                       C.1 What is wrong with economics?

   In a nutshell, a lot. While economists like to portray their discipline
   as "scientific" and "value free", the reality is very different. It is,
   in fact, very far from a science and hardly "value free." Instead it
   is, to a large degree, deeply ideological and its conclusions almost
   always (by a strange co-incidence) what the wealthy, landlords, bosses
   and managers of capital want to hear. The words of Kropotkin still ring
   true today:

     "Political Economy has always confined itself to stating facts
     occurring in society, and justifying them in the interest of the
     dominant class . . . Having found [something] profitable to
     capitalists, it has set it up as a principle." [The Conquest of
     Bread, p. 181]

   This is at its best, of course. At its worse economics does not even
   bother with the facts and simply makes the most appropriate assumptions
   necessary to justify the particular beliefs of the economists and,
   usually, the interests of the ruling class. This is the key problem
   with economics: it is not a science. It is not independent of the class
   nature of society, either in the theoretical models it builds or in the
   questions it raises and tries to answer. This is due, in part, to the
   pressures of the market, in part due to the assumptions and methodology
   of the dominant forms of economics. It is a mishmash of ideology and
   genuine science, with the former (unfortunately) being the bulk of it.

   The argument that economics, in the main, is not a science it not one
   restricted to anarchists or other critics of capitalism. Some
   economists are well aware of the limitations of their profession. For
   example, Steve Keen lists many of the flaws of mainstream
   (neoclassical) economics in his excellent book Debunking Economics,
   noting that (for example) it is based on a "dynamically irrelevant and
   factually incorrect instantaneous static snap-shot" of the real
   capitalist economy. [Debunking Economics, p. 197] The late Joan
   Robinson argued forcefully that the neoclassical economist "sets up a
   'model' on arbitrarily constructed assumptions, and then applies
   'results' from it to current affairs, without even trying to pretend
   that the assumptions conform to reality." [Collected Economic Papers,
   vol. 4, p. 25] More recently, economist Mark Blaug has summarised many
   of the problems he sees with the current state of economics:

     "Economics has increasing become an intellectual games played for
     its own sake and not for its practical consequences. Economists have
     gradually converted the subject into a sort of social mathematics in
     which analytical rigor as understood in math departments is
     everything and empirical relevance (as understood in physics
     departments) is nothing . . . general equilibrium theory . . . using
     economic terms like 'prices', 'quantities', 'factors of production,'
     and so on, but that nevertheless is clearly and even scandalously
     unrepresentative of any recognisable economic system. . .

     "Perfect competition never did exist and never could exist because,
     even when firms are small, they do not just take the price but
     strive to make the price. All the current textbooks say as much, but
     then immediately go on to say that the 'cloud-cuckoo' fantasyland of
     perfect competition is the benchmark against which we may say
     something significant about real-world competition . . . But how can
     an idealised state of perfection be a benchmark when we are never
     told how to measure the gap between it and real-world competition?
     It is implied that all real-world competition is 'approximately'
     like perfect competition, but the degree of the approximation is
     never specified, even vaguely . . .

     "Think of the following typical assumptions: perfectly infallible,
     utterly omniscient, infinitely long-lived identical consumers; zero
     transaction costs; complete markets for all time-stated claims for
     all conceivable events, no trading of any kind at disequilibrium
     prices; infinitely rapid velocities of prices and quantities; no
     radical, incalculable uncertainty in real time but only
     probabilistically calculable risk in logical time; only linearly
     homogeneous production functions; no technical progress requiring
     embodied capital investment, and so on, and so on -- all these are
     not just unrealistic but also unrobust assumptions. And yet they
     figure critically in leading economic theories."
     ["Disturbing Currents in Modern Economics", Challenge!, Vol. 41, No.
     3, May-June, 1998]

   So neoclassical ideology is based upon special, virtually ad hoc,
   assumptions. Many of the assumptions are impossible, such as the
   popular assertion that individuals can accurately predict the future
   (as required by "rational expectations" and general equilibrium
   theory), that there are a infinite number of small firms in every
   market or that time is an unimportant concept which can be abstracted
   from. Even when we ignore those assumptions which are obviously
   nonsense, the remaining ones are hardly much better. Here we have a
   collection of apparently valid positions which, in fact, rarely have
   any basis in reality. As we discuss in [1]section C.1.2, an essential
   one, without which neoclassical economics simply disintegrates, has
   very little basis in the real world (in fact, it was invented simply to
   ensure the theory worked as desired). Similarly, markets often adjust
   in terms of quantities rather than price, a fact overlooked in general
   equilibrium theory. Some of the assumptions are mutually exclusive. For
   example, the neo-classical theory of the supply curve is based on the
   assumption that some factor of production cannot be changed in the
   short run. This is essential to get the concept of diminishing marginal
   productivity which, in turn, generates a rising marginal cost and so a
   rising supply curve. This means that firms within an industry cannot
   change their capital equipment. However, the theory of perfect
   competition requires that in the short period there are no barriers to
   entry, i.e. that anyone outside the industry can create capital
   equipment and move into the market. These two positions are logically
   inconsistent.

   In other words, although the symbols used in mainstream may have
   economic sounding names, the theory has no point of contact with
   empirical reality (or, at times, basic logic):

     "Nothing in these abstract economic models actually works in the
     real world. It doesn't matter how many footnotes they put in, or how
     many ways they tinker around the edges. The whole enterprise is
     totally rotten at the core: it has no relation to reality." [Noam
     Chomsky, Understanding Power, pp. 254-5]

   As we will indicate, while its theoretical underpinnings are claimed to
   be universal, they are specific to capitalism and, ironically, they
   fail to even provide an accurate model of that system as it ignores
   most of the real features of an actual capitalist economy. So if an
   economist does not say that mainstream economics has no bearing to
   reality, you can be sure that what he or she tells you will be more
   likely ideology than anything else. "Economic reality" is not about
   facts; it's about faith in capitalism. Even worse, it is about blind
   faith in what the economic ideologues say about capitalism. The key to
   understanding economists is that they believe that if it is in an
   economic textbook, then it must be true -- particularly if it confirms
   any initial prejudices. The opposite is usually the case.

   The obvious fact that the real world is not like that described by
   economic text books can have some funny results, particularly when
   events in the real world contradict the textbooks. For most economists,
   or those who consider themselves as such, the textbook is usually
   preferred. As such, much of capitalist apologetics is faith-driven.
   Reality has to be adjusted accordingly.

   A classic example was the changing positions of pundits and "experts"
   on the East Asian economic miracle. As these economies grew
   spectacularly during the 1970s and 1980s, the experts universally
   applauded them as examples of the power of free markets. In 1995, for
   example, the right-wing Heritage Foundation's index of economic freedom
   had four Asian countries in its top seven countries. The Economist
   explained at the start of 1990s that Taiwan and South Korea had among
   the least price-distorting regimes in the world. Both the Word Bank and
   IMF agreed, downplaying the presence of industrial policy in the
   region. This was unsurprising. After all, their ideology said that free
   markets would produce high growth and stability and so, logically, the
   presence of both in East Asia must be driven by the free market. This
   meant that, for the true believers, these nations were paradigms of the
   free market, reality not withstanding. The markets agreed, putting
   billions into Asian equity markets while foreign banks loaned similar
   vast amounts.

   In 1997, however, all this changed when all the Asian countries
   previously qualified as "free" saw their economies collapse. Overnight
   the same experts who had praised these economies as paradigms of the
   free market found the cause of the problem -- extensive state
   intervention. The free market paradise had become transformed into a
   state regulated hell! Why? Because of ideology -- the free market is
   stable and produces high growth and, consequently, it was impossible
   for any economy facing crisis to be a free market one! Hence the need
   to disown what was previously praised, without (of course) mentioning
   the very obvious contradiction.

   In reality, these economies had always been far from the free market.
   The role of the state in these "free market" miracles was extensive and
   well documented. So while East Asia "had not only grown faster and done
   better at reducing poverty than any other region of the world . . . it
   had also been more stable," these countries "had been successful not
   only in spite of the fact that they had not followed most of the
   dictates of the Washington Consensus [i.e. neo-liberalism], but because
   they had not." The government had played "important roles . . . far
   from the minimalist [ones] beloved" of neo-liberalism. During the
   1990s, things had changed as the IMF had urged a "excessively rapid
   financial and capital market liberalisation" for these countries as
   sound economic policies. This "was probably the single most important
   cause of the [1997] crisis" which saw these economies suffer meltdown,
   "the greatest economic crisis since the Great Depression" (a meltdown
   worsened by IMF aid and its underlying dogmas). Even worse for the
   believers in market fundamentalism, those nations (like Malaysia) that
   refused IMF suggestions and used state intervention has a "shorter and
   shallower" downturn than those who did not. [Joseph Stiglitz,
   Globalisation and its Discontents, p. 89, p. 90, p. 91 and p. 93] Even
   worse, the obvious conclusion from these events is more than just the
   ideological perspective of economists, it is that "the market" is not
   all-knowing as investors (like the experts) failed to see the statist
   policies so bemoaned by the ideologues of capitalism after 1997.

   This is not to say that the models produced by neoclassical economists
   are not wonders of mathematics or logic. Few people would deny that a
   lot of very intelligent people have spent a lot of time producing some
   quite impressive mathematical models in economics. It is a shame that
   they are utterly irrelevant to reality. Ironically, for a theory claims
   to be so concerned about allocating scarce resources efficiently,
   economics has used a lot of time and energy refining the analyses of
   economies which have not, do not, and will not ever exist. In other
   words, scare resources have been inefficiently allocated to produce
   waste.

   Why? Perhaps because there is a demand for such nonsense? Some
   economists are extremely keen to apply their methodology in all sorts
   of areas outside the economy. No matter how inappropriate, they seek to
   colonise every aspect of life. One area, however, seems immune to such
   analysis. This is the market for economic theory. If, as economists
   stress, every human activity can be analysed by economics then why not
   the demand and supply of economics itself? Perhaps because if that was
   done some uncomfortable truths would be discovered?

   Basic supply and demand theory would indicate that those economic
   theories which have utility to others would be provided by economists.
   In a system with inequalities of wealth, effective demand is skewed in
   favour of the wealthy. Given these basic assumptions, we would predict
   that only these forms of economists which favour the requirements of
   the wealthy would gain dominance as these meet the (effective) demand.
   By a strange co-incidence, this is precisely what has happened. This
   did and does not stop economists complaining that dissidents and
   radicals were and are biased. As Edward Herman points out:

     "Back in 1849, the British economist Nassau Senior chided those
     defending trade unions and minimum wage regulations for expounding
     an 'economics of the poor.' The idea that he and his establishment
     confreres were putting forth an 'economics of the rich' never
     occurred to him; he thought of himself as a scientist and
     spokesperson of true principles. This self-deception pervaded
     mainstream economics up to the time of the Keynesian Revolution of
     the 1930s. Keynesian economics, though quickly tamed into an
     instrument of service to the capitalist state, was disturbing in its
     stress on the inherent instability of capitalism, the tendency
     toward chronic unemployment, and the need for substantial government
     intervention to maintain viability. With the resurgent capitalism of
     the past 50 years, Keynesian ideas, and their implicit call for
     intervention, have been under incessant attack, and, in the
     intellectual counterrevolution led by the Chicago School, the
     traditional laissez-faire ('let-the-fur-fly') economics of the rich
     has been re-established as the core of mainstream economics." [The
     Economics of the Rich ]

   Herman goes on to ask "[w]hy do the economists serve the rich?" and
   argues that "[f]or one thing, the leading economists are among the
   rich, and others seek advancement to similar heights. Chicago School
   economist Gary Becker was on to something when he argued that economic
   motives explain a lot of actions frequently attributed to other forces.
   He of course never applied this idea to economics as a profession . .
   ." There are a great many well paying think tanks, research posts,
   consultancies and so on that create an "'effective demand' that should
   elicit an appropriate supply resource."

   Elsewhere, Herman notes the "class links of these professionals to the
   business community were strong and the ideological element was realised
   in the neoclassical competitive model . . . Spin-off negative effects
   on the lower classes were part of the 'price of progress.' It was the
   elite orientation of these questions [asked by economics], premises,
   and the central paradigm [of economic theory] that caused matters like
   unemployment, mass poverty, and work hazards to escape the net of
   mainstream economist interest until well into the twentieth century."
   Moreover, "the economics profession in the years 1880-1930 was by and
   large strongly conservative, reflecting in its core paradigm its class
   links and sympathy with the dominant business community, fundamentally
   anti-union and suspicious of government, and tending to view
   competition as the true and durable state of nature." [Edward S.
   Herman, "The Selling of Market Economics," pp. 173-199, New Ways of
   Knowing, Marcus G. Raskin and Herbert J. Bernstein (eds.),p. 179-80 and
   p. 180]

   Rather than scientific analysis, economics has always been driven by
   the demands of the wealthy ("How did [economics] get instituted? As a
   weapon of class warfare." [Chomsky, Op. Cit., p. 252]). This works on
   numerous levels. The most obvious is that most economists take the
   current class system and wealth/income distribution as granted and
   generate general "laws" of economics from a specific historical
   society. As we discuss in the [2]next section, this inevitably skews
   the "science" into ideology and apologetics. The analysis is also
   (almost inevitably) based on individualistic assumptions, ignoring or
   downplaying the key issues of groups, organisations, class and the
   economic and social power they generate. Then there are the assumptions
   used and questions raised. As Herman argues, this has hardly been a
   neutral process:

     "the theorists explicating these systems, such as Carl Menger, Leon
     Walras, and Alfred Marshall, were knowingly assuming away
     formulations that raised disturbing questions (income distribution,
     class and market power, instability, and unemployment) and creating
     theoretical models compatible with their own policy biases of status
     quo or modest reformism . . . Given the choice of 'problem,'
     ideology and other sources of bias may still enter economic analysis
     if the answer is predetermined by the structure of the theory or
     premises, or if the facts are selected or bent to prove the desired
     answer." [Op. Cit., p. 176]

   Needless to say, economics is a "science" with deep ramifications
   within society. As a result, it comes under pressure from outside
   influences and vested interests far more than, say, anthropology or
   physics. This has meant that the wealthy have always taken a keen
   interest that the "science" teaches the appropriate lessons. This has
   resulted in a demand for a "science" which reflects the interests of
   the few, not the many. Is it really just a co-incidence that the
   lessons of economics are just what the bosses and the wealthy would
   like to hear? As non-neoclassical economist John Kenneth Galbraith
   noted in 1972:

     "Economic instruction in the United States is about a hundred years
     old. In its first half century economists were subject to censorship
     by outsiders. Businessmen and their political and ideological
     acolytes kept watch on departments of economics and reacted promptly
     to heresy, the latter being anything that seemed to threaten the
     sanctity of property, profits, a proper tariff policy and a balanced
     budget, or that suggested sympathy for unions, public ownership,
     public regulation or, in any organised way, for the poor." [The
     Essential Galbraith, p. 135]

   It is really surprising that having the wealthy fund (and so control)
   the development of a "science" has produced a body of theory which so
   benefits their interests? Or that they would be keen to educate the
   masses in the lessons of said "science", lessons which happen to
   conclude that the best thing workers should do is obey the dictates of
   the bosses, sorry, the market? It is really just a co-incidence that
   the repeated use of economics is to spread the message that strikes,
   unions, resistance and so forth are counter-productive and that the
   best thing worker can do is simply wait patiently for wealth to trickle
   down?

   This co-incidence has been a feature of the "science" from the start.
   The French Second Empire in the 1850s and 60s saw "numerous private
   individuals and organisation, municipalities, and the central
   government encouraged and founded institutions to instruct workers in
   economic principles." The aim was to "impress upon [workers] the
   salutary lessons of economics." Significantly, the "weightiest motive"
   for so doing "was fear that the influence of socialist ideas upon the
   working class threatened the social order." The revolution of 1848
   "convinced many of the upper classes that the must prove to workers
   that attacks upon the economic order were both unjustified and futile."
   Another reason was the recognition of the right to strike in 1864 and
   so workers "had to be warned against abuse of the new weapon." The
   instruction "was always with the aim of refuting socialist doctrines
   and exposing popular misconceptions. As one economist stated, it was
   not the purpose of a certain course to initiate workers into the
   complexities of economic science, but to define principles useful for
   'our conduct in the social order.'" The interest in such classes was
   related to the level of "worker discontent and agitation." The impact
   was less than desired: "The future Communard Lefrancais referred
   mockingly to the economists . . . and the 'banality' and 'platitudes'
   of the doctrine they taught. A newspaper account of the reception given
   to the economist Joseph Garnier states that Garnier was greeted with
   shouts of: 'He is an economist' . . . It took courage, said the
   article, to admit that one was an economist before a public meeting."
   [David I. Kulstein, "Economics Instruction for Workers during the
   Second Empire," pp. 225-234, French Historical Studies, vol. 1, no. 2,
   p. 225, p. 226, p. 227 and p. 233]

   This process is still at work, with corporations and the wealthy
   funding university departments and posts as well as their own "think
   tanks" and paid PR economists. The control of funds for research and
   teaching plays it part in keeping economics the "economics of the
   rich." Analysing the situation in the 1970s, Herman notes that the
   "enlarged private demand for the services of economists by the business
   community . . . met a warm supply response." He stressed that "if the
   demand in the market is for specific policy conclusions and particular
   viewpoints that will serve such conclusions, the market will
   accommodate this demand." Hence "blatantly ideological models . . . are
   being spewed forth on a large scale, approved and often funded by large
   vested interests" which helps "shift the balance between ideology and
   science even more firmly toward the former." [Op. Cit., p. 184, p. 185
   and p. 179] The idea that "experts" funded and approved by the wealthy
   would be objective scientists is hardly worth considering.
   Unfortunately, many people fail to exercise sufficient scepticism about
   economists and the economics they support. As with most experts, there
   are two obvious questions with which any analysis of economics should
   begin: "Who is funding it?" and "Who benefits from it?"

   However, there are other factors as well, namely the hierarchical
   organisation of the university system. The heads of economics
   departments have the power to ensure the continuation of their
   ideological position due to the position as hirer and promoter of
   staff. As economics "has mixed its ideology into the subject so well
   that the ideologically unconventional usually appear to appointment
   committees to be scientifically incompetent." [Benjamin Ward, What's
   Wrong with Economics?, p. 250] Galbraith termed this "a new despotism,"
   which consisted of "defining scientific excellence in economics not as
   what is true but as whatever is closest to belief and method to the
   scholarly tendency of the people who already have tenure in the
   subject. This is a pervasive test, not the less oppress for being, in
   the frequent case, both self-righteous and unconscious. It helps
   ensure, needless to say, the perpetuation of the neoclassical
   orthodoxy." [Op. Cit., p. 135] This plays a key role in keeping
   economics an ideology rather than a science:

     "The power inherent in this system of quality control within the
     economics profession is obviously very great. The discipline's
     censors occupy leading posts in economics departments at the major
     institutions . . . Any economist with serious hopes of obtaining a
     tenured position in one of these departments will soon be made aware
     of the criteria by which he is to be judged . . . the entire
     academic program . . . consists of indoctrination in the ideas and
     techniques of the science." [Ward, Op. Cit., pp. 29-30]

   All this has meant that the "science" of economics has hardly changed
   in its basics in over one hundred years. Even notions which have been
   debunked (and have been acknowledged as such) continue to be taught:

     "The so-called mainline teaching of economic theory has a curious
     self-sealing capacity. Every breach that is made in it by criticism
     is somehow filled up by admitting the point but refusing to draw any
     consequence from it, so that the old doctrines can be repeated as
     before. Thus the Keynesian revolution was absorbed into the doctrine
     that, 'in the long run,' there is a natural tendency for a market
     economy to achieve full employment of available labour and full
     utilisation of equipment; that the rate of accumulation is
     determined by household saving; and that the rate of interest is
     identical with the rate of profit on capital. Similarly, Piero
     Sraffa's demolition of the neoclassical production function in
     labour and 'capital' was admitted to be unanswerable, but it has not
     been allowed to affect the propagation of the 'marginal
     productivity' theory of wages and profits.

