Critique of Ec 1: Call to Controversy

(Following are excerpts from the critique of Economics 1, issued last month by the Harvard-Radcliffe Young People's Socialist League and the Campus Americans for Democratic Action.)

Most of us who take Ec 1 enter the course expecting an objective account of basic economic principles, and anticipating discussions of various alternative economic policies. And most of us come out of the course thinking we've gotten just that. The course readings attempt carefully to distinguish between economic principles (presumably objective and even scientific) and political ideas (subject to debate). In Ec 1 the range of the latter is relatively limited, and largely restricted to issues of fiscal and monetary policy. Should we have some more government expenditures here, a tax cut there? Should we have guidelines to reduce inflation?

We are writing this critique to suggest that the area of controversy in Ec 1 should be expanded. We do not mean to suggest that the points of view about economics expressed in this critique be adopted as the new dogma of Ec 1, but rather that they be considered legitimate subjects of debate. We feel that many of the alleged scientific economic principles presented are actually theories disputable both on empirical grounds and on the grounds of invalid or questionable assumptions they make. Since most of these theories have important political implications, we suggest that discussions about them be included on the reading list. It also seems to us that certain other questions which may legitimately be considered important economic issues are left out of Ec 1 altogether.

In short, we want to suggest that much of the material in Ec 1 is inherently political, but is presented in the innocent garb of "objective" economics...

Some people have assumed that Ec 1 is a "liberal" course because it teaches Keynesian theory of national income. However, we would like to suggest that there is nothing "liberal" or "conservative" about Keynes as taught in Schulze or Eckstein. Most businessmen accept the idea that the government should use fiscal policy to keep growth up, although they would oppose its use as a social tool. Keynesian analysis as taught in Ec 1 is neutral ideologically. For example, one may increase government expenditures by digging and refilling ditches, by increasing defense spending, or by building schools and low-cost housing. One may give tax cuts to corporations, or expand a War on Poverty. Keynes himself recognized this distinction, and Professor Galbraith speaks of "reactionary Keynesianism" in describing the use of Keynesian analysis as merely a technical and "neutral" device. This is a political issue, but the course wants to separate politics from "Economics," so the distinction is completely ignored...

One of the building blocks of the course is Dorfman's explanation of price theory. Because many of us spend so much time trying to unravel its intricacies, its political biases and implications tend to slip in through the back door. It is possible to go into a detailed critique of the assumptions and analysis of so-called welfare economics (the name for the model presented in Dorfman), and reading along this line is discussed in the bibliography. For present purposes, we will restrict ourselves to four political-philosophical assumptions which, although unmentioned by Dorfman, becloud the claims of his system to be free of all but obviously valid postulates.

The analysis essentially assumes that all people participating in the market share equal power and control over decisions they make. For example, an equal relationship between the consumer and the seller is assumed. We learn about how oligopolies use advertising to create wants, but since such firms depart from the competitive model, this does not necessarily bring into question the analyses of the model itself. But what about competitive firms using advertising to create wants? This is discussed in the readings solely in terms of permitting monopolistic price rises through product differentiation. We suggest that such advertising is also one of many examples of attempts to accentuate inequality of decision-making ability between consumer and producer which allows an artificially inflated demand. Likewise, the social pressures of "keeping up with the Joneses" are ignored in the postulate that one consumer's tastes don't affect those of others....

A second assumption is the identification of markets and consumer choices with free enter prise. This is done rather subtly. After referring throughout the book to "free markets," Dorfman on the last page suddenly talks about free enterprise, and furthermore adds the obiter dictum about the connection between capitalism and democracy! In fact, most elements of the market system, although not of laissezfaire, are completely compatible with a socialist economy. Indeed, economist Oskar Lange, in his book on The Economic Theory of Socialism, capably argues that market socialism is more able to realize the theoretical outcomes of the market model than capitalism as it is usually practiced.

...A third assumption is that static efficiency is the main valid economic goal, and that it doesn't conflict with dynamic efficiency. Grossman, on page 7 of Economic Systems, makes this important distinction between these two types of efficiency, but this passage is not assigned in our readings of Grossman, as we feel it should be....

