During times of crisis, such as the COVID-19 pandemic, policymakers and the public reveal a strong preference for fairness in pricing even when that would reduce efficiency. For example, they support the application of price gouging laws that prevent prices for necessities from skyrocketing but probably also dampen incentives for firms to produce more and alleviate the shortage. More generally, a growing body of research reveals that consumers have a strong preference for fairness over wealth maximization. This suggests that in making price policy, governments should abandon neoclassical economics and its wealth maximization criterion in favor of an approach that treats fairness in pricing as a first principle and paramount value. The chapter considers the implications of this "neo-Kantian" approach to price policy for antitrust law and policy in particular.

Neoclassical economics is inherently biased against progressive policies and therefore should be avoided by progressives seeking to make the case for them. This is reflected in the history of regulation of payday loans and other fringe financial products. Conservatives used economic arguments to roll back regulation of these products in the second half of the twentieth century. Attempts to reregulate them have since been stymied despite progressives’ use of behavioral economic arguments to justify greater regulation. Progressives who eschew economic argument have had more success pursuing reform in other areas in the Biden Administration. The failure of behavioral economics to advance a progressive agenda in fringe finance suggests that inframarginalism, which also embraces the neoclassical analytic, will not help progressives. Another problem is that any neoclassical approach privileges elite expertise.

This chapter traces the development of an economic sublime associated with modern neoclassical economics. A precursor to Fredric Jameson’s postmodern “hysterical sublime,” the sublimity of neoclassical economics derived from the thrilling sense that, through math, economics could access vast and terrifying universal forces, and connect individuals directly to them. However, the most popular expression of the economic sublime was not mathematical but literary, and consisted primarily of naturalist novels that chronicled human encounters with economic laws allegedly so regular, universal, and inexorable that they amounted to a new branch of physics. Through readings of novels by Theodore Dreiser, Jack London, and Frank Norris, this chapter shows how literature helped train readers to understand neoclassical economics not just as natural, but also as an indispensable source of romantic pleasure.

In the early years of neoclassical economics, agents were pleasure-seekers and their marginal utility for a good diminished continuously as consumption increased. This psychology ensured that agents could optimize and identify smooth trade-offs. Later generations abandoned this utilitarian inheritance in favor of a theory of rationality, but they had no replacement explanation for why agents can always order their options from best to worst. The same pattern has recurred in the theory of choice under uncertainty. In early theories, agents have preferences over lotteries where outcomes have known or objective probabilities. But once economists recognized the primacy of idiosyncratic risks, they turned to theories where agents form preferences based on their judgments of the likelihood of outcomes. These theories of subjective probability cannot explain why agents are capable of making these judgments. And if agents cannot pin down subjective probabilities they will not able to order their options. More broadly, agents face different classes of decisions, some where they are guided by an ordering principle that shows how to weigh their options and others where agents cannot judge trade-offs and form preferences.

Individuals can rationally pursue their interests without the preferences and marginal utilities that have long taken center stage in economics. Economics without preferences lays out the microeconomics of individual behavior, markets, and welfare when agents cannot always come to judgment. Although economic theory has claimed that self-interest requires agents to form preferences, individuals can protect themselves from harm by refusing to trade options they cannot rank. Many of the anomalies uncovered by behavioral economics – from status quo bias to loss aversion – thus have a rationality design. The absence of preferences also resolves the puzzle that classical economic agents are almost never indifferent between options whereas real-world agents often are. When individuals cannot judge trade-offs, gaps appear between the marginal valuations of gains and losses. These gaps explain why market prices can be volatile and render orthodox efficiency criteria indecisive. Policymakers will no longer be able to pin down an optimal provision of public goods. Traditional schemes that try to harness preference information to compensate agents harmed by economic change will allow virtually any decision to qualify as efficient. Governments should instead spur productivity growth, the main benefit capitalism can deliver, while shielding agents from the price upheavals that result.

