Should we be teaching Neoclassical Economics to undergraduates?
Full Professor, Laurentian University, Canada
Editor-in-Chief, Review of Political Economy
Editor, Elgar Series on Central Banking and Monetary Policy
Full Professor, Department of Economics
University of Fribourg, Switzerland
Monetary Policy Institute Blog #115
This blog was previously published in Italian by Kritica Economica under the title: “Dobbiamo smettere di insegnare l’economia neoclassica?”
“Because of this, we must teach it, but only to discredit it, make students aware of what is wrong, and what is disconnected from how markets operate. So, there is a distinction to be made between how markets do not follow the laws of neoclassical economics, and how the world is dominated by its practice: policy wonks, politicians, bankers and professors prefer to ‘rebuke the line for touching’. It is this wisdom and this distinction that we must teach our students.”
There are plenty of articles, blogs, and books criticizing neoclassical economics — the ‘vulgar’ economics — that are thorough in pointing to its many failures. The list is too long to discuss them all here, but they are easy enough to find in the pantheon of post-Keynesian and heterodox literature. Authors such as Paul Davidson have repeatedly questioned the realism of neoclassical assumptions, in the sense that they are not an adequate description of the ‘real world.’ Still, others, such as Vicky Chick, have lamented the methodological flaws of neoclassical economics, and its reliance on atomistic individualism, convergence to equilibrium, self-adjusting mechanism and the likes.
To some, neoclassical economics “is dead”, as is the opinion of Steven Klees, at the University of Maryland. A quick look at almost every journal and university departments will confirm, however, that neoclassical economics is not dead, and far from it. It is thriving in university departments and still is considered ‘the only game in town’, despite the rise of alternative views, such as Modern Money Theory, or heterodox ideas slowly creeping into mainstream approaches.
Perhaps a more accurate description is John King’s conclusion that,
Of course, this echoes Keynes’s own statement, in the opening paragraph of The General Theory, when he wrote:
“The characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live, with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.”
Disastrous, indeed. The result is all too obvious, as Keynes also reminds us, in an essay written in 1930. Referring to the “nightmare”, Keynes writes:
“We have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time — perhaps for a long time.”
And we do not have to look too far to find proof of such ‘blunders’ today. Of course, there is the depression of which Keynes spoke, but more recently, consider fiscal and monetary austerity policies that caused and still cause considerable pain to workers under the misguided assumption that ‘there is no alternative’. Such austerity measures (and even the case of monetary largess, as in quantitative easing interventions, that specifically and intentionally enriched so many), from various governments in various countries at various times, but especially since the 1980s, corresponded to the rise of neoliberal policies that culminated in the 2007–2008 global financial crisis. In this sense, this global financial crisis was a ‘crisis in waiting’: it was inevitable and it was simply a matter of time before the system collapsed, as is, we postulate, the next crisis.
This, of course, brings up the discussion that economic policies derived from neoclassical theory, with its emphasis on “the market” as the ideal rector of the economy, turned into public policy with privatization, liberalization and deregulation, tend to favour some more than others. Of course, all policies even those inspired by post-Keynesian ideas, will generate winners and losers. But post-Keynesian policies at least seek to redistribute income, wealth and power, while neoliberal policies want to concentrate them within the hands of the fewest possible individuals.
Of course, our neoclassical brethren argue that such austerity policies are necessary in order to fight inflation, seen as an economic and social evil: we must guarantee low and stable inflation, under the assumption that this is what matters most. How can we not quote Joan Robinson, who wrote that one of the objectives of,
“orthodox traditional economics was … a plan for explaining to the privileged class that their position was morally right and was necessary for the welfare of society.” (1937, p. 176).
Yet, as James Tobin warned us, in a brilliant Op-Ed in the New York Times, almost five decades ago, in 1974, “hysteria about inflation may lead to policies that keep economic progress well below its potential.”
In other words, according to Keynes, austerity “belongs to the species of remedy which cures the disease by killing the patient.” It is the fight against inflation, at all costs, and most likely on the back of workers, that has become an acceptable rallying cry for the wealthy elites, as inflation deflates the real value of their wealth.
So, the fight against inflation, let us be clear, increases the wealth of rentiers while also reducing the livelihood of workers by creating unemployment. This echoes, or rather paraphrases, the revolutionary words of Madam Roland, in 18th century France, “Inflation, que de crimes on commet en ton nom!”
Given all this, we find it odd that post-Keynesians and heterodox economists have decried neoclassical theory and policies, yet have stopped short of asking what we think is the most important and obvious question: should we bother teaching neoclassical economics to undergraduate students? Should we simply stop teaching it altogether?
After all, physicists do not teach flat Earth theory in university classes, nor do they teach geocentric models of the universe; biology does not teach creationism. These theories are simply wrong and have no place in undergraduate teaching, unless they are the butt of some bad joke. So why are heterodox economists still teaching neoclassical economics? In a blog post, Tim Thornton of Boston University (2020) answered this question by writing:
“It matters because the way economics is taught has consequences far beyond university walls: it shapes the minds of the next generation of policymakers, voters, and citizens.”
The morality of neoclassical economics
We share the opinion that neoclassical economics is wrong, and that neoclassical theory is not representative of the real world, and that its policies can be disastrous. And those reasons alone should convince us all to stop teaching it to undergraduates. And many of us probably have had this discussion with some colleagues at some point in our careers. Are we really doing our students any favours by teaching them something that is wrong?
