Saturday, March 30, 2013


The common economist during his professional practice, is immersed most of time in hills formulas, tables, indexes and statistics looking at each time taking more “rational” and “efficient” decisions. However, there are times when he experiences a deep doubt about its real contribution to human welfare.

Evidently he knows of the great economic and material progress of humanity but he can not avoid that also come to his mind the samples of a increasing dissatisfaction in contemporary man, of moral and spiritual degradation, of how the emptiness and meaninglessness take possession of his soul and how stress and anxiety become constants in his life. At that moment, perplexed and worried, he asks himself why of all this.

Then he shakes his head and says “I need to stop thinking nonsense, that's for idealists and philosophers. I am a serious man who deals with more accurate and important things”. And thus, ignored the problem, he returns to his professional work or an ultra-specialized theoretical research, as the case may. But the issue has already been posed and requires a response, especially from those who think about the economy as an social science at the service of man and his welfare.

Several economists have been concerned about the relationship between economic progress and happiness. One is the Briton Richard Layard who in his famous book The Secret of Happiness (2003) made a statistical comparison between GDP per capita and average happiness in the United States during the period 1946-1991, reaching the curious result that even when income had tripled, self-perceived wellbeing index remained relatively equal, decreasing from 2.35 to 2.2. This conclusion is particularly worrying for liberal economists who believe that higher income, higher production and higher consumption necessarily imply greater happiness. But what is the reason for this great contradiction? Curiously, Economics itself provides important arguments to explain. I will address some:

Relative income hypothesis

A first explanation is based on the thesis of the "relative income" which asserts that, if possible such a choice, an individual would prefer a 50% increase in their income without increasing the income of anyone than an increase of 100% on the income of all people around him including himself.

Evidently this is a hypothesis and not a universal law, but has high explanatory power in the conduct of individuals and, under certain restrictions, it is very difficult opposing it. Why? Because the welfare that give us the goods we consume depends not only on the utility but also of the image and social prestige they give us. Let us consider the grisly case of a girl who buys a beautiful (and obviously very expensive) red dress to attend a party. She arrives at the party and finds that all the girls in the party have a equally or more beautiful dress. Her utility level falls precipitously…

But must not think that this is an isolated and purely individual phenomenon: rather it is a structural problem in the economic development of societies. For example, according to figures from the United Nations Program for Development (UNDP), the richest (20% higher) in countries like Peru, Colombia and Brazil earn on average less than the poorest (20% lower) countries like Sweden or Japan. Thus, if a rich Peruvian goes to Sweden would become a "wretched man". But be careful. We should not infer from there that Swedes richer are necessarily happier, because we have to keep in mind that they also live in a constant state of tension, competing with other richs. In fact, this was what sustained the American institutionalist economist Thorstein Veblen in his famous book The Theory of the Leisure Class (1899) when he talked about the “pecuniary emulation” and “conspicuous consumption” (1).


1. Thorstein Veblen, The Theory of the Leisure Class, Fondo de Cultura Economica, Mexico, 1944, chapters II and IV.

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Tuesday, March 19, 2013

ECONOMICS FOR HERETICS: DEBUNKING THE MYTHS OF ORTHODOX ECONOMICS Excerpt from Chapter 2 – “The myth of the production function”

(Are welcome the guidance and indications -emails, web addresses, name of head of area publications, etc. - about publishing houses and institutions that could publish the book).

And with what produce?: ecologist criticism of the production function

Let us imagine for a moment that the production function that sustains the orthodox economics is valid. Furthermore, let us imagine that, in fact, we have to carry out an actual production process based on it. Let us think, for example, in the production of a cake. What do we need to do? According to the neoclassical production function –which has the general notation Q = f (K, L)- we would need capital and labor. Get together, then all elements of capital (defined as the set of instruments used to produce): jars, bowls, trays, pallets, oven, pans, knives, etc. Now we gather the elements of the labor factor: basically be our own labor (or the of a chef) incorporated with all the abilities to make cakes. Then, given a technological configuration, ie, an established relationship between the factors of production bringing together the elements of capital (K) and labor (L) which we have listed, we get the product, that is a cake. But we get nothing! It’s not possible... there has to be an explanation...

We try with an intensive increase of productive factors: we get much bigger bowls (K) and we hire several chefs (L)... but still not we get a single cake! “Why?”, we ask ourselves.

