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Amos Witztum, The Betrayal of Liberal Economics

Saul Estrin
p. 381-387
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Amos Witztum, The Betrayal of Liberal Economics Volume I and II, London: Palgrave Macmillan, 2019, 766 pages, ISBN Volume I 978-303010667-6; Volume II 978-303010670-6

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Crédits : Palgrave MacMillan

When Moses approached the camp and saw the calf and the dancing, his anger burned and he threw the tablets out of his hands, breaking them to pieces at the foot of the mountain. And he took the calf the people had made and burned it in the fire; then he ground it to powder, scattered it on the water and made the Israelites drink it. (Exodus, 32, 19 & 20)

1Amos Witztum faces a problem parallel to Moses’ in the Old Testament, perhaps made even more daunting without the support of a secret immortal friend. In Witztum’s view, the discipline of economics follows its own Golden Calf; one he terms “liberal economics”. Of course, liberal economics makes for a very broad target, but by this he means an approach to understanding the economy entirely framed through the prism of individuals, themselves assumed to be concerned only with self-interest. On this basis, he argues, a gigantic logical edifice has been constructed to establish that selfish behaviour mediated by competitive markets generates a socially desirable outcome. Witztum does not wish to extend liberal economics, nor refocus it or even to reshape it. He wishes to tear it down and has taken a twin-barrelled approach with these two integrated volumes. They add up to, in effect, a single 766-page monograph published in two parts (they even have a common numbering system: Volume II opens not on page 1 but on page 333), both devoted to various facets of the assault.

2Witztum marshals a wide array of tools to help him in his daunting task. Perhaps the most remarkable, especially in this day and age, is erudition. He draws on a very wide reading and a profound understanding of authors as varied as Aristotle, Lao-Tzu, St Augustine, Hobbes, Locke, Mandeville, Smith, Mill, Walras, Keynes, not to mention more contemporary ideas from, amongst many others, Acemoglu, Friedman, Hamilton, Nozick, Piketty, Rawls and Tuomela. The range and depth of the argument is almost jaw-dropping, though of course that makes the central organising themes slightly elusive, not to mention making the job of the reviewer difficult.

3But Witztum has much more kit in his toolbox. His analysis spans a number of disciplines and methodologies, most notably philosophy, history of economic thought, sociology and evolutionary biology, not to mention economics itself. These different approaches are all homed to focus on an overarching perspective, namely that modern economics, with its reliance on the analysis of the individual and the primacy of the free market, offers neither a solution to the economic problem nor an ethically or socially acceptable vision of what that solution should look like. Moreover, Witztum has considerable powers of exposition; he is able to make quite complex and obscure ideas appear simple and fresh. A key tool here, often found in earlier years of economics though all but lost in contemporary work, is the use of extensively worked out simple examples and parables. For example, a nice little Robinson Crusoe parable, first introduced on page 466, is still being developed almost 100 pages later to explain in a comprehensible yet serious way the problems in addressing social issues on the basis of an individualistic framework. Finally, Witztum brings to bear on this thicket of issues a parsimony of argumentation and an iron logic which guides the reader to clear conclusions. For example, consider the case of economics and ethics. Witztum argues that modern economics claims to be ethically neutral, so that the “natural order” generated by a competitive market outcome is consistent with a variety of different social values. However, if the conditions for that natural order to deliver that outcome are not themselves formed naturally, then, he submits, the quest for a competitive outcome itself becomes a search for an ideal, not a natural outcome.

4As all this suggests, this is not a work whose central ideas are well captured in a few pithy sentences. One of the best attempts to summarise the core argument is contained in the book’s lengthy prologue, itself more than 40 pages, which successfully provides the reader with a direction on the long and winding road to follow. The nearest short summary of the argument is perhaps on page xx (Volume I), “we would like to expose modern economics for what it really is: a narrowly defined individualistic theory with a false conception of the natural and where society is purely functional and ethics subservient to its functionality.”

5I do not have the space, and possibly the capability, to provide here my own summary of his full argument. Instead, in this review, I hope to give a flavour of some of the questions raised that especially appealed to me, usually more from the perspective of economics and empirics, than philosophy or history of thought. Thus, this review underplays several key elements of the book, for example the extensive exposition of Adam Smith’s analysis of the key role of sociality, as against individuality, in economics, or the fascinating attempt to delve into neuroscience and evolutionary biology to establish that the natural state for humans is social, so that our understanding of economic phenomena must always be placed into a social context.

