Alfred Nobel never created a prize for economists. He was seventy-three years in his grave when the Central Bank of Sweden got the idea that they could elevate the prestige of economists by awarding a Nobel Prize in Economic Sciences “in memory of Alfred Nobel”. Today, the Nobel Foundation admits that the prize is not a Nobel Prize, but it still gives it status equal to the real prizes. Even Alfred Nobel’s descendants want it scrapped. Call it the Riksbank Prize, they said, but not the Nobel Prize, with the luminary status this implies.
The prize has three big problems. The first is its up-front pronouncement that economics is a science, when it’s clear to all outsiders that it’s not.
The second is that the economists who choose the winners rarely step outside of their ideological comfort zone, which is the neoclassical school of economics.
And the third is that by raising neoclassical economics to such Olympian heights the prize has increased public blindness to the flaws of neoclassical economics and its priestly obeisance to the supposedly natural laws of the free market, which have no more reality than the wafers and wine of holy communion. This is no small matter: the flaws of neoclassical economics share responsibility for many of our world’s troubles. They include:
- Its failure to understand banking and money
- Its inability to comprehend the 2008 financial crash
- Its indifference to inequality
- Its indifference to the dangers of high private debt to GDP
- Its inability to understand the climate and ecological emergencies, which threaten all existence. In the heartlands of neoclassical theory, along with Nature itself, they are mere ‘externalities’.
- Its commitment to endless economic growth, and the measurement of all value through price.
Henry Leveson-Gower is a London-based economist who is the founding brain and CEO of Promoting Economic Pluralism, of which the economist and author Ann Pettifor is a Trustee, which recently launched a public contest seeking nominations for the Not-the-Nobel-Prize in Economics:
Our economic system is driving us towards a perfect storm. We are facing ecological breakdown. Rising debt is threatening a new financial crash. Inequality is pulling societies apart.
For 50 years, the scientific prestige of the Nobel Prize has given authority to economic ideas at the heart of this system. We urgently need to reroute society away from this catastrophic path. That starts with fresh economic thinking.
Who are the economic thinkers and doers setting out innovative new directions to meet the challenges of the 21st century? Who, in the original spirit of Alfred Nobel, you think have contributed ‘the greatest benefit to humankind?
THE WINNER was the British economist Mariana Mazzucato, for reimagining the role of the state and value in economics. Mariana’s work focuses on innovation, value, public sector and is influenced by the economist Joseph Schumpeter. Her 2013 book The Entrepreneurial State: Debunking Public vs. Private Sector Myths used detailed research to show the central role that the state has played in the history of technological change from the Internet to biotech. In The Value of Everything: Making and Taking in the Global Economy (2018) she argues that governments create both purpose and value, and that economists and national systems of accounts need to widen their narrow perspectives.
The American economist Jessica Gordon-Nembhart, for her pioneering research into the role of cooperatives in economics. In 2014, Jessica published Collective Courage: A History of African American Cooperative Economic Thought and Practice based on 15 years of research. Building on the work of W. E. B. Du Bois, it is a path-breaking study of the role of African American cooperatives from the eighteenth-century to the present. Her work reveals the hidden history of African-American cooperatives and their role in the social movements for civil rights and economic equality.
The British economist Kate Raworth, for her concept of the Doughnut Economy, which balances essential human needs with the need to protect Earth’s planetary boundaries. Kate’s book Doughnut Economics: Seven Ways to Think Like a 21st Century Economist (2017) is a best-selling counter-proposal to mainstream economic thought. Instead of focusing on the growth of the economy, she focuses on a model where everyone on Earth has access to their basic needs, while guaranteeing our continued existence by protecting Earth’s ecosystems.
The Brazilian economist Laura Carvalho, for bringing economic debates to the people. Her best-selling book Brazilian Waltz (2018) analyses Brazil’s economic and political crises and proposes a new agenda of public investment and the welfare state. Her work shows how public investment and tax increases on the wealthiest offer a way out of crisis for developing countries such as Brazil.
The American economist Randall Wray, for being a pioneer of Modern Monetary Theory (MMT), which challenges mainstream economic ideas about currency, debt and inflation. MMT, according to Wray, offers a way out of the austerity bias in economics and expands the role of government creation of money. He is the author of Modern Money Theory (2012) and a respected authority on the American economist Hyman Minsky.
