Last week leading leftist economists in the UK held a seminar on the state of mainstream economics, as taught in the universities. They kicked this off by nailing a poster with 33 theses critiquing mainstream economics to the door of the London School of Economics. This publicity gesture attempted to remind us that it was the 500th anniversary of when Martin Luther nailed his 95 theses to the Castle Church, Wittenberg and provoked the beginning of the Protestant reformation against the ‘one true religion’ of Catholicism.
The economists were purporting to tell us that mainstream economics was like Catholicism and must be protested against as Luther did back in 1517. As they put it, “Economics is broken. From climate change to inequality, mainstream (neoclassical) economics has not provided the solutions to the problems we face and yet it is still dominant in government, academia and other economic institutions. It is time for a new economics.”
The economists included Ha-Joon Chang, University of Cambridge, and author of 23 Things They Don’t Tell You About Capitalism and Economics: The User’s Guide. He commented that “Neoclassical economics plays the same role as Catholic theology did in Medieval Europe – a system of thought arguing that things are what they are because they have to be.
Steve Keen, head of economics at Kingston University, London, and author of the excellent ‘Debunking Economics’ that exposed the unrealistic and illogical assumptions of neoclassical theory, exclaimed that “Economics needs a Copernican Revolution, let alone a Reformation. Equilibrium thinking in Economics should go the way of Ptolemaic Epicycles in Astronomy”.
Another post-Keynesian economist, Victoria Chick, warned that students should “read the economic scriptures, in all their great variety, for themselves. Thus they will learn that the Pope (formerly Samuelson, now Mankiw) is not infallible and that they must search for Truth in the contest of ideas.”
This all sounded progressive and exciting and reflected the movement against mainstream economic teaching that has mushroomed over the last few years since the global financial crash, organised by the Rethinking Economics group of graduates and lecturers.
But I have some reservations. First, is a progressive revolution against the mainstream really to be painted as similar to Luther’s protestant revolt? The history of the reformation tells us the protestant version of Christianity did not lead to a new pluralistic order and freedom to worship. On the contrary, Luther was a bigot who worked with the authorities to crush more radical movements based on the peasants led by Thomas Munzer.
As Engels put it in his book Peasant War in Germany: “Luther had given the plebeian movement a powerful weapon—a translation of the Bible. Through the Bible, he contrasted feudal Christianity of his time with moderate Christianity of the first century. In opposition to decaying feudal society, he held up the picture of another society which knew nothing of the ramified and artificial feudal hierarchy. The peasants had made extensive use of this weapon against the forces of the princes, the nobility, and the clergy. Now Luther turned the same weapon against the peasants, extracting from the Bible a veritable hymn to the authorities ordained by God—a feat hardly exceeded by any lackey of absolute monarchy. Princedom by the grace of God, passive resistance, even serfdom, were being sanctioned by the Bible.
But maybe all this shows is that analogies or metaphors have their limits and the idea of copying Luther’s theses as a publicity trick can only go so far.
More seriously, it is clear from the comments of the erstwhile academics that, for them, the mainstream economic religion is just neoclassical theory, namely there is perfect competition in markets, which tend to equilibrium; and economies can grow harmoniously, except for shocks caused by imperfections in markets (trade unions and monopolies) or interference by governments. Our Lutheran-type protestors thus argue that it is this neoliberal economics that must be overthrown.
But is that all there is of the mainstream? Our protestors have nothing to say against Keynesian economics – indeed variants of Keynes are the way forward for them. That’s an irony for a start because the basis of neoclassical theory is marginalism: marginal utility of the consumer and marginal productivity of ‘capital’. And Keynes held entirely to the marginal theory propounded by his mentor Alfred Marshall. All he added was that, because of uncertainty and unpredictability in investment decisions by individuals (driven by psychology or ‘animal spirits’), sometimes economies can get locked into an equilibrium where markets don’t clear and unemployment becomes permanent. For Keynes, this was a ‘technical problem’ that could be fixed; it was not inherent feature of the capitalist production process.
As he said at the end of his life: “I find myself moved, not for the first time, to remind contemporary economists that the classical teaching embodied some permanent truths of great significance. . . . There are in these matters deep undercurrents at work, natural forces, one can call them or even the invisible hand, which are operating towards equilibrium. If it were not so, we could not have got on even so well as we have for many decades past.” Keynes, the neoliberal.
But our Lutheran protestors had not a word of critique against Keynes, and certainly not his more radical followers like Hyman Minsky. On the contrary, the 33 theses show clear support of Minskyan theory on crises under capitalism. Thesis 28 refers to “financialisation, short-termism, speculative finance and financialised real economy” as the key issues, thus implying that it is the growth of finance under neoliberalism that is the cause of crises, not any inherent flaws or contradictions in the capitalist profit-making system as a whole. Marx’s critique of the mainstream (and not just neoclassical and neoliberal economics) is ignored.
Our protestors follow Luther, not Munzer. They want to replace Catholic economics with Protestant economics, but they do not want to do away with the religion of capitalist economics. They wish to correct a ‘capitalism distorted by finance’, not replace the mode of production and social relations. Indeed, this has been the dominant position of Rethinking Economics as it seeks to reverse the dominance of neoclassical theory in the universities.
The result is that there will be no revolution in economics by following Luther. Indeed, our Lutheran economists have gone little further than the revisions to ‘neoliberal economics’ that mainstream ‘Catholic’ gurus are considering too. Martin Sandbu in the FT pointed out that “economists are debating intensively how to upgrade their understanding of the economy in order to prepare better for future disruptions and provide better guides for good policy”. Nobody could be more mainstream and Keynesian than former IMF chief economist Olivier Blanchard and former US Treasury secretary Larry Summers (who is related to Paul Samuelson, the pope of mainstream ‘neoliberal’ economics in the 1970s, according to Chick). They too want to ‘rethink economics’. Indeed, all the things advocated in the 33 theses are being considered by the great and good of academic economics.
Back in the 1520s, Luther was eventually accommodated and Protestantism became a religion of the establishment and many monarchies across Europe (and the religious motivation behind capitalism, some argue). Today’s economic Lutherans may also be absorbed to save capital. Munzer was executed.