Wednesday, 28 September 2016

Economic Pluralism is Like Teenage Sex

Despite the clickbait nature of the title, I am actually trying to make a serious point here. Stay with me, OK?

The failure to understand that the history of economic disputes contains a variety of competing theories from many schools of thought, is one of the major shortcomings by the ruling mainstream. It implicitly and explicitly assumes its untouchable position in the Ivory tower of academia, flat-out ignoring the history of ideas or frankly anything that doesn’t involve insane amounts of fairy-tale equations and the intersection of two made-up curves.

This point is particularly remarkable when considering mistakes from fellow pluralists, such as Post-Keynesian economists (PKE). Generally, I tend to get along very well with PKEs, once I overlook their obssesive focus on political ideologies and conspiratory beliefs. Among Austrians, I normally give the example of radical uncertainty, where PKEs are pretty good. By being a fringe school of thought, they are also well aware of being shut out cold from the warm chambers of mainstream academia, and they tend to understand that the history of economic thought is a history of disputes, debates and controversies, developing over time. Such controversies rarely had only two sides to it; more often than not multiple sides and multiple combatants engaged in debates and responded to arguments in several directions (see White’s Clash of Economic Ideas for a brief overview)

That’s why the examples I ran into lately are so infuriating. These scholars should know better. Much better. To confuse and conflate two very different strands of thought in order to make an argument of inconsistency in one of them, is a laughable attempt of criticism. To be honest, it isn’t even criticism – it’s seriously bad scholarly work. If your strongest argument relies on a confusion with some other position (i.e. strawman), then your argument is seriously weak.

That’s very relevant in the modern academic dispute of whether Money is a creation of the State or the Market. The dispute has fascinated me for a while mostly because its fundamental turning-points are essential to economics and that the recent blogosphere disputes have been both heated and entertaining (for some of recent years' disputes see Graeber, NakedCapitalismMurphy, Humphrey, Selgin, Selgin, Watson). So, Geoffrey Ingham, a well-respected Cambridge sociologist, well-known especially for his work on capitalism and his arguments about the origin of money writes that the chartalist story 
was anathema to economic theorists such as Menger and von Mises. They poured scorn on the notion that states could establish the purchasing power of money; value, they insisted, could be established only in exchange. But, as we have seen, the same economic theories were unable to explain why all goods with value did not become money. - The Nature of Money (2004: 48)
That's LITERALLY what Menger was doing, deriving the origin of money via arguing how certain goods had higher saleability. Every Austrian, well-read or not, knows that (I would even wanna say that every economist, well-read or not, knows that...). Did Ingham forget to even google Menger’s On the Origins of Money (or even his Principles) before accusing him of being 'unable to explain' things he explicitly explained?

Such mistakes aren’t only made by professors with no consideration for pluralism, but smart and respectful people that I personally admire. For instance, my USYD professor, dr. Mike Beggs falls into a similar trap on the same topic*:
For example, the Mengerian treatment of money’s emergence depends on the concept of ‘saleability’ (or liquidity), which is difficult to square with the tatonnement mechanism of standard general equilibrium theory, in which trading happens all at once after an imaginary series of trial-and-error auctions.
To his credit, Beggs avoids Ingham’s issue above, by actually reading Menger & Mises, quickly realizing that they do explain why “all goods with value did not become money”. However, his blunder comes soon thereafter; he mixes the schools of thoughts. The tatonnement process of the general equilibrium theory is the standard mainstream Walrasian math-loving garbage – and it has absolutely nothing to do with Menger’s Austrian writings. You won’t find a single Austrian painting pretty GE models.

What surprises me is that Beggs, instead of drawing the correct conclusion that the mainstream misappropriated and distorted an important Austrian contribution, tries to identify an inconsistency in the Mengerian worldview. Like, what?! Even scholars in the heterodoxy, who should know better (and often do know better), seem to have a very limited understanding of their opponents, be them heterodox or mainstream. 

In other words, doing economic pluralism and the controversies between various strands of thought is a bit like teenage sex; everyone is slightly insecure and embarrased by it, very few are actually doing it, and those who are doing it, are doing it very poorly.

Shape up, guys.
* Beggs quickly pointed out to me (see comment section) that his point was the opposite of what I made it out to be; he agrees that Ingham is clearly off, and that mainstream treatment of money isn't consistent with the Mengerian tradition.


  1. Hi Joakim - there is a misunderstanding here: I was making the exact point you are here, that Ingham, not Menger, conflates Menger's treatment of money with GET. Here is the full paragraph from my paper:

    'One reason that the critique [i.e. Ingham's critique] has not hit home is that it involves the construction of an orthodox perspective that actually conflates a number of distinct positions, including not only the Mengerian vision of money emerging out of exchange, but also ‘theoretical’ and ‘practical’ metallism (Schumpeter 1954, 288-89), general equilibrium theory, the view that money is a veil over ‘real’ economic relations, the quantity theory, and monetarism. (Ingham (2004, 15-37) attributes all of these to ‘orthodox monetary analysis’.) Some of these positions certainly share some elective affinities, and certainly can all be found within the mainstream of economics, but they are not necessarily corollaries of one another. In fact some do not sit easily with others, and probably nobody holds them all together. For example, the Mengerian treatment of money’s emergence depends on the concept of ‘saleability’ (or liquidity), which is difficult to square with the tatonnement mechanism of standard general equilibrium theory, in which trading happens all at once after an imaginary series of trial-and-error auctions. Neo-Mengerian models actually developed out of dissatisfaction with the treatment of money in general equilibrium theory. Similarly, the quantity theory fits uncomfortably with a commodity theory of money, since the money supply cannot be considered exogenous if production of the money-commodity and international specie movement respond to monetary phenomena, and/or if credit-money develops on the commodity base.'

    [Earlier comment deleted for typo!]

  2. Hi professor!

    Thanks for clarifying. It seems quite obvious that I took that quotation out of context... for some reason it seemed to me that you were arguing the opposite of what you really were.

    Thanks for stopping by. /J