In The Delusions of Economics, Gilbert Rist presents a radical critique of neoclassical economics from a social and historical perspective. Rather than enter into existing debates between different orthodoxies, Rist instead explores the circumstances that prevailed when economics was 'invented', and the resultant biases that helped forge the construction of economics as a 'science'. In doing so, Rist demonstrates how these various presuppositions are either obsolete or just plain wrong, and that traditional economics is largely based on irrational convictions that are difficult to debunk due to their 'religious' nature. As a result, we are prevented from properly understanding the world around us and dealing with the financial, environmental, and climatic crises that lie ahead.
Provocative and original, this essential book provides incontrovertible proof that the construction of a new economic paradigm - pluralistic, ecologically compatible, grounded in reality - has now become a necessity.
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About the Author
Gilbert Rist is professor emeritus at the Graduate Institute of International and Development Studies in Geneva.
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The Delusions of Economics
The Misguided Certainties of a Hazardous Science
By Gilbert Rist, Patrick Camiller
Zed Books LtdCopyright © 2010 Presses de la fondation nationale des sciences politiques
All rights reserved.
ECONOMICS BETWEEN HISTORY AND ANTHROPOLOGY
Let us first briefly consider what follows from treating economics as a social science that stands no higher than the other social sciences and has no special privileges in relation to them. This will imply an external critique: not because internal critiques are devoid of interest, but because they operate within a closed discipline gradually built up with the help of axioms or assumptions that supposedly define (and therefore separate) what is and is not an 'economic fact'.
The autonomy of economic 'science' from the other social sciences is fairly recent in origin; the different viewpoints that today characterize or identify the various disciplines were once quite closely intertwined. In the Age of Enlightenment, a thinker could be at the same time a doctor and physiocrat like Quesnay, a political theorist, anthropologist and musician like Rousseau, a moral philosopher and 'economist' like Adam Smith, or a polemicist and financier like Voltaire. It was not possible to say which 'competence' had the upper hand in each of these figures, unless and until one was content simply to ratify the verdict of history.
THE TRAP OF AUTONOMOUS DISCIPLINES
Historically, then, there was a kind of common ground in which various ways of looking at social facts had their roots. This is one reason why economics should be considered in relationship to other disciplines that share the same origin as itself. At the same time, it must be recognized that the eighteenth century marked a break with older ways of dealing with prices, commerce or production, and we may well wonder what this entailed for the 'well-being of society', to use an anachronistic expression.
Of course, ways of seeing the world change over the centuries, and there is general agreement that this should be attributed to the 'march of progress'. Copernicus freed us from the illusion of geocentricity; Magellan finally demonstrated that the earth was round; Newton explained the laws of the universe on the basis of mathematics rather than theology. So, why should we not salute Adam Smith and his disciples for putting an end to the contempt in which merchants were held, for discovering the best means of economic exchange and life in society, and for dispelling a variety of errors? The simple answer is that we are always at liberty to ask what we won and lost as a result of these 'historic advances'; and that, from the viewpoint of history and anthropology, there are many reasons to doubt some of the assumptions on which the early economists built their theories and which their successors neglected to verify (or lacked the courage to abandon).
Whereas, from Aristotle to the Physiocrats, the first outlines of economic 'science' presented themselves as no more than a theory to explain or interpret certain social phenomena, their sequels became more and more normative and prescriptive. They claimed to define an order that governs production and exchange and ensures maximum satisfaction for all who engage in them, based on an anthropology (a vision of man, society and nature) with roots in the Enlightenment, and a 'social physics' copied from the natural physics whose laws were beginning to be discovered at the time. For this programme to be realized, it was necessary that a number of hypotheses should be considered true. A provisional list of these would include: there is a 'human nature' that has been uniform and unvarying in all societies down the ages; individual behaviour can therefore be explained and predicted regardless of context; and one can devise models that enable the greatest number of people, if not all, to maximize their satisfaction and thereby contribute to their own happiness and the collective welfare.
These 'truths' were long held to be self-evident, even though studies of other societies – which began to appear in the early eighteenth century, but were either ignored or treated as marginal by economists – called their universality into question. We should take a fresh look at those studies and compare them with the assertions of economic 'science' – not out of a passion for relativism, but to make economists focus on the range of different social practices, instead of describing an enchanted world in which it is exactly as if theory has taken the place of 'reality'.
