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The 1983 Nobel Prize in economics: neoclassical economics and Marxism.

The 1983 winner of the Nobel Memorial Prize in Economic Science, University of California Professor Gerard Debreu, epitomizes the current standard of excellence in establishment "economics." His award, following thoe given in the 1970s to the economists Kenneth J. Arrow and Tjalling C. Koopmans, invites us to evaluate the pinnacle of bourgeois economic theory from a critical Marxist perspective.

For over a hundred years, two broad traditions of economic theory have clashed over ho to understand and change the economic aspects of capitalist societies. We may call these contending approaches the class vs. nonclass traditions. The former is usually identified with Karl Marx. The latter dates back at least to Adam Smith's Wealth of Nations (1776) and David Ricardo's Principles of Economics (1817). Since then, major nonclass economists have been Leon Walras in the 1880s, Alfred Marshall in the 1890s, John Maynard Keynes in the 1920s and 1930s, and Paul A. Samuelson after the Second World War. For simplicity, we will use the term "MArxism" to label the class tradition, while borrowing the conventional term "nonclassical" for the nonclass tradition.

Of course, there are variations on the basic themes in both these traditions. In recent times formulations have gained attention with such labels as neo-Ricardian, post-Keynesian, and neo-Marxian economics. In other circumstances it would be appropriate to differentiate these new theories from each other and from their predecessors. However, for our purposes here we can broadly consign the various neo- and post-theories into the class or nonclass traditions according to their particular arguments.

The two tradtions of economic analysis literally see different things when they look at societies. The Marxis t tradition focuses on class relations in society and how they interact in a complex way with all the other, nonclass aspects of society to generate change. The neoclassical tradition usually denies the very existence of class (although occasionally using the word "class" in a different sense from Marx's). IPt focuses rather on the more-or-less given human natures of individuals and seeks to show analytically how societies function and change depending directly upon such hmuman essences. Proponents of the two traditions not only see the world differently, they also act differently in constructing and changing social institutions. Social relations are shaped, consciously or unconsciously, in part by the economic theories lodged in people's minds. In short, the different traditions of economic analysis have real and different effects on the politics and hisotyr of society. As we intend to show, these different effects can matter a great deal. After all, that is why a Marxist critique of the nonclass tradition is worth-while.

In the award to Professor Debreu, the Nobel committee made a choice between the two traditions. It reaffirmed the "scientific correctness" recognized in its earlier awards to other economists working within the nonclass tradition. Neoclassical economists are thus approved as engaged in the true, singular "science" of economic life. For the Nobel committee, as indeed for most neoclassical economists, truth is absolute and singular: they have it, and Marxist class-analytic economists do not. They do not accept the possibility of two alternative theoretical traditions which made sense of the world differently, whose proponents see and act differently. Indeed they see right and wrong, truth and falsehood, objectivity and political bias, good and evil with all the dualistic intensity of old-time religions. The persistence of the class tradition in economics, in the face of "science," is then written off--or hotly denouced--as the perverse result of diabolical political intentions, sheer ignorance, or both.

The Nobel Prize, for the nonclass tradition, is an important annual ritual; it hallows that tradition's efforts to secure its social preeminence by casting itself in the role of the science of economics. The other tradition is then cast into the pit of error or worse. From a Marxist standpoint, however, the Nobel Prize looks very different. For us it sits in a clear cause-and-effect relationship to the predominance of capitalist institutions in society. Those institutions both need and in turn support the nonclass approach to economic life. That approach's refusal to see or acknowledge class in economic life reinforces capitalist society much as the medieval churchhs concepts of God and heaven served feudal society.

The dissemination and legitimation of neoclassical theory help to maintain belief systems in which people do not think about and thus at least partly dny the possibility of class, class struggle, and the social effects of class. Since Marxists aim precisely to understand and focus popular attention on issues of class and class consequences for societies, the social prevalence of neoclassical economics is a direct attack upon Marxist theory. The current predominance of the nonclass tradition is very much socially determined. It and its claims to absolute truth are products of the very societal relationships and institutions which it explains in its very particular way.

Put simply, class exploitation partly requires the production and dissemination of that particular truth produced by neoclassical economics. In our view, unlike that of the Nobel committee, the two traditions of economic theory each operate with different notions of truth. Their contending traditions clash over definitions of truth no less than definitions of class, societyy, exploitation, and much else beisdes.

