useless but true

© Koninklijke Brill NV, Leiden, 2011 DOI: 10.1163/156920611X573770

Historical Materialism 19.2 (2011) 3–31 brill.nl/hima

‘Useless but True’: Economic Crisis and the Peculiarities

of Economic Science*

Ben Finea and Dimitris Milonakisb

a SOAS, University of [email protected]

b University of [email protected]

AbstractThe recent economic crisis has brought to the fore another crisis that has been going on for many years, that of (orthodox) economic theory. The latter failed to predict and, after the event, cannot offer an explanation of why it happened. This article sketches out why this is the case and what constitutes the crisis of economics. On this basis, the case is made for the revival of an interdisciplinary political economy as the only way for offering an explanation of the workings of the (capitalist) economy in general and of economic crises in particular.

Keywordscapitalism, crisis, economic theory, political economy

1. Introduction

It is a great honour and a privilege to have been awarded the Deutscher Memorial-Prize for From Economics Imperialism to Freakonomics: The Shifting Boundaries Between Economics and Other Social Sciences, not least because it reflects the considered judgement of a set of highly-regarded Marxist scholars. To be acclaimed by one’s peers is as good as it gets in the realm of scholarship apart from seeing intellectual work exercise an influence on practice. Unfortunately, socialism is not on the performativity-agenda, as opposed to its understandable infatuation with finance. But we might anticipate future studies of Marxism as ineffective performativity, not least as the latter’s chief

* Delivered as the Isaac and Tamara Deutscher Memorial-Lecture, London, 12 November 2010. The Deutscher Prize was awarded for Fine and Milonakis 2009.

4 B. Fine, D. Milonakis / Historical Materialism 19.2 (2011) 3–31

inspiration is drawn from Michel Callon who perceives capitalism as non-existent and a mere conceptual invention of radicals for their own ideological purposes.1 For us, as such, the Deutscher award is also particularly rewarding because it has been accompanied by the Gunnar Myrdal prize for our marginally earlier volume, From Political Economy to Economics: Method, the Social and the Historical in the Evolution of Economic Theory.2 This award reflects the acceptance of our work by a different constituency, formally the European Association for Evolutionary Political Economy (EAEPE), but essentially heterodox economists, something we find particularly encouraging and to which we will return.

This is only the third time that the award has gone to co-authors, previously to Ian Gough and Len Doyle in 1992 and Paul Walton and Andrew Gamble in 1972, so we seem to have beaten the twenty-year gap for co-authors by three years. One of us recalls attending the Memorial-Lecture for Walton and Gamble at the LSE almost forty years ago, as part of a large audience excited with the prospects for Marxist political economy as the fault-lines in the post-war boom had become apparent. Equally significantly though, their book, From Alienation to Surplus Value, not least in its title, reflected what has since proved to be something of a hiatus in Marxist political economy in terms of the close attention to it across the social sciences. Significantly, the two authors hailed from criminology and political science, respectively. And, whilst Marxist political economy has been prominent in the Deutscher awards over the past forty years, only three other ‘economists’ as such have been recipients, Włodzimierz Brus, Bob Rowthorn, and Michael Lebowitz.3

The position of Marxist political economy within social science is a theme to which we will also return. Its decline, if unevenly across disciplines and topics, in the wake of the stagflation of the seventies and the subsequent slowdown to today’s crisis, is a salutary warning that hard economic times are not necessarily conducive to the prospects for Marxist political economy. To assess these, though, we begin with a short overview of contemporary capitalism, which is both the object of analysis of Marxism and, to some degree at least, one of its determinants.

1. See Callon, Méadel and Rabeharisoa 2002 and Fine 2003 for a critique.2. Milonakis and Fine 2009.3. See <http://www.deutscherprize.org.uk/Past%20Recipients.htm> and its references to the

books for which prizes were awarded.

B. Fine, D. Milonakis / Historical Materialism 19.2 (2011) 3–31 5

2. From the crisis of capitalism . . .

Our starting point in the midst of crisis is a stunningly obvious but paradoxical observation:4 that material conditions for capital-accumulation would appear to have been extraordinarily favourable and even to have become increasingly so more recently. Briefly listed and unduly over-generalising for brevity: the capacity for productivity-increases arising out of a huge diversity and range of application of new technologies; the decline in the strength and organisation of working-class and progressive movements, especially across trade-unions, political parties and anti-imperial struggles; huge increases in the global labour-force through migration, the Chinese road to capitalism, and increasing female labour-market participation; high levels of inter-imperialist cooperation under the hegemony of the USA, not least with the collapse of the Soviet bloc; and the triumph of neoliberalism, not least in the form of containment of the social as well as the monetary wage. This paradox raises three questions for Marxists: why slowdown, why crisis, and what rôle for class-struggle?

Our general method of approach to these questions, drawing on our own interpretation of Marx’s political economy, is to emphasise the conditions under which the accumulation and restructuring of capital takes place as a whole, globally, in the production and circulation of (surplus-) value, and in the social, political as well as the ideological arenas. This involves attention to the structures, agencies, relations and processes of capital-accumulation, and the historical forms in which they are unevenly combined and through which power is exercised and conflict conducted. Marx’s Capital provides, across its three volumes, the methodological and theoretical basis for such investigation. But, at a more concrete and historically informed level than such abstract posturing, our emphasis is upon the extent to which the past forty years have been marked by the processes of ‘financialisation’.

This is a new concept in which Marxists have played a leading, if by far from exclusive rôle, themselves displaying considerable disagreements in terms of the nature and effect of financialisation. We cannot review the corresponding literature here, but we can highlight the extent to which finance has become distinctively prominent in the restructuring of capital in depth and breadth. It has reduced overall levels of accumulation through the subordination of real to fictitious capital, driving a wedge between the two; it has reduced the efficacy of the restructuring of real capital; and it has been detrimental to the social, political and ideological conditions under which accumulation has proceeded.

4. For a fuller account of what follows, see Fine 2011, forthcoming.


The way of phrasing these propositions, let alone their meaning and validity, is controversial. But this is not our concern here so much as emphasising how financialisation is the key-factor in the slowdown over the past thirty years (as opposed to some reductionist notion of the law of falling profitability, for example) as well as in explaining the crisis, despite working-class acquiescence and other favourable conditions for capitalism. And financialisation is crucial in understanding both the cause and course of the crisis itself.

This is not, however, to put aside agencies other than finance in the processes of restructuring. But industrial capital itself has been embroiled in the speculative profit-making attached to financialisation (with more-or-less half of the profits of non-financial corporations being made out of financial dealings in the USA). And the state has played an active rôle in promoting financialisation at the expense of, and as the form taken by, the accumulation and restructuring of capital, not only through liberalising financial markets and regulation but also through privatisation, commercialisation, and so on.

