“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”
― John Maynard Keynes
Once we have an understanding of an idea, it’s hard to perceive the world as if we didn’t have that understanding. When we learn to see, one of the things we have to learn is the recognition of borders on objects. Before we learn this in infancy, all we see are fuzzy blobs of undefined color. In the sense of our neural wiring, how our brain processes visual information is a language of sorts that we learn. If our eyes are blocked during the time this normally occurs, the brain uses that space for other purposes and we are effectively blind, no matter how well the biology of the eye may function.
This is how all ideas work in our minds. Our environment and what we learn are continually shaping our brain, which is then changing our thoughts and sense perception. Once we learn to read we read easily and automatically; barring injury or disease we aren’t in danger of suddenly becoming illiterate. Our whole lives we are filing away information about the sense data of what we encounter in our environment, and once acquired, we identify sights, smells, and textures with this memory from then on. This process works with all our sense memories including our emotions. A song can make us feel sad because it happened to be playing when we got some bad news, or the sight of a place can make us feel happy because we had a good night drinking with friends there once. Memory is essential to facilitating our sense perceptions of the world.
Our minds frequently override sense perception, causing us to see things that aren’t there by incorrectly attributing a memory to the information our eyes are giving us. We’ve all had some version of the common experience where we mistake a coat on a rack in the dark for a person. Conversely, If we don’t want to see something, or don’t have the experiential context to see something, we won’t. Even if there is simply too much information in a visual field, our brains simply won’t take it in. For example, in a study at the University of Illinois Police Training Institute, 58% of recruits and 33% of veteran officers failed to notice a gun in plain sight on a dashboard in a simulated traffic stop.
Experiences and beliefs are crucially responsible for our experience of life. In a similar way to reading, where an unknown script looks like a collection of markings but a known script looks like a means to transmit ideas, the knowledge and experience we acquire through our life shape our brains which changes how we take in sensory information. Not only our understanding of our sensory information but its very formulation depends on what experiences and knowledge we are bringing to the data we get from our eyes and ears.
There are many ideologies intersecting in our world today shaping how we perceive our interactions and experiences. People tend to pick one or two subjects and focus on them, however as with all areas of knowledge, everything is connected. Borders and separation are literally illusions, for example, two sheets of aluminum held together in a vacuum will be welded together because the atoms don’t know or care which piece of metal they’re a part of, which is something that’s had to be dealt with in spacecraft.
The humanities in the time of post-modernism have become subsumed by critical theory and deconstructing dominant narratives in culture, giving long-suppressed voices overdue avenues into the public sphere. However, the focus on and successes within liberal arts has come at a cost of other places attention could be spent, leaving very consequential and impactful power structures perfectly entrenched and even strengthened.
Writer Natalia Dashan shared this perspective from her time at Yale:
" Many of the most important truths that the critical theory PhDs deal in—truths about the structure of power, how power manifests through language, how even “objective” social institutions are tools of hidden power—are hobbled from their full and proper expression by being confined to a small set of acceptable uses within progressive ideology. The ideology, once picked up and recuperated by existing powers, becomes a containment system for those truths, a way to reliably transmute dissent into loyalty. Ideologies win because they serve some purpose to the powers that invest in them, and they become about that purpose.
What is the point of this new ideology? This ideology is filled with inconsistencies and contradictions, because it is not really about ideological rigor. Among other things, it is an elaborate containment system for the theoretical and practical discontent generated by the failures of the system, an absolution from guilt, and a new form of class signaling. Before, to signal you were in the fashionable and powerful crowd, you would show off your country-club membership, refined manners, or Gucci handbags. Now, you show how woke you are. To reinforce their new form of structural power, people dismiss the idea that they even have the older, more legible forms of status."
Economics, while being the genesis of critical theory, has had limited effective criticism from outside the field due to a lack of ease in acquiring familiarity with the topic. There’s a general consensus that capitalism has flaws and the system isn’t working but little discussion among the lay public of what specific ideas have created these problems or how other cultures who faced similar issues overcame them. It’s common to encounter people making a case against wealth disparity or private ownership who nonetheless speak of neoclassical economic axioms as if they were laws of nature.