However, to point out that each of the two traditions has its specific, different basic conceptualizations, is by itself not sufficient as a critique. We must also show how the differences between class and nonclass economic theories matter for social change today. To do this requires some brief attention to a few details of the two traditions.

Neoclassical economic theory begins by asserting three assumptions about the essential nature of human beings. First, it assumes that humans choose rationally among alternatives confronting them (I.e., so as to maximize some objectives such as their individual satisfaction). Second, it assumes that human beings can and wish to transform their natural environment into useful things required directly or indirectly for their consumption. Finally, it presumes that human beings are naturally endowed with and/or have assembled the endowments necessary to produce those useful things. These are privately owned endowments, by assumption, and they are made available for use in production only if their owners choose to so make them.

It is worth pausing to consider these three assumptions. Neoclassical theory begins with a concept of essential, individual human nature. By contrast, Marxist theory begins to produce its different knowledge of economics by means of concepts of specific relationships, class relationships, which, like the people in such relationships, are always changing. Thus one index of different theories may be their different beginning points, how they enter into their respective theorizations of economic life. In short, neoclassical and Marxian theories have different conceptual entry points.

Each theory's entry point serves as the organizing idea around which its proponents structure their respective views of economic life. The conventional nonclass tradition makes sense of social conditions as direct results of individual choices concerning (1) what to consume and therefore produce (individual preferences), (2) how to produce (technology), and (3) which privately owned endowments to make available for production. For example, the distribution of produced goods and services (i.e., each individual's income) is explained and justified as the return to the endowments each individual freely chooses to contribute to the production process. Economic circumstances are reducible finally to human nature as expressed in individual choices and the technology invented to date by creative individuals. Persons and nations are economically successful or not because of human nature and because of their past and present individual choices. Hence, Marxist nations of exploitation and imperialism, as we shall see, never appear to the neoclassical view. Correspondingly, neoclassical economists will tend to understand economic and political conflicts in terms of flaws within ("market imperfections") or irrational distortions of individual choice mechanisms, not in terms of class structures and class antagonisms.

How does neoclassical economic theory account for those three aspects of human nature which it assumes as its entry point? Most neoclassical economists respond that nothing in the theory can explain these aspects: they are simply given, innate features of our common humanity. Theoretically, then, they function as essences: the economy and indeed all of society are understood to be determined in the last instance by human nature. Thus, Debreu, in his major work, Theory of Value: An Axiomatic Analysis of Economic Equilibrium (1959), presented his "fundamental theorem" about human nature which "explains the prices of all commodities and the actions of all agents in a private ownership economy" (chapter 5). Debreu brings a strict and elegant logic to the neoclassical tradition. His theory can directly explain consumption, production, commodity prices, and individual incomes by showing their common determination by human nature.

The nonclass tradition of economics epitomized by Debreu's theory is not blind to the possibility that social institutions may obstruct or distort individual choices and thereby diminish the economic well-being of society (i.e., break the correspondence between economy and human nature). Thus neoclassical economists debate what sort of social arrangements and institutions are most conducive to individuals' realizing their preferred satisfactions. Notwithstanding disagreements over details, the debaters generally agree that capitalism is the sort of society whose dominant institutions permit individuals to engage in behavior yielding maximum consumption and accumulation of wealth, the presumed desiderata of human nature. The key institutions are found to be two: free and fully competitive markets for all commodities, and the freedom to own and dispose of private property in productive resources and in all produced goods and services. Under these circumstances it is shown, often in mathematically elegant formulations, that satisfactions are socially "optimized."

This desired "optimality" depends, in neoclassical theory, upon the necessary "perfectly competitive," free institutions being in place. Only irrational and/or despotic behavior, however well meaning, by institutions such as the state can thwart the essential natural tendency of human beings to optimize their economic situations. It is a major preoccupation of neoclassical economics to identify and remove all such social imperfections.

It follows for neoclassical theory that, given the political choice, people will establish those social institutions which best conform to and serve our natures and thus allow us to achieve our maximum economic potential. The neoclassical entry point and its logical elaboration produce powerful reasons for why capitalism is the best of social arrangements and why all other social alternatives are comparatively irrational and inferior. Indeed, in the theory's logical completion, capitalism is merely a natu ral extension of our inherent nature. It is our destiny and the final realization of our best interests as individuals.

