Economic activities like production, exchange and distribution have revolutionised the human civilisation. The discovery of market, money and trade has enhanced the comforts of life and living conditions of man. However, the discipline called political economy or economics has emerged centuries later, like all other sciences (such as the use of fire before chemistry, bow and arrow before the discovery of physical sciences).
The advent of modern political economy is indirectly related to India. It was the board of directors of the London East India Company, that was registered in December 1600, such as Thomas Mun, Child and others who started publishing economic papers eulogising trade that brings more gold and silver that was only considered as wealth. They have even influenced government policies to provide military support to their wares and wished a strong state to deliver it.
The ideas were considered a menace and there was reaction from French physiocrats, who, like Dr Quesnay, considered all activities as sterile, except agriculture. He has even produced the Tableau Economique, comparing the circulation of wealth with that of the circulation of blood.
Adam Smith, ‘father’ of political economy, considered the writings of mercantilists restrictive to foreign trade and wanted the operation of an invisible hand to regulate free trade. He emphasised ‘the spontaneous harmony of interests’ to reconcile private interests and economic efficiency. Petty’s famous remark that ‘land is the mother and labour the father of value’ is further elaborated by Smith’s quote that labour is the measure and cause of value.
The contribution of economic science to human progress is enormous in terms of the increase in the GDP. GDP growth between 1600 and 2018 is 260 (OECD) times and it was due to the economic policies of governments on the basis of the recommendations of economists.
However, the role of India and China in the creation of wealth before the colonial period was considered to be around 65 per cent of the world GDP, which had got reduced after the colonial plunder.
Economics became an independent discipline with the creation of the first professor of economics at Cambridge, a post held by Alfred Marshall in 1890. The discipline, with varied specialisations and combinations, became an English, French and European science, with little scope for US universities before World War I. The industrial revolution was facilitated by the ideas of economists, including Adam Smith. Marxian economics helped to a large extent in eliminating poverty and unemployment in the Soviet Union. The Great Depression of 1929 prompted Keynes to propose the General Theory of Employment and prescribe policies to overcome the crisis. The hurdles created by the gold standard as a medium of exchange and the adverse impact of the Great Depression made JM Keynes and Harry Dexter White create the Bretton Woods system of the World Bank and IMF, both headquartered in Washington.
The devastation during World War II dragged the US to embark upon the Marshall plan that provided opportunities to America to emerge on the world scene, outwitting England and other European nations. Economists started moving to American universities as more opportunities were created there.
The status of economics as a British and European discipline has eroded and the Harvard Business Management Course, with business economics as a core value, emerged to disparage economics as a science that studies “mankind in the ordinary business of life, it examines that part of individual and social action which is most closely connected with the attainment and with the use of material requisites of well-being.”
Economists who were seriously concerned about the problems of development in the Third World countries and lack of opportunities of employment have developed theories that attracted the attention of the world. There was a clear shift from micro to macro issues, including the role of the state in providing fiscal and monetary policies to enhance GDP. Theories of human capital and the role of education, health and income in human development were recognised and promoted.
Meanwhile, international trade facilitated not only the movement of tangible goods but also intangibles to cross borders. The role of money, paper currency and other instruments, such as shares, IPOs, bonds and derivatives with the expansion of stock exchanges has expanded. The capitalisation of companies on the 10 top exchanges is estimated to be $950 trillion and is equivalent to the total value of GDP of all least developing countries during 2019.
This revolution in the capital market with the innovation of ICT has helped individual operators transfer billions of dollars across continents at the click of a mouse. This has thrown up opportunities for speculation and the demand for skilled experts. Business schools offer courses in financial management even without a degree in economics. The departments of economics that teach public finance, macro economics, development economics etc. are busted and professors whose tenures are under threat have shifted to business economics or management schools.
Research funding, both from corporates and institutions like the World Bank, helped in the publication of books and articles. The 2008 financial crisis in the US due to the so-called derivatives market and real estate boom exposed the phony tales. Studies of Blinder AS of Princeton University on the impact of the crisis on the teaching of economics has shown the sad state of affairs, while the Financial Times (August 2009) remarked that, “the era of Economic Theocracy, in which unelected experts ran the global economy, is over.”
Unfortunately, the Nobel Prize (Economics) committee has not acted differently, awarding those subscribing to Washington Consensus, derivatives, financial markets, property rights, game theory etc. that are speculative, abstract and devoid of practical use. This year, the Nobel has again been given to economists working in the management school. It was expected that the Nobel committee would pick studies providing solutions to the pandemic that has paralysed world economy.
Gujarat-born economists Jagdish Bhagwati and Arvind Panagariya, both at Columbia University, have highlighted the baneful effect of the invisible foot of the state. Panagariya has recommended to PM Modi to cut the role of the state and privatise public property. Departments of economics in India are reorganising their courses on the lines of business economics, forgetting that it is hara-kiri or the end of economics. It reminds us of Francis Fukuyama, who, in 1992, published The End of History and the Last Man. Interestingly, the same Fukuyama, in his Our Posthumous Future in 2003, declared that, “there could be no end of history unless there was an end of science.”
Yes, economics, which has acquired abstract and analytical tools to predict a phenomenon and falsify hypothesis, and has joined the club of sciences, would regain its glory and provide solace to mankind through its original avatar of political economy.