CHANGING THE OPTIC
As Einstein showed, 'it is theory which decides what can be observed'. Thus, once economic 'science' established itself as the principal (or the only) conceptual grid for the apprehension of 'reality', it became difficult to avoid confusion between the level of theory and the level of the 'facts' deriving from it. But Einstein's statement has a corollary: 'reality' will appear differently according to the theory used to interpret it. For example, knowledge of the atomic system enables us to envisage matter otherwise than in previous conceptions. But, to define common salt as the grouping of two atoms of sodium and chlorine tells us nothing about its taste properties; or a tree will not be the same when looked at by a poet, a botanist and a forester evaluating it as a 'resource' (and converting it from a living being into a lifeless commodity). There are several ways of understanding the world, which differ with the spectacles we wear, and several ways of living in it, according to the purposes we have in mind. Why should the same not be true of 'economic goods'?
This work starts out from two assumptions: the first, rather banal, is that Western society is like all others (even if, like all others, it denies this and claims a pre-eminent position); the second is that, in every society, there are 'theories' or 'ways of seeing' that combine a rational and an imaginary part, both accepted by all, which make the world intelligible and determine social practices. Simply put, we might say that in some societies people think (or believe) that all human beings are equal, while in others they think (or believe) that everyone belongs by birth to a particular caste. Furthermore, some think (or believe) that the earth is a mother goddess (the Andean Pachamama), while others think (or believe) that it is an exploitable 'resource'. The examples could easily be multiplied. In each case, someone denigrates the 'beliefs' of others, because it is always unbelievers who think that others 'believe' (in wrong things). But the point here is not to decide one way or another, to say who is right and who is wrong. Whatever the 'beliefs' may be, they constitute – for those who subscribe to them – practical truths with which they have to comply: a Hindu will only marry within his caste, and an Amerindian campesino will not behave in the same way as an industrial farmer. If cows are 'holy', everyone will refrain from eating them and stop to let them cross the road.
Western society makes no exceptions to this rule. Nor does the economic theory that the West invented. By questioning its assumptions, it is possible to bring out the imaginary portion (of irrationality or belief) that is characteristic of it. To jump ahead a little, we may say that the non-spoken (or imaginary) element underlying economic theory belongs to the paradigm of war – war against nature, and war of humans against one another. Its assumption of original scarcity means that war must be waged on nature by exploiting all its resources, both renewable and, especially, non-renewable; and its assumption that in all circumstances everyone pursues only their own interest serves to legitimize competition and social inequalities. However, if it is true that we need a different paradigm (with another implicit imaginary) – one based on life in and with nature, on solidarity and disinterestedness – then some elements of an answer may be found in traditional or 'primitive' economic forms. Those who live within those forms show that a different way of constructing the world is not only possible but exists in reality. To our Western eyes, of course, 'such people are crazy'. But what if we agreed to recognize the portion of craziness that we have turned into a practical truth that rules our lives?
To draw on economic history and anthropology does not entail disturbing the dust that has gathered on obsolete practices, nor introducing exotic forms of behaviour into the picture, but it does force us to see the world differently. It dispels the illusion in which exchange is considered only in a narrow market perspective; no society would survive in the real world if it was limited to that. To be sure, 'real' economists are often distrustful, sometimes contemptuous, of anthropologists in the academic fraternity. The divergences between them are first of all methodological: anthropologists observe and record; economists calculate and think of what ought to be the case. Nor should we overlook the fact that most economists, won over by the ideology of progress, consider that history is 'moving forward' and that what was true or possible at an earlier stage is now consigned to oblivion, whereas others maintain that humanity (the quality of being human) develops only through respect for certain basic rules, including reciprocity and redistribution, gift and return gift. This opposition threatens to persist for a long time still. So far as the enthusiasts of economic 'science' are concerned, what is at stake is the ideology of progress – an ideology which has been losing momentum in recent years – while for anthropologists the point is that the builders of economic models pay scant heed to the diversity of social practices. The aim of this book will be to cast some reflected light on the matter by 'observing ourselves in the face of others' – to use the fine expression of the sixteenth-century Genevan pastor Urbain Chauveton – that is, by looking at our own society with the amazement of someone from a distant land used to other customs. This may help put an end to the sense of superiority, or even arrogance, that has been so characteristic of the West.