The answer is very simple: nothing is produced because there is nothing with what to produce! No matter how many bowls we get or how many cooks we hire if there's no cake dough to cook! In effect, on the basis of the neoclassical production function, we have gathered all the elements of capital and labor but we have not had any account of the raw material. We have listed several things, right. But at no time we have mentioned flour, sugar, eggs, etc. Thus, based on the neoclassical production function, we have tried to be God: we wanted to create something out of nothing! However, it becomes patently absurd in this context: can not make cake without cake dough. Can not produce without raw material.

Well, it is precisely on this basis that the great economist Nicholas Georgescu-Roegen, initiator of the ecologist approach, raises his criticism of the production function and orthodox economics. He begins by analyzing the physical basis of the production process (1) and immediately realizes the implications of the First Law of Thermodynamics (according to which “the matter is not created or destroyed, only transformed”): not possible to produce without a material basis. Consequently, the neoclassical production function becomes inconsistent and absurd for not taking into account the nature factor.

And this was to be expected. In the nineteenth century, when was born the neoclassical school, the modernists believed in the “theory of indefinite progress” and they claimed that the resources of nature were endless. Orthodox theorists assumed that belief and built on this basis in economic theory. So, the most essential factor of the economic process was relegated to the sidelines : the ecological factor. However, as rightly said Max Neef: “There is no economy possible regardless the services provided by ecosystems. This is so absolutely clear and so absolutely obvious that is truly a epistemological scandal that in any economics textbook, if you go to index words, may be find the words “ecosystem”, “nature” or “thermodynamics”. They do not exist! Simply they do not exist. Why? Because the economy that is taught is conceived as a closed system in itself that is not related to any other system (...) when obviously it is embedded in a bigger system called biosphere and around which are all services provide the elements of that biosphere. Where would be the economist if it ends the photosynthesis? Economists do would not exist! What would happen with the economy if suddenly all the bees died? There would be no pollination... But no economist presumes that he has to know that. (...) All this happens in a gigantic sea of ignorance on the part of the economy” (2). In other words, there can be no economy without ecology and orthodox economics still does not know it.

“But the problem is easy to solve!”, orthodox economists will say. “We add the variable R (natural resources) in the production function and ready!”. What ignorance! One ignorance comparable only with that ignorance that orthodox economists also show when claim to have understood the process of technological change just because they incorporate a variable “A” to the production function (3).

Let us see. Given a variant “Solow-Stiglitz” (as it is called to the artifice upon which it has been tried solve the problem) of the production function we have that in the form Cobb-Douglas this will be:

Q = Ka.Lb.Rc
such that: a + b + c = 1

As this is a Cobb Douglas production function, this implies complete substitutability of factors, ie, that can be replaced one factor by another (or others) while maintaining the same level of production. But it is precisely where the inconsistency resides. Mathematically, if R (natural resources) tends to zero the reduction may be compensated by increases in K or L maintained the same level of production. The structure multiplicative of the function allows it. However, it is inconsistent in the facts because if R tends to zero necessarily have to do so at some time K and L. First, because they depend on R: the capital goods are products of a previous process which presupposes the nature factor and, in turn, the labor force needed of natural resources to sustain itself  (can anyone imagine what would happen with our productivity if we drank only one glass of water a month?). Second, because the quantity of product that capital and labor can generate depends always and necessarily of the flow of inputs to transform (no matter how quick work the cook or how big is the bowl which has, if he has only one gram of mass he can not do a single cake).

Thus, Georgescu-Roegen criticism to the production function shows clearly that the economy has ecological limits. And that brings us to the central concept of his analysis: “entropy”. Basically the entropy means that the availability of a certain amount of energy, once it has been used, not retains throughout time to the same properties to create useful work. Thus, as soon as the natural resources are transformed, they pass from a state of low entropy to a high entropy and, consequently, it is increasingly difficult transform them into products useful to man. Ergo, the use of our the natural resources have a objective limit: capital and labor can not exploit the nature indefinitely because this is also subject to the Law of diminishing returns.

And that not to mention the problem of the environmental pollution brought about by any production process. In effect, given that, because of the law of entropy-is impossible to achieve 100% efficiency, produce something always and necessarily generate a residue or waste (4) which should be treated. That is, after making a cake you need to clean the kitchen. And the same applies for the whole planet.

Nevertheless, orthodox economics has systematically left aside all this. According to this ecological factor is purely exogenous. But “economics” etymologically means “administration of the house” (5). And our house is ultimately the planet earth. But orthodox economics has shown as evidently a bad manager because, to leave out the ecological factor analysis, necessarily have a large part of guilt in the current global warming problem that we are facing. Conclusion: orthodox economics is a bad economics.


1. Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process, Harvard University Press, Cambridge, 1971.
2. Manfred Max Neef, “Economy and Environment”, conference at the Universidad Austral de Chile, Valdivia, on May 28, 2010.
3. For more details on this misery see the famous Solow growth model in any manual of “advanced” macroeconomics (!).
4. Cf. Nicholas Georgescu-Roegen, The Entropy Law and the Economic Process, Harvard University Press, Cambridge, 1971, p. 231.
5. From the Greek: oikos = house, nomos = order administration.

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ECONOMICS FOR HERETICS: DEBUNKING THE MYTHS OF ORTHODOX ECONOMICS Excerpt from Chapter 1 – “The myth of consumer rationality”

The progress of the neurosciences (or brain sciences) has not been stranger to the economics. In fact it is thanks to it that it has been possible to inquire the physical basis of several of the discoveries of behavioral economics, being born in this way a new branch for the economic study: the neuroeconomics.

As well as in behavioral economics, with this new approach several studies it also has been conducted with very interesting results and conclusions. Thus we have, for example, the famous study by Sanfey, Rilling, Aronson, Nystrom, and Cohen (1), who applied the famous “ultimatum game” to 30 people connected to equipments of registration the neurological activity, in order to verify the existence of significant differences in the subjects facing to different stimuli generated by determined offerings. It should be noted that the selected individuals participated in several rounds of the game, with human opponents in 50% of cases and computers in the other 50%.

The results were very interesting. They showed that determined regions of the brain were activated disproportionately when individuals were receiving "unjust offers" of humans compared with what happened with the just offers of humans and all the offers of computers (just and unjust). Additionally, this disproportionate activation of a brain region was correlated to the decision to reject the injust offerings, which would demonstrate that exists a physical basis in economic decisions and that these are not free of elements of emotional nature.

A very important sub-branch of neuroeconomics that is closely related with the issue of consumer rationality is that of neuromarketing. This can be defined as an advanced discipline that studies the brain processes that influence the behavior and decisions of people in the areas of action of traditional marketing: design of products and services, communications, prices, positioning, and sales channels.

The contributions of neuromarketing were crucial. As Nestor Braidot says in his interesting book Neuromarketing: why your customers sleep with another if they say they like you?, this new discipline “allowed to confirm a set of assertions of traditional marketing, such as the emotional advertising effectiveness in the  retention of customers or the fallacy of attributing to the consumer a rational behavior” (2). Thus, it was found, for example, that “the so-called “purchase button” appears to be in the pre-frontal cortex half. If this area is activated, the customer is not deliberating, is determined to acquire or possess the product” (3). Obviously this is very far of consumer of the orthodox economics which deliberates very rationally about what is the best option given his restrictions and preferences.

And not only that. As well reported Braidot, the neuroeconomics, “analyzing the price issue, found that the maximization of utility based on rational thinking is not the main motivation for the decision because, in most cases, the factors triggering purchases are emotions, values and everything that activate the brain's reward system”. (4)

But perhaps the most interesting part of neuroeconomics is the study of the characteristics of each one of the hemispheres of the brain and how they influence in our economic decisions, mainly those of purchase.

As we know, the human brain has two hemispheres: left and right. The left hemisphere is primarily logical and analytical, which we use for verbalize a speech prepared or solve math exercises, processes the information sequentially and is related to linear thinking. The right hemisphere, by contrast, is primarily creative and synthetic, which we use for make a work of art or when we fell in love, processes the information holistically and is related to creative thinking.

Well, it is evident that the left side of our brain corresponds more with the analytical activity of homo economicus. However, and unfortunately for the orthodox economics, the role played by this hemisphere in our economic decisions is decreasing as the advertising and other forms of influence designed, developed and perfected by marketing are all targeted primarily toward the right side of our brain making that our purchasing and consumption decisions are increasingly impulsive and emotional. Thus, it “attacking” directly to the right hemisphere, is achieved prevent that the rational and critical attitude of the left hemisphere pass to the fore, and are generated in the individual thus a set of consumer habits and preferences simply irrational.


1) A. Sanfey, J. Rilling, J. A. Aronson, L. E. Nystrom and J. D. Cohen, “The Neural Basis of Economic Decision-Making in the Ultimatum Game”, Science, vol. 300, 2003, p. 1755.
2) Nestor Braidot, Neuromarketing: why your customers sleep with another if they say they like you?, Gestion 2000 Press, Barcelona, 2009, p. 11.
3) Nestor Braidot, Neuromarketing: why your customers sleep with another if they say they like you?, op. cit., p. 15.
4) Néstor Braidot, Ibid, p. 35.

