Mainstream Economics and the Case for Marxism as a Heterodox Alternative - Literature review Example

Mainstream Economics and the Case for Marxism as a Heterodox Alternative Introduction Mainstream economics has been quite useful in understanding human behavior in relation to ends and the scarce means available to reach those ends. It has thus been helpful in injecting science into the area of social interactions. However, this strand has also had considerable shortcomings, including; reliance on fictitious concepts like rational agents and a closed system approach. The essay shall begin with a thorough analysis of these weaknesses in mainstream economics. Marxism as a heterodox approach shall be examined in light of shortcomings in the conventional school. Finally, the essay shall also highlight weaknesses in the Marxist school as well. Missing elements and weaknesses in mainstream economics By its very definition, mainstream economics is concerned with theories on how the provisioning process takes place. It is often assumed that the entities in this branch of economics are both asocial and ahistorical. Their desire or main goal in life is to use scarce resources in order to satisfy unlimited wants (Faulkner, 2002, p. 5).The above assumptions and methods present a series of problems that have led many to question the usefulness of the principle. First, mainstream theories are unable to explain some issues in modern society that contradict them. Biophysical constraints like peak oil and global warming can limit an economist’s ability to carry out certain actions. In the mainstream school, it is assumed that materials and energy are freely available, yet this is untrue given biological factors. A great conflict exists between the goals of economic growth, which center on profit-making, and the goals of sustainability which dwell on long term development (Nee et. al., 2013, p. 164). Mainstream economics has been unable to predict the most recent global financial collapse in 2007 and 2008. Its theories have also not been helpful in restoring the economy back to its pre-crisis level thus illustrating its abstract nature. Finally, mainstream economics cannot explain skewed income distribution as it is assumed that the free market has a way of correcting itself. This lack of relevance to current economic issues demonstrates that mainstream economics may be too unrealistic or abstract for the real world (Rochon and Docherty, 2012, p. 503). Underlying most mainstream economic theories is the assumption that human behavior is reducible to the pursuance of self interest. However, evidence shows that human behavior is much more complex than that. In most mainstream theories, it is assumed that the actor is rational, acquisitive, detached, aggressive, and highly narcissistic (Montresor, 2000, p. 325). Nevertheless, the social sciences show that man is an interdependent, cooperative, rational and affectionate entity (Montresor, 2000, p. 325). Empathetic behavior is demonstrated across various social units like the state, town, family or even tribe in less-developed areas. It is questionable that one would assume that all humans want to maximize utility. Instead, behaviorists state that human beings tend to settle for good-enough behavior, which is mostly intuitive and fast. The rational thinker is a bit rare since this requires investment and plenty of effort. In essence, mainstream economics fails to acknowledge the diversity and complexity of consumers, so its predictions and assertions should be questioned. Too much focus on general equilibrium (closed states) is a problem in this school of thought. Most theories assume that all factors remain constant or that the economic system is in equilibrium. This means that the forces of demands and supply have been balanced; equal quantities of goods produced and demanded leads to this state. Macroeconomic theory usually comes about when an external force is applied to a single market in equilibrium. No explanation is given for the processes by which the external force enters and the dynamics involved when non-equilibrium sets in. Interactions between components in reality often take the form of causal chains, which are quite multifaceted. It would thus be paradoxical to try and assume that these sequences are not affected by space and time. The excess focus on equilibrium has turned mainstream economics into an abstract system that fails to take into account the real-world fluxes affecting it. Economic systems are structures that are evolutionary and engrained in time and space; when changes occur; they are often irreversible and usually take place continuously. Focusing on equilibrium states thus makes the school of thought quite unreliable (Maki, 2012, p. 129). The scientific method used in mainstream economics is also worth criticizing. In science, a theory is embraced as worthwhile if it falsifiable, observable and measurable. Macroeconomics has certain concepts that cannot be measured or even observed, and these include markets, utility, demand and supply curves. It is thus not possible to falsify the assertion that a demand curve slopes downwards (Loannides and Liesen, 2007, p. 33). No experiments have ever been done to show that these theories are false. Additionally, certain mathematical problems have been noted by analysts concerning this school of thought. They have found difficulties in aggregating demand or supply curves thus putting into doubt some of the conclusions made concerning macroeconomic principles (Wible, 1999, p. 41). Essentially, mainstream economics is not mathematically coherent, so this explains why many adherents themselves have difficulty in understanding it. The above arguments show that mainstream economic theory should be adjusted or rejected. First, its ideas are not sufficient to address, predict and solve current issues. Furthermore, it is based on wrong notions of human behavior as man is not simply a self-interested rational being. The mathematical and scientific incoherence as well as its reliance on deductive reasoning make this school of thought quite questionable. It is thus sensible to look at other alternatives that advocate for a more pluralistic approach which takes into account the real nature of economic structures and people. A case for Marxism as a heterodox approach One should note that heterodox principles tend to solve the shortcomings in mainstream economics by focusing on methodology and history. Human agents are presumed to be more social and less rational than predicted in the mainstream branch (Hodgson, 2012, p. 8). This means that power and other political concepts are quite relevant. Greater emphasis is given to their culture, tradition, habits and routines. Adherents of this school believe that economic systems are complex and unpredictable, so equilibrium systems ought to be treated skeptically (Fleetwood, 2002, p. 4). Furthermore, in the heterodox schools, it is presumed that individuals and aggregates are both useful, so one ought not to attempt to separate the aggregate