     "The most sophisticated practitioners of orthodoxy maintain that the
     whole structure is an exercise in pure logic which has no
     application to real life at all. All the same they give their pupils
     the impression that they are being provided with an instrument which
     is valuable, indeed necessary, for the analysis of actual problems."
     [Joan Robinson, Op. Cit., vol. 5, p. 222]

   The social role of economics explains this process, for "orthodox
   traditional economics . . . was a plan for explaining to the privileged
   class that their position was morally right and was necessary for the
   welfare of society. Even the poor were better off under the existing
   system that they would be under any other . . . the doctrine [argued]
   that increased wealth of the propertied class brings about an automatic
   increase of income to the poor, so that, if the rich were made poorer,
   the poor would necessarily become poorer too." [Robinson, Op. Cit.,
   vol. 4, p. 242]

   In such a situation, debunked theories would continue to be taught
   simply because what they say has a utility to certain sections of
   society:

     "Few issues provide better examples of the negative impact of
     economic theory on society than the distribution of income.
     Economists are forever opposing 'market interventions' which might
     raise the wages of the poor, while defending astronomical salary
     levels for top executives on the basis that if the market is willing
     to pay them so much, they must be worth it. In fact, the inequality
     which is so much a characteristic of modern society reflects power
     rather than justice. This is one of the many instances where unsound
     economic theory makes economists the champions of policies which, is
     anything, undermine the economic foundations of modern society."
     [Keen, Op. Cit., p. 126]

   This argument is based on the notion that wages equal the marginal
   productivity of labour. This is supposed to mean that as the output of
   workers increase, their wages rise. However, as we note in [3]section
   C.1.5, this law of economics has been violated for the last thirty-odd
   years in the US. Has this resulted in a change in the theory? Of course
   not. Not that the theory is actually correct. As we discuss in
   [4]section C.2.5, marginal productivity theory has been exposed as
   nonsense (and acknowledged as flawed by leading neo-classical
   economists) since the early 1960s. However, its utility in defending
   inequality is such that its continued use does not really come as a
   surprise.

   This is not to suggest that mainstream economics is monolithic. Far
   from it. It is riddled with argument and competing policy
   recommendations. Some theories rise to prominence, simply to disappear
   again ("See, the 'science' happens to be a very flexible one: you can
   change it to do whatever you feel like, it's that kind of 'science.'"
   [Chomsky, Op. Cit., p. 253]). Given our analysis that economics is a
   commodity and subject to demand, this comes as no surprise. Given that
   the capitalist class is always in competition within itself and
   different sections have different needs at different times, we would
   expect a diversity of economics beliefs within the "science" which rise
   and fall depending on the needs and relative strengths of different
   sections of capital. While, overall, the "science" will support basic
   things (such as profits, interest and rent are not the result of
   exploitation) but the actual policy recommendations will vary. This is
   not to say that certain individuals or schools will not have their own
   particular dogmas or that individuals rise above such influences and
   act as real scientists, of course, just that (in general) supply is not
   independent of demand or class influence.

   Nor should we dismiss the role of popular dissent in shaping the
   "science." The class struggle has resulted in a few changes to
   economics, if only in terms of the apologetics used to justify
   non-labour income. Popular struggles and organisation play their role
   as the success of, say, union organising to reduce the working day
   obviously refutes the claims made against such movements by economists.
   Similarly, the need for economics to justify reforms can become a
   pressing issue when the alternative (revolution) is a possibility. As
   Chomsky notes, during the 19th century (as today) popular struggle
   played as much of a role as the needs of the ruling class in the
   development of the "science":

     "[Economics] changed for a number of reasons. For one thing, these
     guys had won, so they didn't need it so much as an ideological
     weapon anymore. For another, they recognised that they themselves
     needed a powerful interventionist state to defend industry form the
     hardships of competition in the open market -- as they had always
     had in fact. And beyond that, eliminating people's 'right to live'
     was starting to have some negative side-effects. First of all, it
     was causing riots all over the place . . . Then something even worse
     happened -- the population started to organise: you got the
     beginning of an organised labour movement . . . then a socialist
     movement developed. And at that point, the elites . . . recognised
     that the game had to be called off, else they really would be in
     trouble . . . it wasn't until recent years that laissez-faire
     ideology was revived again -- and again, it was a weapon of class
     warfare . . . And it doesn't have any more validity than it had in
     the early nineteenth century -- in fact it has even less. At least
     in the early nineteenth century . . . [the] assumptions had some
     relation to reality. Today those assumptions have not relation to
     reality." [Op. Cit., pp. 253-4]

   Whether the "economics of the rich" or the "economics of the poor" win
   out in academia is driven far more by the state of the class war than
   by abstract debating about unreal models. Thus the rise of monetarism
   came about due to its utility to the dominant sections of the ruling
   class rather than it winning any intellectual battles (it was
   decisively refuted by leading Keynesians like Nicholas Kaldor who saw
   their predicted fears become true when it was applied -- see [5]section
   C.8). Hopefully by analysing the myths of capitalist economics we will
   aid those fighting for a better world by giving them the means of
   counteracting those who claim the mantle of "science"
   to foster the "economics of the rich" onto society.

   To conclude, neo-classical economics shows the viability of an unreal
   system and this is translated into assertions about the world that we
   live in. Rather than analyse reality, economics evades it and asserts
   that the economy works "as if" it matched the unreal assumptions of
   neoclassical economics. No other science would take such an approach
   seriously. In biology, for example, the notion that the world can be
   analysed "as if" God created it is called Creationism and rightly
   dismissed. In economics, such people are generally awarded
   professorships or even the (so-called) Nobel prize in economics (Keen
   critiques the "as if" methodology of economics in chapter 7 of his
   Debunking Economics ). Moreover, and even worse, policy decisions will
   be enacted based on a model which has no bearing in reality -- with
   disastrous results (for example, the rise and fall of Monetarism).

   Its net effect to justify the current class system and diverts serious
   attention from critical questions facing working class people (for
   example, inequality and market power, what goes on in production, how
   authority relations impact on society and in the workplace). Rather
   than looking to how things are produced, the conflicts generated in the
   production process and the generation as well as division of
   products/surplus, economics takes what was produced as given, as well
   as the capitalist workplace, the division of labour and authority
   relations and so on. The individualistic neoclassical analysis by
   definition ignores such key issues as economic power, the possibility
   of a structural imbalance in the way economic growth is distributed,
   organisation structure, and so on.

   Given its social role, it comes as no surprise that economics is not a
   genuine science. For most economists, the "scientific method (the
   inductive method of natural sciences) [is] utterly unknown to them."
   [Kropotkin, Anarchism, p. 179] The argument that most economics is not
   a science is not limited to just anarchists or other critics of
   capitalism. Many dissident economics recognise this fact as well,
   arguing that the profession needs to get its act together if it is to
   be taken seriously. Whether it could retain its position as defender of
   capitalism if this happens is a moot point as many of the theorems
   developed were done so explicitly as part of this role (particularly to
   defend non-labour income -- see [6]section C.2). That economics can
   become much broader and more relevant is always a possibility, but to
   do so would mean to take into account an unpleasant reality marked by
   class, hierarchy and inequality rather than logic deductions derived
   from Robinson Crusoe. While the latter can produce mathematical models
   to reach the conclusions that the market is already doing a good job
   (or, at best, there are some imperfections which can be counterbalanced
   by the state), the former cannot.

   Anarchists, unsurprisingly, take a different approach to economics. As
   Kropotkin put it, "we think that to become a science, Political Economy
   has to be built up in a different way. It must be treated as a natural
   science, and use the methods used in all exact, empirical sciences."
   [Evolution and Environment, p. 93] This means that we must start with
   the world as it is, not as economics would like it to be. It must be
   placed in historical context and key facts of capitalism, like wage
   labour, not taken for granted. It must not abstract from such key facts
   of life as economic and social power. In a word, economics must reject
   those features which turn it into a sophisticated defence of the status
   quo. Given its social role within capitalism (and the history and
   evolution of economic thought), it is doubtful it will ever become a
   real science simply because it if did it would hardly be used to defend
   that system.

C.1.1 Is economics really value free?

   Modern economists try and portray economics as a "value-free science."
   Of course, it rarely dawns on them that they are usually just taking
   existing social structures for granted and building economic dogmas
   around them, so justifying them. At best, as Kropotkin pointed out:

     "[A]ll the so-called laws and theories of political economy are in
     reality no more than statements of the following nature: 'Granting
     that there are always in a country a considerable number of people
     who cannot subsist a month, or even a fortnight, without earning a
     salary and accepting for that purpose the conditions of work imposed
     upon them by the State, or offered to them by those whom the State
     recognises as owners of land, factories, railways, etc., then the
     results will be so and so.'

     "So far academic political economy has been only an enumeration of
     what happens under these conditions -- without distinctly stating
     the conditions themselves. And then, having described the facts
     which arise in our society under these conditions, they represent to
     us these facts as rigid, inevitable economic laws."
     [Anarchism, p. 179]

   In other words, economists usually take the political and economic
   aspects of capitalist society (such as property rights, inequality and
   so on) as given and construct their theories around it. At best. At
   worse, economics is simply speculation based on the necessary
   assumptions required to prove the desired end. By some strange
   coincidence these ends usually bolster the power and profits of the few
   and show that the free market is the best of all possible worlds.
   Alfred Marshall, one of the founders of neoclassical economics, once
   noted the usefulness of economics to the elite:

     "From Metaphysics I went to Ethics, and found that the justification
     of the existing conditions of society was not easy. A friend, who
     had read a great deal of what are called the Moral Sciences,
     constantly said: 'Ah! if you understood Political Economy you would
     not say that'" [quoted by Joan Robinson, Collected Economic Papers,
     vol. 4, p. 129]

   Joan Robinson added that "[n]owadays, of course, no one would put it so
   crudely. Nowadays, the hidden persuaders are concealed behind
   scientific objectivity, carefully avoiding value judgements; they are
   persuading all the better so." [Op. Cit., p. 129] The way which
   economic theory systematically says what bosses and the wealthy want to
   hear is just one of those strange co-incidences of life, one which
   seems to befall economics with alarming regularity.

   How does economics achieve this strange co-incidence, how does the
   "value free" "science" end up being wedded to producing apologetics for
   the current system? A key reason is the lack of concern about history,
   about how the current distribution of income and wealth was created.
   Instead, the current distribution of wealth and income is taken for
   granted.

   This flows, in part, from the static nature of neoclassical economics.
   If your economic analysis starts and ends with a snapshot of time, with
   a given set of commodities, then how those commodities get into a
   specific set of hands can be considered irrelevant -- particularly when
   you modify your theory to exclude the possibility of proving income
   redistribution will increase overall utility (see [7]section C.1.3). It
   also flows from the social role of economics as defender of capitalism.
   By taking the current distribution of income and wealth as given, then
   many awkward questions can be automatically excluded from the
   "science."

   This can be seen from the rise of neoclassical economics in the 1870s
   and 1880s. The break between classical political economy and economics
   was marked by a change in the kind of questions being asked. In the
   former, the central focus was on distribution, growth, production and
   the relations between social classes. The exact determination of
   individual prices was of little concern, particularly in the short run.
   For the new economics, the focus became developing a rigorous theory of
   price determination. This meant abstracting from production and looking
   at the amount of goods available at any given moment of time. Thus
   economics avoided questions about class relations by asking questions
   about individual utility, so narrowing the field of analysis by asking
   politically harmless questions based on unrealistic models (for all its
   talk of rigour, the new economics did not provide an answer to how real
   prices were determined any more than classical economics had simply
   because its abstract models had no relation to reality).

   It did, however, provide a naturalistic justification for capitalist
   social relations by arguing that profit, interest and rent are the
   result of individual decisions rather than the product of a specific
   social system. In other words, economics took the classes of
   capitalism, internalised them within itself, gave them universal
   application and, by taking for granted the existing distribution of
   wealth, justified the class structure and differences in market power
   this produces. It does not ask (or investigate) why some people own all
   the land and capital while the vast majority have to sell their labour
   on the market to survive. As such, it internalises the class structure
   of capitalism. Taking this class structure as a given, economics simply
   asks the question how much does each "factor" (labour, land, capital)
   contribute to the production of goods.

   Alfred Marshall justified this perspective as follows:

     "In the long run the earnings of each agent (of production) are, as
     a rule, sufficient only to recompense the sum total of the efforts
     and sacrifices required to produce them . . . with a partial
     exception in the case of land . . . especially much land in old
     countries, if we could trace its record back to their earliest
     origins. But the attempt would raise controversial questions in
     history and ethics as well as in economics; and the aims of our
     present inquiry are prospective rather than retrospective."
     [Principles of Economics, p. 832]

   Which is wonderfully handy for those who benefited from the theft of
   the common heritage of humanity. Particularly as Marshall himself notes
   the dire consequences for those without access to the means of life on
   the market:

     "When a workman is in fear of hunger, his need of money is very
     great; and, if at starting he gets the worst of the bargaining, it
     remains great . . . That is all the more probably because, while the
     advantage in bargaining is likely to be pretty well distributed
     between the two sides of a market for commodities, it is more often
     on the side of the buyers than on that of the sellers in a market
     for labour." [Op. Cit., pp. 335-6]

   Given that market exchanges will benefit the stronger of the parties
   involved, this means that inequalities become stronger and more secure
   over time. Taking the current distribution of property as a given (and,
   moreover, something that must not be changed) then the market does not
   correct this sort of injustice. In fact, it perpetuates it and,
   moreover, it has no way of compensating the victims as there is no
   mechanism for ensuring reparations. So the impact of previous acts of
   aggression has an impact on how a specific society developed and the
   current state of the world. To dismiss "retrospective" analysis as it
   raises "controversial questions" and "ethics" is not value-free or
   objective science, it is pure ideology and skews any "prospective"
   enquiry into apologetics.

   This can be seen when Marshall noted that labour "is often sold under
   special disadvantages, arising from the closely connected group of
   facts that labour power is 'perishable,' that the sellers of it are
   commonly poor and have no reserve fund, and that they cannot easily
   withhold it from the market." Moreover, the "disadvantage, wherever it
   exists, is likely to be cumulative in its effects." Yet, for some
   reason, he still maintains that "wages of every class of labour tend to
   be equal to the net product due to the additional labourer of this
   class." [Op. Cit., p. 567, p. 569 and p. 518] Why should it, given the
   noted fact that workers are at a disadvantage in the market place?
   Hence Malatesta:

     "Landlords, capitalists have robbed the people, with violence and
     dishonesty, of the land and all the means of production, and in
     consequence of this initial theft can each day take away from
     workers the product of their labour." [Errico Malatesta: His Life
     and Ideas, p. 168]

   As such, how could it possibly be considered "scientific" or
   "value-free" to ignore history? It is hardly "retrospective" to analyse
   the roots of the current disadvantage working class people have in the
   current and "prospective" labour market, particularly given that
   Marshall himself notes their results. This is a striking example of
   what Kropotkin deplored in economics, namely that in the rare
   situations when social conditions were "mentioned, they were forgotten
   immediately, to be spoken of no more." Thus reality is mentioned, but
   any impact this may have on the distribution of income is forgotten for
   otherwise you would have to conclude, with the anarchists, that the
   "appropriation of the produce of human labour by the owners of capital
   [and land] exists only because millions of men [and women] have
   literally nothing to live upon, unless they sell their labour force and
   their intelligence at a price that will make the net profit of the
   capitalist and 'surplus value' possible." [Evolution and Environment,
   p. 92 and p. 106]

   This is important, for respecting property rights is easy to talk about
   but it only faintly holds some water if the existing property ownership
   distribution is legitimate. If it is illegitimate, if the current
   property titles were the result of theft, corruption, colonial
   conquest, state intervention, and other forms of coercion then things
   are obviously different. That is why economics rarely, if ever,
   discusses this. This does not, of course, stop economists arguing
   against current interventions in the market (particularly those
   associated with the welfare state). In effect, they are arguing that it
   is okay to reap the benefits of past initiations of force but it is
   wrong to try and rectify them. It is as if someone walks into a room of
   people, robs them at gun point and then asks that they should respect
   each others property rights from now on and only engage in voluntary
   exchanges with what they had left. Any attempt to establish a moral
   case for the "free market" in such circumstances would be unlikely to
   succeed. This is free market capitalist economics in a nutshell: never
   mind past injustices, let us all do the best we can given the current
   allocations of resources.

   Many economists go one better. Not content in ignoring history, they
   create little fictional stories in order to justify their theories or
   the current distribution of wealth and income. Usually, they start from
   isolated individual or a community of approximately equal individuals
   (a community usually without any communal institutions). For example,
   the "waiting" theories of profit and interest (see [8]section C.2.7)
   requires such a fiction to be remotely convincing. It needs to assume a
   community marked by basic equality of wealth and income yet divided
   into two groups of people, one of which was industrious and farsighted
   who abstained from directly consuming the products created by their own
   labour while the other was lazy and consumed their income without
   thought of the future. Over time, the descendants of the diligent came
   to own the means of life while the descendants of the lazy and the
   prodigal have, to quote Marx, "nothing to sell but themselves." In that
   way, modern day profits and interest can be justified by appealing to
   such "insipid childishness." [Capital, vol. 1, p. 873] The real history
   of the rise of capitalism is, as we discuss in [9]section F.8, grim.

   Of course, it may be argued that this is just a model and an
   abstraction and, consequently, valid to illustrate a point. Anarchists
   disagree. Yes, there is often the need for abstraction in studying an
   economy or any other complex system, but this is not an abstraction, it
   is propaganda and a historical invention used not to illustrate an
   abstract point but rather a specific system of power and class. That
   these little parables and stories have all the necessary assumptions
   and abstractions required to reach the desired conclusions is just one
   of those co-incidences which seem to regularly befall economics.

   The strange thing about these fictional stories is that they are given
   much more credence than real history within economics. Almost always,
   fictional "history" will always top actual history in economics. If the
   actual history of capitalism is mentioned, then the defenders of
   capitalism will simply say that we should not penalise current holders
   of capital for actions in the dim and distant past (that current and
   future generations of workers are penalised goes unmentioned). However,
   the fictional "history" of capitalism suffers from no such dismissal,
   for invented actions in the dim and distant past justify the current
   owners holdings of wealth and the income that generates. In other
   words, heads I win, tails you loose.

