Book Review: Hayek’s Road to Serfdom

Reproduced from:

Zaman, Asad: Book Review of Friedrich A. Von Hayek’s Road to Serfdom, Journal of Islamic Business and Management, vol 3, no 1, 2013. 

The Road to Serfdom is the book written by the famous economist F. A. Hayek (1899-1992), the recipient of the US President’s Medal of Freedom in 1991 and co-winner of the Nobel Memorial Prize in Economics in 1974. Originally published in 1944, the book is among the most influential and popular expositions of market economy, selling over two million copies, and remaining a best-seller. F. A. Hayek warned of the danger of tyranny that may result from government control of economic decision making through central planning. He argued that the abandonment of individualism and classical liberalism inevitably leads to a loss of freedom, the creation of an oppressive society, the tyranny of a dictator and the serfdom of the individual.  A classic work in political philosophy, intellectual and cultural history, and economics, The Road to Serfdom has inspired and infuriated politicians, scholars, and general readers for over six decades.

However, The Road to Serfdom has been criticised as well on the ground that unfettered markets have undermined the social order and that economic breakdown had paved the way for the emergence of dictatorship. The present review is also a critique on the book taking evidence from the history that the facilitator’s role of the State requires the rulers / regulators to take remedial measures for the promotion of social interest, if individual interest is in conflict with it.  The classical individualism and liberalism promote selfishness that must be distinguished from the value based ‘self interest’ which requires that one should be conscious of the interest of others and should avoid hurting them. The State is required to adopt a policy mix of market based competitive system along with the core value of justice and fair play.

Historical Background

Western social science is intimately tuned to Western history. The emergence of Social Science in the West was coincident with the loss of faith in the West, referred to as “Death of God” by Nietzsche. Loss of Divine Guidance forced fresh thinking about human nature. Hobbes thought that the natural state of humans was a “war of all against all”; the state or government was necessary to intermediate this conflict and bring about a peaceful outcome. In contrast Locke granted rights to men and thereby limited the rights and powers of the government. These early philosophers became the precursors of substantially different views on the crucial of issue of the appropriate balance between the powers of the government and individual liberty.

The Liberal Tradition: Hayek is squarely within the liberal tradition, a particular kind of social and political philosophy espoused by British and Continental thinkers such as John Locke, Baron de Montesquieu, David Hume, and Adam Smith, and American thinkers such as Thomas Jefferson and James Madison.  In essence, these classical liberal thinkers were committed to three types of freedom: economic freedom, political freedom, and freedom of speech and religion.  For classical liberalism, freedom meant severely limiting the power and scope of invasive government, thus increasing the scope for individual and private action.
 “Unintended Consequences” of Socialist Policy: Hayek presents a sophisticated and subtle defence of liberalism, but could not escape the influence of the horrifying World War II which he lived through in formulating his philosophies. One the main themes of the RtS is the “the law of unintended consequences”. Hayek contends that well-intentioned German socialists created government controls to help the poor and bring about desirable social reforms. However these government policies, like Frankenstein’s monster, went out of control and led to the emergence of Nazi-ism. He foresees the same process occurring in Britain, and warns that similarly well-intentioned efforts to help the poor would lead to powerful governments and Serfdom in Britain. Part of his prophecies came true in that the Labor Party did come to power in Britain and did pursue and implement many socialist policies including nationalization of industries and socialized medicine. However, there was no apparent resultant loss of individual liberty in UK that Hayek thought would inevitably result[2]. Subsequently, the Thatcher government reversed most of the nationalizations but left the socialized medicine system intact.

