Chris Harman


Half a critique of political economy

(May 1994)

Thinking It Through, Socialist Review, No. 175, May 1994.
Copied with thanks from the Socialist Review Archive at
Marked up by Einde O’Callaghan for the Marxists’ Internet Archive.

The Death of Economics
by Paul Ormerod
Faber and Faber £14.99

‘Their model of the market assumes perfect knowledge of all economic transactions, not only in the present but in the future as well – a logical impossibility’

One of the strangest bits of any news broadcast is the financial news. Sandwiched just before the sport and weather it claims to tell people what is happening to forces that determine whether they get jobs, how much they will get paid, whether they will prosper or perish.

In fact, it’s mostly about things that can only concern less than one tenth of the population – share prices and international currency rates. But normally thrown in are the latest forecasts on what is going to happen to the economy over the next period.

So seriously are these forecasts regarded that papers like the Guardian and the Financial Times will run stories like ‘Boom in Mexico’ or ‘India economic success’, illustrated with wondrous graphs which curve sharply upwards. It’s only when you look closer that you see asterisks indicating the figures for the upward bits of the graphs are guesses about the future, following on from a long downward sloping stretch showing what’s actually happened so far.

Paul Ormerod used to help prepare such graphs for the British economy. He begins his new book The Death of Economics by pouring scorn on their pretensions:

‘Economic forecasts are the subject of open derision. Throughout the Western world their accuracy is appalling. Within the last 12 months alone, as this book is being written, they have failed to predict the Japanese recession, the strength of the American recovery, the depth of the collapse of the German economy, the turmoil in the European ERM.’

He then moves on to a trenchant critique of the economic model underlying each and every such forecast. The model is that of the ‘marginalist’ – or, as it is often called today, the neoclassical – school and it has dominated mainstream academic economics for more than a century.

Ormerod points out that this school has, in fact, moved away from the central concerns of the classical writers, producing models of the economy that are little more than tautologies.

Their model of the market assumes perfect knowledge of all economic transactions, not only in the present but in the future as well – a logical impossibility.

They insist that if the state keeps its hands off the economic decisions and unions have no power, then supply and demand will automatically balance. And finally, they claim that if the factors which obstruct free competition in the real world, such as the defence of jobs by trade unionists, are removed one at a time things must get better – but the mathematics of their model shows that this can actually make things worse.

Ormerod concludes that the model offers no guidance to what is happening and what can happen in the real world. Orthodox economics is as much use in understanding the economy as medieval astrology was in predicting events.

This book, then, is very good at destroying the icons of orthodoxy. Its arguments can be deployed with effect every time someone from the IMF, the Thatcherite think tanks or the Labour front bench waffles on about the wonders of the market.

Yet it ends up by being unsatisfactory. This is not just because Ormerod misses out some key arguments. But more importantly, his central criticism of orthodox theory is that it does not take into account the institutional context in which the market operates.

The conclusion is to call for government intervention to adjust the institutional context, so that wages and prices would not rise with falling unemployment. This, it is claimed, would suddenly shift all the graphs so as to bring about a new period of prosperity with full employment, economic expansion and a competitive British capitalism. The elephant of theoretical discussion gives birth to a rather familiar incomes policy mouse.

But the failures of both established economics and the system they purport to explain follow from the very nature of a system in which production is based on competitive accumulation between rival owners of means of production. In such a system the products of human labour interact in such a way as to dominate the human beings who undertake the labour, continually thwarting their hopes and desires. Human beings end up living in order to work instead of working in order to live.

The classical political economists began to grasp elements in the functioning of this system at a time when it was undermining earlier, less dynamic ways of organising society – and so could be said, in some sense, to stand for human advance. But once the system was fully established, any further concern with its functioning was bound to lay increasing stress on its irrational and destructive features.

It was at that point that the sort of political economy that appealed to respectable society turned away from scientific analysis of underlying structures to a bland justification for the status quo, of which the marginalist school was the supreme expression.

Since then there have been economists who have been driven by the reality of capitalist crisis to try to locate what is wrong. Keynes was the greatest of these, and today people like Ormerod, Will Hutton of the Guardian and William Keegan of the Observer, as well as academics like Wynne Godley, try to follow in his footsteps. But they never go beyond half a critique of political economy, and so end up urging people to accept one form of irrationality rather than another.

But there was one thinker who did break fully with established political economy, just at the point when it degenerated from science into apologetics. This was Karl Marx. He was able to make the break precisely because he saw political economy as describing a whole system of alienated labour. The logic of that system was bound to be a self contradictory logic, leading to intense dehumanisation and immense crises. And in Capital, subtitled ‘the critique of political economy’, he set out to portray that logic, showing that the very process of competitive accumulation creates conditions under which it cannot continue without massive convulsions.

Works like Ormerod’s are useful for those who want to begin seeing what is wrong with the orthodoxy. But to go the whole way you have to return to Marx.

Last updated on 15 April 2017