Such slavish devotion to the cause of finance is indicative of the shifting nature of contemporary politics or, at least, its increasing flexibility in dealing with the dysfunctions of financialisation. Underpinning this is the emergence and/or strengthening of national- and international-financial élites. This works not only through the pressure of the markets, rating agencies and so on, but through the changing form and nature of politics itself as financialisation displaces the location of decision-making to the vagaries of financial markets and financiers. This is what has sustained what we call neoliberalism over the past thirty years – the imperatives of finance with commitment to free markets or not as a matter of more-or-less convenient mythology – without which neoliberalism in practice seems incomprehensibly heterogeneous and has been rejected as such by some progressive scholars for being a simple vernacular of abuse and an incoherent descriptor of contemporary reality.

To the contrary, to sustain financialisation, the state has pressed, if unevenly, for imposition of the classical aspects of neoliberalism, associated with authoritarianism, privatisation, fiscal discipline and, in the context of developing countries, the ‘Washington Consensus’. Equally, though, each of these aspects is expendable in response to shifting requirements, not least in the current crisis. Indeed, neoliberalism might best be seen as falling roughly into two phases – the first as the shock-therapy associated with Reagan and Thatcher, Latin America, and the Soviet bloc, and the second with the social market, Third-Wayism and the post-Washington-consensus. This second phase has been rationalised and promoted as a reaction against the first phase in light of the latter’s horrendous dysfunctions beyond finance, but essentially is concerned to keep financialisation going. As Stiglitz, pioneer of the post-


Washington consensus, so clearly puts it:5 ‘The left now understands markets, and the role they can and should play in the economy . . . the new left is trying to make markets work’. What this means is: how do we keep globalisation, financialisation and capital-accumulation going? And, again, unduly generalising, the more centre- rather than right-leaning political parties are better able to deliver the imperatives of finance, as this is then the sole objective, as opposed to authoritarianism. Irrespective of ideological form, the coalition-government in the UK, PASOK in Greece, and so on make Thatcher seem like a snatcher of sweets from the pram.

We will return to Stiglitz later, but observe for the moment what, at least for him, the ‘new left’, as he calls it, has become. To the contrary, the crisis is indicative of the strongest possible case for socialism and not just because a bigger-than-ever crisis has hit. The simplest and single most telling aspect of the crisis is that as observed by Naudé in commenting on a G-20 Summit:6

Many have already remarked on the fact that huge amounts of money have been found at short notice to bail out banks, but that money to bail out the world’s bottom billion can never be mobilised. Contrast, for instance, the $50 billion agreed on for developing countries at the summit with the estimated $8.4 trillion for bailing-out banks. As Oxfam recently remarked, the latter amount is sufficient to end extreme poverty worldwide for 50 years.

As Homer Simpson might have pondered: Bail out the banks or eliminate world-poverty for fifty years – hard choice! And this is just the tip of the iceberg in terms of the mismatch between the productive capacities of contemporary capitalism and its record of delivery, whether for the environment or stability of food- and energy-prices, whilst there is, uniquely for this crisis, a total absence of blame on the part of working people who must, nonetheless, bear the costs. The implication of the need for alternatives is irrefutable. Yet the very factors that have sustained neoliberalism for so long – in terms of financialisation, the growing hegemony of finance, and the decline of progressive opposition – also serve as major obstacles to the emergence of, and struggle for, alternatives. This is, then, a crisis within, not of, neoliberalism, which has already emerged, at least so far, strengthened from the crisis in terms of the politics and policies of governance. Neoliberalism remains everywhere, but its contradictory and shifting combination of ideology, policy in practice and scholarship across time, place and issue needs to be carefully

5. Stiglitz 2008, p. 2. For critique of the continuing shenanigans of the World Bank, see Bayliss, Fine and van Waeyenberge (eds.) 2011, forthcoming.

6. Naudé 2009.


unpicked. And it is to scholarship to which we now turn, and economics in particular, for which we must carefully distinguish neoliberal economics from the economics of neoliberalism. So what was the rôle of the economics-profession in the current crisis and what are the likely effects of the crisis in the way economists see the world?

3. . . . to the crisis of economic theory . . .

Generally, in science, when some rare event occurs which has a major impact, a ‘black swan’, in Taleb’s terminology,7 which was not predicted by the current state-of-the-art scientific tools, or some new evidence is discovered which cannot be explained by these tools, representing an ‘anomaly’, in Kuhnian terminology, then the scientific field may be shaken and new proposals, tools, theories, etc. are put forward to explain the hitherto inexplicable event or new evidence.

One could name countless examples from the history of science. Just a couple will suffice. Take the example of oceanography. On New Year’s Day in 1995, the Draupner oil-rig radar-sensor in the North Sea recorded, for the first time in history, a giant wave 26 metres in height which, until then, according to all scientific knowledge based on the linear models in use, was thought practically impossible. According to the bell-shaped curves derived from this model, an unusual event, a so-to-speak freak-wave of, say, 30 metres in height, could only occur once every 10,000 years. This new discovery caused an upheaval in oceanography with some scientists turning to the strange world of quantum-mechanics to find part of the explanation to the riddle of the existence of monster waves.8 Similarly, when, back in the 1960s, neuroscientists discovered that if some parts of the brain failed, then sometimes other parts can take over their functions, the scientific community was shaken and a new theory, neuroplasticity, was developed to cope with these new findings.9

Now, the recent economic crisis does represent a huge anomaly with respect to all existing mainstream-theories. A huge wave has hit the world-economy, a crisis that was thought impossible by (and still denied by some) mainstream-economic theorising based mostly on mathematical modelling and the twin assumptions of representative rational agents and the efficient-market hypothesis.10 The Gaussian bell-shaped curves used by economists and based

7. Taleb 2007, pp. xvii–xviii. 8. Cf. Broad 2006; The Economist 2009; <http://en.wikipedia.org/wiki/Rogue_wave>. 9. Doidge 2007.10. For Buiter 2009, ‘This is the hypothesis that asset prices aggregate and fully reflect all

relevant fundamental information, and thus provide the proper signals for resource allocation.’


on these assumptions preclude the possibility of such an event taking place. Not only was the crisis not predicted (nor could it have been by these models), but, after the event, no explanation remains possible within mainstream-neoclassical economics other than as what might be termed the inefficient-market hypothesis. So, will there be a similar freak-wave effect in economic science?

