[This longish essay was just published at Real World Economics Review Blog. It is addressed to the “heterodox” community, those diverse economists of various schools that are not the dominant neoclassical school, though otherwise it is not particularly technical.]
Much of the current discussion of reforming economics focusses on the need for pluralism, particularly in teaching curricula, and very recently again on RWER. Pluralist teaching is seen as challenging, because heterodox economic ideas are diverse, have little coherence, and are to a significant extent mutually incompatible.
This theme crops up frequently in discussions on RWER. Now Cameron Murray, in the first issue of Inside, published by the Institute for Dynamic Economic Analysis, proposes to identify over-arching themes that can bring out the relationships among the various approaches. This is commendable but it will not, on its own, result in a reformed economics.
Modern Money Theory is about how our monetary system works in the complicated real world – with a central bank, government spending of new money, private bank lending leveraged off the government “base” money, and the central bank and government kept separate by complicated rules allegedly to ensure “sound” money. It is such a convoluted subject that there are about as many accounts of how it works as there are “experts”. MMT cuts through a lot of that to a story that makes good sense and is quite contrary to a lot of things said by politicians and mainstream economists. So MMT seems to be a very good thing.
Yet the most accessible book on the subject, Modern Money Theory by L. Randall Wray, concludes with the Chapter What is Money? that I find to be convoluted and confusing. Much of it is built on the assertion that “goods cannot buy goods”, which I find mystifying.
[This is a more technical post, addressed to those interested in re-making the field of economics into something relevant, informed and capable of self-improvement.]
Debates about whether economics is or can ever be a science appear frequently on the Real World Economics blog, such as making economics a relevant science. Perhaps more in the subsequent comments than in the articles themselves, there are some recurring confusions and misconceptions, such as whether mathematics should be involved, about what the role of mathematics might be, about “prediction” as a necessary part of a science, about the role of assumptions and approximations, about whether any study involving people can ever be a science and, fundamentally, about what science really is.
I have commented in passing on this topic before, for example here, but in this comment I’d like to offer a more focussed discussion.
[This article is based on extracts from The Nature of the Beast: how economists mistook wild horses for a rocking chaireBook. Guest-Posted on Steve Keen’s Debtwatchsite 1 June.]
Any discussion of the nature and role of money in modern economies typically brings out a plethora of confusing or conflicting theories, claims and counter-claims about what money is, what role it plays, what dysfunctions it might be responsible for and how they might be fixed. One common set of claims is that money is a unit if account, a medium of exchange and a store of value. I argue the first property is a trivial one and the last is only true if the money is wholly or in part a real commodity, like a pig or some tobacco.
The Nature of the Beast: how economists mistook wild horses for a rocking chair.
Mainstream free-market economics fundamentally mis-identifies the nature of market economies. Its record is of retarded growth followed by disaster. It counts costs as positives instead of negatives. It is blind to how the present banking system destabilises the economy. It is relentlessly materialistic and adversarial. It ignores most of what we know about real people and the real world.
The result is pseudo-scientific gobbledygook, and the unstable, inequitable, undemocratic, destructive and unsustainable mess known as the global economy.
The Nature of the Beast draws out the real nature of market economies using modern knowledge of systems, human behaviour, ecology, biology and physics. It points the way to stable, prosperous, democratic market economies that can support people, societies and the living world into the indefinite future.
[ The three earlier posts “How free-market fundamentalists are hopelessly wrong” are extracted from a paper that is now published by the World Economics Association in an on-line conference on Economics in Society, the Ethical Dimension. The full text of the paper follows, covering more deficiencies of the mainstream and some new modelling illustrating a more useful approach. A pdf can be downloaded here (300 kb) ]
A profession that claims to understand economies, and that has gained power over the greater part of our societies, has big responsibilities. The fundamental responsibility is to ensure its perception of economies gives some useful guidance to the behaviour of real economies. Here mainstream economics fails utterly, and has been failing for a long time. Worse, it actively resists alternative views that might overcome its failings. Ethics do not come much worse than that.
Many people, including many heterodox economists, understand that the neoclassical equilibrium approach to understanding economies is futile and misleading , because modern economies are far from equilibrium. The neoclassical prediction of equilibrium or near equilibrium requires a string of patently absurd assumptions. However the development of better theories seems to be significantly hindered by a feeling that any superseding theory has to be thoroughly quantified before it can be useful, and a feeling that the neoclassical theory has set a benchmark for sophisticated mathematics that must be matched before another theory can be respectable. Less fundamentally there seems to be a common perception that empirical insights can only be gained through elaborate statistical treatments of observations.
Here I offer some discussion from my experience as a natural scientist, and some examples regarding the Global Financial Crisis, to counter these hindrances. Continue reading →
The need for a new conception of economics is widely acknowledged in the wake of the global financial crisis, at least outside of diehard neoclassical circles. However a common perception seems to be that no adequate and coherent general conception is in sight, though many loosely related or unrelated heterodoxies vie for attention, as noted by the Editor of Real World Economic Review blog. I argue here that when the subject is approached from the point of view of dynamical systems a broad new framework becomes evident. Furthermore, once the nature of the beast is identified, some fundamental conclusions can immediately be drawn.