Economics is fundamentally political

The dangerous illusion of economics as a value-free science

Photo by Paul Fiedler on Unsplash

In a recent episode of The Weekly Show, Jon Stewart sat down with Richard Thaler, the Nobel Prize-winning behavioural economist whose work on human decision-making has rightly earned him enormous respect. What was supposed to be a discussion about how behavioural economics can shed light on the state of the economy quickly became a clash between a comedian asking basic questions about power and politics, and an economist who struggled to answer them.

Stewart pushed Thaler on the political nature of economics. “The government always picks winners and losers and then pretends like that’s something that they can’t do,” he said. “All markets are designed to some extent.” Thaler’s response was often to retreat into abstraction, “back in the world of inside an economist’s head.” Stewart’s reaction — “Oh boy” — captured the frustration perfectly.

Stewart’s questions — about power, about the nature of capitalism, about how political choices are disguised as technical ones — were entirely legitimate, motivated by what he’s observing in the real world. And the fact that a Nobel laureate couldn’t convincingly address them tells us something important: economics has become a discipline detached from questions of politics, despite the fact that economics is intrinsically and unavoidably political.

The politics that economics pretends isn't there

Open an introductory economics textbook and you will find supply and demand curves presented as if they operate in a political vacuum. You will find models of international trade that fail to examine how trade agreements are shaped by corporate lobbying and geopolitical power. You will find labour market models where wages reflect “marginal productivity” without discussing how labour laws, union suppression, and offshoring determine what workers are actually paid. You will find models of economic growth as a function of capital and technology, but rarely as a function of the colonial plunder and slave labour that made that accumulation possible.

Perhaps most pervasively, mainstream economics treats markets more or less as naturally occurring phenomena — as if they simply emerge when people are left to their own devices. They don’t. Markets are constructed by laws, maintained by institutions, and enforced by states. Karl Polanyi made this point with devastating clarity in The Great Transformation, published in 1944. In the book, he noted that there was nothing natural about laissez-faire. The construction of a supposedly “free market”, Polanyi argued, required enormous state intervention — in law, in policy, in the very restructuring of social relations:

The road to the free market was opened and kept open by an enormous increase in continuous, centrally organised and controlled interventionism (…) Administrators had to be constantly on the watch to ensure the free working of the system. Thus even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire.

Monetary policy is another fitting example that illustrates the political nature of economics. Decisions about interest rates, inflation targets, and financial regulation are routinely framed as “neutral” or “objective.” But they are highly political. Low interest rates tend to favour borrowers, asset owners, and financial markets. High interest rates protect savers but can raise unemployment and slow growth. When the US Federal Reserve or the European Central Bank sets monetary policy, it is making choices that redistribute wealth across society. Even the mandates of these institutions are products of political decisions. The emphasis placed on price stability in Western central banks rather than, say, regulating private finance — which China’s central bank places high priority on — reflects value judgments as well as political lobbying. And delegating any of these decisions to “independent” central banks does not make them apolitical. It simply obscures the politics behind a veneer of technocratic expertise.

Then there are government budgets, which are, at their core, moral and political documents. Progressive versus flat taxes say something about a society’s attitude towards fairness and inequality, rather than just “pareto optimality” or efficiency. Spending on defence versus healthcare versus education signals what, and who, a society values. The choice between austerity and stimulus reflects deeper beliefs about responsibility, risk, and social obligation. When institutions like the International Monetary Fund and the World Bank push specific austerity policies on developing countries — as they have done relentlessly for decades through structural adjustment programmes — they do so with ideological assumptions about the dysfunctional role of the state and the primacy of free markets.

How economics became a "science"

Some economics textbooks and classrooms do touch on these political questions — but typically as asides, overshadowed by mathematical optimisation problems. This was certainly my experience studying for a BA in economics. There were no rigorous discussions about the political nature of economics or the evolution of capitalism. One of our professors told us outright that it was not their job to teach us the economics of the real world, but rather to equip us with the technical skills to understand the economy. What he failed to realise is that, alongside some useful maths and stats, he also taught us how to misunderstand the economy. A framework stripped of politics and philosophy doesn't just leave gaps in students' knowledge, but also fills those gaps with assumptions they may never think to question.

