Why do we teach foundational economics in the way that we do? And who or what is being ‘served’ by the approach and the (presentational-representational) priorities of this existing ‘established’ episteme? I have taught a number of foundation, access, and open-entry (higher education) courses over the last two decades, including a number for the Open University (OU, module codes DD100, DD101, DD102, and DB125) and University of Edinburgh (four interdisciplinary ‘introduction to social science’ courses), which have included an introduction to or the fundamentals of ‘economics’.
In my (admittedly limited opinion), by far the best of these was the OU’s DB125 (Personal Finance), not least because it buried the theory of supply and demand to Chapter 6 – well into the book / course, once other aspects and elements of economics (and finance) had been considered. Yep, the core of mainstream ‘microeconomics’ (the conceptualisation of the ‘economy’ being made up of households, firms, and government) was still present, but more substantially balanced by mention of so-called ‘macroeconomic’ concerns (the social and political context) as well as having students learn something practical (training in how to manage their own finances, such as cash flow, assets, and liabilities) before then – as ever – getting into the abstract mathematical universe of ‘graphical representation’ of what is supposed to be happening.
In fact, what I most liked about teaching DB125 was that it had a ‘citizenship education’ element in the Scottish Common Sense tradition. That is, it is helpful to society, for everyone, if everyone has some understanding of what is going on around them. To cite Adam Ferguson, the point of moral philosophy (later ‘social science’) is to hold the powerful to account, and ignorance is never good at doing that. Education in / about economics has to cover more than feeding an industry with ‘professional’ economists whom, typically, end up in a peculiar position within Adam Smith’s division of labour.
The Politics of Economics
But the teaching of ‘economics’ (and how to be ‘economical’) has always had a propaganda element to it. Making sure everyone ‘knows’ what is going on can inform the public or citizenship of ‘the’ key reasons and justifications for why things are the way they are, and (a corollary of that) why things cannot be changed. Thus, even the ‘common sense’ approach soon runs into political territory – it can be about calming resistance to the way things are, to the existing inequalities in life, on grounds that such inequalities and stoically putting up with them are simply ‘sensible’. At the same time, what gets taught in economics (especially in further and higher education, and especially with regards to business studies and administration) needs to address the ‘output’ side of its production process, namely, the creation of economists who are well-equipped and ready to handle ‘the jobs’ they will subsequently be plugged into. The term ‘employability’ comes into the framework; a term educational institutions are thoroughly embracing with vigour like never before. We must do something for our students other than giving them an abstract love of learning! But what are these employability factors and/or what ‘transferable skills’ are to be imparted by teachers to their wards? Who better to ask, naturally, than those already within the industry. Professional bodies and employers have a major role to play here in shaping the skill set, knowledge content, and academic standards that graduates should emerge with.
The flip-side, or downside, of such an approach is that economic education (like any other sector of education) ends up being shaped those outside the academy (extra mural) who don’t have the independence and distance from vested interests in an industry which those inside the academic (intra mural) happen to have. Even when Adam Smith studied at Glasgow in the late 1730s merchants were welcomed and involved (invited to take part) in university debates, and Smith’s work could be viewed as novel (for the time) in taking ‘philosophy’ into the world of industry. It is part and parcel of common sense philosophy that such interaction takes place, but it should not be ‘dominated’ by one side or the other. In summing this section up, there is little point in professional economists telling the academy ‘please produce more people like us’, as nothing might ever move forward. And it is notable that both Keynesianism and Neo-liberalism both emerged from the academy and not ‘the profession’.
A Time for Questions
Notably our time is one of questioning orthodoxies. Kate Raworth’s Donghnut Economics has raised the issue of why we persist with bog-standard microeconomics. And to this I would add why we still feel obliged to begin economical education with ‘the market’ as presented in the form of the supply-demand graph? From personal experience of teaching interdisciplinary students expected to learn at least something about ‘economics’ it is the way in which this is done (with an immediate ‘mathematical’ focus) which is highly off-putting.
