I am currently reading “Modern Political Economy: Making sense of the post-2008 world” by Yanis Varoufakis, Joseph Halevi and Nicholas Theocarakis, published in 2011 by Routledge. In this and next posts I will collect my comments, chapter by chapter. Here I discuss Chapter 2.
This chapter reiterates the book’s main theme that economics is tainted by inherent problems:
Inherent error, the inability to soundly and properly combine a theory of value with a theory of growth. This is due to the nature of the subject area of economics, namely that the theories affect the matters NE consideration. Hence, economists are fully embedded and their theorising affects the subject studied. So, any theory of value affects the conditions of growth and vice versa. In particular, value can never be independent of the distribution of social power over the surplus produced by human labour and ingenuity. As such the value of things is determined socially through power structures. This in turn affects how an economy develops and grows. Hence, economic theory is directly affecting its subject of study.
Inherent error leads to lost truths. Past theorists understood certain basic truths better than later theorists; knowledge was lost in the development or history of economic theorising. Authors point to Aristotle’s “telos” as the perceived goal of an action. If the goal is socially just, then the action is valuable; if the action has no perceived socially productive or useful goal, the action is not justifiable. (Similarly, I remark that the classical economists’ notion of a social division of labour as a source of wealth creation has been lost in contemporary economics.)
The authors make an interesting error by linearising history as so many other economists do as well. History is a progression from hunter-gatherer via agricultural to industrial economies. That ancient empires from the Mesopotamian Empire (Uruk), China, Egypt, and to the Roman Empire signify a much more non-linear development line is neglected. I refer to Ian Morris’s development index that shows the quality of life in ancient Rome to be equivalent to that in Victorian London.
Also, the history of financial instruments has the common economists’ mistakes: barter is followed by money and subsequently followed by banking due to complication of short versus long term financing of production processes. There is clear evidence that there first was government and a bureaucracy of registration of debt before money actually came into existence. (Graeber, 2011)