A Level Economics 75: The Long Run Aggregate Supply

 Long Run Aggregate Supply (LRAS):

The Long Run Aggregate Supply (LRAS) represents the total output of goods and services that all firms in an economy are willing and able to produce in the long run when all input prices, including wages, have fully adjusted to changes in the overall price level. It is important to note that the LRAS curve is vertical at the full employment level of output.

Differences between Keynesian and Neo-Classical Views on LRAS:

1. Keynesian View: Keynesian economists argue that the LRAS curve is not necessarily vertical at the full employment level of output. They believe that the economy can have persistent unemployment or output gaps in the long run due to factors like inflexible factor markets, which prevent wages from adjusting quickly to changes in demand and prices.

2. Neo-Classical View: Neo-Classical economists, on the other hand, contend that the LRAS curve is vertical at the full employment level of output. They believe that the economy will tend to reach full employment in the long run as all input prices, including wages, are flexible and can fully adjust to changes in demand and supply.

Neo-Classical View of Long Run Equilibrium:

The Neo-Classical view describes the process through which an economy adjusts to its long-run equilibrium as follows:

1. Flexible Prices and Wages: In the long run, all prices and wages are assumed to be flexible and can adjust freely to changes in demand and supply. This implies that any deviations from the full employment level of output will be temporary, as prices and wages will adjust to restore equilibrium.

2. Self-Correcting Mechanism: If there is an increase in aggregate demand (AD) that pushes the economy beyond the full employment level of output, firms will experience higher demand for their products. They will respond by increasing prices and production, but with fully flexible wages, labor costs will rise in line with prices. As a result, production costs increase, and firms will eventually cut back on hiring and production, moving the economy back towards full employment.

3. Equilibrium at Potential Output: In the Neo-Classical view, the economy will tend to reach its potential output or full employment level in the long run due to the flexibility of prices and wages. This results in a vertical LRAS curve at the full employment level of output.

Keynesian Disagreement with the Neo-Classical View:

Keynesian economists disagree with the Neo-Classical view of long-run adjustment due to factors such as:

1. Inflexible Factor Markets: Keynesians argue that in the short run, factor markets, especially the labor market, may not be flexible enough to adjust quickly to changes in demand and prices. Wages may be "sticky," meaning they do not adjust downward in response to decreased demand, leading to persistent unemployment and deviations from full employment in the long run.

2. Aggregate Demand Management: Keynesian economists advocate for active government intervention through fiscal and monetary policies to manage aggregate demand and stabilize the economy. They believe that relying solely on the self-correcting mechanism of flexible prices and wages may not be sufficient to achieve full employment in the short run.

Assumptions of Flexible Product and Factor Markets:

The Neo-Classical analysis of LRAS is based on the following assumptions:

1. Flexible Prices: All prices, including those of goods and services, can freely adjust to changes in demand and supply conditions.

2. Flexible Wages: Wages can adjust promptly to changes in labor market conditions, ensuring that labor costs align with productivity and prices.

3. Rapid Market Clearing: Markets clear quickly, meaning that any imbalances between demand and supply are corrected swiftly through price and wage adjustments.

Understanding the differences between Keynesian and Neo-Classical views on the LRAS curve and the assumptions underlying each analysis is essential for comprehending the different approaches to macroeconomic policy and the potential implications for economic stability and full employment.

To Save Western Capitalism - Look East

The East could have something to offer the mighty West, where we are seeing glimpses into capitalism's true nature. Antara Haldar (The Independent) on the rise and fall of civilisation as we know it

 

Photos Getty


Once upon a time, not so long ago, there was a place where peace and prosperity reigned. Let’s call this place the West. These lands had once been ravaged by bloody wars but its rulers had, since, solved the puzzle of perpetual progress and discovered a kind of political and economic elixir of life. Big Problems were relegated to either Somewhere Else (the East) or Another Time (History). The Westerners dutifully sent emissaries far and wide to spread the word that the secret of eternal bliss had been found –and were, themselves, to live happily ever after.

So ran, until very recently, the story of how the West was won.

The formula that had been discovered was simple: the recipe for a bright, shiny new brand of global capitalism based on liberal democracy and something called neoclassical economics. But it was different from previous eras – cleansed of Dickensian grime. The period after the two world wars was in many a Golden Age: the moment of Bretton Woods (that established the international monetary and financial order) and the Beveridge report (the blueprint for the welfare state), feminism and free love.

It was post-colonial, post-racial, post-gendered. It felt like you could have it all, material abundance and the moral revolutions; a world infinitely vulnerable to invention – but all without picking sides, all based on institutional equality of access. That’s how clever the scheme was – truly a brave new world. Fascism and class, slavery and genocide – no one doubted that, in the main, it had been left behind (or at least that we could all agree on its evils); that the wheels of history had permanently been set in motion to propel us towards a better future. The end of history, Francis Fukuyama called it – the zenith of human civilisation. 

Austerity in Athens: the eurozone crisis hit Greece not once but twice (Getty)

While liberal democracy was the part of the programme that got slapped on to the brochure, it was a streamlined paradigm of neoclassical economics that provided the brains behind the enterprise. Neoclassical economics, scarred by war-era ideological acrimony, scrubbed the subject of all the messy stuff: politics, values – all the fluff. To do so it used a new secret weapon: quantitative precision unprecedented in the social sciences.

It didn’t rest on whimsical things like enlightened leadership or invested citizenship or compassionate communities. No, siree. It was pure science: a reliable, universally-applicable maximising equation for society (largely stripped of any contextual or, until recently, even cognitive considerations). Its particular magic trick was to be able to do good without requiring anyone to be good.

And, it was limitless in its capacity to turn boundless individual rationality into endless material wellbeing, to cull out of infinite resources (on a global scale) indefinite global growth. It presumed to definitively replace faltering human touch with the infallible “invisible hand” and, so, discourses of exploitation with those of merit.

When I started as a graduate student in the early 2000s, this model was at the peak of its powers: organised into an intellectual and policy assembly line that more or less ran the world. At the heart of this enterprise, in the unipolar post-Cold War order, was what was known as the Chicago school of law and economics. The Chicago school boiled the message of neoclassical economics down to a simpler formula still: the American Dream available for export – just add private property and enforceable contracts. Anointed with a record number of Nobel prizes, its message went straight to the heart of Washington DC, and from there – via its apostles, the International Monetary Fund and the World Bank radiated out to the rest of the globe. 