Any political interference with free competitve market economies makes no good business or economic-theoretical sense. Imperfectly free or imperfectly competitive economic conditions will make individuals less well off than they might be if the imperfections were corrected. Is it then much of a surprise to read the pronouncements of Reaganomics? The current policies are logically consistent extensions of neoclassical economics: for Reagan, the state has become the principal barrier, the chief architect of market and other imperfections which deny the citizenry its optimum achievable economic well-being. The state bars the door to the promised land of economic efficiency and perfect harmony between consumers and producers.

As important as Debreu's "proof" of optimality being the logically necessary outcome of a free and competitive private ownership economy, is his choice of a language and style for his writing. Debreu chooses axiomatic mathematics; his major book totals 102 unusually small pages of tightly constructed text. His choice of words, of mathematical rigor, and of brevity of exposition comprise a pattern of argumentation designed to establish neoclassical theory as the science of economics. Much like are part of what the world is. Each existing theory plays a part in shaping the thoughts and actions of people in the world. The social consequences of different theories are real components of social life, as are the theories themselves. There is no way that any theory with adherents can be unconnected to the real world. All theory is in and of the world, whether or not we, from our theoretical vantage point, agree with another theory's way of making its sense of the world.

Marxist theory sees and thinks about the world in a manner different from neoclassical theory. But there is little sense and no resolution to a debate about each theory's "realism." Each theory sees a different reality; each is realistic differently. The theories impact in different ways upon the world that their respective adherents cohabit; they connect differently to the real world. Indeed, Marxist theory's intense opposition to the real world. Indded, Marxist theory's intense opposition to neoclassical theory and to the entire nonclass analytic tradition hangs precisely on the nature of that tradition's real impact on the world. Without that impact, the urgency of Marxism's opposition would be gone. Marxist criticisms of the nonclass tradition need to identify precisely how it understands society and how that understanding impacts upon the world that Marxists seek to change.

A second frequent criticism of neoclassical theory asserts that it is politically biased. Such criticism often implies that a theory could or should be free of a political focus or dimension. In our view, all productions of meaning by human beings--which includes the theoretical process--are influenced by political biases. After all, if theories (including questions about their scientific character) are shaped within and by societies, are they not then shaped in part by the politics of those societies? Can we imagine that the observation, collection, and measurement of facts are independent of the complex ways in which human beings differently see, think, and order their social activities?

Different theoretical traditions are not only influenced by different politics; they also carry different political implications.

That neoclassical theory has political biases and carries implications regarding what is socially desirable is not a sign of theoretical defects. Political causes and consequences are rather inevitable accompaniments of all theory. The point is that neoclassical theory's particular political biases are different from those of Marxism.

A third criticism focuses on internal inconsistencies within neoclassical economics. Recently, some economists (including the so-called neo-Ricardians) have claimed that neoclassical theory has become a useless tool of analysis because of internal logical inconsistencies. These and the "unreality" of the solutions so far found for them are alleged to be fatal to neoclassical theory. Such criticisms strike us as beside the point. Internal inconsistencies, logical problems and changes, and altered assumptions are inevitable accompaniments of all theoretical projects (including Marxism). Contradictions within theories-- as within all other aspects of social life--are shaped by the many diverse social influences which produce theories. After all, it is precisely such contradictions which, when discovered, provoke theorists to undertake new investigations, challenge old beliefs, and do all the other sorts of thinking which generate and change theories.

The goal of many theorists, Marxist and non-Marxist, to make their respective theories as internally consistent as possible--a goal which we share--does not warrant the idea that any theory can ever free itself of all manner of contradictions. Indeed, extensions of a theory into new areas of concern, and resolutions of recognized contradictions within the theory, usually lead practitioners to discover new and different contradictions. Such discovery in turn provokes further extensions and resolutions in the ceaseless dialectical change characterizing all theories. Internal inconsistencies are as inevitable components of all theories as are changes in them. Marxist criticism aims not so much to reveal what must be there in any theory--namely internal inconsistencies--the point is rather to identify and explain which of its inconsistencies a theory recognizes and how it seeks to resolve them, because such an explanation is part of an assessment of that theory's particular social consequences. A Marxist Criticism of Neoclassical Theory

We find the above sorts of criticism of neoclassical theory unconvincing. An alternative Marxist criticism builds from a specification of the differences between class and nonclass traditions to a comparison of their different social consequences.

