What’s wrong with economics?

January 31, 2022

I think many critics get it wrong. For instance some argue that it isn’t scientific, that it’s assumptions are wrong, that it’s too mathematical, and above all that it doesn’t work. Well that’s a bad mistake; it works very well…but it doesn’t work for you! The basic problem is that it is a particular kind of economy and associated economic theory and is quite unlike other kinds,  and one which works primarily for the rich.

If we define the realm of economics to be about production, distribution, exchange and development then it is obvious that there are many wildly different ways of going about these operations. In some economies nothing is ever sold. In some the primary purpose of producing food is not to eat it but to give it to one’s in-laws to satisfy tribal obligations. In others readily available food is not eaten even if people are starving, because that’s taboo. In some the basic mechanism is the gift. In the economy of Bhutan the supreme goal of the economy is not to maximize the GDP, it is to maximize national happiness. But conventional economists carry on as if they are telling us how economics works when they are only telling us how our present grotesquely unjust, fatally flawed, self-destructing and un-reformable economy works.

Even worse, they confine themselves to a set of variables and measures which do not and cannot deal with more than a limited number of the relevant phenomena. That is, they only talk about monetary measures and values and this often leads them to completely ignore the most important aspects of a situation. For instance, when they talk about costs and benefits they are not interested in things like the psychological costs of unemployment or the cost to social cohesion.

Conventional economic theory is like a theory of art couched only in terms of the thickness of paint. This would enable complex and mathematically precise theorising about different artists, styles and genres…but it would be so limited in scope and terms that it could tell us nothing that matters much about art.

This warped explanatory vocabulary viciously distorts thinking and impressions. For instance, they define living standards, national wealth, welfare and cost of living simply in term of amounts of money held or exchanged, when in fact all these things depend primarily on non-monetary values and circumstances. Their definition means there can be no doubt that the best/only way to raise living standards is to grow the GDP. It hardly needs to be noted here that increasing the amount of producing and consuming going on in the world is the very last thing the planet needs; it is the basic cause of all the big global problems now threatening our very existence.

Surprise, surprise, these distorted definitions get you to see things the way the capitalist class would like you to. If living standards are a matter of money to spend buying stuff then of course you will be in favour of growing the GDP constantly and without limit. If the costs and benefits of closing a factory and tipping people into unemployment are accounted only in money terms then no attention will be drawn to the psychological, social or ecological costs, or to the morality or justice of the action. The conventional economist actually has the arrogance to define these impacts on the real welfare of people, social cohesion and ecological systems as “externalities”. Well of course they are external…to a theory and an accounting system that refuses to take any notice of them.  So catastrophic ecological damage caused by capital investment can be shucked off as having nothing to do with the economic system, and there is no reason to intervene in it to prevent the corporations from inflicting and avoiding these costs.

Another of the major sacred assumptions embedded in conventional economics is that it is best to leave things to the market. We are told market forces “reward factors of production according to the value of their contributions”. Therefore the state should interfere with the workings of the market as little as possible, and just maintain the “level playing field.”  Well, I would like to offer the following alternative set of laws concerning the marvellous market.  The market never makes the right decisions. Market forces always deliver scarce things mostly to the rich. Development driven by market forces always produces inappropriate and unjust development, that is, development in the interests of the rich.

Why is about one-third of the world’s grain fed to animals in rich countries while at least 600 million people are hungry? Because the market is allowed to determine what the grain is used for and the rich are able to bid more for it to go into the feedlot beef production they like. Why is most investment in the development of poor countries going into factories and plantations and mines that ship out cheap resources to rich world corporations and supermarkets, when there is miniscule development of the things five billion very poor people need? Because development is determined by what investments in the Third World that people with capital think will make most money for them in the market place.

