Posts Tagged ‘ethics’

In this post, I continue the draft of sections of my forthcoming book, “Marxian Economics: An Introduction.” The first five posts (herehereherehere, and here) will serve as the basis for chapter 1, Marxian Economics Today. The text of this post is for Chapter 2, Marxian Economics Versus Mainstream Economics (following on from the previous post).

Mainstream Economics Today

Readers today will be more familiar with contemporary mainstream economics than with the mainstream economics of Marx’s day. So, let’s start there.

Mainstream economics is the predominant approach that is taught in academic courses, applied in government policymaking, and used in media stories about economic ideas and events. Today, what we refer to as mainstream economics is a combination of neoclassical economics and Keynesian economics.

Mainstream economics is a framework of analysis that encompasses both microeconomics and macroeconomics. It also extends far beyond them, to include a wide variety of topics, from labor markets through capitalist instability to globalization.

In this chapter, we’ll look at the basic building blocks of mainstream economic theory, as well as the key criticisms from the perspective of Marxian economic theory. In later chapters, we will take up some of the principal extensions of the theory and the various ways it is challenged by Marxian economists.

Neoclassical Economics

Neoclassical economic theory came first, having emerged simultaneously in the writings of three economists in three different countries: William Stanley Jevons (1835-1882), in England; the French-born Léon Walras (1834-1910) in Switzerland; and Carl Menger (1840-1921) in Austria. Capitalism had already produced and been subsequently transformed by the First Industrial Revolution (the birth of capitalist industry lasting, following Eric Hobsbawm, from the 1780s to the 1840s) and was on the cusp of launching the Second Industrial Revolution (the revolutionizing of capitalist industry, which took place from 1870 to the beginning of World War I), in Europe and the United States.

Separately, but roughly at the same time, Jevons, Walras, and Menger were the major contributors to what we now call the Marginalist Revolution in economics. Their goal was to create a theory of economic value that mimicked the scientific protocols of nineteenth-century physics.

You have probably read about the paradox of diamonds and water? The idea is that diamonds are not as useful as water but they do tend to fetch a much higher price on markets. Why is that? Neoclassical economists argued that is not the total usefulness but the extra or marginal utility gained from consuming an object that matters in determining the prices of commodities. Overall, water is much more abundant and useful than diamonds. But the larger marginal utility of less-abundant diamonds—the extra usefulness of the last unit consumed—compared to that of water is what explains its higher price.

There, in a nutshell, we can see the foundations of what has become neoclassical economic theory—a theory of economic value based on scarcity, utility, and decisions at the margin (along with the corresponding mathematics, calculus). The result is a celebration of capitalism, an economic system based on private property and free markets.

Without going into unnecessary detail, let’s see how neoclassical economics works.

The usual starting point is the supply-and-demand conception of markets. Neoclassical economists assume that there are markets for all goods and services—not only butter and banking services, but also the “factors of production,” land, labor, and capital. Each has a corresponding set of supply (SS) and demand (DD) curves and an equilibrium price (P0) and quantity (Q0), as in the diagram above.

But that’s only the beginning of the story. In order for the model to work, each of the supply and demand curves has to be tied back to their ultimate determinants.

In neoclassical economics, the given or exogenous determinants of supply and demand reside in nature—mostly human nature, but also physical nature. Thus, for example, the demand for goods and services is determined by human preferences (along with consumers’ incomes). Those preferences are assumed to be given, from outside the economy, and to behave in predictable ways (as in the marginal utilities of the diamond-water paradox).

Households are assumed to maximize utility in choosing between different bundles of commodities in the “celestial supermarket.” When they make their purchases at the market equilibrium, the prices in markets can be shown to correspond to those given preferences or utilities.*

Household incomes, meanwhile, derive from the sum of wages, profits, and rent they obtain when they sell labor, capital, and land to the firms that are producing the goods and services they purchase. Those “factor” incomes are determined, like all other commodities, by supply and demand in markets. Firms demand labor, capital, and land according to their marginal productivity, in order to maximize profits.

