Victoria Chick — Keynes v. Schumacher, and both v. the mainstream

Recently I had occasion to compare the respective visions of the economists JM Keynes and EF Schumacher for our economic future. They differed on how they thought the economy should develop: Keynes was prepared to carry on as usual until a good standard of living was reached, while Schumacher's response to what he saw as overcapitalised, dehumanising methods of production was to propose a radical transformation of the structure of our economic system. But they held similar values. Both viewed economics as a secondary feature of our lives. Both were concerned with the good life, how it should be conceived and how it could be lived.

For Keynes, solving the "economic problem" was merely a precondition for being able to concentrate on higher values. For Schumacher, work should be part of the good life itself. The cultivation of friendship, the enjoyment of the arts, participation in useful work, caring for others, the pursuit of self-fulfilment and enabling the fulfilment of others were examples of the things that really mattered, not the acquisition of goods beyond basic needs. Nor did they support the macroeconomic aim of continual growth in material production. 

Their thinking is in sharp contrast to today's mainstream economists. Economics has developed along a single line of thought, in which individuals, isolated from society, have "preferences" for a collection of goods and are motivated by self-interest to pursue the acquisition, at the lowest prices, of the most goods that their economic circumstances allow. Competing businesses, likewise, pursue maximum profit. Economic theory then "proves" that "markets" will establish prices that lead to the most "efficient" allocation of scarce resources. This will maximise growth for the economy as a whole.

Mainstream economics claims to be "value-free". Students are cautioned not to mix normative propositions with their "positive" analysis. But self-interest is itself a value. This fact is cleverly disguised by putting forward the theory of consumer choice as a uniquely rational response to economic information such as prices, interest rates, tax rates and the like. Any behaviour not conforming to this theory is deemed irrational; other motivations such as altruism, love, the greater good or aesthetic appreciation are not considered: they are not the province of economics.

Such a value system might be just about tolerable if economics were restricted to a narrow sphere of inquiry. But over the past few decades economics has colonised not only much academic inquiry in the social sciences, but also public debate as a whole. Most notably, it has colonised politics. By giving "scientific" support to programmes of deregulation and privatisation over the past 40 years, it has managed to transform our economic structures to conform to its ideal of free markets, in the belief that competition between rational consumers and producers would enforce "correct" prices and lead to an economic optimum ....

Read the rest at The Guardian (short)
Economics is lost – it must rediscover life's values
by Victoria Chick
(h/t Kevin Fathi via email)

I've long been a fan of E. F. Schumacher. His book A Guide For The Perplexed is a great intro to philosophy and Small Is Beautiful is great introduction to economics. Schmacher gets right to the nub of it.

In this five paragraph introduction, Victoria Chick sums up the issues separating orthodox and heterodox economics and philosophy of economics as they impact the issues of the day. The rest fleshes it out.

Paragraph six expresses my own conclusion on the matter.

This theory of how the economy would work if there were free competition has thus been put to the test. The result is what I believe will prove to be the worst economic disruption in the history of the developed world.

The presuppositions of New Classicalism are simply wildly off the mark and the consequences on human life are bound to be life-damaging in the extreme, as they already are for many. There will be many more.