Similarly, many vital goods are treated as commodities, that is as things that can be sold in the market to make profits, including money, labour and land. Housing is now a commodity increasingly bought and sold at the highest price possible, by investors seeking to accumulate wealth …meaning that it is impossible for increasing numbers of ordinary people to ever afford a house. (The medium house price in Sydney is now around 10 times the cost of building it.) Labour is treated as a commodity, traded in the “labour market”, meaning that, like bricks or cod, if no one can make a profit buying your labour then you can be left to rot. And money is a commodity, hired out by lenders to whoever can pay the highest interest rate, meaning that societies go without important infrastructures, industries and services because they can’t get loans to invest in building them. That’s alright; very rich people should be free to get the scarce funds to use as they wish while we are told we “can’t afford” all the hospitals and fire engines we need. We could if the capital a society possessed was available for that society to invest in what it most needs.

And one of the most never questioned principles is that it is OK for rich people to get large incomes without having to do any work, that is, the acceptability, desirability of private investment is taken for granted. Very rich people can lend money and live off the interest; poor people can’t. They have to work for their incomes, while the rich consume the goods they produce. No one seems to detect any contradiction between the powerful convictions that hard work is a supremely important value and that laziness is a sin … and the fact that our society is shaped and driven by the investments made by people who are not expected to do any work at all.

One major consequence is that the economy we have comes to be seen as natural or as the only possible, sensible one. They talk only about what happens in a capitalist economy and thus people end up thinking that that’s what inevitably happens in economics and it’s a mistake to think it could be any other way. Take for instance the fundamental economic law that when supply becomes scarce price rises. That’s actually wrong; it is not a law describing what always happens in nature. Sometimes price rises and sometimes it doesn’t. When porridge becomes scarce in your household economy the price doesn’t change; you figure out how best to allocate what’s left. But when something becomes scarce in a capitalist economy in which everyone is out to maximise their income, then sellers choose to ignore need or justice and rush to charge as much as they can now get, because capitalism puts everyone in a situation where you have to think this way to survive. Thus, morality and justice considerations do not arise and mercilessly winner-take-all competition appears to be natural and unavoidable. They even have the gall to talk about the “natural rate of unemployment”. A satisfactory economy would have no unemployment at all.

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It is transparent therefore that conventional economists proceed as if they are discussing the economic realm, that is, economics-in-general, but they are only discussing a capitalist economy, they are only using a limited and deceptive vocabulary to do it, and they happily assume/assert their views and values as indubitable (…e.g., the market is best, competition is good, society should not interfere, cut taxes on the rich, wealth trickles down, unearned income is OK…)

The fundamental defining principle of a capitalist economy is that what happens is determined by what will maximise the profits, income and wealth of the few who own most of the capital, by competing in the market place. Yes, in the real world other factors also operate but they typically play a secondary role. States can intervene, but usually they do so mainly to facilitate and regulate capitalism (… and to prevent the system from self-destructing.)

How insane to think that if you let the economy be driven by what a few obscenely rich people think will maximise their wealth then you will get what is best for all! It is obvious that a satisfactory economic system would be geared to meeting the needs of people, society and ecosystems, and that this can only be done if society is somehow in control of what happens. There are many ways this can be done and it doesn’t have to be via an authoritarian centralized bureaucratized state “socialism”. (See TSW: The New Economy.)

This economy embodies several principles and procedures that are clearly undesirable, unjust and indeed immoral, yet they are “normalized”, made to look acceptable, justified, even admirable. It is OK for the richest to take as much as they like and thereby deprive the poorer people, grotesque inequality is in order, inevitable, development of trivial and luxurious ventures is not a problem, large numbers are dumped into unemployment and homelessness but there is no need to dump an economic system that does this.

Polanyi, Tawney and others have pointed out that in Medieval times the economy was governed by moral rules that held across the whole of society, such as do not take advantage of another person’s plight, pay just wages, forgive debts periodically. But with the advent of capitalism the rules governing economic activity were split off from those governing social action. It became acceptable to screw someone who was forced to sell cheap; consider bankruptcy and fire sale bargains. It is OK to ruin a rival, or charge far more than you need to, or to make unwarranted claims in adverts. It is OK for Bill Gates to pour about $100 million dollars worth of the world’s scarce resources into building his house when billions have to live in shacks.

