Talkin' about a revolution

The starting point of economics is still in the wrong place. It lies in the Platonic world of perfect markets rather than the real world of markets as they actually work in the human and social world.

---Robert Skidelsky.

"Economists have sidelined the once conventional assumption that contracts and markets are complete....market exchanges are endemic to exchanges that are central to the workings of capitalist economies."

---S. Bowles.

At the heart of most economics (though economic theory is, strictly speaking, more open) are the following ideas: economic agents are rational, self-interested individuals. All three assumptions are now under question. These are taken as axioms and are not really refutable (Robbins). 

The result of such self-interested interactions between individuals is the market economy equilibrium. This, it is argued, is the best overall outcome (Pareto efficient) in the sense that it maximizes overall welfare (strictly speaking, it maximizes the satisfaction of preferences or what people want, which is not necessarily the same thing as what's good for them (i.e. their welfare). Also, since the processes of market choices are supposedly free and open they avoid paternalism and encourage liberty (or a particular view of liberty). In addition to this, markets further innovation, risk-taking, and dynamism. 

But here's the obvious thing: markets are not always in equilibrium (and are even subject to periodical crises)...they do not "clear". Secondly, underlying market behaviour is a mixture of all sorts of motives. Thirdly, we live in a world of uncertainty (Keynes, Frank Knight). The old idea of equilibrium ignores money (pure exchange is modeled along the lines of barter even though,as D. Graeber points out, there's very rarely been such a system) and it ignores time and uncertainty (the latter not being the same thing as "risk"). Another way of stating this last point is to recognize that there are imperfect contracts, since some things simply cannot by their nature be foreseen or they may be too costly to work out beforehand and put in the contract. 

The economics of the future, therefore, has to be more pluralistic. More pluralistic as to what drives human beings, more open to the possibility that we are not as self-centred as imagined by the theorists, and more pluralistic insofar as we have a wider set of evaluative standards (i.e what counts as "the good"-both at the individual and social level).

Less Plato, more Aristotle.