On top of the (epistemological) differences involved between these (natural) sciences and economics, there is another big difference. All the events mentioned above, which caused the upheaval in the respective sciences, refer to newly-available evidence. What is remarkable, in the case of our scientific field, is that the occurrence of big crises and deep recessions (unlike the freak-waves of the deep ocean) are not a newly-observed phenomenon. As is well-known, similar crises have hit the world-economy in the 1870s, the 1930s and the 1970s. As for more-restricted financial crises, recent economic history is full of such cases.11 Indeed, unlike the physical sciences, economics is dominated by such rare and extreme events.12 What is astonishing is that the sector most prone to such phenomena, viz. the financial sector, has until recently, and to some extent even now, been considered by mainstream-financial economists as the Mecca of rationality and market-efficiency.

In the past similar, significant events have proved to be the midwives of important developments in economic science, like the birth of Keynes’s General Theory following the Great Depression of the 1930s. Will something similar happen this time around? Richard Posner of the University of Chicago and, until recently, a staunch supporter of the neoliberal Chicago school, but now turned Keynesian, thinks so. According to him, what is happening in economics following the crisis is reminiscent of ‘what happened to cosmology after Edwin Hubble discovered that the universe was expanding, and was much larger than scientists believed. The profession fell into turmoil, with some physicists sticking to existing theories, while others came up with the big bang theory’.13

As Krugman has said, just before the crisis erupted economists ‘were congratulating themselves over the success of their field’.14 After all, this was the era of ‘great moderation’ – ‘the substantial decline in economic

11. No less than 139 banking and currency-crises have been identified between 1973 and 1997, that is, during the earlier phase of financialisation, as compared with ‘only’ 38 financial crises during the so-called ‘golden age’ of regulated capitalism between 1945 and 1971 (cf. Eichengreen and Bordo 2002). See also Wolf 2009, p. 31. The difference between these crises and the most recent one is that they did not become global.

12. Taleb 2007.13. Cassidy 2010a, p. 28.14. Krugman 2009, p. 52.


volatility’ – that the chairman of the Federal Reserve Board, Ben Bernanke, has partly attributed to ‘improved performance of macroeconomic policies’.15 This was also the era of the emerging consensus in macroeconomics. A consensus based on the most-horrendously unrealistic assumptions of the representative agent holding rational expectations and the market-efficiency hypothesis. As Greenspan himself has admitted, all of this collapsed in September 2008.

Before coming to current theoretical developments, let us first take a look at what happened back in the thirties. Although the interwar-period was an era of pluralism in economics, with different schools of thought using vastly different types of organon and with different conceptual frameworks flourishing, for the whole period until the 1929 Wall Street crash, the view that was dominant within ‘neoclassical’ economics was that markets are efficient, and, if left alone, they would tend to get back to full-employment equilibrium. The result of these beliefs was that, after the 1929 crash, the market was left on its own to cope with the consequences of the crisis. The ensuing deepest crisis and depression of the twentieth century shook the credibility of neoclassical theory and the belief in the self-regulating abilities of the market almost beyond repair. This whole intellectual edifice collapsed after the 1929 crash. Or so it seemed at the time.

The theoretical gap was filled by John Maynard Keynes’s General Theory. This is one instance for which it can safely be said that the dramatic changes in the economic sphere brought about significant changes in economic thought. Keynes’s aim was to save capitalism from its own excesses, putting as his central goal the achievement of full employment. Another reason why Keynes’s work had the potential for a revolutionary-scientific paradigm-shift à la Kuhn was that, despite its weaknesses, the changes it could potentially bring about were changes from without, in the sense that it broke with neoclassical economics in important and radical ways. Firstly, he got rid of the individualistic, utilitarian overtones of neoclassical economics as well as the representative individual. Secondly, he denounced the self-equilibrating tendency of the economy through the concepts of ‘deficient demand’ and ‘unemployment equilibrium’. Third, he placed emphasis on the rôle of systemic uncertainty. These are certainly radical innovations. But did they revolutionise economics?

Although Keynes’s work did have a significant effect policy-wise, at least for the period 1945–70, its revolutionary effects on economic science in the longer run are more questionable, and certainly limited. As far as economic policy is concerned, Keynes’s new ideas did gain considerable currency after World-War Two. ‘The Beveridge Report of 1942 in Great Britain and the

15. Bernanke 2004.


Employment Act of 1946 in the United States provided blueprints for government involvement in the macroeconomy along Keynesian lines’.16 For a couple of decades after the publication of the General Theory, Keynesian economics was considered work at the edge.17 Even then, however, Keynesian economics was already something different from Keynes’s own economics. In the longer term, however, and contrary to conventional wisdom, the impact of Keynes’s economics on economic theory has been even more limited, especially in relation to Keynes’s own methodology and theoretical frame.

For, just after Keynes’s book appeared, another process was set in motion. It was associated with the increasing mathematisation, axiomatisation and formalisation of economics which was boosted by the Great Depression and also, as Mirowski has shown, by the War through the militarisation of scientific research it brought about, leading to the development of advanced mathematical tools, what later became known as operations-research, but also artificial intelligence and information-theory. These were then applied to economics, leading to a new economic methodology.18 Deduction and mathematical modelling gradually gained the upper hand at the expense of other modes of analysis and reasoning.

This process of formalisation and mathematisation has as a prerequisite the, at least implicit, if putative, excision of the social and the historical element from economic theorising, as manifested in the transition from political economy to economics, leading to an almost brand-new scientific body totally detached from its historical and social setting. In other words, the aim was the construction of a universally-valid theoretical corpus irrespective of the social and the historical. Nowhere is this detachment more apparent than in the tendency of the financial sector nowadays to hire physics- and mathematics-graduates, totally innocent of the actual workings of the economy, what the Wall Street Journal reporter Scott Patterson has called in his recent book ‘the quants’, where he describes ‘how the new breed of math whizzes conquered Wall Street and nearly destroyed it’.19 As Greenspan himself has said in his testimony in front of the US-Congress a month after the financial crash of September 2008,

it was the failure to properly price such risky assets that precipitated the crisis. In recent decades, a vast risk management and pricing system has evolved, combining the best insights of mathematicians and finance experts supported by major advances in computer and communications technology. . . . This modern risk

16. Hoover 2003, p. 412. 17. Colander, Holt and Rosser, Jr. 2004, p. 17.18. Mirowski 2002; Boland 2006; Rizvi 2001, p. 217.19. Patterson 2010.


management paradigm held sway for decades. The whole intellectual edifice collapsed in the summer of last year.20

This process of formalisation has created a whole generation of so-called idiot savants, scientists with excellent technical skills but without true knowledge of the functioning of the economy. As Taleb puts it, these scholars ‘resemble Locke’s definition of a madman: someone “reasoning correctly from erroneous premises” ’.21 This problem was raised dramatically in a study by Klamer and Colander of the five most-distinguished doctoral programmes in economics in American universities, based upon questionnaires given to Ph.D.-candidates to answer, and interviews with them. One of the conclusions of the research is stunning. Of those questioned, only 3.4 per cent thought that knowledge about the real economy was very important for success in the doctorate-programme, while 57 per cent thought that excellence in mathematics to be very important. In other words, the students thought that knowledge of techniques and not of the real economy was the basic prerequisite for success in their doctorate-programme.22

