Originally economics, as it emerged as a distinct science by the end of the eighteenth  century, had been the domain of freethinkers concerned with understanding this important  part of social life that production and exchange of the created values are. But by the second  half of the nineteenth century the science had turned into being the domain of a crop of  academic economist in the newly established departments of economics, which by then was  becoming a standard feature in the hastily expanding universities. This change, however, also  meant that the study of economics had taken on a new tenor, as this new crop of  economists mainly was recruited among males belonging to the upper classes; still the only  social group with access to the universities. Since human experience bear witness to the fact  that few people truly will free themselves from the values and norms prevalent among the  social groups to which they belong, it meant that the science of economics took a turn  towards social values of the upper classes and thus became imbued with a distinct political  bias. 

Thus, in the spirit prevailing among the upper classes, the new economists saw themselves as  opposed to the generally non-academic freethinkers, including some connected to the labour  movement whose claim was that capitalist industrialism was built on exploitation of the  working class. In contrast, the emerging neoclassical economists saw the outcomes of the  economy as governed by impartial regularities, or “laws”. What people received was a  function of their productivity contribution. This was assured through the operation of  impartial markets. If an employer wouldn’t pay a worker a wage that equalled his or her  productivity contribution, others would and the workers would go there. Thus, an employer  who wouldn’t pay a competitive market wage wouldn’t find any workers willing to work for him or her. Similar mechanisms, the claim was, work in all economic relations. Everybody gets  what they deserve and, as founding neoclassical British economist, Stanley Jevons, declared in  1878, there is no “caprice” . ¹ 

The greatest theoretical innovation of the neoclassical revolution was the idea of marginal  substitution. This was elaborating on the old observation that when the price of a product  goes up fewer will buy it. It was reformulated as they will substitute their spending to  alternative products or uses. For the entrepreneur, the goal was to find the point where the  loss from lost business caused by raising prices equals the gain from raising prices to the  profit maximizing point. This point, after which the gain from raising prices changes to a net  loss, is the margin to which prices should be raised. Rational agents understand this and that  going further than this margin will invite a loss. For the consumer the margin is where the  highest utility is gained by spending a given sum of money. When the price of a given utility  becomes too high the consumer will substitute his or her spending to other utilities with  better utility/price ratios. In a similar way, a speculative financial position with a better risk/ reward expectation must also be considered a utility product for people seeking rentier  incomes, so financial markets can also be analyzed by the principle of marginal substitution. 

This leads to that all rational agent reach their points of marginal substitution for all  categories of economic products, which it is assumed they must in open and free markets.  Per definition, all are well informed and always act to maximize self-interests but never try to  go past their margin points, due to their rational understanding of the market function. The  flows of the economy are then at a state where no-one is incentivized to change their  economic choices and the economy is in a steady state, or equilibrium. 

However, it will be noticed that the original neoclassical theoretical construct is dependent  on the existence of several conditions; primarily open markets where all transacting agents  have equal market power, have equal access to all market impacting information, and equal  ability to decode information and transact on that basis. All this combine to assume that  there exists no systemic market power or information distortions. The problem for the  neoclassical theoretical construct is that none of these assumed underlying conditions are in  general existence. Even the basic assumption of self-maximization has been challenged,  notably by Nobel Laureate, Herbert Simon’s, contention that people not always self 

maximize, but rather satisfice, i.e. stop when outcomes are sufficient to satisfy personal or  institutional goals . ² 

More fundamentally, neoclassical economics remains an intellectual child of the times of its  founding, which was pervaded by a belief in rational scientism, expressed through the rapid  progress that the exact sciences had achieved during the nineteenth century, In this spirit, the  neoclassical economists wanted to emulate this by presenting their work in expositions filled  with algorithms and diagrams, giving it a veneer of an exact science. But this approach was inherently rooted in an epistemological fallacy. Economics deal with consequences of human  actions, therefore it obviously must be classified as a social science, and indeed, departments  of economics in universities tend to be part of faculties of social sciences. Nonetheless, the  findings of the science is presented to the students as having an inevitability of an exact  science.  

The new economists at first didn’t consider the division between economic micro and  macro phenomena. When this division around 1930 was finally recognized in the  methodology of economic study—in particular after the Keynesians advocated for a role  given to monetary policies—macroeconomics was mainly seen as a summation of  microeconomic market activities plus the effect of monetary policies. However, this was not  uncontested as the market purists claimed monetary policies to be ineffective and that they  would be thwarted by well-informed market participants. In the same vein, government  spending to get an economy out of a slump, which Keynes advocated, was deemed mainly to  cause inflationary pressures, which, despite perhaps some short term gains, in the long run  would set the economy further back than it would have been if left alone. 

Nevertheless, economics with the Keynesian turn in the thirties moved closer to its essence  of a social science. This led to a counterattack from the market purists, who hit back  culminating with Friedman’s attack on Keynesianism in the 1950s. With Friedman,  neoclassical economics as part of a conservative political ideology, became explicit when he  in “Capitalism and Freedom” (1962) advocated that government must be kept to a minimum  in order to preserve the freedoms that are the hallmarks of democratic countries. In this  way, he extended his vision of economics into a full fledged political ideology: if we don’t  ensure that governments remain as small as possible, we risk that governments will become  monsters that will take away the freedoms we cherish. Consequently, economic activity, to  the fullest extent possible, must be conducted through markets in order to achieve the  direct goal of small governments and indirect goal of goal of democracy. 

