This article is part of Salients desire to see students critical of what they are being taught, and how it is being taught. It is hoped that the issues raised here will find response from both students and staff Salient's pages are open.

by Anthony Ward.

Three academics were shipwrecked on a desert island: a physicist, a biologist and an economist. All they had for food was a can of beans, but there was no way of opening it.

Said the physicist: I'll focus the sun through my glasses onto the can. That'll make the can more pliable and we'll open it.

Said the biologist: There should be some plants and fruits around here. I'll go search for them.

Said the economist: Let's assume we've got a can opener.

Everyone knows that economists are experts at the "Let's assume...." game. And that many of the assumptions are wholly unrealistic. Assuming that people are solely driven by the 'profit motive'. Or that perfect competition exists (with no firms big enough to control the market, and no state).

Yet despite these observations, there is great respect for economists. We all know the economy is in a mess, and look to the long-winded jargon of economists for answers. The jargon hides the fact the answer cupboard is remarkably bare.

Economics far from Reality

What is taught at VUW under the title "economics"? Do we really gain useful knowledge about the real world? Or are we chasing illusory can openers?

It is my contention that orthodox economics is not only unrealistic, but this "unreal-ism" serves a very important ideological function. Firstly, then, the lack of reality.

In times of dire economic problems one would expect economists to be loudly peddling their wares. Many of the VUW staff, in one way or another, are advising Government on economic measures.

Yet there is considerable disquiet amongst economists that there is no way of dealing with major problems. For example, the normal way of dealing with inflation is to increase unemployment. The normal way of dealing with unemployment is to increase inflation. If you have inflation and unemployment together (as we have at the moment) you're stuffed. Snookered.

More generally, there is a feeling that the basis of modern economics - the assumptions of "perfect competition" is inappropriate. Leading American economists have urged this - they even spent their annual conference in 1971 on such issues. The results are not very impressive for economics as taught at Victoria.

"Perfect Competition" a Joke

Let's see how some of the assumptions of perfect competiton hamper investigations of economic problems. There are a long line of examples you can point to. For one: it is assumed there are no "externalities" -meaning that no-one is affected by others' actions, except through the market. If something is not paid for, it is assumed no benefits or costs are involved.

The silliness of this assumption is clearly seen in a world concerned about pollution, or about the "quality of life".

For another example, it is assured that each individual wishes to maximise his/her own 'profits'. And that everyone stays as individuals. When the benefits of cooperation (eg cheap vegies through Food Co-op) are so obvious, it is surprising that "economic man' is still an individual.

Further, a basic premise is that no consumer or producer is large enough to control (or even affect) any market. The unrealism of assuming away the Government, monopolies and Trade Unions is amply seen in the work of recent economists trying to fit these into the theory.

Yet there would seem to be a major contradiction in pushing a square monopoly into a round hole that pretends it doesn't exist. And the implications of these problems have not been fully investigated.

The best example of lack of realising implications comes in welfare economics. Two leading economists, Robbins and Arrow, have shown conclusively that it is impossible in a free-market system to have a social welfare function (ie some indication of the total desires of all consumers). Yet after noting these difficulties, most of welfare economics assumes that there is a social welfare function.

So in many cases we can see (or not see) imaginery can openers. We're not getting much closer to opening the can of beans, or to explaining the economics of the present system.

Why Ridiculous Assumptions?

But why is this so? Why do so many intelligent people spend so much time making silly assumptions? It is interesting that economics has no way of answering this question. It is a non-question. Analytic economics has no way of analysing itself.

To answer the question, let's look again at the problem of pollution. If we are used to looking only at the costs of a factory in money terms, then it is obvious we won't look at the 'social' costs. Who does this benefit?

If the business firm running the factory paid for all the social costs (eg for cleaning up its sewerage), then it would clearly make smaller profits, than if it doesn't pay these costs. So if we assume no social costs, we are effectively increasing firms' profits.

Looking further afield, at development economics, a similar pattern emerges. Many third-world countries today complain they are "ripped-off" by the western world. Yet orthodox economics says no such thing is happening. There is no concept of "rip-off" in the free market system.

Again look at discrimination against Polynesians and women. This is abundantly evident whenever one looks around. Yet discrimination doesn't exist in academic economics. People get paid what they are worth, no more, no less. If Polynesians and women get paid less, it is because they are worth less.

In these cases, and an incredible number of others, what is economics doing? In assuming perfect competition we are in fact ignoring immense problems of pollution, development, racism and sexism. We are tacitly supporting further exploitation and injustice.

These problems can be studies by economics. But not by traditional economics. As Joan Robinson, Professor of Economics at Cambridge University, argues: faced with the problems of inequality and development, orthodox economists have crept off to hide in thickets of algebra.

Definitions Explored

Even the very definition of economics shows this conflict. The definition normally used runs something like "the study of the allocation of scarce resources between competing needs". We are immediately diverting attention from the economic structures and development of societies to concentrating on minor allocation problems.

Because it concentrates on minor allocation problems, orthodox economics has no way of explaining or investigating injustice. It has no way of explaining historical change. 'Economic man' is not only stupid in his rationality, he also comes from nowhere and is going nowhere.

There is considerable emphasis, in all economics courses, that orthodox economics is "value-free" - that it is "positive" economics, describing what is, rather than "normative" or what should be. Yet it is clear from the above examples that economics, by the very tools it uses, is making value judgements on what is happening.

Several younger economists at the 1969 meeting of the American Economic Association told the Association: "The economists are the sycophants of inequality, alienation, destruction of the environment, imperialism, racism and the subjugation of women". And they claim to be value-free! Perhaps we're assuming imaginery can openers because someone doesn't want us to open the can of beans.

So what's the alternative? You wouldn't know it from the courses offered at Victoria, but there is a considerable body of work looking at economic structures and the way societies develop. It does not ignore discrimination, or pollution, but attempts to see them as part of an economic whole.

Political Economy as Alternative

This strange body of knowledge, looking at many of the problems that drew most of us to economics in the first place, is known as political economy. Most of its adherents, since they are dealing with these larger problems, tend to be more radical than orthodox economists. Many are 'Marxists'. It is not surprising they and their ideas are not welcomed by orthodox economists.

There's a basic conflict over what economics should be. One side wants to concentrate on issues of allocation, of marginal adjustments to a system that is not fully understood The other takes a more overall look, attempting to focus attention on general economic structure and developments.

It is stretching belief a little to claim that one can "choose" one of these two approaches and then remain "value-free". For most students of course, there is little matter of 'choice" about it. With [unclear: the] heavy doses of ideology in one direction, one soon begins to believe in the imaginery can opener.

To recap, many of us were drawn to economics because we wanted to know a bit more about what makes the system tick. All of us are supposed to look up to the economists who use long words and tell us how the country should be run.

What I have tried to show in this article is that no only is economics much less than it is cracked up to be, but that the long words also hide a very one sided approach to problems.

Marx called the economists of his day hired prizefighters for the bourgeoisie. This statement is still apt - it is doubtful if many economists could fight their way out of an imaginery paper bag.

So why study economics? Clearly the study of political economy is more helpful, if those are the questions that interest you. Even orthodox economics has some uses however - as Joan Robinson puts it:

"The purpose of studying economics is not to acquire a a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists".

Let the learning begin!