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It is extraordinary that the hegemonic economic theory in the world today—neoclassical economics—still lacks an adequate theory of the firm. It beggars belief both because neoclassical economics is the predominant theory that is taught to hundreds of thousands of students every year and used to make sense of the world and formulate policy in countless think thanks […]

The problems surrounding the central institution of capitalism—the corporation—are so widespread and enormous they’ve even provoked concern in sympathetic quarters, such as the Harvard Business School. This past November, Harvard hosted a conference during which participants attempted to grapple with the tensions between Milton Friedman’s theory of the firm—according to which firms can and should only benefit […]

Mainstream economists refer to it as price theory, everyone else value theory. But whatever it’s called, it’s at the center of economists’ differing explanations of what happens in (and alongside) markets. As I see it, price/value theory serves as the framework to explain a wide range of phenomena, from how and for how much commodities […]

  I’ve been over this before. But I continue to be amazed at the ubiquitous, facile references to science, evidence, and facts and the derision that is directed at the proposition that we live in a post-truth world. On topics as diverse as climate change, globalization, and the role of the working-class in electing Donald […]

source* Back when I taught Principles of Microeconomics, I offered a lecture or two on game theory. Given how terrible most textbook presentations are, I used to borrowed heavily from the work of Judith Mehta and Shaun Hargreaves-Heap and Yanis Varoufakis to explain the key assumptions behind and the tensions generated within game theory. Now, Varoufakis is back—in […]

I have often argued—in lectures, talks, and publications—that every economic theory has a utopian dimension. Economists don’t explicitly talk about utopia but, my argument goes, they can’t do what they do without some utopian horizon. The issue of utopia is there, at least in the background, in every area of economics—perhaps especially on the topic […]

Mainstream economics presents quite a spectacle these days. It has no real theory of the firm and, even now, more than nine years after the Great Recession began, its most cherished claim to relevance—the use of large-scale forecasting models of the economy that assume people always behave rationally—is still misleading policymakers. As if that weren’t embarrassing enough, we […]

Yesterday, I explained that the 2016 Nobel Prize in Economics Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel was awarded to Oliver Hart and Bengt Holmstrom because, through their neoclassical version of contract theory, they “proved” that capitalist firms—employers hiring labor to produce commodities in privately owned corporations—were the most natural, efficient way […]

Technically, there is no Nobel Prize in economics. What it is, instead, is the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, which members of the Nobel family and a previous winner (Friedrich von Hayek) have criticized. So, where did the prize come from? As Avner Offer explains, The Nobel prize came […]

It’s the most obvious criticism of mainstream, especially neoclassical, economics. All of the major models and policy proposals of neoclassical economics—from the theory of the firm through the gains from trade to the welfare theorems—are based on the assumption of perfect competition. But, as is clear in the diagram above, if there’s imperfect competition (such as a […]