   Needless to say, this (selective) myopia is not restricted to just
   history. It is applied to current situations as well. Thus we find
   economists defending current economic systems as "free market" regimes
   in spite of obvious forms of state intervention. As Chomsky notes:

     "when people talk about . . . free-market 'trade forces' inevitably
     kicking all these people out of work and driving the whole world
     towards a kind of a Third World-type polarisation of wealth . . .
     that's true if you take a narrow enough perspective on it. But if
     you look into the factors that made things the way they are, it
     doesn't even come close to being true, it's not remotely in touch
     with reality. But when you're studying economics in the ideological
     institutions, that's all irrelevant and you're not supposed to ask
     questions like these." [Understanding Power, p. 260]

   To ignore all that and simply take the current distribution of wealth
   and income as given and then argue that the "free market" produces the
   best allocation of resources is staggering. Particularly as the claim
   of "efficient allocation" does not address the obvious question:
   "efficient" for whose benefit? For the idealisation of freedom in and
   through the market ignores the fact that this freedom is very limited
   in scope to great numbers of people as well as the consequences to the
   individuals concerned by the distribution of purchasing power amongst
   them that the market throws up (rooted, of course in the original
   endowments). Which, of course, explains why, even if these parables of
   economics were true, anarchists would still oppose capitalism. We
   extend Thomas Jefferson's comment that the "earth belongs always to the
   living generation" to economic institutions as well as political -- the
   past should not dominate the present and the future (Jefferson: "Can
   one generation bind another and all others in succession forever? I
   think not. The Creator has made the earth for the living, not for the
   dead. Rights and powers can only belong to persons, not to things, not
   to mere matter unendowed with will"). For, as Malatesta argued, people
   should "not have the right . . . to subject people to their rule and
   even less of bequeathing to the countless successions of their
   descendants the right to dominate and exploit future generations." [At
   the Cafe, p. 48]

   Then there is the strange co-incidence that "value free" economics
   generally ends up blaming all the problems of capitalism on workers.
   Unemployment? Recession? Low growth? Wages are too high! Proudhon
   summed up capitalist economic theory well when he stated that
   "Political economy -- that is, proprietary despotism -- can never be in
   the wrong: it must be the proletariat." [System of Economical
   Contradictions, p. 187] And little has changed since 1846 (or 1776!)
   when it comes to economics "explaining"
   capitalism's problems (such as the business cycle or unemployment).

   As such, it is hard to consider economics as "value free" when
   economists regularly attack unions while being silent or supportive of
   big business. According to neo-classical economic theory, both are
   meant to be equally bad for the economy but you would be hard pressed
   to find many economists who would urge the breaking up of corporations
   into a multitude of small firms as their theory demands, the number who
   will thunder against "monopolistic" labour is substantially higher
   (ironically, as we note in [10]section C.1.4, their own theory shows
   that they must urge the break up of corporations or support unions for,
   otherwise, unorganised labour is exploited). Apparently arguing that
   high wages are always bad but high profits are always good is value
   free.

   So while big business is generally ignored (in favour of arguments that
   the economy works "as if" it did not exist), unions are rarely given
   such favours. Unlike, say, transnational corporations, unions are
   considered monopolistic. Thus we see the strange situation of
   economists (or economics influenced ideologies like right-wing
   "libertarians") enthusiastically defending companies that raise their
   prices in the wake of, say, a natural disaster and making windfall
   profits while, at the same time, attacking workers who decide to raise
   their wages by striking for being selfish. It is, of course, unlikely
   that they would let similar charges against bosses pass without
   comment. But what can you expect from an ideology which presents
   unemployment as a good thing (namely, increased leisure -- see
   [11]section C.1.5) and being rich as, essentially, a disutility (the
   pain of abstaining from present consumption falls heaviest on those
   with wealth -- see [12]section C.2.7).

   Ultimately, only economists would argue, with a straight face, that the
   billionaire owner of a transnational corporation is exploited when the
   workers in his sweatshops successfully form a union (usually in the
   face of the economic and political power wielded by their boss). Yet
   that is what many economists argue: the transnational corporation is
   not a monopoly but the union is and monopolies exploit others! Of
   course, they rarely state it as bluntly as that. Instead they suggest
   that unions get higher wages for their members be forcing other workers
   to take less pay (i.e. by exploiting them). So when bosses break unions
   they are doing this not to defend their profits and power but really to
   raise the standard of other, less fortunate, workers? Hardly. In
   reality, of course, the reason why unions are so disliked by economics
   is that bosses, in general, hate them. Under capitalism, labour is a
   cost and higher wages means less profits (all things being equal).
   Hence the need to demonise unions, for one of the less understood facts
   is that while unions increase wages for members, they also increase
   wages for non-union workers. This should not be surprising as non-union
   companies have to raise wages stop their workers unionising and to
   compete for the best workers who will be drawn to the better pay and
   conditions of union shops (as we discuss in [13]section C.9, the
   neoclassical model of the labour market is seriously flawed).

   Which brings us to another key problem with the claim that economics is
   "value free," namely the fact that it takes the current class system of
   capitalism and its distribution of wealth as not only a fact but as an
   ideal. This is because economics is based on the need to be able to
   differentiate between each factor of production in order to determine
   if it is being used optimally. In other words, the given class
   structure of capitalism is required to show that an economy uses the
   available resources efficiently or not. It claims to be "value free"
   simply because it embeds the economic relationships of capitalist
   society into its assumptions about nature.

   Yet it is impossible to define profit, rent and interest independently
   of the class structure of any given society. Therefore, this "type of
   distribution is the peculiarity of capitalism. Under feudalism the
   surplus was extracted as land rent. In an artisan economy each
   commodity is produced by a men with his own tools; the distinction
   between wages and profits has no meaning there." This means that "the
   very essence of the theory is bound up with a particular institution --
   wage labour. The central doctrine is that 'wages tend to equal marginal
   product of labour.' Obviously this has no meaning for a peasant
   household where all share the work and the income of their holding
   according to the rules of family life; nor does it apply in a
   [co-operative] where, the workers' council has to decide what part of
   net proceeds to allot to investment, what part to a welfare found and
   what part to distribute as wage." [Joan Robinson, Collected Economic
   Papers, p. 26 and p. 130]

   This means that the "universal" principles of economics end up by
   making any economy which does not share the core social relations of
   capitalism inherently "inefficient." If, for example, workers own all
   three "factors of production" (labour, land and capital) then the
   "value-free" laws of economics concludes that this will be inefficient.
   As there is only "income", it is impossible to say which part of it is
   attributable to labour, land or machinery and, consequently, if these
   factors are being efficiently used. This means that the "science" of
   economics is bound up with the current system and its specific class
   structure and, therefore, as a "ruling class paradigm, the competitive
   model" has the "substantial" merit that "it can be used to rule off the
   agenda any proposals for substantial reform or intervention detrimental
   to large economic interests . . . as the model allows (on its
   assumptions) a formal demonstration that these would reduce
   efficiency." [Edward S. Herman, "The Selling of Market Economics," pp.
   173-199, New Ways of Knowing, Marcus G. Raskin and Herbert J. Bernstein
   (eds.), p. 178]

   Then there are the methodological assumptions based on individualism.
   By concentrating on individual choices, economics abstracts from the
   social system within which such choices are made and what influences
   them. Thus, for example, the analysis of the causes of poverty is
   turned towards the failings of individuals rather than the system as a
   whole (to be poor becomes a personal stigma). That the reality on the
   ground bears little resemblance to the myth matters little -- when
   people with two jobs still fail to earn enough to feed their families,
   it seems ridiculous to call them lazy or selfish. It suggests a failure
   in the system, not in the poor themselves. An individualistic analysis
   is guaranteed to exclude, by definition, the impact of class,
   inequality, social hierarchies and economic/social power and any
   analysis of any inherent biases in a given economic system, its
   distribution of wealth and, consequently, its distribution of income
   between classes.

   This abstracting of individuals from their social surroundings results
   in the generating economic "laws" which are applicable for all
   individuals, in all societies, for all times. This results in all
   concrete instances, no matter how historically different, being treated
   as expressions of the same universal concept. In this way the
   uniqueness of contemporary society, namely its basis in wage labour, is
   ignored ("The period through which we are passing . . . is
   distinguished by a special characteristic -- WAGES." [Proudhon, Op.
   Cit., p. 199]). Such a perspective cannot help being ideological rather
   than scientific. By trying to create a theory applicable for all time
   (and so, apparently, value free) they just hide the fact their theory
   assumes and justifies the inequalities of capitalism (for example, the
   assumption of given needs and distribution of wealth and income
   secretly introduces the social relations of the current society back
   into the model, something which the model had supposedly abstracted
   from). By stressing individualism, scarcity and competition, in reality
   economic analysis reflects nothing more than the dominant ideological
   conceptions found in capitalist society. Every few economic systems or
   societies in the history of humanity have actually reflected these
   aspects of capitalism (indeed, a lot of state violence has been used to
   create these conditions by breaking up traditional forms of society,
   property rights and customs in favour of those desired by the current
   ruling elite).

   The very general nature of the various theories of profit, interest and
   rent should send alarm bells ringing. Their authors construct these
   theories based on the deductive method and stress how they are
   applicable in every social and economic system. In other words, the
   theories are just that, theories derived independently of the facts of
   the society they are in. It seems somewhat strange, to say the least,
   to develop a theory of, say, interest independently of the class system
   within which it is charged but this is precisely what these
   "scientists" do. It is understandable why. By ignoring the current
   system and its classes and hierarchies, the economic aspects of this
   system can be justified in terms of appeals to universal human
   existence. This will raise less objections than saying, for example,
   that interest exists because the rich will only part with their money
   if they get more in return and the poor will pay for this because they
   have little choice due to their socio-economic situation. Far better to
   talk about "time preference" rather than the reality of class society
   (see [14]section C.2.6).

   Neoclassical economics, in effect, took the "political" out of
   "political economy" by taking capitalist society for granted along with
   its class system, its hierarchies and its inequalities. This is
   reflected in the terminology used. These days even the term capitalism
   has gone out of fashion, replaced with the approved terms "market
   system," the "free market" or "free enterprise." Yet, as Chomsky noted,
   terms such as "free enterprise" are used "to designate a system of
   autocratic governance of the economy in which neither the community nor
   the workforce has any role (a system we would call 'fascist' if
   translated to the political sphere)." [Language and Politics, p. 175]
   As such, it seems hardly "value-free" to proclaim a system free when,
   in reality, most people are distinctly not free for most of their
   waking hours and whose choices outside production are influenced by the
   inequality of wealth and power which that system of production create.

   This shift in terminology reflects a political necessity. It
   effectively removes the role of wealth (capital) from the economy.
   Instead of the owners and manager of capital being in control or, at
   the very least, having significant impact on social events, we have the
   impersonal activity of "the markets" or "market forces." That such a
   change in terminology is the interest of those whose money accords them
   power and influence goes without saying. By focusing on the market,
   economics helps hide the real sources of power in an economy and
   attention is drawn away from such a key questions of how money (wealth)
   produces power and how it skews the "free market" in its favour. All in
   all, as dissident economist John Kenneth Galbraith once put it, "[w]hat
   economists believe and teach is rarely hostile to the institutions that
   reflect the dominant economic power. Not to notice this takes effort,
   although many succeed." [The Essential Galbraith, p. 180]

   This becomes obvious when we look at how the advice economics gives to
   working class people. In theory, economics is based on individualism
   and competition yet when it comes to what workers should do, the "laws"
   of economics suddenly switch. The economist will now deny that
   competition is a good idea and instead urge that the workers co-operate
   (i.e. obey) their boss rather than compete (i.e. struggle over the
   division of output and authority in the workplace). They will argue
   that there is "harmony of interests" between worker and boss, that it
   is in the self-interest of workers not to be selfish but rather to do
   whatever the boss asks to further the bosses interests (i.e. profits).

   That this perspective implicitly recognises the dependent position of
   workers, goes without saying. So while the sale of labour is portrayed
   as a market exchange between equals, it is in fact an authority
   relation between servant and master. The conclusions of economics is
   simply implicitly acknowledging that authoritarian relationship by
   identifying with the authority figure in the relationship and urging
   obedience to them. It simply suggests workers make the best of it by
   refusing to be independent individuals who need freedom to flourish (at
   least during working hours, outside they can express their
   individuality by shopping).

   This should come as no surprise, for, as Chomsky notes, economics is
   rooted in the notion that "you only harm the poor by making them
   believe that they have rights other than what they can win on the
   market, like a basic right to live, because that kind of right
   interferes with the market, and with efficiency, and with growth and so
   on -- so ultimately people will just be worse off if you try to
   recognise them." [Op. Cit., p. 251] Economics teaches that you must
   accept change without regard to whether it is appropriate it not. It
   teaches that you must not struggle, you must not fight. You must simply
   accept whatever change happens. Worse, it teaches that resisting and
   fighting back are utterly counter-productive. In other words, it
   teaches a servile mentality to those subject to authority. For
   business, economics is ideal for getting their employees to change
   their attitudes rather than collectively change how their bosses treat
   them, structure their jobs or how they are paid -- or, of course,
   change the system.

   Of course, the economist who says that they are conducting "value free"
   analysis are indifferent to the kinds of relationships within society
   is being less than honest. Capitalist economic theory is rooted in very
   specific assumptions and concepts such as "economic man" and "perfect
   competition." It claims to be "value-free" yet its preferred
   terminology is riddled with value connotations. For example, the
   behaviour of "economic man" (i.e., people who are self-interested
   utility maximisation machines) is described as "rational." By
   implication, then, the behaviour of real people is "irrational"
   whenever they depart from this severely truncated account of human
   nature and society. Our lives consist of much more than buying and
   selling. We have goals and concerns which cannot be bought or sold in
   markets. In other words, humanity and liberty transcend the limits of
   property and, as a result, economics. This, unsurprisingly, affects
   those who study the "science" as well:

     "Studying economics also seems to make you a nastier person.
     Psychological studies have shown that economics graduate students
     are more likely to 'free ride' -- shirk contributions to an
     experimental 'public goods' account in the pursuit of higher private
     returns -- than the general public. Economists also are less
     generous that other academics in charitable giving. Undergraduate
     economics majors are more likely to defect in the classic prisoner's
     dilemma game that are other majors. And on other tests, students
     grow less honest -- expressing less of a tendency, for example, to
     return found money -- after studying economics, but not studying a
     control subject like astronomy.

     "This is no surprise, really. Mainstream economics is built entirely
     on a notion of self-interested individuals, rational self-maximisers
     who can order their wants and spend accordingly. There's little room
     for sentiment, uncertainty, selflessness, and social institutions.
     Whether this is an accurate picture of the average human is open to
     question, but there's no question that capitalism as a system and
     economics as a discipline both reward people who conform to the
     model."
     [Doug Henwood, Wall Street, p, 143]

   So is economics "value free"? Far from it. Given its social role, it
   would be surprising that it were. That it tends to produce policy
   recommendations that benefit the capitalist class is not an accident.
   It is rooted in the fibre of the "science" as it reflects the
   assumptions of capitalist society and its class structure. Not only
   does it take the power and class structures of capitalism for granted,
   it also makes them the ideal for any and every economy. Given this, it
   should come as no surprise that economists will tend to support
   policies which will make the real world conform more closely to the
   standard (usually neoclassical) economic model. Thus the models of
   economics become more than a set of abstract assumptions, used simply
   as a tool in theoretical analysis of the casual relations of facts.
   Rather they become political goals, an ideal towards which reality
   should be forced to travel.

   This means that economics has a dual character. On the one hand, it
   attempts to prove that certain things (for example, that free market
   capitalism produces an optimum allocation of resources or that, given
   free competition, price formation will ensure that each person's income
   corresponds to their productive contribution). On the other, economists
   stress that economic "science" has nothing to do with the question of
   the justice of existing institutions, class structures or the current
   economic system. And some people seem surprised that this results in
   policy recommendations which consistently and systematically favour the
   ruling class.

C.1.2 Is economics a science?

   In a word, no. If by "scientific" it is meant in the usual sense of
   being based on empirical observation and on developing an analysis that
   was consistent with and made sense of the data, then most forms of
   economics are not a science.

   Rather than base itself on a study of reality and the generalisation of
   theory based on the data gathered, economics has almost always been
   based on generating theories rooted on whatever assumptions were
   required to make the theory work. Empirical confirmation, if it happens
   at all, is usually done decades later and if the facts contradict the
   economics, so much the worse for the facts.

   A classic example of this is the neo-classical theory of production. As
   noted previously, neoclassical economics is focused on individual
   evaluations of existing products and, unsurprisingly, economics is
   indelibly marked by "the dominance of a theoretical vision that treats
   the inner workings of the production process as a 'black box.'" This
   means that the "neoclassical theory of the 'capitalist' economy makes
   no qualitative distinction between the corporate enterprise that
   employs tens of thousands of people and the small family undertaking
   that does no employ any wage labour at all. As far as theory is
   concerned, it is technology and market forces, not structures of social
   power, that govern the activities of corporate capitalists and petty
   proprietors alike." [William Lazonick, Competitive Advantage on the
   Shop Floor, p. 34 and pp. 33-4] Production in this schema just happens
   -- inputs go in, outputs go out -- and what happens inside is
   considered irrelevant, a technical issue independent of the social
   relationships those who do the actual production form between
   themselves -- and the conflicts that ensure.

   The theory does have a few key assumptions associated with it, however.
   First, there are diminishing returns. This plays a central role. In
   mainstream diminishing returns are required to produce a downward
   sloping demand curve for a given factor. Second, there is a rising
   supply curve based on rising marginal costs produced by diminishing
   returns. The average variable cost curve for a firm is assumed to be
   U-shaped, the result of first increasing and then diminishing returns.
   These are logically necessary for the neo-classical theory to work.

   Non-economists would, of course, think that these assumptions are
   generalisations based on empirical evidence. However, they are not.
   Take the U-shaped average cost curve. This was simply invented by A. C.
   Pigou, "a loyal disciple of [leading neo-classical Alfred] Marshall and
   quite innocent of any knowledge of industry. He therefore constructed a
   U-shaped average cost curve for a firm, showing economies of scale up
   to a certain size and rising costs beyond it." [Joan Robinson,
   Collected Economic Papers, vol. 5, p. 11] The invention was driven by
   need of the theory, not the facts. With increasing returns to scale,
   then large firms would have cost advantages against small ones and
   would drive them out of business in competition. This would destroy the
   concept of perfect competition. However, the invention of the average
   cost curve allowed the theory to work as "proved"
   that a competitive market could not become dominated by a few large
   firms, as feared.