It was like the social equivalent of the Genome project. Sure the model required the odd tweak, the ironing out of the occasional glitch but, for the most part, the code had been cracked. So, like the ladies who lunch, scholarly attention in the West turned increasingly to good works and the fates of “the other” – spatially and temporally.

One strain led to a thriving industry in development: these were the glory days of tough love, and loan conditionalities. The message was clear: if you want Western-style growth, get with the programme. The polite term for it was structural adjustment and good governance: a strict regime of purging what Max Weber had called mysticism and magic, and swapping it for muscular modernisation. Titles like Daron Acemoglu and James Robinson’s Why Nations Fail: The Origins of Power, Prosperity and Poverty and Hernando de Soto’s The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else jostled for space on shelves of bookstores and best-seller lists.

Another led to esoteric islands of scholarship devoted to atonement for past sins. On the US side of the Atlantic, post-colonial scholarship gained a foothold, even if somewhat limp. In America, slavery has been, for a while now, the issue a la mode. A group of Harvard scholars has been taking a keen interest in the “history of capitalism”.

Playing intellectual archaeologists, they’ve excavated the road that led to today’s age of plenty – leaving in its tracks a blood-drenched path of genocide, conquest, and slavery. The interest that this has garnered, for instance Sven Beckert’s Empire of Cotton, is heartening, but it has been limited to history (or worse still, “area studies”) departments rather than economics, and focused on the past not the present. 

As far back as the fifties ... the economy was driving the society, when it should have been the other way around (Getty)

Indeed, from the perspective of Western scholarship, the epistemic approach to the amalgam of these instances has been singularly inspired by Indiana Jones – dismissed either as curious empirical aberrations or distanced by the buffer of history. By no means the stuff of mainstream economic theory.

Some of us weakly cleared our throats and tried to politely intercede that there were, all around us, petri dishes of living, breathing data on not just development – but capitalism itself. Maybe, just maybe – could it be? – that if the template failed to work in a large majority of cases around the globe that there may be a slight design error. 

My longtime co-author, Nobel Prize winner in Economics and outspoken critic, Joseph Stiglitz, in his 1990 classic Globalisation and Its Discontents chronicled any number of cases of leaching-like brutality of structural adjustment. The best-selling author and my colleague at Cambridge, Ha-Joon Chang, in Kicking Away the Ladder, pointed out that it was a possibility that the West was misremembering the trajectory of its own ascent to power – that perhaps it was just a smidgen more fraught than it remembered, that maybe the State had had a somewhat more active part to play before it retired from the stage.

But a bright red line separated the “us” from the “them” enforcing a system of strict epistemic apartheid. Indeed, as economics retreated further and further into its silo of smugness, economics departments largely stopped teaching economic history or sociology and development economics clung on by operating firmly within the discipline-approved methodology.

So far, so good – a bit like the last night of merriment on the Titanic. Then the iceberg hit.

Suddenly the narratives that were comfortably to do with the there and then became for the Western world a matter of the here and now.

In the last 10 years, what economic historian Robert Skidelsky recently referred to as the “lost decade” for the advanced industrial West, problems that were considered the exclusive preserve of development theory – declining growth, rampant inequality, failing institutions, a fractured political consensus, corruption, mass protests and poverty – started to be experienced on home turf.

The Great Recession starting 2008 should really have been the first hint: foreclosures and evictions, bankruptcies and bailouts, crashed stock markets. Then came the eurozone crisis starting in 2009 (first Greece; then Ireland; then Portugal; then Spain; then Cyprus; oh, and then Greece, again). But after an initial scare, it was largely business as usual – written off as an inevitable blip in the boom-bust logic of capitalist cycles. It was 2016, the year the world went mad, that made the writing on the wall impossible to turn away from – starting with the shock Brexit vote, and then the Trump election. Not everyone understands what a CDO (collateralised debt obligation) is, but the vulgarity of a leader of the free world who governs by tweet and “grabs pussy” is hard to miss.

So how did it happen, this unexpected epilogue to the end of history?

I hate to say I told you so, but some of us had seen this coming – the twist in the tale, foreshadowed by an eerie background score lurking behind the clinking of champagne glasses. Even at the height of the glory days. In the summer before the fall of Lehman Brothers, a group of us “heterodox economists” had gathered at a summer school in the North of England. We felt like the audience at a horror movie – knowing that the gory climax was moments away while the victim remained blissfully impervious.

The plot wasn’t just predictable, it was in the script for anyone to see. You just had to look closely at the fine print.

In particular, you needed to have read your Karl Polanyi, the economic sociologist, who predicted this crisis over 50 years ago. As far back as 1954, The Great Transformation diagnosed the central perversion of the capitalist system, the inversion that makes the person less important than the thing – the economy driving society, rather than the other way around.

Polanyi’s point was simple: if you turned all the things that people hold sacred into grist to the mill of a large impersonal economic machinery (he called this disembedding) there would be a backlash. That the fate of a world where monopoly money reigns supreme and human players are reduced to chessmen at its mercy is doomed. The sociologist Fred Block compares this to the stretching of a giant elastic band – either it reverts to a more rooted position, or it snaps.

It is this tail-wagging-the-dog quality that is driving the current crisis of capitalism. It’s a matter of existential alienation. This problem of artificial abstraction runs through the majority of upheavals of our age – from the financial crisis to Facebook. So cold were the nights in this era of enforced neutrality that the torrid affair between liberal democracy and neoclassical economics resulted in the most surprising love child – populism.

The simple fact is that after decades on promises not delivered on, the system had written just one too many cheques that couldn’t be cashed. And people had had just about enough.

 

The Brexit vote in 2016 followed by the election of Trump ... and the world had finally gone mad (Getty)

The old fault lines of global capitalism, the East versus West dynamics of the World Trade Organisation’s Doha Round, turned out to be red herrings. The axis that counts is the system versus the little people. Indeed, the anatomies of annihilation look remarkably similar across the globe – whether it’s the loss of character of a Vanishing New York or Disappearing London, or threatened communities of farmers in India and fishermen in Greece.

Trump voters in the US, Brexiteers in Britain and Modi supporters in India seek identity – any identity, even a made-up call to arms to “return” to mythical past greatness in the face of the hollowing out of meaning of the past 70 years. The rise of populism is, in many ways, the death cry of populations on the verge of extinction – yearning for something to believe in when their gods have died young. It’s a problem of the 1 per cent – poised to control two-thirds of the world economy by 2030 – versus the 99 per cent. But far more pernicious is the Frankenstein’s monster that is the idea of an economic system that is an end in itself.

