            Section C - What are the myths of capitalist economics?

   Within capitalism, economics plays an important ideological role.
   Economics has been used to construct a theory from which exploitation
   and oppression are excluded, by definition. We will attempt here to
   explain why capitalism is deeply exploitative. Elsewhere, in [1]section
   B, we have indicated why capitalism is oppressive and will not repeat
   ourselves here.

   In many ways economics plays the role within capitalism that religion
   played in the Middle Ages, namely to provide justification for the
   dominant social system and hierarchies. "The priest keeps you docile
   and subjected," argued Malatesta, "telling you everything is God's
   will; the economist say it's the law of nature." They "end up saying
   that no one is responsible for poverty, so there's no point rebelling
   against it." [Fra Contadini, p. 21] Even worse, they usually argue that
   collective action by working class people is counterproductive and,
   like the priest, urge us to tolerate current oppression and
   exploitation with promises of a better future (in heaven for the
   priest, for the economist it is an unspecified "long run"). It would be
   no generalisation to state that if you want to find someone to
   rationalise and justify an obvious injustice or form of oppression then
   you should turn to an economist (preferably a "free market" one).

   That is not the only similarity between the "science" of economics and
   religion. Like religion, its basis in science is usually lacking and
   its theories more based upon "leaps of faith" than empirical fact.
   Indeed, it is hard to find a "science" more unconcerned about empirical
   evidence or building realistic models than economics. Just looking at
   the assumptions made in "perfect competition" shows that (see
   [2]section C.1 for details). This means that economics is immune to
   such trivialities as evidence and fact, although that does not stop
   economics being used to rationalise and justify certain of these facts
   (such as exploitation and inequality). A classic example is the various
   ways economists have sought to explain what anarchists and other
   socialists have tended to call "surplus value" (i.e. profits, interest
   and rent). Rather than seek to explain its origin by an empirical study
   of the society it exists in (capitalism), economists have preferred to
   invent "just-so" stories, little a-historic parables about a past which
   never existed is used to illustrate (and so defend) a present class
   system and its inequalities and injustices. The lessons of a fairy tale
   about a society that has never existed are used as a guide for one
   which does and, by some strange co-incidence, they happen to justify
   the existing class system and its distribution of income. Hence the
   love of Robinson Crusoe in economics.

   Ironically, this favouring of theory (ideology would be a better term)
   is selective as their exposure as fundamentally flawed does not stop
   them being repeated. As we discuss in [3]section C.2, the neoclassical
   theory of capital was proven to be incorrect by left-wing economists.
   This was admitted by their opponents: "The question that confronts us
   is not whether the Cambridge Criticism is theoretically valid. It is.
   Rather the question is an empirical or econometric one: is there
   sufficient substitutability within the system to establish
   neo-classical results?" Yet this did not stop this theory being taught
   to this day and the successful critique forgotten. Nor has econometrics
   successfully refuted the analysis, as capital specified in terms of
   money cannot reflect a theoretical substance (neo-classical "capital")
   which could not exist in reality. However, that is unimportant for
   "[u]ntil the econometricians have the answer for us, placing reliance
   upon neo-classical economic theory is a matter of faith," which, of
   course, he had [C. E. Ferguson, The Neo-classical Theory of Production
   and Distribution, p. 266 and p. xvii]

   Little wonder that Joan Robinson, one of the left-wing economists who
   helped expose the bankruptcy of the neo-classical theory of capital,
   stated that economics was "back where it was, a branch of theology."
   [Collected Economic Papers, Vol. 4, p. 127] It remains there more than
   thirty years later:

     "Economics is not a science. Many economists -- particularly those
     who believe that decisions on whether to get married can be reduced
     to an equation -- see the world as a complex organism that can be
     understood using the right differential calculus. Yet everything we
     know about economics suggests that it is a branch and not a
     particularly advanced one, of witchcraft." [Larry Elliot and Dan
     Atkinson, The Age of Insecurity, p. 226]

   The weakness of economics is even acknowledged by some within the
   profession itself. According to Paul Ormerod, "orthodox economics is in
   many ways an empty box. Its understanding of the world is similar to
   that of the physical sciences in the Middle Ages. A few insights have
   been obtained which stand the test of time, but they are very few
   indeed, and the whole basis of conventional economics is deeply
   flawed." Moreover, he notes the "overwhelming empirical evidence
   against the validity of its theories." It is rare to see an economist
   be so honest. The majority of economists seem happy to go on with their
   theories, trying to squeeze life into the Procrustean bed of their
   models. And, like the priests of old, make it hard for non-academics to
   question their dogmas as "economics is often intimidating. Its
   practitioners . . . have erected around the discipline a barrier of
   jargon and mathematics which makes the subject difficult to penetrate
   for the non-initiated." [The Death of Economics, p. ix, p. 67 and p.
   ix]