To avoid any misunderstanding, the approach adopted here should be spelled out even more clearly. With globalization triumphant, it might be asked, what point is there in referring to the customs of vanished or vanishing societies? Can we really learn anything from 'savages' who have now been marginalized or forced to integrate into the 'global village'? Does it make sense to address the problems of the twenty-first century with ideas that had currency in a bygone age or belong to traditions nullified and erased by modernity? Do we not risk drifting off in a 'reactionary' direction if we dwell too often on the ostensible harmony of earlier societies? Conventional thinking, nurtured as it is on social evolutionism, threatens to raise such objections whenever 'traditional' practices are held up as exemplary, seeing them not only as alien to reason but even as 'inhuman' in the scale of Western values. Yet the fact is that, far from having vanished, most of the practices and traditions in question are still very much alive – not only in the African countryside or the hedge-lined farmland of Normandy, but also in the cities of the industrial countries – and that they contain values of 'common decency' (as Orwell put it) which escape the mainstream liberal ideology of 'every man for himself'. This is not at all to suggest that such societies are idyllic or conflict-free, but merely to point out that, despite the rivalries running through them, they also practise forms of exchange that challenge the assumptions of standard economic 'science'. Of course, as in all traditions, these practices undergo transformation over time, adapting to changes in the world in order to maintain their essential reason for existence. In this, they are like each and every one of us, who preserve our identity by constantly modifying ourselves. Frozen traditions would be dead traditions, good only to be displayed in a museum. But, fortunately, ways of acting and living that do not depend on the market are present all around us, even if the analytic grid that has been gradually imposed on everyone prevents us from seeing them.
We might even say, without too much fear of contradiction, that what remains marginal today is market economics, not traditional practices resting on reciprocity and redistribution! If market exchange is the only kind allowed into the equation, then it will be decisive for the simple reason that the conclusion is already contained in the premiss. But as soon as we widen the picture to include all forms of exchange – not only those involving monetary compensation (or corresponding to largely virtual financial flows) – we realize how important, at a global level, is everything that circulates 'outside the market' in forms and patterns, and in accordance with rules, that economic 'science' has chosen to ignore.
Of course, this opposition between neoclassical theory and 'traditional' practices is only one way of looking at things. Another, equally legitimate, approach would be to contrast mainstream economics with attempts to develop a form of social economics based on solidarity, in which cooperatives, mutual associations and exchange networks make it possible to escape the hegemony of the market. Similarly, it might be shown how long social struggles led to the 'free' availability of education, social protection and, in some countries, medical care. Although these public goods have a cost – and therefore a price, assumed by society as a whole – this is not set by the market, at least as long as the social state resists their privatization. Thus, as we said before, the market form is far from sweeping the board in social transactions. If economic anthropology decides to attack the fabrications of conventional (or neoclassical) economics, it does so for two reasons: first, to avoid limiting the debate to two economic forms ('capitalist' and 'socialist') which, even if they differ considerably in their practical consequences, largely rest on the same epistemological foundations; and, second, because (to quote Rousseau) 'When one wants to study men, one must consider those around one. But to study men, one must extend the range of one's vision. One must first observe the differences in order to discover the properties.' This distancing or decent-ring, in both space and time, is thus a methodological requirement: we have to 'look into the distance' in order to understand what unites and divides the ways in which various societies think about the economy (modes of production, consumption and exchange) and the reasons they have thought up to establish rules for it.
FROM REDUCTIONISM TO COMPLEXITY
In what way will the new economic paradigm that should come into being differ from the one that is dominant today? At this stage of our enquiry, all we can say for sure is that it will be more diverse and more complex. People everywhere have been producing, consuming, saving, distributing and exchanging since time immemorial. That is not at issue. Just as the climate exists in the absence of meteorologists, 'the economy' has in a sense always existed, even if societies historically or geographically remote from our own have not regarded economic phenomena as distinct from social life, political power, religion, myths and social obligations. Everything changed when economic 'science' chose to consider this vast set of relations only from the viewpoint of the division of labour, market exchange, individual rationality and the pursuit of utility, thereby flattening the diversity of human practices and reducing them all to calculable operations motivated by self-interest. What is unacceptable is the claim to impose a single, uniform 'economic logic', which ignores the many 'good reasons' for which human beings enter into relations with one another and give various meanings to the use they make of material goods.
This is why it is neither rational nor reasonable to put up with the reductionism that characterizes economic 'science'. Of course, we can accept that theoretical constructions supported by mathematical formulae are sometimes distant from the real world, since any 'model' inevitably involves a degree of abstraction. But, beyond this methodological point, the main issue is the premisses and axioms on which the discipline rests. It is these implicit and explicit assumptions, not unlike acts of faith, which need to be questioned in the name of a rigorous approach that remains attentive to social practices.
Excerpted from The Delusions of Economics by Gilbert Rist, Patrick Camiller. Copyright © 2010 Presses de la fondation nationale des sciences politiques. Excerpted by permission of Zed Books Ltd.
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Table of Contents
Introduction 1. Economics between History and Anthropology 2. A Failed Scientific Ambition 3. Homo Oeconomicus: A Dangerous Phantom 4. Exchange 5. The Fairy Tale of Scarcity 6. Utility and Futility 7. Equilibrium 8. The Growth Obsession 9. Growth Objection 10. Economic 'Science' as Religion 11. Towards a New Paradigm? Conclusion