The Perils of Banking on Economics

Context: While Economic science has revolutionised the human civilisation by enhancing comforts of life and living conditions, its value has been eroded by a global focus on the business side of economics.

Contribution of Economic Science:

• GDP growth: increased between 1600 and 2018 by 260 times.

• Industrial revolution: was facilitated by the ideas of economists, including Adam Smith. 

• Elimination of poverty and unemployment: in the Soviet Union was due to Marxian economics.

• The Great Depression of 1929: prompted Keynes to propose the General Theory of Employment.

• Bretton Woods system: was created due to the complexity of the gold standard as a medium of exchange and the adverse impact of the Great Depression.

• Marshall plan provided opportunities to America: to emerge on the world scene of U.S. 

• Focus towards Third World Issues: through theories of human capital and roles of education, health and income in human development.
• A shift from micro to macro issues: including the role of the state in providing fiscal and monetary policies to enhance GDP. 

Evolution of Economics as a science:

• Publication of economic papers by East India Company: praising trade that brings more gold and silver, influenced government policies and garnered military support.

• Adam Smith emphasised ‘the spontaneous harmony of interests’: to reconcile private interests and economic efficiency.
• He considered mercantilism as restrictive to foreign trade and wanted the operation of an invisible hand to regulate free trade. 

• Smith quoted that ‘labour is the measure and cause of value’ and ‘land is the mother and labour is our father.’

• Economics became an independent discipline: with the creation of the first professor of economics at Cambridge.

Shift of Economics (as a science) towards Business Economics: was necessitated by the following:

• International trade facilitated not only the movement of tangible goods: but also intangibles to cross borders. 
• Expansion in the role of money, paper currency and other instruments: such as shares, IPOs, bonds and derivatives with the expansion of stock exchanges.
• Revolution in the capital market with the innovation of ICT: has helped the transfer of billions of dollars across continents and has thrown up opportunities for speculation and the demand for skilled experts. 
• For, E.g. Business schools offer courses in financial management even without a degree in economics.

Erosion of Status of Economics

• Exposed Inadequacies: The 2008 financial crisis in the U.S. due to the so-called derivatives market and real estate boom exposed the phoney tales. (ending an era of Economic Theocracy).

• Closing down of the departments of economics that teach public finance, macroeconomics and development economics.
• Professors whose tenures are under threat have shifted to business economics or management schools.
• Critique of Nobel Prize in Economic 2020: Awards were given to those subscribing to Washington Consensus, derivatives, financial markets, property rights and game theory that are speculative, abstract and devoid of practical use, instead of providing a solution to the pandemic.

Conclusion: Economics would regain its glory and provide solace to mankind through its original avatar of political economy.

Quote: “There could be no end of history unless there was an end of science.”- Francis Fukuyama.