6Turning to the core economics arguments, Witztum points out that there have been repeated phases of deep criticism of economics as a discipline, often coinciding with recessions as in the 1930s and again after 2008. Economics does not seem able to prevent serious economic breakdowns, nor their corollaries: levels of poverty, inequality and unemployment which are too high to be regarded as socially acceptable. Interestingly, at these times, economics itself seems either to have nothing to say, or its logic points to policies which might exacerbate the problems and be morally repellent. Witztum refers to these as problems concerning the relevance of economics. Economists did survive the crisis of confidence in their field felt by others in the 1930s, probably primarily because Maynard Keynes identified the macro-economic market failure and proposed an effective way to prop the system up. However, importantly, Keynes always intended to leave the underlying model intact; once full employment was achieved, he believed the neoclassical paradigm became relevant again. Interestingly, the resilience of economics has been less pronounced post-2008. Indeed, somewhat to their surprise, economists appear to have been even more marginalised thus far in the COVID-19 crisis, perhaps, as Witztum might argue, because their vision of selfish individualistic behaviour runs counter the collectivist mood and social inclusion being currently fostered to counter the epidemic.

7In addition to these rare moments of collective doubt about the economist’s paradigm, there have repeatedly been more specific signs that the economists’ framework was flawed in its ability to handle many economic issues of profound concern to human society. Note that this was true even during the years of great success, measured by high and sustained economic growth, spanning from the 1950s to the early 2000s. A key example, which has spawned much important work by for example Thomas Piketty, was the growing inequality in the distribution of income and wealth, measured in many ways from the redistribution of factor shares away from labour and towards profits, to the rising share of the wealthiest in society to the detriment of the poorest and the middle class. Witztum provides data on this in Volume I. Another example was the ruthless pursuit of economic growth, measured in purely material terms, without consideration for peoples’ feelings about the levels of effort, risk and control over their lives. A third has been the possibility, in conflict with a central notion of economics, that decentralised pursuit of private gain might not lead to the best possible social outcome, especially if a real natural order, namely the balance of the planet’s climate, was fatally undermined as a consequence. Witztum provides numerous other examples of these straws in the wind concerning the relevance of the economists’ framework to explain key issues: for example, the role of the government in the economy; the inability to consider sensibly altruism and economic justice; and the mismatch between socially and ethically desirable outcomes and the consequences of untrammelled free markets. This leads him to muse that the problems of economics are actually not about market failures at all; rather and more worryingly, they concern the failure of markets themselves.

8Thus, for an economist, perhaps the most powerful critique of economics in these volumes is the denial of a decentralised solution to the economic problem. Everyone is aware of how markets for goods will spring up naturally and will usually adjust to ensure that the amount people want at a moment in time will match how much people want to sell. But there are really a lot of limitations to the generalisability of that “natural” economic mechanism to the level of allocating all the resources in the economy simultaneously and over time, let alone to its ability to yield a resource allocation that might be regarded by the society as acceptable or ethical. Let us consider a few of those limitations. For most people, it is a matter of at best second order importance whether a good for immediate consumption, produced as one of numerous fairly close substitutes, is rather expensive or rather cheap. Witztum points out that people tend to despise profiteering, for example drastically increasing the prices of good that suddenly come into high demand; a contemporary example might be sanitary hand gels retailing on eBay for £25.00. Witztum associates profiteering with a divergence of market from just prices but recognises this as perhaps a minor irritant of a market system. But people are not goods, labour is not so easily market priced, and society has strong views about the acceptable limits of wages in either direction. In particular, advanced economies find it unacceptable for anyone’s wages ever to fall below certain levels, sufficient for people to survive. Thus, for more than 150 years, Western economies have accepted some form of socially determined constraint on the market determination of wages, in an increasingly binding way. Of course, there are numerous other examples of market failure, themselves closer to Witztum’s core arguments because the market failures are inherent to the characteristics of the goods being traded. Thus, goods traded over time or with uncertainty introduce phenomena into markets that cannot be resolved through a decentralised solution: The market system is inherently incomplete and so competitive general equilibrium cannot be attained.