Intended Consequences of Socialist Policy: While the “unintended consequences” Hayek warned about did not emerge, the intended consequences were very prominent. The lot of the sick in UK, Europe and Canada, with socialized medicine, is substantially better than that of the USA, where private medicine leaves a large proportion of the poor population uncovered in medical emergencies. Studies have shown that large proportions of people who fall into poverty do so as a result of medical problems. There is substantial evidence showing that quality of life of the poor is much worse, and their percentage much greater in the USA than in European countries which have adopted many socialist type policies for the benefit of the poor. Taken in the context of post World War II policy making, which is the narrow context for Hayek’s RtS, it seems clear that Hayek was dangerously wrong. Had Hayek’s warnings been heeded, the lives of vast numbers of the poor in Europe would have been miserable, and human suffering would have increased. European countries did implement socialist policies and provide substantially more support to the poor than USA, but none of them slipped into Nazi-ism or the Serfdom that Hayek thought would result. A glaring counterexample to Hayek is provided by the Scandinavian countries, and most prominently Sweden, who have most aggressively pursued socialist policies of the kind held to be dangerous and damaging both to long run economic performance and to individual freedom by Hayek. As a group, these economies have done better in terms of growth, unemployment and inflation, and also have had higher rankings in terms of various measures of political and individual freedom, than other European economies with less socialist policies [see Rosser (2004)].
The Larger Debate: Free Markets. We next consider the broader context for RtS, namely the debate about whether markets should be regulated by the state, or whether they should be allowed to operate freely as the liberals advocate. There is overwhelming empirical evidence on all aspects of this debate. It is clear that markets do well at some thing. In terms of creation of wealth, and efficient fulfilment of demands and desires of the rich and powerful, markets work very well. However, markets fail at providing equitable income distributions or adequate support to the poor. As the remarkable studies by Amartya Sen have shown, a fully functioning free market and adequate food supplies are perfectly compatible with famines which lead to death by hunger of large masses of people. The emergence of Keynesian doctrines in the 1930s was due to the Great Depression which showed again very forcefully to a very large number of people that market outcomes cannot be trusted to deliver the goods, i.e. economic welfare. This clear and overwhelming evidence was so strong that Hayek and all liberal thinkers were eclipsed until horrors of the depression had faded from memories. Only in the late 70’s, some 40 years after the Great Depression was there a revival of fortunes of liberal thought. It appears strange that these neoclassical liberals have learnt nothing from experience. They insist that markets equilibrate very fast, and that unemployment will be quickly eliminated by free market mechanisms. Even ignoring the Great Depression, the experience of Chile under the Chicago Boys, where unemployment remained at around 20% during fourteen years of ultra liberal policies is enough to show that this is not true (see Rayack (1984)). Similarly, liberals are still developing theories to account for the failure of Russia to respond quickly to free market mechanisms, and the subsequent economic disaster leading to massive poverty, heavy unemployment and a fall in productive output of more than 60%. The liberals make much of the argument that central planning requires information typically unavailable and hence leads to inefficiencies. However, they have never considered or calculated the time taken and the cost of reaching the efficient market equilibrium, which is borne by the poor and unemployed in the form of hunger, suffering and misery.

Power/Knowledge: Given overwhelming empirical evidence that unregulated markets often deliver disastrous outcomes, leading to misery, hunger, death and exploitation for masses of people, what accounts for repeated insistence of liberal theorists that “markets work”? Surely this message, frequently made with emphasis in nearly all standard economic textbooks, deserves some qualifications and refinements, together with some explanation of contrary empirical evidence. However, typical texts sweep all contrary evidence under the rug, rather than treat it with intellectual honesty. This leads one to reluctantly consider Foucault and his explanation of the link between (actually the identity of) Knowledge and Power. The naïve view is that Knowledge consists of understanding phenomena, and validity or truth of the knowledge depends on how accurately it describes the reality. Many case studies done by Foucault and his followers show that Knowledge consists of rules of manipulating reality to achieve desirable results (Power). When considered in the context, the repeated re-emergence of liberal thought, despite repeated and massive failures on the empirical front, makes perfect sense. In all ages, social requirement of justice, equity, compassion for the poor and other social norms (including environmental issues) place powerful restrictions on the scope of actions available to the rich and powerful. Liberal thought, and the message that Laissez Faire leads to optimal social outcomes, is a strategic tool which is helpful in removing these restraints. The rich and powerful have access to media, can fund colleges and think-tanks etc. and therefore produce “knowledge” that will enhance the power of this group.

An Ironic Twist: Recent post 9/11 US experience provides an ironic twist on the central message of Hayek’s RtS. Nearly all of the signposts on the Road to Serfdom identified by Hayek can be found in some form or the other in the curtailment of personal freedoms in the USA, supposedly as a defence against terror. People have been arrested and imprisoned for talking against US policies. The radical curtailment of individual freedom in the “Patriot Act” is a source of concern to many liberal thinkers. The irony is that the apparent cause of this path to Serfdom in the USA is not socialist policy but the pro-free market and laissez faire policies pursued to the extremes in the USA. Relentless pursuit of profits by US and multinational firms, unrestrained by any considerations of equity and fairness, has created tremendous amounts of social injustice, poverty, exploitation, etc.  The attempts to squelch popular protest against such market-friendly policies has led to police-state like policies in the USA bearing a striking resemblance to those described by Hayek as being signposts on the road to Serfdom. It has also been suggested that the market itself enslaves vast numbers of humans, reducing their lives to endless drudgery in the name of greater profits and production. It would appear that there is more than one road to Serfdom, and one of the roads is extreme laissez faire advocated by Hayek and his followers.