Criticism from within the economic field has been hobbled by institutional power, partially reflected in the categorization of “orthodox” and “heterodox”, orthodox describing neoclassical economics and what is taught at an undergraduate level, heterodox being ascribed to any idea that is not orthodox. This dichotomy has been accepted as reasonable for reasons unknown to me; there are obvious disadvantages the framing gives to ideas that are not already in use. Over the past decade, there has been a growing number of student groups advocating for pluralism in economics, spearheaded by the International Student Initiative For Pluralism In Economics which encompasses 65 student groups in 30 countries. Together they are advocating for a more interdisciplinary approach to economic instruction.
Many of the premises which underly mainstream economics are abstractions promoted and taught solely due to the benefit that belief in these ideas affords the wealthy and powerful. Like the belief in the idea that a public company “must” prioritize profits and return on investment by any means necessary short of fraud as some fundamental law of nature regardless of the cost to the well-being of employees or the community at large. Or the idea that in an economic downturn firing employees is the only “rational” choice because nothing but a cost/benefit analysis matters. The logic is very selectively applied, as when an American company is going bankrupt, over and over the executives receive millions of dollars in bonuses defended on the grounds that they have to be “incentivized” to stay involved in the process of restructuring even while they may fire thousands of other employees because these executives are so valuable to the performance of this company going bankrupt under their watch. The last example doesn’t seem rational to me at all.
While excessive CEO pay is not solely an American phenomenon, the US is a leader in wage disparity. In the US CEOs are paid around twice what CEOs of firms in other countries are paid, making on average 256 times more than the average worker. How has this situation come about in America, and why haven’t these disparities occurred so egregiously in any other countries?
Co-determination is a practice originating in Germany that stipulates in law workers must be involved in the direction of a firm. For example, in Germany, for a company of 2000, half of the board members must represent workers. In the coal, mining, and steel industry workers have complete parity with shareholders in a company that employs 1000 or more people. There is also the legal framework for works councils, a worker organization complementary to a trade union but more localized. 19 member countries of the EU have some co-determination laws today while the EU also has the Employee Involvement Directive of 2001, which sets a minimum standard of worker participation for a company founded in the EU. European Works Councils enjoy similar National and state-level legal codification, with specific laws in 10 EU member states.
Co-determination, as it’s known today, became the law in Germany by acts passed in 1951 and 1952 with further reinforcement of the law passed in 1976. West German industry didn’t have a lot of leverage following its shameful capitulation to the Nazis. It was driven by Christian ethics in part, as historian Robert R. Locke writes in Confronting Managerialism:
“In the codetermination laws, German religious conservatives sought moral redemption, by punishing the corporate managerial elite that had soiled itself through collaboration with the Nazi dictatorship in its crimes against humanity, and by rendering justice to workers and their unions, who had often been the Nazis’ victims.”
R. Locke writes that American capitalists were staunchly opposed to co-determination; before the law was passed the National Association of Manufacturers sent a delegation to Germany to lobby against it and took out an open letter to the German Council in the New York Times “warning that Americans wouldn’t invest in German industry if the codetermination bill passed”. Sometimes their opposition was premised ideologically as opposition to socialism, other times it was framed as a detraction from shareholder rights.
Newtonian Mechanics was the predominant means of understanding the world at the time many of the premises that underly neoclassical economics were first established, most prominently in the work of neoclassical economists like Stanley Jevons and Leon Walras. Economics had long been an aspect of philosophy and theology; at the end of the 19th century, some economists wanted to be thought of as serious scientists. In order to be taken as science at the time, there had to be predictive certainty. However whereas Newton collected centuries of research and empirical experimentation to write Principia, Jevons emulated this with a priori definitions; writing with the mathematical certainty that was applied to science at the time but is completely misapplied to markets and economics. Writing in Theory of Political Economics he states, “The Theory of Economy thus treated presents a close analogy to the science of Statistical Mechanics, and the laws of exchange are found to resemble the Laws of Equilibrium of a lever as determined by the principle of virtual velocities”
Economist Edward Fullbrook describes the advent of neoclassical economics:
“In Neoclassical economics, “bodies” translates “individuals” or “agents”, “motions” translates “exchange of goods”, “forces” translates “desires” or “preferences” which when summed become “supply and demand”, “mechanical equilibrium” becomes “market equilibrium”, this being when the difference between supply and demand is zero, and “physical systems” translates “markets”…. All exchanges were said to magically take place at the prices that equated demand and supply. There were no disjunctions from innovation and competition and no distortions from oligopoly and monopoly. This elimination of dynamics placed the focus entirely on when the market is in equilibrium, thereby ignoring actual market processes. Individuals were defined as atomistic, that is as having no social dimension, and within their isolated selves as being one-dimensional, meaning that they have only one criteria, preference satisfaction, for making decisions. And the preferences of these non-social beings were defined as unchanging, completely independent of life experiences, including consumer ones.”
