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 19^th 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 20^th 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 18^th 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 6^th 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.

On the morning of Tuesday 27^th September 2022 the Financial Times reported experienced professional economists referring to Kwasi Kwarteng’s (UK Chancellor of the Exchequer) understanding of economics as being “A-level”.  In other words, his understanding involved a superficial or populist comprehension (of economic relationships) which, interestingly, is something to be expected of school children (‘why?’).

Apparently oblivious to the potential damage his actions, and those of his Prime Minister, Liz Truss, could have, the Kwasi Chancellorship initiated a chain of events (in historic proportions) leading the Bank of England, on Wednesday 28^th September, to act perversely to its own policy and purpose (by buying gilt-edged government bonds when it job is to sell them).  The latter emergency purchasing strategy was aimed at saving UK (defined benefit) pension funds and the economy, more generally, from the actions of the UK peoples’ own government!

Despite all the ideology and rhetoric (fine words) bound up in claims to ‘free market economics’ – that governments should ‘leave well alone’ and can do so by reducing their own income – the tale is clearly one of a government intervention that impoverished (quite rapidly) the country.  Truss and Kwarteng wanted the market to decide, and it was soon spooked by their actions and ‘decided’ to sell UK government debt, forcing up interest rates, not just for the government but everyone in the UK and specifically those seeking mortgages.  What happens ‘next’ remains to be seen at time of writing (Kwarteng has just been fired).  Can the government now convince the market (in finance and investment) that its ‘plan for growth’ can be ‘stabilised’?  Analysts on programmes such as BBC2’s Newsnight (Wednesday 28^th) were at pains to point out that even if Truss (and her new Chancellor, Hunt) now manage to do so, the resultant ‘options’ would still be 3^rd and 4^th best outcomes compared to having left things ‘alone’.

Though my interest in writing this piece is not simply about current economic policy.  Rather, it is about economic education and the idea that, somehow, children (high school students) – and indeed the general public (the ‘commoners’) – are and should be ‘lied’ to.

This takes the form that provision of education in economics entails a Russian Doll or Onion Peel experience, namely, stripping away layers of bigger ‘lies’ to reveal ever smaller ones (that is, there is a reasoned movement from larger to smaller ‘generalisations’ and/or conceptual ‘errors’) until ‘the truth’ is finally revealed at the ‘highest’ expert-level of ‘postgraduate’ economics, where the margins for error between theory and reality are somehow, or should be, smallest.  Based on the Financial Times’ reference to ‘A-level economics’ being part of the problem, this onion peeling process appears to sum-up our current ‘system’ of education in economics!

By way of contrast, the Scottish Enlightenment philosopher Thomas Reid set out to save the so-called ‘expert’ philosophy of his day (Descartes / Berkeley / Kant / Hume) from its ‘ridiculousness’ in asking questions such as: ‘how do I know I am here?’  Reid’s point was that the ‘common’ person in the street knows the answer to this question – quite simply and without the angst.  As a Scottish ‘common sense’ philosopher, Reid’s concern was that some questions cannot and should not be left, nor limited, to experts.  Essentially, discussion must be broadened out to encompass the community.

Should this not be the case with modern ‘economic’ decision-making?  But, how can this democratic goal be achieved if our economic education system perpetuates the ‘dumbing down’ model described above?  It is akin to saying that the non-experts will remain ‘stupid’ until they have picked up a PhD – something Kwasi Kwarteng has.

The alternative, of course, is to tell foundation level students in economics, whether ‘school age’ or adult returners to education, and, to wit, the great unwashed public ‘mob’, what is currently known about economic relationships.  In other words, what is wrong with starting by covering the cutting-edge state-of-human-knowledge, or what post-graduate students and professional economists actually know, understand, or argue?  In a similar vein, Kate Raworth (Doughnut Economics) asks a pertinent question about why we still teach economics as if it’s 1948 (i.e. by using Paul Samuleson’s graph-based formulations)?  This just doesn’t happen in physics, biology or chemistry.  Now we know there are 8 planets in our solar system (when it was understood there were 9 when I was a child), we don’t tell contemporary school children there are 9 planets only to reveal to them later on, in university, that there are, in fact, 8.

One immediate (establishment) answer is that such economic thinking and perspectives are ‘too advanced’ for the ordinary citizen (and, by implication, child), not least because to ‘make sense’ the acquirer of such ‘knowledge’ should be conversant with complex mathematics, equations, formulae, and/or deep statistical modelling.

Indeed, was it not the absence of such understanding, data, and information from Kwarteng’s ‘mini-budget’ which spooked the markets?  He presented a political ideal – less taxation for all – but decided not to provide any evidence as to how his proposed tax cuts would be ‘paid for’ via reductions in state expenditure.  Since data was available from the Office for Budget Responsibility (OBR), though perhaps not ‘immediately’, people had to ask the question if Kwarteng was either in a rush (to do something before a party conference), did not want the existing information to come out, or did not understand or like what the data had to say.  Despite his lack of data, Kwarteng (and Truss) forged ahead on the basis of “A-level” economic comprehension – using the overly-simplified assertion that lower taxation produces greater economic growth.