from the individual. Pluralism is advocated and the belief that economic theories are imperfect also forms an important part of the heterodox school. Even though facts, statistics and mathematics are used, they are not regarded as superior and separate from values. Marxism is a school of thought in which the contradictions of capitalism and conventional market economics are exposed. First, Karl Marx explains how monopolies are formed; a surplus value of production exists when laborers are paid less than the value of their input. With time, this surplus value amalgamates into larger forms of capital that leads to removal of smaller capital through competition. Eventually, capital remains concentrated in few hands, and leads to formation of monopolies. These take place when large capital employs economies of scale or technology to absorb smaller competitors or remove them from the market through lower prices. As time goes by, large capital will try to counteract the falling profit rate, but these measures can only be temporary. A growing level of the unemployed will exist because of technological changes as well as population growth emanating from the economic development created by the superior means of production. This means that capitalists can reduce wage prices further and continue to gate away with it. Monopoly capitalism eventually oppresses the working class to the point of sparking a revolution. In this regard, capitalism is a self-contradicting economic system because it creates the means for its own destruction (Sheffrin, 1996, p. 73). One of the greatest contributions of Marxism as a heterodox economic theory is its ability to show how capital is a result of social relations. Unlike many mainstream economists who assume that capital is a given thing, Marx finds a relationship between capital and wage labor. Therefore, the theorist is able to shown that a bourgeois economy does not simply appear naturally but is a product of the history and social relations that govern society (Martins, 2014, p. 90). It is laudable that Marxists acknowledge the consciousness of agents of production and thus ties this in with political actions as seen through revolutions, socialism, communism and other kinds of reactions to capitalism. Marx is able to demonstrate that economic patterns are not merely products of individual actions but are a product of contradictory social relations. This theorist was able to illustrate how certain social forces (class relations) eventually impede productive forces after relatively long periods of time. This school of thought is able to overcome one of the most problematic issues in mainstream economics; the closed space approach. Marxism concludes that class societies are also transitory because political, social, economic changes interact with one another to make a rising class overcome the ruling class that is associated with older means of production. If production relations change, then ideological, cultural or even political changes would proceed. Marxism thus shows that the economic system is open, in flux and subject to several external forces (Sargent, 2014, p. 19). One of the objections raised against mainstream economics is it inability to explain modern phenomenon like income inequality. Marx was able to do this by showing the relationship between capitalism and the surplus value of labor. He formed an association between the concept of surplus value, how the elite used different ways of increasing this value and how price redistributed it. The theorist came to a conclusion that the bourgeoisie would remain poor irrespective of the wealth growing around them (Martins, 2014, p. 72). To a certain extent, this theory is thus relevant to the problems society faces today. Marxism is also a force to reckon with in the heterodox system because of its ability to point out the fallacy in application of interventions based on linear interactions. Marx often warned against government interventions as he stated that most times they only masked the real issues. They had no ability to postpone the long term crises that came with capitalist economic relations. He was thus acknowledging that human relationships are complex and cannot be explained, solved or predicted on the basis of linear outcomes (Kurz, 2010, p. 1183). Weaknesses of Marxism as a heterodox approach The theory is guilty of some of the problems found in mainstream economics such as the inability to explain current and historical problems. For instance, Marxists claim that only a social evolution can vindicate capitalism, but history has scanty evidence concerning any class evolutions (Parke and Waters, 2014, p. 1582). Furthermore, some communities such as the Indians have a rigid class-based structure but have still not witnessed any such uprisings. Predictions concerning the overthrow of one class by another in advanced nations have not taken place. The scientific method cannot also be applied to Marxism as is the case with mainstream economics. Most Marxists rely on dialecticism as a way of defending their belief system. The latter involves starting with a thesis and then attacking the idea in order to defend it. If the idea withstands criticism or no valid objection stands, then it is perceived as accurate. However, the dialectic approach in Marxism is often misused in order to avoid real discourse (Dequech, 2013, p. 110). It is thus more philosophical than scientific, so this fails to address some of the earlier problems with mainstream theories. Finally, it is assumed by Marxists that inequality is an undesirable thing, which society corrects through political systems. However, if people lived in a utopian society where resources were shared equally, they would have minimal incentives to work. It would take away the reward for doing work well and thus undermine economic growth. Conclusion It is evident that mainstream economics has major flaws, which undermine its credibility. Not only is it based on a misguided nature of humanity, but it also makes fundamental errors concerning the nature of markets (that they are closed systems). Heterodox approaches seek to rectify these problems by endorsing a more complex understanding of the economy and people. Marxism assists in achieving this aim by demonstrating how social relations affect the economy; how the economy is always in flux or is dynamic and how linear methods cannot solve its problems. However, the theory is not faultless as history does not support its predictions on class revolutions, and its methods are also not scientific. These faults do not take away the pluralism and complexity of human nature that Marxism brings to economics. References Dequech, D., 2013. Logics of Action, Provisioning Domains, and Institutions: Provisioning Institutional Logics. Journal Of Economic Issues (M.E. Sharpe Inc.), 47( 1), pp. 95-112. Faulkner, D., 2002. Strategy: Critical Perspectives on Business and Management. London: Routledge. Available at: Google Books [Accessed 11 November 2014]. 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