Neoclassical economics dominant position in the mainstream of economic thought owes a lot to the US government. Following the success of mathematically informed tactics in Operational Research during World War 2, the US Air Force funded the Rand Corporation; a think tank dedicated to solving operations problems by using mathematics to take the guesswork out of decision making. A natural place to explore was the applied mathematics being used in neoclassical economics which had some overlap with the mathematics used in OR.
In 1944 it was being acknowledged that the mathematical abstractions in economics weren’t very useful. In the introduction to Theory of Games and Economic Behavior, John Von Neumann dissects with great clarity how and why mathematics hasn’t been particularly useful in economics up to that point, citing the lack of empiricism and the lack of clarity in premises. This didn’t obstruct the enthusiasm for mathematical analysis at all; in 1948 Kenneth Arrow used game theory and extreme reductionism to formulate Rational Choice Theory, which “states that individuals use rational calculations to make rational choices and achieve outcomes that are aligned with their own personal objectives”, which went on to be a model of human behavior for decades well beyond the field of economics where the term “rational” is understood to be a term of art. Kenneth Arrow and Gerard Debreu would go on to achieve a solution to general equilibrium theory, described by some as the “theoretical core of neoclassical economics” which posits that under a robust set of abstract assumptions like perfect competition, which never happens in reality, “there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy”.
Economics has been famously dogmatic, bizarrely so when one considers how frequently axioms of theory have been proven wrong by reality. Part of the reason is that a lot of schools don’t teach beyond mainstream economics. Back in 1965 the Rand Corporation, buoyed by its success in applied mathematics, began funding a fellowship program for graduate students of economics at the University of California, Harvard, Stanford, Yale, Columbia, Chicago, and Princeton, as well as providing postdoctoral grants to faculty using the fruits of Rand’s research. As time went on indoctrinated graduates would spread the orthodoxy of neoclassical economics throughout the world with the credibility of the most prestigious schools in the US. In the year 2000, a group of economics students from the prestigious French school Grandes Ecoles began a protest against what they were learning. They circulated a petition expressing dissatisfaction with the empirical utility and “mathematics as an end in itself” that got a lot of support locally and internationally. Here is the opening paragraph:
Most of us have chosen to study economics so as to acquire a deep understanding of the economic phenomena with which the citizens of today are confronted. But the teaching that is offered, that is to say for the most part neoclassical theory or approaches derived from it, does not generally answer this expectation. Indeed, even when the theory legitimately detaches itself from contingencies in the first instance, it rarely carries out the necessary return to the facts. The empirical side (historical facts, functioning of institutions, study of the behaviors and strategies of the agents . . . ) is almost nonexistent. Furthermore, this gap in the teaching, this disregard for concrete realities, poses an enormous problem for those who would like to render themselves useful to economic and social actors.
The movement came to be known as post autistic economics; garnering support from universities all over the world. At Harvard at the time, economics was taught by Martin Feldstein, a former Reagan advisor profiled as “Scholarly Mentor to Bush’s Team” by the New York Times. A student interviewed at the time of the movement said of his class, “I don’t think I’m alone in wanting a class that presents a balanced viewpoint and is not trying to cover up its conservative political bias with economic jargon.”
During this time neoclassical economist Larry Summers was president of Harvard; a decade earlier he had been Chief Economist for the World Bank when his famous 1991 leaked memo, which included the line “I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable, and we should face up to that … I’ve always thought that underpopulated countries in Africa are vastly UNDER-polluted …” illustrated the epitome of the problem with neoclassical economics. It was profusely excused by Summers as taken out of context and also sarcasm both at the time of the leak and at a later Senate hearing for confirmation to be Secretary of the Treasury. However, Summers also gave a defense of sweatshop labor at a prayer breakfast at Harvard in 2003, saying: “ For example, many believe that it is wrong to buy imported products produced by workers who are paid less than a specified minimum wage of some sort. We all deplore the conditions in which so many on this planet work and the paltry compensation they receive. And yet there is surely some moral force to the concern that as long as the workers are voluntarily employed, they have chosen to work because they are working to their best alternative”. Surely, there’s some moral force.
