Since 1901, December has been a time for Nobel Prizes. Only in 1969, as an afterthought, the Swedish Central Bank established the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel — a decision that was met with protests by some members of the Nobel family.
Nevertheless, a scientist who used much of his time on economics was rewarded a Nobel Prize in 1921. Admittedly, Frederick Soddy (1877–1956) received the prize in chemistry, for his work on radioactivity. But in the period from 1921 to 1934 Soddy wrote four books campaigning for a radical restructuring of the global monetary system.
I have been leafing through Soddy’s book entitled, ‘Money versus Man’, published in 1931.[i] The book opens with a full-page quote from another English polymath, John Ruskin (1819–1900).[ii] The social problems of England in the 1840s — ‘The Hungry 40s’ — and the financial crises that followed in 1847 inspired Ruskin. The mass deaths in World War I and the crisis that started in 1929 provided new inspiration to Soddy.
For Ruskin, and later Soddy, consumption was the only purpose of the economy. ‘There is no wealth but life’ is the basic message in Soddy’s long quote from Ruskin. It is on this basis we should read the title of Soddy’s book, placing money as a kind of enemy for humankind. Here is a new type of economics: we have standard neoclassical economics, based on the metaphor of equilibrium between supply and demand, and we have evolutionary (Schumpeterian) economics based on a metaphor from biology (innovations as mutations). Soddy offered us a third angle: economics rooted in physics, in the laws of thermodynamics.
At the OECD’s origin, we find the 1947 Marshall Plan that re-industrialised a war-torn Europe. At the very core of the Marshall Plan was a profound understanding of the relationship between a nation’s economic structure and its carrying capacity in terms of population density. We argue that it is necessary to rediscover this theoretical understanding now, in the mutual interest of Africa and Europe.Read More »
‘This tendency to Diminishing Returns was the cause of Abraham’s parting from Lot, and of most of the migrations of which history tells’ wrote the founder of neo-classical economics, Alfred Marshall, in the first edition of his textbook Principles of Economics (1890). In a footnote he refers to the Bible’s Genesis xiii : 6: ‘And the land was not able to bear them that they might dwell together; for their substance was great so they could not dwell together’. (Marshall 1890: 201)
Marshall’s observation also applies to today’s migration patterns: from countries where most activities are subject to constant or diminishing returns to countries whose key economic activities are subject to increasing returns to scale. Diminishing returns occur when one factor of production is limited by nature, which means that it occurs in agriculture, mining, and fisheries. Normally the best land, the best ore, and the richest fishing grounds are exploited first, and – after a point – the more a country specialises in these activities, the poorer it gets. OECD (2018) shows how this occurs in Chilean copper mining: every ton of copper is produced with a higher cost than the previous ton.
In Alfred Marshall’s theory, the ‘Law of Diminishing Returns’ is juxtaposed with ‘The Law of Increasing Returns’, also called economies of scale. Here we find the opposite phenomenon; the larger the volume of production, the cheaper the next unit of production becomes. Traditionally economies of scale were mainly found in manufacturing industry, and increasing returns combined with technological change has for centuries been the main driving force of economic growth. Increasing returns creates imperfect competition, market power and large barriers to entry for challengers – companies or nations – making it difficult for them to enter these industries. In contrast to the rents produced under conditions of increasing returns, raw materials – commodities – on the other hand, are subject to perfect markets, and productivity improvements spread as lowered prices. This is the essence of the theory which explains why former World Bank Chief Economist Justin Yifu Lin was correct hen he asserted that ‘Except for a few oil-exporting countries, no countries have ever gotten rich without industrialization first’ (Lin 2012 : 350).Read More »
On the occasion of the 500th anniversary of Martin Luther’s Reformation, 33 Theses for an Economics Reformation were formulated by Rethinking Economics and the New Weather Institute. The document was symbolically nailed to the door of the London School of Economics In December 2017 and endorsed in The Guardian, and was supported by an impressive list of over 60 leading academics and policy experts. The initiative offers a rare and most welcome refreshing message from the House of Economics.
Several elements in the theses are long overdue – for example, the existence of planetary limits, the superiority of political deliberation over economic logic, the appreciation of the role of uncertainty in economic predictions, the non-independence of facts and values when economic thoughts are formulated, the warning against over-reliance on modelling, econometrics and formal methods. Also important is the indication that both growth and innovation need to be conceived with a desirable end in sight, one which can be associated with material and spiritual progress – rather than with misery, inequity and inequality. It is finally all important that in the teaching of economics itself the history and philosophy of economics should be taught, together with all economic theories: not just the family tree of mainstream economics.Read More »
This new working paper attempts to address some of the main problems of the European Union today. The main thesis is that the Weltanschauung and the economic narrative on which the European project has been based have changed radically since the inception of the European Project, from one conducive to convergence and cohesion to another which is conducive to divergence and, in the last instance – I shall argue – to a form of internal colonialism towards the economic periphery.
The field of Science and Technology employs the term sociotechnical imaginary about the collective narratives and visions of social futures and of the common good. I shall argue that the European Union has moved away from the sociotechnical imaginary, or narrative, that dominated after World War II. I shall argue that this post WW II Marshall Plan Narrative (MPN) gave way to an equilibrium-based Neo-Classical Economics Narrative with an added innovation rhetoric, which I shall argue is based on a fairly shallow understanding of innovation (which I shall call NC+I).Read More »
This new Working Paper studies the economics books which – judged by the number of editions – were the most influential between 1500 and 1849, and compares these to what is represented in accounts of the history of economic thought today. The most interesting outcome of this work is that if we assume some degree of correlation between the influence of a text and the number of editions published, the publication history we present here suggests that some authors who were once influential are now being neglected.Read More »