A fourth philosophical-political assumption masked as an objective economic conclusion relates to the Pareto optimum. At Pareto optimum conditions, nobody can be made "better off" without making another "worse off." When badly stated like this, without six chapters of complex graphs in back of it, it seems rather unimpressive. When recommended as the crowning achievement of the unregulated free market, it comes out as what it obviously is, a debatable political-philosophical conclusion: there should be no income redistribution, which would make someone else better off by making another worse off. The "natural" income distribution is willed by the market. The ideal market gives the man with $2000 and the man with $200,000 their best and most efficient product mix. This is the optimal welfare situation....

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The actual organization of the American economy is a subject which is very blurred in readings in Ec 1. What are the relative roles of the competitive and the oligopoly sectors? Caves tells us that "markets with few sellers play a prominent role in manufacturing in the American economy," but there is no discussion anywhere of the revolutionary implications this has for the whole market capitalist system, of which price competition formed the leading ideological-economic justification. Nor is there any controversy over the role (as distinguished from the market conduct or performance) of the corporation in the modern economy. Readings on this question, both sympathetic and hostile to the economic role of the private corporation, should be introduced. We might suggest sections from Peter Drucker's books on the corporation, and Chapter 2 of Michael Harrington's book, The Accidental Century.

It seems to us that the whole question of "second best" is not sufficiently treated in Ec 1 readings. If the assumptions of the perfectly competitive market such as perfect information and so forth do not hold, how do we compensate for this, and what is the second best alternative to the ideal competitive market. It is by no means certain that it is micro-economic laissez-faire.

Aside from such areas which are completely ignored and others which are treated as non-debatable, there is in sufficient controversy in even those limited areas now debated. The readings on inflation range from an article in the business magazine Fortune to a discussion of the guideposts by conservative economist Milton Friedman and moderate Robert Solow. Liberal analyses of the inflation problem and what to do about it, or of the guideposts--such as the Statement on the National Economy prepared by the AFL-CIO's economic research department, which appeared at the same time as the Fortune article, are unmentioned.

The last section of our critique has to do with a subject which is naturally of special concern to one of the groups preparing this critique, and of great interest to the other. This is the treatment of democratic socialism in Ec 1 readings. However, this should not merely be viewed as a special interest plea. Governments professing democratic socialist beliefs are in power through free elections in almost twenty countries in the world, including many of the most important countries in Western Europe. Although the systems currently existing in these countries are not socialist at the moment, democratic socialist governments are working towards those ends, realizing that they cannot be immediately achieved. Therefore, the importance of democratic socialism as an economic theory justifies a less confusing attention to the subject in Ec 1.

Ec 1 readings do discuss "socialism," but confuse socialism with nationalization of industry or with the Soviet system, which no democratic socialist would call a socialist system at all. While capitalism as an economic system is identified in readings such as Dorfman and Friedman with liberty itself, socialism is viewed merely as a technical economic question of government ownership. "By reducing the term to a simple description of a way of organizing an economy," notes Michael Harrington, a democratic socialist, "the meaning that the socialist movement itself (gives) to its ideal (is radically narrowed). In Western European history and, above all, in the American socialist vision of Eugene Victor Debs, socialism stood for equality, solidarity, cooperation, and the fulfillment of democracy at least as much as for the nationalization of the means of production. (Such a view) confuses socialism, which was and is a democratic program for a collectivist age, with collectivism itself." Communism, notes Harrington, propagandizes for the same confusion in order to exploit the appeal of socialist ideals. There is no reason for Ec 1 to engage in the same over-simplification. It would be as if Hitler's Germany were chosen as a model for a modern, advanced capitalist economy. At the very least, the section from Grossman on democratic socialism, although not particularly sympathetic, should be introduced into the readings. But we feel it would be fair, since the course presents pro-capitalist authors writing about capitalism, to present at least one pro-socialist writer on socialism.

In closing, we would like to reemphasize the importance of controversy to free academic inquiry. It is to promote a real dialogue about economic issues that this report has been written.  Harvard-Radcliffe Young People's  Socialist League  Campus Americans for Democratic  Action