is that what is at
fault is not some specifc assumption or characteristic of the models used, but
the method of deductive-mathematical modelling itself. In addition to their
universalistic nature and lack of historical specifcity, the method of
mathematical-deductive reasoning, as Lawson has shown, presupposes, frst, a
closed system in which event-regularities or correlations, that connect events
standing in causal sequence, in order to deduce that this event happened
because of, or followed from, that event
58
occur, and, second, the isolated-
individual agent.
59
Because of the erroneous character of both of these
presuppositions as far as social and economic phenomena are concerned,
mathematical modelling is inappropriate as a leading, let alone an exclusive
tool for the analysis of such phenomena. To axiomatic model-building should
also be added another attribute which most (but not all) of these new
approaches share with neoclassical economics: methodological individualism
and the emphasis on the individual.
60

Where does all this leave the issue of pluralism? It means that all approaches
and schools that do not accept technical model-building as their method of
analysis simply do not get a hearing and are left out of the picture altogether,
being considered unacceptable as scholarly economics. As Colander et al.
themselves admit, the lite of the profession is open-minded to new ideas, but
closed-minded to alternative methods and approaches. If its not modeled, its
56. Colander, Holt and Rosser, Jr. 2004.
57. Colander, Holt and Rosser, Jr. 2004; Rizvi 2003, pp. 3901. Even experimental
economics, which is more inductive in nature, is nearly always testing a mathematical model
(Ibid.).
58. Lawson 2009, p. 763.
59. Lawson 2003, Chapter 2; Lawson 2009.
60. Te exceptions here are evolutionary economics and agent-based complexity-economics.
not economics.
61
Tis, however, is not true scientifc pluralism, a genuinely
pluralistic environment, in Daviss words,
62
but rather what might be called
conditional or pseudo- pluralism and, as such, is no pluralism at all.
Be that as it may, this transition has brought with it a move away from the
holy trinity of neoclassical economics rationality, efciency and equilibrium
to a more eclectic holy trinity purposeful behaviour, enlightened self-interest
and multiple equilibria.
63
According to new fndings coming from experimental
and behavioural economics, the famous homo economicus of the economists
imagination is pass. It has been shown experimentally and theoretically that
individual behaviour is subject to cognitive and emotional constraints, and
new, pro-social elements with regard to human behaviour, such as fairness,
reciprocity, altruism, etc., have forcefully entered the picture, making
individuals more humane and less like the robotic entities implied by homo
economicus.
64
Probably the most important common denominator of these new fndings
is that there is no such thing as a representative individual, and that individuals
are moulded by their social environment in decisive ways. One important
instance is a cross-cultural study, where the researchers found from their
behavioural model that people failed to act egotistically to maximise their
individual utility in all of the ffteen diferent small-scale societies examined.
According to the results of the experiment, peoples behaviour refected their
cultural milieu.
65
Even more astonishing are the results from some recent
experiments in brain-science, more specifcally in neuroplastic research,
according to which the social milieu infuences not just peoples perceptions
(i.e the human mind), but the brain itself.
66
All of these fndings point in one
direction: the social must take precedence over the individual, and the macro-
level over the micro-level. As Heilbroner and Milberg put it, the recognition
of the inextricably social roots of all social behaviour leads to the view that
macrofoundations must precede microbehaviour, not the other way around.
67

Instead, we fnd that economics has either projected its preferred forms of
microbehaviour across the totality of social science and phenomena (as with
economics-imperialism) or, as with the new feld of neuroeconomics, delved
62. Davis 2006, p. 9.
64. Frey and Benz 2004, pp. 6875.
65. Henrich, Boyd, Bowles, Camerer, Fehr, Gintis and McElreath 2001.
66. Doidge 2007, pp. 287311.
67. Heilbroner and Milberg 1995, p. 8.
into the brain itself to discover the key to human behaviour beyond the pursuit
of self-interest.