   So in this section of our FAQ, we will try to get to the heart of
   modern capitalism, cutting through the ideological myths that
   supporters of the system have created around it. This will be a
   difficult task, as the divergence of the reality of capitalism and the
   economics that is used to explain (justify, more correctly) it is
   large. For example, the preferred model used in neo-classical economics
   is that of "perfect competition" which is based on a multitude of small
   firms producing homogenous products in a market which none of them are
   big enough to influence (i.e. have no market power). This theory was
   developed in the late 19th century when the real economy was marked by
   the rise of big business, a dominance which continues to this day. Nor
   can it be said that even small firms produce identical products --
   product differentiation and brand loyalty are key factors for any
   business. In other words, the model reflected (and still reflects) the
   exact opposite of reality.

   In spite of the theoretical models of economics having little or no
   relation to reality, they are used to both explain and justify the
   current system. As for the former, the truly staggering aspect of
   economics for those who value the scientific method is the immunity of
   its doctrines to empirical refutation (and, in some cases, theoretical
   refutation). The latter is the key to not only understanding why
   economics is in such a bad state but also why it stays like that. While
   economists like to portray themselves as objective scientists, merely
   analysing the system, the development of their "science" has always
   been marked with apologetics, with rationalising the injustices of the
   existing system. This can be seen best in attempts by economists to
   show that Chief Executive Officers (CEOs) of firms, capitalists and
   landlords all deserve their riches while workers should be grateful for
   what they get. As such, economics has never been value free simply
   because what it says affects people and society. This produces a market
   for economic ideology in which those economists who supply the demand
   will prosper. Thus we find many "fields of economics and economic
   policy where the responses of important economic professionals and the
   publicity given economic findings are correlated with the increased
   market demand for specific conclusions and a particular ideology."
   [Edward S. Herman, "The Selling of Market Economics," pp. 173-199, New
   Ways of Knowing, Marcus G. Raskin and Herbert J. Bernstein (eds.),
   p.192]

   Even if we assume the impossible, namely that economists and their
   ideology can truly be objective in the face of market demand for their
   services, there is a root problem with capitalist economics. This is
   that it the specific social relations and classes produced by
   capitalism have become embedded into the theory. Thus, as an example,
   the concepts of the marginal productivity of land and capital are
   assumed to universal in spite the fact that neither makes any sense
   outside an economy where one class of people owns the means of life
   while another sells their labour to them. Thus in an artisan/peasant
   society or one based around co-operatives, there would be no need for
   such concepts for in such societies, the distinction between wages and
   profits has no meaning and, as a result, there is no income to the
   owners of machinery and land and no need to explain it in terms of the
   "marginal productivity" of either. Thus mainstream economics takes the
   class structure of capitalism as a natural, eternal, fact and builds up
   from there. Anarchists, like other socialists, stress the opposite,
   namely that capitalism is a specific historical phase and,
   consequently, there are no universal economic laws and if you change
   the system the laws of economics change. Unless you are a capitalist
   economist, of course, when the same laws apply no matter what.

   In our discussion, it is important to remember that capitalist
   economics is not the same as the capitalist economy. The latter exists
   quite independently of the former (and, ironically, usually flourishes
   best when the policy makers ignore it). Dissident economist Steve Keen
   provides a telling analogy between economics and meteorology. Just as
   "the climate would exist even if there were no intellectual discipline
   of meteorology, the economy itself would exist whether or not the
   intellectual pursuit of economics existed." Both share "a fundamental
   raison d'etre," namely "that of attempting to understand a complex
   system." However, there are differences. Like weather forecasters,
   "economists frequently get their forecasts of the economic future
   wrong. But in fact, though weather forecasts are sometimes incorrect,
   overall meteorologists have an enviable record of accurate prediction
   -- whereas the economic record is tragically bad." This means it is
   impossible to ignore economics ("to treat it and its practitioners as
   we these days treat astrologers") as it is a social discipline and so
   what we "believe about economics therefore has an impact upon human
   society and the way we relate to one another." Despite "the abysmal
   predictive record of their discipline," economists "are forever
   recommending ways in which the institutional environment should be
   altered to make the economy work better." By that they mean make the
   real economy more like their models, as "the hypothetical pure market
   performs better than the mixed economy in which we live." [Debunking
   Economics, pp. 6-8] Whether this actually makes the world a better
   place is irrelevant (indeed, economics has been so developed as to make
   such questions irrelevant as what happens on the market is, by
   definition, for the best).

