Fifty Nine False Assumptions of Mainstream Neo-classical Economics
Below are listed fifty nine false assumptions which underlie mainstream neo-classical economics. These false assumptions are basic things believed to be true or taken for granted as inevitable or sensible, but which, in fact, are false. This is a matter of considerable importance because if only one assumption is false (or, at the most, two or three assumptions are false) then the whole structure of neo-classical economics becomes invalid.
By Rodney Shakespeare
The false assumptions of neo-classical economics are that:-
1. Scarcity is an inevitable part of the human condition.
2. High taxation is necessary.
3. Labour physically creates all, or a large part, of the wealth.
4. The ‘free market’ is free.
5. The ‘free market’ is efficient and allocates resources efficiently.
6. The outcomes of the ‘free market’ are always just.
7. Homo economicus is an accurate description of human psychology.
8. Conventional economics is an all-encompassing science of objective process and universal value and further improvement to economics is impossible.
9. It is a matter of small importance that the banking system creates money out of nothing sufficient for the repayment of the principal of a loan but not of the interest.
10. The ‘free market’ consists of states of equilibrium; when there is disequilibrium there will always be a return to equilibrium.
11 There Is No Such Thing As a Free Lunch (any improvement for the poor inevitably involves a detriment to the rich).
12. The ‘free market’ upholds private property for all.
13. It does not matter who owns the capital, particularly productive capital.
14. The ‘free market’ implements Say’s market Theorem (Law) that producers and consumers should be the same people.
15. Somebody who voluntarily looks after a sick child does no work in the economic sense.
16. Interest is inevitable and always necessary.
17. Ethics/morality is not part of economics.
18. The poor are poor because of lack of effort and lack of skill (rather than lack of productive capital, lack of access to capital credit and suffering the burden of interest).
19. Inflation is not caused by the banking system.
20. Financial savings are necessary before there can be investment.
21. Physical savings are necessary before there can be investment.
22. Labour and welfare payment will always suffice.
23. It is not necessary for every person to have an independent income.
24. The level of interest rates is all that is necessary to manage an economy properly.
25. Wide ownership is not necessary.
26. Student loans should bear interest.
27. Public capital projects should be funded by borrowing interest-bearing money.
28. Micro-credit lending should bear interest.
29. Environmental capital projects should bear interest.
30. An economy requires two lots of financing – one for production and one for consumption. (NB Only one lot of financing is necessary if it is simulfinancing as in binary economics).
31. There is no such thing as society.
32. Personal debt is healthy for an economy; as also national debt.
33. There is no power imbalance between actors (participants, including individuals) in an economy.
34. Social and economic justice on the one hand and efficiency on the other are incompatible.
35. Economic history is irrelevant.
36. Outdated economic theory (Adam Smith, 1776), basically conceived before the industrial revolution had got under way, suffices to guide modern economic theory and practice.
37. The important things in economics are anything except the development and spreading of productive capacity so as to make producers and consumers the same people thereby enabling a Say’s Theorem (Law) balance of supply and demand and also enabling the forwarding of social and economic justice.
38. Banks should be able to offer mortgages (as distinct from administering national bank mortgages).
39. Economic inequality is desirable; the greater the ratio between top earnings and bottom earnings, the better.
40. ‘Trickle down’ economics works.
41. Rising house and stock market prices are necessarily a sign of genuinely increased wealth.
42. Economic cycles are inevitable.
43. Individual greed is good and institutionalised greed is even better.
44. Countries should raise money at interest on the international markets.
45. Countries should not be autonomous; they should be controlled by others.
46. A country’s assets should be owned by outsiders.
47. A country’s money supply should originate in the banking system rather than the national bank.
48. Employee shareholdings and involvement do not improve efficiency.
49. Political democracy does not require economic democracy.
50. Even though today’s banking system money is created out of nothing there is a time value to borrowed money.
51. Environmental matters are extraneous and impose extraneous cost.
52. Not only ethics but belief in God should be eschewed.
53. Economics is essentially a separate subject which does not have to take account of other subjects.
54. The creation of money out of nothing and the addition of interest does not require even more creation and even more debt.
55. Population growth is inevitable.
56. An understanding of technology is irrelevant to economics.
57. Jobs can be exported.
58. Domestic manufacturing does not matter.
59. Education and training suffice for economic needs.
NB : Binary Economics becomes easily understood if the fifty nine false assumptions of prevailing economics are one by one, and simply, reversed. Quite soon, it becomes apparent that a different picture is emerging and then, long before all the false assumptions have been reversed, it is brightly clear that a totally new landscape – the Binary landscape – has emerged.
Rodney Shakespeare was Visiting Professor of Binary Economics at Trisakti University, Jakarta where he taught on the international postgraduate Islamic Economics and Finance program.
He is a Cambridge MA; a qualified UK Barrister; and a well-known paper presenter and lecturer particularly at Islamic conferences dealing with money, the real economy, and social and economic justice.