Lessons from European History: One important reason for considering the context for Hayek and its critique is to show that it is deeply grounded in European historical experience. It has been a European conceit that their experience is somehow universal, and hence lessons from it applicable to all societies. One of these lessons is that the liberal tradition, with maximum individual freedom, is the ideal state which all societies will ultimately achieve. Indeed, the collapse of Russia led to the (premature) celebration of “The End of History” by Fukuyama – history is about to achieve its goal of leading all societies to conform to the ideal European culture with maximum individual freedom for all.  [ see link for: Conclusions & References ]

For more material on the urgent need to develop an alternative to Eurocentric Social Science, which completely ignores humanity, morality and spirituality, leading to devastation of communities and environment, see: An Islamic Approach to Humanities.

 

 

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Hunter-Gatherer Societies

As a preliminary demonstration, and an explanation of the “Three Methodologies“, we assess how they work in primitive hunter-gatherer societies.

A hunter-gatherer is a human living in a society in which most or all food is obtained by foraging (collecting wild plants and pursuing wild animals), in contrast to agricultural societies, which rely mainly on domesticated species.

There are many characteristics of such societies forced by the material conditions of production. Since existing food supplies in any one location are soon exhausted, such societies are generally nomadic. Here are some philosophies, and political and social structures that would naturally arise in hunter-gatherer nomadic societies.

Philosophy: Since human beings are directly dependent on the environment, the idea of “Mother Earth” and a close relationship with nature can be expected to develop. This stands in contrast with urban lifestyles which are remote from nature; it is this detachment from nature which has permitted the widespread environmental destruction which is currently taking place.

Politics: Typical Hunter-Gatherer societies are egalitarian. This is because everyone derives a living directly from nature, and is mobile. If one subgroup is oppressed, they can simply leave, so there is not much room for powerful groups to exercise large amounts of power and control over other groups. Furthermore, in subsistence economies, one cannot afford slaves because there is generally not enough surplus food to feed them. So economic conditions favor egalitarian political structures; nonetheless, human ingenuity can sometimes overcome such obstacles.

Property: Since property of nomads is confined to what they can carry with them, it is necessarily limited. Illustrative of hunter-gatherer attitudes towards property is the Cherokee Constitution of 1839, which states: “The lands of the Cherokee Nation shall remain common property”.

We now consider insights yielded into the study of such societies by the three methodologies discussed in the previous post

Three Methodologies

This is a summary of the introduction/motivation part of Lecture 15 on Advanced Microeconomics II, delivered at PIDE in Spring Semester 2017.  The lecture is about 19th Century European History, and how it is deeply entangled with Modern Economic Theory. We cannot understand one without the other.

19th Century European Economic Ideas In Historical Context.

“… the race is not always to the swift, nor the battle to the strong …” Ecclesiastes 9:11

In the late 19^th century, a battle of methodologies (“Methodenstreit”) took place, which shaped the future of economics. The German Historical School lost out to the newly emergent, quantitative, mathematical and scientific approach. This led to a re-conceptualization of economics as a science similar to physics, which studies the economic laws of motion of societies. For a detailed account of this battle, and its effects, see “How Economics Forgot History,” by Geoffrey Hodgson.

1. Contemporary Methodology:[humans are predictable robots] The idea that economic theory is a science like physics has extremely unpleasant and counterintuitive consequences. We look for universal laws of economics, which apply equally well to Pakistan, France, Brazil, Russia and Nigeria. Furthermore, they apply equally well in the seventeenth, nineteenth, and twenty-first century. The trade theory of economists must apply equally to trade between Ghana and England, India and Pakistan, and the Huron and Iroquois tribes. Since the ability of human beings to shape their destiny in accordance with visions cannot be fit into a scientific framework, human behavior is reduced to that of a robotic pleasure machine, which follows precise mathematical laws.

2. Marxist Methodology:[social and political structures are determined by economic structures] A key element of Marxist methodology is that economic relations of production are fundamental. These determine the political and social superstructures. Marxist methodology is far richer than current methodology, which removes history, and human beings, from economics. Nonetheless, Marxist methodology gives primacy to materialistic conditions of productions, and considers society and politics as important secondary consequences.

