Economics Is An Imaginary Science

Dr. Michael LaitmanOpinion (Shimshon Bichler and Jonathan Nitzan, interviewed by Piotr Dutkiewicz): “With the global crisis ongoing and the ruling class tittering on the verge of panic, there is a real possibility of a massive shift to the right, not unlike that of the 1930s. I think that such a shift will be difficult to prevent, let alone counteract and reverse, without a totally new theoretical alternative. …

“In the seventeenth and eighteenth centuries, when capitalism was just taking hold, there was nothing apologetic about the market. On the contrary. The market was seen as the harbinger of progress – a powerful institution that heralded liberty, equality and tolerance. …

“The political system, by contrast, is wasteful and parasitical. Its purpose is not production, but redistribution. Its members – the politicians, state officials and bureaucrats – seek power and prestige. They eagerly ‘intervene’ in and ‘monopolize’ the economy. They tax, borrow and spend – and in the process stifle the economy and ‘distort’ its efficiency.

“The market became the chief ideology of the triumphant capitalist regime. It helped spread capitalism around the world, and it assisted in the fight against competing regimes, such as fascism and communism. In the Soviet Union, where production was besieged by chaotic planning and accompanied by tyrannical rule, organized violence, open corruption and restricted consumption, the market symbolized the ‘other life.’

“When economics first emerged in the late nineteenth century, capitalism was already victorious. But it was also highly turbulent and increasingly contested by critiques and revolutionaries, so it had to be defended; and the ideological part of that defense was delegated to the new priests of liberalism: the economists. In order to perform their role, the economists have elaborated an intricate system of mathematical models. This system, they claim, proves that a free, totally unregulated economy – if we could ever have one – would yield the best of all possible worlds, by definition.

“The conventional counterclaim, marshaled by many heterodox critiques, is that neoclassical models may be elegant, but they have little or nothing to do with the actual world we live in. And there is certainly much truth in this observation. But the ‘science of economics’ is besieged by a far deeper problem that rarely if ever gets mentioned: it relies on fictitious quantities.

“Every science rests on one or more fundamental quantities in which all other magnitudes are denominated. Physics, for example, has five fundamental quantities – length, time, mass, electrical charge and heat – and every other measure is derived from those quantities. For instance, velocity is length divided by time; acceleration is the time derivative of velocity; and gravity is mass multiplied by acceleration. Now, as a science, economics too has to have fundamental quantities – and the economists claim it does. The fundamental quantity of the neoclassical universe is the unit of hedonic pleasure, or ‘util.’ …

“Now, in the final analysis, all economic quantities are reducible to utils. The util is the elementary particle of economic science. It is the fundamental quantity, the basic building block everything economic is made of. The utils themselves, like Greek atoms, are identical everywhere, but their combination yields infinitely complex forms that economists call ‘goods and services.’ Every composite of the “real economy” – from the aggregate quantities of production, consumption and investment, to the size of GDP, to the magnitude of military spending and the scale of technology – is the sum total of the utils it generates. And the price magnitudes of the “nominal” economy – for instance, the dollar prices of an industrial robot (say $5 million) and a trendy iPhone ($500) – merely represent and reflect the util-denominated quantities of their respective ‘real’ quantities (whose ratio, assuming the reflection is accurate, is 10,000:1).

“And, yet, and here we come to the crux of the matter, this util – this basic quantum that everything economic is supposedly derived from – is immeasurable and in fact unknowable!

“Nobody has been able to identify the quantum of a util, and I very much doubt that anyone ever will. It is a pure fiction. And since all ‘real’ economic quantities are denominated in this fictitious unit, it follows that their own quantities are fictitious as well. To measure ‘real GDP’ or the ‘standard of living’ without utils is like measuring velocity without time, or gravity without mass. (I should note here that a similar critique can be leveled against classical Marxism. The elementary particle of the Marxist universe is socially necessary abstract labor. This is the fundamental quantity that all “real” magnitudes are made of and which the nominal spheres (should) reflect – and yet no Marxist has ever measured it.)

“The students, dazed by the endless drill of ‘practical’ assignments, do not even suspect that their ‘computations’ are practically meaningless. Most professors, having graduated from the meat grinder of neoclassical training, have had all traces of the problem safely erased from their memory (assuming they were aware of it in the first place). And the statisticians, whose job is to measure the economy, have no choice but to concoct numbers based on arbitrary assumptions that nobody can either validate or refute. The entire edifice hangs in thin air, and everyone keeps quite lest it collapse.”

My Comment: But today the edifice is crumbling, and we need a new economy: an integral interaction. Production is necessary only to meet the required needs. Distribution is equal, in accordance with everyone’s needs. Money is void. To receive necessities, it is mandatory for everyone to take part in the life of society and most importantly in integral education and upbringing. Thus, society will come to its natural balance, in itself and with nature.

Related Material:
Economists Need To Abandon The Usual Theories
Mikhail Delyagin On The Crisis
Humanity’s Global Problems

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