Mainstream vs. Heterodox Economics with Wolgang Fellner

Aug 7, 2017 by

by Carla Madueño and Gertrude Asumadu

It is evident that there are diverse views as to what Economics is all about and from what has been gathered, there is not a single definition that captures the various dimensions of this discipline. In a nutshell,  it could be defined as the study of human relationship between scarce resources (means) and wants (ends) that have alternative uses. Since Economics were birthed in 1776 by Adam Smith, many other theories and concepts have been borned from different economists such as Karl Marx, Veblen, Stiglitz, P.A. Samuelson, among others. However, not many people are familiar with economic concepts, with the different schools of economic thought nor how these developed in history. In times of Climate Change, ever-growing human impact on nature and rising nature awareness, we ought to go back to the books, to the old theories and try to grasp the essence of why the economic system works the way it works today.

On AEMS Thursday’s Lecture, Dr. Wolfgang Fellner from the Vienna University of Economics and Business gave a detailed insight into the main schools of economic thought under the mainstream (economics in general) and heterodox (diverging from the neoclassical economics) approach.

The central question was to scan for economic schools of thoughts which included the social system, the economic system and the natural system as pillars for a sustainable society.

The conceptual journey started from the classical economics (i.e. Marx, Smith, Malthus) where focus was given to the accumulation of wealth and value was created through labour (i.e. exploitation). After this, economics shifted its focus by 1870 with the Marginal Revolution (i.e. Jevons, Menger, Walras) where efficiency (efficient allocation of resources) and utility redefined the idea of value, thus giving birth to neoclassical economics. The market idealism and anti-government approach of the neoclassical model are some of its key failures. Moreover, it assumes humans to move alone, without social interactions, thus leaving the social system excluded. At the same time it assumes perfect substitution mechanisms. Concerning natural resources for example, it thus makes nature a self-perpetuating machine immune to unlimited resource extraction and equally exchangeable and replaceable by other means. Hence, the environmental pillar of our central question was left out  again.

The journey continued with market relativism or Keynesian Economics of the 1930s after the Great depression. This approach, despite being ‘friendlier’ towards the role of the  government as a guarantor of economic structures, did still not include natural resource boundaries for economic growth and reduced the human and social dimension to a consumption-oriented and utilitarian. The last given insight was into institutional economics started in 1899, which understood social institutions (a set of social rules) as the backbone for the economic and market system, thus incorporating the social pillar into the economic model, but leaving once again the environmental pillar outside.

All in all, the provided insights by Dr. Fellner have clearly described the economic system having a wide range of very short-sighted and idealistic models and arguments, that do not only simplify society and natural systems but instead annihilates them. Rethinking and reshaping economic systems is necessary in order to face contemporary environmental and social sustainability issues. A more open communication across different actors of society on these key topics is required.