3. (Polanyi’s Methodology):[material circumstance shape human societies, but also human vision and ideas shape material circumstances] Whereas conventional methodology restricts attention to the material circumstance, and Marx considers material circumstances as primary, Polanyi uses a bi-directional causality. Human ideas and visions can shape history, and conversely, the economic relation of production shape human ideas and visions. For more discussion of the radical implications of this entanglement of ideas and materials, see my earlier post on “Meta-Theory and Pluralism in Polanyi’s Methodology“.

These are three distinctly different methodological principles.  In the rest of this lecture, we will look at nineteenth century European history through these three different colored glasses and see how they help us understand the economic, social and political changes which occurred during this period. Our goal will be to establish that “entanglement” occurs – that human ideas are both shaped by, and shape, history. In particular, economic theories are used by humans to understand historical experience, and also to guide social responses to this experience, and attempt to mold history in favorable directions. An extremely important consequence of this entanglements is that economic theories cannot be understood when detached from the historical context in which they were born. As Polanyi explains clearly, modern economic theories were produced in nineteenth century England, and to understand these theories, it is necessary to understand European history of that era.

Before proceeding to the complexities of European history, we will do a dry-run of the conceptual framework we are using within the simpler context of hunter-gatherer as well as feudal societies.

Adam Smith & the Invisible Hand

In response to a comment by David Chester regarding Adam Smith and the Invisible Hand, I am reproducing the section in the paper which deals with this issue. This answers his question about how what is attributed to Adam Smith differs from what he actually said.
[Excerpt from the paper: Failures of the Invisible Hand]

Section 6: Recent Vintage of the Invisible Hand

The main goal of this section is to show that the modern interpretation of the IH is relatively recent. The idea that Mankiw (together with other modern economists) attributes to Smith is not actually present in Smith’s writings. In fact, modern writers borrow the authority of Adam Smith to provide weight to a very dubious idea of recent coinage.

We first note that modern interpretation of the “IH” is radically different from any interpretation of this concept that existed before the second half of the twentieth century. There is a growing body of literature (e.g., Grampp, 2000; Minowitz, 2004) which insists that the metaphor used by Smith was never meant to be anything more than a metaphor, and that the meanings inferred from Smith’s idea of IH by the modern economists support only their own interpretation of economic policies. Kennedy (2009) shows that three leading modern economists laud the IH as the “profoundest” and “most influential” contribution of Adam Smith. Nonetheless, their interpretation of the term and its significance is not supported either by Adam Smith or by readers of Adam Smith until the late nineteenth century.

In a corpus of over a million words, the terms IH appears only twice in the economic writings of Adam Smith. It is used only once in the Wealth of Nations in very limited and narrow context. Rothschild (1994) analyses the controversy surrounding the meaning of IH and concludes that what Smith meant by this metaphor was only a “mildly ironic joke.” Blaug (2007) also shows that Adam Smith cannot be blamed for these ideas. He cites other references which state that:

Some economists regarded the Arrow-Debreu results [on the existence of general equilibrium] and the fundamental theorems of welfare economics as the modern expression of Smith’s invisible hand . . . . But Smith would be surprised at what is attributed to him today . . . . On careful reading Smith does not say that selfish behavior is praiseworthy, is bound to pay, or necessarily promotes the best interests of society . . . . The passage containing the invisible hand metaphor is not about general equilibrium theory: its purpose is to explain why merchants would continue to buy British products even if tariffs were removed.

Ashraf, Camerer, and Loewenstein (2005) make a detailed analysis of Smith’s pioneering work The Theory of Moral Sentiments to conclude that “For Adam Smith, a mixture of concern about fairness . . . and altruism played an essential role in market interactions, allowing trust, repeated transactions and material gains to occur.” In sharp contrast to the modern economists’ unwarranted understanding of the IH metaphor as a sanction for selfish behavior, Smith explains that justice is in fact only a rational behavior. Fear of retribution is likely to deter the people from committing injustice. He says: “Nature has implanted in the human breast, that consciousness of ill-desert, those terrors of merited
punishment which attend upon its violation, as the great safe-guards of the association of mankind, to protect the weak, to curb the violent, and to chastise the guilty.” See Smith (1759, p. ii, iii, 125). Realizing the crucial role of justice, especially in ensuring just behavior, he believes that justice is the “main pillar that upholds the whole edifice. If it is removed, the great, the immense fabric of human society . . . must in a moment crumble to atoms.” Fairness and justice have only recently attracted the attention of economists as providing justifications for many observed human behaviors in conflict with standard utility maximization theories, see Karacuka and Zaman (2012) for a brief survey.

