Political Economy Forever?

My contribution to a celebration of the 50th anniversary of the formation of the Department of Political Economy at Sydney University

I was asked to contribute to the 95th edition of the Journal of Australian Political Economy to celebrate 50 years of the Department of Political Economy at Sydney University, since I was one of the key students whose protests in 1973 motivated the Department’s formation. This is my draft paper. I’ll make it publicly available after the special issue comes out, probably in mid-2025.

As an active participant in the events that led to the formation of the Department of Political Economy at Sydney University in 1975, and as someone whose life was transformed by those events, I am delighted to contribute to JAPE 95 on the Department’s 50^th anniversary. Looking back after more than a half-century’s life experience in economics, I now appreciate how unique and important those events were.

By the time the Political Economy dispute erupted in 1973, there had been sufficient intellectual progress in economics to justify the overthrow of the Neoclassical paradigm. It persisted, not because it was correct, but because its adherents were intransigent, and because its pseudo-scientific mumbo-jumbo supported the capitalist ruling class, even though it was wildly wrong about the actual nature of capitalism. It remains undead today for the same reasons.

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Veblen’s attack on Neoclassical economics as “a taxonomic science”, rather than an evolutionary one, in “Why is Economics not an Evolutionary Science?”, was published in 1898 (Veblen 1898, p. 389), contemporaneously with Marshall’s declaration that evolution, and not equilibrium, was the preferred analytic framework for economics:

in the later stages of economics, when we are approaching nearly to the conditions of life, biological analogies are to be preferred to mechanical … The Mecca of the economist is economic biology rather than economic dynamics. (Marshall 1898, p. 43)

And yet the equilibrium fetish of the Neoclassical school has only gotten more extreme with time.

Sraffa’s logical critique of Marshall’s fallacious theory of the firm occurred in the 1920s (Sraffa 1926), and was followed by decades of empirical research which established that real-world firms do not experience rising marginal cost as Neoclassical theory assumes, but constant or even falling marginal cost (Besomi 1998; Lee 1981; Wilson and Andrews 1951; Blinder 1998).

And yet the fiction of rising marginal cost still reigns supreme today, not only in microeconomics, but even in “micro-founded” macroeconomics.

Gorman (Gorman 1953) and Samuelson (Samuelson 1956) committed classic “own-goals” in the 1950s, when they inadvertently proved that a market demand curve could be guaranteed to slope down in price like an individual demand curve if, and only if, both “all men” and all commodities were identical:

The necessary and sufficient condition quoted above is intuitively reasonable. It says, in effect, that an extra unit of purchasing power should be spent in the same way no matter to whom it is given. (Gorman 1953, p. 64, p. 64. Emphasis added)

The common sense of this impossibility theorem is easy to grasp. Allocating the same totals differently among people must in general change the resulting equilibrium price ratio. The only exception where tastes are identical, not only for all men, but also for all men when they are rich or poor. (Samuelson 1956, p. 5. Emphasis added)

And yet economics textbooks still teach students that downward-sloping market demand curves can be derived from downward-sloping individual demand curves—though Mas-Colell’s PhD textbook does at least caution that this conclusion requires the existence of “a benevolent central authority” which “redistributes wealth in order to maximize social welfare” (Mas-Colell et al. 1996, p. 117) before market trades occur!

Sraffa’s proof that the distribution of income had to be based upon relative bargaining power, rather than “marginal productivity” (Sraffa 1960), led to the Capital Controversies (Pasinetti et al. 2003) in the 1960s, in which no less a Neoclassical than Paul Samuelson ultimately conceded defeat:

Pathology illuminates healthy physiology. Pasinetti, Morishima, Bruno-Burmeister-Sheshinski, Garegnani merit our gratitude for demonstrating that reswitching is a logical possibility in any technology …
There often turns out to be no unambiguous way of characterizing different processes as more "capital-intensive," more "mechanized," more "roundabout," except in the ex post tautological sense…
If all this causes headaches for those nostalgic for the old time parables of neoclassical writing, we must remind ourselves that scholars are not born to live an easy existence. We must respect, and appraise, the facts of life. (Samuelson 1966, pp. 582-3. Emphasis added)

And yet economics textbooks—including Samuelson’s—continued to teach the myth of marginal productivity as the basis of income distribution.

There were, therefore, enormous currents of justified criticism of mainstream Neoclassical economics in general, and of the teaching of it in particular, before the dispute at Sydney University began.

Its genesis can be traced to 1968, when a Neoclassical economist—Bruce Williams—became Vice-Chancellor at Sydney University, and then promptly appointed two other Neoclassical economists—Colin Simkin and Warren Hogan—as Professors to deform (not a typo) the department away from its humanist and Keynesian foundations.

I’ll let others who were there at the time recount the pre-1971 history. But one under-appreciated aspect of that history, I feel, is the positive contribution that those Professors made to the revolt in 1973. The authoritarian manner in which an extreme and mendacious Neoclassical curriculum was imposed on an, until then, relatively harmonious and democratically managed Department, led to numerous staff (and students) being disgruntled and eager for change.