It’s a simple enough mantra, one the ‘commoners’ it was presumed would ‘get’, but also ignores basic, and simply understood, historical facts.  As Robert C. Allen notes in his Global Economic History: A Very Short Introduction, a work aimed at ‘beginners’, between 1920 and 1940 the fastest growing economy in the world was that of the Soviet Union, where the ‘communist’ state utilised forced expropriation (i.e. a very ‘high’ form of taxation) to achieve rapid social change, ‘advancement’, and so-called ‘social progress’ (whilst the ‘liberal’ low-tax economies of the US and UK languished in a Great Depression).

The Kwasi mantra also overlooked the possibility of a simple ‘theoretical’ reversal of cause and effect, namely, that it is the fastest growing economies which (just happen to) have the lowest rates of taxation!  Consequently, it is not because the army is small that the economy grows (Kwarteng’s assumption), but because the economy is growing that it can afford its army (what is required) at a much lower proportional rate of taxation (or size of state to economy)!  Such oversight distracts from studying possible ‘alternate causes’ of lower economic growth (or lack of rising productivity), such as a tendency for the rate of return on capital to fall (aka a crisis of over-accumulation).  The latter is the core conclusion of Thomas Piketty’s book Capital in the 21^st Century.

This is not to say that Kwarteng’s position has no intellectual merit.  In The Wealth of Nations, Adam Smith provides the example, in Book 5, of a state maintaining an army (actually, he refers to the British navy and its size following the 7 year war with France) above the size required in peace time.  Smith makes it clear that whilst the Admiralty has a vested interest in sustaining the navy at 100,000 sailors (because a larger navy means more power and social status for the Admirals) the general or national economy has no such ‘interest’.  Though Smith’s underlying question is ‘how should such interests, the national interest, be decided?’ 

Smith thinks it should not be left to the Admirals (who represented the top 5% of his society – the ruling class elite).  In the ensuing peace, the retained sailors continue to consume national food and clothing stocks (and much else) without adding anything to the growth of those material stocks via rising output (productivity).  Things were different during the war, when their activities were ‘valued’ and central to advancing the supply of food and clothing by securing trade routes.  Following Smith’s conceptual outline and analysis from Book 2 (on capital accumulation), where he draws the distinction between productive and unproductive labour, the sailors are being retained in roles which are ‘unproductive’ of new output – the sailors fall into a category of the population which Smith highlights in his ‘Plan of the Work’ (the first few pages of The Wealth of Nations) as ‘consumers’ of national stock rather than ‘producers’ of it.

Subsequently, Smith advocates release (or liberation) of the sailors from their state-imposed marshal deployment so they can find work best suited to their personal aptitudes and capacities via the labour market, and where the marketplace more generally (or ‘society’ expressed in its trading actions) decides where they are most needed.

However, there is no guarantee that the transfer or transition of sailors into ‘civilian’ life will, indeed, make them any more productive – not if they end up ‘unemployed’ and reliant on Poor Relief, nor if they end up having to work as domestic servants, nor as adjuncts to specific ‘masters’ (those who can monopolise trade in various ways, legislate for state subsidies of their own business, and implement all the abuses of the market Smith has highlighted in Book 4 of the Wealth of Nations).  Therefore, what Smith is advocating in Book 5 is not a simple and thoughtless ‘reduction in taxation’, but a root and branch transformation of the Mercantilist system where taxation was being used to promote the interests’ of the few over the many.  The latter is so easily forgotten in ‘adherence’ to Smithian liberal economics. 

Truss’ and Kwarteng’s priorities appear to be growing the economy in the interests of some (a few) over others with reference to trickle-down economics, on the basis that ‘some’ have a greater impact on the promotion of growth (productivity) than others.  The latter theory, of course, has been thoroughly disproved after 50 years, with the London School of Economics (LSE) having undertaken a review of all the occasions where ‘trickle-down’ policy has been invoked by politicians. The result? All trickle-down has ever produced, in practice, is greater inequality (or ‘dribble-up’) – something IMF economists were at pains to point out following Truss and Kwarteng’s mini-budget.

Returning to Reid and the traditions of Scottish Common Sense Philosophy, the moral of the tale relates to the how the interface between ‘expertise’ and democratic discussion should be constructed.  If “A-level” economics are responsible for Kwarteng’s policies then, obviously, something needs to be done about “A-level” economics!  There should be no presumption that the commons are ‘too thick’ to understand what is going on, nor that a ‘proper’ understanding of economic relationships requires a degree in mathematics.  Experts in economics should, like their brethren in physics or biology, be able to communicate the ‘latest’ advances in their field to their non-expert fellow citizens, who ultimately play a ‘role’ in keeping the ‘experts’ from becoming ‘ridiculous’.

One problem in our existing society is that expertise in economics is not (always or even typically) used to advance the wider social good but advance private (corporate and commercial) interests.  In that ‘sense’ the role of expert knowledge is skewed – it gears itself towards guarding the mysteries of priesthood, and generating an aura of mystique, rather than allowing its claims, assertions, and ‘models’ to be exposed to general, public evaluation.  And when it comes to developing (and shaping) the curricula of economic education the ‘demand’ to produce ‘more people like us’ over-rides any attempt to open up the ‘foundation’ years of study to alternate approaches (to the graph-based microeconomic and econometric orthodoxy).