REFERENCES:

Ashraf, N., Camerer, C. F., & Loewenstein, G. (2005). Adam Smith, behavioral economist.
Journal of Economic Perspectives, 19, 131–145

Blaug, M. (2007). The fundamental theorems of modern welfare economics, historically
contemplated. History of Political Economy, 39, 185–207

Grampp, W. D. (2000). What did Smith mean by the invisible hand? Journal of Political
Economy, 108, 441–465

Kennedy, G. (2009). Adam Smith and the invisible hand: From metaphor to myth. Econ Journal Watch, 6, 239–263

Minowitz, P. (2004). Adam smith’s invisible hands. Econ Journal Watch, 1, 381–412

Rothschild, E. (1994). Adam Smith and the invisible hand. The American Economic Review, 84, 319–322

Failures of the Invisible Hand

Rafi Amir-ud-Din and Asad Zaman “Failures of the ‘Invisible Hand’”
Forum for Social Economics Vol. 45, Iss. 1, 2016 pp 41-60.

Textbooks, like Mankiw, state that the four claims listed below are at the center of modern economics. Our goal in this paper is to show that all four of these claims are wrong.

1.      Participants in market economies are motivated by self-interest. (SI) – In fact, cooperation, service, recognition and status in community, and reciprocity are very strong motivators of human behavior.

2.      Decentralized market economies work very well, and maximize the welfare of society as a whole. (FM:  free markets). As illustrated by the Global Financial Crisis, unregulated markets lead with regularity to disasters and crises.

3.      The reason for excellent functioning of decentralized market economies is that all participants are motivated by self-interest. This self-interest works better than love and kindness in terms of promoting social welfare.  (GG:  greed is good). This is absolutely false, and the opposite of the truth – love and kindness work much better at promoting social welfare.

4.      The principles listed above were summarized in the concept of the “Invisible Hand” by Adam Smith. (AS). Adam Smith can be blamed for many wrong ideas, but this is not one of them. In fact, free market economists attribute this theory to Adam Smith to create legitimacy for their ideas. 

Detailed presentation of the paper is available in the following 1 hr. video.

The Human Development Revolution

Because of Western dominance, brilliant thinkers from the East get very little attention in global media. Even though brilliant economists from East Asia and China have created globally acknowledged economic miracles in their countries, none of them have received a Nobel Prize. On the other hand, Western economists whose theories were demonstrably in conflict with the events that took place in the global financial crisis — like Lucas, and Fama — have received Nobels. One of our greatest un-sung Eastern Heroes is Mahbubul Haq. My recently published article describes the revolution he created in economic thought:

Goethe starts his famous East-West Divan with a poem about the journey (Hegire), both physical and spiritual, from the West to the East. In this essay, we consider the analogous journey from Western to Eastern conceptions of development. This involves switching from viewing humans as producers of wealth, to viewing wealth as a producer of human development. To start with the Western conceptions, both Adam Smith and Karl Marx defined economic growth as the process of accumulation of wealth. The range of diversity of Western thought is bounded by the Left-Right spectrum. Ideas on which both extremes agree command widespread consensus in the West. Consequently, a core concept of modern economic theory is that wealth is the means and ends of the process of economic development. Unfortunately, due to the dominance and influence of Western paradigms, this concept has been widely accepted and adopted in the East today.

Mahbubul Haq was indoctrinated into the Western development paradigm which gives primacy to wealth at leading universities, Yale and Harvard. He got the chance to apply these economic models as the chief economist in Pakistan during the ’60s. However, because of his Eastern upbringing and heritage, he was able to see the murderous message at the heart of the cold mathematics of the Solow-Swan growth models. These models focus on savings, created by reducing present levels of consumption, as the only route to the accumulation of greater future wealth.

Mahbubul Haq realised what is not mentioned in the economics textbooks: obsession with production of wealth requires us to use the sordid and cruel tactic of making workers produce wealth, and refusing to allow them to consume it, in order to buy machines and raw materials. He was clear-sighted enough to see the consequences of these policies: wealth did indeed accumulate, but it went into the pockets of the 22 families, without providing relief to the misery of the masses. Today the global application of capitalist growth strategies has led to a dramatic increase in inequalities both inside nations and across nations. Just one among many horrifying inequality statistics is that the top 13 individuals now have more wealth than the bottom 3.5 billion on the planet.