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“The consumer is, so to say, the king (...) each consumer is a elector who uses his vote for it to be done what he wants”. With this expression Paul Samuelson defines the main article of faith in the orthodox economist's creed: the sacred dogma of “consumer’s sovereignty”. Such is the importance of this dogma that, if proved to be false, it would collapse the entire building doctrinal of the Economic Theology. And is that “in a market economy is always given as assumption the consumer sovereignty” (1) because it is only in virtue of this that the economic efficiency leads to increased welfare.

It is assumed that sovereign consumers have different needs and autonomous preferences which they manifest via monetary votes in the purchases made or abstentions on purchases in the market. The entrepreneur will have no choice but to submit to the demands of consumers: nobody is perpetuated in the market if does not satisfy to the consumer, if does not surrender to its sovereignty. Thus the economy fulfills its purpose to efficiently manage the scarce resources to satisfy human needs.

Evidently assume all of this was not as unreasonable in the time of Adam Smith and the classics because the firms were incipient, goods were less abundant and the needs were fundamentally basic. However, “while the world continues to evolve, the conventional wisdom is always in danger of becoming obsolete” (2). With the advent of technological society, the spread of media, development of advertising, sales strategies, the planning system and the predominance of oligopolistic and monopolistic structures of the market the situation changes radically. It would be absurd to think that big companies like Microsoft, General Motors, Nike or Coca Cola are humble servants of the consumer. Only an ignorant would think that the purpose of advertising is to only “informative” when the overwhelming evidence shows that it is essentially “persuasive”.

The mere fact that the needs of consumers are increasingly manipulated and exacerbated by advertising and sales technique shown that their preferences are not entirely autonomous. In this point someone might object that this is not entirely true because any individual is free to escape from the influence of advertising if desired. Somehow he would be right. But we must bear in mind that the manipulation of needs is not directed primarily to the individual but to the entire mass, thus that is not a great loss of sales that a single individual rescue his liberty and autonomy if it has manipulated the majority of individuals.

Precisely this is the primary objective of firms because not only seek profit but also economic security, especially as they get bigger because, besides deciding what consumers need, the firms have to take a series of policies in order that the price the consumers pay for their product to be a price such that enables them to achieve at least the minimum benefits and maintain its position in the market, besides paying to their shareholders, directors, employees and suppliers. So it is that even the monopolies, which have no competition, perform great expenditure in advertising (obviously this throws on the floor the belief that advertising is an exclusive activity of oligopolies).

Thus the economic system ends inverting its rationality because instead of firms produce what we need, they do that we need what they produce. Thus, the “general rule, with less exceptions than we imagine, is that if they produce it we will buy it” (3).

Despite all of this, the perfect competition, the utility theory, the general equilibrium and the consumer sovereignty stays as the supreme in the conventional economic education. This can only be shown by either a “fatal arrogance” that aims to have a solid theory and perfect regardless of changes of reality, or an incurable naivete on the part of economists. Ojala these would be more humble (or less naive?) and take this into account to reformulate economic theory in a way that takes better account of the specific social and economic phenomena, seeing the consumer as what he really is: a being of flesh and blood whose needs are susceptible to manipulation by big business. It is time to leave behind the myth utilitarian on the “isolated individual”.

1. Franklin Fisher, Zvi Griliches, and Carl Kaysen, The costs of automobile model changes since 1949”, The Journal of Political Economy, vol. 70, nº 5, October 1962, p. 434.
2. John Kenneth Galbraith, “The Affluent Society”, Artemis Press, Mexico, 1986, p. 57.
3. Andrew Hacker, A Town Called America Corporated”, New York Times Magazine, July 3, 1966.

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Monday, March 18, 2013


The triumphant neoliberalism

On November 9, 1989 a historic event of great importance did happen in the world: the fall of the Berlin Wall. That same year Francis Fukuyama published his famous article “The End of History” in which he argues that “we are witnessing the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of government” (15). Thus, neoliberalism trumps all other alternatives civilizational and consecrated itself as the final form of political-economic organization of the “New World Order”.

In this context of globalization, the economic theory becomes a mere instrumental knowledge (technocracy) thinking itself essentially as a “tool-box”, constituted by models and theories to be conveniently used by economist to fix up the “mismatches” of economical machinery. No longer examines content issues of economics. Only the functional relationships are considered important. In other words, it does not matter to know what is X and what is Y but only how they relate functionally to manipulate variables “instrument” and thus achieve the desired results with the “target variables”. Hence the preponderance has Econometrics in the analysis and current economic policy.