   The model, in other words, was adjusted to ensure that it produced the
   desired result rather than reflect reality. The theory was required to
   prove that markets remained competitive and the existence of
   diminishing marginal returns to scale of production did tend by itself
   to limit the size of individual firms. That markets did become
   dominated by a few large firms was neither here nor there. It did not
   happen in theory and, consequently, that was the important thing and so
   "when the great concentrations of power in the multinational
   corporations are bringing the age of national employment policy to an
   end, the text books are still illustrated by U-shaped curves showing
   the limitation on the size of firms in a perfectly competitive market."
   [Joan Robinson, Contributions to Modern Economics, p. 5]

   To be good, a theory must have two attributes: They accurately describe
   the phenomena in question and they make accurate predictions. Neither
   holds for Pigou's invention: reality keeps getting in the way. Not only
   did the rise of a few large firms dominating markets indirectly show
   that the theory was nonsense, when empirical testing was finally done
   decades after the theory was proposed it showed that in most cases the
   opposite is the case: that there were constant or even falling costs in
   production. Just as the theories of marginality and diminishing
   marginal returns taking over economics, the real world was showing how
   wrong it was with the rise of corporations across the world.

   So the reason why the market become dominated by a few firms should be
   obvious enough: actual corporate price is utterly different from the
   economic theory. This was discovered when researchers did what the
   original theorists did not think was relevant: they actually asked
   firms what they did and the researchers consistently found that, for
   the vast majority of manufacturing firms their average costs of
   production declined as output rose, their marginal costs were always
   well below their average costs, and substantially smaller than
   'marginal revenue', and the concept of a 'demand curve' (and therefore
   its derivative 'marginal revenue') was simply irrelevant.

   Unsurprisingly, real firms set their prices prior to sales, based on a
   mark-up on costs at a target rate of output. In other words, they did
   not passively react to the market. These prices are an essential
   feature of capitalism as prices are set to maintain the long-term
   viability of the firm. This, and the underlying reality that per-unit
   costs fell as output levels rose, resulted in far more stable prices
   than were predicted by traditional economic theory. One researcher
   concluded that administered prices "differ so sharply from the
   behaviour to be expected from" the theory "as to challenge the basic
   conclusions" of it. He warned that until such time as "economic theory
   can explain and take into account the implications" of this empirical
   data, "it provides a poor basis for public policy." Needless to say,
   this did not disturb neo-classical economists or stop them providing
   public policy recommendations. [Gardiner C. Means, "The
   Administered-Price Thesis Reconfirmed", The American Economic Review,
   pp. 292-306, Vol. 62, No. 3, p. 304]

   One study in 1952 showed firms a range of hypothetical cost curves, and
   asked firms which ones most closely approximated their own costs. Over
   90% of firms chose a graph with a declining average cost rather than
   one showing the conventional economic theory of rising marginal costs.
   These firms faced declining average cost, and their marginal revenues
   were much greater than marginal cost at all levels of output.
   Unsurprisingly, the study's authors concluded if this sample was
   typical then it was "obvious that short-run marginal price theory
   should be revised in the light of reality." We are still waiting.
   [Eiteman and Guthrie, "The Shape of the Average Cost Curve", The
   American Economic Review, pp. 832-8, Vol. 42, No. 5, p. 838]

   A more recent study of the empirical data came to the same conclusions,
   arguing that it is "overwhelming bad news . . . for economic theory."
   While economists treat rising marginal cost as the rule, 89% of firms
   in the study reported marginal costs which were either constant or
   declined with output. As for price elasticity, it is not a vital
   operational concept for corporations. In other words, the "firms that
   sell 40 percent of GDP believe their demand is totally insensitive to
   price" while "only about one-sixth of GDP is sold under conditions of
   elastic demand." [A.S. Blinder, E. Cabetti, D. Lebow and J. Rudd,
   Asking About Prices, p. 102 and p. 101]

   Thus empirical research has concluded that actual price setting has
   nothing to do with clearing the market by equating market supply to
   market demand (i.e. what economic theory sees as the role of prices).
   Rather, prices are set to enable the firm to continue as a going
   concern and equating supply and demand in any arbitrary period of time
   is irrelevant to a firm which hopes to exist for the indefinite future.
   As Lee put it, basing himself on extensive use of empirical research,
   "market prices are not market-clearing or profit-maximising prices, but
   rather are enterprise-, and hence transaction-reproducing prices."
   Rather than a non-existent equilibrium or profit maximisation at a
   given moment determining prices, the market price is "set and the
   market managed for the purpose of ensuring continual transactions for
   those enterprises in the market, that is for the benefit of the
   business leaders and their enterprises." A significant proportion of
   goods have prices based on mark-up, normal cost and target rate of
   return pricing procedures and are relatively stable over time. Thus
   "the existence of stable, administered market prices implies that the
   markets in which they exist are not organised like auction markets or
   like the early retail markets and oriental bazaars" as imagined in
   mainstream economic ideology. [Frederic S. Lee, Post Keynesian Price
   Theory, p. 228 and p. 212]

   Unsurprisingly, most of these researchers were highly critical the
   conventional economic theory of markets and price setting. One viewed
   the economists' concepts of perfect competition and monopoly as virtual
   nonsense and "the product of the itching imaginations of uninformed and
   inexperienced armchair theorisers." [Tucker, quoted by Lee, Op. Cit.,
   p. 73f] Which was exactly how it was produced.

   No other science would think it appropriate to develop theory utterly
   independently of phenomenon under analysis. No other science would wait
   decades before testing a theory against reality. No other science would
   then simply ignore the facts which utterly contradicted the theory and
   continue to teach that theory as if it were a valid generalisation of
   the facts. But, then, economics is not a science.

   This strange perspective makes sense once it is realised how key the
   notion of diminishing costs is to economics. In fact, if the assumption
   of increasing marginal costs is abandoned then so is perfect
   competition and "the basis of which economic laws can be constructed .
   . . is shorn away," causing the "wreckage of the greater part of
   general equilibrium theory." This will have "a very destructive
   consequence for economic theory," in the words of one leading
   neo-classical economist. [John Hicks, Value and Capital, pp. 83-4] As
   Steve Keen notes, this is extremely significant:

     "Strange as it may seem . . . this is a very big deal. If marginal
     returns are constant rather than falling, then the neo-classical
     explanation of everything collapses. Not only can economic theory no
     longer explain how much a firm produces, it can explain nothing
     else.

     "Take, for example, the economic theory of employment and wage
     determination . . . The theory asserts that the real wage is
     equivalent to the marginal product of labour . . . An employer will
     employ an additional worker if the amount the worker adds to output
     -- the worker's marginal product -- exceeds the real wage . . .
     [This] explains the economic predilection for blaming everything on
     wages being too high -- neo-classical economics can be summed up, as
     [John Kenneth] Galbraith once remarked, in the twin propositions
     that the poor don't work hard enough because they're paid too much,
     and the rich don't work hard enough because they're not paid enough
     . . .

     "If in fact the output to employment relationship is relatively
     constant, then the neo-classical explanation for employment and
     output determination collapses. With a flat production function, the
     marginal product of labour will be constant, and it will never
     intersect the real wage. The output of the form then can't be
     explained by the cost of employing labour. . . [This means that]
     neo-classical economics simply cannot explain anything: neither the
     level of employment, nor output, nor, ultimately, what determines
     the real wage . . .the entire edifice of economics collapses."
     [Debunking Economics, pp. 76-7]

   It should be noted that the empirical research simply confirmed an
   earlier critique of neo-classical economics presented by Piero Sraffa
   in 1926. He argued that while the neo-classical model of production
   works in theory only if we accept its assumptions. If those assumptions
   do not apply in practice, then it is irrelevant. He therefore "focussed
   upon the economic assumptions that there were 'factors of production'
   which were fixed in the short run, and that supply and demand were
   independent of each other. He argued that these two assumptions could
   be fulfilled simultaneously. In circumstances where it was valid to say
   some factor of production was fixed in the short term, supply and
   demand could not independent, so that every point on the supply curve
   would be associated with a different demand curve. On the other hand,
   in circumstances where supply and demand could justifiably be treated
   as independent, then it would be impossible for any factor of
   production to be fixed. Hence the marginal costs of production would be
   constant." He stressed firms would have to be irrational to act
   otherwise, foregoing the chance to make profits simply to allow
   economists to build their models of how they should act. [Keen, Op.
   Cit., pp. 66-72]

   Another key problem in economics is that of time. This has been known,
   and admitted, by economists for some time. Marshall, for example,
   stated that "the element of time" was "the source of many of the
   greatest difficulties of economics." [Principles of Economics, p. 109]
   The founder of general equilibrium theory, Walras, recognised that the
   passage of time wrecked his whole model and stated that we "shall
   resolve the . . . difficulty purely and simply by ignoring the time
   element at this point." This was due, in part, because production
   "requires a certain lapse of time." [Elements of Pure Economics, p.
   242] This was generalised by Gerard Debreu (in his Nobel Prize for
   economics winning Theory of Value ) who postulated that everyone makes
   their sales and purchases for all time in one instant.

   Thus the cutting edge of neo-classical economics, general equilibrium
   ignores both time and production. It is based on making time stop,
   looking at finished goods, getting individuals to bid for them and,
   once all goods are at equilibrium, allowing the transactions to take
   place. For Walras, this was for a certain moment of time and was
   repeated, for his followers it happened once for all eternity. This is
   obviously not the way markets work in the real world and, consequently,
   the dominant branch of economics is hardly scientific. Sadly, the
   notion of individuals having full knowledge of both now and the future
   crops up with alarming regularly in the "science" of economics.

   Even if we ignore such minor issues as empirical evidence and time,
   economics has problems even with its favoured tool, mathematics. As
   Steve Keen has indicated, economists have "obscured reality using
   mathematics because they have practised mathematics badly, and because
   they have not realised the limits of mathematics." indeed, there are
   "numerous theorems in economics that reply upon mathematically
   fallacious propositions." [Op. Cit., p. 258 and p. 259] For a theory
   born from the desire to apply calculus to economics, this is deeply
   ironic. As an example, Keen points to the theory of perfect competition
   which assumes that while the demand curve for the market as a whole is
   downward sloping, an individual firm in perfect competition is so small
   that it cannot affect the market price and, consequently, faces a
   horizontal demand curve. Which is utterly impossible. In other words,
   economics breaks the laws of mathematics.

   These are just two examples, there are many, many more. However, these
   two are pretty fundamental to the whole edifice of modern economic
   theory. Much, if not most, of mainstream economics is based upon
   theories which have little or no relation to reality. Kropotkin's
   dismissal of "the metaphysical definitions of the academical
   economists" is as applicable today. [Evolution and Environment, p. 92]
   Little wonder dissident economist Nicholas Kaldor argued that:

     "The Walrasian [i.e. general] equilibrium theory is a highly
     developed intellectual system, much refined and elaborated by
     mathematical economists since World War II -- an intellectual
     experiment . . . But it does not constitute a scientific hypothesis,
     like Einstein's theory of relativity or Newton's law of gravitation,
     in that its basic assumptions are axiomatic and not empirical, and
     no specific methods have been put forward by which the validity or
     relevance of its results could be tested. The assumptions make
     assertions about reality in their implications, but these are not
     founded on direct observation, and, in the opinion of practitioners
     of the theory at any rate, they cannot be contradicted by
     observation or experiment." [The Essential Kaldor, p. 416]

C.1.3 Can you have an economics based on individualism?

   In a word, no. No economic system is simply the sum of its parts. The
   idea that capitalism is based on the subjective evaluations of
   individuals for goods flies in the face of both logic and the way
   capitalism works. In other words, modern economists is based on a
   fallacy. While it would be expected for critics of capitalism to
   conclude this, the ironic thing is that economists themselves have
   proven this to be the case.

   Neoclassical theory argues that marginal utility determines demand and
   price, i.e. the price of a good is dependent on the intensity of demand
   for the marginal unit consumed. This was in contrast to classic
   economics, which argued that price (exchange value) was regulated by
   the cost of production, ultimately the amount of labour used to create
   it. While realistic, this had the political drawback of implying that
   profit, rent and interest were the product of unpaid labour and so
   capitalism was exploitative. This conclusion was quickly seized upon by
   numerous critics of capitalism, including Proudhon and Marx. The rise
   of marginal utility theory meant that such critiques could be ignored.

   However, this change was not unproblematic. The most obvious problem
   with it is that it leads to circular reasoning. Prices are supposed to
   measure the "marginal utility" of the commodity, yet consumers need to
   know the price first in order to evaluate how best to maximise their
   satisfaction. Hence it "obviously rest[s] on circular reasoning.
   Although it tries to explain prices, prices [are] necessary to explain
   marginal utility." [Paul Mattick, Economics, Politics and the Age of
   Inflation, p.58] In the end, as Jevons (one of the founders of the new
   economics) acknowledged, the price of a commodity is the only test we
   have of the utility of the commodity to the producer. Given that
   marginality utility was meant to explain those prices, the failure of
   the theory could not be more striking.

   However, this is the least of its problems. At first, the neoclassical
   economists used cardinal utility as their analysis tool. Cardinal
   utility meant that it was measurable between individuals, i.e. that the
   utility of a given good was the same for all. While this allowed prices
   to be determined, it caused obvious political problems as it obviously
   justified the taxation of the wealthy. As cardinal utility implied that
   the "utility" of an extra dollar to a poor person was clearly greater
   than the loss of one dollar to a rich man, it was appropriated by
   reformists precisely to justify social reforms and taxation.

   Capitalist economists had, yet again, created a theory that could be
   used to attack capitalism and the income and wealth hierarchy it
   produces. As with classical economics, socialists and other social
   reformists used the new theories to do precisely that, appropriating it
   to justify the redistribution of income and wealth downward (i.e. back
   into the hands of the class who had created it in the first place).
   Combine this with the high levels of class conflict at the time and it
   should come as no surprise that the "science" of economics was suitably
   revised.

   There was, of course, a suitable "scientific" rationale for this
   revision. It was noted that as individual evaluations are inherently
   subjective, it is obvious that cardinal utility was impossible in
   practice. Of course, cardinality was not totally rejected. Neoclassical
   economics retained the idea that capitalists maximise profits, which is
   a cardinal quantity. However for demand utility became "ordinal," that
   is utility was considered an individual thing and so could not be
   measured. This resulted in the conclusion that there was no way of
   making interpersonal comparisons between individuals and, consequently,
   no basis for saying a pound in the hands of a poor person had more
   utility than if it had remained in the pocket of a billionaire. The
   economic case for taxation was now, apparently, closed. While you may
   think that income redistribution was a good idea, it was now proven by
   "science" that this little more than a belief as all interpersonal
   comparisons were now impossible. That this was music to the ears of the
   wealthy was, of course, just one of those strange co-incidences which
   always seems to plague economic "science."

   The next stage of the process was to abandon then ordinal utility in
   favour of "indifference curves" (the continued discussion of "utility"
   in economics textbooks is primarily heuristic). In this theory
   consumers are supposed to maximise their utility by working out which
   bundle of goods gives them the highest level of satisfaction based on
   the twin constraints of income and given prices (let us forget, for the
   moment, that marginal utility was meant to determines prices in the
   first place). To do this, it is assumed that incomes and tastes are
   independent and that consumers have pre-existing preferences for all
   possible bundles.

   This produces a graph that shows different quantities of two different
   goods, with the "indifference curves" showing the combinations of goods
   which give the consumer the same level of satisfaction (hence the name,
   as the consumer is "indifferent" to any combination along the curve).
   There is also a straight line representing relative prices and the
   consumer's income and this budget line shows the uppermost curve the
   consumer can afford to reach. That these indifference curves could not
   be observed was not an issue although leading neo-classical economist
   Paul Samuelson provided an apparent means see these curves by his
   concept of "revealed preference" (a basic tautology). There is a reason
   why "indifference curves" cannot be observed. They are literally
   impossible for human beings to calculate once you move beyond a
   trivially small set of alternatives and it is impossible for actual
   people to act as economists argue they do. Ignoring this slight
   problem, the "indifference curve" approach to demand can be faulted for
   another, even more basic, reason. It does not prove what it seeks to
   show:

     "Though mainstream economics began by assuming that this hedonistic,
     individualist approach to analysing consumer demand was
     intellectually sound, it ended up proving that it was not. The
     critics were right: society is more than the sum of its individual
     members." [Steve Keen, Debunking Economics, p. 23]

   As noted above, to fight the conclusion that redistributing wealth
   would result in a different level of social well-being, economists had
   to show that "altering the distribution of income did not alter social
   welfare. They worked out that two conditions were necessary for this to
   be true: (a) that all people have the same tastes; (b) that each
   person's tastes remain the same as her income changes, so that every
   additional dollar of income was spent exactly the same way as all
   previous dollars." The former assumption "in fact amounts to assuming
   that there is only one person in society" or that "society consists of
   a multitude of identical drones" or clones. The latter assumption
   "amounts to assuming that there is only one commodity -- since
   otherwise spending patterns would necessary change as income rose."
   [Keen, Op. Cit., p. 24] This is the real meaning of the assumption that
   all goods and consumers can be considered "representative." Sadly, such
   individuals and goods do not exist. Thus:

     "Economics can prove that 'the demand curve slows downward in price'
     for a single individual and a single commodity. But in a society
     consisting of many different individuals with many different
     commodities, the 'market demand curve' is more probably jagged, and
     slopes every which way. One essential building block of the economic
     analysis of markets, the demand curve, therefore does not have the
     characteristics needed for economic theory to be internally
     consistent . . . most mainstream academic economists are aware of
     this problem, but they pretend that the failure can be managed with
     a couple of assumptions. Yet the assumptions themselves are so
     absurd that only someone with a grossly distorted sense of logic
     could accept them. That grossly distorted sense of logic is acquired
     in the course of a standard education in economics." [Op. Cit., pp.
     25-7]

   Rather than produce a "social indifference map which had the same
   properties as the individual indifference maps" by adding up all the
   individual maps, economics "proved that this consistent summation from
   individual to society could not be achieved." Any sane person would
   have rejected the theory at this stage, but not economists. Keen states
   the obvious: "That economists, in general, failed to draw this
   inference speaks volumes for the unscientific nature of economic
   theory." They simply invented "some fudge to disguise the gapping hole
   they have uncovered in the theory." [Op. Cit., p. 40 and p. 48]
   Ironically, it took over one hundred years and advanced mathematical
   logic to reach the same conclusion that the classical economists took
   for granted, namely that individual utility could not be measured and
   compared. However, instead of seeking exchange value (price) in the
   process of production, neoclassical economists simply that made a few
   absurd assumptions and continued on its way as if nothing was wrong.

   This is important because "economists are trying to prove that a market
   economy necessarily maximises social welfare. If they can't prove that
   the market demand curve falls smoothly as price rises, they can't prove
   that the market maximises social welfare." In addition, "the concept of
   a social indifference curve is crucial to many of the key notions of
   economics: the argument that free trade is necessarily superior to
   regulated trade, for example, is first constructed using a social
   indifference curve. Therefore, if the concept of a social indifference
   curve itself is invalid, then so too are many of the most treasured
   notions of economics." [Keen, Op. Cit., p. 50] This means much of
   economic theory is invalidated and with it the policy recommendations
   based on it.