Dissatisfaction with state-of-the-art Western growth theories led Mahbubul Haq to a revolutionary insight, taken from the heart of the traditions of the East, and having no parallels in current Western economic theories. Instead of capital, Mahbubul Haq placed human beings at the centre of the process of economic growth, returning to the ancient wisdom that “human beings are the means and ends of development”. Even though he was called a heretic for going outside the boundaries of contemporary economic thought, the pragmatic genius of Mahbubul Haq sought to minimise differences and create bridges to conventional thinking in order to achieve acceptance for his radically different approach to development.

His Human Development Index (HDI) was a master stroke, combining two inherently incompatible conceptions of development in a compromise which ceded ground to wealth in order to create international visibility for poverty. His friend and classmate Amartya Sen was reluctant to accept the HDI because of certain inherent flaws in this marriage of fire and water, but eventually agreed to its practical necessity. The pragmatic approach of Mahbubul Haq paid off handsomely when the HDI measure achieved global recognition as rectifying major defects in the standard GDP per capita. Widespread acceptance and use of HDI has led to a radical change in the discourse on development, by adding poverty, health, education and other soft social goals to the pure and simple-minded pursuit of wealth. The revolutionary ideas of Mahbubul Haq have led to improvements in the lives of millions, as global consensus developed on the social goals embodied in the MDGs and SDGs.

The Human Development approach of Mahbubul Haq was carried further by Amartya Sen, who defined development as the freedom to develop human capabilities. This notion, closely aligned with Eastern thought, was so alien to orthodox economists that they rejected it. Consequently, a new human-centred field of development studies emerged, which combined many streams of dissent from orthodoxy. Unfortunately, leaders at the helm of policymaking in the poor countries of the world are trained in orthodox economic theories, and have not assimilated the radical lessons of Mahbubul Haq, acquired from bitter experience. The paths to genuine development lie open, but with their backs to the doors, they are unable to see them.

Conventional growth theories create the mindset that the game is all about wealth creation. We will worry about our poor population only after we acquire sufficient wealth to feed them. The poor are a burden on the development process because providing for them takes away from money desperately needed to finance development of infrastructure, purchase of machinery and raw material, and industrialisation. We cannot afford to feed the poor, if we want to grow rapidly. The human development paradigm stands in dramatic contrast to this currently common mindset among planners. Instead of utilising humans to produce wealth, we utilize wealth to develop human capabilities. Our human population, our poor, are our most precious resource. This point of view receives strong support in the empirical findings of a recent World Bank study entitled “Where is the Wealth of Nations?” The study finds that the wealthiest nations are rich because they spend money to develop their human resources, and not because of natural resources.

Thus, instead of being a burden, our poor are our most efficient means to development. If we use available wealth to improve their lives, to empower them, to educate them, and to provide them with the support they need, they can rapidly change the fate of the nation. Furthermore, they are also the end of the development process — that our goal is NOT to produce more and more wealth, a la Adam Smith and Karl Marx — but to ensure that our people lead rich and fulfilling lives. If we use our energies to achieve this goal, we have already arrived at the destination — we do not need to wait for a distant future where sufficient wealth will accumulate to enable us to take good care of our people.

Published in The Express Tribune, May 20th, 2017.

Meta-Theory and Pluralism in the Methodology of Polanyi

Currently, I am teaching a course in Advanced Microeconomics where I have started with the premise that conventional economic theory, both Micro and Macro are fundamentally wrong. The number of ways in which they are wrong cannot even be counted. Instead of enumerating errors, the course is devoted to providing a constructive alternative. A lot of the early lectures deal with the basic concepts of optimization and equilibrium, the fundamental building blocks of conventional courses, and explain how these are wrong. I also explain how economists are using a wrong methodology, and how they misunderstand the concept of a theoretical model, and the relations between models and reality. The video-taped lectures, PPT slides, and some supporting materials, are available from my website: https://sites.google.com/site/az4math/

Originally, I had not planned to teach Karl Polanyi because his theories are significantly more complex than those of Karl Marx and Adam Smith. However, because the class has been very receptive, and has understood the what I have been teaching, I have decided to explain his ideas. We have already started discussing his ideas starting from Lecture 13, and have finished Part I of the Great Transformation in Lecture 16. In order to prepare for the complexities of Part II, I have distributed the following handout to the class, to explain the complex general methodological framework which underlies Polanyi’s analysis.