Meanwhile, households are assumed to make utility-maximizing choices in selling those services to firms. The result is that consumer incomes also correspond to nature—human nature in terms of individual preferences, along with the physical nature of land. And the more labor, capital, and land they choose to sell, the higher their incomes, and the more commodities they can purchase.

The final neoclassical assumption is perfect competition, such that all consumers and firms are said to be “price-takers.” They don’t set prices but, instead, take the prices as given when they make their utility-maximizing and profit-maximizing decisions as households and firms.**

The neoclassical conclusion is that not only is each market in equilibrium, the economy as a whole is assumed to reach a general equilibrium. What this means is that the economy-wide equilibrium represents a perfect balance between the limited means of available resources and the unlimited desires of consumers. Production is at its maximum and full employment is achieved. Moreover, the set of equilibrium prices can be said to correspond to the preferences of consumers, that is, to human nature.


As will be evident to readers, that’s a very powerful conclusion! Starting with atomistic individuals, directed only by their own self-interest, neoclassical economists conclude that the economy as a whole reaches a position where no one can be made better off without making someone worse off.***

But neoclassical economics is not only a theory about the efficiency of capitalism or the way it solves the problem of scarcity or, for that matter, a proof that market prices correspond to human nature. Implicit within neoclassical economics, as in all economic theories, is also a particular theory of ethics or economic justice.

The first key ethical claim made by neoclassical economists is that everyone is equal. Households may have vastly different amounts of income or wealth (because of their different utility-maximizing decisions to sell labor, capital, and land to firms) but they are all fundamentally equal. That’s because they are all assumed to be price-takers and, as if by an “invisible hand,” they are led to make decisions such that their individual utilities are the same as those of everyone else.****

According to neoclassical economists, capitalism is also characterized by “just deserts”—the idea that everyone gets what they deserve. This is shown in two ways. First, consumers purchase commodities at prices that are equal to their preferences. Second, the incomes households use to buy goods and services are the sum of the wages, profits, and rents they receive for selling factor services to firms. And those factors—labor, capital, and land—are remunerated according to their marginal contributions to production.***** What that means is that households receive incomes and firms pay for factor services according to their contributions to production. So, in both product markets and factor markets, everyone within capitalism—households as well as enterprises—receives the appropriate reward for their decisions and actions.

From the perspective of neoclassical economics, then, capitalism promotes both equality and fairness. That’s true even if there is considerable inequality among households—in terms of either income or wealth. Those inequalities are due to the different decisions households make, as well as their different initial endowments, which are considered to be determined outside the economy. Therefore, according to neoclassical economists, capitalism, even if it delivers different levels of remuneration, as long as they correspond to to the decisions and abilities of individual households, still delivers economic justice.

There is one final ethical principle that is prominent within neoclassical economics, and that’s the notion of freedom. It stems from what is considered a more Austrian interpretation of neoclassical theory (in a line that runs from Menger through such economists as Ludwig von Mises and Friedrich Hayek to Milton Friedman). Dispensing with some of the arguments above (such as general equilibrium and economy-wide efficiency), Austrian economists emphasize the freedom that capitalism grants to individuals—whether households or firms—to decide on their appropriate actions. They alone (and not, for example, governments) have the knowledge of their particular circumstances and, to the extent they are free to choose what is best for themselves within markets, capitalism can be said to be just.


*Technically, the ratio of prices (p1/p2) is equal to the ratio of marginal utilities (MU1/MU2), where the subscripts 1 and 2 represent two different commodities.

**An obvious question immediately arises: if everyone is assumed to be a price-taker, then who sets the prices of commodities? The neoclassical answer is the “auctioneer.” That’s the name given to the fictional entity that calls out different sets of prices until all markets are in equilibrium.