Not to be too much of a conspiracy theorist about it, but the current system doesn’t work because it wasn’t meant to – it was rigged from the start. Wealth was never actually going to “trickle down”. Thomas Piketty did the maths.

Suddenly, the alarmist calls of the developmentalists objecting to the systemic skews in the process of globalisation don’t seem quite so paranoid.

But this is more than “poco” (what the cool kids call postcolonialism) schadenfreude. My point is a serious one; although I would scarcely have dared articulate it before now. Could Kipling have been wrong, and might the East have something to offer the mighty West? Could the experiences of exotic lands point the way back to the future? Could it be, could it just, that it may even be a source of epistemic wisdom?

Behind the scaffolding of Xi Jinping’s China or Narendra Modi’s India, sites of capitalism under construction, we are offered a glimpse into the system’s true nature. It is not God-given, but the product of highly political choices. Just like Jane Jacobs protesting to save Washington Square Park or Beatrix Potter devoting the bulk of her royalty earnings to conserving the Lake District were choices. But these cases also show that trust and community are important. The incredible resilience of India’s jugaad economy, or the critical role of quanxi in the creation of the structures in what has been for the past decade the world’s fastest-growing nation, China. A little mysticism and magic may be just the thing.

The narrative that we need is less that of Frankenstein’s man-loses-control of monster, and more that of Pinocchio’s toy-becomes-real-boy-by-acquiring-conscience; less technology, and more teleology. The real limit may be our imaginations. Perhaps the challenge is to do for scholarship, what Black Panther has done for Hollywood. You never know. Might be a blockbuster.

Orthodox economists have failed their own market test

Students are demanding alternatives to a free-market dogma with a disastrous record. That's something we all need

• 
• • Seumas Milne
  • The Guardian, Wednesday 20 November 2013 21.00 GMT

Ha-Joon Chang, one of the last surviving independent economists at Keynes's Cambridge: 'The supporters of neoclassical economics have an almost religious mentality.' Photograph: Sean Smith for the Guardian

From any rational point of view, orthodox economics is in serious trouble. Its champions not only failed to foresee the greatest crash for 80 years, but insisted such crises were a thing of the past. More than that, some of its leading lights played a key role in designing the disastrous financial derivatives that helped trigger the meltdown in the first place.

Plenty were paid propagandists for the banks and hedge funds that tipped us off their speculative cliff. Acclaimed figures in a discipline that claims to be scientific hailed a"great moderation" of market volatility in the runup to an explosion of unprecedented volatility. Others, such as the Nobel prizewinner Robert Lucas, insisted that economics had solved the "central problem of depression prevention".

Any other profession that had proved so spectacularly wrong and caused such devastation would surely be in disgrace. You might even imagine the free-market economists who dominate our universities and advise governments and banks would be rethinking their theories and considering alternatives.

After all, the large majority of economists who predicted the crisis rejected the dominant neoclassical thinking: from Dean Baker and Steve Keen to Ann Pettifor, Paul Krugman and David Harvey. Whether Keynesians, post-Keynesians or Marxists, none accepted the neoliberal ideology that had held sway for 30 years; and all understood that, contrary to orthodoxy, deregulated markets don't tend towards equilibrium but deepen the economy's tendency to systemic crisis.

Alan Greenspan, the former chairman of the US Federal Reserve and high priest of deregulation, at least had the honesty to admit his view of the world had been proved "not right". The same cannot be said for others. Eugene Fama, architect of the "efficient markets hypothesis" underpinning financial deregulation, concedes he doesn't know what "causes recessions" – but insists his theory has been vindicated anyway. Most mainstream economists have carried on as if nothing had happened.

Many of their students, though, have had enough. A revolt against the orthodoxy has been smouldering for years and now seems to have gone critical. Fed up with parallel universe theories that have little to say about the world they're interested in, students at Manchester University have set up a post-crash economics society with 800 members, demanding an end to monolithic neoclassical courses and the introduction of a pluralist curriculum.

They want other schools of economic thought taught in parallel, from Keynesian to more radical theories – with a better record on predicting and connecting with the real world economy – along with green and feminist economics. The campaign is spreading fast: to Cambridge, Essex, the London School of Economics and a dozen other campuses, and linking up with university groups in France, Germany, Slovenia and Chile.

As one of the Manchester society's founders, Zach Ward-Perkins, explains, he and a fellow student agreed after a year of orthodoxy: "There must be more to it than this." Neoclassical economics is after all built on a conception of the economy as the sum of the atomised actions of millions of utility-maximising individuals, where markets are stable, information is perfect, capital and labour are equals – and the trade cycle is bolted on as an afterthought.

But even if it struggles to say anything meaningful about crises, inequality or ownership, the mathematical modelling erected on its half-baked intellectual foundations give it a veneer of scientific rigour, valued by students aiming for well-paid City jobs. Neoclassical economics has also provided the underpinning for the diet of deregulated markets, privatisation, low taxes on the wealthy and free trade we were told for 30 years was now the only route to prosperity.

Its supporters have an "almost religious mentality", as Ha-Joon Chang – one of the last surviving independent economists at Keynes's Cambridge – puts it. Although claiming to favour competition, the neoclassicals won't tolerate any themselves. Forty years ago,most economics departments were Keynesian and neoclassical economics was derided. That all changed with the Thatcher and Reagan ascendancy.

In institutions supposed to foster debate, non-neoclassical economists have been systematically purged from economics faculties. Some have found refuge in business schools, development studies and geography departments. In the US, corporate funding has been key. In Britain, peer review through the "research excellence framework" – which allocates public research funding – has been the main mechanism for the ideological cleansing of economics.

Paradoxically, the sharp increase in student fees and the marketisation of higher education is creating a pressure point for students out to overturn this intellectual monoculture. The free marketeers are now being market-tested, and the customers don't want their product. Some mainstream academics realise that they may have to compromise, and have been colonising a Soros-funded project to overhaul the curriculum, hoping to limit the scale of change.

But change it must. The free-market orthodoxy of the past three decades not only helped create the crisis we're living through, but gave credibility to policies that have led to slower growth, deeper inequality, greater insecurity and environmental degradation all over the world. Its continued dominance after the crash, like the neoliberal model it underpins, is about power not credibility. If we are to escape this crisis, both will have to go.

Libertarianism and the Leap of Faith – The Origins of a Political Cult

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

You wanted God’s ideas about what was best for you to coincide with your ideas, but you also wanted him to be the almighty Creator of heaven and earth so that he could properly fulfil your wish. And yet, if he were to share your ideas, he would cease to be the almighty Father.

