Scepticism in Economic Enquiry

“Revisiting India’s Growth and Development” (EPW, 20 August 2016) by Pulin B Nayak on Indraprasad Gordhanbhai Patel’s contribution to economics has underscored the importance of “enthusiastic scepticism” that an economist ought to possess. This is pertinent in the current neo-liberal context of India, where the ruling and the opposition parties, albeit with minor differences, have the same stance on growth and development. This raises an important question: have we accepted the neoclassical synthesis approach, which is the theoretical framework for minimum intervention economic policies, as gospel truth?

It was encouraging to see the author taking inspiration from classical economists such as Adam Smith and David Ricardo on growth and development. Ricardo noted, “To determine the laws which regulate distribution, is the principal problem in Political Economy” in his monumental work On the Principles of Political Economy and Taxation (1817). Distribution of income is as central to economic enquiry as growth is in the classical tradition. Smith, Ricardo and Karl Marx used surplus-centred approaches in analysing value, distribution, price determination, and accumulation. This evidently is a comprehensive enquiry of accumulation along with inequality. The notion of distribution was pretty much forgotten as neoclassical and Keynesian economics took over. These theories assumed that labour and capital were compensated according to their marginal products. This “marginalist” neoclassical approach was demolished on logical grounds by the contributions of Piero Sraffa, but is still in use due to its appealing simplicity and the neoclassical hegemony in economics. The neoclassical approach gives intellectual backing to crucial neo-liberal policy positions such as limited public expenditure; be it in health or education, privatisation of public sector banks, prescription of labour market flexibility for boosting investment, and so on.