***This is known as Pareto Efficiency, named after the Italian sociologist and economist Vilfredo Pareto (1848-1923) who succeeded Walras to the chair of Political Economy at the University of Lausanne in Switzerland.

****The way this works is, the ratio of prices (p1/p2) is equal to the ratio of marginal utilities of each and every individual (MU1/MU2)A. . .(MU1/MU2)N, where the subscripts 1 and 2 represent two different commodities and the superscripts A through N represent all individuals.

*****In more technical terms, the real wage rate is equal to the marginal product of labor, that is, the extra contribution to production by the last unit of labor hired; the real profit rate is equal to the marginal product of capital; and the real rental rate is equal to the marginal product of land.


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We’re back at it again: “the economy” has broken down and we’re all being enlisted into the effort to get it back up and working again. As soon as possible.

The Congressional Budget Office has announced that it expects the U.S. economy will contract sharply during the second quarter of 2020:

    • Gross domestic product is expected to decline by more than 7 percent during the second quarter. If that happened, the decline in the annualized growth rate reported by the Bureau of Economic Analysis would be about four times larger and would exceed 28 percent. Those declines could be much larger, however.
    • The unemployment rate is expected to exceed 10 percent during the second quarter, in part reflecting the 3.3 million new unemployment insurance claims reported on March 26 and the 6.6 million new claims reported this morning. (The number of new claims was about 10 times larger this morning than it had been in any single week during the recession from 2007 to 2009.)

Just as in the aftermath of the spectacular crash of 2007-08, the supposedly shared goal is to do whatever is necessary to engineer a recovery so that the economy can start operating normally again.

That presumes, of course, that we were satisfied with the normal workings of the economy before, and that such a state of normality is what we all desire moving forward.

But before I attempt to address that issue, it’s important that we stop and think a bit more about what we mean when we refer to this thing called “the economy.” In a fascinating recent interview, Anat Shenker-Osorio [ht: ja], argues that the economy is often portrayed as an all-powerful, personified entity.*

Previously, we would hear politicians admonish that we can’t pass X policy because it will “hurt the economy” — as if it were a being to which we owe our efforts and loyalties. And now, all the more brazenly, Republicans tell us we must sacrifice ourselves or perhaps our elders to the economy.

Another oft-used metaphor for the economy is the human body.

Conservatives, aided and abetted by progressives who also unwittingly employ the metaphor, tend to talk about the economy as a body. You can hear this expressed in language like “it’s suffering” or “the economy is thriving.” We have a “recovery bill” to get the economy “off life support” and “restore it to health.” What this metaphor suggests is that in grave cases, we must “resuscitate the patient” (perhaps with a stimulus bill.)

It seems to me, there’s a third common metaphor for the economy: a machine. Often, especially in conservative political discourse and neoclassical economic theory, the economy-as-machine is said to be functioning on its own, in a technical manner, with all its parts combining to produce the best possible outcome.** Unless, of course, there’s some kind of monkey wrench thrown into the works, such as a government intervention or natural disaster. However, according to liberal politics and Keynesian economics, the economic machine by itself tends to break down and needs to be regulated and guided, through some kind of government policy or program, so that it gets back to working properly.

As Shenker-Osorio correctly observes, the metaphor of “the economy” that is shared by both sides of mainstream political and economic discourse puts progressives at a distinct disadvantage:

we see progressives attempt to make arguments about how social welfare programs will “grow the economy” in the hopes of sounding like the reasonable adults in the room. This tacitly reaffirms the toxic idea that our purpose ought to be to serve the economy — that the correct evaluation of policy is how it affects the GDP

Much the same argument is made in favor of other liberal or progressive programs: raising minimum wages, extending health insurance, anti-poverty programs, education and job training, and so on. All are justified as contributing to making the economic machine work better, more productively, by including everyone.

So, what’s the alternative? One possibility, which Shenker-Osorio offers, is to reject the existing metaphors and refuse to continue to debate “who loves the economy best” and, instead, force “the far more relevant discussion: What is best for people.”

