On Utility of Modern Economic Theory.
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Greetings all,
I have a question for you.
Why shall we, or shall we not, study the modern economic theory?
By this I mean the modern theory as in modern micro economics, macro economics, and afterwards the monetary policy, and public policy recommendations based on it.
Shall we study it?
Shall we not study it?
What are the reasons for your choice?
Can such a study complement knowledge of Marxism? If so, how? If not, why?
Regards,
David
There will be no need to study monetary theory as in socialism we have gone beyond the exchange economy and the need for a universal equivalents such as money, although some socialist still adhere to the old idea of labor time vouchers which we believe to be superfluous today.
There are ideas today worth exploring , such as in “management” techniques and logistics and Artificial Intelligence applied to production. Specialist areas to expand upon and bring to popular attention so they can be discussed and applied.
There are still a full debate upon how democracy can be effectively applied and in what sort of structures, again involving the adaptation of modern new technology.
Increased knowledge and experience will still be bringing producing ideas for people to learn about and debate.
As for today, socialists have to understand how capitalism operates to answer those who present their “better improved” versions of it as a political choice for people. We have begun this process by critiquing MMT proponents who wish governments to adopt it.
Most the Cooking the Books series of short regular articles, in the Socialist Standard cover the bases in everyday language.
There are only two reasons for studying modern academic economics:
- To know what the enemy, the intellectual defenders of the capitalist economic system, are saying, the better to refute them;
- If you need a qualification in economics to get a better job under capitalism (but you don’t have to believe it, just pretend you do).
There is this criticism of modern academic economics on this site here:
https://www.worldsocialism.org/spgb/publications/economists-not-on-this-planet/
Thanks for these answers. I will take a look at the sources.
However, I have an opinion, and I believe that modern economic theory offers a narrative to justify capitalist’s actions and so if we wish to critique capitalist’s actions, and policies, I believe we need to understand their theory, and more importantly the flaws it has in full depth.
And as I have myself studied economics formally at university, I believe this is very important. In fact, sometimes, I would say more often, these business degrees and economics degrees sort of train students to think in particular ways, and these thoughts then show in policies and business decisions etc.
This is my reason to study it: To understand its errors, mistakes, flaws, etc.
Once again, thank you for your answers. They supported my view, and that was all I wanted to know.
The Economist Richard Wolff who holds a PHD in Economic ( or Econometric ) said that he attended the best school of Economic ( Harvard and Yale ) and he never learned anything about real economic until he studied the 3 volumes of Marx’s Capital. In Capital it is well described the capitalist monetary theory, and there is not any new so called modern economist who will do a better job. . The so called modern economic theory are just new fierce defender of the capitalist mode of production like the classical ones, probably, the old ones were more advanced when it was to be called Political Economy. Studying Economic at any university it is like studying Business administration and statistic
I have read and studied the textbooks of Samuelson and Galbraith and I think that they are a wasting of time and they are all confused and they produce more confusion, and others like Milton Friedman and the School of Austria they make me throw up. The best example of the so called modern economic theory and monetary theory would be Chile and the consequences were terrible. The Ghettos of Chile is the best explanation
Hi David
Some commentators have argued that Marxist economic theory and Marginalist economic theory do not so much contradict as complement each other in the sense of each having a quite different focus – macroeconomic or microeconomic – and on this basis have sought to integrate one with the other. I’m not sure this is theoretically possible. However I wouldn’t entirely throw the baggage of Marginalist thinking out of the window. Some of its key concepts such as the law of diminishing marginal returns and marginal rates of substitution have merit and can serve as a heuristic for conceptualising how a socialist system of production could be organised.
