When ‘political economy’ became just ‘economics,’ the shift came at the cost of its links to other social sciences.
Economics began its life as ‘political economy,’ and the 18th and 19th-century classical economists grappled with questions that are fundamental throughout the social sciences. Adam Smith was the author of The Wealth of Nations and The Theory of Moral Sentiments. David Ricardo, in the preface to his path-breaking Principles, identified the distribution of the total produce of a country among the different classes – in the form of rents, profits and wages – to be the “principal problem in Political Economy.” And Thomas Malthus’s essay on population is known to have influenced Darwin.
Over time, economics narrowed its focus, allowing it to explore a tightly circumscribed set of questions with great depth and mathematical rigour. Political economy became just economics. But this came at the cost of broken links with other social sciences or attempting to impose on them its own methodology. Economics became a science of resource allocation, with issues such as distributional conflict, institutional change and historical development receding into the background. And it began to operate within a mathematical framework with claims of universal applicability, as relevant in economies from Bengaluru to Boston.
The limitations of this approach began to be apparent more than a generation ago. Since then, we have seen a flowering of research in experimental and behavioural economics and network theory, as well as renewed interest in history, institutions and politics. This has started to broaden not only the questions but also the methods and models that we use.
But this re-engagement of economics with the world did not make it into the undergraduate curriculum, where from Santiago, Chile, to Manchester, UK, student revolts demanded more relevant teaching. These twin pressures produced the Curriculum Open-Access Resources in Economics (CORE) project.
The CORE project began when a group of about 20 collaborators from around the world came together in 2013 to improve economics teaching for undergraduates. We recognised that even though the economy itself was a gripping object of study, the profession had done very poorly in conveying both what economists actually know, and also in providing any understanding of the seismic global changes and challenges being witnessed by students on a daily basis.
Changing the paradigm would be difficult, if only because of the sheer inertia associated with decades of teaching in a particular way with hundreds of hours in sunk costs of preparing serviceable if dated lecture slides and test banks. At the very outset, we realised that it would be akin to turning a supertanker around. Just as challenging, we were committed to developing these materials to providing them at zero cost to students, following an old but correct economics principle: knowledge is a global public good and once created making it available to additional students is free. In economics language: its marginal cost is zero and so too should be its price.
With some initial funding from the Institute for New Economic Thinking as well as from academic institutions such as Sciences Po in Paris and Azim Premji University in Bengaluru, we produced a beta version of what was to become our textbook ‘The Economy.’ We then began to experiment with it at different universities across the world, as an alternative to the standard microeconomics and macroeconomics introductory sequence.
The reception was more successful than we could ever have imagined. Our curriculum has been adopted for introductory courses at some top European universities, including University College London, the Toulouse School of Economics and Sciences Po, as well as some leading undergraduate institutions in the US, such as Barnard College and Middlebury College. In India, it has been used at Azim Premji University for the past two years, and instructors at other institutions such as Ashoka University are currently experimenting with it.
Reasons for the success of the conventional economics approach
Why has the old paradigm persisted so stubbornly? A mid-20th-century economist, Abba Lerner, had an explanation for the success of the conventional economics approach that has until now dominated the textbooks. According to Lerner: “An economic transaction is a solved political problem… Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain.” He went on to explain that the conflict of interests that exists in every transaction is fully resolved in a contract that will be enforced by the courts, not by the parties to the transaction. “The solution is essentially the transformation of the conflict from a political problem to an economic transaction.”
Lerner was absolutely right: in the standard model, there is no space for the exercise of power. If a worker does not work as hard as stipulated in an agreement, then she simply would not be paid. The employer has no need to exercise any power over the employee, for example through the threat of job termination. The contract itself, being completely specified, is sufficient to guarantee the outcome desired by the firm.
This aspect of the conventional model was what motivated Paul Samuelson – who wrote the most famous of the standard textbooks – to remark: “In a perfectly competitive market, it really doesn’t matter who hires whom, so have labour hire capital.” We’re quite sure that he considered this to be a feature of the approach. But to the CORE project, it is definitely a bug.
By focusing on an idealised “perfectly” competitive model the awkward question of who has power and for whose benefit it is wielded could be deftly sidestepped. ‘The Queen of the Social Sciences’ could reign alone, ignoring the insights of:
- Legal scholars who study real contracts and the challenges of enforcement,
- Psychologists and sociologists who seek to understand the motivations and thought processes of real people,
- Philosophers and ordinary citizens animated by concerns of economic justice and individual freedom and dignity,
- Political scientists who consider the top-down structure of a firm as in part a system of power,
- Historians, anthropologists and archaeologists who study the variety of institutions governing our economic lives and which have shaped our development since pre-history; and
- Biologists and ecologists who see the economy as a part of the biosphere with unavoidable “external” effects on its functioning and even sustainability.
By contrast, the paradigm motivating CORE draws upon such insights from other disciplines in order to understand how prices, wages and interest rates are determined, how the aggregate economy functions and other central questions at the heart of the discipline.
But even including these insights, as critical as they are, is not going to be sufficient to achieve some of our other aims. We wish the introductory course to speak to students throughout the world, without assuming that the same universal concerns apply with equal force everywhere. Thus, for example, it is important that Indian issues such as informal markets, mass unemployment, structural change, liberalisation, caste and gender inequalities and rapid urbanisation that are central to the experience and concerns of India’s students are placed front and centre and not relegated to special topics the students who stick it out may encounter in more advanced courses.
This is why we are now in the process of working on a South Asian version of ‘The Economy.’ Having a digital and readily changeable electronic format allows us to do this, and we hope to develop an effective adaptation that not only prominently features some unique features of the Indian economy, but also provides students with a strong empirical understanding of their lived experience. Further, in order to encourage the adoption of our curriculum, we plan to run annual workshops for instructors and postgraduate students beginning next year.
Our hope is that these changes will help economics return to its original orientation to study what exists, with the best insights that are available from all disciplines. In doing so, we hope that students of the CORE course will become citizens better equipped to address the pressing problems facing India and other countries today.
Arjun Jayadev, Rajiv Sethi, Wendy Carlin and Samuel Bowles are, respectively, economics professors at Azim Premji University in Bangalore, Barnard College, Columbia University in New York, University College London and the Santa Fe Institute.