The sickness of modern economics has been the subject of increasing attack by a series of leading mainstream-economists from before the crisis. Even Milton Friedman deplored the way in which, ‘economics has become increasingly an arcane branch of mathematics rather than dealing with economic problems’.23 Similarly Buiter, writing after the crisis, talks about ‘the unfortunate uselessness of most “state of the art” academic monetary economics’,24 and, for Paul Krugman, ‘the economics profession went astray because economists, as a group, mistook beauty, clad in impressive looking mathematics, for truth. . . . The central cause of the profession’s failure was the desire for an all-encompassing, intellectually elegant approach that also gave economists a chance to show off their mathematical prowess’.25

What is amazing is that these last words come from one of the main practitioners of the economics he is criticising and after he had himself been amply rewarded with a Nobel Prize for this. What is even more amazing is that Krugman had already tried to make a mockery of this fatal tendency in economics early on in 1978 when he wrote a sarcastic article entitled ‘The Theory of Interstellar Trade’. In his abstract we read:

20. Greenspan 2008.21. Taleb 2007, p. 283.22. Klamer and Colander 1990.23. Friedman 1999, p. 137.24. Buiter 2009.25. Krugman 2009, pp. 53–4.


This paper extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer travelling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.26

‘Useless but true’: in these three words of Krugman can be found what is essentially wrong with modern economics: it is all about theoretical exercises, mostly taking a mathematical form, which may be valid mathematically, although the analytical robustness of some of these models is also questionable, but useless in any other sense and empty of any practical relevance. This is the problem of formalism in economics, the triumph of form over substance.27

The seeds of the appearance and further development of this tendency within economic science go back to the marginalist revolution. The explicit attempt since then has been to transform economics into a ‘rigorous’ science on a par with positive sciences and devoid of any normative statements or value-judgments. This was done partly by borrowing tools and concepts such as equilibrium and optimisation from the physical sciences, particularly, to begin with, from static mechanics, and then subsequently from thermodynamics. ‘The pure science of economics’, says Walras, one of the protagonists of the marginalist revolution, ‘is a science that resembles the physico-mathematical sciences in every respect’.28 And, what is more, ‘the scholar has the right to pursue science for its own sake’, equating geometry with economics in this respect.29

Such formalism did not become dominant within the profession until after the Second World-War. It was given a new impetus by the works of Hicks’s Value and Capital, and Samuelson’s Foundations of Economic Analysis, culminating in the mathematical proof for the existence of equilibrium by Arrow and Debreu in 1954.30 Since then, the Samuelsonian tool of constrained optimisation borrowed from thermodynamics became the symbol of the new

26. Krugman 1978.27. Blaug 1999; Blaug 2003.28. Walras 1954, pp. 71–2. 29. As Mirowski (quoted in Rizvi 2001, p. 215) puts it, ‘In appropriating the formalisms of

mid-nineteenth-century energy physics and adapting them to the language of utility and prices, the progenitors and their epigones adopted a certain world view, one that had to stress the extreme near identity of physics and economics. Veering so close to becoming subsumed in pure identity could be attractive only to a personality who was convinced of a far-reaching unity of science, one necessarily founded on the bedrock of natural law external to all human behaviour’.

30. Hicks 1939; Samuelson 1947; Arrow and Debreu 1954.


formalist era, accompanied by Americanisation and standardisation of the discipline, a truly Fordist intellectualism in which you can have any economics as long as it is neoclassical. Concomitant with this formalisation-process is a newly-acquired self-confidence of the practitioners of this method which was translated into a superiority-syndrome vis-à-vis the other social sciences, as exemplified by the process of Gary-Becker-style Chicago economics-imperialism, or, in other words, the process of colonisation of other social sciences using the so-called ‘economic method’ to analyse all social phenomena.31 This process of formalisation and homogenisation of economics reached a climax approaching near-total dominance in the 1970s. This was also the time that heterodox approaches in economics made a more dynamic appearance and heterodox institutions proliferated following the radicalisation brought about by the Vietnam War, and the developments inside the profession.32

Following the formalist revolution of the 1950s, only those aspects of Keynes’s thought which could be modelled were incorporated into what came to be known as the ‘neoclassical synthesis’. The subsumption of Keynes’s thought to the formalist revolution, starting with Hicks’s IS/LM-formulation33 just one year after the publication of Keynes’s General Theory, meant that all novel and radical aspects of his thought were either left out altogether or else reformulated in mathematical or diagrammatical form, beyond recognition. This gave rise to what has variously been called ‘bastard Keynesianism’ by Joan Robinson, or ‘hydraulic Keynesianism’.34 As Skidelsky puts it, ‘Keynes imposed himself on the profession by a series of profound insights into human behaviour which fitted the turbulence of his times. But these were never – could never be – properly integrated into the core of the discipline, which expelled them as soon as it conveniently could’.35 Substantively, then, Keynes could be thought of as the first major victim of the formalist revolution. So much so, that the one Keynesian school which adhered most closely to Keynes’s own core-principles and concepts is nowadays classified as heterodox and suffers the same fate from mainstream-economists as any other heterodox school.

This process of subsumption, which culminated in the ‘microfoundations of macroeconomics’ project, coupled with the monetarist and, later on, new classical counter-revolution in macroeconomics, propelled by the stagflation-crisis of the 1970s, led within macroeconomics to the elimination of Keynes’s economics and its transformation into the new Keynesianism of

31. Fine and Milonakis 2009.32. Backhouse 2000, p. 151; Lee 2009.33. Hicks 1967.34. Coddington 1983.35. Skidelsky 2009, p. 55.


microeconomic market-imperfections, and eventually to the almost-total eclipse of macroeconomics as a distinct field vis-à-vis microeconomics.36 The fate of Keynesianism was described vividly and ironically by Nobel laureate Robert Lucas in 1980, when he remarked that ‘One cannot find good, over-forty economists who identify themselves or their work as “Keynesian”. . . . At research seminars, people don’t take Keynesian theorising seriously any more; the audience starts to whisper and giggle to one another’.37 This is the economics of the neoliberal era of Reagan and Thatcher, based on the twin assumptions of rational expectations and the efficient-market hypothesis. It signifies a return to the pre-Keynes era, the virtual world of the economist’s imagination, inhabited by perfectly rational and egotistic human beings, forming rational expectations about the future and exchanging their products in perfectly competitive markets, a virtual world marred only by random shocks and, of course, far-from-random government.

The same fate as Keynesianism faced any other attempt at providing a different mode of analysis, so much so that, in our own day, anything that cannot be modelled is not considered as economics and left out of consideration altogether. This total lack of tolerance is another basic attribute of present-day economics, alongside a frighteningly intellectually-barbaric treatment of the history of economic thought and of methodology within the discipline. Not only is mainstream-neoclassical economics intolerant of alternatives. It exhibits the same indifference towards any criticism, even internal criticisms that derive from within its own ranks. Some devastating such criticisms have been, for example, the so-called Cambridge Capital-Controversy of the 1960s, which brought into question the validity of the concept of aggregate capital; and the Sonnenschein-Mantel-Debreu (SMD for short) impossibility-theorem developed in the 1970s, which showed that aggregate excess-demands were arbitrary and that there can be no determinateness of general equilibrium. All this led Christopher Bliss to declare that ‘the near emptiness of general equilibrium theory is a theorem of the theory’.38 What was the result? Mainstream-economics simply carried on regardless, as if these critiques had never taken place. As Rizvi puts it, ‘very few troublesome parts of the theory have been thoroughly eliminated: social welfare functions, well-behaved aggregate demands, and Nash equilibria remain prominent in the textbooks’.39 Thus, whilst orthodoxy prides itself on its rigour and as a science, in part in light of

36. Rizvi 2003, p. 384.37. Quoted in Kurz 2010, p. 13.38. Quoted in Rizvi 2003, p. 385.39. Rivzi 2003, p. 390.


its commitment to mathematical reasoning, that reasoning always takes second place if its results are unpalatable.

Other causes of mainstream-arrogance and intransigence are the institutional monopoly enjoyed by the élite of the profession over the positions in top universities and academic journals, attracting the lion’s share of funding, occupying central public positions and being awarded 90 per cent of Nobel prizes in economics. In this respect, this year’s award of the Nobel prize is a scandal. As Varoufakis puts it,

Imagine a world ravaged by a plague, and suppose that the year’s Nobel Prize for Medicine is awarded to researchers whose whole career is based on the assumption that plagues are impossible. The world would have been outraged. That is precisely how we should feel about yesterday’s announcement of the recipients of the 2010 Nobel Prize. . . . Interestingly, these three fine mathematical economists have one thing in common, other than their work on labor markets: in their voluminous theoretical output on unemployment and the like, there is not a smidgeon of a hint, of a mention, of an economic crisis which may boost unemployment in every sector and for all types of workers. Not one!40

To this should be added the direct vested interests of many academics, especially in the financial sector, a feature that was exacerbated during the financialisation-era. Philip Mirowski asks:41

Does anyone care that Martin Feldstein was on the board of AIG in the run up to its disastrous failure? Or that Paul Krugman once consulted for Enron (and got radicalised after the New York Times made him foreswear such perks)? Is anyone curious about the tangled history of funding and organisation of the Chicago School of Economics? Does anyone care that Larry Summers worked for numerous hedge funds and investment firms before they had to be rescued by an administration that included . . . Larry Summers?

All of this Charles Ferguson highlights as ‘the convergence of academic economics, Wall Street and political power’, not least through his stunning film on the financial crisis and economists.42 Neoliberalism, financialisation

40. Varoufakis 2010. One of the laureates, Christopher Pissarides of the London School of Economics, just a few days before the award was announced, in an article with Azariadis and Ioannides on the Greek economy advocated the sale of all public enterprises to the private sector and the reduction of the number of public employees by 400,000 by the year 2015; see Azariadis, Ioannides and Pissarides 2010.

41. Mirowski 2010, p. 39.42. Ferguson 2010, p. 3. A recent study has shown that, out of nineteen economists examined

‘who have played prominent and influential roles in recent public policy debates, . . . 13 . . . had private financial affiliations indicative of some possible conflict of interest, but only 5 had clearly


and the growing power and influence of the financial sector that these have brought about all played an important rôle in the latest developments in economic science. Deep down, however, it is the very nature of the system and the ideological need for its justification that lies behind this type of theory. As Georg Lukács has said, ‘[t]he capitalist process of rationalisation based on private economic calculation requires that every manifestation of life shall exhibit [an] interaction between details which are subject to laws and a totality ruled by chance. It presupposes a society so structured’.43 Hence the conceptualisation of the current crisis as a chance-occurrence, a black swan, that could not be predicted and, once there, cannot be explained other than as a chance-occurrence intractable by scientific knowledge. In short, the interests of the capitalist system, and of finance in particular, not only dominate economic discourse, but the latter also dysfunctionally suffers the orthodoxy that it deserves, the mindless pursuit of financial stability on the basis of models of both the more-or-less-perfect-market hypothesis and of the more-or-less perfectly-rational individual.

So what are the chances that this time it will be different as far as the impact of the global crisis on economic science is concerned? The picture we have drawn so far of the state of our science does not leave much room for optimism. Despite some heavy criticism coming mostly, but not exclusively, from the Keynesian and neo-Keynesian camps (including Krugman, Stiglitz, and Skidelsky, but also the Chicago economist Richard Posner), the reactions so far do not lend themselves to much optimism. For Chicago economists like Eugene Fama (the main modern exponent of efficient-market theory) and John Cochrane, it is business as usual. As Fama puts it,

We don’t know what causes recessions. Now I’m not a macroeconomist so I don’t feel bad about that. (Laughs) We’ve never known. . . . Economics is not very good at explaining swings in economic activity.44

Fama and mainstream-economics, then, cannot explain crises, so we might just as well pretend that they do not exist. If this is not a direct confession of the total intellectual bankruptcy of Chicago-style mainstream-economics, then what is? And for Cochrane, talking after the crisis, ‘rational expectations and efficient markets theories are both consistent with big price crashes. . . .

and publicly revealed their affiliations’ (Epstein and Carrick-Hagenbath 2010). This study has led 300 economists to sign a letter (written by Epstein and Carrick-Hagenbath) to the President of the American Economic Association, asking for a new professional code of ethics for economists (cf. Epstein and Carrick-Hagenbath 2011).

43. Lukács 1990, quoted in Choonara 2010. 44. Cassidy 2010b.


What [the] efficient markets [hypothesis] says is that prices today contain the available information about the future’.45 So all the information about the future is available and yet crises are not just unpredictable from within this model, they simply cannot happen, just like giant waves within the linear models of wave-formation.