However, Friedman’s claim of a relationship between small government and political freedom  has not aged well; one can for instance observe the current developments in the U.S. With  low, and under current policies further diminishing public participation in economic life,. the  U.S. has turned into a backsliding democracy, veering towards an authoritarian oligarchy. This  process began under Reagan, at a time when Friedman and New Classical Macroeconomic  was all the rage in academia. It has accelerated under Trump 2.0 where, clearly, with  economic policies guided by Project 2025’s Friedman-style dismantling of public institutions  and services. the emerging oligarchy has become the monster. 

One of the outcomes of policies of diminishing government—often through tax cuts that  “starve the beast” and thus creates a rationale for further cuts to social services—has been  to create a society with a very unequal income structure, causing widespread poverty to  exist amidst islands of obscene wealth where oligarchs compete about who can own the biggest yacht. But as collateral damage, poverty leads to high levels of social stress  exacerbated by policies of inadequate social support structures. This includes healthcare that largely is income dependent under the “keep government small and let the market do  everything” political creed.  

Taken together, these are factors that have created a society where social stress is high and  life satisfaction low, even among those in income groups where people are exempt from the  materially negative consequences of the inequalities. In other words, the totality of the social  conditions creates a society in which everybody experiences high levels of social stress and  dissatisfaction. The general low life satisfaction is indicated by U.S.’s low position of the World  Happiness Index, where it scores lowest among the high income countries. 

The conditions in the U.S. contrast with, for instance, the Nordic countries, which, if one  were to make a Venn diagram over the World’s political-economic systems, would represent  one corner circle, characterized by strong social institutions including universal healthcare  access and child care support. This is paid for by relatively high taxes, which further functions  to moderate disposable income inequalities. In lieu of this, instead of measuring the level of  inequality in countries by simple money income, such as per capita GDP, a broader measure  of ‘socio-economic equality’, which is a function of income – taxes + access to essential social  services, would seem more relevant. 

In another corner of a Venn diagram one would find the U.S., which has adopted Friedman’s  model of low government participation, low taxes, high income inequality, inadequate social  support systems, etc. The Nordic countries are thus quite opposite on most points of socio economic importance, in particular maintaining robust social support institutions paid for  with progressive tax systems. These institutional factors reduces social stress and allow the  Nordic countries to experience higher life satisfaction, shown by the fact that the five  countries crowd the top of the happiness index. Moreover, the strong role of institutions in  the organization of society seems to play a role in the fact that the they all are robust  

democracies. another contrast to the backsliding democracy in the U.S,  The conclusion is that, in contrast to Friedman’s assumption, political systems with weak  institutions where all social services are delivered through markets—and therefore income  determined—are more liable to experience democratic backsliding. This can be ascribed to  the high levels of social stress. which is liable to incur political extremism. In turn, political  extremism lead to tendencies to politically overpower political opponents instead of seeking  compromise. Furthermore, the polarization that extremism breeds causes people to  disregard the conflicts that their actions might have with constitutional or moral norms.  This suggests that reality is the opposite of Friedman’s hypothesis of small government as a  guarantor of democracy. Rather, societies with small governments are susceptible to develop  weak social institutions and allow economic dominators to exploit extremist trends to  corrupt the governing institutions, even including electoral processes by flooding the zone  with unregulated flows of money donations. 

Another problem for the science of economics is that it’s stuck in an outdated nineteenth  century view of a one-dimensional economic causality. It holds on to a vision where only  microeconomic market agency exists and therefore all causality driving the economy originates in the microeconomy, a view encapsulated in the dogma of individual methodology.  In other words, the macroeconomy is only an accounting phenomena. Because of this, it  misses the significance of the existence of macroeconomic agency, and the consequent dual  taxonomy of economics. The dual structure is indicated by the fact that microeconomic  phenomena are observed as discrete and therefore governed by a probabilistic causality,  while macroeconomic as observed as continuous and governed by a causality of exponential  cumulation.  

The discreteness of microeconomic values can be gauged from that it is not such that when  the shoemaker makes a pair of shoes, the shoes slowly accumulate exchange value as the  shoemaker goes on with the process. The fact is that if the shoemaker stops halfway through  the process and, say, has made the left shoe but not the right, there is still no added value  created, at best the scrap value of the used materials might be recovered at that point. First  when the right shoe is finished added value will materialize in the form of a pair of shoes  that possesses exchange value.  

Moreover, objects existing in the microeconomy possessing exchange value, such as a pair of  shoes, can be directly verified by observation. However, what is verified is the existence of potential exchange value, which is indeterminate until its exchange value is determined by an  exchange negotiation (in this respect, a price sign in the supermarket aisle or on a webshop’s  internet page is technically also “a negotiation”). In a monetized economy, the exchange value  is exact at that moment of exchange, due to the nature of fiat money existing in finite  numbers of dollar and cents. 

