What do economists study?
Economics is commonly referred to as a discipline (or science) that studies the allocation of scarce resources. Samuelson, in one of the classical economics textbooks, defined the discipline as “the study of how men and society choose, with or without the use of money, to employ scarce resources, which could have alternative uses, to produce various commodities over time and distribute them for consumption, now and in the future, among various people and groups in society.”[1] It is interesting to note that his definition does not refer to issues of ownership, how choices are made (by markets, governments, or society), or the need for money. Additionally, it maintains the option that resources are set aside for future use, implying that economics involves making societal choices related to distribution. Thus, Samuelson’s definition of economics acknowledges the role of values and politics and (possibly) the needs of future generations (by not using resources now). His interpretation of economics suggests that the discipline of economics could be based on principles of sustainability and equity. It recognises the possibility that societies have or adopt different economic institutions or systems to make such choices. Samuelson also recognised that economics “borders on other important disciplines” including sociology, political science, psychology, and anthropology, and that it “draws heavily on the study of history.”[2]
However, Samuelson’s broad interpretation of economics transmogrified over time into a far narrower view. Arguably, his view was influenced by the fact that at the time of writing (1967), capitalism was not seen as the only possible economic system. The Soviet Union, among other countries, was practising a very different (socialist) economic system, and quite successfully so in terms of economic growth (measured in GDP).[3] This forced the economics discipline to acknowledge that economics could be approached and practised differently – that there were alternatives. This view underwent a radical shift with the collapse of the Soviet Union and the perceived triumph of free market economics over socialist economics. No longer, it seemed, was there a need to consider alternatives or to complicate the study of economics by drawing on sociology, political science, and other disciplines. As a result, the focus of mainstream economics narrowed to the study of efficiency in the allocation of resources and prescribing how efficiency can and should be increased, based on abstract mathematical modelling. Ironically, while economists decided to ignore (societal) complexities and reality, this was perceived to make economics more scientific. Having enthusiastically adopted quantitative methods and modelling used to prescribe the economic policies of governments, many economists considered their discipline to be the most scientific of the social sciences.
Is economics a science?
However, as many critics of the newly dominant school of neoclassical or neoliberal economics pointed out, its prescriptions are based primarily on abstract assumptions—and rather implausible ones—and hardly on empirical research on actual economic behaviour and practices.[4] Much of what goes under the label of economics is hardly more than an ongoing faith in miracles produced by the “free market”, largely ignoring the dependence of markets on the political-economic framework provided by states, and of the need for continuous state intervention to keep the economy afloat. This is most evident during financial-economic crises, but it applies also to the regulation of the labour market, the facilitation of exports and the imports of essential materials, the provision of a legal, physical, and social infrastructure (including laws and their enforcement, transport, energy and communications infrastructure, health, education, and social welfare services, and many other functions) without which the economy would simply not be able to function and collapse. Notwithstanding the claim that economics is a science, it manifests itself not as a body of accumulated knowledge based on empirical research, but as a more or less coherent set of political and policy prescriptions held up by the economics profession and media commentators as essential conditions for boosting or restoring economic growth. Economics has become a barely disguised set of ideological stances aimed at serving the imperatives of capitalism and maintaining the dominant political-economic system and its vested interests (notably of the economically most powerful). Ignoring social and environmental realities, mainstream economics offers nothing to guide societies towards a sustainable and more desirable future.
The economic function of states
As discussed on the Role of States page, states fulfil an economic function. While this function can be described in general terms as the protection and advancement of the economic interests of the state and its citizens, there is scope for interpreting and defining these interests differently. In large part, how these interests are interpreted depends on the agency and the relative power of the main groups and actors involved in the struggle for control over the state, its political institutions, and policies. However, who these actors are, and their interests and power, are largely influenced, if not determined, by the economic system that prevails in a society or country. The rise of the neoliberal paradigm during the 1980s, and its dominance around the world during the 1990s, was not just a result of a convergence of political developments and ideological activism, but rooted in an economic (capitalist) system which assigned, accumulated, and concentrated most economic power into relatively few hands, and that required the state to accept, protect and advance the interests of this group for the system to be able to continue to function.[5]
What are economic systems?
Economic systems are ensembles of means, human inputs, practices (production systems), and institutions (rules and organisations) that support these systems. Production requires biophysical means (minerals, plants, animals, water, minerals and energy, among others), human input (physical and mental), and tools. Historically, production systems were largely circumscribed by local/regional conditions, influencing what biophysical resources were used. As humans live in societies, production is a social activity requiring (more or less voluntary) cooperation, which inevitably involves organisation and rules (institutions). Thus, production systems are dependent on economic institutions for their functioning. These influence or determine, among other things, which biophysical means and tools are (to be) used, how work is organised, and how the outputs are distributed. This broad interpretation of economic systems highlights the interdependence between production systems and economic institutions, as well as the importance of political and social systems and relations in shaping economic institutions to regulate and develop production systems.
Political-Economic Linkages
Therefore, to better understand how states interpret and attempt to fulfil their core functions, including the economic function, and fail to recognise or assign importance to environmental protection as a core function, we need to examine the links between economic, political, and social systems. The institutions that comprise these systems do not emerge or evolve according to some kind of natural law, but are created or altered through human agency, involving politics and power, as well as conflicts between classes or groups that stand to gain or lose from changes in these institutions. Thus, over time and across countries, economic systems have developed (or rather, been developed) in different ways, creating often unique political-economic configurations and systems. These differences affect how state functions are interpreted, assigned (relative) importance, and institutionalised. However, despite these differences, most countries have adopted industrial production as a key pillar for their economic development and the attainment of higher standards of living. This has had significant implications for the importance assigned to environmental concerns and imperatives, as well as how these are linked to the dominant core functions in both capitalist and socialist systems.
