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Date: 2015-10-07; view: 451.

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CRITICISM OF NEOCLASSICAL ECONOMICS

In the 1970s neoclassical economics came under attack for a variety of reasons. Reform liberals contend that the efficiency criterion ignores considerations of equity because market prices already imply a particular underlying distribution of wealth which the neoclassical writers take as a given. A complete policy analysis must start with an analysis of who ought to own wealth and for what purposes.

Another group of critics, the neo-Ricardian school, claims that neoclassical economics has betrayed the mission of the older classical school because of the neoclassical school's insistence on the supply and demand model. According to Piero Sraffa and his disciples, relative demand or utility plays virtually no role in defining relative commodity prices in long-run equilibrium and, therefore, plays little part in determining the social distribution of wealth. Here the technological conditions that surround the production of certain types of goods, especially those consumed by the working class, affect the distribution of income, and, therefore, the task of economic theory is to explain how surplus value is extracted from the working class and used by others. According to the Sraffa group, neoclassical economics represents an aberration from the more profound analysis allegedly offered by David Ricardo and further developed by Karl Marx. The Sraffa-neo-Ricardian school is quite content to do away with individual^ valuation in the marketplace and concentrate instead on the objective or technological conditions of long-run equilibrium. The attempt is to show that the distribution of income after some basic subsistence allotment to the workers is politically determined and therefore plays no part in the reproduction of annual output within the framework of capitalist social institutions.

Among neoclassical writers, the modern Austrian school adherents such as Israel Kirzner, Murray N. Rothbard, and Ludwig Lachmann are less concerned with the details of equilibrium positions such as described at length in Paul Samuelson's Foundations of Economic Analysis (1948) and more concerned with the process by which markets adjust or fail to adjust to change. Modern Austrians challenge attempts to measure opportunity costs by claiming that it is illegitimate to assume that market prices are equilibrium prices. They therefore reject the methodological basis of cost-benefit analysis.

In summary, the neoclassical school offers a remarkably diverse body of concepts to explain the operation of the market in terms of the twin forces of supply and demand. In terms of its admittedly limited concept of economic efficiency (estimated in econometric studies by assuming that market prices are indexes of costs and benefits), neoclassical economics offers a basis for criticizing the most wasteful of government policies by showing that less expensive alternatives existence their expanding needs and wants against the limited resources available to satisfy them.

The peoples of the nations of the world continually seek to supplement and maximize their welfare by a wide variety of interactions and exchanges across boundaries. Differences in aspirations (human, natural) and capital resources; technology:

culture; social and political systems; and other factors are always apparent and lay the foundation for mutually advantageous economic relationships and conflicts.

General understanding:

1. When did neoclassical economics come under attack?

2. What were the reasons for the criticism?

3. What did neo-Ricardian group claim?

4. What were visions of Kirzner, Murray and Lachmann?

5. Who was the author of «Foundation of Economic Analysis”?

What does neoclassical school pretend to do?