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In defence of economics

The juvenile dumbness of stating that there is no such thing as economic reality is a type of stupidity hard to overstate

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The "dismal science"?
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John Phelan
On 11 December 2012 09:57

Economics has always had a dodgy reputation. 160 years ago Thomas Carlyle famously branded it “the dismal science” when he surveyed the gloomy predictions offered by the classical economists. More recently it has been said that economists are heartless calculators who ‘know the price of everything and the value of nothing’. And with economic turmoil raging economics and economists are in the cross hairs again.

In a new book called Economists and the Powerful, Norbert Häring and Niall Douglas argue that modern ‘neo-liberal’ economics has gained its perceived primacy not from any great validity as a theory but because, as a doctrine which justifies the increasing wealth of the rich, its propagation has been well funded by those same rich folks. To borrow from EH Carr, study the economist before you begin to study the facts.

Like so much else surrounding economics this is really just an old debate in new clothes. The classical school of Smith, Malthus, Ricardo, and Mill built on the foundation of the labour theory of value and economics of contending classes, diminishing returns, and stagnation. Karl Marx simply took all this and worked it through to its logical conclusion. Paul Samuelson was correct in saying that “From the viewpoint of pure economic theory, Karl Marx can be regarded as a minor post-Ricardian.”

But the classical economists were wrong on this and so was the theory Marx derived from them. Separately and almost simultaneously in 1871 William Stanley Jevons and Carl Menger developed the marginal theory of value, a subjective theory which devastated Marxist economics almost in its crib. The Marginal revolution and the neo-classical economics it spawned opened up the vista of a growing economic prosperity which would enrich all, a prediction which has largely been borne out. Marxist economists, from 1971 to the present day, have responded by branding neo-classical economics a pseudo-science designed by lackeys of the rich to justify their increasing wealth.

What lies behind the current outbreak of economics bashing is the continuing brutal fallout of the credit crunch. For years governments across the west have been making extravagant spending commitments without devoting much thought to how they would pay for them. They could get away with it as long as the tax revenues from unsustainable bubbles flowed in. But now they have dried up and we are finally being forced to face up to the fact that our governments will be showering us with far fewer goodies than we had come to expect.

This is a painful prospect but it is what it is. America’s government debt doubling in four years and Britain’s increasing by 60 percent in five years are problems, massive problems. We are not worried about them because mercenary economists in the pay of the Rand Corporation are telling us to be worried about them; we are worried about them because we ought to be. And we are nowhere near as worried as we should be.

What books like Häring and Douglas’s – and a notably dimwitted entry, Don’t Buy It, by a strategic communications consultant called Anat Shenker-Osorio who thinks that debts and deficits will vanish if we stop talking about them – are trying to argue is that there is no such thing as economic reality, that our situation can be simply what we choose it to be. The juvenile dumbness of this wishful non-thinking is hard to overstate. 

John Phelan is a Contributing Editor for The Commentator and a Fellow at the Cobden Centre. He has also written for City AM and Conservative Home and he blogs at Manchester Liberal. Follow him on Twitter @TheBoyPhelan

Read more on: Thomas Carlyle, economics, karl marx, john phelan, Credit Crunch, and global economic crisis
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