It's actually fairly prosaic. The form we call "economics" i.e. the form which provides the intellectual framework for capitalism, is only one of many possible forms, and is more properly referred to as "neoclassical economics". It's only because it has reached the status of a paradigm that we fail to distinguish between it and other forms, or even recognise that other forms exist.So where are we at here and why?
Its persistent inability to illuminate economic and social reality originate in its peculiar and arbitrary conceptions of the role of individualism, instrumentalism, and equilibration (which the Sonnenschein-Mantel-Debreu Theorem demonstrates are logically inconsistent, since the first two lead to a shapeless demand curve which the third prohibits), and an absolutely deranged theory of resource scarcity which is an embarrassment to anyone with even a passing understanding of physical sciences, and thermodynamics in particular.
It persists because it is what Lakatos characterises as a "degenerative research program" - one which expands its set of propositions about the world by defending them from falsification through the invention of other ("auxilliary") theories to explain why the core ones don't work. (Physical sciences proceed by refining core propositions which do not survive experimental falsification, expanding the range of phenomena usefully described and predicted). In this respect, neoclassical economics is indistinguishable from astrology, and the fact that Tory MP's now think astrology might form a useful adjunct to health policy is delicious for anyone familiar with Popper's Scientific Method.
How did we get here? Well, not long after exponential growth kicked in following the Second World War, they realised that a finite world could not contain it, and started mulling over steady state economic theories such as land tax. Capitalists, understanding correctly that exponential growth is a necessary condition of stability in a system that expels labour and sensing danger, put up an endowment for a school of economics that could lend plausible deniability to the theory of indefinite expansion. The Chicago School was born, and promptly invented neoclassical economics for its benefactors, which in turn gave rise to such howlers as:
Finally,The total mineral in the earth is an irrelevant non-binding constraint
- (Adelman, 1990 "Mineral depletion, with special reference to petroleum")
That such [neoclassical economic] models prevailed, especially in America's graduate schools, despite evidence to the contrary, bears testimony to a triumph of ideology over science. Unfortunately, students of these graduate programmes now act as policy makers in many countries
- (Stiglitz 2002, Former Chief Economist, World Bank)
Steve Keen's "Debunking Economics" (2011) offers a devastating and highly readable critique of neoclassical economics' inanities.
[edited to link to the Tory MP story]
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