For others, at least willing to recognise that something more by way of explanation is required, we need better models that would either take into account market-imperfections like the ‘New Keynesians’,46 or market-dynamics through the use of a ‘different type of mathematics’ or other sophisticated models coming from engineering, computing or physics,47 much like what happened in wave-theory and oceanography following the discovery of giant waves and the adoption of models from quantum-mechanics. Thus, for Solow, there are other traditions in economics which include ‘various market frictions and imperfections like rigid prices and wages, asymmetries of information, time lags, and so on’ which provide better ways of doing macroeconomics.48

A more genuine return to Keynes is the third escape-route. This is done mostly by emphasising some aspect of Keynes’s economics which has been totally forgotten by mainstream-economics. The aspect most commonly chosen is radical uncertainty and the animal-spirits of capitalism associated with it.49 This, especially in the case of Akerlof and Shiller, is associated with the behavioural school in economics, which seeks the explanation of economic phenomena by delving deeper into the psyche of individuals. The emphasis here is laid on the psychological and even ‘irrational’ factors influencing human behaviour, such as confidence, fairness, corruption, money-illusion, etc., which are seen as the ‘ultimate drivers of the economy’.50 Of these factors, only the rôle of confidence in the economy has anything to do with Keynes’s work. The usual story is that uncertainty causes sharp changes in expectations and confidence, which cause major changes in share-prices, bringing about sharp alterations in consumption, investment and employment. What is not explained, however, is the source of this uncertainty and the epistemological foundations of such ‘irrational’ behaviour, both of which must be sought in

45. Cassidy 2010c.46. Stiglitz 2009; Solow 2010.47. Colander, Föllmer, Haas, Goldberg, Juselius, Kirman, Lux and Sloth 2009; Keen 2009,

p. 6.48. Solow 2010. It is important to note here that Solow does not see microeconomics as the

foundation of macroeconomics, but just as a way of providing stories with which to inform macroeconomics.

49. Skidelsky 2009; Akerlof and Shiller 2009.50. Akerlof and Shiller 2009, pp. viii–ix.


the structural characteristics of the capitalist system which, however, are systematically and suspiciously absent from all of these accounts.

Behavioural economics has been one of the main new research-projects within mainstream-economics in recent years. Other new research-programmes include (classical, behavioural, evolutionary) game-theory, experimental economics, evolutionary economics, agent-based complexity-theory and neuroeconomics. The appearance of these new research-programmes has led commentators such as Colander and Davis to talk about the ‘death of neoclassical economics’ and the transition from the era of neoclassical dominance to mainstream pluralism.51 This transition was made possible, according to Colander, Holt and Rosser,52 by new technology and especially developments in computing which allowed for the use of more complex models. And, although it was brought about by cumulative-evolutionary changes rather than a sudden paradigm-shift, the end-result will be no less revolutionary in its effects.

One common element in these new research-programmes is that they all originate from fields outside of economics, such as mathematics (game-theory), psychology (behavioural economics), neo-Darwinian biology (evolutionary economics), neuroscience (neuroeconomics), while the experimental method has long been applied in the natural and physical sciences. This process of importation of methods and concepts from other sciences has been called ‘inverse imperialism’, and has led Davis to the conclusion that they represent ‘genuinely different approaches’.53 But does this amount to true scientific pluralism? The answer is no. The reason is that, despite their different outlooks, all of these approaches have two things in common: first, their adherence to axiomatic model-building as their preferred methodological approach and, second, their focus on the individual.54 Indeed Colander, following Solow and Niehans, defines modern or, as he calls it, ‘New-Millennium Economics’, not in terms of its content but its method: ‘the modeling approach to problems’, he says, ‘is the central problem of modern economics’.55

All of the new research-programmes mentioned above then share a common language, so to speak, which is none other than that of formalism. The formalist revolution, then, reigns supreme, even in this supposedly post-neoclassical, ‘mainstream-pluralist’ era, and, other differences apart, keeps

51. Colander 2000 (reprinted in Colander 2001); Davis 2006.52. Colander, Holt and Rosser, Jr. 2004, p. 4.53. Davis 2006, p. 9.54. Colander, Holt and Rosser, Jr. 2004, pp. 10–11, 17; Rizvi 2003, pp. 390–1.55. Colander 2000, pp. 137–8; Solow 1997; Niehans 1990.


itself in line with it. Indicative of this is that, in their book, The Changing Face of Economics, Colander et al. have interviewed eleven ‘cutting-edge economists’, as they call them, coming mostly from the ranks of the ‘inside-the-mainstream’ heterodoxy-group.56 Nine of them do highly technical model-building work. Generally, this is true for both pure-theory models and applied-policy models. The old distinction between the science of economics (theoretical economics) and the art of economics (applied economics) has disappeared under the impact of the formalist dmodelling method. Indeed, modern economics is defined by little else. This also applies to new fields of research such as evolutionary game-theory and experimental economics which, in other respects, may deviate from neoclassical economics, but not from the use of highly technical model-building.57

What modern orthodox economists fail to understand is that what is at fault is not some specific assumption or characteristic of the models used, but the method of deductive-mathematical modelling itself. In addition to their universalistic nature and lack of historical specificity, the method of mathematical-deductive reasoning, as Lawson has shown, presupposes, first, a closed system in which event-regularities or correlations, ‘that connect events standing in causal sequence, in order to deduce that this event happened because of, or followed from, that event’58 occur, and, second, the isolated-individual agent.59 Because of the erroneous character of both of these presuppositions as far as social and economic phenomena are concerned, mathematical modelling is inappropriate as a leading, let alone an exclusive tool for the analysis of such phenomena. To axiomatic model-building should also be added another attribute which most (but not all) of these new approaches share with neoclassical economics: methodological individualism and the emphasis on the individual.60

Where does all this leave the issue of pluralism? It means that all approaches and schools that do not accept technical model-building as their method of analysis simply do not get a hearing and are left out of the picture altogether, being considered unacceptable as scholarly economics. As Colander et al. themselves admit, the élite of the profession is open-minded to new ideas, but closed-minded to alternative methods and approaches. ‘If it’s not modeled, it’s

56. Colander, Holt and Rosser, Jr. 2004.57. Colander, Holt and Rosser, Jr. 2004; Rizvi 2003, pp. 390–1. ‘Even experimental

economics, which is more inductive in nature, is nearly always testing a mathematical model’ (Ibid.).

58. Lawson 2009, p. 763.59. Lawson 2003, Chapter 2; Lawson 2009.60. The exceptions here are evolutionary economics and agent-based complexity-economics.


not economics’.61 This, however, is not true scientific pluralism, ‘a genuinely pluralistic environment’, in Davis’s words,62 but rather what might be called ‘conditional’ or ‘pseudo-’ pluralism and, as such, is no pluralism at all.