You may remember Larry Summers from earlier this year as he volunteered his deft economic analysis when he criticized Biden’s pandemic relief plan as the “least responsible in 40 years”. Meanwhile, within financial institutions like JP Morgan and Goldman Sachs, the pandemic relief plan is seen as the predominant reason for optimism.
Neoclassical economist Milton Friedman did a lot to shape the idea of corporate responsibility in a 1970 essay where he articulated the idea that, “there is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits”. The bulk of the essay is a demonization of the very idea of a business having a sense of social responsibility, outright insulting anyone who would dare to think this way as “unwitting puppets of the intellectual forces that have been undermining the basis of a free society”
What’s most striking to me throughout the essay is that Friedman explicitly portrays social responsibility to be in opposition to the interest of a company, giving the examples of acting beyond the minimum legal requirement to prevent pollution or not raising the cost of a product (like insulin) as much as one can possibly get away with. This essay and Friedman’s work provided the argument for the blatantly immoral profit-seeking that has come at the cost of people’s lives as it’s been applied to health care, financial products, every aspect of life.
Social responsibility is not and never has been at odds with business. Taking Friedman’s pollution example, the tragedy of the commons applies to the environment. One person that wants to pollute to their heart’s content will find in time that there isn’t potable water left for their business to use. Friedman makes the case that a company engaging in an act of social responsibility is using someone else’s money in a way the investor wouldn’t, which presumes that a company is acting socially responsible in secret. The whole argument rests on socially responsible corporate behavior as an act of duplicity.
The philosophy articulated in this essay shaped the world, not because of its logic or truth, but because it helped the wealthy justify acting without conscience. From this argument, the executive doing the bare minimum as required by law in terms of safety or pollution or wages is the moral thing to do. It cast greed as a moral virtue backed by mainstream economics.
This conception of greed as ubiquitous and unavoidable as perpetuated in mainstream economics has far-ranging societal effects. Corporations that act in predatory and destructive ways use the popularized conception of human incentives and narrow definition of self-interest from neoclassical economics as a justification and defense of their actions. It is so taken for granted that it’s even used as an argument in court. Notorious polluter Chevron has been the subject of one of the longest-running court cases in history, a class-action lawsuit from 30,000 Ecuadorians who experienced numerous health issues due to cost-cutting and careless actions by the company, formerly Texaco, from 1964 to 1990. The class-action suit was filed in 1993, tried in Ecuadorian courts per Chevron’s request, then upon judgment against them for tens of billions of dollars, relentlessly contested at courts all over the world from New York to The Hague.
The defense of their behavior is what’s of interest here, because it rests entirely on a fundamental perception of the human character that is false. The defense has entirely fallen to the idea that the judgment against them was corruptly sought out of greed. For example in one memorable episode wherein the Ecuadorians employed the firm of Patton Boggs to represent them in collecting the judgment, Chevron responded with the defense that Patton Boggs was engaging in an extortion scheme.
From Politicos reporting, Randy Mastro representing Chevron said, “Your Honor, Mr. Tyrrell asks the question, would Patton Boggs be risking their reputation on these Ecuadorian plaintiffs. The answer, unfortunately, from their own documents, is yes. The answer is: A firm getting a contingency fee on $18.2 billion will do a lot of things that shock the conscience, and what they did here shocks the conscience.”
Patton Boggs lost the case and paid 15 million in legal fees to Chevron. All over the world, Chevron has avoided paying out on the judgment against them claiming that the evidence against them or judgment was not sought in a forthright way, taking advantage in part on an absence of widespread knowledge of the differences between the justice system in Ecuador and the justice systems in the US, Canada, and The Netherlands.
The defense articulated by Randy Mastro speaks to an assumption that there are no people among us who are unmoved by numbers in a bank account, none among us who value time or relationships or reputation or integrity or principles that so many in history have been martyrs for more than money. It’s a worldview that presumes everyone in the world is so devoid of any higher-minded ideals that they’d abandon any principles for a number that’s big enough. This is neoclassical economic thinking, the “law” of supply, “all else being equal” whatever we get the most money for is what it’s “rational” to do. Never mind that being exclusively driven by money is among the worst career advice one can get and among the most frequent regrets expressed on people’s deathbeds.