9To this list, known since Arrow and Debreu, Witztum adds another powerful point. Competitive general equilibrium theory tells us, through the Welfare Theorems, that in principle a set of prices exist for competitive market system that is consistent with a decentralised resource allocation. Moreover, that allocation can be derived from all possible initial allocations and every possible outcome may be efficient in a particular, Paretian, sense. From this, one might infer that a system based on markets will yield an efficient outcome, and the outcome can be consistent with any desired distribution of income, which can be achieved by reallocating the initial endowments. However, as Witztum points out, the models are more or less silent on how that Pareto efficient decentralised market outcome is to be attained. A single market can attain an equilibrium, ceteris paribus—but what is the mechanism whereby all markets achieve an equilibrium simultaneously? The problem arises, of course, because the prices setting the constraints for every consumer and supplier in one market are treated as exogenous in partial equilibrium theory, where “the auctioneer” calls out prices, sums supply and demand, and alters prices until an equilibrium is reached, all the while preventing trading in false prices. Even if there is no auctioneer, it is possible to imagine in a single market “market forces” or the “invisible hand” signalling excess demands or supplies to individual traders until an equilibrium is reached. But how is this to be achieved in all markets simultaneously (even if for the moment we abstract from time and uncertainty which if nothing else increase the dimensionality beyond the realm of computation)? Walras of course had a story; markets would move up and down groping to a solution—“tatonnement”. But this answer is very weak one and scarcely credible. As Witztum points out, the issue of convergence to an equilibrium has never been properly resolved and it is unclear that it could be. Like the Wizard of Oz, there is nothing of substance behind the curtain of decentralised resource allocation.

10What really annoys Witztum however, is not the hole in the core logic, but the ways in which economists handwave and infer their way through the resulting fallacies and illogicality. For example, consider when the conditions whereby a market system achieves a Pareto efficient equilibrium are, in fact, not satisfied. The resulting allocations are nonetheless viewed as “more” efficient than alternatives, despite the fact that there is no clear way to evaluate such alternatives. Markets may fail but governments will fail even more. Or consider how the profession has reacted to the finding that the assumption of the individual as a rational utility maximiser, at the core of liberal economics, is not consistent with experimental evidence about how people actually make economic choices. Concern for others and social values plays a much larger role than economists have previously accepted. The economists’ answer has been to recraft the notion of altruism as self-interest; people help others because this represents another way for them to help themselves.

11Impressive though these volumes are, they are not without faults; let me end by mentioning one. Perhaps the biggest problem for me was the attempt to weave the huge variety of frameworks, models and disciplines into a coherent narrative. Witztum has undertaken an enormous effort to achieve such coherence. For example, we have a lengthy initial prologue trying to encapsulate the entire argument, as well as summaries at the start of each chapter that attempt to show how points made in this chapter fit into the overall framework. As if this were not enough, we have another attempt to summarise it all at the end, and further repetitions of key arguments scattered around most chapters. This is of course slightly irritating for the reader and increases significantly the length of an already lengthy monograph. But more seriously, all this effort was not entirely successful, at least for this intellectually siloed reader. No doubt Witztum can see how an argument from philosophy about the natural order or ethics about the role of society, or indeed from neurology about the relative size of the cortex supports and buttresses another from economics about general equilibrium theory. But for some readers this will be less obvious, and the interplay between methodologies and subjects will weaken the central argument rather than strengthen it. The book might therefore have been more immediately approachable and effective as a series of essays, each within their own framework, illustrating different perspectives on the same theme, without the logic being so tightly drawn. Witztum might not agree: this structure may be there purposively, to force the reader to think in an interdisciplinary way and to conceive of the social sciences as an intellectual unity, rather than in the neat row of boxes in which they have been placed by economists.

12In sum, this book represents the fruits of an extraordinarily ambitious and long-term project, to explore the failings of contemporary economics systemically rather than piecemeal, and from the perspective of the evolution of economic thought from Adam Smith to the present. Put simply, Witztum believes that economics as a discipline took a wrong turn with the rise of neo-classical economics in the 1870s and its post-1945 formalisation into general equilibrium theory. In his final chapters, he begins to look forward, though he does not attempt to provide an alternative framing of the economic problem; rather, he offers a vision of what it might look like. To do so, he advocates a return to the classical frameworks of especially Smith and Mill, in which economic outcomes are determined to satisfy ethical and moral values, and markets either used to help achieve such equilibria, or constrained to prevent them from undermining such an outcome. In this vision of economics, the distribution of income and wealth and the allocation of employment are not simply an outcome of blind market forces, but the consequence of social decisions. Needless to say, Witztum recognises that much more work has to be done before such a perspective represents a valid intellectual framework that would stand as an alternative to the dominant paradigm.

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Saul Estrin, « Amos Witztum, The Betrayal of Liberal Economics »Œconomia, 10-2 | 2020, 381-387.

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Saul Estrin, « Amos Witztum, The Betrayal of Liberal Economics »Œconomia [En ligne], 10-2 | 2020, mis en ligne le 01 juin 2020, consulté le 19 avril 2021. URL : ; DOI :

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Saul Estrin

London School of Economics.

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