I don’t disagree with Shenker-Osorio’s goal but I wonder if there might not be another way of proceeding, by teasing out the implications of thinking about the economy as a machine.

If we continue with the machine metaphor then, first, we can demonstrate that the existing machine, in the midst of the novel coronavirus pandemic, is simply not working. It is an unproductive machine. For example, the U.S. economy-as-machine hasn’t been able to protect people’s health, for example, by providing adequate personal protective equipment for nurses and doctors, ventilators for patients, and masks for everyone else. Even more, it has put many people’s health at additional risk, by forcing many workers to continue to labor in unsafe workplaces and to commute to those jobs using perilous public transportation. Finally, it has expelled tens of millions of American workers, through furloughs and layoffs, and thus deprived them of wages and health insurance precisely when they need them most.

Second, we can read the decisions of the Trump administration—both its months-long delay in responding to the pandemic and then its refusal to enact a nationwide shutdown when it finally did admit a health emergency—as precisely enacting the general logic of the economic machine: that nothing should get in the way of production, circulation, and finance. It fell then to individual states to decide whether and when to shutdown parts of the economic machine and to distinguish between “essential” and “nonessential” sectors.

Finally, we can interpret the repeated calls to reopen the economy—not only by Trump and his advisors, but also by a wide variety of others, from Lloyd Blankfein, the billionaire former CEO of Goldman Sachs, to Republican Sen. Ron Johnson of Wisconsin—as a rational but unconvincing gesture, based on no other reason than that the machine needs to keep operating. It expresses the rational irrationality of the existing economy-machine.

All of which leaves us where? It seems to me, their continued reference to the economy as a machine creates the possibility of our demanding, in the first place, that the machine should remain closed down—for health reasons. People’s health should not be put under any further stress as long as the pandemic continues to ravage individual lives and entire communities.

And in second place, it becomes possible to imagine and invent other assemblages of the existing economy-machine, and even other machines, instead of obeying the logic of the current way of organizing economic and social life in the United States. In fact, while many of the changes to people’s lives have been designed to keep the existing machine functioning (for example, by working at home), it is also possible that people are taking advantage of the opportunity to experiment with how they work and live and creating new spaces and activities in their lives.***

If the common refrain these days is that “nothing will be the same” after the pandemic, perhaps one of the outcomes is that the economy-machine will finally be seen as an empty signifier, unmoored from the reality of people’s lives and incapable of organizing their desires.****

Then, maybe, the existing economy-machine will stop functioning. Before it kills any more of us.


*As in the episode of South Park, “Margaritaville” (the third episode in the thirteenth season, broadcast in March 2009), which Shenker-Osorio discusses in her 2012 book, Don’t Buy It: The Trouble with Talking Nonsense about the Economy.

**There is also, of course, an ethics of the economy-as-machine. As I explained back in 2018,

According to neoclassical economists, the capitalist distribution of income is fundamentally fair. If every factor of production (e.g., capital and labor) is remunerated according to its marginal contribution to production, and each individual sells to firms the amount of each factor they desire (because of utility-maximization), the resulting distribution represents “just deserts.” It’s fair on an individual level and it represents justice for society as a whole. Let free markets operate, without any external intervention (e.g., by the state), and the result will be both fair and just.

For Keynesian economists, the machine can be made to operate fairly, and therefore in an ethical manner, when the state can step in (e.g., via fiscal and monetary policy) to create full employment.

***I understand, some of those changes may be experienced as losses—of laboring alongside fellow workers, of certain leisure activities, and so on. But people are inventing all kinds of new ways, even at a physical distance, of provisioning, socializing, and much else.

****And, yes, for those who are interested, as I prepared to write this post, I did go back and reread some of the works of Gilles Deleuze and Félix Guattari, including AntiOedipusCapitalism and Schizophrenia.


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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 of control.

