The subject of economics studies the economy. Seems a tautological statement and probably cannot but be otherwise. But I can hear many screaming this is not true as in not portraying a complete picture of what the subject has studied and continues to study. We now have Microeconomics, Macroeconomics and Development Economics or Studies with some also studying Political Economy. The splintering is part of the evolution of the subject but let us step back in time.
Be it Adam Smith, David Ricardo or Karl Marx, they all studied aggregate behavior of an economy understood through categories such as value, price, production, division of labour and so on. The significant change started with Alfred Marshall’s Principle of Economics around 1870 which focused on the individual consumer and producer. The study of aggregates ceased, until the Great Depression. The more plausible argument is that the study of aggregates was not considered necessary at all because understanding the individual was all that mattered as the aggregate was merely the sum, neither more nor less. Methodologically, the decisive point was the assumption of perfect flexibility in the economy as a new set of phenomena would take over an earlier as it phased out. A vacuum, if any, was at best transient and lacking any permanent influence on the economy. This is a very important point – while there may be overproduction in one sector, there will not be generalized overproduction because the economy will adjust itself to the overproduction in one sector by resources shifting out of it to another area and this process can endlessly go on. The logic is the same for unemployment. Or any kind of imbalance for that matter. Clearly, with such flexibility and adjustment process, even the idea of studying some kind of an aggregate was alien to the subject.
Until the advent of the Great Depression which witnessed a ‘peculiar’ phenomenon – unsold goods but people dying of hunger, idle factories but people looking for jobs. This ‘paradox of poverty amidst plenty’ just did not sit in well with the prevailing framework.
Enter John Maynard Keynes’ ground-breaking work which literally created the subject we know as Macroeconomics, which has gone on to become such a dominant subject. Economics of Welfare introduced in 1920 by AC Pigou surprisingly hasn’t grown into a mainstream subject the way Development Studies or Development Economics. If efficiency and welfare are the twin concerns of any economy, why both together could not have been the subject of study. Economics has fallen prey to a false notion of efficiency (and science) which is used to dismiss concepts like weIfare as they are seen as ‘normative’ and import extraneous considerations into the subject. It conveniently forgets that its own notion of efficiency is not endogenous to the subject; many studies have shown the political dimensions inherent but hidden in such a stance. Academic economics has sought to portray the image of an economist as a disinterested observer who does not impose his own views. Talk of delusions!
The subject is nearly 250 years old, if we date it from Adam Smith’s 1776 ‘An enquiry into the wealth of nations’. There is so much research undertaken by so many universities and institutions that it is appalling to see none of it reflected in the curriculum. The subject, as taught, is blissfully ignorant, willingly or otherwise, of all the developments in the subject. When you examine the kind of themes or topics that are the subjects of research studies, it is shocking that the staple discussion revolves around interest rates, taxes, stimulus, competition, incentives, which makes you wonder if the subject has many progress at all. The subject has been on its own journey and the real world has been taking care of its problems.
The same lack of progress has characterized even ‘Political economy’, which has acquired a distinct left orientation, although it wasn’t so when the subject began. It was John Kenneth Galbraith who coined the immortal phrase ‘the military-industrial complex’. The nexus between politics, government and big business, which is now a standard theme, has been unraveled very well again and again by good, investigative journalism. Even mainstream business journalism has been covering this. Many books in this genre have gone to become best sellers. Some of these have been on financial markets, the stock markets, investment banking, the politically sensitive oil & gas industry, telecommunications, the internet, producing great wok. Many have uncovered the links between lobbying and policy in many business directly affecting large number of people. Unfortunately, academic institutions don’t take them seriously because it is not academic. Ostriches are everywhere. If Political economy is serious about itself, it needs to do more to justify its existence.