There Is No Alternative (TINA)?
Notwithstanding the claim that capitalism is the only economic system that has proven to be viable and successful, and the spread of neoliberal economics as its legitimating ideology across much of the world, there remains scope for different ways to make the kinds of choices that Samuelson referred to in his definition of economics. Not surprisingly, given the varied socio-cultural, geographical, political, economic, and other realities of countries, governments have continued to interpret the needs or imperatives of their economic systems differently. This applies not just to the handful of countries that remain officially committed to socialism (such as Cuba), but also to countries with capitalist systems or mixed (capitalist & socialist) systems. The variety in capitalist systems and how states and governments interpret and respond to their systems’ economic needs or imperatives depend on the size, level, history, and structural composition of their economies. It just does not make sense to argue that countries like the United States, the Netherlands, Botswana, Brazil, and India all share, or should share, the same interpretation of economic needs or imperatives, even though they all have capitalist systems. The fact that neoliberal economics has become the prevailing economic paradigm in most countries has more to do with American capitalism’s size, needs, and power (backed up by the US state) than anything else.[6] Given the significant differences between countries, alternative ways of managing the economy, designing economic institutions, and/or economic systems are not only possible but also necessary and highly desirable. But whether and how a country can do so, depends, among other things, on its relative size, resources, and level of development, the structure of its economy, its dependence on or need for other countries (and their resources), and its power (of various kinds) and position in the global political-economic system, as well as on the choices made by those who dominate the state and government, linked to the political economy of a country. Moreover, if governments and countries aspire to develop sustainable economies, they will also have to address the sticky issue of industrial production, which is also inherently unsustainable.
The Evolution of Political-Economic Systems
Thus, historically, societies (in practice, their political and economic elites) have developed their own economic systems based on different contexts. These systems comprised sets of economic institutions (rules and organisations) that guided or prescribed the type of economic choices made on the matters referred to by Samuelson in his broad definition of economics. Such rules governed production and distribution (consumption). They could include what is being produced, how much, how, by whom, where, who owns what, the remuneration system, how goods are distributed, how they should be used or consumed, what is traded or exchanged, who has the right to make or participate in decisions regarding all these matters, and anything else that is deemed important by a society or its (political) leaders. On such grounds, one can distinguish most clearly between hunter-gatherer, feudal, capitalist, socialist, and other systems. However, despite the (potential) diversity of economic systems, much of the thinking and debate about economic systems during the last 150 years has been dominated by two rival ideologies and systems: capitalism and socialism. Of these two, capitalism has been the dominant system, first in the West but, as noted above, after the demise of the Soviet Union, also globally, even to the point that it has been touted as the only realistic (and desirable or even acceptable) economic system.
Economics and the Environment
The global dominance of capitalism, and the extent to which it is intertwined with political systems, makes it essential to assess the extent to which it presents systemic or inherent obstacles to meaningful and long-term environmental integration, or whether it can be greened to make it (more) compatible with environmental imperatives. This question is addressed on the Greening Capitalism page. The same question applies to socialism (Socialism and the Environment). However, as noted, a big question mark also needs to be put behind the continued viability of industrial production systems, which have been the foundation of an incredible and ongoing expansion of production and economic growth across the planet, in capitalist as well as (formerly) socialist systems, with all the devastating environmental consequences thereof. The search for truly sustainable production systems across economies as a whole (as distinct from isolated industries) has hardly begun.
References
[1] Samuelson, Paul A. (1967, Seventh ed.), Economics. An Introductory Analysis. New York: McGraw-Hill Book Company, 5.
[2] Ibid.
[3] The first two pages of the textbook present a graph showing the steep (more than fourfold) rise of GDP in the USSR between around 1930 and 1964, narrowing the gap with the US, Great Britain, and Germany.
[4] Keen, Steve, Debunking Economics. The Naked Emperor Dethroned. London: Zed Books; Raworth, K., Doughnut Economics: Seven Ways to Think Like a 21st-Century Economist. Random House; Chang, Ha-Joon, 23 Things They Don’t Tell You About Capitalism. London: Allen Lane.
[5] Harvey, David. A Brief History of Neoliberalism. Oxford and New York: Oxford University Press; Harvey, David (2014), Seventeen Contradictions and the End of Capitalism. Oxford; New York: Oxford University Press, USA; Jessop, Bob (2015), “Crises, Crisis-Management and State Restructuring: What Future for the State?”, Policy & Politics, Vol . 43, No.4, 475-492.
[6] Panitch, Leo and Leo Gindin (2012), The Making of Global Capitalism: The Political Economy of American Empire. London and New York: Verso Books; Petras, James F. and Henry Veltmeyer (2001), Globalization Unmasked: Imperialism in the 21st Century. New York: Zed Books; Ikenberry, G. John (2007), “Globalization as American Hegemony”, in D. Held and A. McGrew (eds.), Globalization Theory. Approaches and Controversies. Cambridge, UK: Polity Press, 41-58.