Crime Against Humanity: Pensée Unique in Economics, 15
Adam Smith is the first cornerstone of neoclassical economics, and he contradicts himself. On the one hand, he celebrates the division of labour and its relationship with exchange in a virtuous circle of growth, “The division of labor, however, so far as it can be introduced, occasions, in every art, a proportionate increase in the productive powers of labour.” “As it is the power of exchanging that gives occasion to the division of labor, so the extent of this division must always be limited by the extent of that power, or, in other words, by the extent of the market.” On the other hand, his intention was to discredit the dirigiste policies of the mercantilist and make the case for ‘laissez faire’ (another label for neoclassical economics), and the benefits of division of labour and exchange were among the foundations of the mercantilists.
Hence he set them aside where he went on with his logical sequence in which the "invisible hand" of the self interest of buyers and sellers eventually determines a "central" or "natural" price on the "free" market, and he rooted the concept of such "central", "natural" price in constant returns to scale.
Constant returns to scale is a static lie: it is not only a falsehood; it is static, too. When you tackle a confusion, you begin to sort it out by taking something in it as a reference point. From the viewpoint of a reseacher, a confusion is a number of variables, and in order to know what each of them does, the researcher manages to hold the other variables firm. But he does so with each of them, and once he knows what each variable does, he reports it. And in doing so the researcher admits these are variables, not static elements.
Constant returns to scale is not an isolated case; assuming variables as static elements and then never restoring them to their true nature is a standard practice in neoclassic economics. And the deductive approach lends quite a helping hand in justifying not measuring onself against contrasting facts.
It has been said that the classical economists’ shift towards static analysis was an ideological necessity. That their tenets are deductive, static, and detached from reality can be freely investigated and we are reviewing the fundamental ones here; the point is, why? What is the motive of such tenets?