Why is this, and what is diferent from the 1930s when something did
happen in the form of the impact of Keyness work on economic policy and,
to a lesser extent, on economic theory? Te diferences lie mostly in the
prevailing socio-economic conditions, and the situation within the profession.
In the 1930s, when the West was plunged into the vagaries of the Great
Depression, the Soviet Union was a rapidly expanding economy. So the
Keynesian call for greater government-intervention in the economy ftted the
needs for pragmatism and of the urgent political imperative to counter
communism.
68
Following the collapse of the Central- and Eastern-European
economies and the triumph of neoliberalism in the West, coupled with
the crisis of social movements, no such imperative exists any more. And,
within the profession, the interwar-period was characterised by a true scientifc
pluralism of methods and approaches. Although neoclassicism was already
ascendant, it had not yet dominated the profession, with American
institutionalism being the dominant school in the United States. Economics
was a much more discursive and much less technique-based discipline.
69
In sum, as far as the possible efects of the crisis on economic science are
concerned, the emerging picture is one in which the response to crisis ranges
from business as usual, to pleas for better models by changing some underlying
assumption or moving to more-dynamic ones, to delving deeper into the
human psyche. All in all, as Steve Keen puts it, although the irresistible
force of the Global Financial Crisis is indeed immense, so too is the inertia of
the immovable object of economic belief . Te twin pillars of this immovable
object are, frstly, the focus on the individual, whether rational or otherwise,
and the model-building approach. Te only hope for a truly alternative theory
lies with political economy that breaks away from both of these pillars. So
what does the future hold for political economy?
70
4. . . . to political economy
As we have seen already, one reaction within economics from those at least
willing to recognise the need for something more by way of explanation, is
only to draw upon existing models of market-imperfections newly applied.
And the leading representative in this respect is Joseph Stiglitz, by virtue of
68. Skidelsky 2009, p. 103.
69. Hodgson 2009, p. 1211.
70. Keen 2009, p. 3.
both academic and non-academic rles and his intellectual integrity. He
was sacked for his views from the World Bank whilst they continued to be
used for legitimising purposes (whilst policy, as opposed to scholarship
and ideology, hardens on Washington-consensus practice as if his trademark
post-Washington consensus never existed).
71
We leave aside, though, Stiglitzs
frequent misrepresentation of the history of economic thought, which
infuriates both those more radical and conservative alike, for everyone from
Adam Smith through Keynes and Hayek are forcibly ftted into his market-,
as informational, imperfections framework. Yet, in his presidential address to
the Eastern Economic Association, he advises that
Tere will be political battles ahead. Special interests will try to block many of the
reforms. Te future of our nation will depend in no small measure on the outcome
of those battles.
72

Tis is a vivid invitation to analyse special interests, power and confict. Indeed,
Stiglitz claims to understand the unbridled enthusiasm of special interests,
which found the arguments for deregulation proft enhancing. Yet, he
immediately continues, I am not so clear what motivated so many economists.
73

What is, however, clear is what he would have motivate their understanding,
namely attention to irrationality and intellectual inconsistency, highly
correlated movements in house prices, fat-tailed distributions, new
asymmetries of information, perverse incentives, banks too big to fail,
74

inducing the conclusion that our fnancial system failed in its core missions
allocating capital and managing risk,
75
leading to the previously cited
conclusion that [t]he left now understands markets and the role markets
should and can play in the economy . . . the new left is trying to make markets
work. Tis is not the stuf of political economy, other than as a point of
departure. And it might be observed that the balance of asymmetric information
within economics is all on the side of political and heterodox economists who
must command the orthodoxy, but not vice-versa. But power within the
discipline is totally the other way around. In short, vested interests and
ideology are not matters of asymmetric information and market-imperfections,
whether in the economy or within economics.
