C.1.1 Is economics really value free? is the second chapter of Section C of An Anarchist FAQ.
Transcript
Modern economists try and portray economics as a “value-free science.” Of course, it rarely dawns on them that they are usually just taking existing social structures for granted and building economic dogmas around them, so justifying them. At best, as Kropotkin pointed out: “[A]ll the so-called laws and theories of political economy are in reality no more than statements of the following nature: ‘Granting that there are always in a country a considerable number of people who cannot subsist a month, or even a fortnight, without earning a salary and accepting for that purpose the conditions of work imposed upon them by the State, or offered to them by those whom the State recognises as owners ofland, factories, railways, etc., then the results will be so and so. ’“So far academic political economy has been only an enumeration of what happens under these conditions — without distinctly stating the conditions themselves. And then,having described the facts which arise in our society under these conditions, they represent to us these facts as rigid, inevitable economic laws.”[Anarchism, p. 179]
In other words, economists usually take the political and economic aspects of capitalist society (such as property rights, inequality and so on) as given and construct their theories around it. At best. At worse, economics is simply speculation based on the necessary assumptions required to prove the desired end. By some strange coincidence these ends usually bolster the power and profits of the few and show that the free market is the best of all possible worlds. Alfred Marshall, one of the founders of neoclassical economics, once noted the usefulness of economics to the elite: “From Metaphysics I went to Ethics, and found that the justification of the existing conditions of society was not easy. A friend, who had read a great deal of what are called the Moral Sciences, constantly said: ‘Ah! if you understood Political Economy you would not say that’” [quoted by Joan Robinson, Collected Economic Papers, vol.4, p. 129] Joan Robinson added that “[n]owadays, of course, no one would put it so crudely. Nowadays, the hidden persuaders are concealed behind scientific objectivity, carefully avoiding value judgements; they are persuading all the better so.” [Op. Cit., p. 129]
The way which economic theory systematically says what bosses and the wealthy want to hear is just one of those strange co-incidences of life, one which seems to befall economics with alarming regularity. How does economics achieve this strange co-incidence, how does the “value free” “science” end up being wedded to producing apologetics for the current system? A key reason is the lack of concern about history, about how the current distribution of income and wealth was created. Instead, the current distribution of wealth and income is taken for granted. This flows, in part, from the static nature of neoclassical economics. If your economic analysis starts and ends with a snapshot of time, with a given set of commodities, then how those commodities get into a specific set of hands can be considered irrelevant — particularly when you modify your theory to exclude the possibility of proving income redistribution will increaseoverall utility (see section C.1.3).
It also flows from the social role of economics as defender of capitalism. By taking the current distribution of income and wealth as given, then many awkward questions can be automatically excluded from the “science.” This can be seen from the rise of neoclassical economics in the 1870s and 1880s. The break between classical political economy and economics was marked by a change in the kind of questions being asked. In the former, the central focus was on distribution, growth, production and the relations between social classes. The exact determination of individual prices was of little concern, particularly in the short run. For the new economics, the focus became developing a rigorous theory of price determination. This meant abstracting from production and looking at the amount of goods available at any given moment of time. Thus economics avoided questions about class relations by asking questions about individual utility, so narrowing the field of analysis by asking politically harmless questions based on unrealistic models (for all its talk of rigour, the new economics did not provide an answer to how real prices were determined any more than classical economics had simply because its abstract models had no relation to reality).
It did, however, provide a naturalistic justification for capitalist social relations by arguing that profit, interest and rent are the result of individual decisions rather than the product of a specific social system. In other words, economics took the classes of capitalism, internalised them within itself, gave them universal application and, by taking for granted the existing distribution of wealth, justified the class structure and differences in market power this produces. It does not ask (or investigate) why some people own all the land and capital while the vast majority have to sell their labour on the market to survive. As such, it internalises the class structure of capitalism. Taking this class structure as a given, economics simply asks the question how much does each “factor” (labour, land, capital) contribute to the production of goods.