– Søren Kierkegaard

Political cults often have the strangest and most obscure origins. Take Marxism, for example. Today it is well-known that Marxist doctrine essentially sprang out of the obscure 19th century economic debates over the source of ‘value’. By ‘proving’ – that is, lifting the assumption from classical political economy – that all ‘value’ came from labour, Karl Marx went on to show that it was therefore only logical to assume the existence of something called ‘surplus value’ that was sucked out of labourers by a parasitic capitalist class. From out of this obscure debate flowed an awesome political movement – and a tyranny to match.

What is less well-known is that today’s most popular political cult – that is, libertarianism – was born in very similar circumstances; it too, arrived into the world out of the obscure 19th century debates over economic ‘value’. But before we explore this in any detail it might be appropriate to speculate a little on what characterises a political cult and why so many of these find their sustenance in economic theories of value.

What is a Political Cult and Why Do they Often Love Economic Value Theory?

A political cult is characterised by a political or economic doctrine that answers all the ‘big questions’ about life, the world and everything else. The doctrine that is handed down is then to be conceived of as a way to live one’s life – a project, handed down from Mount Sinai, that one is under the moral obligation to spread far and wide. This is why we refer to these movements as cults. And it is this that gives them such an awesome status in the glazed eyes of their devotees.

Under such circumstances, politics becomes a sort of religious calling. In these doctrines there is usually an ‘Evil Being’ who is opposing the spread of the ‘Good’ on earth and it is these that are to blame for all the bad things in the world. In Marxism this Evil Being is the capitalist; in libertarianism it is the figure who is at different times referred to as the ‘collectivist’, the ‘liberal’ or the ‘socialist’. Needless to say that, since these figures are usually ones of Extreme Evil they must be ‘liquidated’ or ‘eliminated’ at the first possible opportunity lest they spread their Demonic Gospel to the masses.

Political cults thus provide their devotees with a firm identity in an otherwise changeable and, let us be frank, confusing world. Like all cults they provide an anchor for their devotees with which they can fasten themselves to a rigid doctrine. They also typically lend their devotees a Holier-Than-Thou attitude as they provide them with ‘secrets’ that those outside of the cult cannot grasp. Not only does this allow the devotees to feel ‘special’, in modern political cults it also gives them practical, albeit ‘secret’ advice about what they should do in their day-to-day lives. (Think of the advice to buy gold or foreign stocks coming out of certain libertarian front men, for example).

Finally, the political cult will usually offer their followers the possibility of a Heaven on Earth. If the follower behaves well and spreads their beliefs to others they will eventually arrive at some sort of Utopia. This is their reward for believing in the doctrines, despite these doctrines being ridiculed by others.

So, why do these cults spring out of economic doctrines based on value? Well, this is a very complex question but there is one key aspect that is absolutely fundamental. In order to understand it a little better we must think for a moment about what economic ‘value’ supposedly is. It is, in fact, when we boil it right down, a moral entity. If we can tell what people ‘value’ and why, then we can make prognostications on what is Good for society as a whole.

In times past organised religions handed down fixed value systems to their adherents. Today people have become disillusioned with religious systems – ostensibly because they conflict with these peoples’ supposedly ‘scientific’ worldview. But the impulse among some for the self-assurance provided by a religion is so strong that they seek out ‘scientific’ systems that operate in an identical manner to religious or cult systems.

This is why the economic doctrine of ‘value’ is such a good foundational stone for such a cult. It provides a pseudo-scientific account about how people attribute value to things and in doing so tells the cult member a ‘Truth’ that they can use to make turn the world into a Utopia in which the optimal amount of ‘value’ is realised by the optimal amount of people.

Karl Marx claimed that ‘value’ was embodied labour and hence his followers concluded with him that all that was Good sprang from labour and that society should thus be based on free labour. The libertarians – together with the neoclassicals that they otherwise scorn – believe that all ‘value’ springs from utility maximisation. While the neoclassicals simply tinker with toy-models of ‘value’ to bolster their pseudo-scientific prestige, the libertarians undertake a leap of faith into the unknown and claim that in the theory of marginal utility they have found a ‘Truth’ that must be brought down from Heaven to Earth.

The Birthing of a Cult

Libertarianism was born out of the late 19th century doctrine of marginalism; a doctrine that went on to gain popularity with those opposed to Marxism. We will not dwell too much on the doctrine of marginalism when applied to the analysis of ‘value’ – having done so elsewhere. Here we will merely note that marginalism provides a moral defence for the supposedly ‘free market’ system that we live under today.

Marginalism, when applied to ‘value’ analysis, holds that it is in Man’s nature to follow a certain path in his consumption habits. These habits are determined by his maximising his utility. Most modern marginalists claim that they can use this concept to show that a ‘free market’ system is the fairest social system possible, since it responds automatically to Man’s marginal utility preference it delivers ‘value’ in a perfect and harmonious manner.

Markets deliver this ‘value’ through the mechanism of price. Prices, which reflect peoples’ desires to maximise their marginal utility, ensure that the most equitable distribution of ‘value-in-the-abstract’ is accommodated for by the ‘free market system’. And this is the point at which marginal value analysis becomes a value judgment in a very real sense.

The neoclassicals held, and continue to hold, that their models could capture this complex dynamic. Such an assertion was and is, of course, absolute rubbish. But the Austrians took a different tack. “Yes,” they said, “marginal utility theory is the correct way to go, but we cannot formulate models that adequately capture the inner workings of this great mechanism.”

In their book Modern Political Economics: Making Sense of the Post-2008 World, the authors provide a good summary of this approach. In the book they discuss what effect the discovery of marginalism’s inherent uselessness had on the Austrians:

Faced with the impossibility of mathematically deriving prices and quantities on the one hand and a metric of social welfare on the other, some Marginalists understood the limitations of their utility calculus. Mainly of an Austrian persuasion (most notably Ludwig von Mises, Friedrich von Hayek and Joseph Schumpeter), they even gallantly tried to use this failure to the advantage of their claims on behalf of untrammelled markets and against the encroachments of collective agencies, trade unions, governments etc.

This was a clever move. While the neoclassicals tinkered with their silly toy-models, trying to show how prices are determined through a sort of grand marginal calculus, the Austrians shrugged their shoulders as to how such a Divine Event could occur. Instead they began to think of price as a sort of Miracle that proved the divinity of the Market mechanism. They then went on deploy this argument to show that anything that encroached upon this Divine Being’s presence was inherently Evil:

If no degree of mathematical sophistication can pin down the ‘right’ prices and quantities, how can a government or any other form of collective agency work them out? How could a socialist economy, or even a national health service, ever price things? Thus, the market mechanism is indispensible because of the radical indeterminacy of prices.