There are two major paradigms of the market: the neoclassical static equilibrium theory and the Austrian School (and Schumpeterian) dynamic non-equilibrium theory. The most important difference between the two is their different understandings of the entrepreneur’s status and function in the market. The market in neoclassical economics is a market without entrepreneurs. On the contrary, entrepreneurs are central to the market in Austrian School economics and Schumpeterian economics. The neoclassical model is not a good market theory and its market failure theory is wrong. By placing entrepreneurs at the center of the market, the Austrian School of economics provides a better understanding of the market. This chapter also points out the eight paradoxes of the neoclassical model. These eight paradoxes show that neoclassical economics totally distorts our understanding of the real market.

In Chapter 1, we set out the big question that this book seeks to answer: How does economics help us understand the various relationships between human beings and dogs? We label our effort to answer this big question and the many related economic questions and issues as “dogonomics.” To frame the question, we introduce two somewhat differing economic perspectives: neoclassical economics, which assumes individual rationality, and behavioral economics, which argues that people act irrationally in predictable ways. We make the case that, although many dogs are bought and sold in markets, they are unlike other commodities and most other animals. Dog exceptionalism is real. Indeed, they often have a dual nature as both commodity and family member.

In Chapter 8, I conclude by addressing the promise of capitalism from the perspective of those who have joined the search for a moral foundation. I first discuss how both classical and neoclassical economic theory have proven to be incomplete views of economic reality. Recent evidence suggests that, while highly descriptive of economic growth prior to the first industrial revolution in England, classical economic theory is incapable of explaining economic growth after around 1800. The neoclassical economic theory out of Chicago has also proven to be incomplete following persistent evidence of norm-based behavior in the lab and recurring market crashes, including the latest severe market crash in 2007–08. I then discuss three types of responses to the latest crisis of capitalism and how they have left the theoretical landscape ripe for future development and innovation. To further reveal the potential for theoretical development, I summarize key insights from the economists and philosophers covered in this book. After summarizing key insights from my own search, including a paper I presented at a recent research conference in Australia, I conclude by discussing why the search for a moral foundation for capitalism may be the critical challenge of our age.

In this chapter Innes explores how Soviet economics, and the neoclassical economics behind British neoliberalism, came to conceive of the political economy as a closed system, governed by predetermined economic laws and dependable behaviours. Both orthodoxies are shown to depend on arguments about the universal truths of the political economy that are not just utopian, but tautological - circular - in their reasoning. Their axiomatic assumptions and actions are valid, as distinct from true, by virtue only of their logical formulation, and their end goals are consequently as impossible to realise as they are to refute. By exploring the evolution of both Soviet and neoclassical economic thought, Innes outlines the affinities between the ‘social physics’ of neoclassical economics and the deterministic assumptions of Stalinist central planning, and explains why it is that even the relatively critical, ‘second best world’ neoclassical economics that became associated with New Labour policy is freighted with no less determinism than the ‘first best world’ assumptions adopted by the New, neoliberal right.

Neoliberalism is often framed as the victorious doctrine against Soviet communism: its nemesis and antidote. When we examine how Soviet and neoliberal economics understand the nature of political economic reality, however, British neoliberalism and Soviet communism turn out to be exact mirror images. In this introduction, Innes sets out the book’s argument, and the philosophy of science perspective on which it is based. Why do Soviet and neoliberal orthodoxies have such affinities? Both are based on closed-system reasoning about the political economy; both assert that there are predetermined laws of the economy that each doctrine alone can apprehend, and both schemes require the operation of a universal and consistent rationality: socialist versus utilitarian. The ‘critical realist’ perspective in the philosophy of science focuses on how we apprehend reality, and what we can reasonably claim to know about it, and the introduction explains how this lens allows us to see why a ‘governing science’ built on closed system reasoning is doomed to produce a rising tide of unanticipated social and institutional consequences in societies that are evolving, open, and hence uncertain systems.