Now, the theory of supply and demand has many, many criticisms – it is an abstract representation of an ideal and not a reflection of what happens in reality or practice. It thereby, in philosophy of science, uses a deductive-verificationist approach. It is expected that consumers will make pain-reducing, pleasure enhancing decisions and choices (they are mini-maximisers) and then the ‘model’ aims to demonstrate this presumption via ‘verifiable’ examples. So, when ‘you’ are in the desert, you will not deny yourself water no matter how much the salesman, who arrives on a camel, is demanding in payment (the joke being – presuming the consumer is ‘male’ – that he will demand your mother and wife in exchange). Water becomes more expensive than diamonds in this ‘marginal’ situation.
I remember my PhD supervisor (Derek Kerr, probably in 1990-91) referring to a quotation about supply-demand microeconomics which described it as “nonsense on stilts”: “Everyone knows its nonsense, but no-one can touch it – reach up to get it”. As noted by Elder-Vass (2019) – who references many critical pieces of work – the theory, overall, presents impossible people in an unreal world (the flattened, very white landscape of graph paper), since no actual consumer / producer has sufficient knowledge to make the necessary effective choices for the market to work in the manner it ‘should’. Indeed, such people are a product of habit (their own habits, plus socialisation), who rely on their feelings and emotions (such as trust in those they already know; culturally-constructed ‘personal’ desires; or socially-imposed or structured necessities) more than the supposed ‘rationality’ and ‘autonomy’ they are meant to be using to make key ‘choices’ – about what to consume or produce; or what to pay – within a subjective ‘willingness to pay’ account (see the ‘desert’ example above). But even as I sit and drink my morning coffee (caffeine boost) in a cafe, is it true to say I was willing to pay more than yesterday because of how I am ‘feeling’ today? Does the price of coffee really change depending on work rotas (too little rest) or celebratory contexts (a wedding attended the day before)?
Elder-Vass’s chapter does not cover every possible criticism of supply and demand, and my two favourites happen to include: (a) it is incredibly boring (it certainly puts many students to sleep, though others show ‘intrigue’ – a feeling of a need to know how this works as it is so culturally important), and (b) as a ‘social theory’ it is inadequate because it doesn’t tell us anything about the society (social formation or world) we happen to live in. It is, to that end, completely uninformative! But, perhaps, these are the main points of the theory – to bore, snore, and keep the lights out.
In Chapter 1 of Capital, Marx tells us that he fails to understand the fascination of political-economists with the law of supply and demand. He makes the criticism that as soon as equilibrium price is ‘reached’ (achieved) – which is the explanatory goal of the graph, after all, to indicate how the price of a commodity is arrived at – then the law of supply and demand ceases to work – it is no longer applicable since price has been reached. However, the commodity still has a ‘price’, and at this point we need to realise that the law of supply and demand has not explained what ‘price’ is. We are still left with the requirement to explain what price, in and of itself, is. Why must this thing have a price? What is it that the owner is charging the purchaser for?
Of course, Marx is feigning his incomprehension. Section 4 of Chapter 1 on commodity fetish makes it clear that a linen coat does not walk into a shop and exchange itself for a bag of coal. Rather, it is the tailor who is exchanging their effort for that of the miner. Marx’s study of commodity fetish is precisely about how and why classical political economy (of the early 19th century) had lost its ability for insight – to see what is socially significant to the form of society (mode of production) we inhabit.
If you are adverse to this point because it is Marx who is making it – his name makes you come out in a rash – then you need to be aware that Marx was able to root this point in the work of Adam Smith. Smith’s Wealth of Nations does not ‘open’ with the law of supply and demand but with the inside of a workshop – the pin factory – where productivity is rapidly rising due to a reorganisation of the labour process (a re-division of labour to make it more ‘expedient’ – a key term from Smith’s earlier Theory of Moral Sentiments – that is, the re-division makes production more efficient such that the human animal gets more output for similar or less input). Consequently, when Smith moves on to talk about ‘markets’ (in Chapter 3 of his work) it ‘should be’ clear that commercial society is one giant labour exchange. Human ‘individuals’ (and Smith does, if wrongly, focuses on individual effort) are evaluating and exchanging their efforts or labours.