Alfred Marshall justified this perspective as follows: “In the long run the earnings of each agent (of production) are, as a rule, sufficient only to recompense the sum total of the efforts and sacrifices required to produce them... with a partial exception in the case of land ... especially much land in old countries, if we could trace its record back to their earliest origins. But the attempt would raise controversial questions in history and ethics as well as in economics; and the aims of our present inquiry are prospective rather than retrospective.” [Principles of Economics, p.832] Which is wonderfully handy for those who benefited from the theft of the common heritage of humanity. Particularly as Marshall himself notes the dire consequences for those without access to the means of life on the market: “When a workman is in fear of hunger, his need of money is very great; and, if at starting he gets the worst of the bargaining, it remains great ... That is all the more probably because, while the advantage in bargaining is likely to be pretty well distributed between the two sides of a market for commodities, it is more often on the side of the buyers than on that of the sellers in a market for labour.” [Op. Cit., pp. 335–6]
Given that market exchanges will benefit the stronger of the parties involved, this means that inequalities become stronger and more secure over time. Taking the current distribution of property as a given (and, moreover, something that must not be changed) then the market does not correct this sort of injustice. In fact, it perpetuates it and, moreover, it has no way of compensating the victims as there is no mechanism for ensuring reparations. So the impact of previous acts of aggression has an impact on how a specific society developed and the current state of the world. To dismiss “retrospective” analysis as it raises “controversial questions" and “ethics” is not value-free or objective science, it is pure ideology and skews any “prospective” enquiry into apologetics. This can be seen when Marshall noted that labour “is often sold under special disadvantages,arising from the closely connected group of facts that labour power is ‘perishable,’ that the sellers of it are commonly poor and have no reserve fund, and that they cannot easily withhold it from the market.” Moreover, the “disadvantage, wherever it exists, is likely to be cumulative in its effects.” Yet, for some reason, he still maintains that “wages of every class of labour tend to be equal to the net product due to the additional labourer of this class.” [Op. Cit., p. 567, p. 569 and p. 518]
Why should it, given the noted fact that workers are at a disadvantage in the market place? Hence Malatesta: “Landlords, capitalists have robbed the people, with violence and dishonesty, of the land and all the means of production, and in consequence of this initial theft can each day take away from workers the product of their labour.”[[[Errico Malatesta]]: His Life and Ideas, p. 168] As such, how could it possibly be considered “scientific” or “value-free” to ignore history? It is hardly “retrospective” to analyse the roots of the current disadvantage working class people have in the current and "prospective" labour market, particularly given that Marshall himself notes their results. This is a striking example of what Kropotkin deplored in economics, namely that in the rare situations when social conditions were “mentioned, they were forgotten immediately, to bespoken of no more.” Thus reality is mentioned, but any impact this may have on the distribution of income is forgotten for otherwise you would have to conclude, with the anarchists, that the “appropriation of the produce of human labour by the owners of capital [and land] exists only because millions of men [and women] have literally nothing to live upon, unless they sell their labour force and their intelligence at a price that will make the net profit of the capitalist and ‘surplus value’ possible.”[Evolution and Environment, p. 92 and p. 106]
This is important, for respecting property rights is easy to talk about but it only faintly holds some water if the existing property ownership distribution is legitimate. If it is illegitimate, if the current property titles were the result of theft, corruption, colonial conquest, state intervention,and other forms of coercion then things are obviously different. That is why economics rarely, if ever, discusses this. This does not, of course, stop economists arguing against current interventions in the market (particularly those associated with the welfare state). In effect, they are arguing that it is okay to reap the benefits of past initiations of force but it is wrong to try and rectify them. It is as if someone walks into a room of people, robs them at gun point and then asks that they should respect each others property rights from now on and only engage in voluntary exchanges with what they had left. Any attempt to establish a moral case for the “free market” in such circumstances would be unlikely to succeed.