   This elimination of individual differences in favour of a society of
   clones by marginalism is not restricted to demand. Take the concept of
   the "representative firm" used to explain supply. Rather than a
   theoretical device to deal with variety, it ignores diversity. It is a
   heuristic concept which deals with a varied collection of firms by
   identifying a single set of distinct characteristics which are deemed
   to represent the essential qualities of the industry as a whole. It is
   not a single firm or even a typical or average firm. It is an imaginary
   firm which exhibits the "representative" features of the entire
   industry, i.e. it treats an industry as if it were just one firm.
   Moreover, it should be stressed that this concept is driven by the
   needs to prove the model, not by any concern over reality. The "real
   weakness" of the "representative firm" in neo-classical economics is
   that it is "no more than a firm which answers the requirements expected
   from it by the supply curve" and because it is "nothing more than a
   small-scale replica of the industry's supply curve that it is
   unsuitable for the purpose it has been called into being." [Kaldor, The
   Essential Kaldor, p. 50]

   Then there is neoclassical analysis of the finance market. According to
   the Efficient Market Hypothesis, information is disseminated equally
   among all market participants, they all hold similar interpretations of
   that information and all can get access to all the credit they need at
   any time at the same rate. In other words, everyone is considered to be
   identical in terms of what they know, what they can get and what they
   do with that knowledge and cash. This results in a theory which argues
   that stock markets accurately price stocks on the basis of their
   unknown future earnings, i.e. that these identical expectations by
   identical investors are correct. In other words, investors are able to
   correctly predict the future and act in the same way to the same
   information. Yet if everyone held identical opinions then there would
   be no trading of shares as trading obviously implies different opinions
   on how a stock will perform. Similarly, in reality investors are credit
   rationed, the rate of borrowing tends to rise as the amount borrowed
   increases and the borrowing rate normally exceeds the leading rate. The
   developer of the theory was honest enough to state that the
   "consequence of accommodating such aspects of reality are likely to be
   disastrous in terms of the usefulness of the resulting theory . . . The
   theory is in a shambles." [W.F Sharpe, quoted by Keen, Op. Cit., p.
   233]

   Thus the world was turned into a single person simply to provide a
   theory which showed that stock markets were "efficient" (i.e.
   accurately reflect unknown future earnings). In spite of these slight
   problems, the theory was accepted in the mainstream as an accurate
   reflection of finance markets. Why? Well, the implications of this
   theory are deeply political as it suggests that finance markets will
   never experience bubbles and deep slumps. That this contradicts the
   well-known history of the stock market was considered unimportant.
   Unsurprisingly, "as time went on, more and more data turned up which
   was not consistent with" the theory. This is because the model's world
   "is clearly not our world." The theory "cannot apply in a world in
   which investors differ in their expectations, in which the future is
   uncertain, and in which borrowing is rationed." It "should never have
   been given any credibility -- yet instead it became an article of faith
   for academics in finance, and a common belief in the commercial world
   of finance." [Keen, Op. Cit., p. 246 and p. 234]

   This theory is at the root of the argument that finance markets should
   be deregulated and as many funds as possible invested in them. While
   the theory may benefit the minority of share holders who own the bulk
   of shares and help them pressurise government policy, it is hard to see
   how it benefits the rest of society. Alternative, more realistic
   theories, argue that finance markets show endogenous instability,
   result in bad investment as well as reducing the overall level of
   investment as investors will not fund investments which are not
   predicted to have a sufficiently high rate of return. All of which has
   a large and negative impact on the real economy. Instead, the economic
   profession embraced a highly unreal economic theory which has
   encouraged the world to indulge in stock market speculation as it
   argues that they do not have bubbles, booms or bursts (that the 1990s
   stock market bubble finally burst like many previous ones is unlikely
   to stop this). Perhaps this has to do the implications for economic
   theory for this farcical analysis of the stock market? As two
   mainstream economists put it:

     "To reject the Efficient Market Hypothesis for the whole stock
     market . . . implies broadly that production decisions based on
     stock prices will lead to inefficient capital allocations. More
     generally, if the application of rational expectations theory to the
     virtually 'idea' conditions provided by the stock market fails, then
     what confidence can economists have in its application to other
     areas of economics . . . ?" [Marsh and Merton, quoted by Doug
     Henwood, Wall Street, p. 161]

   Ultimately, neoclassical economics, by means of the concept of
   "representative" agent, has proved that subjective evaluations could
   not be aggregated and, as a result, a market supply and demand curves
   cannot be produced. In other words, neoclassical economics has shown
   that if society were comprised of one individual, buying one good
   produced by one factory then it could accurately reflect what happened
   in it. "It is stating the obvious," states Keen, "to call the
   representative agent an 'ad hoc' assumption, made simply so that
   economists can pretend to have a sound basis for their analysis, when
   in reality they have no grounding whatsoever." [Op. Cit., p. 188]

   There is a certain irony about the change from cardinal to ordinal
   utility and finally the rise of the impossible nonsense which are
   "indifference curves." While these changes were driven by the need to
   deny the advocates of redistributive taxation policies the mantel of
   economic science to justify their schemes, the fact is by rejecting
   cardinal utility, it becomes impossible to say whether state action
   like taxes decreases utility at all. With ordinal utility and its
   related concepts, you cannot actually show that government intervention
   actually harms "social utility." All you can say is that they are
   indeterminate. While the rich may lose income and the poor gain, it is
   impossible to say anything about social utility without making an
   interpersonal (cardinal) utility comparison. Thus, ironically, ordinal
   utility based economics provides a much weaker defence of free market
   capitalism by removing the economist of the ability to call any act of
   government "inefficient" and they would have to be evaluated in, horror
   of horrors, non-economic terms. As Keen notes, it is "ironic that this
   ancient defence of inequality ultimately backfires on economics, by
   making its impossible to construct a market demand curve which is
   independent on the distribution of income . . . economics cannot defend
   any one distribution of income over any other. A redistribution of
   income that favours the poor over the rich cannot be formally opposed
   by economic theory." [Op. Cit., p. 51]

   Neoclassical economics has also confirmed that the classical
   perspective of analysing society in terms of classes is also more valid
   than the individualistic approach it values. As one leading
   neo-classical economist has noted, if economics is "to progress further
   we may well be forced to theorise in terms of groups who have
   collectively coherent behaviour." Moreover, the classical economists
   would not be surprised by the admission that "the addition of
   production can help" economic analysis nor the conclusion that the
   "idea that we should start at the level of the isolated individual is
   one which we may well have to abandon . . . If we aggregate over
   several individuals, such a model is unjustified." [Alan Kirman, "The
   Intrinsic Limits of Modern Economy Theory", pp. 126-139,
   The Economic Journal, Vol. 99, No. 395, p. 138, p. 136 and p. 138]

   So why all the bother? Why spend over 100 years driving economics into
   a dead-end? Simply because of political reasons. The advantage of the
   neoclassical approach was that it abstracted away from production
   (where power relations are clear) and concentrated on exchange (where
   power works indirectly). As libertarian Marxist Paul Mattick notes, the
   "problems of bourgeois economics seemed to disappear as soon as one
   ignored production and attended only to the market . . . Viewed apart
   from production, the price problem can be dealt with purely in terms of
   the market." [Economic Crisis and Crisis Theory, p. 9] By ignoring
   production, the obvious inequalities of power produced by the dominant
   social relations within capitalism could be ignored in favour of
   looking at abstract individuals as buyers and sellers. That this meant
   ignoring such key concepts as time by forcing economics into a static,
   freeze frame, model of the economy was a price worth paying as it
   allowed capitalism to be justified as the best of all possible worlds:

     "On the one hand, it was thought essential to represent the winning
     of profit, interest, and rent as participation in the creation of
     wealth. On the other, it was thought desirable to found the
     authority of economics on the procedures of natural science. This
     second desire prompted a search for general economic laws
     independent of time and circumstances. If such laws could be proven,
     the existing society would thereby be legitimated and every idea of
     changing it refuted. Subjective value theory promised to accomplish
     both tasks at once. Disregarding the exchange relationship peculiar
     to capitalism -- that between the sellers and buyers of labour power
     -- it could explain the division of the social product, under
     whatever forms, as resulting from the needs of the exchangers
     themselves." [Mattick, Op. Cit., p. 11]

   The attempt to ignore production implied in capitalist economics comes
   from a desire to hide the exploitative and class nature of capitalism.
   By concentrating upon the "subjective" evaluations of individuals,
   those individuals are abstracted away from real economic activity (i.e.
   production) so the source of profits and power in the economy can be
   ignored ([15]section C.2 indicates why exploitation of labour in
   production is the source of profit, interest and rent and not exchanges
   in the market).

   Hence the flight from classical economics to the static, timeless world
   of individuals exchanging pre-existing goods on the market. The
   evolution of capitalist economics has always been towards removing any
   theory which could be used to attack capitalism. Thus classical
   economics was rejected in favour of utility theory once socialists and
   anarchists used it to show that capitalism was exploitative. Then this
   utility theory was modified over time in order to purge it of
   undesirable political consequences. In so doing, they ended up not only
   proving that an economics based on individualism was impossible but
   also that it cannot be used to oppose redistribution policies after
   all.

C.1.4 What is wrong with equilibrium analysis?

   The dominant form of economic analysis since the 1880s has been
   equilibrium analysis. While equilibrium had been used by classical
   economics to explain what regulated market prices, it did not consider
   it as reflecting any real economy. This was because classical economics
   analysed capitalism as a mode of production rather than as a mode of
   exchange, as a mode of circulation, as neo-classical economics does. It
   looked at the process of creating products while neo-classical
   economics looked at the price ratios between already existing goods
   (this explains why neo-classical economists have such a hard time
   understanding classical or Marxist economics, the schools are talking
   about different things and why they tend to call any market system
   "capitalism" regardless of whether wage labour predominates of not).
   The classical school is based on an analysis of markets based on
   production of commodities through time. The neo-classical school is
   based on an analysis of markets based on the exchange of the goods
   which exist at any moment of time.

   This indicates what is wrong with equilibrium analysis, it is
   essentially a static tool used to analyse a dynamic system. It assumes
   stability where none exists. Capitalism is always unstable, always out
   of equilibrium, since "growing out of capitalist competition, to
   heighten exploitation, . . . the relations of production . . . [are] in
   a state of perpetual transformation, which manifests itself in changing
   relative prices of goods on the market. Therefore the market is
   continuously in disequilibrium, although with different degrees of
   severity, thus giving rise, by its occasional approach to an
   equilibrium state, to the illusion of a tendency toward equilibrium."
   [Mattick, Op. Cit., p. 51] Given this obvious fact of the real economy,
   it comes as no surprise that dissident economists consider equilibrium
   analysis as "a major obstacle to the development of economics as a
   science -- meaning by the term 'science' a body of theorems based on
   assumptions that are empirically derived (from observations) and which
   embody hypotheses that are capable of verification both in regard to
   the assumptions and the predictions." [Kaldor, The Essential Kaldor, p.
   373]

   Thus the whole concept is an unreal rather than valid abstraction of
   reality. Sadly, the notions of "perfect competition" and (Walrasian)
   "general equilibrium" are part and parcel of neoclassical economics. It
   attempts to show, in the words of Paul Ormerod, "that under certain
   assumptions the free market system would lead to an allocation of a
   given set of resources which was in a very particular and restricted
   sense optimal from the point of view of every individual and company in
   the economy." [The Death of Economics, p. 45] This was what Walrasian
   general equilibrium proved. However, the assumptions required prove to
   be somewhat unrealistic (to understate the point). As Ormerod points
   out:

     "[i]t cannot be emphasised too strongly that . . . the competitive
     model is far removed from being a reasonable representation of
     Western economies in practice. . . [It is] a travesty of reality.
     The world does not consist, for example, of an enormous number of
     small firms, none of which has any degree of control over the market
     . . . The theory introduced by the marginal revolution was based
     upon a series of postulates about human behaviour and the workings
     of the economy. It was very much an experiment in pure thought, with
     little empirical rationalisation of the assumptions." [Op. Cit., p.
     48]

   Indeed, "the weight of evidence" is "against the validity of the model
   of competitive general equilibrium as a plausible representation of
   reality." [Op. Cit., p. 62] For example, to this day, economists still
   start with the assumption of a multitude of firms, even worse, a
   "continuum" of them exist in every market. How many markets are there
   in which there is an infinite number of traders? This means that from
   the start the issues and problems associated with oligopoly and
   imperfect competition have been abstracted from. This means the theory
   does not allow one to answer interesting questions which turn on the
   asymmetry of information and bargaining power among economic agents,
   whether due to size, or organisation, or social stigmas, or whatever
   else. In the real world, oligopoly is common place and asymmetry of
   information and bargaining power the norm. To abstract from these means
   to present an economic vision at odds with the reality people face and,
   therefore, can only propose solutions which harm those with weaker
   bargaining positions and without information.

   General equilibrium is an entirely static concept, a market marked by
   perfect knowledge and so inhabited by people who are under no
   inducement or need to act. It is also timeless, a world without a
   future and so with no uncertainty (any attempt to include time, and so
   uncertainty, ensures that the model ceases to be of value). At best,
   economists include "time" by means of comparing one static state to
   another, i.e. "the features of one non-existent equilibrium were
   compared with those of a later non-existent equilibrium." [Mattick, Op.
   Cit., p. 22] How the economy actually changed from one stable state to
   another is left to the imagination. Indeed, the idea of any long-run
   equilibrium is rendered irrelevant by the movement towards it as the
   equilibrium also moves. Unsurprisingly, therefore, to construct an
   equilibrium path through time requires all prices for all periods to be
   determined at the start and that everyone foresees future prices
   correctly for eternity -- including for goods not invented yet. Thus
   the model cannot easily or usefully account for the reality that
   economic agents do not actually know such things as future prices,
   future availability of goods, changes in production techniques or in
   markets to occur in the future, etc. Instead, to achieve its results --
   proofs about equilibrium conditions -- the model assumes that actors
   have perfect knowledge at least of the probabilities of all possible
   outcomes for the economy. The opposite is obviously the case in
   reality:

     "Yet the main lessons of these increasingly abstract and unreal
     theoretical constructions are also increasingly taken on trust . . .
     It is generally taken for granted by the great majority of academic
     economists that the economy always approaches, or is near to, a
     state of 'equilibrium' . . . all propositions which the pure
     mathematical economist has shown to be valid only on assumptions
     that are manifestly unreal -- that is to say, directly contrary to
     experience and not just 'abstract.' In fact, equilibrium theory has
     reached the stage where the pure theorist has successfully (though
     perhaps inadvertently) demonstrated that the main implications of
     this theory cannot possibly hold in reality, but has not yet managed
     to pass his message down the line to the textbook writer and to the
     classroom." [Kaldor, Op. Cit., pp. 376-7]

   In this timeless, perfect world, "free market" capitalism will prove
   itself an efficient method of allocating resources and all markets will
   clear. In part at least, General Equilibrium Theory is an abstract
   answer to an abstract and important question: Can an economy relying
   only on price signals for market information be orderly? The answer of
   general equilibrium is clear and definitive -- one can describe such an
   economy with these properties. However, no actual economy has been
   described and, given the assumptions involved, none could ever exist. A
   theoretical question has been answered involving some amount of
   intellectual achievement, but it is a answer which has no bearing to
   reality. And this is often termed the "high theory" of equilibrium.
   Obviously most economists must treat the real world as a special case.

   Little wonder, then, that Kaldor argued that his "basic objection to
   the theory of general equilibrium is not that it is abstract -- all
   theory is abstract and must necessarily be so since there can be no
   analysis without abstraction -- but that it starts from the wrong kind
   of abstraction, and therefore gives a misleading 'paradigm' . . . of
   the world as it is; it gives a misleading impression of the nature and
   the manner of operation of economic forces." Moreover, belief that
   equilibrium theory is the only starting point for economic analysis has
   survived "despite the increasing (not diminishing) arbitrariness of its
   based assumptions -- which was forced upon its practitioners by the
   ever more precise cognition of the needs of logical consistency. In
   terms of gradually converting an 'intellectual experiment' . . . into a
   scientific theory -- in other words, a set of theorems directly related
   to observable phenomena -- the development of theoretical economics was
   one of continual degress, not progress . . . The process . . . of
   relaxing the unreal basis assumptions . . . has not yet started.
   Indeed, [they get] . . . thicker and more impenetrable with every
   successive reformation of the theory." [Op. Cit., p. 399 and pp. 375-6]

   Thus General Equilibrium theory analyses an economic state which there
   is no reason to suppose will ever, or has ever, come about. It is,
   therefore, an abstraction which has no discernible applicability or
   relevance to the world as it is. To argue that it can give insights
   into the real world is ridiculous. While it is true that there are
   certain imaginary intellectual problems for which the general
   equilibrium model is well designed to provide precise answers (if
   anything really could), in practice this means the same as saying that
   if one insists on analysing a problem which has no real world
   equivalent or solution, it may be appropriate to use a model which has
   no real-world application. Models derived to provide answers to
   imaginary problems will be unsuitable for resolving practical,
   real-world economic problems or even providing a useful insight into
   how capitalism works and develops.

   This can have devastating real world impact, as can be seen from the
   results of neoclassical advice to Eastern Europe and other countries in
   their transition from state capitalism (Stalinism) to private
   capitalism. As Joseph Stiglitz documents it was a disaster for all but
   the elite due to the "market fundamentalism preached" by economists It
   resulted in "a marked deterioration" in most peoples "basic standard of
   living, reflected in a host of social indicators" and well as large
   drops in GDP. [Globalisation and its discontents, p. 138 and p. 152]
   Thus real people can be harmed by unreal theory. That the advice of
   neoclassical economists has made millions of people look back at
   Stalinism as "the good old days" should be enough to show its
   intellectual and moral bankruptcy.

   What can you expect? Mainstream economic theory begins with axioms and
   assumptions and uses a deductive methodology to arrive at conclusions,
   its usefulness in discovering how the world works is limited. The
   deductive method is pre-scientific in nature. The axioms and
   assumptions can be considered fictitious (as they have negligible
   empirical relevance) and the conclusions of deductive models can only
   really have relevance to the structure of those models as the models
   themselves bear no relation to economic reality:

     "Some theorists, even among those who reject general equilibrium as
     useless, praise its logical elegance and completeness . . . But if
     any proposition drawn from it is applied to an economy inhabited by
     human beings, it immediately becomes self-contradictory. Human life
     does not exist outside history and no one had correct foresight of
     his own future behaviour, let alone of the behaviour of all the
     other individuals which will impinge upon his. I do not think that
     it is right to praise the logical elegance of a system which becomes
     self-contradictory when it is applied to the question that it was
     designed to answer." [Joan Robinson, Contributions to Modern
     Economics, pp. 127-8]

   Not that this deductive model is internally sound. For example, the
   assumptions required for perfect competition are mutually exclusive. In
   order for the market reach equilibrium, economic actors need to able to
   affect it. So, for example, if there is an excess supply some companies
   must lower their prices. However, such acts contradict the basic
   assumption of "perfect competition," namely that the number of buyers
   and sellers is so huge that no one individual actor (a firm or a
   consumer) can determine the market price by their actions. In other
   words, economists assume that the impact of each firm is zero but yet
   when these zeroes are summed up over the whole market the total is
   greater than zero. This is impossible. Moreover, the "requirements of
   equilibrium are carefully examined in the Walrasian argument but there
   is no way of demonstrating that a market which starts in an
   out-of-equilibrium position will tend to get into equilibrium, except
   by putting further very severe restrictions on the already highly
   abstract argument." [Joan Robinson, Collected Economic Papers, vol. 5,
   p. 154] Nor does the stable unique equilibrium actually exist for,
   ironically, "mathematicians have shown that, under fairly general
   conditions, general equilibrium is unstable." [Keen, Debunking
   Economics, p. 173]

   Another major problem with equilibrium theory is the fact that it does
   not, in fact, describe a capitalist economy. It should go without
   saying that models which focus purely on exchange cannot, by
   definition, offer a realistic analysis, never mind description, of the
   capitalism or the generation of income in an industrialised economy. As
   Joan Robinson summarises:

     "The neo-classical theory . . . pretends to derive a system of
     prices from the relative scarcity of commodities in relation to the
     demand for them. I say pretend because this system cannot be applied
     to capitalist production.