71. See Bayliss, Fine and van Waeyenberge (eds.) 2011, forthcoming.
72. Stiglitz 2009, p. 281.
73. Stiglitz 2009, p. 293.
74. All citations within Stiglitz 2009, p. 294.
75. Stiglitz 2009, p. 296.
It is, with apologies to Jane Austen, or indeed, her ghost-writer,
76
a truth
universally acknowledged that a single economist in possession of a good
theory of market-imperfections must be in want of a crisis. But not for us, and
we respond to such pride and prejudice with three conclusions. Firstly,
whatever their prominence, the infuence of the mainstream-dissidents on
policy has been negligible. Stiglitz, the most energetic, has been totally
inefective in practice with, as remarked, his own closure between theory and
reality drawn towards observing the power of (fnancial) vested interests and
ideologies as decisive. We agree, but this begs the question of why his work
ends at this point rather than beginning there, as opposed to imperfectly
informed and coordinated individuals. Second, when the time does come for
more progressive closure, itself contingent upon the balance and strength of
forces, movements and organisations, such dissident economists are liable to
prove a constraining infuence. Tird, this suggests that the main task for
political economy today is to keep alternative traditions to the mainstream
alive, for their own sake, but also in anticipation of the deeper understandings
that will be required once too much fnance in the world is recognised
practically as a problem of capitalism and not just of fnance itself.
Given the bleak prospects for political economy within economics-science,
it is apposite to inquire whether heterodox economics and political economy
might prosper within the other social sciences, as opposed to within economics
itself. And we would emphasise that economics and economics-imperialism
have not gone uncontested across the social sciences. And two features have
marked the social sciences, other than economics, across the last two decades.
One is the retreat from the extremes of postmodernism the preoccupation
with the subjective, the inventive, the self-constructing and de-constructed
individual, the focus on the meaning and interpretation of the world as
opposed to, or even in denial of, its material properties. In the frst decades of
neoliberalism, postmodernism had a remarkable parallel existence with
mainstream-economics. Tey were totally incompatible with one another. We
have the optimising individual with given preferences over given goods, of
mainstream-economics; but the subjective, inventive, preoccupation with
meaning for postmodernism. We welcome this retreat from the extremes of
postmodernism, not because of its more-than-welcome critical examination of
concepts, but because of the need to attach such endeavours to the material
realities of contemporary capitalism.
77
76. See BBC News 2010.
77. For this, and what follows in the context of a critique of social capital, see Fine 2010.
But the second feature around the social sciences in the last two decades has
been the retreat from the extremes of neoliberalism although this is better
seen as the second phase of neoliberalism rather than as its demise. Making
imperfect markets work, and reforming institutions are its intellectual marker,
especially within economics, the better to make globalisation work. In contrast,
across the other social sciences, the reaction against the extremes of neoliberalism
in-and-of-itself as well as an agenda-setting device is well-illustrated by the rise
of globalisation as the most signifcant of concepts across the social sciences as
a focus for gaining a critical handle on the realities of contemporary capitalism.
Its literature, even the word itself, did not exist before 1990. And it was a
neoliberal idea: that the state was withering away, and that this is a good thing.
Subsequently, the academic literature has taken a diferent view. It has devoted
attention to specifying contemporary capitalism as a world-system; it has
acknowledged the continuing importance of the state; and it has not denied
globalisation, but argued that it is complex, with a diversity of outcomes across
place, time and aspect. So the rise of globalisation as a concept has demonstrated
the reaction against neoliberalism within the social sciences by rejecting
the original notion, at least, of the reality and desirability of the withering
away of the state. After all, neoliberalism has always been about the interventions
of the state to promote the interests of private capital, especially in its
internationalisation (with fnancialisation to the fore in the current period).
So there are reasons to be cheerful around the prospects for political
economy across the social sciences, although the exact content by topic and
discipline is variegated. But what of the stimulus of external events as a
potential source of brighter prospects for heterodox political economy? We
do not have the external pressures for progressive policy and corresponding
scholarship that arose with the Keynesian period, and, until the balance
of forces are more conducive to alternative forces, the best that can be hoped
for, as far as the economics-profession is concerned, is a move away from the
monolithic approach to economic science characteristic of mainstream-
economics, which fetishises model-building, towards a pluralism of methods
and approaches, and away from atomistic approaches towards more-systemic,
aggregative, dynamic, historically-specifc and socially-embedded types of
analysis of capitalism.