This is free market capitalist economics in a nutshell: never mind past injustices, let us all do the best we can given the current allocations of resources. Many economists go one better. Not content in ignoring history, they create little fictional stories in order to justify their theories or the current distribution of wealth and income. Usually, they start from isolated individual or a community of approximately equal individuals (ac ommunity usually without any communal institutions). For example, the “waiting” theories of profit and interest (see section C.2.7) requires such a fiction to be remotely convincing. It needs to assume a community marked by basic equality of wealth and income yet divided into two groups of people, one of which was industrious and farsighted who abstained from directly consuming the products created by their own labour while the other was lazy and consumed their income without thought of the future. Over time, the descendants of the diligent came to own the means of life while the descendants of the lazy and the prodigal have, to quote Marx, “nothing to sell but themselves.” In that way, modern day profits and interest can be justified by appealing to such “insipid childishness.” [[[Das Kapital|Capital]], vol. 1, p. 873]
The real history of the rise of capitalism is, as we discuss in section F.8, grim. Of course, it may be argued that this is just a model and an abstraction and, consequently, valid to illustrate a point. Anarchists disagree. Yes, there is often the need for abstraction in studying an economy or any other complex system, but this is not an abstraction, it is propaganda and a historical invention used not to illustrate an abstract point but rather a specific system of power and class. That these little parables and stories have all the necessary assumptions and abstractions required to reach the desired conclusions is just one of those co-incidences which seem to regularly befall economics.The strange thing about these fictional stories is that they are given much more credence than real history within economics. Almost always, fictional “history” will always top actual history in economics.
If the actual history of capitalism is mentioned, then the defenders of capitalism will simply say that we should not penalise current holders of capital for actions in the dim and distant past (that current and future generations of workers are penalised goes unmentioned). However,the fictional “history” of capitalism suffers from no such dismissal, for invented actions in the dim and distant past justify the current owners holdings of wealth and the income that generates. In other words, heads I win, tails you loose. Needless to say, this (selective) myopia is not restricted to just history. It is applied to current situations as well. Thus we find economists defending current economic systems as “free market” regimes in spite of obvious forms of state intervention. As Chomsky notes: “when people talk about ... free-market ‘trade forces’ inevitably kicking all these people out of work and driving the whole world towards a kind of a Third World-type polarisation of wealth ... that’s true if you take a narrow enough perspective on it. But if you look into the factors that made things the way they are, it doesn’t even come close to being true, it’s not remotely in touch with reality. But when you’re studying economics in the ideological institutions, that’s all irrelevant and you’re not supposed to ask questions like these.” [[[Understanding Power (Book)|Understanding Power]], p. 260]
To ignore all that and simply take the current distribution of wealth and income as given and then argue that the “free market” produces the best allocation of resources is staggering. Particularly as the claim of “efficient allocation” does not address the obvious question: “efficient” for whose benefit? For the idealisation of freedom in and through the market ignores the fact that this freedom is very limited in scope to great numbers of people as well as the consequences to the individuals concerned by the distribution of purchasing power amongst them that the market throws up (rooted, of course in the original endowments). Which, of course, explains why, even if these parables of economics were true, anarchists would still oppose capitalism. We extend Thomas Jefferson’s comment that the “earth belongs always to the living generation” to economic institutions as well as political — the past should not dominate the present and the future (Jefferson :“Can one generation bind another and all others in succession forever? I think not.The Creator has made the earth for the living, not for the dead. Rights and powers can only belong to persons, not to things, not to mere matter un endowed with will”).
For, as Malatesta argued, people should “not have the right ... to subject people to their rule and even less of bequeathing to the countless successions of their descendants the right to dominate and exploit future generations.”[At the Cafe, p. 48] Then there is the strange co-incidence that “value free” economics generally ends up blaming all the problems of capitalism on workers. Unemployment? Recession? Low growth? Wages are too high! Proudhon summed up capitalist economic theory well when he stated that "Political economy — that is, proprietary despotism — can never be in the wrong: it must be the proletariat.” [[[System of Economical Contradictions (Book)|System of Economical Contradictions]], p. 187] And little has changed since 1846 (or 1776!) when it comes to economics “explaining” capitalism’s problems (such as the business cycle or unemployment).
As such, it is hard to consider economics as “value free” when economists regularly attack unions while being silent or supportive of big business. According to neo-classical economic theory, both are meant to be equally bad for the economy but you would be hard pressed to find many economists who would urge the breaking up of corporations into a multitude of small firms as their theory demands, the number who will thunder against “monopolistic” labour is substantially higher (ironically, as we note in section C.1.4, their own theory shows that they must urge the break up of corporations or support unions for, otherwise, unorganised labour is exploited). Apparently arguing that high wages are always bad but high profits are always good is value free.