Note what is happening here. The Austrians, like their marginalist brothers and sisters, thought that in marginal utility theory they had found the source from which ‘value’ truly flowed. They never for one moment questioned that. Even when they came to conclude that marginalist analysis could never definitively show anything useful about price determination, they remained confident – indeed, they became even more confident – that such an analysis was Truth.

In short, they postulated a theory and then when confronted with the inconsistencies of the theory when it was applied to any practical ventures they simply threw up their arms and claimed that such inconsistency showed just how true theory was and how much we should respect it. The knowledge that the theory imparted then became, in a very real sense, Divine, in that we meagre humans would never be able to grasp it and instead should simply bow down in front of the Great Being that possessed this knowledge – that is: the Market.

This is what gives the libertarians their religious zeal. In their quest for the Grand Truth they find this Truth to be inaccessible to Man. But in this inaccessibility they find a Higher Truth again; namely, that there is some other entity out there – a benevolent entity called ‘the Market’ – that possesses this Truth and all we have to do is follow the Laws which it has handed down to us and we will eventually reach Utopia. This is, of course, a leap of faith – a truly Kierkegaardian Leap of Faith.

From the Leap of Faith to the Knight of Faith

The Austrians were never quite content with the chicanery and political posturing that they had passed off as scientific debate. As alluded to above, their theories about market prices were forged in the debates with those who advocated a socilialistic planned economy. Being ideological to the core, the Austrians were, for a while at least, perfectly content with saying that while no economist could say anything worthwhile about price determination – and thus, any attempt at a socialist planned economy would be doomed to fail because there could be no perfectly informed coven of evil socialist economists who could administer it – they were still happy with the airy theory of market prices that they had just poked such a large hole in. Yes, they had undertaken a Leap of Faith by admitting that their logical constructions would never be whole but, as Kierkegaard well knew, every Leap of Faith needs a hero, a Knight of Faith – and the Austrians soon found theirs.

The Austrians had, although one suspects that they never fully realised this, essentially proved that their theories were inconsistent. There was always, lurking somewhere, that element that disturbed the calculation of prices in the market models.

Let us emphasise here that this element of disturbance was found, not in reality, but only in their models and in their minds. The fact is that the Austrians, even in out-stepping their neoclassical brethren, were still only exploring their own fantasies. This fact must always be kept in the front of one’s mind when considering their doctrines.

We highlight this because it was precisely at this point that the Austrians could have conceded that they were building castles in the sky – ideologically and emotionally motivated castles in the sky, no less – and that it might be time to grow up and give up on the whole sordid venture of trying to establish a ‘logical’ ‘economic’ basis for ‘value’ that would temper them with the moral certainty they needed to carry on their political crusade. But not so. Instead they found a Kierkegaardian Knight of Faith to fill the gap in their logic. And that Knight of Faith was the entrepreneur.

The Austrian economist Israel Kirzner put it as such in his fine paper ‘The Economic Calculation Debate: Lessons for Austrians’ (which is also an excellent historical overview of much of what we have here been discussing):

[T]he truth is that Hayek opened the door to an entirely new perspective on the “goodness” of economic policies and institutional arrangements. Instead of judging policies or institutional arrangements in terms of the resource-allocation pattern they are expected to produce (in comparison with the hypothetically optimal allocation pattern), we can now understand the possibility of judging them in terms of their ability to promote discovery.

And this ‘discovery’, of course, comes from the entrepreneur who was hereafter identified by the libertarian as the social hero who broke through all barriers in the pursuit of the creation of new ‘values’ – and by that, we mean economic ‘values’ – for the community as a whole. Kizner again:

For Austrians, prices emerge in an open-ended context in which entrepreneurs must grapple with true Knightian uncertainty. This context generates precisely the kind of choice that stimulates the competitive discovery process. In this context, the entrepreneur does not treat prices as parameters out of his control but, on the contrary, represents the very causal force that moves prices in coordinating directions.

In Kierkegaard’s writings which, like the writings of the Austrians sought to establish a theological metaphysic from which an individual could derive principles of moral certitude, it was the Knight of Faith – the true believer with complete faith and certainty in both himself and God – that filled in the logical gaps inherent in even the greatest philosophical systems. For the Austrians the entrepreneur filled the same role – except that this was a great hero that had both full faith in the Market and the ability to find opportunities to inject disequilibrium into the price system through innovation.

By now we are far outside the realm of anything even remotely resembling a science of ‘value’. What we have instead is a vast metaphysical and moral system that is built around a very specific – not to mention very narrow – conception of value, together with a sort of existential appendage in the form of the hero-entrepreneur. The hero veneers over the logical flaws in the metaphysical system, while that system remains in place as a faith-based explanatory schema which can be applied to the world around the libertarian.

Note how fantasy blends into reality almost completely at this point. No longer do we separate our supposedly ‘factual’ ideas about ‘value’ from the mythological figure of the entrepreneur. Fact and fantasy merge to form a sort of continuum the purpose of which is to insulate the devotee from any empirical evidence that might arise to prove them wrong – or, at least, misled – regarding, for example, more fundamental and more pressing macroeconomic questions. They simply know what is what because they have it all worked out – and no silly facts are going to tell them otherwise.

From the fertile source of marginal utility value calculus the Austrians thus constructed a pristine moral and metaphysical system. But in doing so – like all metaphysicians – they allowed their imaginations to run away with them. They never noticed the point at which they crossed that fateful line; that line that separates our attempts to represent the world accurately and dispassionately to ourselves from our attempts to create a fantasy world in which we can live. The Austrians had, at first, attempted to use their imaginations to explain the world around them and, in doing so, had fallen into a dream world of their own creation.

And so the foundations of the political cult we call libertarianism were firmly in place. It is an ingenious creation which even came to include what CG Jung and other mythologists might call a central ‘archetypal’ or mythic figure. Even more specifically, what the Austrians have done is insert into their narrative what the great American mythologist Joseph Campbell called the ‘monomyth’. The monomyth is a recurrent theme in mythologies from all over the world. It is essentially a ‘hero myth’ and, as Campbell argues, can be located in most major religious narratives (Christ, Buddha etc.). In this the Austrians provided the libertarian religion with their very own version of the monomyth.

