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                        What's Wrong With Economics?

by Fred E. Foldvary, Senior Editor

There is nothing wrong with economics, meaning the true science of utility,
of wealth, and exchange, warranted or justified by full-spectrum reasoning.
The problem lies with the economic doctrine known as "neo-classical,"
presented as "economics" by today's textbooks and major academic journals.

Much of neo-classical theory is quite sound. The problem with it is not so
much that it is incorrect, but that it is incomplete. It is partial-spectrum
economics. Where it is incomplete, it then is incorrect. Learning economics
from typical textbooks is like putting a filter up in the sky that
eliminates the colors green and blue, replacing them with gray. We would
then think that we are seeing all the colors, because we would not realize
what we were missing. Students in typical college economics courses think
they are getting a true picture of the economy, and don't realize that major
chunks of the picture are missing.

The problem is even worse in graduate schools, where economists are trained.
The students become indoctrinated into one or other school of economics.
Unfortunately, economics is not a unified body of knowledge, but divided
into schools of thought that are often radically different. The predominant
neo-classical school is subdivided into subschools of macroeconomics, which
studies the economy as a whole. We have demand-side New Keynesians, supply-
side New Classicals, along with Monetarists and others. Graduate students
get attached to some subschool, and then think that this is correct
economics. Few are interested in challenges to their doctrine, since they
first need to get their Ph.D degree, and then they must please the faculty
they join in order to get tenure. By the time they get tenure, they have
been working with neoclassical doctrine so long that they believe it is the
only way to go.

A key example in what's wrong with neo-classical mainstream economics is its
treatment of the factors or resources of production. The classical
economists of the 1700s and 1800s recognized the factors as land, labor, and
capital. One current economics textbook tells students that "modern
advanced" economics does not use these traditional categories because the
division of national income among workers, landowners, and capital owners is
not a central issue for economists today.

There are several problems with the proposition that the classical resource
categories no longer matter. First, it begs the question of whether
economists and the public *should* make this a central issue. Maybe it's not
central because of ignorance!

Secondly, when neoclassical economists say that nowadays workers,
landowners, and capitalists (capital owners) are not distinct classes, this
is irrelevant. The division of factors does not involve workers, for
example, as persons, but labor as a resource. So a person can be a worker
and a landowner and a capital owner. He then gets income as wages, rent, and
returns to capital. The division of the income is not to specific classes of
people, but to the resources owned by people.

Third, the division of resource has major and radical implications for
economic policy. The taxing of wages and capital returns has a much
different economic impact than taxing land rent, the former being a burden
to the economy, and the latter actually being a benefit to the economy. In
saying the divisions do not matter, economists don't bother to study the
difference!

One school of economic thought has continued to recognize the importance of
the classical division of factors. This school of thought follows the theory
presented by Henry George, the American economist and social reformer of the
latter 1800s. This Georgist school has focused on the policy of using land
rent for public revenue, unlike the other schools, incorporating also some
theory from other schools of thought. Its adherents are now calling it
"geo-economics" or "geoism."

As an economist, I have been interested in promoting dialogue among the
members of different schools of economic thought. I organized a session on
"Dialogues in Economics" at a conference in 1995, which brought together
representatives of various schools. I then edited a book titled *Beyond
Neoclassical Economics* based on these presentations. Prof. Kris Feder of
Bard College wrote the chapter on "Geo-economics." My chapters discuss ways
of synthesizing the theory of the various schools into a more complete,
full-spectrum economic theory. For example, the Austrian school (originating
in Austria, but now worldwide) has a theory of capital goods that is helpful
in understanding the business cycle, when combined with the geo-economic
theory emphasizing land.

Knowing that economics as taught and practiced today is incomplete, students
who really want to understand the economy should be open to the ideas of
other schools. Only when economists become full spectrum instead of
adherents of particular doctrines will economics become a true science that
can provide policies to heal and cure the social problems that plague our
planet.