So while big business is generally ignored (in favour of arguments that the economy works “as if” it did not exist), unions are rarely given such favours. Unlike, say, transnational corporations, unions are considered monopolistic. Thus we see the strange situation of economists (or economics influenced ideologies like right-wing “libertarians”) enthusiastically defending companies that raise their prices in the wake of, say, a natural disaster and making windfall profits while, at the same time, attacking workers who decide to raise their wages by striking for being selfish. It is, of course, unlikely that they would let similar charges against bosses pass without comment. But what can you expect from an ideology which presents unemployment as a good thing (namely, increased leisure — see section C.1.5) and being rich as, essentially, a disutility (the pain of abstaining from present consumption falls heaviest on those with wealth — see section C.2.7). Ultimately, only economists would argue, with a straight face, that the billionaire owner of a transnational corporation is exploited when the workers in his sweatshops successfully form a union (usually in the face of the economic and political power wielded by their boss).
Yet that is what many economists argue: the transnational corporation is not a monopoly but the union is and monopolies exploit others! Of course, they rarely state it as bluntly as that. Instead they suggest that unions get higher wages for their members be forcing other workers to take less pay (i.e. by exploiting them). So when bosses break unions they are doing this not to defend their profits and power but really to raise the standard of other, less fortunate, workers? Hardly.In reality, of course, the reason why unions are so disliked by economics is that bosses, in general, hate them. Under capitalism, labour is a cost and higher wages means less profits (all things being equal). Hence the need to demonise unions, for one of the less understood facts is that while unions increase wages for members, they also increase wages for non-union workers.
This should not be surprising as non-union companies have to raise wages stop their workers unionising and to compete for the best workers who will be drawn to the better pay and conditions of union shops (as we discuss in section C.9, the neoclassical model of the labour market is seriouslyflawed).Which brings us to another key problem with the claim that economics is “value free,” namelythe fact that it takes the current class system of capitalism and its distribution of wealth as notonly a fact but as an ideal. This is because economics is based on the need to be able to differentiatebetween each factor of production in order to determine if it is being used optimally. In otherwords, the given class structure of capitalism is required to show that an economy uses theavailable resources efficiently or not. It claims to be “value free” simply because it embeds theeconomic relationships of capitalist society into its assumptions about nature.
Yet it is impossible to define profit, rent and interest independently of the class structure of anygiven society. Therefore, this“type of distribution is the peculiarity of capitalism. Under feudalismthe surplus was extracted as land rent. In an artisan economy each commodity is produced by a menwith his own tools; the distinction between wages and profits has no meaning there.”This means that“the very essence of the theory is bound up with a particular institution — wage labour. The centraldoctrine is that ‘wages tend to equal marginal product of labour.’ Obviously this has no meaning fora peasant household where all share the work and the income of their holding according to the rulesof family life; nor does it apply in a [co-operative] where, the workers’ council has to decide whatpart of net proceeds to allot to investment, what part to a welfare found and what part to distributeas wage.”[Joan Robinson,Collected Economic Papers, p. 26 and p. 130]
This means that the “universal” principles of economics end up by making any economy whichdoesnotshare the core social relations of capitalism inherently “inefficient.” If, for example, work-ers own all three “factors of production” (labour, land and capital) then the “value-free” laws ofeconomics concludes that this will be inefficient. As there is only “income”, it is impossible to saywhich part of it is attributable to labour, land or machinery and, consequently, if these factors arebeing efficiently used. This means that the “science” of economics is bound up with the currentsystem and its specific class structure and, therefore, as a“ruling class paradigm, the competitivemodel”has the“substantial”merit that“it can be used to rule off the agenda any proposals for25substantial reform or intervention detrimental to large economic interests ... as the model allows (onits assumptions) a formal demonstration that these would reduce efficiency.”[Edward S. Herman,“The Selling of Market Economics,”pp. 173–199,New Ways of Knowing, Marcus G. Raskin andHerbert J. Bernstein (eds.), p. 178]
Then there are the methodological assumptions based on individualism. By concentrating onindividual choices, economics abstracts from the social system within which such choices aremade and what influences them. Thus, for example, the analysis of the causes of poverty is turnedtowards the failings of individuals rather than the system as a whole (to be poor becomes apersonal stigma). That the reality on the ground bears little resemblance to the myth matters little— when people with two jobs still fail to earn enough to feed their families, it seems ridiculousto call them lazy or selfish. It suggests a failure in the system, not in the poor themselves. Anindividualistic analysis is guaranteed to exclude, by definition, the impact of class, inequality,social hierarchies and economic/social power and any analysis of any inherent biases in a giveneconomic system, its distribution of wealth and, consequently, its distribution of income betweenclasses.This abstracting of individuals from their social surroundings results in the generating eco-nomic “laws” which are applicable for all individuals, in all societies, for all times. This resultsin all concrete instances, no matter how historically different, being treated as expressions ofthe same universal concept. In this way the uniqueness of contemporary society, namely its ba-sis in wage labour, is ignored (“The period through which we are passing ... is distinguished by aspecial characteristic — WAGES.”[Proudhon,Op. Cit., p. 199]).