That most libertarians are ignorant of the source of their beliefs – just as most of them are not very conversant with economic theory generally, their protestations to the contrary notwithstanding – only adds a sociological dimension to their cult. Their cult forms a hierarchy where those who are closer to the Grand Truth are supposed to know more than those who are less conversant. Those who are less conversant then scrutinise the Great Texts – which are largely taken to be Holy Writ – until they can advance up the priestly ranks.

The Malign Consequences of Political Cults

After experiencing what used to be called ‘Bolshevism’ we are well aware of the dangers of political cults if they should ever ascend to power. Indeed, we already had forewarnings of this danger in the cult of Reason that Robespierre erected in revolutionary France upon the intellectual architecture that Jean-Jacques Rousseau had constructed for him. All of these cults espouse liberty and freedom and end up creating regimes of pure tyranny. Why? Because in their violent desire to turn reality into a Utopia, they stamp all over reality as it fails to conform to the images in their minds.

Some have objected to fellow Naked Capitalism writer Andrew Dittmer’s ‘interview’ series as an attempt to misrepresent the libertarian movement by espousing the ideas of an extremist. This is unfair. The views of people like Hoppe may be fringe among libertarians – then again, they may not be – but the zealousness is the same across the whole movement.

Libertarians think that they have unearthed a Truth that no one else can grasp (because, of course, this Truth being so pure, anyone who could possibly grasp it must then by default recognise it as Truth). And they think that if they can get adequate social and political power to enforce this Truth we will all be better off for it. Hoppe’s vision of a totalitarian, corporatist future is thus realistic in that if libertarians were ever truly to get into power they would have to enact an immense violence upon the world to try to get it to conform to their vision of Utopia. In this, they are like every other political cult that has ever existed. And they are just as dangerous.

In fact, the libertarians are the direct heirs to the Marxist-Leninist throne. Even though their motives differ substantially, their Faith is based on very similar principles – which is not surprising given that both movements grew out of the same 19th century debate over economic value. In this regard it is useful to recall John Maynard Keynes’ characterisation of Marxism-Leninism:

[It] is the combination of two things which Europeans have kept for some centuries in different compartments of the soul – religion and business.

Keynes also highlighted an important point about how such cults become influenetial:

[They derive their] power not from the multitude but from a small minority of enthusiastic converts whose zeal and intolerance make each one equal in strength to a hundred indifferentists.

The goal may have changed, but the unswerving faith in pseudo-scientific – or, to be very precise, in the Austrians case, because they tend to eschew ‘scientificity’: pseudo-rational – economic doctrines has not. Let us just hope that such a cult does not deliver to us another era of primitive tyranny and medieval inquisition. It is our democracies that are at stake.

Neoclassical Dogma – : How Economists Rationalise Their Hatred of Free Choice

By Philip Pilkington, a journalist and writer living in Dublin, Ireland

What if all the world’s inside of your head
Just creations of your own?
Your devils and your gods
All the living and the dead
And you’re really all alone?
You can live in this illusion
You can choose to believe
You keep looking but you can’t find the woods
While you’re hiding in the trees
– Nine Inch Nails, Right Where it Belongs

Modern economics purports to be scientific. It is this that lends its practitioners ears all over the world; from the media, from policymakers and from the general public. Yet, at its very heart we find concepts that, having been carried over almost directly from the Christian tradition, are inherently theological. And these concepts have, in a sense, become congealed into an unquestionable dogma.
We’ve all heard it before of course: isn’t neoclassical economics a religion of sorts? I’ve argued here in the past that neoclassical economics is indeed a sort of moral system. But what if there are theological motifs right at the heart of contemporary economic theory? What does this say about its validity and what might this mean in relation to the social status of its practitioners?

Let us turn first to one of the most unusual and oft-cited pieces of contemporary economic doctrine: rational expectations theory.

Rational Expectations: Irrationality and an Encounter with the Godhead

Rational expectations is indeed an obscure doctrine. It essentially holds that people operating within a market generally act in line with the expectations of neoclassical theory. This tautology – for it is a tautology – can be traced back to Adam Smith’s ‘invisible hand’ which we explore in more detail later on.

But this goes beyond simple tautology. The neoclassical assumptions are themselves especially stringent and seem to be wholly counterfactual to any observer of human behaviour. Rational expectations theory expects people to act, well, rationally. More specifically it assumes that people always act in order to ‘maximise their utility’ and that such actions result in optimal behaviours that ensure that prices are always perfectly in keeping with what they ‘should be’ – that is, an equilibrium price that perfectly balances supply and demand. Prices then become a pristine and perfect measurement; they translate consumer desire perfectly and are beyond question.

Utility maximisation is a strange doctrine that goes right to the heart of rational expectations theory. It assumes that a fixed value can be placed on the satisfaction people derive from the things they buy. It also assumes – implicitly – that people are in some sense aware of this value and that they undertake their actions rationally in accordance with their perception of it.

At a glance this seems outlandish. Take consumption as the most glaring example. Anyone who has ever encountered any sort of marketing knows well that people don’t act in a perfectly rational manner. People often consume in line with what they perceive to be group expectations. Marketers and corporations take advantage of this and use it as leverage to jack up prices on certain goods. For example, are my brand name jeans really worth that much more in tangible terms than a non-brand names pair of jeans? I would say not.

Economists might counter this by arguing that consumers are still acting rationally insofar as their responding to marketers and brand names helps them further their social esteem: it gives them ‘social capital’ and it is this that the marketer is selling. To argue this is to fundamentally misunderstand the psychology of the consumer. The consumer may indeed identify with the group through the consumption of the product, however this is a deeply emotive act – not one in which the consumer cynically calculates that the product might enhance his or her ‘social capital’. It is not a rational response to the ‘social mores’ that the marketer is selling but rather an irrational response triggered by certain stimuli.

Marketers have understood this for nearly a century. Consider the case of a Lynx ad run a few years ago during the World Cup (here is the ad) – note also that Lynx have been running similar ads for years (which presumably means that this campaign has proved so effective that they have no need to fundamentally change it).

There is a certain amount of group identification present in this ad certainly (doesn’t every guy want to be the Don Juan who ‘scores’ all the chicks?), but there is definitely a deeper strata operating here. I don’t think I need to even point this out. The ad says it quite explicitly: ‘Spray more, get more’. This means that not only will you ‘get more’ women if you use Lynx, but also that if you literally spray on more Lynx you will literally get more women – a fantastic assertion.