It is also important to grasp that there are different schools of thought associated with modern economic theory. We tend to think of the theory as a development out of the neoclassical Marginalist revolution of the late 19th century which replaced the labour theory of value of classical economists and Marx with a subjective theory of value. But it is really only the Austrian school of economists represented by people like Von Mises who are thoroughgoing subjectivists and who would argued that price is entirely determined by subjective values – or utility/use value. That is to say, they are confusing/conflating use value and exchange value
Certainly a commodity must have use value in order to be a commodity at all as Marx himself point out. Subjective valuation certainly influences the demand for a good but it cannot explain the ratio in which goods exchange in the long run because an increased demand for a good under capitalism induces an increase in supply so that in the long run supply and demand tend to equilibrate. That being so, why does a car consistently and in the long run sell at a price way above, say, a bicycle? There is a limit to how far you can reduce your price and stay in production. This is determined by your cost of production – an objective consideration. . In capitalism, production grinds to halt if there no profit forthcoming and profit after all derives from the difference between costs and revenue. Meaning prices have to be pitched above your costs of production for production to continue under capitalism. An objective constraint!
The major problems with the subjective theory of value are as follows
1). Your subjective valuation of a commodity means nothing unless you have the purchasing power (objective) in the form of money to influence its price.
2)The theory is based on circular reasoning in that it asserts that utility (subjective valuation) determines price but price also determines utility (e.g. increases the desirability of a commodity through a reduction in its price).
3), the theory is contradictory with the regard to the role of money. Is the marginal utility of money subject to diminishing returns and what does this mean for the marginal utility of other commodities?
Hi there,
now being honest, I am new to SPGB, and as such new to socialist ideas too. I am trained in economics. However, I am not in favor of capitalism, I know its weaknesses and is the reason to seek socialist company.
So my question to you all is:
- What are the fundamental ideas of Marx about human behavior?
- For instance, the mainstream micro economics postulates that humans are fundamentally greedy, and that this never ends. Formally, we say: Rationality & lack of local satiation.
- What Marxists believe about humans? What drives us?
And as for robbo203, you went into some detail but mainstream micro theory neither assumes that money can enter a utility function (it is not commodity but a Numéraire) nor are Austrians that much a mainstream (if my recall from university is correct). I will get into it later, your post is useful for researching a bit more.
People need to survive and so we all need air, food, water, etc. It is human nature to eat when you are hungry, to drink when you are thirsty, and to sleep when you are tired. Nothing can alter this.
We also have sexual and emotional needs. To live happy lives we seek out physical contact, affection and love. All these features of human nature will be met in socialism and be much better than they are now under capitalism.
Our present social system is poorly equipped to grant happiness.
Too often we must do somebody harm in order to do a good deed for another, and vice versa.
Socialism does not require us all to become altruists, putting the interests of others above our own. In fact socialism doesn’t require people to be any more altruistic than they are today. The coming of socialism will not require great changes in the way we behave, essentially only the accentuation of some of the behaviours which people exhibit today (friendliness, helpfulness, co-operation) at the expense of others which capitalism encourages.
We will still be concerned primarily with ourselves, with satisfying our needs, our need to be well considered by others as well as our material and sexual needs. No doubt too, we will want to “possess” personal belongings such as our clothes and other things of personal use, and to feel secure in our physical occupation of the house or flat we live in, but this will be just that – our home and not a financial asset.
The socialist solution to the problem is by making the conditions and circumstances of our daily life humane by re-organising the entire network of economic and social relationships so that the problem itself disappears, so that no-one ever has to choose between the demands of the “conscience” and the dictates of “reason”.
We don’t need to change human nature; it is only human behaviour that needs to change. While our genes can’t be ignored, they only intervene in our behaviours in an indirect way, by programming the development of our brains. Therefore, to understand the complexities of our behaviour, it is to our brains, not directly to our genes, that we have to look. When we do this we find that our brains allow us, as a species, to adopt – a great variety of different behaviours depending on the natural, economic and social environments we have found ourselves in.