It wasn’t always like this. Adam Smith and Karl Marx, two of the most important historical figures in the discipline of economics, both treated economics as an inherently political subject — despite their ideological differences. They didn’t even call it “economics.” They called it political economy. For Smith, the study of wealth creation was inseparable from questions about the state, social class, and moral philosophy. For Marx, the economy was a system of power relations, not merely a set of exchange mechanisms.

So, what happened? In the 1870s, a group of prominent economists — William Stanley Jevons, Carl Menger, and Léon Walras — launched what became known as the marginalist revolution. They shifted the focus of economics away from production, class, and power towards subjective individual preferences and mathematical optimisation. Value was no longer determined by labour or social relations; it was determined by marginal utility — by how much satisfaction the last unit of a good provides to an individual consumer. The marginalist revolution laid the foundation for neoclassical economics, which today dominates mainstream economic thinking.

This was both a theoretical and methodological shift. Jevons declared that economics, as a science concerned with quantities, is necessarily mathematical. Walras constructed elaborate systems of equations to describe general equilibrium, scarcely backed up by empirical evidence. Economics increasingly modelled itself on physics because it wanted to be seen as a “real” science — what the historian Philip Mirowski has called “physics envy”. Economists started borrowing the mathematical tools of physics but fatally ignored the fact that it was impossible for a social science to replicate the empirical rigour of a natural science. Mirowski doesn't pull any punches in his critique of the marginalist revolution:

The marginalists appropriated the mathematical formalisms of mid-nineteenth-century energy physics, made them their own by changing the labels on the variables, and then trumpeted the triumph of a truly ‘scientific economics.’ Utility became the analogue of potential energy (…)This little blunder rendered neoclassical economics essentially incoherent.

Over the following decades, economics gradually detached itself from the other social sciences. Where it had once been in conversation with history, philosophy, sociology, and political science, it now aspired to stand alone as a “hard science.” Alfred Marshall, in his enormously influential Principles of Economics, pointedly dropped “political” from the title. The message was clear: economics was no longer a branch of political inquiry. It was a technical discipline with its own laws, its own methods, and its extremely questionable claim to objectivity.

The result has been unfortunate. Far too many economics graduates today can build models but cannot explain what is happening in the actual economy. They can derive an “optimal” tax rate under a set of assumptions but cannot discuss the political forces that determine whether that tax rate is ever implemented or, even more importantly, should be implemented. They understand calculus but have probably never read Marx, Smith or Polanyi.

As Angus Deaton — himself a Nobel laureate in economics — has observed, the discipline has serious blind spots. In a remarkably candid essay entitled “Rethinking my Economics”, he identifies major shortcomings of mainstream economics, including the neglect of power in economic analysis, the excessive valorisation of efficiency over social justice, and lack of humility vis-a-vis other social sciences. In particular, he laments how economics has become unconcerned with ethics.

In contrast to economists from Adam Smith and Karl Marx through John Maynard Keynes, Friedrich Hayek, and even Milton Friedman, we have largely stopped thinking about ethics and about what constitutes human well-being. We are technocrats who focus on efficiency. We get little training about the ends of economics, on the meaning of well-being.

Reclaiming the political

There are certainly economists who understand the political nature of their subject. And there is a reason why economics graduates are highly employable compared to their social science counterparts — they tend to develop strong technical skills, which are valued in the labour market. I am not suggesting that economics degrees or economists are useless.

But the de-politicisation of economics has had unfortunate consequences. When economic decisions are presented as purely technical, this runs the danger of camouflaging politics as science. When students are trained to think of markets as natural and governments as a force that should only step in when markets fail, they are unknowingly being equipped with ideology.

Economics is fundamentally political — it has never been, and never will be, a value-free science. At its core, economics is shaped by ideologies, human morality, competing interests, social norms, and political priorities. Pretending otherwise does not make economics more rigorous. It makes it more dangerous. Economics was born as political economy for a reason.