When then are the major differences which distance Marxism, as we understand it, from the neoclassical theory discussed above? In contrast to neoclassical theory's entry point of individual human natures, Marxist theory's organizing idea and focus of analysis is class. Class is understood as the complex social process of exploitation: the production, appropriation, and distribution of surplus labor in different forms (e.g., feudal, slave, capitalist, etc.). Class is the entry point concept of Marxist theory.

Moreover, Marxist theory's particular logic differs sharply from the reductionism of neoclassical theory. It follows a dialectical method in connecting its concept of class to all the other, nonclass aspects of the society it seeks to understand and change. That is, neither class nor any other aspects of society is understood as an essence which finally causes or determines the rest of social life. For neoclassical theory, human nature is the essence from which prices, incomes, and the rest of the economy derive: explanations amount to reductions of these phenomena to their underlying cause or essence. For Marxist theory, class is shaped as much by the other aspects of society as it participates in shaping them: the logic is one of complex dialectical interplay, not reduction.

Marxist theory, as we understand it, begins with a unique idea originating with Marx. In many societies groups of individuals may be distinguished according to whether they perform what he called necessary and surplus labor or whether they receive that surplus labor (or its fruits) without giving anything in return. To receive the fruits of the surplus labor of others without giving anything in return is Marx's definition of exploitation; it is what Marx means by class. But Marx was quick to add that for any particular form of such exploitation to exist in society, many other economic, political, and cultural conditions of existence of class (exploitation) as much as they delineate the class process itself.

For Marxist theory, class is not a social essence: we do not set out to show how class finally determines the economy's structure and dynamic. Marxism's entry point of class is designed to focus attention on the social processes of producing and distributing surplus labor and on their complex interactions with all other social processes. Marxist theory neither needs nor contains notions of the innate nature of "given" human beings. Rather it begins with relationships, including class, which are complex, contradictory, and changing and which therefore continuously change human beings: changing their preferences, their knowledges (know-how), and their resource endowments as well as all their other attributes.

the complete absence of such concepts of class in neoclassical theory generates very different social analyses from those produced by Marxists. What Marxists see and seek to change in society--class exploitation and its interaction with those other social processes that condition its existence--neoclassical economists do not see. Neoclassical theory itself provides a condition of existence for exploitation by its denial and disregard of class. By virtue of their directly opposed social consequences, class and nonclass theoretical traditions struggle against one another.

Struggle between them follows also from the differential consequences of their alternative methodologies. Marxist theory's commitment to dialectics makes it a strictly nonreductionist or anti-essentialist theory. There are no absolutes in Marxism. Marx understood such absolutes or essences to be just another form of religion: a search for the ultimate case and explanation of the world. As Marx noted, the critique of society begins with the critique of religion or, as formulated here, the critique of essentialist reasoning. Thus, for Marxism, the essentialism deployed by neoclassical theory is their religious commitment to human nature, a commitment dressed in the new holy language of mathematics. In contrast, Marxism presumes that everything changes and that every cause has its causes and every effect its effects in a ceaselessly interactive chain of interconnectedness. There is, for Marxism, no final essential cause--neither class, nor the economy, nor anything else.

If class is not the essential social cause for Marxist theory, why do Marxists focus so much upon it and make class their entry point into analysis? The answer today is much like the answer which we suspect Marx might have offered. The class process-producing, appropriating, and distributing surplus labor--is overlooked, denied or repressed in the thinking of most people in modern capitalist society, even of those who desire basic social changes in the direction of greater justice, equality, and freedom. To understand the workings of capitalism, to change it, and to securely establish a socialist society require that the class aspects of these societies be understood. This in turn requires that the repression of class consciousness and class analysis be broken. Marxist theory accomplishes this by articulating a detailed awareness of what class processes are and how they interact--as cause and effect--with all the other, nonclass processes that comprise society as a whole. Marxist theory strives to add class analysis and class changes to the other agenda items which motivate those allied to achieve justice, equality, and freedom. Now, as in Marx's time, it remains an urgent task to establish the existence and social effectivity of class among those interested in such basic social change: hence Marxist theory. Social Consequences and Social Changes

To illustrate the different social consequences that follow from the class and nonclass theoretical traditions, we will sketch their dissimilar understandings of poverty and affluence in capitalism. Neoclassical theory's approach is governed by its notion of human nature: the poor are poor because of their choices and the relatively low productivity (technology) of their endowments, chiefly their labor power. To escape poverty one must choose to increase the supply of whatever productive resources one is endowed with. Market imperfections that inhibit such behavior must be eliminated, or else they will prevent the escape from poverty of those who would choose to be hard working and thrifty. Poverty, in sum, results from a combination of choice and market imperfections.