Consider, for example, the theory of the firm (which I have written about many times over the years), which is the focus of University of Chicago finance professor Luigi Zingales’s lecture honoring Oliver Hart, winner of the 2016 Nobel Prize for economics, at this year’s Allied Social Science Association meeting.

One of the many merits of Oliver’s contribution is to have brought back the concept of power inside economics. This is a concept pervasive in political science and sociology, and pervasive in Marxian economics, but completely absent from neoclassical economics. In fact, Oliver’s view of the firm is very reminiscent of the Marxian view, but where Marx sees exploitation, Oliver sees an efficient allocation.

Zingales is right: Hart’s neoclassical treatment of control informs a theory of the firm that stands diametrically opposed to a Marxian theory of the firm. And those contrasting theories of the firm are both conditions and consequences of different utopian horizons. Thus, Hart both envisions and looks to move toward an efficient use of control within the firm such that—through a combination of incentives and monitoring—agents (workers) can be made to work hard to fulfill the goal set by the principal (capitalists). Marxists, on the other hand, see the firm as a site of exploitation—capitalists extracting surplus-value from the workers they hire—and look to create the economic and social conditions whereby exploitation is eliminated.

In my view, those are very different utopias—the efficient allocation of resources versus the absence of exploitation—that both inform and are informed by quite different theories of the firm.

As is turns out, the issue of control—and, with it, utopia—comes up in another, quite different context. As George DeMartino and Deidre McCloskey explain, in their rejoinder to Anne Krueger’s attack on their recent edited volume, The Oxford Handbook of Professional Economic Ethics,

When you have influence over others you take on ethical burdens. Think of your responsibilities to, say, your family or friends. And when you fail to confront those burdens openly, honestly, and courageously you are apt to make mistakes. As professional economists we have influence, and we do develop conversations about how we operate. Yet there is no serious, critical, scholarly conversation about professional economic ethics—never has been. That’s not good.

While the DeMartino and McCloskey volume includes contributions from both mainstream and heterodox economists (a point that Krueger overlooks in her review), it is still the case that the discipline of economics, dominated as it has been by mainstream economics, has never had a serious, sustained conversation about ethics.

Consider this: it is possible to get a degree in economics—at any level, undergraduate, Master’s, or doctorate—without a single reading or lecture, much less an entire course, on ethics. And yet economists do exercise a great deal of power over others: over other economists (through hiring, research funding, and publishing venues), their students (in terms of what can and cannot be said, talked about, and theorized in their courses), and the wider society (through the dissemination of particular theories of the economy as well as the policies they advocate to governments and multilateral institutions). In fact, they also exercise power over themselves, in true panopticon fashion, as they seek to adhere to and reinforce certain disciplinary protocols and procedures.

Economics is saturated with power, and thus replete with ethical moments.

Once again, the issue of control is bound up with different utopian horizons. Most economists—certainly most mainstream economists—are not comfortable with and have no use for discussions of ethics. That’s because, in their view, economists adhere to a code of objectivity and scientificity and an epistemology of absolute truth. So, there’s no room for an ethics associated with “influence over others.” That’s their utopia: a free-market of ideas in which the “truth,” of theory and policy, is revealed.

Other economists have a quite different view. They see a world of unequal power, including within the discipline of economics. And the existence of that unequal power demands a conversation about ethics in order to reveal the conditions and especially the consequences of different ways of doing economics. If there is no single-t, absolute truth—and thus no single standard of objectivity and scientificity—within economics, then the use of one theory instead of another has particular effects on the world within which that theorizing takes place. Here, the utopian horizon is not a free market of ideas, but instead a reimagining of the discipline of economics as an agonistic field of incommensurable discourses.

And, from a specifically Marxian perspective, the utopian moment is to create the conditions whereby the critique of political economy renders itself no longer useful. Marxists recognize that they may not be able to control the path to such an outcome but it is their goal—their ethical stance, their utopian horizon.


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