The Australian economist Steve Keen, for predicting the 2008 financial crisis and for improving financial models. Steve is the author of Debunking Economics (2001), a trenchant critique of conventional, neoclassical economic theories such as the efficient market hypothesis, which shows how mainstream models dangerously distort our understanding of the world. He has created more realistic macroeconomic models and open source programs building on the insights of Hyman Minsky. His most recent book Can We Avoid Another Financial Crisis? (2017) explains why the crisis happened, and what we have to do to end it.
The American business leader and social entrepreneur Tom Rippin, for creating a community of social entrepreneurs who are working towards a healthy economy. Tom uses his background in cancer research to view the economy like a human body. He looks to natural systems and locates the root cause of our cancerous economy in the mutation of our shared societal values over the centuries. He has brought together a community of 1,500 people who are passionate about creating a positive social and environmental impact and building a nurturing community.
For supporters of the International Movement for Monetary Reform the finalists offer interesting insights into the role of money in the minds of these progressive economists.
Mariana Mazzucato understands how money is created whenever banks issue loans, and she is clear on the ability of public banks to channel investments to serve important public purposes. To the best of my knowledge, she makes no comments about proposals for 100% reserve banking.
Kate Raworth has a clear understanding of what money is (“A social relationship: a promise to repay based on trust”), and a clear grasp of the possibilities of 100% reserve banking, of zero and low-interest loans issued by public banks for public purposes, of People’s QE using central bank-created money targeted at paying down private debts, of Green QE to do the same to tackle the climate crisis, of community currencies, and of Silvio Gessel’s local demurrage currencies that were used in Wurgl, Austria, to tackle high unemployment during the 1930s Depression.
Steve Keen hesitates to support 100% reserve banking, fearing that the arbitrage between interest rates on reserves-backed loans would be insufficient to entice banks to lend to entrepreneurs. He prefers that banks be dis-incentivized from making unlimited real estate loans by limiting loans to the rentable value of properties (as I believe German banks are required to do), and by encouraging equity participation in entrepreneurial loans. Having predicted the 2008 crash, his big concern is the build-up of high private debt relative to GDP, and the emergence of debt-zombie economies. He’d like to see central banks conduct some trials in the use of helicopter money to reduce excessive private debt. In 2017 he predicted that “crises in the Debt-Zombies-To-Be are inevitable between now and 2020”, taking what little wind remains out of the sails of global commerce. He list them as Ireland, Hong Kong and China, followed by Australia, Belgium, Canada, South Korea, Norway and Sweden. He’s got two months left for his prediction to come true.
Randall Wray’s work is all about Modern Monetary Theory, and making sure that the world understands the importance of Hyman Minsky, who famously said that in a free market economy stability itself is destabilizing, since it encourages excessive risk. Modern Monetary Theory is more about the mechanisms of public money-creation, and the ability of sovereign currency-producing countries to control their own money-creation, and hence not to fear the cold state-imposed winds of austerity, than it is about the mechanisms of private money-creation.
So who won the ‘other’ Nobel Prize in 2019? The Nobel Foundation’s Economics Prize committee awarded it to Abhijit Banerjee, Esther Duflo and Michael Kremer, for improving our ability to fight global poverty and “for transforming development economics into a flourishing field of research through their experiment-based approach.” It sounds very commendable, but as David Ruccio points out in Real-World Economics Review, their work is focussed on small nudges that can be made to people’s behaviour using random trials to seek better outcomes that can reduce poverty, while ignoring the larger factors of class, power and inequality that determine the stakes in the poverty game. Neoclassical economists will smile to see the big issues sidelined so easily.
So four of the seven the finalists of the Not-The-Nobel-Prize in Economics are well aware of the monetary reform debate, which bodes well for further advances into the public imagination. For most people, this is pretty dry stuff, compared to the heroic challenges of tackling the climate and ecological emergencies, or ending the housing crisis. It is that gap in understanding which needs to be bridged, so that our social and environmental champions begin to understand the critical roles that money, debt and investment play in creating the crises in the first place.
Guy Dauncey is the author or co-author of ten books, including Journey to the Future: A Better World Is Possible. He is currently completing The Economics of Kindness: A Ten-Year Transition to a Green Cooperative Economy. He recently published Ten Green New Deals: How Do They Compare? A Toolbox for GND Design. He lives in Yellow Point, on Vancouver Island, Canada. His website is www.thepracticalutopian.ca.