Business   

Nobel Economics

SAVE FOR those receiving prize money the annual award of Nobel Prize for economic science is a staid affair. It evokes little excitement even among the general tribe of economists whom an ethnographer gratuitously called the econs. Alfred Nobel, the founder, never intended a prize for economics. But that would not stop the Bank of Sweden from celebrating its tercentenary in a particularly memorable way. Since 1969 when the bank established the prize, over fifty economists have been honoured with it, with two or three economists sharing the honour in more than a dozen years. On several occasions though the prize appeared jinxed under its own weight.

At least two laureates — von Hayek and Gunnar Myrdal — openly expressed their reservations about the prize for a science that is scarcely `hard'. (Myrdal, in fact, went on to say that the only reason why he accepted the prize was that he was not properly awake on the fateful morning when the Swedish Academy had called him!) One recipient (John Hicks) complained that he might have liked the prize for a different work of his than the one mentioned in the citation, while Ronald Coase wondered why he was given the prize a neat thirty years after he produced the cited work. Secondary accounts have it that the award that was to go to Joan Robinson (who would have been the first woman laureate) was withdrawn for fears that she might, for all one knew, not take it. More recently, the prize came under a cloud when financial companies which winners of the 1997 prize, Merton and Scholes, advised collapsed. Some believe the event precipitated the award in the following year to Amartya Sen whose attempts to `moralise' mainstream economics might have proved a convenient red herring for the selectors.

Lurking behind the somewhat hilarious situation are several questions that would for most part remain rhetorical. Why was the Soderstrom Medal, long considered the alternative Nobel for economics, replaced? This medal of the Royal Swedish Academy of Sciences was presented, if irregularly, by the King of Sweden and went to such stalwarts as John Maynard Keynes, Gunnar Myrdal and Piero Sraffa. If the big prize was at all to be opened to new disciplines in 1969 or later, it is difficult to see the priority of economics. History, sociology or folk music might have fitted the bill equally well, as being no less `scientific' than economics and no more abstruse than peace and literature. In particular, in what sense is economics a `science' or in what identifiable sense has it contributed to `human advancement', the twin criteria original to Alfred Nobel's will?

Issues and science

It is helpful at this point to distinguish between economic issues and economic science. Pandit Bhimsen Joshi was once asked if classical musicians were, on average, more otherworldly than others. `No,' the maestro shot back, "they are as worried as anyone about the prices of provisions". Economic issues inexorably make space for themselves in the domain of public discourse. Droughts, wars, prices of onions and petrol, interest rates and stock prices are all a credible part of the material bases of our social existence and dominate our immediate consciousness. They seem to acquire, for this reason, an instant priority in public discourse over other `burning' issues. The question of where the Aryans originally came from, like that of the women's bill, could always `wait' another day. It is much less clear though if this intrinsic importance and relative urgency of economic issues extend in any straightforward fashion to the status of economics as a science.

Mainstream theories as favourites

The kind of economics that is typically marked out for Nobel Prize is presented as the only economics that has ever existed, even if rendered progressively rigorous. Worse, it is presented as the only economics that is possible. These claims need not be made explicitly, given the near total dominance of this economics among university faculties, journal editors, professional associations, popular governments, central bankers, multilateral agencies and of course prize committees which must represent the whole chain.

Nor is it necessary for us to invoke any methodological quicksand or exclusive jargon to test the scientific character of the subject or its potential contribution to human advancement. One need only raise two inter-related questions on its performance: First, does the theory explain the workings of real-world economies?

Second, is the theory internally consistent? In fact, however, the lack of predictive content of this theory was the crux of the Keynesian Revolution while it was left for the Italian economist, Piero Sraffa, to expose devastatingly the logical inconsistency of this much-prized economics.

The response of mainstream economics to these attacks has been either to absorb the critique by appeal to an extended axiomatic process (as is the case with Keynes) or to simply ignore a logical critique (as in the case of Sraffa) as if nothing happened. The latter silence in particular can only be understood in terms of a certain cognitive dissonance! And so the Nobel Prize goes regularly to one or more economists who have either contributed to the formal `deepening' of this very theory found wanting in predictive content and internal consistency.

Less often, it goes to someone who has extended the theoretical system in an ad hoc fashion to questions that are not at stake to begin with, for example, non-competitive behaviour and limited information. Or to someone who critiques the self-same theory from the sidelines but without upsetting the apple cart. And as if for a change, economic statisticians who may have no real stakes in theory of any particular kind (as is the case with the 2003 prize-winners) are picked once in a while.

The original sin of mainstream economics seems to arise from its singularly unlikely feat, namely to shut out all history and leave the economy in a perpetual time warp. It conjures up a pre-Industrial Revolution Europe where merchants traded the direct produce of peasantry and craftsmen belonging to the trading countries. The peasantry and the craftsmen `gained through exchange' for in the absence of such trade they would have to live with their original `endowments' and the world's scarce resources would be mal-allocated without regard for the `preferences' of the economic agents.

But once the market took over, endowments were rendered compatible with subjective preferences and the world lived happily ever after.

The economy then became coeval with a system of well-oiled markets whose only job was to allocate optimally the community's scarce resources. Meanwhile, as every schoolboy knows, an Industrial Revolution happened and this meant production of new goods and more of the existing goods driven by momentous changes in technology and production organisation. But the model of pure exchange characteristic of the Mercantilist era lives on to-date, albeit with logical and mathematical embellishments, and the momentous historical changes are but seen as minor disturbances in an otherwise tranquil world of timeless exchange equilibrium.

Serious issues ignored

Every economic problem that anyone whose mind is not debauched by training in economics intuitively perceives to be serious and obvious — unemployment, inequality, inflation, stagnation, inflammable financial markets, fundamental uncertainty in economic life and imperfect competition — is instantly transmuted into a non-issue when confronted with this theory. Alas, it is this very theory whose performance has been anything but terrific on its home terrain of industrial capitalism that is offered as the cure-all for the structurally different problem of economic backwardness which dogs the majority of the world's population.

It is unsurprising in the event that the Nobel Prize list has never included a heterodox economist worth the name. Even if one leaves out Keynes and Sraffa, there have been Kaldor, Joan Robinson, Kalecki, Pasinetti, Sylos-Labini, Steindl and Garegnani to name a few who have not only exposed the emptiness of orthodox theory but have struck fruitful ways of identifying economic processes that can be acted upon for `human advancement'.

They have provided critical ingredients to economic theory to serve as a credible causal system, rather than remain a pure axiomatic system.

In their different ways they have, in fact, shown that it is only in league with the sociology of Smith, the logic of Ricardo, the historical sense of Marx, the intuition of Keynes and the scrupulous and vigilant scholarship of Sraffa that the science of economics has any life, with or without a Nobel tag.

G. Omkarnath

(The author teaches economics at the University of Hyderabad. E-mail to him at: omkarss@uohyd.ernet.in)

Printer friendly page  
Send this article to Friends by E-Mail

Business

News: Front Page | National | Southern States | Other States | International | Opinion | Business | Sport | Miscellaneous |
Advts: Classifieds | Employment | Obituary |

Stories in this Section

• Challenges before Indian food exporters
• Do's for food exporters
• Nobel Economics
• Instant e-mail address service
• Refund of NSS 1987 deposits should be without tax
• Stocks buoyant on results, FII buying
• Margin trading: need to check price volatility

Copyright © 2003, The Hindu. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu