Commentary on Political Economy

Monday, 1 August 2022



The notion that economics is independent of politics cannot have any objective scientific basis unless it can be shown that economic value is independent of human institutions and wholly reliant instead on quantitative relations between production techniques and the raw materials of production. But if that were the case, then economics would turn into engineering! Bourgeois economic theory tries to evade this inescapable contradiction in two related and indeed consequential ways: the first avenue of escape is by making the calculation of exchange value dependent entirely on subjective valuations as a ratio of the aggregate exchanges between individual economic agents; and the second, corollary, avenue is then to abstract from the formal mathematical equation of these aggregate exchanges as a pure mathematical “box of tools” (Joan Robinson, Joseph Schumpeter) that can formally describe these exchanges as scientifically rational as a means of maximising the exchange of values for all individual economic agents concerned. (This is done through Walrasian general equilibrium reliant on simultaneous equations or through the further requirement of Pareto optimality whereby any aggregate change to general equilibrium prices must leave all economic agents in a better welfare position than they enjoyed before the change.)

This mathematical formulation of an equilibrium and optimal exchange of entirely subjective values between economic agents is then presented as a “science of choice” (as Lionel Robbins styled it) or as “the pure logic of choice” (in Friedrich Hayek’s phrase). The complete unfoundedness of this approach, its being a contradiction in terms (contradictio in adjecto or oxymoron) is that a “science” or “pure logic” can never be founded on choice because its ultimate object or subject-matter, or referent must be a material object, not a subjective voluntary entity such as choice. Because choice is by definition an exclusively voluntary and subjective notion, no “science” of it is possible: choice is not a material object or matter over which a science can be based on unless by ‘choice’ we mean the application of mathematical formulae that maximise a subjective, and therefore inscrutable, entity such as ‘welfare’ or ‘utility’, presumably the objective or aim of individual economic agents. But the very subjectivity and inscrutability of these entities ensures that no objective scientific relationship of any kind – let alone the purely formulaic one of mathematics and logic – can be found between them and the ultimate distribution of the material products exchanged by and between the independent economic agents!

Indeed, the crucial vice of bourgeois neoclassical economic theory is precisely to seek to present inscrutable individual entities (welfare, utility – which Joan Robinson relegated to the sphere of “metaphysics”, in her Economic Philosophy) as being amenable to objective calculation of material quantities or ratios whose “pure logic” or rationality can be only arbitrarily attributed ex post facto – that is, only after the event, only as the rationalisation of a final outcome which is a postulate or axiom or assumption decreeing that the final exchange values or prices are indeed ipso facto (by their own finality) rational and optimal – optimal because rational. Thus, bourgeois economic theory first assumes the existence of a “free market” in which economic agents exchange products freely, wholly subjectively and rationally (Max Weber proved the coincidence of free choice with rational choice) and then concludes that the ultimate and final distribution of the products exchanged is rational and therefore optimal.

But it is immediately evident that the mathematical rationality of the distribution of exchange values between economic agents can have no material or objective, and therefore scientific, foundation because the subjective valuations of products to which mathematical formulae and logical categories are applied can never be founded on or evidenced by the material quantities of the products involved! The limpid contradiction here lies between the subjective prices or exchange values that economic agents agree on to finalise their exchanges and, on the other side, the material quantities of the products exchanged – which are nullified logically by the final equilibrium prices of the aggregate exchanges! Thus, prices, on one side, and quantities, on the other, are the two incommensurable pillars of bourgeois economic theory that are irrevocably and logically irreconcilable because they are heterogeneous. (Friedrich Hayek’s confusion of this simple reality was evinced in the title – Prices and Production - to one of his major works seeking to resolve his dimly perceived insurmountability of this conundrum – where clearly prices [exchange values] stand in antinomic relation to production [quantities]!)

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