Be that as it may, this transition has brought with it a move away from the ‘holy trinity’ of neoclassical economics – rationality, efficiency and equilibrium – to a more eclectic holy trinity – purposeful behaviour, enlightened self-interest and multiple equilibria.63 According to new findings coming from experimental and behavioural economics, the famous homo economicus of the economist’s imagination is passé. It has been shown experimentally and theoretically that individual behaviour is subject to cognitive and emotional constraints, and new, pro-social elements with regard to human behaviour, such as fairness, reciprocity, altruism, etc., have forcefully entered the picture, making individuals more humane and less like the robotic entities implied by homo economicus.64

Probably the most important common denominator of these new findings is that there is no such thing as a representative individual, and that individuals are moulded by their social environment in decisive ways. One important instance is a cross-cultural study, where the researchers found from their behavioural model that people failed to act egotistically to maximise their individual utility in all of the fifteen different small-scale societies examined. According to the results of the experiment, people’s behaviour reflected their cultural milieu.65 Even more astonishing are the results from some recent experiments in brain-science, more specifically in neuroplastic research, according to which the social milieu influences not just people’s perceptions (i.e the human mind), but the brain itself.66 All of these findings point in one direction: the social must take precedence over the individual, and the macro-level over the micro-level. As Heilbroner and Milberg put it, ‘the recognition of the inextricably social roots of all social behaviour leads to the view that macrofoundations must precede microbehaviour, not the other way around’.67 Instead, we find that economics has either projected its preferred forms of microbehaviour across the totality of social science and phenomena (as with economics-imperialism) or, as with the new field of neuroeconomics, delved

61. Colander, Holt and Rosser, Jr. 2004, p. 11. 62. Davis 2006, p. 9. 63. Colander, Holt and Rosser, Jr. 2004, p. 1.64. Frey and Benz 2004, pp. 68–75.65. Henrich, Boyd, Bowles, Camerer, Fehr, Gintis and McElreath 2001.66. Doidge 2007, pp. 287–311.67. Heilbroner and Milberg 1995, p. 8.


into the brain itself to discover the key to human behaviour beyond the pursuit of self-interest.

Why is this, and what is different from the 1930s when something did happen in the form of the impact of Keynes’s work on economic policy and, to a lesser extent, on economic theory? The differences lie mostly in the prevailing socio-economic conditions, and the situation within the profession. In the 1930s, when the West was plunged into the vagaries of the Great Depression, the Soviet Union was a rapidly expanding economy. So the Keynesian call for greater government-intervention in the economy fitted the needs for pragmatism and of ‘the urgent political imperative to counter communism’.68 Following the collapse of the Central- and Eastern-European economies and the triumph of neoliberalism in the West, coupled with the crisis of social movements, no such imperative exists any more. And, within the profession, the interwar-period was characterised by a true scientific pluralism of methods and approaches. Although neoclassicism was already ascendant, it had not yet dominated the profession, with American institutionalism being the dominant school in the United States. Economics was a much more discursive and much less technique-based discipline.69

In sum, as far as the possible effects of the crisis on economic science are concerned, the emerging picture is one in which the response to crisis ranges from ‘business as usual’, to pleas for better models by changing some underlying assumption or moving to more-dynamic ones, to delving deeper into the human psyche. All in all, as Steve Keen puts it, although ‘the “irresistible force” of the Global Financial Crisis is indeed immense, so too is the inertia of the “immovable object” of economic belief ’. The twin pillars of this ‘immovable object’ are, firstly, the focus on the individual, whether rational or otherwise, and the model-building approach. The only hope for a truly alternative theory lies with political economy that breaks away from both of these pillars. So what does the future hold for political economy?70

4. . . . to political economy

As we have seen already, one reaction within economics from those at least willing to recognise the need for something more by way of explanation, is only to draw upon existing models of market-imperfections newly applied. And the leading representative in this respect is Joseph Stiglitz, by virtue of

68. Skidelsky 2009, p. 103.69. Hodgson 2009, p. 1211.70. Keen 2009, p. 3.


both academic and non-academic rôles and his intellectual integrity. He was sacked for his views from the World Bank whilst they continued to be used for legitimising purposes (whilst policy, as opposed to scholarship and ideology, hardens on Washington-consensus practice as if his trademark post-Washington consensus never existed).71 We leave aside, though, Stiglitz’s frequent misrepresentation of the history of economic thought, which infuriates both those more radical and conservative alike, for everyone from Adam Smith through Keynes and Hayek are forcibly fitted into his market-, as informational, imperfections framework. Yet, in his presidential address to the Eastern Economic Association, he advises that

There will be political battles ahead. Special interests will try to block many of the reforms. The future of our nation will depend in no small measure on the outcome of those battles.72

This is a vivid invitation to analyse special interests, power and conflict. Indeed, Stiglitz claims to ‘understand the unbridled enthusiasm of special interests, which found the arguments for deregulation profit enhancing’. Yet, he immediately continues, ‘I am not so clear what motivated so many economists’.73 What is, however, clear is what he would have motivate their understanding, namely attention to ‘irrationality’ and ‘intellectual inconsistency’, ‘highly correlated movements in house prices’, ‘fat-tailed distributions’, ‘new asymmetries of information’, ‘perverse incentives’, ‘banks too big to fail’,74 inducing the conclusion that ‘our financial system failed in its core missions – allocating capital and managing risk’,75 leading to the previously cited conclusion that ‘[t]he left now understands markets and the role markets should and can play in the economy . . . the new left is trying to make markets work’. This is not the stuff of political economy, other than as a point of departure. And it might be observed that the balance of asymmetric information within economics is all on the side of political and heterodox economists who must command the orthodoxy, but not vice-versa. But power within the discipline is totally the other way around. In short, vested interests and ideology are not matters of asymmetric information and market-imperfections, whether in the economy or within economics.

71. See Bayliss, Fine and van Waeyenberge (eds.) 2011, forthcoming.72. Stiglitz 2009, p. 281.73. Stiglitz 2009, p. 293.74. All citations within Stiglitz 2009, p. 294.75. Stiglitz 2009, p. 296.


It is, with apologies to Jane Austen, or indeed, her ghost-writer,76 a truth universally acknowledged that a single economist in possession of a good theory of market-imperfections must be in want of a crisis. But not for us, and we respond to such pride and prejudice with three conclusions. Firstly, whatever their prominence, the influence of the mainstream-dissidents on policy has been negligible. Stiglitz, the most energetic, has been totally ineffective in practice with, as remarked, his own closure between theory and reality drawn towards observing the power of (financial) vested interests and ideologies as decisive. We agree, but this begs the question of why his work ends at this point rather than beginning there, as opposed to imperfectly informed and coordinated individuals. Second, when the time does come for more progressive closure, itself contingent upon the balance and strength of forces, movements and organisations, such dissident economists are liable to prove a constraining influence. Third, this suggests that the main task for political economy today is to keep alternative traditions to the mainstream alive, for their own sake, but also in anticipation of the deeper understandings that will be required once too much finance in the world is recognised practically as a problem of capitalism and not just of finance itself.

