Mike Beggs’s article in the Winter 2012 issue of Jacobin, “Occupy Economics,” highlights an important issue facing academic economics. Principally, to what extent do students and practitioners of economic theory respond to the issue of ideology inherent in their study and practice? And given this, to what extent should economic theory itself be changed as a result of its perceived ideological content? This comment will argue that there is very little direct link between mainstream economics as theory and mainstream economics as ideology. We therefore agree with Beggs’s point that dissenting economists should think of mainstream economic theory as the terrain, not the enemy itself.

Mainstream economics, if it is anything, is neoclassical economics. This approach to economics can be defined by a methodology in which the fundamental object of enquiry is the individual. Such structures that are observable at the level of society have no independent existence, rather they are generated by the rational, goal-oriented behavior of the individuals that constitute that society. As a result, the theory is generally perceived to be ahistorical. The ideology that mainstream economics is supposed to maintain is typically considered to be the optimality, or even inevitability, of laissez-faire (neoliberal) capitalist institutions, both in developed and developing countries. This is commonly justified by the first welfare theorem of neoclassical economics — that a decentralized equilibrium is necessarily Pareto efficient (or conversely, maximizes a specific social welfare function). This doctrine underpins conditionalities on loans from international institutions, extreme forms of “shock therapy” in transition economies, and the mass privatization and deregulation that has been seen in developed economies over the past two decades.

None of this ideology, however, is the direct result of neoclassical economic theory. Immanent, welfare maximizing equilibrium is certainly not a general theorem of price theory, and is conditional on a set of extremely restrictive assumptions. Indeed, it is very easy to generate quantity constrained (i.e. unemployment) equilibria within a neoclassical framework, and price-theoretic explanations of externalities, imperfect competition and other “market failures” feature in every undergraduate textbook. New Classical macroeconomics, in ignoring these elements of neoclassical theory, is certainly a theoretical aberration, as Beggs suggests. Despite this, it is extremely significant in an ideological sense.

A common response to all of this is that we a living in a “dark age”; economists have forgotten certain basic truths associated with the more general neoclassical system, the “neoclassical synthesis” that Beggs refers to. If the economic establishment was to emerge from this dark age, so the story goes, the dominant ideology would change and our economic problems could easily be overcome. The correct response to this (persistent) error was provided by Michał Kalecki in 1943:

The maintenance of full employment through government spending financed by loans has been widely discussed in recent years. This discussion, however, has concentrated on the purely economic aspects of the problem without giving due consideration to political realities. The assumption that a government will maintain full employment in a capitalist economy if it only knows how to do it is fallacious.

In other words, the state of economic theory has very little impact on the state of economic ideology. The truth in this is illustrated by the ideological history of neoclassical economics. The theoretical father of modern neoclassical economics, Leon Walras, considered himself a socialist, and his theory led him to propose the nationalization of land and financial reform. Likewise, Knut Wicksell, a major precursor of neoclassical macroeconomics, was heavily involved in radical politics as a young man. The school of economists that he inspired emphasized the inherent complexity of neoclassical theory, and maintained serious doubt over the ability of a capitalist economy to remain at or near equilibrium. As such, they favored a mixed economy with extensive intervention on the part of the state, and inspired the “Scandinavian model” of social democracy. One could mention the socialist calculation debates, in which Oskar Lange maintained that neoclassical theory constituted a scientific justification of socialism, or the widespread use of Leontief’s “input-output” analysis in development planning — a method entirely predicated on neoclassical general equilibrium theory.

Beggs correctly points out that mainstream economics is both an ideological bastion of capitalism and a genuine social science. The ideological history of mainstream economics demonstrates that this is certainly the case, and furthermore, that there is no simple link between those two functions. Theory, in this sense, is defined as a body of propositions separate to any one economist’s or politician’s understanding of those propositions. Ideology, on the other hand, can be seen as an arbitrary focus on some of those propositions and an equally arbitrary repression of others, based on some political choice criterion, whether conscious or unconscious. Contemporary neo-liberal ideology focuses on the neoclassical welfare propositions of a decentralized economy in equilibrium, and necessarily downplays the attendant assumptions required for an economy to attain such an equilibrium.