In contrast, macroeconomic phenomena are unobservable but deduced from cumulative  flows of data and are therefore experienced as continuous. But macroeconomic phenomena  cannot be taken as exclusive results of summations of microeconomic phenomena where  the next set of data invariably are the product—and exclusively the product—of the  previous set. This is too simplistic a view, that doesn’t take into account the changes to the  flows caused by various sources of macroeconomic agency.  

Since the sources of macroeconomic agency primarily resides in political institutions, it  means that economics is intimately connected. to politics and that these two fields cannot be  studied in total isolation from each other. The influence that macroeconomic agency has on  the totality of observed economic phenomena has never been systematically investigated, a  fact that deftly has severed the influence that politics has on economic outcomes, such as  distribution and income inequality. This has left students of economics with an economic  paradigm largely separated from the influences stemming from politics, and in an extension,  the broader social world. 

Since this approach increasingly are carried out in expositions filled with mathematics and algorithmic language, a mastery of these aspects tends to become a focus of the students.  overshadowing learning to understand the social consequences of different economic  choices. In this respect, a major aspect has ti be how the choices made by those who has  acquired macroeconomic agency power—through, for instance, the political processes—are able to shape the outcomes that the agents in the microeconomic space will experience. This  aspect includes how interest policies override considerations for common social goals, as the  policies convert into macroeconomic agency. 

Thus, while macroeconomics is busily studied by mainstream economists, it is studied the  sum of microeconomic activity, trying to ferret out how, say, wage rigidities might amplify  economic crises etc., but missing how macroeconomic agency impacts the structural  framework that steers the flows arising from the microeconomy. 

Digging deeper into the social structures of society we find that the different classes of social  structures interact with each other. For instance, the social institution of marriage has in  many historical and cultural settings been an important element of intergenerational wealth  transfers, wars obviously will have major impacts on the economies of the involved countries,  etc. This shows that there are no tight separation between the different classes of societal  phenomena, which means that the neoclassical assumption of an economy governed by  “laws” that transcend human agency by holding—in Veblen’s words—“coercive surveillance  over the sequence of events” is an epistemological fallacy. ³ 

Another lacuna in neoclassical economics is that it—when it, as part of its swing towards  conservative values, ditched Marxism as part of serious economics—also ditched the theory  of accumulation of capital. However Piketty, in “Capital in the Twenty-First Century” (2012,  Eng. 2014), on the basis of collecting an extensive data set, showed that this economic  phenomenon still very much is an endemic feature of modern capitalism . This is, among ⁴ other things, revealed by the constant rise in asset prices, including real estate, stocks, gold  and even the invention of artificial assets such as crypto to suck up the constant flow of  excess profits, which has been a feature rising in importance in the U.S. economy, in  particular since the 1980s, when Reagan’s tax policies lowered high incomes tax liabilities. 

What is noteworthy is that profits are created not only in the real economy that produces  goods and services, including the ordinary financial service industry that produces consumer  financial services such as day banking, payment systems, insurance and consumer debt,  including credit cards. However, another, and growing, part of the financial industry are  engaged in the speculative sector, partly by keeping their own books of speculative positions,  partly by extending credit that leverage the speculative positions of other entities. 

Whenever the price of an asset rises, whether originating in the real economy or in the  financial. the new value can serve as collateral for an expansion of debt money, which then  can be used for further speculation in a typical cumulative process that, if it heats up as it did  in the pre-2008 crisis period, can lead to Minskyan bobbles . While this process is inflationary, it’s inflationary in asset values and luxury goods, which are not captured in the  basket of goods from which the inflation figures that are published are calculated.  The rise in excess profits coupled with easy access to financial markets over the Internet has  spawned the resurgence of another phenomenon that Marx elaborated upon: the resurgence  of the rentier class, including the modern daytrader, which are persons in ordinary income  brackets who attempt to augments their meagre incomes by dabbling in stocks and crypto  ftom their home computer. This has expanded the class that earn its livelihood from earning  money by using money to speculate in rising values, which both can arise from added values  in the real economy and capital gains in the speculative economy, That these phenomena are  growing facets of the fabric of modern high income countries is shown by how the corner  store instead of selling groceries has become a wealth management shop, as well as the  proliferation of social media ads that all plug the perfect, low-risk scheme to earn $1,000 a  day.  

All these phenomena are not registered by standard versions of neoclassical economics since  they cannot fit into the equilibrium paradigm. Instead, mainstream economics forge ahead  with its vision of economics as a science that studies phenomena isolated from all other  phenomena in the social spaces, and governed by orderly logical structures that can be  accurately described by algo-mathematics. This view, however, has played into the hands of a  conservative political agenda that sees the writings of economists such as Friedman and the  school of New Classical Macroeconomics—which dominated economics in academia from  the 1970s and until the 2008 financial market crisis—as a scientific proof of their political  goal of small government and free rein of market forces. They seem unmoved by the fact that,  in the nature of things, this ideal will favour those who already hold positions of economic  power and that the policies of dismantling public institutions erodes their role as democratic  guardrails.

---