Such a perspective cannot helpbeing ideological rather than scientific. By trying to create a theory applicable for all time (andso, apparently, value free) they just hide the fact their theory assumes and justifies the inequal-ities of capitalism (for example, the assumption of given needs and distribution of wealth andincome secretly introduces the social relations of the current society back into the model, some-thing which the model had supposedly abstracted from). By stressing individualism, scarcity andcompetition, in reality economic analysis reflects nothing more than the dominant ideologicalconceptions found in capitalist society. Every few economic systems or societies in the historyof humanity have actually reflected these aspects of capitalism (indeed, a lot of state violence hasbeen used to create these conditions by breaking up traditional forms of society, property rightsand customs in favour of those desired by the current ruling elite).The very general nature of the various theories of profit, interest and rent should send alarmbells ringing. Their authors construct these theories based on the deductive method and stresshow they are applicable ineverysocial and economic system.
In other words, the theories arejust that, theories derived independently of the facts of the society they are in. It seems somewhatstrange, to say the least, to develop a theory of, say, interest independently of the class systemwithin which it is charged but this is precisely what these “scientists” do. It is understandablewhy. By ignoring the current system and its classes and hierarchies, the economic aspects ofthis system can be justified in terms of appeals to universal human existence. This will raise lessobjections than saying, for example, that interest exists because the rich will only part with theirmoney if they get more in return and the poor will pay for this because they have little choicedue to their socio-economic situation. Far better to talk about “time preference” rather than thereality of class society (see section C.2.6).Neoclassical economics, in effect, took the “political” out of “political economy” by takingcapitalist society for granted along with its class system, its hierarchies and its inequalities.
This is reflected in the terminology used. These days even the term capitalism has gone out of fashion,replaced with the approved terms“market system,”the“free market”or“free enterprise.”Yet,as Chomsky noted, terms such as“free enterprise”are used“to designate a system of autocraticgovernance of the economy in which neither the community nor the workforce has any role (a systemwe would call ‘fascist’ if translated to the political sphere).”[Language and Politics, p. 175] As such,it seems hardly “value-free” to proclaim a system free when, in reality, most people are distinctlynot free for most of their waking hours and whose choices outside production are influenced bythe inequality of wealth and power which that system of production create.This shift in terminology reflects a political necessity. It effectively removes the role of wealth(capital) from the economy. Instead of the owners and manager of capital being in control or,at the very least, having significant impact on social events, we have the impersonal activityof“the markets”or“market forces.”That such a change in terminology is the interest of thosewhose money accords them power and influence goes without saying.
By focusing on the market,economics helps hide the real sources of power in an economy and attention is drawn awayfrom such a key questions of how money (wealth) produces power and how it skews the “freemarket” in its favour. All in all, as dissident economist John Kenneth Galbraith once put it,“[w]hateconomists believe and teach is rarely hostile to the institutions that reflect the dominant economicpower. Not to notice this takes effort, although many succeed.”[The Essential Galbraith, p. 180]This becomes obvious when we look at how the advice economics gives to working classpeople. In theory, economics is based on individualism and competition yet when it comes towhat workers should do, the “laws” of economics suddenly switch. The economist will now denythat competition is a good idea and instead urge that the workers co-operate (i.e. obey) their bossrather than compete (i.e. struggle over the division of output and authority in the workplace).