But there is more that should be considered, we think, and it has to do with the ethics or morality of neoclassical economics — a growing rhetoric within heterodox economics, exemplified, for instance, by the recent book by Negru, Duckworth and Meyenburg (2023, p. 1). As the editors explain in the introduction to the book, “ethics has no place” in neoclassical economics — echoing Joan Robinson’s conclusion, in 1978, that in neoclassical economics “the moral problem is abolished.”
For us, this is perhaps the greatest reason to stop teaching neoclassical economics: neoclassical economics is devoid of empathy. Whether this is in any way important reveals much about who answers.
In that context, what exactly are we teaching students when relying on neoclassical economics? Beyond the usual critiques regarding the unrealistic assumptions, what values are we instilling in our students? In teaching micro or macroeconomics, we are telling students that homo economicus is governed by self-interest, that what matters is the pursuit of one’s own utility; society does better if we ignore everyone else (ignoring the unrealistic assumption of the absence of social classes, of course) and we just do what we think is good for us. Relying or caring for anyone else results in “those banal and bureaucratic instruments of coercion, confiscatory taxation, nationalization and oppressive regulation”, as Margaret Thatcher once proclaimed (cited here).
In other words, we teach them that the pursuit of self-interest is the optimal strategy for economic growth, and that empathy for others is actually detrimental to society’s well-being:
“The ethical paradigm of neoclassical economics centers on ‘homo economicus,’ who is driven by self-interest to seek the maximization of subjective material preferences — which is shown to be achievable (under highly restrictive assumptions) by competitive markets” (Annett, 2018).
As a result, as Morris Altman (2021, p. 1) writes:
“A fundamentally important assumption in conventional or neoclassical economics is that being ethical is most likely to be harmful to the economy.”
A famous American sociologist, Amitai Etzioni, studied the impact of teaching (neoclassical) economics on students, in a study entitled The Moral Effect of Economic Teaching (2015). He wondered whether ‘debased’ students were attracted to economics through some sort of self-selection process, or whether teaching neoclassical economics contributed to this debasement. As he concludes: “Studies find the economists and economics students are more likely to exhibit a range of ‘debased’ moral behavior and attitudes… The fact that even taking one course in neoclassical economics may make people less moral may reflect the fact that the course merely reinforces preexisting inclinations toward such a position”.
In a world increasingly dominated by finance and indeed by greed, the consequences are all too worrisome. As Julie Nelson (2012) explains, have we simply come to accept greed?
“The image of economic life as inherently characterized by self-interest, utility- and profit-maximization, and mechanical controllability has caused many businesspeople, judges, sociologists, philosophers, policymakers, critics of economics, and the public at large to come to tolerate greed and opportunism, or even to expect or encourage them.”
This is in the same vein as Gintis and Khurana (2016), who speak openly about how neoclassical theory “corrupted” the profession and society. Not to mention the long list of litanies raised by William Black.
Alain Parguez once described neoclassical economics as the “intellectual reserve army of the ruling class enjoying a large share of the aggregate profits, like the top-level state bureaucracy.”
Neoclassical economics today is far less able to accommodate ethics within itself largely because of its increased reliance on mathematical models and sophistication, that reinforce the dominant idea of homo economicus. After all, what is the mathematical equation for ethical behavior?
The language of economics
Before ending, let us mention one good reason to continue teaching neoclassical economics to undergraduates. We have been told that without it, students would not be able to get jobs. The world in which we live is dominated by neoclassical economics, and in order to get a job, students must speak the language.
After all, the detractors will say, flat Earth theory, geocentric models, and creationism are not the dominant thinking in the sciences. So not teaching them does not place students at a disadvantage. But in economics, we must be pragmatic and teach neoclassical economics.
We remain faithful to what Joan Robinson said about learning economics: “in order not to be fooled by economists”, so in that sense, we also have a responsibility to recognize that the real world consists, rightly or wrongly, of neoclassical economics that ‘ramify … into every corner of our lives’ — to paraphrase Keynes. Because of this, we must teach it, but only to discredit it, make students aware of what is wrong, and what is disconnected from how markets operate. So, there is a distinction to be made between how markets do not follow the laws of neoclassical economics, and how the world is dominated by its practice: policy wonks, politicians, bankers and professors prefer to ‘rebuke the line for touching’. It is this wisdom and this distinction that we must teach our students.
In conclusion, we fully advocate and support the idea that we should at all cost point to the fallacies of neoclassical economics. In all honesty, we are not doing our students any favours by teaching them self-interest, and how the world is made better off by only thinking of oneself. As John King wrote, neoclassical theory is simply wrong, and since it dominates the world in which we live, we must discredit it at all cost, and then teach students about caring: caring about each other, about the planet, about the ‘economic possibilities for our grandchildren’, as Keynes told us.
Keynes also told us that:
“The master-economist must possess a rare combination of gifts… He must be mathematician, historian, statesman, philosopher — in some degree. He must understand symbols and speak in words. He must contemplate the particular, in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man’s nature or his institutions must be entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood, as aloof and incorruptible as an artist, yet sometimes as near to earth as a politician.”
This we feel is even more urgent in an era of poly crises: climate change/ecological problems, social and economic inequality/poverty, financial instability, gender inequality, household debt crisis, social housing crisis, food insecurity crisis, wars and geopolitical conflicts, ethics, and so on. If we cannot prosper using policies derived from neoclassical theory, by teaching it we become complicit in the crises we so talk about.
We must now go beyond the spheres of economics, and propose new ways of thinking about crises, and this we argue can only be resolved by considering society, individuals, and this, we believe, is simply beyond the ability of the neoclassically-trained economists who are, perhaps, best equipped to remain the sorcerer’s apprentice.