   Here we expose the apologetics for what they are, expose the
   ideological role of economics as a means to justify, indeed ignore,
   exploitation and oppression. In the process of our discussion we will
   often expose the ideological apologetics that capitalist economics
   create to defend the status quo and the system of oppression and
   exploitation it produces. We will also attempt to show the deep flaws
   in the internal inconsistencies of mainstream economics. In addition,
   we will show how important reality is when evaluating the claims of
   economics.

   That this needs to be done can be seen by comparing the promise of
   economics with its actual results when applied in reality. Mainstream
   economics argues that it is based on the idea of "utility" in
   consumption, i.e. the subjective pleasure of individuals. Thus
   production is, it is claimed, aimed at meeting the demands of
   consumers. Yet for a system supposedly based on maximising individual
   happiness ("utility"), capitalism produces a hell of a lot of unhappy
   people. Some radical economists have tried to indicate this and have
   created an all-embracing measure of well-being called the Index of
   Sustainable Economic Welfare (ISEW). Their conclusions, as summarised
   by Elliot and Atkinson, are significant:

     "In the 1950s and 1960s the ISEW rose in tandem with per capita GDP.
     It was a time not just of rising incomes, but of greater social
     equity, low crime, full employment and expanding welfare states. But
     from the mid-1970s onwards the two measures started to move apart.
     GDP per head continued its inexorable rise, but the ISEW started to
     decline as a result of lengthening dole queues, social exclusion,
     the explosion in crime, habitat loss, environmental degradation and
     the growth of environment- and stress-related illness. By the start
     of the 1990s, the ISEW was almost back to the levels at which it
     started in the early 1950s." [Larry Elliot and Dan Atkinson, Op.
     Cit., p. 248]

   So while capitalism continues to produce more and more goods and,
   presumably, maximises more and more individual utility, actual real
   people are being "irrational" and not realising they are, in fact,
   better off and happier. Ironically, when such unhappiness is pointed
   out most defenders of capitalism dismiss people's expressed woe's as
   irrelevant. Apparently some subjective evaluations are considered more
   important than others!

   Given that the mid-1970s marked the start of neo-liberalism, the
   promotion of the market and the reduction of government interference in
   the economy, this is surely significant. After all, the "global economy
   of the early 21st century looks a lot more like the economic textbook
   ideal that did the world of the 1950s . . . All these changes have
   followed the advance of economists that the unfettered market is the
   best way to allocate resources, and that well-intentioned interventions
   which oppose market forces will actually do more harm than good." As
   such, "[w]ith the market so much more in control of the global economy
   now than fifty years ago, then if economists are right, the world
   should be a manifestly better place: it should be growing faster, with
   more stability, and income should go to those who deserve it." However,
   "[u]nfortunately, the world refuses to dance the expected tune. In
   particularly, the final ten years of the 20th century were marked, not
   by tranquil growth, but by crises." [Steve Keen, Op. Cit., p. 2]

   These problems and the general unhappiness with the way society is
   going is related to various factors, most of which are impossible to
   reflect in mainstream economic analysis. They flow from the fact that
   capitalism is a system marked by inequalities of wealth and power and
   so how it develops is based on them, not the subjective evaluations of
   atomised individuals that economics starts with. This in itself is
   enough to suggest that capitalist economics is deeply flawed and
   presents a distinctly flawed picture of capitalism and how it actually
   works.

   Anarchists argue that this is unsurprising as economics, rather than
   being a science is, in fact, little more than an ideology whose main
   aim is to justify and rationalise the existing system. We agree with
   libertarian Marxist Paul Mattick's summation that economics is
   "actually no more than a sophisticated apology for the social and
   economic status quo" and hence the "growing discrepancy between [its]
   theories and reality." [Economics, Politics and the Age of Inflation,
   p. vii] Anarchists, unsurprisingly, see capitalism as a fundamentally
   exploitative system rooted in inequalities of power and wealth
   dominated by hierarchical structures (capitalist firms). In the
   sections that follow, the exploitative nature of capitalism is
   explained in greater detail. We would like to point out that for
   anarchists, exploitation is not more important than domination.
   Anarchists are opposed to both equally and consider them to be two
   sides of the same coin. You cannot have domination without exploitation
   nor exploitation without domination. As Emma Goldman pointed out, under
   capitalism:

     "wealth means power; the power to subdue, to crush, to exploit, the
     power to enslave, to outrage, to degrade . . . Nor is this the only
     crime . . . Still more fatal is the crime of turning the producer
     into a mere particle of a machine, with less will and decision than
     his master of steel and iron. Man is being robbed not merely of the
     products of his labour, but of the power of free initiative, of
     originality, and the interest in, or desire for, the things he is
     making." [Red Emma Speaks, pp. 66-7]