     "The Walrasian conception of equilibrium arrived at by higgling and
     haggling in a market illuminates the account of prisoners of war
     swapping the contents of their Red Cross parcels.

     "It makes sense also, with some modifications, in an economy of
     artisans and small traders . . .

     "Two essential characteristics of industrial capitalism are absent
     in these economic systems -- the distinction between income from
     work and income from property and the nature of investments made in
     the light of uncertain expectations about a long future."
     [Collected Economic Papers, vol. 5, p. 34]

   Even such basic things as profits and money have a hard time fitting
   into general equilibrium theory. In a perfectly competitive
   equilibrium, super-normal profit is zero so profit fails to appear.
   Normal profit is assumed to be the contribution capital makes to output
   and is treated as a cost of production and notionally set as the zero
   mark. A capitalism without profit? Or growth, "since there is no profit
   or any other sort of surplus in the neoclassical equilibrium, there can
   be no expanded reproduction of the system." [Mattick, Op. Cit., p. 22]
   It also treats capitalism as little more than a barter economy. The
   concept of general equilibrium is incompatible with the actual role of
   money in a capitalist economy. The assumption of "perfect knowledge"
   makes the keeping of cash reserves as a precaution against unexpected
   developments would not be necessary as the future is already known. In
   a world where there was absolute certainty about the present and future
   there would be no need for a medium of exchange like money at all. In
   the real world, money has a real effect on production an economic
   stability. It is, in other words, not neutral (although, conveniently,
   in a fictional world with neutral money "crises do not occur" and it
   "assumed away the very matter under investigation," namely depressions.
   [Keynes, quoted by Doug Henwood, Wall Street, p. 199]).

   Given that general equilibrium theory does not satisfactorily encompass
   such things as profit, money, growth, instability or even firms, how it
   can be considered as even an adequate representation of any real
   capitalist economy is hard to understand. Yet, sadly, this perspective
   has dominated economics for over 100 years. There is almost no
   discussion of how scarce means are organised to yield outputs, the
   whole emphasis is on exchanges of ready made goods. This is
   unsurprising, as this allows economics to abstract from such key
   concepts as power, class and hierarchy. It shows the "the bankruptcy of
   academic economic teaching. The structure of thought which it expounds
   was long ago proven to be hollow. It consisted of a set of propositions
   which bore hardly any relation to the structure and evolution of the
   economy that they were supposed to depict." [Joan Robinson, Op. Cit.,
   p. 90]

   Ultimately, equilibrium analysis simply presents an unreal picture of
   the real world. Economics treat a dynamic system as a static one,
   building models rooted in the concept of equilibrium when a
   non-equilibrium analysis makes obvious sense. As Steven Keen notes, it
   is not only the real world that has suffered, so has economics:

     "This obsession with equilibrium has imposed enormous costs on
     economics . . . unreal assumptions are needed to maintain conditions
     under which there will be a unique, 'optimal' equilibrium . . . If
     you believe you can use unreality to model reality, then eventually
     your grip on reality itself can become tenuous." [Op. Cit., p. 177]

   Ironically, given economists usual role in society as defenders of big
   business and the elite in general, there is one conclusion of general
   equilibrium theory which does have some relevance to the real world. In
   1956, two economists "demonstrated that serious problems exist for the
   model of competitive equilibrium if any of its assumptions are
   breached." They were "not dealing with the fundamental problem of
   whether a competitive equilibrium exists," rather they wanted to know
   what happens if the assumptions of the model were violated. Assuming
   that two violations existed, they worked out what would happen if only
   one of them were removed. The answer was a shock for economists -- "If
   just one of many, or even just one of two [violations] is removed, it
   is not possible to prejudge the outcome. The economy as a whole can
   theoretically be worse off it just one violation exists than it is when
   two such violations exist." In other words, any single move towards the
   economists' ideal market may make the world worse off. [Ormerod, Op.
   Cit., pp. 82-4]

   What Kelvin Lancaster and Richard Lipsey had shown in their paper "The
   General Theory of the Second Best" [Review of Economic Studies,
   December 1956] has one obvious implication, namely that neoclassical
   economics itself has shown that trade unions were essential to stop
   workers being exploited under capitalism. This is because the
   neoclassical model requires there to be a multitude of small firms and
   no unions. In the real world, most markets are dominated by a few big
   firms. Getting rid of unions in such a less than competitive market
   would result in the wage being less than the price for which the
   marginal worker's output can be sold, i.e. workers are exploited by
   capital. In other words, economics has itself disproved the
   neoclassical case against trade unions. Not that you would know that
   from neoclassical economists, of course. In spite of knowing that, in
   their own terms, breaking union power while retaining big business
   would result, in the exploitation of labour, neoclassical economists
   lead the attack on "union power" in the 1970s and 1980s. The subsequent
   explosion in inequality as wealth flooded upwards provided empirical
   confirmation of this analysis.

   Strangely, though, most neoclassical economists are still as anti-union
   as ever -- in spite of both their own ideology and the empirical
   evidence. That the anti-union message is just what the bosses want to
   hear can just be marked up as yet another one of those strange
   co-incidences which the value-free science of economics is so prone to.
   Suffice to say, if the economics profession ever questions general
   equilibrium theory it will be due to conclusions like this becoming
   better known in the general population.

C.1.5 Does economics really reflect the reality of capitalism?

   As we discussed in [16]section C.1.2, mainstream economics is rooted in
   capitalism and capitalist social relations. It takes the current
   division of society into classes as both given as well as producing the
   highest form of efficiency. In other words, mainstream economics is
   rooted in capitalist assumptions and, unsurprisingly, its conclusions
   are, almost always, beneficial to capitalists, managers, landlords,
   lenders and the rich rather than workers, tenants, borrowers and the
   poor.

   However, on another level mainstream capitalist economics simply does
   not reflect capitalism at all. While this may seem paradoxical, it is
   not. Neoclassical economics has always been marked by apologetics.
   Consequently, it must abstract or ignore from the more unpleasant and
   awkward aspects of capitalism in order to present it in the best
   possible light.

   Take, for example, the labour market. Anarchists, like other
   socialists, have always stressed that under capitalism workers have the
   choice between selling their liberty/labour to a boss or starving to
   death (or extreme poverty, assuming some kind of welfare state). This
   is because they do not have access to the means of life (land and
   workplaces) unless they sell their labour to those who own them. In
   such circumstances, it makes little sense to talk of liberty as the
   only real liberty working people have is, if they are lucky, agreeing
   to be exploited by one boss rather than another. How much an person
   works, like their wages, will be based on the relative balance of power
   between the working and capitalist classes in a given situation.

   Unsurprisingly, neoclassical economics does not portray the choice
   facing working class people in such a realistic light. Rather, it
   argues that the amount of hours an individual works is based on their
   preference for income and leisure time. Thus the standard model of the
   labour market is somewhat paradoxical in that there is no actual labour
   in it. There is only income, leisure and the preference of the
   individual for more of one or the other. It is leisure that is assumed
   to be a "normal good" and labour is just what is left over after the
   individual "consumes" all the leisure they want. This means that
   working resolves itself into the vacuous double negative of
   not-not-working and the notion that all unemployment is voluntary.

   That this is nonsense should be obvious. How much "leisure" can someone
   indulge in without an income? How can an economic theory be considered
   remotely valid when it presents unemployment (i.e. no income) as the
   ultimate utility in an economy where everything is (or should be)
   subject to a price? Income, then, has an overwhelming impact upon the
   marginal utility of leisure time. Equally, this perspective cannot
   explain why the prospect of job loss is seen with such fear by most
   workers. If the neoclassical (non-)analysis of the labour market were
   true, workers would be happy to be made unemployed. In reality, fear of
   the sack is a major disciplining tool within capitalism. That free
   market capitalist economists have succeeded in making unemployment
   appear as a desirable situation suggests that its grip on the reality
   of capitalism is slim to say the least (here, as in many other areas,
   Keynes is more realistic although most of his followers have
   capitulated faced with neoclassical criticism that standard Keynesian
   theory had bad micro-economic foundations rather than admit that later
   was nonsense and the former "an emasculated version of Keynes"
   inflicted on the world by J.R. Hicks. [Keen, Op. Cit., p. 211]).

   However, this picture of the "labour" market does hide the reality of
   working class dependency and, consequently, the power of the capitalist
   class. To admit that workers do not exercise any free choice over
   whether they work or not and, once in work, have to accept the work
   hours set by their employers makes capitalism seem less wonderful than
   its supporters claim. Ultimately, this fiction of the labour market
   being driven by the workers' desire for "leisure" and that all
   unemployment is "voluntary" is rooted in the need to obscure the fact
   that unemployment is an essential feature of capitalism and,
   consequently, is endemic to it. This is because it is the fundamental
   disciplinary mechanism of the system ("it is a whip in [the bosses']
   hands, constantly held over you, so you will slave hard for him and
   'behave' yourself," to quote Alexander Berkman). As we argued in
   [17]section B.4.3, capitalism must have unemployment in order to ensure
   that workers will obey their bosses and not demand better pay and
   conditions (or, even worse, question why they have bosses in the first
   place). It is, in other words, "inherent in the wage system" and "the
   fundamental condition of successful capitalist production." While it is
   "dangerous and degrading" to the worker, it is "very advantageous to
   the boss" and so capitalism "can't exist without it." [Berkman, What is
   Anarchism?, p. 26] The experience of state managed full employment
   between (approximately) 1950 and 1970 confirms this analysis, as does
   the subsequent period (see [18]section C.7.1).

   For the choice of leisure and labour to be a reality, then workers need
   an independent source of income. The model, in other words, assumes
   that workers need to be enticed by the given wage and this is only the
   case when workers have the option of working for themselves, i.e. that
   they own their own means of production. If this were the case, then it
   would not be capitalism. In other words, the vision of the labour
   market in capitalist economics assumes a non-capitalist economy of
   artisans and peasant farmers -- precisely the kind of economy
   capitalism destroyed (with the help of the state). An additional irony
   of this neoclassical analysis is that those who subscribe to it most
   are also those who attack the notion of a generous welfare state (or
   oppose the idea of welfare state in all forms). Their compliant is that
   with a welfare state, the labour market becomes "inefficient" as people
   can claim benefits and so need not seek work. Yet, logically, they
   should support a generous welfare state as it gives working people a
   genuine choice between labour and leisure. That bosses find it hard to
   hire people should be seen as a good thing as work is obviously being
   evaluated as a "disutility" rather than as a necessity. As an added
   irony, as we discuss in [19]section C.9, the capitalist analysis of the
   labour market is not based on any firm empirical evidence nor does it
   have any real logical basis (it is just an assumption). In fact, the
   evidence we do have points against it and in favour of the socialist
   analysis of unemployment and the labour market.

   One of the reasons why neoclassical economics is so blas about
   unemployment is because it argues that it should never happen. That
   capitalism has always been marked by unemployment and that this rises
   and falls as part of the business cycle is a inconvenient fact which
   neoclassical economics avoided seriously analysing until the 1930s.
   This flows from Say's law, the argument that supply creates its own
   demand. This theory, and its more formally put Walras' Law, is the
   basis on which the idea that capitalism could never face a general
   economic crisis is rooted in. That capitalism has always been marked by
   boom and bust has never put Say's Law into question except during the
   1930s and even then it was quickly put back into the centre of economic
   ideology.

   For Say, "every producer asks for money in exchange for his products
   only for the purpose of employing that money again immediately in the
   purchase of another product." However, this is not the case in a
   capitalist economy as capitalists seek to accumulate wealth and this
   involves creating a difference between the value of commodities someone
   desired to sell and buy on the market. While Say asserts that people
   simply want to consume commodities, capitalism is marked by the desire
   (the need) to accumulate. The ultimate aim is not consumption, as Say
   asserted (and today's economists repeat), but rather to make as much
   profit as possible. To ignore this is to ignore the essence of
   capitalism and while it may allow the economist to reason away the
   contradictions of that system, the reality of the business cycle cannot
   be ignored.

   Say's law, in other words, assumes a world without capital:

     "what is a given stock of capital? In this context, clearly, it is
     the actual equipment and stocks of commodities that happen to be in
     existence today, the result of recent or remote past history,
     together with the know-how, skill of labour, etc., that makes up the
     state of technology. Equipment . . . is designed for a particular
     range of uses, to be operated by a particular labour force. There is
     not a great deal of play in it. The description of the stock of
     equipment in existence at any moment as 'scare means with
     alternative uses' is rather exaggerated. The uses in fact are fairly
     specific, though they may be changed over time. But they can be
     utilised, at any moment, by offering less or more employment to
     labour. This is a characteristic of the wage economy. In an artisan
     economy, where each producer owns his own equipment, each produces
     what he can and sells it for what it will fetch. Say's law, that
     goods are the demand for goods, was ceasing to be true at the time
     he formulated it." [Joan Robinson, Collected Economic Papers, vol.
     4, p. 133]

   As Keen notes, Say's law "evisage[s] an exchange-only economy: an
   economy in which goods exist at the outset, but where no production
   takes place. The market simply enables the exchange of pre-existing
   goods." However, once we had capital to the economy, things change as
   capitalists wish "to supply more than they demand, and to accumulate
   the difference as profit which adds to their wealth." This results in
   an excess demand and, consequently, the possibility of a crisis. Thus
   mainstream capitalist economics "is best suited to the economic
   irrelevance of an exchange-only economy, or a production economy in
   which growth does not occur. If production and growth do occur, then
   they take place outside the market, when ironically the market is the
   main intellectual focus of neoclassical economics. Conventional
   economics is this a theory which suits a static economy . . . when what
   is needed are theories to analyse dynamic economies." [Debunking
   Economics, p. 194, p. 195 and p. 197]

   Ultimately, capital assets are not produced for their own stake but in
   expectation of profits. This obvious fact is ignored by Say's law, but
   was recognised by Marx (and subsequently acknowledged by Keynes as
   being correct). As Keen notes, unlike Say and his followers, "Marx's
   perspective thus integrates production, exchange and credit as holistic
   aspects of a capitalist economy, and therefore as essential elements of
   any theory of capitalism. Conventional economics, in contrast, can only
   analyse an exchange economy in which money is simply a means to make
   barter easier." [Op. Cit., pp. 195-6]

   Rejecting Say's Law as being applicable to capitalism means recognising
   that the capitalist economy is not stable, that it can experience booms
   and slumps. That this reflects the reality of that economy should go
   without saying. It also involves recognising that it can take time for
   unemployed workers to find new employment, that unemployment can by
   involuntary and that bosses can gain advantages from the fear of
   unemployment by workers.

   That last fact, the fear of unemployment is used by bosses to get
   workers to accept reductions in wages, hours and benefits, is key
   factor facing workers in any real economy. Yet, according to the
   economic textbooks, workers should have been falling over themselves to
   maximise the utility of leisure and minimise the disutility of work.
   Similarly, workers should not fear being made unemployed by
   globalisation as the export of any jobs would simply have generated
   more economic activity and so the displaced workers would immediately
   be re-employed (albeit at a lower wage, perhaps). Again, according to
   the economic textbooks, these lower wages would generate even more
   economic activity and thus lead, in the long run, to higher wages. If
   only workers had only listened to the economists then they would
   realise that that not only did they actually gain (in the long run) by
   their wages, hours and benefits being cut, many of them also gained (in
   the short term) increased utility by not having to go to work. That is,
   assuming the economists know what they are talking about.

   Then there is the question of income. For most capitalist economics, a
   given wage is supposed to be equal to the "marginal contribution" that
   an individual makes to a given company. Are we really expected to
   believe this? Common sense (and empirical evidence) suggests otherwise.
   Consider Mr. Rand Araskog, the CEO of ITT in 1990, who in that year was
   paid a salary of $7 million. Is it conceivable that an ITT accountant
   calculated that, all else being the same, the company's $20.4 billion
   in revenues that year would have been $7 million less without Mr.
   Araskog -- hence determining his marginal contribution to be $7
   million? This seems highly unlikely.

   Which feeds into the question of exploding CEO pay. While this has
   affected most countries, the US has seen the largest increases
   (followed by the UK). In 1979 the CEO of a UK company earned slightly
   less than 10 times as much as the average worker on the shop floor. By
   2002 a boss of a FTSE 100 company could expect to make 54 times as much
   as the typical worker. This means that while the wages for those on the
   shopfloor went up a little, once inflation is taken into account, the
   bosses wages arose from 200,000 per year to around 1.4m a year. In
   America, the increase was even worse. In 1980, the ratio of CEO to
   worker pay 50 to 1. Twenty years later it was 525 to 1, before falling
   back to 281 to 1 in 2002 following the collapse of the share price
   bubble. [Larry Elliott, "Nice work if you can get it: chief executives
   quietly enrich themselves for mediocrity," The Guardian, 23 January,
   2006]

   The notion of marginal productivity is used to justify many things on
   the market. For example, the widening gap between high-paid and
   low-paid Americans (it is argued) simply reflects a labour market
   efficiently rewarding more productive people. Thus the compensation for
   corporate chief executives climbs so sharply because it reflects their
   marginal productivity. The strange thing about this kind of argument is
   that, as we indicate in [20]section C.2.5, the problem of defining and
   measuring capital wrecked the entire neoclassical theory of marginal
   factor productivity and with it the associated marginal productivity
   theory of income back in the 1960s -- and was admitted as the leading
   neo-classical economists of the time. That marginal productivity theory
   is still invoked to justify capitalist inequalities shows not only how
   economics ignores the reality of capitalism but also the intellectual
   bankruptcy of the "science" and whose interests it, ultimately, serves.

   In spite of this awkward little fact, what of the claims made based on
   it? Is this pay really the result of any increased productivity on the
   part of CEOs? The evidence points the other way. This can be seen from
   the performance of the economies and companies in question. In Britain
   trend growth was a bit more than 2% in 1980 and is still a bit more
   than 2% a quarter of a century later. A study of corporate performance
   in Britain and the United States looked at the companies that make up
   the FTSE 100 index in Britain and the S&P 500 in the US and found that
   executive income is rarely justified by improved performance. [Julie
   Froud, Sukhdev Johal, Adam Leaver and Karel Williams, Financialisation
   and Strategy: Narrative and Number ] Rising stock prices in the 1990s,
   for example, were the product of one of the financial market's
   irrational bubbles over which the CEO's had no control or role in
   creating.