This economy forces us to become self-interested individualistic acquisitive competitors, that is, the opposite of nice caring helpful cooperative people. Even worse, it damages and drives out social bonds, cohesion and community. There is not much incentive to get together with others to build supportive and convivial neighbourhoods when we are all struggling on our own to sell our labour in order to buy goods. It is no longer a society with a market; it is a marketing society.

It is clear therefore that conventional economic theory is just the operating manual for capitalism. It adopts the procedures, principles, structures, assumptions and values of capitalism and enshrines them as what economics is and can only be about.  What’s more, it legitimizes capitalism; the theory makes it look as if the system is natural, inevitable, to be accepted, the best way, indeed the only way. Consider the following instances where fundamental economic principles and laws turn out to be precisely what suits the capitalist class.

  • Production and development are driven by what will maximise profits (… not by what will maximise the welfare of humans, societies and ecosystems.)
  • Competition is a fundamental feature of the economy; capitalists compete against each other for more sales (… as distinct from organizing society’s productive capacities cooperatively to meet needs.)
  • Growth is supremely important; increasing business turnover raises national wealth and “living standards”.
  • A few own most of society’s capital and invest in whatever they like. (…while most people go without things they want.)
  • People cannot meet their needs unless someone with capital decides to set up a factory they can work in. (There are never enough jobs to employ all who need work.)
  • Investors are important; they set up factories etc. (… but not the factories we most need.)
  • The rich need not work for their incomes; they can live off investments.
  • Inequality eventually skyrockets. Some get super rich while many remain very poor ( … so don’t be surprised that the average wealth of the top 10% of the world’s people is 50 times that of the poorest 50%;   for Bezos the multiple is 30 million times.)
  • Wealth “trickles down”; when the rich invest in a new cosmetics factory jobs and incomes are created, raising the living standards of poorer people. Thus cutting taxes on the rich can be a good idea.
  • Humans are self-interested benefit maximisers; they naturally compete to get as much for themselves as possible. Thus it makes sense to have an economy that operates accordingly.

These elements show that conventional economic theory is a key component of capitalist ideology; it gets us to think as the capitalist class wants us to, to accept a system which delivers most wealth to a few and dumps millions into unemployment, to think there must be minimal interference with the free market, to accept that “development” is best determined by what corporations want to invest in. This is not necessarily the result of some deliberate conspiracy, but the theory does enshrine assumptions procedures and principles that the rich are delighted to have us believe.

In my opinion Marx got several things wrong, but one thing he got right was that capitalism has serious contradictions built into its foundations, and these will eventually cause its self-destruction. Consider the contradictions between growth and environment, the interests of capital owners and those of the rest, and above all between profit and need. The growth dynamic built into the foundations of the system determine that ever-increasing levels of production and consumption generating ever-increasing pressure on resources and ecosystems will before long result in catastrophic collapse of the biosphere.

Another thing he got right is that capitalism will in time generate increasing “immiseration”. People all around the world are now increasingly discontented with how the system is failing to provide for them and the US is showing how this is likely to lead to the breakdown of our social and political systems.

These many serious faults show that this economic system cannot be reformed. Its fundamental principles are inevitably causing the big global problems. The solution has to be transition to a radically different kind of society and culture, which we call The Simpler Way. How we might get to it is discussed in TSW: Simpler Way transition theory. It is important that at this early stage we help people to see how unacceptable the current system is.


Teaser photo credit: Inside Utrecht Giveaway shop. The banner reads “The earth has enough for everyone’s need, but not for everyone’s greed”. By admin –, CC BY-SA 3.0,

Ted Trainer

Dr. Ted Trainer is a Conjoint Lecturer in the School of Social Sciences, University of New South Wales. He has taught and written about sustainability and justice issues for many years. He is also developing Pigface Point, an alternative lifestyle educational site near Sydney. Many of his writings are available free at his website The Simpler Way.

Tags: critiques of capitalism, mainstream economics, The Simpler Way