The Corruption of Economics

Adbusters has an insightful post on the power structures within the discipline of neoclassical economics. It’s worth a read, because it points out a failing that is not unique to the economics discipline: the problem of groupthink and its influence on which ideas are extolled or banished to the disciplinary dustbin.

Here’s the scoop:

“The fact that CEOs earn millions while their workers struggle by on minimum wages is either not examined in classrooms or is shown by the mainstream model to be completely consistent with properly working markets and to be leading to the best of all possible worlds,” says Lee. “This of course makes most of the students who are concerned by such issues switch to other disciplines because they find economics pointless for what they want to know and do. So generally only the unquestioning students go on to get a PhD and become professors with views just like the professors that taught them.”

The article fails in one respect, however, in leaving out the perspective of Mason Gaffney’s book, The Corruption of Economics (available online, free). Gaffney’s argument goes like this: back in the old days, a populist economist named Henrgy George became so popular, his books outsold even Marshall’s Principles of Economics texts. Georgist ideas ‘infected’ mainstream thought; as a counter-weight, the wealth landowners endowed universities and funded neoclassical economic thought as an antidote to communism. Thus, the debate raged between the capitalists and communists, between machines and labour, all the while ignoring the extractors of economic rent - the aforementioned landowners.

Gaffney explains this much more clearly than I can, in chapter 1:

Henry George came out of a raw, naive new colony, California, as a scrappy marginal journalist. Yet his ideas exploded through the sophisticated metropolitan world as though into a vacuum. His book sales were in the millions. Seven short years after publishing Progress and Poverty in remote California he nearly took over as Mayor of New York City, the financial and intellectual capital of the nation. He thumped also-ran Theodore Roosevelt, and lost to the Tammany candidate (Abram S. Hewitt) only by being counted out (Barker, pp.480-81; Myers, pp.356-58; Miller, p.11). Three more years and he was a major influence in sophisticated Britain. In 1889, incredibly, he became “adviser and field-general in land reform strategy” to the Radical wing of the Liberal Party in Britain, where he was not even a citizen. “It was inevitable that, when (Joseph) Chamberlain bowed out, George should become the Radical philosopher” (Lawrence, pp.105-06). It also happened that when Chamberlain bowed out, the Radical wing became the Liberal Party. It adopted a land-tax plank after 1891 (The “famous Newcastle Programme”), and came to carry George’s (muted) policies forward under successive Liberal Governments of Campbell-Bannerman, Asquith, and Lloyd George.

How could a marginal man come out of nowhere and make such an impact? The economic gurus of the day, even as today, were in a scolding mode, blaming unemployment on faulty character traits and genes, and demanding austerity. They were not intellectually armed to refute him or befuddle his listeners. He had studied the classical economists, and used their tools to dissect the system. Neo-classical economics arose in part to fill the void, to squeeze out such radical notions, and be sure nothing like the Georgist phenomenon could recur.

Georgist tax strategies were even implemented in Vancouver, Calgary and Edmonton at some point, according to Gaffney. In fact, Alberta’s resource rent policy is an outgrowth of Georgist thought, the idea that land rent constitutes an unearned surplus and therefore ought to accrue to the community at large. Georgist philosophies are against income and sometimes consumption taxes, and wholly in favor of resource rent taxes. Sounds vaguely similar to the Green party platform.

Further reading:

Henry George: Wikipedia

School of Co-operative Individualism

Henry George Institute