Economics and Ideology
Prabhat Patnaik
WHAT is referred to as “mainstream economics” is a deeply ideological subject, whose objective is not to uncover the truth but to camouflage it. Karl Marx had been profoundly aware of the ideological character that economics can have, and had distinguished between classical political economy and vulgar economy. The latter focussed not on the sphere of production but exclusively on the sphere of exchange, where all individual market participants were on the same footing, because of which the fact of exploitation that occurred in the sphere of production got totally camouflaged.
Marx’s discussion of the ideological character of the subject was linked to his own central concern, which had to do with the origin of surplus value under capitalism. Ideology however also permeates the subject at another level, in looking at the system, as mainstream economics does, exclusively in isolation, and not just by-passing but implicitly and deliberately denying the phenomenon of imperialism.
To underscore this is not to suggest that the numerous practitioners of economics within the mainstream tradition are deliberately dishonest and are consciously engaged in obscuring reality. That is far from the truth; they are subject rather to a “tyranny of the profession”. This is a phenomenon which needs to be studied separately as part of the sociology of academic life; but it covers most practitioners: your recognition by peers, your professional career, your promotions, your publications and the awards you get, are all dependent upon your remaining within the boundaries of what is the ‘permissible’ area of academic focus. You have to pay a heavy price if you transgress these boundaries and talk about themes like imperialism; and most practitioners of the subject choose the easy option of remaining within these boundaries. In the process a whole narrative gets built up that excludes any role for imperialism even though no individual practitioner of the subject has been deliberately dishonest.
I shall not pursue the modus operandi of this sociology of the academia here, but just give a couple of examples to show how mainstream economics camouflages the role of imperialism. The first example relates to growth theory, where the dominant view sees the rate of economic growth of a capitalist economy as being tethered to the natural rate of growth of its work-force, and hence ultimately to the natural rate of growth of its population.
This view brushes aside the role of aggregate demand, believing in the so-called Say’s Law that Marx had castigated, which states that whatever is produced in the aggregate gets automatically demanded in the market (there can only be micro-level mismatches but no possibility of any general over-production). What is more, it flies in the face of obvious historical facts.
Twenty million slaves were transported from Africa to the “New World” in the period up to the early part of the nineteenth century to satisfy capitalism’s need for manpower to work in mines and plantations. Likewise after the end of the slave trade, an estimated fifty million Indian and Chinese workers were transported in the period up to the First World War as indentured or coolie labour to various tropical or semi-tropical destinations to fulfil capitalism’s need for manpower. (This latter movement was in addition to the fifty million Europeans who migrated to the “New World” over the same period on their own volition, a migration that led to the dispossession of the local inhabitants from the lands they had been occupying).
When such huge population shifts have been carried out under the aegis of capitalism to meet its manpower needs, to believe that capitalism meekly adjusts to the natural rate of population growth within its own borders, is just absurd; and yet this is what mainstream economics propagates.
Of course it may be argued that this theory only shows what would happen in the absence of imperialism, and thereby underscores the need for imperialism to overcome the labour- shortage faced by capitalism; indeed Otto Bauer the Austrian Marxist had developed a theory of imperialism along these lines. But this is not the purpose of mainstream economics; there is no hint of any recognition within it of the massive population movements that have occurred across the globe to fulfil the manpower requirements of capitalism. What is more, the theory would not even be logically viable if the labour force in any given period or over any sequence of periods was not some given magnitude (since full employment of all “factors of production” whose supplies are given, determines income distribution in every period).
Lest it be thought that I am flogging a dead horse by talking about a theory that no longer holds sway, I should say that Thomas Piketty in his influential book Capital in the Twenty-first Century published in 2013 bases all his explanations for observed movements in income distribution on this very theory that ignores historical movements, much of it under duress, of labour between continents.
My second example relates to trade theory. Here there has been a long tradition of arguing that every country becomes better off through free trade. This argument is based on the proposition that both before and after a country opens up to trade, it experiences full utilisation of all its “factors of production”; but the composition of what it produces changes. And when all countries’ composition of production has changed, it is like the world as a whole utilising its resources in an optimal manner, which produces a larger bundle of total goods, so that every country can become better off. Trade is thus seen as producing cooperation among countries rather than any Darwinian competition.
But to assume that every country fully utilises its factors of production both before and after trade amounts to assuming that there is no deficiency of aggregate demand, that Say’s Law holds, which is obviously absurd. Since Say’s Law does not hold, the total world output depends upon the level of world demand; producing more than what this demand permits leads to unsold output and is counterproductive. Hence if one country produces more, then it can sell this extra output only at the expense of some other country. Free trade, far from making every country better off, can improve the lot of some only at the expense of some others, which after all is what underlies the struggle for markets among countries. This struggle for markets underlies imperialism; hence glossing over this fact and presenting trade not as a struggle for markets but as an implicit form of cooperation that makes every country better off, is a glossing over of imperialism.
Interestingly, even John Maynard Keynes, a defender of capitalism and a staunch anti-socialist, recognised the importance of the quest for markets and hence of imperialism because of his rejection of Say’s Law. In his opus The General Theory of Employment, Interest and Money, he wrote: “…under the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets.” Keynes here is suggesting that if government intervention could be used to alleviate unemployment, then there would be no need for a quest for external markets and hence no need for imperialist wars. But, for government expenditure to expand the domestic market for domestic producers, it needs to be protected against foreign producers; hence free trade ceases to be beneficial even when there is government intervention.
The entire free trade argument which is repeated ad nauseam to this day is based therefore on ignoring the possibility of a deficiency of aggregate demand and hence the very real fact of a quest for markets that constitutes one of the causes behind imperialism. The free trade argument thus camouflages a motive for imperialism by making the absurd assumption of Say’s Law and thereby portraying trade as beneficial for all.
What is particularly striking is the fact that this argument has been advanced and continues to be in vogue, even though the deindustrialisation of colonial economies through a decimation of their domestic craft production by the import of machine-made manufactures from the metropolis is a well-known historical fact. The effort of mainstream economics is to gloss over this fact, to dissociate the mass poverty observed in the third world from its trade with the metropolis, by presenting free trade theoretically as beneficial for all.
There is thus an insidious attempt in mainstream economic theory to gloss over both the necessity and the role of imperialism. And that is an ideological project.
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