The Nobel Prize in Economics and Neoliberalism: Positivism and Economic Rationality

A great book has just been published by Princeton University Press, hot on the heels of the awarding of the various Nobel Prizes, including the Nobel Prize for Economics.

The book appears to be a tour de force that exposes the true meaning of the Nobel Prize for Economics.

Princeton has got timing down to a fine art.

I really look forward to reading this. The synopsis of the book, The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn, at the Princeton website states;

Our confidence in markets comes from economics, and our confidence in economics is underpinned by the Nobel Prize in Economics, which was first awarded in 1969. Was it a coincidence that the market turn and the prize began at the same time? The Nobel Factor, the first book to describe the origins and power of the most important prize in economics, explores this and related questions by examining the history of the prize, the history of economics since the prize began, and the simultaneous struggle between market liberals and social democrats in Sweden, Europe, and the United States.

That is a most fascinating argument.

In 2013, that is after the global financial crisis, Stockholm awarded the Prize to Eugene Fama, one of the key developers of the efficient market hypothesis, which was nothing short of a kick in the teeth to the suffering of the world. The award was counterbalanced by granting a share to Robert Shiller, but the bet each way is revealing. It would be like awarding the Prize in physics to the developers of Supersymmetry at the same time as those who developed the Higgs mechanism or some such.

Heaven forbid should it have gone to a post Keynesian exponent of Minsky’s financial instability hypothesis.

I have a profound interest in neoliberalism. Fawaz Gerges, who specialises in Middle East affairs and political Islam, in an interview at the University of California Berkeley, had stated that he is interested in the politics of the region because, as a native of Lebanon, he wants to reach thorough understanding of the calamites that have so affected his, and his society’s, life.

This is a noble endeavour.

For me I want to know about neoliberalism. It is a passion. Neoliberalism and globalisation have been the dominant processes governing my life and the life of my society. I want to know as much of them as I can.

Neoliberalism trades to no small degree upon a superior claim to rationality. A rational society is one that is based on free markets, we are led to hold, and the invocation of rationality depends to no small degree on the intellectual power of neoclassical economic theory. From this we get such notions as Margaret Thatcher’s “there is no alternative.”

The Nobel Prize in Economics, the authors of this work argue, lends credence to this appeal to superior rationality, and is thus designed.

Positivism represents a lacuna in the literature on neoliberalism. Philip Mirowski, a perceptive observer of economic theory and neoliberal thought, has long argued that neoliberalism is too often exclusively viewed within the prism of neoclassical economics. He observed, rather, that the economics is a component of a much larger social philosophy.

I concur with this.

Positivism has been, we should note, a matter of controversy within what Mirowski refers to as “the neoliberal thought collective.”

Neoliberalism is a rejection and reconstruction of the liberalism that was developed from about the end of World War One onward. Take, say, Keynes. He was involved in the reconstruction of social philosophy, in the reconstruction of liberalism, and his macroeconomics is best seen in this light rather than sui generis.

Neoliberalism is a reaction against this. The exclusive focus on Keynesian versus neoclassical macroeconomics tends to obscure this more basic contestation of ideas.

Now Hayek and the Austrian school opposed positivism. Friedman and the post war, especially American, free market apostles tended to adopt it and so neoliberalism became more dependent upon economic theory. To the extent that this is accurate it requires explanation.

My own view is that Hayek was opposed to positivism because prior to the second war positivism went part and parcel with the social democratic reconstruction of liberal thought. However, after world war two, when the intellectual centre of gravity shifted across the Atlantic, a distorted positivism, especially in the context of 1950s cold war hysteria, took hold which was more amenable to power and privilege.

This evolutionary process in positivist thought saw neoliberal thinking increasingly being founded upon the scientific pretensions of free market theory, which of course brings us to the matter of the Nobel.

To be sure there is a certain naturalism that underpins the thinking of Hayek and the Austrians, just as much as it did to that of Adam Smith, who of course well preceded positivism. Naturalism and positivism are not the same, and the too ready focus on neoclassical economics in the context of neoliberal thought serves to obscure the deeper philosophical underpinnings to neoliberal ideology.

That economics should have a Nobel Prize assigned it is horrid. In regard to prizes for intellectual work I agree with Grigori Perelman. One-day humanity will recognise that it is we who are nuts, not Perelman.