   During the same period as soaring CEO pay, workers' real wages remained
   flat. Are we to believe that since the 1980s, the marginal contribution
   of CEOs has increased massively whereas workers' marginal contributions
   remained stagnant? According to economists, in a free market wages
   should increase until they reach their marginal productivity. In the
   US, however, during the 1960s "pay and productivity grew in tandem, but
   they separated in the 1970s. In the 1990s boom, pay growth lagged
   behind productivity by almost 30%." Looking purely at direct pay,
   "overall productivity rose four times as fast as the average real
   hourly wage -- and twenty times as fast in manufacturing." Pay did
   catch up a bit in the late 1990s, but after 2000 "pay returned to its
   lagging position." [Doug Henwood, After the New Economy, pp. 45-6] In
   other words, over two decades of free market reforms has produced a
   situation which has refuted the idea that a workers wage equals their
   marginal productivity.

   The standard response by economists would be to state that the US
   economy is not a free market. Yet the 1970s, after all, saw the start
   of reforms based on the recommendations of free market capitalist
   economists. The 1980s and 1990s saw even more. Regulation was reduced,
   if not effectively eliminated, the welfare state rolled back and unions
   marginalised. So it staggers belief to state that the US was more free
   market in the 1950s and 1960s than in the 1980s and 1990s but,
   logically, this is what economists suggest. Moreover, this explanation
   sits ill at ease with the multitude of economists who justified growing
   inequality and skyrocketing CEO pay and company profits during this
   period in terms of free market economics. What is it to be? If the US
   is not a free market, then the incomes of companies and the wealth are
   not the result of their marginal contribution but rather are gained at
   the expense of the working class. If the US is a free market, then the
   rich are justified (in terms of economic theory) in their income but
   workers' wages do not equal their marginal productivity.
   Unsurprisingly, most economists do not raise the question, never mind
   answer it.

   So what is the reason for this extreme wage difference? Simply put,
   it's due to the totalitarian nature of capitalist firms (see
   [21]section B.4). Those at the bottom of the company have no say in
   what happens within it; so as long as the share-owners are happy, wage
   differentials will rise and rise (particularly when top management own
   large amounts of shares!). It is capitalist property relations that
   allow this monopolisation of wealth by the few who own (or boss) but do
   not produce. The workers do not get the full value of what they
   produce, nor do they have a say in how the surplus value produced by
   their labour gets used (e.g. investment decisions). Others have
   monopolised both the wealth produced by workers and the decision-making
   power within the company (see [22]section C.2 for more discussion).
   This is a private form of taxation without representation, just as the
   company is a private form of statism. Unlike the typical economist,
   most people would not consider it too strange a coincidence that the
   people with power in a company, when working out who contributes most
   to a product, decide it's themselves!

   Whether workers will tolerate stagnating wages depends, of course, on
   the general economic climate. High unemployment and job insecurity help
   make workers obedient and grateful for any job and this has been the
   case for most of the 1980s and 1990s in both America and the UK. So a
   key reason for the exploding pay is to be found in the successful class
   struggle the ruling class has been waging since the 1970s. There has
   "been a real shift in focus, so that the beneficiaries of corporate
   success (such as it is) are no longer the workers and the general
   public as a whole but shareholders. And given that there is evidence
   that only households in the top half of the income distribution in the
   UK and the US hold shares, this represents a significant redistribution
   of money and power." [Larry Elliott, Op. Cit.] That economics ignores
   the social context of rising CEO pay says a lot about the limitations
   of modern economics and how it can be used to justify the current
   system.

   Then there is the trivial little thing of production. Economics used to
   be called "political economy" and was production orientated. This was
   replaced by an economics based on marginalism and subjective
   evaluations of a given supply of goods is fixed. For classical
   economics, to focus on an instant of time was meaningless as time does
   not stop. To exclude production meant to exclude time, which as we
   noted in [23]section C.1.2 this is precisely and knowingly what
   marginalist economics did do. This means modern economics simply
   ignores production as well as time and given that profit making is a
   key concern for any firm in the real world, such a position shows how
   irrelevant neoclassical economics really is.

   Indeed, the neo-classical theory falls flat on its face. Basing itself,
   in effect, on a snapshot of time its principles for the rational firm
   are, likewise, based on time standing still. It argues that profit is
   maximised where marginal cost equals marginal revenue yet this is only
   applicable when you hold time constant. However, a real firm will not
   maximise profit with respect to quantity but also in respect to time.
   The neoclassical rule about how to maximise profit "is therefore
   correct if the quantity produced never changes" and "by ignoring time
   in its analysis of the firm, economic theory ignores some of the most
   important issues facing a firm." Neo-classical economics exposes its
   essentially static nature again. It "ignores time, and is therefore
   only relevant in a world in which time does no matter." [Keen, Op.
   Cit., pp. 80-1]

   Then there is the issue of consumption. While capitalist apologists go
   on about "consumer sovereignty" and the market as a "consumers
   democracy," the reality is somewhat different. Firstly, and most
   obviously, big business spends a lot of money trying to shape and
   influence demand by means of advertising. Not for them the neoclassical
   assumption of "given" needs, determined outside the system. So the
   reality of capitalism is one where the "sovereign" is manipulated by
   others. Secondly, there is the distribution of resources within
   society.

   Market demand is usually discussed in terms of tastes, not in the
   distribution of purchasing power required to satisfy those tastes.
   Income distribution is taken as given, which is very handy for those
   with the most wealth. Needless to say, those who have a lot of money
   will be able to maximise their satisfactions far easier than those who
   have little. Also, of course, they can out-bid those with less money.
   If capitalism is a "consumers" democracy then it is a strange one,
   based on "one dollar, one vote." It should be obvious whose values are
   going to be reflected most strongly in the market. If we start with the
   orthodox economics (convenient) assumption of a "given distribution of
   income" then any attempt to determine the best allocation of resources
   is flawed to start with as money replaces utility from the start. To
   claim after that the market based distribution is the best one is
   question begging in the extreme.

   In other words, under capitalism, it is not individual need or
   "utility" as such that is maximised, rather it is effective utility
   (usually called "effective demand") -- namely utility that is backed up
   with money. This is the reality behind all the appeals to the marvels
   of the market. As right-wing guru von Hayek put, the "[s]pontaneous
   order produced by the market does not ensure that what general opinion
   regards as more important needs are always met before the less
   important ones." ["Competition as a discovery process", The Essence of
   Hayek, p. 258] Which is just a polite way of referring to the process
   by which millionaires build a new mansion while thousands are homeless
   or live in slums or feed luxury food to their pets while humans go
   hungry. It is, in effect, to dismiss the needs of, for example, the 37
   million Americans who lived below the poverty line in 2005 (12.7% of
   the population, the highest percentage in the developed world and is
   based on the American state's absolute definition of poverty, looking
   at relative levels, the figures are worse). Similarly, the 46 million
   Americans without health insurance may, of course, think that their
   need to live should be considered as "more important" than, say,
   allowing Paris Hilton to buy a new designer outfit. Or, at the most
   extreme, when agribusiness grow cash crops for foreign markets while
   the landless starve to death. As E.P. Thompson argues, Hayek's answer:

     "promote[s] the notion that high prices were a (painful) remedy for
     dearth, in drawing supplies to the afflicted region of scarcity. But
     what draws supply are not high prices but sufficient money in their
     purses to pay high prices. A characteristic phenomenon in times of
     dearth is that it generates unemployment and empty pursues; in
     purchasing necessities at inflated prices people cease to be able to
     buy inessentials [causing unemployment] . . . Hence the number of
     those able to pay the inflated prices declines in the afflicted
     regions, and food may be exported to neighbouring, less afflicted,
     regions where employment is holding up and consumers still have
     money with which to pay. In this sequence, high prices can actually
     withdraw supply from the most afflicted area." [Customs in Common,
     pp. 283-4]

   Therefore "the law of supply and demand" may not be the "most
   efficient" means of distribution in a society based on inequality. This
   is clearly reflected in the "rationing" by purse which this system is
   based on. While in the economics books, price is the means by which
   scare resources are "rationed" in reality this creates many errors. As
   Thompson notes, "[h]owever persuasive the metaphor, there is an elision
   of the real Relationships assigned by price, which suggests . . .
   ideological sleight-of-mind. Rationing by price does not allocate
   resources equally among those in need; it reserves the supply to those
   who can pay the price and excludes those who can't . . . The raising of
   prices during dearth could 'ration' them [the poor] out of the market
   altogether." [Op. Cit., p. 285] Which is precisely what does happen. As
   economist (and famine expert) Amartya Sen notes:

     "Take a theory of entitlements based on a set of rights of
     'ownership, transfer and rectification.' In this system a set of
     holdings of different people are judged to be just (or unjust) by
     looking at past history, and not by checking the consequences of
     that set of holdings. But what if the consequences are recognisably
     terrible? . . .[R]efer[ing] to some empirical findings in a work on
     famines . . . evidence [is presented] to indicate that in many large
     famines in the recent past, in which millions of people have died,
     there was no over-all decline in food availability at all, and the
     famines occurred precisely because of shifts in entitlement
     resulting from exercises of rights that are perfectly legitimate. .
     . . [Can] famines . . . occur with a system of rights of the kind
     morally defended in various ethical theories, including Nozick's. I
     believe the answer is straightforwardly yes, since for many people
     the only resource that they legitimately possess, viz. their
     labour-power, may well turn out to be unsaleable in the market,
     giving the person no command over food . . . [i]f results such as
     starvations and famines were to occur, would the distribution of
     holdings still be morally acceptable despite their disastrous
     consequences? There is something deeply implausible in the
     affirmative answer." [Resources, Values and Development, pp. 311-2]

   Recurring famines were a constant problem during the lassiez-faire
   period of the British Empire. While the Irish Potato famine is probably
   the best known, the fact is that millions died due to starvation mostly
   due to a firm believe in the power of the market. In British India,
   according to the most reliable estimates, the deaths from the 1876-1878
   famine were in the range of 6-8 million and between 1896 and 1900, were
   between 17 to 20 million. According to a British statistician who
   analysed Indian food security measures in the two millennia prior to
   1800, there was one major famine a century in India. Under British rule
   there was one every four years. Over all, the late 1870s and the late
   1890s saw somewhere between 30 to 60 million people die in famines in
   India, China and Brazil (not including the many more who died
   elsewhere). While bad weather started the problem by placing the price
   of food above the reach of the poorest, the market and political
   decisions based on profound belief in it made the famine worse. Simply
   put, had the authorities distributed what food existed, most of the
   victims would have survived yet they did not as this would have, they
   argued, broke the laws of the market and produced a culture of
   dependency. [Mike Davis, Late Victorian Holocausts ] This pattern,
   incidentally, has been repeated in third world countries to this day
   with famine countries exporting food as the there is no "demand" for it
   at home.

   All of which puts Hayek's glib comments about "spontaneous order" into
   a more realistic context. As Kropotkin put it:

     "The very essence of the present economic system is that the worker
     can never enjoy the well-being he [or she] has produced . . .
     Inevitably, industry is directed . . . not towards what is needed to
     satisfy the needs of all, but towards that which, at a given moment,
     brings in the greatest profit for a few. Of necessity, the abundance
     of some will be based on the poverty of others, and the straitened
     circumstances of the greater number will have to be maintained at
     all costs, that there may be hands to sell themselves for a part
     only of what which they are capable of producing; without which
     private accumulation of capital is impossible." [Anarchism, p. 128]

   In other words, the market cannot be isolated and abstracted from the
   network of political, social and legal relations within which it is
   situated. This means that all that "supply and demand" tells us is that
   those with money can demand more, and be supplied with more, than those
   without. Whether this is the "most efficient" result for society cannot
   be determined (unless, of course, you assume that rich people are more
   valuable than working class ones because they are rich). This has an
   obvious effect on production, with "effective demand" twisting economic
   activity and so, under capitalism, meeting needs is secondary as the
   "only aim is to increase the profits of the capitalist." [Kropotkin,
   Op. Cit., p. 55]). George Barrett brings home of evil effects of such a
   system:

     "To-day the scramble is to compete for the greatest profits. If
     there is more profit to be made in satisfying my lady's passing whim
     than there is in feeding hungry children, then competition brings us
     in feverish haste to supply the former, whilst cold charity or the
     poor law can supply the latter, or leave it unsupplied, just as it
     feels disposed. That is how it works out." [Objections to Anarchism,
     p. 347]

   Therefore, as far as consumption is concerned, anarchists are well
   aware of the need to create and distribute necessary goods to those who
   require them. This, however, cannot be achieved under capitalism and
   for all its talk of "utility," "demand", "consumer sovereignty" and so
   forth the real facts are those with most money determine what is an
   "efficient" allocation of resources. This is directly, in terms of
   their control over the means of life as well as indirectly, by means of
   skewing market demand. For if financial profit is the sole
   consideration for resource allocation, then the wealthy can outbid the
   poor and ensure the highest returns. The less wealthy can do without.

   All in all, the world assumed by neo-classical economics is not the one
   we actually live in, and so applying that theory is both misleading and
   (usually) disastrous (at least to the "have-nots"). While this may seen
   surprisingly, it is not once we take into account its role as apologist
   and defender of capitalism. Once that is recognised, any apparent
   contradiction falls away.

C.1.6 Is it possible to a non-equilibrium based capitalist economics?

   Yes, it is but it would be unlikely to be free-market based as the
   reality of capitalism would get the better of its apologetics. This can
   be seen from the two current schools of economics which, rightly,
   reject the notion of equilibrium -- the post-Keynesian school and the
   so-called Austrian school.

   The former has few illusions in the nature of capitalism. At its best,
   this school combines the valid insights of classical economics, Marx
   and Keynes to produce a robust radical (even socialist) critique of
   both capitalism and capitalist economics. At its worse, it argues for
   state intervention to save capitalism from itself and, politically,
   aligns itself with social democratic ("liberal", in the USA) movements
   and parties. If economics does become a science, then this school of
   economics will play a key role in its development. Economists of this
   school include Joan Robinson, Nicholas Kaldor, John Kenneth Galbraith,
   Paul Davidson and Steven Keen. Due to its non-apologetic nature, we
   will not discuss it here.

   The Austrian school has a radically different perspective. This school,
   so named because its founders were Austrian, is passionately
   pro-capitalist and argues against any form of state intervention (bar,
   of course, the definition and defence of capitalist property rights and
   the power that these create). Economists of this school include Eugen
   von Bhm-Bawerk, Ludwig von Mises, Murray Rothbard, Israel Kirzner and
   Frederick von Hayek (the latter is often attacked by other Austrian
   economists as not being sufficiently robust in his opposition to state
   intervention). It is very much a minority school.

   As it shares many of the same founding fathers as neoclassical
   economics and is rooted in marginalism, the Austrian school is close to
   neoclassical economics in many ways. The key difference is that it
   rejects the notion that the economy is in equilibrium and embraces a
   more dynamic model of capitalism. It is rooted in the notion of
   entrepreneurial activity, the idea that entrepreneurs act on
   information and disequilibrium to make super profits and bring the
   system closer to equilibrium. Thus, to use their expression, their
   focus is on the market process rather than a non-existent end state. As
   such, it defends capitalism in terms of how it reacts of
   dis-equilibrium and presents a theory of the market process that brings
   the economy closer to equilibrium. And fails.

   The claim that markets tend continually towards equilibrium, as the
   consequence of entrepreneurial actions, is hard to justify in terms of
   its own assumptions. While the adjustments of a firm may bring the
   specific market it operates in more towards equilibrium, their
   ramifications may take other markets away from it and so any action
   will have stabilising and destabilising aspects to it. It strains
   belief to assume that entrepreneurial activity will only push an
   economy more towards equilibrium as any change in the supply and demand
   for any specific good leads to changes in the markets for other goods
   (including money). That these adjustments will all (mostly) tend
   towards equilibrium is little more than wishful thinking.

   While being more realistic than mainstream neo-classical theory, this
   method abandons the possibility of demonstrating that the market
   outcome is in any sense a realisation of the individual preferences of
   whose interaction it is an expression. It has no way of establishing
   the supposedly stabilising character of entrepreneurial activity or its
   alleged socially beneficial character as the dynamic process could lead
   to a divergence rather than a convergence of behaviour. A dynamic
   system need not be self-correcting, particularly in the labour market,
   nor show any sign of self-equilibrium (i.e. it will be subject to the
   business cycle).

   Given that the Austrian theory is, in part, based on Say's Law the
   critique we presented in the [24]last section also applies here.
   However, there is another reason to think the Austrian self-adjusting
   perspective on capitalism is flawed and this is rooted in their own
   analysis. Ironically enough, economists of this school often maintain
   that while equilibrium does not exist their analysis is rooted on two
   key markets being in such a state: the labour market and the market for
   credit. The reason for these strange exceptions to their general
   assumption is, fundamentally, political. The former is required to
   deflect claims that "pure"
   capitalism would result in the exploitation of the working class, the
   latter is required to show that such a system would be stable.

   Looking at the labour market, the Austrians argue that free market
   capitalism would experience full employment. That this condition is one
   of equilibrium does not seem to cause them much concern. Thus we find
   von Hayek, for example, arguing that the "cause of unemployment . . .
   is a deviation of prices and wages from their equilibrium position
   which would establish itself with a free market and stable money. But
   we can never know at what system of relative prices and wages such an
   equilibrium would establish itself." Therefore, "the deviation of
   existing prices from that equilibrium position . . . is the cause of
   the impossibility of selling part of the labour supply." [New Studies,
   p. 201] Therefore, we see the usual embrace of equilibrium theory to
   defend capitalism against the evils it creates even by those who claim
   to know better.

   Of course, the need to argue that there would be full employment under
   "pure"
   capitalism is required to maintain the fiction that everyone will be
   better off under it. It is hard to say that working class people will
   benefit if they are subject to high levels of unemployment and the
   resulting fear and insecurity that produces. As would be expected, the
   Austrian school shares the same perspective on unemployment as the
   neoclassical school, arguing that it is "voluntary" and the result of
   the price of labour being too high (who knew that depressions were so
   beneficial to workers, what with some having more leisure to enjoy and
   the others having higher than normal wages?). The reality of capitalism
   is very different than this abstract model.

   Anarchists have long realised that the capitalist market is based upon
   inequalities and changes in power. Proudhon argued that "[t]he
   manufacturer says to the labourer, 'You are as free to go elsewhere
   with your services as I am to receive them. I offer you so much.' The
   merchant says to the customer, 'Take it or leave it; you are master of
   your money, as I am of my goods. I want so much.' Who will yield? The
   weaker." He, like all anarchists, saw that domination, oppression and
   exploitation flow from inequalities of market/economic power and that
   the "power of invasion lies in superior strength." [What is Property?,
   p. 216 and p. 215] This is particularly the case in the labour market,
   as we argued in [25]section B.4.3.