They will argue that there is“harmony of interests”between worker and boss, that it is in theself-interest of workersnotto be selfish but rather to do whatever the boss asks to furtherthebossesinterests (i.e. profits).That this perspective implicitly recognises thedependentposition of workers, goes withoutsaying. So while the sale of labour is portrayed as a market exchange between equals, it is infact an authority relation between servant and master. The conclusions of economics is simplyimplicitly acknowledging that authoritarian relationship by identifying with the authority figurein the relationship and urging obedience to them. It simply suggests workers make the best of itby refusing to be independent individuals who need freedom to flourish (at least during workinghours, outside they can express their individuality by shopping).This should come as no surprise, for, as Chomsky notes, economics is rooted in the notion that“you only harm the poor by making them believe that they have rights other than what they can winon the market, like a basic right to live, because that kind of right interferes with the market, andwith efficiency, and with growth and so on — so ultimately people will just be worse off if you try torecognise them.”[Op. Cit., p. 251]
Economics teaches that you must accept change without regardto whether it is appropriate it not. It teaches that you must not struggle, you must not fight. Youmust simply accept whatever change happens. Worse, it teaches that resisting and fighting backare utterly counter-productive. In other words, it teaches a servile mentality to those subject toauthority. For business, economics is ideal for getting their employees to change their attitudesrather than collectively change how their bosses treat them, structure their jobs or how they arepaid — or, of course, change the system.27Of course, the economist who says that they are conducting “value free” analysis are indif-ferent to the kinds of relationships within society is being less than honest. Capitalist economictheory is rooted in very specific assumptions and concepts such as “economic man” and “per-fect competition.” It claims to be “value-free” yet its preferred terminology is riddled with valueconnotations. For example, the behaviour of “economic man” (i.e., people who are self-interestedutility maximisation machines) is described as“rational.”
By implication, then, the behaviour ofreal people is“irrational”whenever they depart from this severely truncated account of humannature and society. Our lives consist of much more than buying and selling. We have goals andconcerns which cannot be bought or sold in markets. In other words, humanity and liberty tran-scend the limits of property and, as a result, economics. This, unsurprisingly, affects those whostudy the “science” as well:“Studying economics also seems to make you a nastier person. Psychological studieshave shown that economics graduate students are more likely to ‘free ride’ — shirk con-tributions to an experimental ‘public goods’ account in the pursuit of higher privatereturns — than the general public. Economists also are less generous that other aca-demics in charitable giving. Undergraduate economics majors are more likely to defectin the classic prisoner’s dilemma game that are other majors.
And on other tests, stu-dents grow less honest — expressing less of a tendency, for example, to return foundmoney — after studying economics, but not studying a control subject like astronomy.“This is no surprise, really. Mainstream economics is built entirely on a notion of self-interested individuals, rational self-maximisers who can order their wants and spendaccordingly. There’s little room for sentiment, uncertainty, selflessness, and social insti-tutions. Whether this is an accurate picture of the average human is open to question,but there’s no question that capitalism as a system and economics as a discipline bothreward people who conform to the model.”[Doug Henwood,Wall Street, p, 143]So is economics “value free”? Far from it. Given its social role, it would be surprising that itwere. That it tends to produce policy recommendations that benefit the capitalist class is notan accident. It is rooted in the fibre of the “science” as it reflects the assumptions of capitalistsociety and its class structure. Not only does it take the power and class structures of capital-ism for granted, it also makes them the ideal for any and every economy.
Given this, it shouldcome as no surprise that economists will tend to support policies which will make the real worldconform more closely to the standard (usually neoclassical) economic model. Thus the modelsof economics become more than a set of abstract assumptions, used simply as a tool in theoreti-cal analysis of the casual relations of facts. Rather they become political goals, an ideal towardswhich reality should be forced to travel.This means that economics has a dual character. On the one hand, it attempts to prove thatcertain things (for example, that free market capitalism produces an optimum allocation of re-sources or that, given free competition, price formation will ensure that each person’s incomecorresponds to their productive contribution). On the other, economists stress that economic“science” has nothing to do with the question of the justice of existing institutions, class struc-tures or the current economic system. And some people seem surprised that this results in policyrecommendations which consistently and systematically favour the ruling class