Institutionally, heterodox economists and political economists can explore
ways of organising themselves in pursuit of this prime objective. In Europe,
we already have enough Heterodox Political Economy Associations, including
the European Association of Evolutionary Political Economy (EAEPE), the
Association for Heterodox Economics (AHE), the International Initiative for
Promoting Political Economy (IIPPE), the Post-Keynesian group and the
EuroMemorandum group. At the same time, the Heterodox Economics
Newsletter has more than 5,000 subscribers, while Real-World Economics
Review, a heterodox journal, has about 11,500 subscribers compared with the
17,000 members of the American Economic Association. Perhaps it is time to
think big and think global. Recently there has been a proposal by Edward
Fullbrook, editor of Real-World Economics Review, to form a World-Association
of Heterodox Economics along the lines of the American Economic
Association, with the parallel launching of three international journals and
one or more new prototype introductory-level books. In terms of numbers, we
could match the mainstream. Other than that, however, we only have the
power of ideas against their massive resources, their institutional monopoly
over positions in lite-institutions within academia, and their excessive political
power and involvement in infuential policy-making bodies and institutions.
Tus, for such proposals to have any hope of success, they need to be backed
by a student-movement and academic teachers movement for the reform in
economics in line with the post-autistic movement of economics-students
that originated in France at the turn of the millennium.
78
It will come as no surprise that our own view is that the problems of
methodology, realism, and so on that ought to plague the mainstream, as well
as incorporating the historical specifcity of capitalism, can only be adequately
addressed through Marxs value-theory as a starting-point. But this is itself
enriched through dialogue with other schools of thought and approaches,
with empirical evidence, and even by taking the mainstream as a point of
departure. For it is false to see the relationship between political economy and
(mainstream-) economics as one-dimensional with, for illustrative purposes,
general equilibrium at one base extreme and Marxism at the heavenly other
extreme. As it were, get value-theory, the transformation-problem, or the law
of the tendency of the rate of proft to fall correct and all else will fall into
place. We do not think so, important though these are in and of themselves
and in framing more complex and concrete analysis.
Nor is it even adequate to see the relationship between political economy
and economics as multidimensional, with monotonic improvement as we
move along the separate elements in a putatively progressive direction to
incorporate the real, the social, the historical, etc. For the relationship across
these dimensions is fractured, fuid and evolving both intellectually and in
relation to the real world, activism, ideology and policy-debates. Tis renders
simple dichotomies between political economy and the mainstream impossible
to pin down, with blurred boundaries between the two even if a huge
78. More on these organisations may be found by consulting Google.
amorphous mass of orthodoxy defnitely lies on the wrong side of the borders.
But, by the same token, there is plenty of heterodoxy, at least in principle, that
straddles the border and is located on the side other than orthodoxy, so
extensive is the potential even for marginal but destructive deviations from it.
Tis suggests the need for a unity of purpose in criticising the mainstream and
in posing alternatives. For, if there is one thing as counterproductive as a
mainstream-economist, it is a political economist who knows he or she is right
and everybody else is wrong. So let those committed to political economy
learn from one another through friendly fre rather than perishing by it. For
yesterdays philosophers are todays economists. As Marx observed of them,
paraphrasing for modern times:
79
Hitherto economists have had the solution of all riddles lying in their mathematical
models, and the stupid, exoteric world of fnance had only to provide the data for
the roast pigeons of absolute-econometric knowledge and vast fortunes to fy into
it. Now economics has become mundane, and the most striking proof of this is
that economics itself has been drawn into the torment of the crisis, not only
externally but also internally. But, if constructing the future and settling
everything for all times are not our afair, it is all the more clear what we have to
accomplish at present: I am referring to ruthless criticism of all that exists, ruthless
both in the sense of not being afraid of the results it arrives at and in the sense of
being just as little afraid of confict with the powers that be.
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