by From Asad Zaman Karl Marx said that “The advance of capitalist production develops a working class which by education, tradition and habit looks upon the requirements of that mode of production as self-evident natural laws.” Modern economic theory is a tool of central importance in making the laborers and the poor accept their own exploitation as natural and necessary. As explained in greater detail in the next lecture (AM09), Economic Theory argues that distribution of income is FAIR – everyone gets what they deserve, in proportion to what they contribute (the marginal product) NECESSARY – the laws of economics ensure that this is the only distribution which will prevail in equilibrium EFFICIENT – this distribution creates efficient outcomes, and maximal productivity in the economic
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from Asad Zaman
Karl Marx said that “The advance of capitalist production develops a working class which by education, tradition and habit looks upon the requirements of that mode of production as self-evident natural laws.” Modern economic theory is a tool of central importance in making the laborers and the poor accept their own exploitation as natural and necessary. As explained in greater detail in the next lecture (AM09), Economic Theory argues that distribution of income is
- FAIR – everyone gets what they deserve, in proportion to what they contribute (the marginal product)
- NECESSARY – the laws of economics ensure that this is the only distribution which will prevail in equilibrium
- EFFICIENT – this distribution creates efficient outcomes, and maximal productivity in the economic system.
In fact, as I have argued elsewhere, neoclassical Economic Theory should be labeled as ET1% (Economic Theory of the Top 1%), because it only represents their interests, and glosses over issues of central importance and concern to bottom 90%. Nonetheless, widespread propagation of this theory through university courses, and popular expositions for the general public, are very important in convincing the bottom 90% that the capitalist economic system is the best possible, and their own misfortunes are due to their own bad luck or other defects.
1 Classical Economic Theory
According to classical economic theory, free markets automatically eliminate unemployment, guaranteeing jobs for everyone at a fair wage, consonant with the productivity of labor. In particular, payoff to labor and to capital is perfectly symmetric – both factors get what they deserve. If government tries to regulate the labor market to create better outcomes – minimum wages, better working conditions, labor unions, etc. — it will actually end up hurting laborers. Economists argue that unemployment is due to minimum wage laws, labor unions, and search costs, and not due to free markets themselves.