Let us consider related neoclassical attitudes to the state. One neoclassical position understands the state to create market imperfections, intentionally or otherwise, by interfering in private choices and free markets. Its interference reduces the consumption and wealth of its citizens: a possible cause of poverty. Thus there must be strict limits upon states to conserve the freedom of human nature to realize its potential, the social optimum point where any poverty that exists results only from free choice. Currently, conservative representatives of just this neoclassical theory occupy top positions in the U.S. government. Reagan's economic policies are among the social consequences of neoclassical theory.

Neoclassical theory also offers a liberal position on the state and its relation to poverty and affluence. Directly opposed to the conservative view, it understands the state to be necessary to permit individuals to reach the social optimum point. State policies are seen to be uniquely capable of eliminating market imperfections (for example, business cycles of booms and busts) which constrain affluence and enhance poverty. The state could reduce poverty or at least guarantee that what poverty remained derived from individual choices (which it would be "undemocratic" to tamper with).

The conservatives' state-as-problem has been transformed into the liberals' state-as-solution; their differences concern strategies and not the objectives of the strategies. Both seek to remove imperfections; both see the resulting individual optimization as resulting in the best of all possible worlds. Poverty and affluence will then be optimized, too, in the precise sense of resulting from individual choices and the human natures making those choices. Beyond that nothing more can or should be said or done. Unless pressured from below, government policies regarding poverty. will be shaped and limited by this theoretical explanation of the causes of poverty.

These neoclassical views deny the point and purpose of Marxist theory. They ignore any notion that class exploitation is intimately connected to the distribution of wealth and poverty. For the Marxist, neoclassical theory in either its conservative or its liberal variation cannot produce policies to eliminate the poverty in capitalist societies since it cannot see or understand, let alone eliminate, one of its sources, class exploitation.

The Marxist alternative recognizes explicitly the existence and social effects of that which neoclassical theory denies: class exploitation. Such a recognition requires that a policy to end poverty must include eliminating the class process by which some individuals receive surplus labor from others while giving nothing in return. A central goal of marxist theory is then fundamentally different from that of neoclassical theory: revolutionizing the capitalist class process or, in the historic language of Marxism, class struggle. Approached through class theory, poverty is seen and treated differently; resulting policy prescriptions differ in the sharpest possible terms from neoclassical proposals.

What is true for the poverty issue applies as well to other social problems. Consider even typically leftist proposals to collectivize ownership of the mans of production, create democratic decision-making within enterprises, end discriminations against minorities, and equalize the distribution of wealth. These proposals address issues of power and property: who has what sorts of power over whom. Oppressed groups have protested unjust distributions of power and property for centuries, inspiring a rich literature of critical social analysis. Marx built upon that literature, but by adding a unique new critical insight (class) and tracing through its social implications, he produced a new revolutionary theory. For Marx, class is a process different from, although complexly interconnected with, processes of power and property. Moreover, Marx's concept of class breaks with all previous uses of the word "class" which refer to groupings of people according to (among many divers criteria) wealth, education, power, status, and ethnicity. Marx discovered a social process of class referring instead to specific forms of exploitation of labor to produce and distribute surplus labor. He showed how these forms were and remain integral parts of societies with oppressive power and property relationships.

Advocates of change have often failed, in Marx's view, because they did not grasp what Marx understood as the class aspect of their societies: how class interacted with the policial and cultural conditions they found oppressive. Marx's specific class analytical contribution--the production and distribution of surplus labor--aims to add consciousness of class to the struggle for social change and thereby to enhance its chances for success. To lose that specificity means to fail to add Marx's contribution to the struggle for social change, to fail to break down the repression of class from the popular consciousness. Neoclassical economics particularly and the nonclass tradition of social analysis generally will have scored the most devastating of inroads if their omissions or denials of class reappear even in the proposals of those committed to basic social changes in capitalism.

A Marxist response to neoclassical economics is critique which shows first that it is but one among alternative contesting traditions and, secondly, that its social consequences set it against the points and purposes central to Marxism. We hope that this theoretical critique helps inform and stimulate the other forms of critique which the nonclass tradition deserves.
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Author:Resnick, Stephen A.; Wolff, Richard D.
Publication:Monthly Review
Date:Dec 1, 1984
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