Given the bleak prospects for political economy within economics-science, it is apposite to inquire whether heterodox economics and political economy might prosper within the other social sciences, as opposed to within economics itself. And we would emphasise that economics and economics-imperialism have not gone uncontested across the social sciences. And two features have marked the social sciences, other than economics, across the last two decades. One is the retreat from the extremes of postmodernism – the preoccupation with the subjective, the inventive, the self-constructing and de-constructed individual, the focus on the meaning and interpretation of the world as opposed to, or even in denial of, its material properties. In the first decades of neoliberalism, postmodernism had a remarkable parallel existence with mainstream-economics. They were totally incompatible with one another. We have the optimising individual with given preferences over given goods, of mainstream-economics; but the subjective, inventive, preoccupation with meaning for postmodernism. We welcome this retreat from the extremes of postmodernism, not because of its more-than-welcome critical examination of concepts, but because of the need to attach such endeavours to the material realities of contemporary capitalism.77

76. See BBC News 2010.77. For this, and what follows in the context of a critique of ‘social capital’, see Fine 2010.


But the second feature around the social sciences in the last two decades has been the retreat from the extremes of neoliberalism – although this is better seen as the second phase of neoliberalism rather than as its demise. Making imperfect markets work, and reforming institutions are its intellectual marker, especially within economics, the better to make globalisation work. In contrast, across the other social sciences, the reaction against the extremes of neoliberalism in-and-of-itself as well as an agenda-setting device is well-illustrated by the rise of globalisation as the most significant of concepts across the social sciences as a focus for gaining a critical handle on the realities of contemporary capitalism. Its literature, even the word itself, did not exist before 1990. And it was a neoliberal idea: that the state was withering away, and that this is a good thing. Subsequently, the academic literature has taken a different view. It has devoted attention to specifying contemporary capitalism as a world-system; it has acknowledged the continuing importance of the state; and it has not denied globalisation, but argued that it is complex, with a diversity of outcomes across place, time and aspect. So the rise of globalisation as a concept has demonstrated the reaction against neoliberalism within the social sciences by rejecting the original notion, at least, of the reality and desirability of the withering away of the state. After all, neoliberalism has always been about the interventions of the state to promote the interests of private capital, especially in its internationalisation (with financialisation to the fore in the current period).

So there are reasons to be cheerful around the prospects for political economy across the social sciences, although the exact content by topic and discipline is variegated. But what of the stimulus of external events as a potential source of brighter prospects for heterodox political economy? We do not have the external pressures for progressive policy and corresponding scholarship that arose with the Keynesian period, and, until the balance of forces are more conducive to alternative forces, the best that can be hoped for, as far as the economics-profession is concerned, is a move away from the monolithic approach to economic science characteristic of mainstream-economics, which fetishises model-building, towards a pluralism of methods and approaches, and away from atomistic approaches towards more-systemic, aggregative, dynamic, historically-specific and socially-embedded types of analysis of capitalism.

Institutionally, heterodox economists and political economists can explore ways of organising themselves in pursuit of this prime objective. In Europe, we already have enough ‘Heterodox Political Economy Associations’, including the European Association of Evolutionary Political Economy (EAEPE), the Association for Heterodox Economics (AHE), the International Initiative for Promoting Political Economy (IIPPE), the Post-Keynesian group and the


EuroMemorandum group. At the same time, the Heterodox Economics Newsletter has more than 5,000 subscribers, while Real-World Economics Review, a heterodox journal, has about 11,500 subscribers compared with the 17,000 members of the American Economic Association. Perhaps it is time to think big and think global. Recently there has been a proposal by Edward Fullbrook, editor of Real-World Economics Review, to form a World-Association of Heterodox Economics along the lines of the American Economic Association, with the parallel launching of three international journals and one or more new prototype introductory-level books. In terms of numbers, we could match the mainstream. Other than that, however, we only have the power of ideas against their massive resources, their institutional monopoly over positions in élite-institutions within academia, and their excessive political power and involvement in influential policy-making bodies and institutions. Thus, for such proposals to have any hope of success, they need to be backed by a student-movement and academic teachers’ movement for the reform in economics in line with the post-autistic movement of economics-students that originated in France at the turn of the millennium.78

It will come as no surprise that our own view is that the problems of methodology, realism, and so on that ought to plague the mainstream, as well as incorporating the historical specificity of capitalism, can only be adequately addressed through Marx’s value-theory as a starting-point. But this is itself enriched through dialogue with other schools of thought and approaches, with empirical evidence, and even by taking the mainstream as a point of departure. For it is false to see the relationship between political economy and (mainstream-) economics as one-dimensional with, for illustrative purposes, general equilibrium at one base extreme and Marxism at the heavenly other extreme. As it were, get value-theory, the transformation-problem, or the law of the tendency of the rate of profit to fall correct and all else will fall into place. We do not think so, important though these are in and of themselves and in framing more complex and concrete analysis.

Nor is it even adequate to see the relationship between political economy and economics as multidimensional, with monotonic improvement as we move along the separate elements in a putatively progressive direction to incorporate the real, the social, the historical, etc. For the relationship across these dimensions is fractured, fluid and evolving both intellectually and in relation to the real world, activism, ideology and policy-debates. This renders simple dichotomies between political economy and the mainstream impossible to pin down, with blurred boundaries between the two even if a huge

78. More on these organisations may be found by consulting Google.


amorphous mass of orthodoxy definitely lies on the wrong side of the borders. But, by the same token, there is plenty of heterodoxy, at least in principle, that straddles the border and is located on the side other than orthodoxy, so extensive is the potential even for marginal but destructive deviations from it. This suggests the need for a unity of purpose in criticising the mainstream and in posing alternatives. For, if there is one thing as counterproductive as a mainstream-economist, it is a political economist who knows he or she is right and everybody else is wrong. So let those committed to political economy learn from one another through friendly fire rather than perishing by it. For yesterday’s philosophers are today’s economists. As Marx observed of them, paraphrasing for modern times:79

Hitherto economists have had the solution of all riddles lying in their mathematical models, and the stupid, exoteric world of finance had only to provide the data for the roast pigeons of absolute-econometric knowledge and vast fortunes to fly into it. Now economics has become mundane, and the most striking proof of this is that economics itself has been drawn into the torment of the crisis, not only externally but also internally. But, if constructing the future and settling everything for all times are not our affair, it is all the more clear what we have to accomplish at present: I am referring to ruthless criticism of all that exists, ruthless both in the sense of not being afraid of the results it arrives at and in the sense of being just as little afraid of conflict with the powers that be.

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