This point, in Smith, even though Smith is making it, is anathema to modern mainstream economics (and especially the Adam Smith Institute). Even an expert introduction to Smith’s own work (Skinner’s introduction to the 1999 penguin edition of Wealth of Nations) want to deny or expunge Smith’s labour theory of value. Skinner argues that Smith got his starting point wrong (the labour theory of value) and, hence, ‘later’ in the book Smith corrected his error by introducing an alternative ‘theory of production costs’ (which in Skinner’s view is the ‘correct’ approach). Yet, Skinner was coming out of (and probably socialised within) a long tradition within mainstream economics of criticising and denying the labour theory of value. By the 20th century, the political implications of following a labour theory of value were well-known – it leads to a land (or ocean, since I will be talking about the Jolly Roger) of exploitation.
By comparison, the theory of supply and demand is politically ‘safe’ because it is tells us nothing about what price actually is. We get to learn that something in ‘short supply’ will rise in price, as will something in ‘high demand’. By comparison, something in abundant supply or something in low demand will fall in price. Wow! That’s like saying the leaves will fall off the trees in autumn. This event happened in ancient Rome, under mediaeval feudalism, when absolute monarchs tried to control early modernism (emerging capitalism), with industrialisation (though global warming may well witness some trees retain their leaves for longer, as the anthropocene era records human impact on nature!), and even in our own times with post-modern consumerism. The point of natural science has not been to observe that the leaves fall in autumn – our Neolithic ancestors were able to observe this – but explain the processes which lead to leaves falling, and even why autumn leaves will be more or less colourful depending on weather conditions each summer.
The law of supply and demand is a theory which remains at a very superficial level – it states the obvious and, therein, lacks any precision about the fundamentals of ‘our’ society (commercial or capitalist society which merged as pre-dominant in the late 18th century). But the same goes for concepts of ‘scarcity’, the law of diminishing returns, the definition of opportunity cost, resource allocation, and the notion of trading production ‘possibilities’. Another narrative often taught in the early stages of ‘economics’ is the tale of Herman Goering aiming to convince the German public that they had a limited choice between producing butter or guns. ‘Given’ they could not have both outputs, Goering claimed that Germany should choose guns, since these would make the nation powerful, whereas butter would merely make them ‘fat’. But from a labour theory of value perspective, and drawing on Marx’s concept of commodity fetish, Goering was not comparing guns with butter, he was comparing the efforts of armourers (gun-makers) with those of milkmaids. Essentially, Goering desired to impoverish milkmaids to make more room for gun-makers. The ‘market’ is not a mystery; it is made up of humans who make socially and culturally-constructed choices.
Thus, Smith was right to contextualise the ‘market’ he observed (and analysed going beyond simple observation) as a labour exchange, and then to note (by his 6th chapter) that ‘profits of stock’ were not a result of labour or effort, but of the stockholder (owner) ‘sharing’ in the efforts of their workers (who created the ‘value’ of the goods). The ugly face of exploitation raises itself, though this is often inconceivable by those with a vested interest in benefitting from the system – whether that is those already ‘with money’ or those who firmly believe they will ‘make money’.
To conclude, the supply-demand graph presents itself as if it is a boat on placid lake without a sail. It is, literally, going nowhere and presents itself as a politically neutral ‘account’ of how a ‘market’ works. But it is, in effect, a fetishized representation of the forced sale (exchange) of human labour power, as if this is a perfectly ‘natural’ state of affairs. The boat is, in fact, the ship of Black Beard and should, to become an honest account of itself, hoist the Jolly Roger as the standard of privateers.
Socialising Sense 