   As such, it is unlikely that "pure" capitalism would experience full
   employment for under such conditions the employers loose the upper
   hand. To permanently experience a condition which, as we indicate in
   [26]section C.7, causes "actually existing" capitalism so many problems
   seems more like wishful thinking than a serious analysis. If
   unemployment is included in the Austrian model (as it should) then the
   bargaining position of labour is obviously weakened and, as a
   consequence, capital will take advantage and gather profits at the
   expense of labour. Conversely, if labour is empowered by full
   employment then they can use their position to erode the profits and
   managerial powers of their bosses. Logically, therefore, we would
   expect less than full unemployment and job insecurity to be the normal
   state of the economy with short periods of full unemployment before a
   slump. Given this, we would expect "pure" capitalism to be unstable,
   just as the approximations to it in history have always been. Austrian
   economics gives no reason to believe that would change in the
   slightest. Indeed, given their obvious hatred of trade unions and the
   welfare state, the bargaining power of labour would be weakened further
   during most of the business cycle and, contra Hayek, unemployment would
   remain and its level would fluctuate significantly throughout the
   business cycle.

   Which brings us to the next atypical market in Austrian theory, namely
   the credit market. According to the Austrian school, "pure" capitalism
   would not suffer from a business cycle (or, at worse, a very mild one).
   This is due to the lack of equilibrium in the credit market due to
   state intervention (or, more correctly, state non-intervention).
   Austrian economist W. Duncan Reekie provides a summary:

     "The business cycle is generated by monetary expansion and
     contraction . . . When new money is printed it appears as if the
     supply of savings has increased. Interest rates fall and businessmen
     are misled into borrowing additional founds to finance extra
     investment activity . . . This would be of no consequence if it had
     been the outcome of [genuine saving] . . . - but the change was
     government induced. The new money reaches factor owners in the form
     of wages, rent and interest . . . the factor owners will then spend
     the higher money incomes in their existing consumption:investment
     proportions . . . Capital goods industries will find their expansion
     has been in error and malinvestments have been incurred." [Markets,
     Entrepreneurs and Liberty, pp. 68-9]

   This analysis is based on their notion that the interest rate reflects
   the "time preference" of individuals between present and future goods
   (see [27]section C.2.6 for more details). The argument is that banks or
   governments manipulate the money supply or interest rates, making the
   actual interest rate different from the "real" interest rate which
   equates savings and loans. Of course, that analysis is dependent on the
   interest rate equating savings and loans which is, of course, an
   equilibrium position. If we assume that the market for credit shows the
   same disequilibrium tendencies as other markets, then the possibility
   for malinvestment is extremely likely as banks and other businesses
   extend credit based on inaccurate assumptions about present conditions
   and uncertain future developments in order to secure greater profits.
   Unsurprisingly, the Austrians (like most economists) expect the working
   class to bear the price for any recession in terms of real wage cuts in
   spite of their theory indicating that its roots lie in capitalists and
   bankers seeking more profits and, consequently, the former demanding
   and the latter supplying more credit than the "natural" interest rate
   would supply.

   Ironically, therefore, the Austrian business cycle is rooted in the
   concept of dis-equilibrium in the credit market, the condition it
   argues is the standard situation in all other markets. In effect, they
   think that the money supply and interest rates are determined
   exogenously (i.e. outside the economy) by the state. However, this is
   unlikely as the evidence points the other way, i.e. to the endogenous
   nature of the money supply itself. This account of money (proposed
   strongly by, among others, the post-Keynesian school) argues that the
   money supply is a function of the demand for credit, which itself is a
   function of the level of economic activity. In other words, the banking
   system creates as much money as people need and any attempt to control
   that creation will cause economic problems and, perhaps, crisis. Money,
   in other words, emerges from within the system and so the Austrian
   attempt to "blame the state" is simply wrong. As we discuss in
   [28]section C.8, attempts by the state to control the money during the
   Monetarist disasters of the early 1980s failed and it is unlikely that
   this would change in a "pure" capitalism marked by a totally privatised
   banking system.

   It should also be noted that in the 1930s, the Austrian theory of the
   business cycle lost the theoretical battle with the Keynesian one (not
   to be confused with the neoclassical-Keynesian synthesis of the
   post-war years). This was for three reasons. Firstly, it was irrelevant
   (its conclusion was do nothing). Secondly, it was arrogant (it
   essentially argued that the slump would not have happened if people had
   listened to them and the pain of depression was fully deserved for not
   doing so). Thirdly, and most importantly, the leading Austrian theorist
   on the business cycle was completely refuted by Piero Sraffa and
   Nicholas Kaldor (Hayek's own follower who turned Keynesian) both of
   whom exposed the internal contradictions of his analysis.

   The empirical record backs our critique of the Austrian claims on the
   stability of capitalism and unemployment. Throughout the nineteenth
   century there were a continual economic booms and slumps. This was the
   case in the USA, often pointed to as an approximately lassiez-faire
   economy, where the last third of the 19th century (often considered as
   a heyday of private enterprise) was a period of profound instability
   and anxiety. Between 1867 and 1900 there were 8 complete business
   cycles. Over these 396 months, the economy expanded during 199 months
   and contracted during 197. Hardly a sign of great stability (since the
   end of world war II, only about a fifth of the time has spent in
   periods of recession or depression, by way of comparison). Overall, the
   economy went into a slump, panic or crisis in 1807, 1817, 1828, 1834,
   1837, 1854, 1857, 1873, 1882, and 1893 (in addition, 1903 and 1907 were
   also crisis years). Full employment, needless to say, was not the
   normal situation (during the 1890s, for example, the unemployment rate
   exceeded 10% for 6 consecutive years, reaching a peak of 18.4% in 1894,
   and was under 4% for just one, 1892). So much for temporary and mild
   slumps, prices adjusting fast and markets clearing quickly in
   pre-Keynesian economies!

   Luckily, though, the Austrian school's methodology allows it to ignore
   such irritating constrictions as facts, statistics, data, history or
   experimental confirmation. While neoclassical economics at least
   pretends to be scientific, the Austrian school displays its deductive
   (i.e. pre-scientific) methodology as a badge of pride along side its
   fanatical love of free market capitalism. For the Austrians, in the
   words of von Mises, economic theory "is not derived from experience; it
   is prior to experience" and "no kind of experience can ever force us to
   discard or modify a priori theorems; they are logically prior to it and
   cannot be either proved by corroborative experience or disproved by
   experience to the contrary." And if this does not do justice to a full
   exposition of the phantasmagoria of von Mises' a priorism, the reader
   may take some joy (or horror) from the following statement:

     "If a contradiction appears between a theory and experience, we must
     always assume that a condition pre-supposed by the theory was not
     present, or else there is some error in our observation. The
     disagreement between the theory and the facts of experience
     frequently forces us to think through the problems of the theory
     again. But so long as a rethinking of the theory uncovers no errors
     in our thinking, we are not entitled to doubt its truth" [emphasis
     added, quoted by Homa Katouzian, Ideology and Method in Economics,
     pp. 39-40]

   In other words, if reality is in conflict with your ideas, do not
   adjust your views because reality must be at fault! The scientific
   method would be to revise the theory in light of the facts. It is not
   scientific to reject the facts in light of the theory! Without
   experience, any theory is just a flight of fantasy. For the higher a
   deductive edifice is built, the more likely it is that errors will
   creep in and these can only be corrected by checking the analysis
   against reality. Starting assumptions and trains of logic may contain
   inaccuracies so small as to be undetectable, yet will yield entirely
   false conclusions. Similarly, trains of logic may miss things which are
   only brought to light by actual experiences or be correct, but
   incomplete or concentrate on or stress inappropriate factors. To ignore
   actual experience is to loose that input when evaluating a theory.

   Ignoring the obvious problems of the empirical record, as any
   consistent Austrian would, the question does arise why does the
   Austrian school make exceptions to its disequilibrium analysis for
   these two markets. Perhaps this is a case of political expediency,
   allowing the ideological supporters of free market capitalism to attack
   the notion of equilibrium when it clearly clashes with reality but
   being able to return to it when attacking, say, trade unions, welfare
   programmes and other schemes which aim to aid working class people
   against the ravages of the capitalist market? Given the self-appointed
   role of Austrian economics as the defender of "pure" (and, illogically,
   not so pure) capitalism that conclusion is not hard to deny.

   Rejecting equilibrium is not as straightforward as the Austrians hope,
   both in terms of logic and in justifying capitalism. Equilibrium plays
   a role in neo-classical economics for a reason. A disequilibrium trade
   means that people on the winning side of the bargain will gain real
   income at the expense of the losers. In other words, Austrian economics
   is rooted (in most markets, at least) in the idea that trading benefits
   one side more than the other which flies in the face of the repeated
   dogma that trade benefits both parties. Moreover, rejecting the idea of
   equilibrium means rejecting any attempt to claim that workers' wages
   equal their just contribution to production and so to society. If
   equilibrium does not exist or is never actually reached then the
   various economic laws which "prove" that workers are not exploited
   under capitalism do not apply. This also applies to accepting that any
   real market is unlike the ideal market of perfect competition. In other
   words, by recognising and taking into account reality capitalist
   economics cannot show that capitalism is stable, non-exploitative or
   that it meets the needs of all.

   Given that they reject the notion of equilibrium as well as the concept
   of empirical testing of their theories and the economy, their defence
   of capitalism rests on two things: "freedom" and anything else would be
   worse. Neither are particularly convincing.

   Taking the first option, this superficially appears appealing,
   particularly to anarchists. However this stress on "freedom" -- the
   freedom of individuals to make their own decisions -- flounders on the
   rocks of capitalist reality. Who can deny that individuals, when free
   to choose, will pick the option they consider best for themselves?
   However, what this praise for individual freedom ignores is that
   capitalism often reduces choice to picking the lesser of two (or more)
   evils due to the inequalities it creates (hence our reference to the
   quality of the decisions available to us). The worker who agrees to
   work in a sweatshop does "maximise" her "utility" by so doing -- after
   all, this option is better than starving to death -- but only an
   ideologue blinded by capitalist economics will think that she is free
   or that her decision is not made under (economic) compulsion.

   The Austrian school is so in love with markets they even see them where
   they do not exist, namely inside capitalist firms. There, hierarchy
   reigns and so for all their talk of "liberty" the Austrian school at
   best ignores, at worse exalts, factory fascism (see [29]section F.2.1)
   For them, management is there to manage and workers are there to obey.
   Ironically, the Austrian (like the neo-liberal) ethic of "freedom" is
   based on an utterly credulous faith in authority in the workplace. Thus
   we have the defenders of "freedom" defending the hierarchical and
   autocratic capitalist managerial structure, i.e. "free" workers subject
   to a relationship distinctly lacking freedom. If your personal life
   were as closely monitored and regulated as your work life, you would
   rightly consider it oppression.

   In other words, this idealisation of freedom through the market
   completely ignores the fact that this freedom can be, to a large number
   of people, very limited in scope. Moreover, the freedom associated with
   capitalism, as far as the labour market goes, becomes little more than
   the freedom to pick your master. All in all, this defence of capitalism
   ignores the existence of economic inequality (and so power) which
   infringes the freedom and opportunities of others. Social inequalities
   can ensure that people end up "wanting what they get" rather than
   "getting what they want" simply because they have to adjust their
   expectations and behaviour to fit into the patterns determined by
   concentrations of economic power. This is particularly the case within
   the labour market, where sellers of labour power are usually at a
   disadvantage when compared to buyers due to the existence of
   unemployment as we have discussed.

   As such, their claims to be defenders of "liberty" ring hollow in
   anarchist ears. This can be seen from the 1920s. For all their talk of
   "freedom", when push came to shove, they end up defending authoritarian
   regimes in order to save capitalism when the working classes rebel
   against the "natural" order. Thus we find von Mises, for example,
   arguing in the 1920s that it "cannot be denied that Fascism and similar
   movements aiming at the establishment of dictatorships are full of the
   best intentions and that their intervention has, for the moment, saved
   European civilisation. The merit that Fascism has thereby won for
   itself will live eternally in history." [Liberalism, p. 51] Faced with
   the Nazis in the 1930s, von Mises changed his tune somewhat as, being
   Jewish, he faced the same state repression he was happy to see
   inflicted upon rebellious workers the previous decade. Unsurprisingly,
   he started to stress that Nazi was short for "National Socialism" and
   so the horrors of fascism could be blamed on "socialism" rather than
   the capitalists who funded the fascist parties and made extensive
   profits under them once the labour, anarchist and socialist movements
   had been crushed.

   Similarly, when right-wing governments influenced by the Austrian
   school were elected in various countries in the 1980s, those countries
   saw an increase in state authoritarianism and centralisation. In the
   UK, for example, Thatcher's government strengthened the state and used
   it to break the labour movement (in order to ensure management
   authority over their workers). In other words, instead of regulating
   capital and the people, the state just regulates the people. The
   general public will have the freedom of doing what the market dictates
   and if they object to the market's "invisible hand", then the very
   visible fist of the state (or private defence companies) will ensure
   they do. We can be sure if a large anarchist movement developed the
   Austrian economists will, like von Mises in the 1920s, back whatever
   state violence was required to defend "civilisation" against it. All in
   the name of "freedom," of course.

   Then there is the idea that anything else that "pure" capitalism would
   be worse. Given their ideological embrace of the free market, the
   Austrians attack those economists (like Keynes) who tried to save
   capitalism from itself. For the Austrian school, there is only
   capitalism or "socialism" (i.e. state intervention) and they cannot be
   combined. Any attempt to do so would, as Hayek put it in his book The
   Road to Serfdom, inevitably lead to totalitarianism. Hence the
   Austrians are at the forefront in attacking the welfare state as not
   only counterproductive but inherently leading to fascism or, even
   worse, some form of state socialism. Needless to say, the state's role
   in creating capitalism in the first place is skilfully ignored in
   favour of endless praise for the "natural" system of capitalism. Nor do
   they realise that the victory of state intervention they so bemoan is,
   in part, necessary to keep capitalism going and, in part, a consequence
   of attempts to approximate their utopia (see [30]section D.1 for a
   discussion).

   Not that Hayek's thesis has any empirical grounding. No state has ever
   become fascist due to intervening in the economy (unless a right-wing
   coup happens, as in Chile, but that was not his argument). Rather,
   dictatorial states have implemented planning rather than democratic
   states becoming dictatorial after intervening in the economy. Moreover,
   looking at the Western welfare states, the key compliant by the
   capitalist class in the 1960s and 1970s was not a lack of general
   freedom but rather too much. Workers and other previously oppressed but
   obedient sections of society were standing up for themselves and
   fighting the traditional hierarchies within society. This hardly fits
   in with serfdom, although the industrial relations which emerged in
   Pinochet's Chile, Thatcher's Britain and Reagan's America does. The
   call was for the state to defend the "management's right to manage"
   against rebellious wage slaves by breaking their spirit and
   organisation while, at the same time, intervening to bolster capitalist
   authority in the workplace. That this required an increase in state
   power and centralisation would only come as a surprise to those who
   confuse the rhetoric of capitalism with its reality.

   Similarly, it goes without saying Hayek's thesis was extremely
   selectively applied. It is strange to see, for example, Conservative
   politicians clutching Hayek's Road to Serfdom with one hand and using
   it to defend cutting the welfare state while, with the other,
   implementing policies which give billions to the Military Industrial
   Complex. Apparently "planning" is only dangerous to liberty when it is
   in the interests of the many. Luckily, defence spending (for example)
   has no such problems. As Chomsky stresses, "the 'free market' ideology
   is very useful -- it's a weapon against the general population . . .
   because it's an argument against social spending, and it's a weapon
   against poor people abroad . . . But nobody [in the ruling class]
   really pays attention to this stuff when it comes to actual planning --
   and no one ever has." [Understanding Power, p. 256] That is why
   anarchists stress the importance of reforms from below rather than from
   above -- as long as we have a state, any reforms should be directed
   first and foremost to the (much more generous) welfare state for the
   rich rather than the general population (the experience of the 1980s
   onwards shows what happens when reforms are left to the capitalist
   class).

   This is not to say that Hayek's attack upon those who refer to
   totalitarian serfdom as a "new freedom" was not fully justified. Nor is
   his critique of central planning and state "socialism" without merit.
   Far from it. Anarchists would agree that any valid economic system must
   be based on freedom and decentralisation in order to be dynamic and
   meet needs, they simply apply such a critique to capitalism as well as
   state socialism. The ironic thing about Hayek's argument is that he did
   not see how his theory of tacit knowledge, used to such good effect
   against state socialist ideas of central planning, were just as
   applicable to critiquing the highly centralised and top-down capitalist
   company and economy. Nor, ironically enough, that it was just as
   applicable to the price mechanism he defended so vigorously (as we note
   in [31]section I.1.2, the price system hides as much, if not more,
   necessary information than it provides). As such, his defence of
   capitalism can be turned against it and the centralised, autocratic
   structures it is based on.

   To conclude, while its open and extreme support for free market
   capitalism and its inequalities is, to say the least, refreshing, it is
   not remotely convincing or scientific. In fact, it amounts to little
   more than a vigorous defence of business power hidden behind a thin
   rhetoric of "free markets." As it preaches the infallibility of
   capitalism, this requires a nearly unyielding defence of corporations,
   economic and social power and workplace hierarchy. It must dismiss the
   obvious fact that allowing big business to flourish into oligopoly and
   monopoly (as it does, see [32]section C.4) reduces the possibility of
   competition solving the problem of unethical business practices and
   worker exploitation, as they claim. This is unsurprising, as the
   Austrian school (like economics in general) identifies "freedom" with
   the "freedom" of private enterprise, i.e. the lack of accountability of
   the economically privileged and powerful. This simply becomes a defence
   of the economically powerful to do what they want (within the laws
   specified by their peers in government).

   Ironically, the Austrian defence of capitalism is dependent on the
   belief that it will remain close to equilibrium. However, as seems
   likely, capitalism is endogenously unstable, then any real "pure"
   capitalism will be distant from equilibrium and, as a result, marked by
   unemployment and, of course, booms and slumps. So it is possible to
   have a capitalist economics based on non-equilibrium, but it is
   unlikely to convince anyone that does not already believe that
   capitalism is the best system ever unless they are unconcerned about
   unemployment (and so worker exploitation) and instability. As Steve
   Keen notes, it is "an alternative way to ideologically support a
   capitalist economy . . . If neoclassical economics becomes untenable
   for any reason, the Austrians are well placed to provide an alternative
   religion for believers in the primacy of the market over all other
   forms of social organisation." [Keen, Debunking Economics, p. 304]

   Those who seek freedom for all and want to base themselves on more than
   faith in an economic system marked by hierarchy, inequality and
   oppression would be better seeking a more realistic and less apologetic
   economic theory.

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc12
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc11
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc15
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc25
   5. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
   6. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html
   7. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc13
   8. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc27
   9. file://localhost/home/mauro/baku/debianize/maint/anarchy/secF8.html
  10. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc14
  11. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc15
  12. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc27
  13. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  14. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc26
  15. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html
  16. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc12
  17. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB4.html#secb43
  18. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html#secc71
  19. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC9.html
  20. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc25
  21. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB4.html
  22. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html
  23. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc12
  24. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html#secc14
  25. file://localhost/home/mauro/baku/debianize/maint/anarchy/secB4.html#secb43
  26. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC7.html
  27. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html#secc26
  28. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC8.html
  29. file://localhost/home/mauro/baku/debianize/maint/anarchy/secF2.html#secf21
  30. file://localhost/home/mauro/baku/debianize/maint/anarchy/secD1.html
  31. file://localhost/home/mauro/baku/debianize/maint/anarchy/secI2.html#seci12
  32. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC4.html