This new approach of the economics as a knowledge essentially instrumental has clear epistemological implications because  not given importance to the explanatory power of theories -which necessarily lead us to the plane of Political Economy- but only to their predictive power. Therefore, it is not strange that a liberal economist as Milton Friedman hold that it is not necessary to consider the realism of the assumptions or the explanatory power of a theory when examining its scientific validity but only its “predictive power” because “positive economics is or may be an objective science in the same sense as any of the physical sciences”. (16)

The “depoliticization” of the Economics

After all this historical analysis of the evolution of economic theory and epistemology in the context of different social and political events, is that we can see clearly that the economists never could get separate science from ideology. The process of “depoliticization” of the economy was clearly an ideological process that sought to eliminate the explicit political element of economic analysis to replace it with an implicit (camouflaged) form of policy based on utilitarian individualism, the doctrine of minimum State and the liberalism bourgeois.

So it is not surprising that economists now called “neoclassical” decided to change the name of economic science from “Political Economy” to simply “Economy”, so that the separation between economics and politics, between market and State, is final. Thus, the Economy become a “pure” science. But that claim is clearly an ideological choice that, as Immanuel Wallerstein explains, “has to do with the dominant ideology during the nineteenth century. Basically, the dominant view of liberalism worldwide was that the State, market and society were three distinct entities. They operated with different logical and therefore should be studied separately, and in a sense, stood apart in the real world. So the scholars had to segregate their knowledge of such aspects. Overall this was what happened, and what was already established in 1945 as an organizing principle for the social sciences at leading universities”. (17)

However, as it explains Oscar Lange “the ideological element in scientific research is not necessarily an obstacle in obtaining results with objective validity” to the point that “the ideological motive can also stimulate the development of science” (18). Therefore, to make an objective judgment about the legitimacy (or illegitimacy) of neoclassical economists's attempt to eliminate the political factor of the Economy will be examined, to speak in terms of epistemology lakatiana, if from this are built scientific research programs “progressives” or “regressives”. (19)

To answer this question it will be necessary to understand the nature of the relationship between economics and politics and then examine the epistemological and practical implications that flow from this.

In general terms we can define economics as the discipline that studies the management of resources to meet human needs and politics as the art of government. However, since resources are limited, there will always be needs that will remain unmet and this will lead to individuals to make decisions about how to distribute and use these resources. This has to do necessarily with the political structure of society in terms of the organization, distribution and institutionalization of the power of the different agents interacting in it, which obviously leads to the plane of politics and, therefore, can be said of consistently that the economy is intrinsically linked to the political and, consequently, that economic theory -if it want to be realistic- must become inescapably in Political Economy.

The epistemological implications of the above line of reasoning are extremely important because it follows that the only coherent and consistent way to study economic phenomena is through of a multidisciplinary analysis because in reality there are no “economic”, “sociological” or “political” problems but only “social problems” and they all have an irreducible complexity, it being understood it as that none of the aspects (political, psychological, ethical, economic, etc.) that compose it can be analyzed in isolation with respect to the other because each one of them have always and necessarily a constant and intrinsic relationship with the others.

The traditional way that neoclassical economists have to get rid of these difficulties has been and still is say that they work only with so-called “economic factors”. But taking into account the above we can say that it is absolutely wrong because it is not logically possible to isolate a part of reality denominating it simply as “economic” when in fact exist as such only insofar as it are interrelated with the legal and the political structure (institutional) of society. Moreover, the appeal to the isolation of the “economic factors” as a criterion of demarcation does not solve anything because it is like a pettitio principi falacy. And is that the single definition of “economic factors” involves scrutiny of all the factors involved, including the “non-economic”, which is only done once defined a priori the concepts used.

With respect to the practical implications of recovering the political approach in Economic theory we have to say they are as or more important than epistemological. As the prestigious epistemologist argentine Mario Bunge says, any study of Economics as if an autonomous and isolated is doomed. Clear example of this is the unfortunate experience they have had and still have several Third World countries with economic planners who ignore the non-economic components of society and the system of values and norms inherent therein. Most development plans designed for these countries are due to economists who have ignored the circumstances and the cultural and political values of those societies, deliberately sacrificing their cultural and political aspirations in order to reach one goal all costs: industrialization, stabilization of the currency or some other purpose of economic policy. No wonder, then, that such plans have usually lacked popular support and, in most cases, have not achieved their goals. A successful development plan should be considered only as a component of a much broader, inclusive and comprehensive social plan.