Look again at the ad. Note how the guy is using an awful lot of Lynx. Indeed, it almost appears as if more women appear as he sprays on more of the deodorant (if one were to be terribly cynical one might read his end reaction in the ad as a sexual climax induced by his extremely liberal use of the deodorant). Anyone who has stood at a bar in a nightclub next to a guy smelling extremely heavily of Lynx will not doubt that this campaign has been at least somewhat effective.

The idea – a classic in marketing – is that not only to tie the consumer to the brand through group identification and the promise of sexual fulfilment, but to actually influence how the consumer uses the product itself. This ensures that the consumer will purchase more of the product because they will consume it faster. To claim that this behaviour is somehow rational is to pervert the English language itself. This behaviour is strongly irrational and those that attempt to manipulate it know this better than perhaps anyone else.

While we won’t go too far into the argument here, these observations can safely be transferred to most of the decisions that people make in all of the spheres dealt with by rational expectations theory. From direct investment to the purchase of stock to so-called inflation expectations, all have a strongly irrational aspect that is often manipulated by institutions for political and economic ends (the amount of institutions attempting to manipulate inflation expectations at the moment is quite incredible).

One example might be that of housing. During the boom years people invested money in housing not just because they might see a profitable return, but also because it became fashionable to own property – while the following clip is from a comedy show, the social observation is a sound one as far as Irish society during the property bubble is concerned. The boom rested not simply on the fact that it became ‘cool’ to own a house (this would be the social identification element as identified in the above clip), but also because being a homeowner has certain emotive overtones (having a family, being free from one’s parents etc.). These social expectations and emotive responses are key components not only in all speculative bubbles, but in all so-called market activity.

The fundamental point here is that people – be they consumers or producers, investors or forecasters – often act in an almost wholly irrational manner; one that is quite open to manipulation. And once we allow for this the very premise upon which rational expectations theory rests upon falls to pieces.
This is all very interesting, but it has nothing to do with theology, surely. Well, it is in the next key tenet of rational expectations theory that we truly encounter the Godhead.

Rational expectations theory assumes that people always operate on a complete amount of information. Economists call this ‘forecasting’ – although they might call it ‘crystal-ball gazing’. They do not assume that all consumers forecast perfectly at all time. However, they do assume that when any forecasting errors are made they are simply anomalies. This paper sums it up quite nicely:

The hypothesis of rational expectations means that economic agents forecast in such a way as to minimize forecast errors, subject to the information and decision—making constraints that confront them. It does not mean they make no forecast errors; it simply means that such errors have no serial correlation, no systematic component.

The idea here is that all economic actors have access to almost perfect knowledge of economic variables over time (prices, inflation etc.). True the above author qualifies that such forecasting is ‘subject to information and decision’** – which is more than many other economists allow – but this is a smokescreen. If we assume that market actors do not make mistakes in a given market then they must, by default, have access to almost perfect knowledge of that market; otherwise, to say that they don’t make mistakes is silly. If they were to have incomplete information then they would have to act, at least to some extent, on their gut instinct and so would, by definition, not be acting wholly rationally.

In rational expectations theory when market actors get market variables incorrect or act in an ‘incorrect’ manner on these variables this error is not taken to be indicative of some underlying uncertainty in their action, but simply an anomaly; an exception to the rule. Economic actors are assumed to have access to near perfect information, not just about the present but about the past and future as well.

Scratch a little deeper and you’ll find that this is an even more incredible assertion than it first appears. Rational expectations theory essentially assumes that consumers are omniscient beings – or at least, when they are acting ‘normally’ they are omniscient. This is where we encounter truly theological motifs in the edifice of neoclassical economics.

In many theologies, God is assumed to have perfect knowledge. And in order to gain access to this knowledge one needs only to try to build one’s relationship to God onto a higher plateau. In rational expectations it is assumed that individuals can indeed make mistakes – in theological terms: they can Sin – but these mistakes are never systemic – in theological terms: individuals are always on the way toward Salvation. As long as the individual keeps with the ‘tenets’ of the theory (which is presupposed), Sin is minimised and the individuals acts in line with the being possessing perfect knowledge.

The being of perfect knowledge is here not thought of as ‘God’ per se, but instead is given the name ‘The Market’. On a purely intellectual level the ideas seem almost identical. Both are overarching principles governing our lives, both are generally ‘followed’ unless perverse deviations (Sinners) crop up and both are perfect information processors.

We will return to this when we pick up Smith’s theory of the ‘invisible hand’ – a theory from which this all stems. For now let us turn to the true neoclassical Godhead: the efficient markets hypothesis.

The Efficient Markets Hypothesis: The Godhead Embodied

As we shall see shortly, ‘the Market’ is and always was a strongly theological idea. However, it is in the efficient markets hypothesis where the Godhead is truly to be located today.

Whereas the rational expectations model of the economic actor assumes that he or she is always in some sort of relationship with a being of perfect knowledge, the efficient markets hypothesis points the way to this divine being itself.

To really boil it down, the efficient markets hypothesis essentially states that all information is always already built into markets and hence they operate perfectly in line with how neoclassical theory would expect them to operate (i.e. with supply and demand in perfect equilibrium and prices reflecting this perfectly). In a way, the efficient markets hypothesis assumes that markets are made up of the actors we previously encountered in the rational expectations model. Since, as we have already seen, these actors always act in a predictable way, a conglomeration of them will process information perfectly.

The question to be asked is of the ‘chicken and egg’ variety: do these theories begin with the rational actor and then build upon this to form the efficient markets theory OR do these theories begin with the assumption of an overarching arena of rationality which is called ‘the market’ and then assume peoples’ actions based on this abstraction?

I would argue that the latter is the case. As we shall later see, if we trace these ideas right back to their roots we find that the theory of markets is far more primal than the theory of the rational individual – the latter is, in many ways, derived from the former.

So what status does this give the being that we call ‘the Market’? Well, if it is a being that is presupposed to exist while only being seen through its effects and is given the power to direct the behaviour of individuals, then it is surely of the theological variety. It is the Godhead embodied.
Many commentators – including this blog’s editor Yves Smith in her book ECONNED – have pointed out that the efficient markets hypothesis was used by policymakers to justify their cutting back on regulations and allowing ‘the Market’ to operate without constraint. These commentators have pointed out that it was this policy prescription that led to the current financial crisis.

It is also to be pointed out that these prescriptions were always undertaken with a kind of faith. Past experiences had cast into doubt that financial markets operated in line with the efficient markets hypothesis and yet those who pushed for deregulation were true believers in the hypothesis; they acted as if they were in a sort of irrational reverie, a suspension of historical remembrance wholly driven by their beliefs. It should not be surprising then that we find this idea to be a very close approximation of certain religious ideas and ideals.