This chapter explores why the promises of allocative efficiency in neoliberal and Soviet economics - neoclassical ‘general equilibrium’ and the Soviet's ‘balanced plan’ - cannot be fulfilled. Early Soviet conceptions of planning had aspired to be based on an evolving social reality, in contrast to the highly abstract, competition-based, and hence de-historicized neoclassical arguments for general equilibrium. The Stalinist shift to synoptic planning had nevertheless confronted Soviet economists with the same challenges their neoclassical colleagues faced in the west: that of how to produce essentially machine-like models of allocative efficiency in social reality. These challenges would drive later generations of Soviet and neoclassical economists to fixate on, and fail to solve, the problem of how to account for the information that was evidently ‘lost’ both in planning and in market mechanisms. Innes explains why both concepts of allocative efficiency had proved even theoretically incoherent by the 1970s, and demonstrates that it was at this, the lowest point of intellectual credibility for the theory of general equilibrium, that it became a foundation of neoliberal orthodoxy.

The scale of the Great Depression and the obvious need for federal intervention mooted laissez-faire arguments. Nevertheless, the continuing vitality of laissez-faire sparked debates in law, economics, and public policy about the proper role of government that, in important ways, continue to the present. The chapter locates the rise of infrastructure as a common term within modernization theory and development economics, which provide the post-World War II with a western-centered model of capitalist growth. Modernization theory drew on social science, economics, and political theory to map society and economy as reciprocal systems that were amenable to policy intervention. Infrastructure” begins to circulate in the early 1950s as a novel concept among staffers at the World Bank and later in Congressional debates over the Marshall Plan. It first takes on a narrow meaning of military facilities and the resources that supported those facilities. From there, it becomes a portable concept that development economists could use to predict the “take off” or stagnation of emerging societies measured by rates of growth, GDP, social stability, and technological advance. We see our contemporary sense of infrastructure crystallize in the 1950s and 1960s as the material precondition for a flourishing modern capitalist democracy.

Economics takes the view from the present. But as people become affluent, they care more for the future, which is what government provides for. In the twentieth century, government has grown faster than the economy, and even Conservative governments have failed to wind it down. The reason is that markets take the short view and cannot provide for the future on their own. Before the nineteenth century, interest was seen as usury, rent as parasitical, and profit as exploitation. In response, the neoclassical economics of the 1870s came to the defence of privilege: property was legitimate, interest and profit were the cost of patience, the reward for capitalist energy and enterprise. Markets were the natural order, government and taxes parasitical. Since the 1980s governments have embraced markets as enterprising, innovative, efficient, superior. But privatisation, deregulation, and outsourcing have not fulfilled their promise. Government has not gone away. An outline of the book concludes.

Many of the great masters of post-Keynesian economics – think of Lunghini, Garegnani, Graziani, but the list is long – are no longer with us. Those belonging to the following generation have been marginalised and reduced to irrelevance, at least in the academic arena. The ‘neoclassical group’, on the other hand, has closed its ranks and built a powerful machine of cultural hegemony. It is very difficult for those who pursue non ‘mainstream’ lines of research to build an academic career – and thus continue to do research. And still, if paradigm shifts are most likely to happen in the wake of epochal transformations, the world is changing rapidly enough to advocate for one.

The building-blocks of this ‘new’ paradigm are all there. All we have to do is to circumscribe its perimeter, and close ourselves our ranks to join forces and knowledge and provide a complete, coherent and alternative interpretative framework to the dominant one. In this chapter, I make the bold attempt to connect these blocks, giving a (non-comprehensive) list of readings, authors or research lines which could fruitfully cooperate in creating the school of thought Pasinetti is advocating for.

This chapter presents speculation regarding factors that contributed to the success of the Cobb–Douglas regression. I discuss in particular four factors that helped facilitate the widespread adoption of the regression approach to production function estimation. (i) Douglas’s decision to link his procedure to fundamental concepts of the neoclassical approach to economics, which was destined to grow in influence over the course of the twentieth century. (ii) the flexibility and adaptability of the technique. (iii) Douglas’s rhetoric of persuasion, and (iv) the emergence of prominent advocates for the technique, such as Earl Heady and Zvi Griliches who communicated, by words and example, the attitude that despite its weaknesses, the technique was potentially very valuable, that the best way to realize that potential was to continue using the technique while working to address the weaknesses, and that even while this process of improvement was going on, the technique was still able to contribute to knowledge. The question of why such allies emerge is explored.