The assumptions encompassed in “all else being equal” function to completely undermine whatever idea follows them. The term “law” in economics falsely gives the impression that economic ideas have the predictive power of physics; a convention that started entirely out of hubris. Unfortunately, many people believe what they’re taught, absent a concurrent education in psychology a person can walk away from an economics 101 class thinking they’ve gotten helpful insight into the human condition.
In 2012 a Twitter thread of economics criticism was started by Richard Horton, Chief Editor at The Lancet that inspired three economists, David Parkin, John Appleby, and Alan Maynard to respond within the pages of the Lancet under the title, “Economics: the biggest fraud ever perpetrated on the world?”.
The defenses of some specific critiques present the distinctions from theory and practice that allow these ideologically driven falsehoods to remain so tenaciously. Responding to the criticism that Economics is conflated with society the economists contest the idea, “not the same as thinking that all social problems are economics problems, or that the economy is something other than one aspect of society”, however in practice the powers that be frequently invoke economic ideas as if they were nature itself. The ideas from economics are selectively used by politicians and executives with the collaboration of unscrupulous economists like Larry Summers, or Alan Greenspan, a disciple of Ayn Rand who served an unprecedented five terms as chairman of the Fed, presumably due to his eager facilitation of wealth inequality.
Particularly telling is the response to Horton’s critique of the economic concept of Rationality. Horton wrote, “Rationality, for the economist, means subjecting every thought/decision to a cost-benefit analysis. A wholly narrow view of humanity”. The response given is that rationality in the economic sense is a term of art, “It is a simplifying assumption in the analysis of human behaviour, not a description of how people actually behave”. This response paints Horton’s claim as something that economists don’t sincerely believe or don’t continually have to clarify when defending their profession, however, the belief was sincere enough that Daniel Kahneman, a psychologist, won the 2002 Nobel Prize in economics for proving that people do not, in fact, act rationally.
Horton’s last criticism is that the field of economics institutionalizes inequality, to which the economists responding didn’t have an easy answer. However this issue isn’t solely at the feet of economists, it’s at the feet of the people who selectively pick and choose economic ideas that benefit them in corporate management. It’s an issue with the selective use of these ideas in Banking, in Government, at the IMF, at the World Bank. It’s the distance that there is between the people making decisions in leadership and policy and the people who are affected by those decisions which facilitate abstraction. It’s easy to make decisions when all you see is numbers and all you do is math.
“In all places and at all times, capitalists have objected to official regulation and never more so than when they were prosperous,” wrote Micheal Albert, in his book Capitalism Against Capitalism which coined the term Rhine Capitalism to describe the German system. The Idea of co-determination has been making ground in the US, in 2018 Senator Elizabeth Warren introduced the Accountable Capitalism Act which would give workers the right to elect 40 percent of a Board of directors for a company that posts above $1 billion in tax receipts.
Criticism of Warren’s bill has used the familiar tactic of decrying it as socialism. Which is part of why I’ve written on this topic. Rhine Capitalism is conceived of as a “third way” between Anglo-American Capitalism and Socialism:
The Rhineland business model and the leadership practices associated with it can be defined as a management approach based on concepts of cooperation, consensus, social justice, and serving the interests of multiple stakeholders. Chief concern is the long-term sustainability of an enterprise. A Rhineland firm views itself as an interdependent part of a wider community that offers a lasting place for each of its members rather than simply as a moneymaking machine for investors. Under the Rhineland model, a firm’s success derives from taking a long-term perspective in making decisions; developing a skilled and loyal workforce; and offering innovative products, services, and solutions of high quality. The objective is not to maximize profits in the short term but to generate long-term value for all stakeholders.
From the principles expressed alone, the Rhineland Model presents something the US can grow towards as the failures of neoliberalism make themselves more and more obvious. The Anglo-Saxon model of capitalism is why our insulin is so expensive if you believe the rationalizations offered by pharmaceutical companies.
As human beings, all we know is what comes to our brain through our senses. We cannot afford to have false ideas of “rationality” or “incentives” being taught to people who will go on to have positions of influence at the heart of our policymaking, crafting our societal structure, shaping our understanding of one another. We cannot afford to have a reductionist view of our very possibilities or be unaware of the full spectrum of what we can ask for. Beliefs determine what we feel, how we react to sense information, what thoughts we can think. Knowledge and ideas are too consequential for dogmatism or greed to determine what we teach, what beliefs people live with.