In my paper on “The Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature”, I have argued that economic theories act as a blindfold, preventing economists from seeing basic facts about human behavior, obvious to all others. For instance, economists consider cooperation, generosity, integrity (commitments), and socially responsible behavior, as anomalies requiring explanation, while all others consider these as natural aspects of human behavior.
Far deeper insight into the blindfolds created by economic theory is obtained when we realize that these are not random mistakes, made due to defective reasoning or neglect of empirical evidence. If the shopkeeper systematically makes mistakes which always increase the total bill, we can conclude that the mistakes are purposeful. Similarly, strong and repeated commitment of exactly the same mistakes, flying in face of all empirical evidence, reveals the deep ideological commitments which create these systematic errors. In particular, the goal of this note is to show that modern economics is not what it claims and pretends to be: an objective, factual and scientific description of the laws governing capitalist economies. Instead, it is actually a branch of moral philosophy, and provides a justification for the inequality and injustice built into the system, by “showing” that these are necessary for the functioning of the system, and the system itself is fair for all participants, and leads to the best possible outcomes.
Contrary to the Shakespearean claim that names do not matter, research shows that desert-dwellers recognize different types of sand using more than seventeen different names, while those who do not have these names in their language also cannot recognize these differences. To highlight the difference, and help recognize it, we will label conventional economics as ET1% — the Economic Theory of the top 1%. In contrast, Islamic Economics champions the cause of the poor, and can be called as ET90% — the economic theory of the bottom 90%. Below, we will illustrate how these two theories are diametrically opposed to each other in the context of eight core concepts of modern economics. We do not claim that this list of deceptions is complete – there are many more ideas which are misleading. However, an understanding of how these eight concepts, listed below, are used to deceive the public will provide sufficient evidence for our central thesis that economic theory should be recognized for what it is: ET1%.
- Pareto Efficiency
- The Invisible Hand
- The Production Function
- GNP per Capita
- Separation of Economics from Politics/Power
- Private Property
- Utility Maximization
I will explain, in separate posts, how each of these is a deceptive concept. But before we discuss specific details of how these concepts deceive the general public, some basic principles must be highlighted. Note that the number “1%” is used metaphorically; the actual number of people who benefit massively from capitalism is far less. According to recent OXFAM statistics, about 60 people own more than half of the total wealth on this planet. In any case, the number of people at the top is too small to enable them to establish favorable political and economic systems by force. Instead, they must rely on persuasion. Their strategy is create theories which become widely accepted by the vast majority, which present the economic system as necessary, just, and efficient. As Karl Marx recognized, capitalism works not by force, but by persuading the laborers of the necessity and fairness of their own exploitation. In this process of persuasion, the middle 9%, including especially the intellectuals and the academia, play a crucial role. The educational institutions train and tame the populace into accepting injustice as a natural part of the system. Those who participate in this process of indoctrination are duly rewarded by being allowed the perks and privileges of managing the entire system on behalf of the elite 1%.
One implication of this is that ET1% must have the appearance of fairness and objectivity – that is the only way it can be persuasive to the bottom 90%. However, hidden beneath this appearance must be the reality that the theory is extremely favorable to the interests of the super-rich. Thus, by definition, ET1% is deceptive. We will show, in separate posts, how each of the eight concepts listed above satisfy these criteria, concealing a strong bias towards the rich hidden within an attractive framework which would appeal to all. In this first post, we just provide an illustration of this principle to clarify the concept.
Mazdak was an ancient Persian prophet/philosopher who preached against private property, and argued in favor of communal ownership of all resources. This would obviously appeal to the poor, who would thereby acquire a share of ownership in the palaces, wealth, and luxuries of the rich. However, the practical effect of the philosophy was the opposite of this egalitarian dream. The rich and powerful were able to defend their properties, and also were able to occupy and take over the property – including wives and children – of the poor, because they had the power to enforce their will upon others. The philosophy provided a cover for their actions because it deprived the poor of their rights to their own property. This is exactly how ET1% works: by appealing to the poor, while working against their interests.