In conclusion, it is absolutely necessary to recover the political dimension of economics to deal explicitly with greater accuracy, breadth and depth the problems we face. In this sense, the pretension of neoclassical economists to construct an economic theory "chemically pure" is nothing more than an counterproductive ideological attempt which conceals the political nature of the economy in order to avoid the uncomfortable political consequences (for certain group) that could result from economic analysis.

Therefore, the kind of economist who need the world of the future and that should be taught in our universities should be like that Keynes's describing, in his biography of Marshall, when wrote that “has to reach far in different directions and must combine powers natural which is not always found together in the same individual. He must be in some degree mathematician, historian, statesman and philosopher. He must understand symbols and speak with ordinary words. He must contemplate the particular in terms of the general and the abstract and concrete touching on the same flight of thought. He must study the present in the light of the past and facing the future. No part of man's nature or his institutions must be completely out of his consideration. He must be simultaneously intentional and selfless as idealistic and as incorruptible as an artist, yet sometimes as near the earth as a politician”. (20)


15. Francis Fukuyama, “The End of History”, The National Interest, No. 16, Summer 1989, p. 4.
16. Milton Friedman, Essays in Positive Economics, Chicago University Press, Chicago, 1953, p.10.
17. Immanuel Wallerstein, "Open the Social Sciences", lecture delivered on 24 October 1995 for the Social Science Research Council in New York.
18. Oscar Lange, “Field and Method of Economics” (1945-1946), in: Economic Quarter, No. 58, Fondo de Cultura Economica, Mexico.
19. See: Imre Lakatos, The methodology of scientific research programs, Alianza, Madrid, 1989, p.9.
20. John M. Keynes, “Essays on Biography”, in: The Collected Writings of John Maynard Keynes, vol. X, Macmillan, London, 1972.

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The Keynesian revolution

Throughout the first three decades of the 20th century, the neoclassical paradigm conquered the economic theory “in a way, as full as the Inquisition to Spain” (8). But in 1929 happened an event that directly put in check the neoclassical system: the famous Great Depression of the American economy. It is in that difficult context that appears one of the greatest geniuses of the economy: John Maynard Keynes.

Keynes was a multi-faceted intellectual who achieved fame in mathematics, philosophy, and literature. In his famous book General theory of occupation, interest and money (1936) criticizes neoclassical economics (he calls it “classical”) claiming that its postulates “are only applicable to a particular case, and not in general, because the conditions posed are an extreme case of all positions of equilibrium” and even more so because “the characteristics of that special case are not the characteristics of economic society in which today live us, reason why its teachings are deceptive and are disastrous if we try to apply them to the real facts”. (9)

Moreover, being himself a great mathematician, criticizes the “mathematization” of economic analysis holding that “too much of recent mathematical economics is a simple mixture, as vague as the original assumptions that sustain it, which allows the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols”. (10)

In that sense, Keynes seeks to recover the epistemological approach of the classics, ie political economy recover and thereby writes that “the purpose of our analysis does not provide a mechanism or method of blind manipulation to give us an answer infallible but provide ourselves with an organized method of reasoning on specific problems”. (11)

The second neoclassical counter-revolution

After their first reaction from radical rejection of the theory of Keynes, the neoclassical economists were more “intelligent” and sought a containment mechanism considering all the General theory as a particular case which could be seamlessly integrated in the Walrasian schema. As Paul Davidson shows in Controversies in Post-Keynesian Economics (1994), these reactions faced the different generations of economists: “A more than one decade of the publication of the General theory of John Maynard Keynes, a controversy arose in the economics profession among the older neoclassical economists and the younger generation of advocates of Keynesian policies. The oldest were experts in neoclassical theory. Recognizing that the Keynesian analysis was logically incompatible with its own analytical model, the old economists despised the Keynes’s analysis as imperfect. The new generation had also been nourished by the neoclassical theory. They could have wanted any action to guide the economy in the great depression and could have looked for overthrowing their ancestors. But they did not want to entirely destroy the analytical structure because they had spent many years at school learning to know it. Therefore they tried to amalgamate the neoclassical theoretical analysis with the activist policies of Keynes and to develop an analytical framework which they called Neoclassical-Keynesian Synthesis. This synthesis attempted to integrate economic policies of the 20th century proposed by John Maynard Keynes with neoclassical theory of the 19th century that includes Say's law and the axiom of neutrality of money as a proposal in the long term”. (12)

The result of this attempt -summed up in the famous IS-LM diagram- maintained the exterior lines of the Keynes’s theory, but the essence is lost. Even so, despite all these characteristics, which did not have much to do with what Keynes had resulted in his General Theory, “it is told to the students, that they did not need to read the difficult and tedious General Theory, but that they could study the IS-LM model, which -as claim their teachers- includes all the Keynes's main ideas”. (13)

Thus, the economists, rather than strive to understand the complexity sobresimplificaron the Keynes’s ideas and, thus, they neutralized all the elements that could mean a return to the political economy and its multidisciplinary and realistic epistemology.

