LYNN FRIES: Welcome to The Real News Network. I'm Lynn Fries, in Geneva.
Unless we want our societies to be run by a body of self-elected experts, we all need
to learn economics. So says Economics: The User's Guide, by economist Ha-Joon Chang.
In a series of interviews with Ha-Joon Chang, we look into this. In this opening segment,
we get some history on how we got here. Neoclassical economics is key to the story.
Our guest, Ha-Joon Chang, joins us from the UK, where he teaches economics at the University
of Cambridge. Economics: The User's Guide is his latest book. Earlier books include
Kicking Away the Ladder, and 23 Things They Don't Tell You About Capitalism.
Welcome, Ha-Joon.
HA-JOON CHANG: Hi.
FRIES: What we call economics used to be called political economy. So let's start there, with
the story behind changing the name of the discipline. Tell us about that.
CHANG: Yes. In the beginning, economics was called political economy. Adam Smith, David
Ricardo, these people never wrote any, anything on economics. They all wrote on political
economy.
In the late 19th century, early 20th century the then-rising school of economics, Neoclassical
economics, which is today's dominant school of economics, decided that they want to become
scientists. You know, in modern world the title of science has a great aura, because
after all, that progress in scientific knowledge is what has built the modern world. So if
you can call yourself scientist, you immediately get much greater credibility. And, I mean,
that, this is what the Neoclassical economists have aimed to achieve since the late 19th
century.
And the most important thing they did at the beginning to achieve this goal was to rename
the subject. So it wasn't political economy anymore, because when you say politics, you're
already implying that people may disagree, you know. But if you're a, a scientist, you
cannot have that kind of disagreement. So it was really important to get rid of that
word politics from the name of the subject so that they can now claim that this is free
of ethical judgments, this is free of political disagreement, and therefore there is a science
like physics or chemistry.
FRIES: The Neoclassical school claims to be the intellectual heir of the Classical school.
So first tell us what central ideas of the Classical school remain key to the Neoclassical,
and then what's new? In other words, the Neo in Neo-classical.
CHANG: Yes. Classical economists actually thought about the economy in quite different
ways from what you see in Neoclassical economics. But Neoclassical economics is still an heir
of classical economics in the sense that it is--and I'll explain this in a minute--it
is trying to make the same propositions in different ways.
So the two central propositions of Classical economics that have been adopted and advanced
by the Neoclassical school is that first of all, market competition keeps producers efficient.
So you have to become efficient, otherwise you'll be wiped out by market competition.
That's the first idea. And the other one is that you have a self-equilibrating quality
of the market. So market can be just left alone. There might be some disturbances that
through, I don't know, war, or bad weather. Bad harvest, or things like that. But the
market will always find equilibrium.
So when you have that view you could say that leaving things to the market will make sure
that everyone remains efficient, and that--this is what the Classical economists believe.
Now, Neoclassical economists are saying the same thing, but actually in quite different
ways. And there are quite a lot of differences between the two approaches. But I would say
that the two most important are the following.
First of all, unlike Neoclassical economics, Classical economics is a class-based theory.
Of course in Classical economics there are individuals at the rhetorical level, but the
core of their theory is all about class struggle, if you like. So in Classical economics there
are capitalists, there are workers, and there are landlords. And most of their theory is
about how the division of income between these three groups affect the way that an economy
makes investment, generates economic growth, and manages itself.
Now, Neoclassical economics deny that. They even deny that class is an analytically meaningful
category. And they construct the theory on the basis of individuals. So individuals are
all different. I mean it's not, you know, unlike in Classical economics, in which position
they are in in the economy, it doesn't really affect the way they behave. Whereas in Classical
economics, it is assumed that the capitalists are behaving in particular ways, workers behave
in particular ways. Landlords are behaving in particular ways. So the Neoclassicals have
turned the theory into an individualistic theory, whereas Classical economics is a class-based
theory.
Although the important difference is that the Neoclassical economists basically conceptualize
the economy as a series of market exchange, whereas Classical economists put a lot more
emphasis on the production. Of course, there was some market competition. But Adam Smith,
for example, in the very first chapter of his famous book The Wealth of Nations wrote
about a factory, not a market. I mean, he wrote about this famous example of pin factory,
and he was discussing how can twelve people working together to produce a pin can increase
productivity by hundreds of times, even thousands of times. And he started that, the whole discussion
from there trying to explain how these changes in the domain of production have created a
new type of society and how you need a different way of looking at things, that which he proposed
the name of political economy.
Neoclassical economists do not really pay attention to production. I mean, you could--to
exaggerate a little bit, you could even say that Neoclassical economics ends when people
go to work. It doesn't really have a lot to say about what happens within the factories,
within the shops, within offices. Most of it is about what happens after people leave
work, bring salaries and wages from their work, go and buy the things, and then consume
them. So in that way, the focus of economics was shifted from production to exchange and
consumption.
And it does that two important ways. The theory might produce similar conclusions, but became
something that is very different from Classical economic theory. And in that sense that we
call it Neoclassical theory. Actually, some of the aspects that the Neoclassical economists
have abandoned, the class-based approach to economics and the emphasis on production,
they actually have been kept by the Marxist work. As you can say, is the half-brother
of the Neoclassical school.
FRIES: Let's go deeper into all this in the next segment. Please join us for Part 2 of
our conversation with Ha-Joon Chang. Ha-Joon Chang, thank you.
CHANG: Thank you.
FRIES: And thank you for joining us on The Real News Network.