The idea that there might be some overarching being – whether called ‘God’ or ‘the Market’ – that is directing all our activity and through whom we can be sure our actions are just and righteous, is a very attractive one. Like the religious ideas of yore it can both justify our actions when they are ethically questionable – we can assure people that such actions are in keeping with the Market’s Divine Will – and can assure us that the actions we undertake are reflected in and through some higher ideal – in this case a perfectly rational being we call ‘the Market’.

These ideals can also justify our actions after the fact when the God, so to speak, has failed. When this occurs – as has certainly happened today – devotees can assure the general public and their colleagues that it was simply a glitch, perhaps a testing of our faith and that we should never question the Market’s Will. Some of the more extreme devotees might even suggest that we have Sinned too greatly and that we have not followed the Market’s Will adequately enough. More deregulation is needed otherwise we might incur further punishment from the Divine Wrath.

Lying behind rational expectations theory and the efficient markets hypothesis is Adam Smith’s old notion of the ‘invisible hand’ and it is to this we now turn.

The Invisible Hand and Predestination

For by grace you have been saved through faith, and that not of yourselves; it is the gift of God, not of works, lest anyone should boast. For we are His workmanship, created in Christ Jesus for good works, which God prepared beforehand that we should walk in them – Ephesians 2:8-10

It was on this passage of the bible that the famous Protestant theologian Martin Luther based his idea that human beings had no free will. They were always subjects of God, bound up with Him and merely danced to whatever tune he played. This is the essence of the Protestant idea of Predestination. God has a plan for each and every one of us and we are just cogs in his great harmonious machine. It is His invisible hand that controls our actions and our destinies.

The importance of the invisible hand in the work of the first modern economist Adam Smith is hotly debated, since he used the metaphor only three times in his whole work and even then he used it only loosely. However, it is thought by many – and rightly, I think – as distilling the main thrust of his work in a single, useful phrase.

For Smith, the Market should be free to largely act autonomously. It ironed out its own inconsistencies and operated effectively and harmoniously. But what place did this leave for the individual?

Many today claim that Smith was the great prophet of human freedom. Yet if his theories are read as being wholly deterministic this surely cannot be the case. If the Market acts autonomously, unconsciously dictating all our actions then is there really space for liberty in classical or neoclassical economic theory? I would argue not.

The invisible hand permeates all aspects of neoclassicism. In a seminal paper entitled ‘Situational Determinism in Economics’ the philosopher of science Spiro Latsis shows that the whole neoclassical research program relies on an overarching determinism which he refers to as ‘situational determinism’. What he means by this is that, given a certain situation that a particular individual might find him or herself in, they will always necessarily choose one path – their behaviour will always follows a certain given direction.

This is, of course, the invisible hand at work. The person is directed or guided by an invisible force that leads them to undertake one action and avoid another. This should also be recognised as one of the fundamental aspects of rational expectations theory as outlined above: the individual is assumed to always act in a specific way and any other actions are thought to be ‘deviations’.

The invisible hand is truly the hidden thread tying together all sorts of neoclassical theories – from rational expectations to the efficient markets hypothesis. And in this it is simply a reiteration, in quote-unquote ‘secular’ form, of an age old Protestant theological assertion. What we get is a view of a world governed and controlled by a mystical and invisible force that sorts everything out for us. Everything operates without human governance, the world adheres to a set of laws handed down by an invisible agency; everything in its right place. This is Predestination pure and simple.
(It should be noticed that Austrian School ideologue Ludwig von Mises recognised that the invisible hand in Smith was in fact an image of God. He held, however, that secular reasoning led in this direction and did not see a problem with this. One can only assert that von Mises was more self-aware than other believers. See: note 3 on page 147 of Mises’ ‘Human Action’ – an ironic title given the thrust of our present discussion).

In modern neoclassical theory we find this structure operating mainly through the two theoretical postulates discussed in the first and second parts of this piece.

The efficient markets hypothesis postulates that there is an overarching and invisible force that cannot err. This is an image of a God controlling the world and ensuring that order emerges automatically out of chaos. All of us individuals are then conceptualised as living inside of this holy sphere. This leads to the assumptions of rational expectations theory.

In rational expectations theory, individuals are taken to act in the way assumed by neoclassical economics: that is, they rationally seek to maximise their gain in a particular way etc. The theory allows that they sometimes make mistakes, but these are thought of as ‘deviations’ and are never allowed be the norm. The Market, being infallible, omnipotent and unable to err, effectively ensures that individuals are not allowed to make mistakes in any systematic way. To cast this in theological language: God, being infallible, omnipotent and unable to err ensures that individuals are not able to Sin in any systematic way. While Sinning does take place, the overall thrust is for Man to follow the path that God has laid out for him.

The neoclassical paradigm offers its adherents a very attractive theology. It allows them to look at the world through a remarkably powerful set of rose-tinted glasses. It assures them that everything is okay – provided regulators and Sinners don’t get into positions of power – and that order and harmony will be established by an over-arching, quasi-external power. It gives its adherents a being that they can, in a very real sense, worship. It gives them a moral code that they can follow and that they can use to justify their actions, even when these appear to an external observer as being disgusting, idiotic and objectionable.

Dogmatism and Its Dangers

Perhaps this last point is the key one. The most dangerous personality trait of dogmatic religious devotees is their ability to insist that their extreme views are pure truth and that any action they undertake, no matter how destructive and stupid, are always already sanctioned by a higher power.
In his modernist classic ‘Ulysses’, there is a beautiful sentence in which James Joyce sums up the hypocrisy of religious dogmatists who use their fixed beliefs to justify actions that they might not be able to otherwise undertake in good conscience. Speaking of Oliver Cromwell’s brutal military campaign in Ireland in the mid-seventeenth century Joyce writes:

What about sanctimonious Cromwell and his ironsides that put the women and children of Drogheda to the sword with the bible text ‘God is love’ pasted round the mouth of his cannon?

What about him indeed? Such is the epitaph we might one day see on the tombstone of that strange secular religion that is neoclassical economics – although rather than the text ‘God is love’ pasted round the mouth of its collective cannon, there are instead written the words ‘the Market is always right’.

** As we will soon see, the meaning of the word ‘decision’ here is very shaky. How can a deterministic theory which claims to know how people will act allow them to have the power to make a decision? If they have the power to make a decision then, by default, this decision will be uncertain and no overarching theory will be able to capture it. By making reasonable qualifications to accompany an unreasonable theory the above author unwittingly destroys the theory itself.