The conservative neoliberalism

The most famous episode of the origins of neo-liberalism is the formation, in 1947, in Switzerland, under the leadership of Friedrich von Hayek, of the Mont Pelerin Society, a group of large liberal intellectuals, among them were tam well Karl Popper, Ludwig von Mises and Milton Friedman, who were committed to the dissemination of the ideals of liberalism around the world in order to combat the advance of socialism. (14)

In this context, it is convenient to define politically neoliberalism comparing it historically with liberalism. When in the late eighteenth century liberalism advocated the legitimacy of capitalist society, it did from a revolutionary position against the status-quo, ie against the feudal and mercantilist privileges. In contrast, when in the middle oftwentieth century neoliberalism endorses the legitimacy of capitalist society, it does from a conservative position in favor of the status quo, ie, against any kind of society that could replace or overcome capitalism.

But neoliberalism is not only going to combat against socialism but also -sometimes - against Keynesianism and the position of this in favour of the intervention of the State in the economy. In this way, in the 1970s, the loss of dynamism in the developed economies, the fall of profit rates and stagflation were the perfect opportunity to neoliberalism in order to mount its attack on the welfare state. After years of Keynesianism, neoclassical economic theory regained its dominant role. With their mathematical models of growth and its macroeconomics models, also mathematical, based on rational expectations, neoclassical economic theory returned to "demonstrate" mathematically the self-regulating nature of the market. Milton Friedman and Robert Lucas were the exponents of this successful fight by the monopoly of the legitimate knowledge against Keynesianism and in favor of monetarism and the New Classical Macroeconomics, with its assumption of the “rational expectations”, did completely ineffective and unnecessary the Government Intervention in the Economy.


8. John Maynard Keynes, General theory of employment, interest and money (1936), Fondo de Cultura Económica, Mexico, 1992, p. 38 
9. John Maynard Keynes, General theory of occupation, interest, and money, op. cit., p. 15
10. Ibid, p. 286
11 Ibid., p. 285 
12. Quoted by: Mariel Manes, "Keynes method: an analysis of the general theory in the light of its methodology", note of class of the course of macroeconomics II, Universidad Nacional de la Plata, La Plata, August 2005, p.2.
13. Ibid.
14. See: R. M. Hartwell, A History of the Mont Pelerin Society, Ed. Liberty, Indianapolis, 1995.

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In its beginning as social discipline, the economic theory did not begin calling itself simply “Economics”, but “Political Economy”. This is something that comes from the mercantilist tradition in the year 1615, when Antonio de Montchretien coined this term with the publication of his Treatise on Political Economy, wanting to imply thereby that the economics and politics are intrinsically linked.

In that sense, this article aims to explain and make a critical analysis of the historical and epistemological process through which it has been tried “depoliticize” the economics which still happens today.

The classical revolution

The classical school was born in 1776 when Adam Smith published his famous book Investigations on the nature and causes of the wealth of nations. The publication of this book was a great revolution in the history of economic analysis by the fact that from there it began to consider the economics as an independent scientific discipline.

As is well known Adam Smith wasn't an economist by profession but rather a philosopher especially interested in ethics, politics and law. This is clearly reflected in several of the passages of Wealth of Nations when, beyond his initial approach about the “invisible hand”, Smith analyzes the interests of different social classes and their relationship with the good of the community in general. For example, with respect to the landowners he argues that, as they get their income without working, they often ignore their own interests and are therefore unable to understand the consequences of any policy that might be proposed.

As regards the bourgeoisie, Smith considers that this is the social class better able to appreciate their own interests and thus, of propelling economic development. But this does not inhibit him see that we must be wary of these men’s attitude toward public policy and that their interests necessarily come into conflict with those of the working class because, as he himself explains: “current salaries of labor depend on the contract established between two parties whose interests are by no way identical. Workers want to get the maximum possible and give employers want the minimum. While the first join to raise them, the seconds meet to lower them”. (1)

In addition to Adam Smith, among the main representatives of the classical school we have David Ricardo, Karl Marx and John Stuart Mill. None of them ever separated political analysis of economic analysis but that instead they always incorporated the first to the second. Clear examples of this are the titles of theirs major books: Principles of political economy and taxation (David Ricardo, 1817), Principles of political economy with some of their applications to social philosophy (John Stuart Mill, 1848), and Capital: critique of political economy (Karl Marx, 1867).

