28 Dec 2017 16:19 IST

Why the spirit of the Reformation now grips economics

Neoclassical economics views demand-supply considerations through the prism of one's rationality

Reformation, as in the 16th-century movement that cleaved Christianity?

The same, the one that began in 1517 CE with German monk Martin Luther nailing the so-called Ninety-five Theses, which laid bare the ‘faults’ of Catholic Christianity, at the door of the Castle Church in Wittenberg.

What’s that got to do with modern-day economics?

Earlier this month, a band of economists in the UK, including one dressed in monk’s robes, commemorated the 500th anniversary of the start of the Reformation by symbolically nailing their manifesto, called ‘33 Theses for an Economic Reformation’, to the door of the London School of Economics.

So now economics is a religion?

That is a fair approximation of the sentiments of these reform-minded economists who claim that economic orthodoxy now has the discipline in its grip and that “neoclassical economics” enjoys an “intellectual monopoly” in teaching, research, policy advice and public debate.

What’s neoclassical economics?

It views demand-supply considerations in the economy through the prism of an individual’s rationality, particularly on the individual’s capacity to maximise “utility” (or profit). It is often criticised for its excessive reliance on mathematical models and blamed for its failure to address inequalities in global debt and trade relations.

And it now monopolises the mainstream?

So the reformists, whose list includes JNU professor and BusinessLine columnist Jayati Ghosh, believe. Cambridge economist Ha-Joon Chang says, “Neoclassical economics plays the same role as Catholic theology did in Medieval Europe — a system of thought arguing that things are what they are because they have to be.”

So what do they want?

They would like to see a “more pluralistic” approach to economics so as to render it more effective and more democratic. They want mainstream economic theory to reflect the distribution of wealth and income, and not remain “value-free”. They further want economics to be grounded in the “constraints of the ecology of the planet”.

Sounds like a ‘Left-green economics’ manifesto.

It sort of is, although in a section on ‘The Teaching of Economics’, the economists argue that students should be exposed to a variety of perspectives and multidisciplinary courses, including politics, sociology, psychology, and environmental sciences.

Why has this come up now?

In the 1970s, a movement began at the University of Sydney to provide the space for staff and students interested in political economy. That culminated in 2007 in the emergence of a political economy department. In 1992, nine Nobel laureates published a letter in the American Economic Review calling for a broader economics education. All over, students are pushing for liberating the study and practice of economics from orthodoxy, which was accentuated by the 2008 global financial crisis.

Do the ‘reformists’ claim to have all the answers?

Not at all, but for critics of the Reformation manifesto, the certainty with which it makes its case bears the markers of another kind of orthodoxy. And rather than making a persuasive case, critics say, the 33 Tenets effectively make dogmatic assertions that themselves resemble the doctrinaire approach they criticise.

The bottomline?

The war of ideas will continue in the new year. Watch this space.

(The article first appeared in The Hindu BusinessLine.)

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