   Needless to say, it would be impossible to discuss or refute every
   issue covered in a standard economics book or every school of
   economics. As economist Nicholas Kaldor notes, "[e]ach year new
   fashions sweep the 'politico-economic complex' only to disappear again
   with equal suddenness . . . These sudden bursts of fashion are a sure
   sign of the 'pre-scientific' stage [economics is in], where any crazy
   idea can get a hearing simply because nothing is known with sufficient
   confidence to rule it out." [The Essential Kaldor, p. 377] We will have
   to concentrate on key issues like the flaws in mainstream economics,
   why capitalism is exploitative, the existence and role of economic
   power, the business cycle, unemployment and inequality.

   Nor do we wish to suggest that all forms of economics are useless or
   equally bad. Our critique of capitalist economics does not suggest that
   no economist has contributed worthwhile and important work to social
   knowledge or our understanding of the economy. Far from it. As Bakunin
   put it, property "is a god" and has "its metaphysics. It is the science
   of the bourgeois economists. Like any metaphysics it is a sort of
   twilight, a compromise between truth and falsehood, with the latter
   benefiting from it. It seeks to give falsehood the appearance of truth
   and leads truth to falsehood." [The Political Philosophy of Bakunin, p.
   179] How far this is true varies form school to school, economist to
   economist. Some have a better understanding of certain aspects of
   capitalism than others. Some are more prone to apologetics than others.
   Some are aware of the problems of modern economics and "some of the
   most committed economists have concluded that, if economics is to
   become less of a religion and more of a science, then the foundations
   of economics should be torn down and replaced" (although, "left to
   [their] own devices", economists "would continue to build an apparently
   grand edifice upon rotten foundations."). [Keen, Op. Cit., p. 19]

   As a rule of thumb, the more free market a particular economist or
   school of economics is, the more likely they will be prone to
   apologetics and unrealistic assumptions and models. Nor are we
   suggesting that if someone has made a positive contribution in one or
   more areas of economic analysis that their opinions on other subjects
   are correct or compatible with anarchist ideas. It is possible to
   present a correct analysis of capitalism or capitalist economics while,
   at the same time, being blind to the problems of Keynesian economics or
   the horrors of Stalinism. As such, our quoting of certain critical
   economists does not imply agreement with their political opinions or
   policy suggestions.

   Then there is the issue of what do we mean by the term "capitalist
   economics"? Basically, any form of economic theory which seeks to
   rationalise and defend capitalism. This can go from the extreme of free
   market capitalist economics (such as the so-called "Austrian" school
   and Monetarists) to those who advocate state intervention to keep
   capitalism going (Keynesian economists). We will not be discussing
   those economists who advocate state capitalism. As a default, we will
   take "capitalist economics" to refer to the mainstream "neoclassical"
   school as this is the dominant form of the ideology and many of its key
   features are accepted by the others. This seems applicable, given that
   the current version of capitalism being promoted is neo-liberalism
   where state intervention is minimised and, when it does happen,
   directed towards benefiting the ruling elite.

   Lastly, one of the constant refrains of economists is the notion that
   the public is ignorant of economics. The implicit assumption behind
   this bemoaning of ignorance by economists is that the world should be
   run either by economists or on their recommendations. In [4]section
   C.11 we present a case study of a nation, Chile, unlucky enough to have
   that fate subjected upon it. Unsurprisingly, this rule by economists
   could only be imposed as a result of a military coup and subsequent
   dictatorship. As would be expected, given the biases of economics, the
   wealthy did very well, workers less so (to put it mildly), in this
   experiment. Equally unsurprising, the system was proclaimed an economic
   miracle -- before it promptly collapsed.

   So this section of the FAQ is our modest contribution to making
   economists happier by making working class people less ignorant of
   their subject. As Joan Robinson put it:

     "In short, no economic theory gives us ready-made answers. Any
     theory that we follow blindly will lead us astray. To make good use
     of an economic theory, we must first sort out the relations of the
     propagandist and the scientific elements in it, then by checking
     with experience, see how far the scientific element appears
     convincing, and finally recombine it with our own political views.
     The purpose of studying economics is not to acquire a set of
     ready-made answers to economic questions, but to learn how to avoid
     being deceived by economists." [Contributions to Modern Economics,
     p. 75]

References

   1. file://localhost/home/mauro/baku/debianize/maint/anarchy/secBcon.html
   2. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC1.html
   3. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC2.html
   4. file://localhost/home/mauro/baku/debianize/maint/anarchy/secC11.html