With regard to Ricardo, he takes as basic unit of analysis to social classes which distribute the social surplus and therefore proposes that “the main problem of political economy is to determine the laws that regulate the distribution” (2). Starting from this premise it is evident the relationship between economy and policy because Ricardo is going to come to defend the interests of the bourgeoisie against the landowners arguing that “the interests of the landowner are always opposite to the consumers and the manufacturers... Interest to the landlord that increases the cost of production, which does not favor the consumer... or the industrial... Therefore, all classes, except the landowners, will be affected by the rise in the price”. (3)

Even more radical than Ricardo in his political analysis of the economy is Marx who maintains the famous theory of class struggle: “The history of all hitherto existing society is the history of class struggles. Freeman and slave, patrician and plebian, lord and serf, guild-master and journeyman, in a word, oppressor and oppressed, stood in constant opposition to one another, carried on an uninterrupted, now hidden, now open fight, a fight that each time ended, either in a revolutionary reconstitution of society at large, or in the common ruin of the contending classes”. (4)

It is very important to note here the big difference from the analysis of Marx on the conflict of classes with respect to the previous classics. While Smith and Ricardo defended the interests of the capitalist bourgeoisie against the mercantilist and feudal privileges of landowners in a time in which the Industrial Revolution was just brewing, Marx defended the interests of the working class front the preponderance of the capitalist bourgeoisie in a context in which the Industrial Revolution had already been consolidated.

The first neoclassical counter-revolution

The first neoclassical counter-revolution was given at the end of the 19th century as a theoretical response to the uncomfortable policy implications of classical analysis, particularly the marxist, with regard to the conflict between classes. So Robinson and Eatwell explain us: “At the end of the 19th century, the focus of social conflict had moved from the antagonism of the capitalist and the landowner to the opposition of workers and capitalists. The fear and horror aroused by Marx’s work were exacerbated by the effect that throughout Europe produced the Paris Commune in 1871. The doctrines that suggest conflicts were no longer desirable. The theories that distracting attention, away from the antagonism of the social classes, had a good reception”. (5)

It is in this context that arise marginalist and neoclassical schools which main representatives were Jules Dupuit, William Stanley Jevons, León Walras and Alfred Marshall. Facing the classic paradigm, which was based on social classes as basic units of analysis, this new approach will support a radical subjectivism in which the atomized individual who seeks to maximize his benefit is the basic unit from which is built the entire building of the economic theorist. This artificially removes any political or sociological factors of the economic analysis and is in this sense that the English teacher Eric Roll maintains that “schools of the utility claim their validity by a different reason than the classical school because they hold that formulate a theory of value independent of any specific social order. (...) Some theories that had been made ​​on the basis of equal individuals dedicated to save and work could not say anything about the social differentiation of these individuals”. (6)

Economists of the Austrian school, and especially its founder Carl Menger, were mainly responsible for the introduction of this mentioned subjectivism in economic analysis. But in reality were León Walras and Alfred Marshall who gave the final blow to the classical economics, understood as “Political economy”, when they matematizaron the economic theory based on their analysis of general equilibrium and partial equilibrium, respectively. It is absolutely impossible for a mathematical system can consistently illustrate the intrinsic relationship that has politics with economy. This was clearly perceived by Alfred Marshall himself who, although "was a mathematician who could use, and in fact used, algebraic and geometric technique to show the exact relationships between different variables in certain well-defined situations, (...) never felt fully satisfied with the purely mechanical study of abstract forces that act in isolation. (...) Marshall who was a realistic deep connoisseur of the complexity of economic life, (...) was convinced that it should be something that this paradigm could not successfully assimilate ". (7)


1. Adam Smith, Research on the nature and causes of the wealth of nations (1776), Ed. Modern Library, New York, 1937, p. 149
2. David Ricardo, Principles of political economy and taxation (1817), Ed. Everyman, 1926, p. 1
3. David Ricardo, Principles of political economy and taxation, op. op. cit., p. 225
4. Karl Marx and Friedrich Engels, The Communist Manifesto (1848), (electronic PDF), 2000, p. 25
5. Joan Robinson and John Eatwell, Introduction to modern economics, Fondo de Cultura Económica, Mexico, 1976, p. 54
6. Eric Roll, History of economic doctrines, Fondo de Cultura Económica, Mexico, 1978, p. 366
7. Eric Roll, History of economic doctrines, op. op. cit., p. 389.

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