There are several articles on the Socialist Party website which will answer your questions about the so called Human Nature, Cooperation, Behaviors, and Genetic. Human beings are not greedy, that is a concept created under capitalism to justify profits and exploitation
On the question of human beings as being “inherently greedy” and harbouring “insatiable wants”, I think one needs to understand that this has not been a particularly dominant theme in the history of economic ideas – at least not in the naïve form I refer to below. It certainly appears in precursors to the Neoclassical Marginalist revolution like Hermann Gossen in the 1850s who had an almost fanatically religious attachment to the idea of maximising one’s self interest (in fact he saw egoistic impulses as a “natural law” designed by god which humans have a moral duty to conform to)
The concept of “Homo Economicus” – Economic Man – was really ushered in or popularised by Alfred Marshall , a leading economist in the second generation of neoclassical economists. However, like the utilitarian J S Mill, he considered that self interest strictly related to the economic sphere of life and did not deny that human beings were subject to “higher motives” – altruism – in other parts of life. Marshall defined economics as the “study of mankind in the ordinary business of life; it examines that part of individual and social action which is most closely connected with the attainment and with the use of the material requisites of wellbeing”
Marshall’s “Economic Man” was subjected to criticism from people like Thorstein Veblen and other humanistic economists and from then on you find a subtle shift in the way economics approached the problem of human motives , pioneered by economists like Wicksteed and Lionel Robbins . The ends (whether these be altruistic or egoistic) were effectively separated and distinguished from the means of realising those ends with economics being purportedly concerned only with the what are the most effective means by which human beings realised their ends. Even someone solely motivated by altruistic concern for others still had to make wise economic choices in order to best realise his/her objectives. In this way the caricature of the “Greedy Man” was replaced by another caricature “Rational Man” – though one could argue that the latter is just a way of camouflaging, rather than banishing, the former. It is still “self-interested” insofar as it treats other people as a means to realising your ends rather than an end in themselves
So the basic argument becomes this – that in making economic choices we always face “opportunity costs”. If I want to go for a swim this afternoon I cannot at the same time go for a stroll in the park. The opportunity cost of my decision to swim is that I forego a stroll in the park. Similarly if a particular society wants to develop its agricultural sector, say, this may require having to divert resources from some other sector(s) of the economy and so on. Thus, the concept of “scarcity is built into the very definition of opportunity costs which any kind of society must face. This is a truism but I dont think this particular concept of scarcity in any way undermines the case for socialism which depends on our ability to produce enough to satisfy our reasonable needs. In the latter case we are talking about a quite different definition of scarcity which socialists argue is no longer applicable given the development of a productive potential to sustain a socialist society
Which brings me to a final point – it might be slightly misleading to just baldly portray contemporary economics as having as its basic assumption that “people’s wants are insatiable”. This could be misconstrued as suggesting that my particular want for something e.g a cone of ice cream – is “infinite”. Obviously this is a caricature and an Aunt Sally argument and in fact, flatly contradicts the “Law of diminishing marginal utility” in contemporary mainstream economics itself. In other words, for every additional ice cream I consume I derive less utility or pleasure until eventually eating another ice cream might even become a disutility – I might become sick at the very thought of it – meaning very clearly that my demand for ice-cream is definitely not insatiable! Nor is contemporary mainstream economics saying that it is
Rather, the argument is that as the marginal utility of a good falls with each additional unit of that good consumed, the consumer switches his/her desire to some other good depending on the marginal rates of substitution. (MRS). The point being that there is no end to the variety of goods that could potentially provide a substitute for ice-cream. Indeed, this argument is employed in “indifference theory ” in conventional economics to analyse consumer behaviour
It is pretty easy to knock down the Aunt Sally argument referred to above but more problematic when it comes to dealing with the so called “Greedy Person” argument in this wider context of what modern economic theory is actually saying.
For this we need a more sophisticated nuanced approach which recognises that human behaviour is always a dynamic mix of both self interested and altruistic motives and will be so even in socialism. That approach will also need to make a distinction between “needs” and “wants”, in my view, something that has long been a cornerstone belief in humanistic economics in its debate with conventional mainstream economics. Sometimes “wants” will have to be sacrificed in order that “needs” be met – not least in a world in which we face growing environmental constraints.
All of which, of course, brings into focus the question of morality which, unfortunately, some comrades tend to want to brush under the carpet as being irrelevant to the socialist project.
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