“Almost thirty years ago Professor Phelps Brown, in his presidential address to the Royal Economic Society, talked about ‘The Underdevelopment of Economics.’ He complained about ‘the smallness of the contribution’ made by the most conspicuous developments of economics to the solution of pressing problems such as inflation, environmental protection, overseas development, urbanization, and the quality of life.
“Schumacher believed that the preoccupation of economists with logical, mathematical and econometric subtleties had led to the almost total neglect of crucial determining factors. If economics was to play any meaningful part in solving the most pressing problems facing humanity and the planet it would have to look beyond the purely economic to the wider questions of life which give economics its purpose, In other words, to become truly relevant, economics must look beyond itself: the ‘how’ of economics needs to be reconciled with the ‘why’ of human existence. Economics needs to become meta-economics. Nowhere has this bedrock reality been discussed more lucidly and potently than in Schumacher’s Small Is Beautiful. . . .
“Schumacher divided meta-economics into three distinct areas. In the first place, economics needs a metaphysical critique of itself, an examination of its intrinsic purpose. Secondly, there is a need on the part of economics to recognize that the physical factors of life are essentially qualitative as well as quantitative. Finally, economics needs to study man in his wholeness and not consider him only as ‘economic man,’ since homo economicus is an abstraction devoid of essential humanity.
“The fundamental error of modern economics is its mechanistic approach. It has evolved ever more intransigently in a merely quantitative direction, erecting econometric models based on mathematical theory which assume that the actions of people are essentially the same as the behavior of atoms. Yet are the ‘facts’ of economics in their essential nature the same as the facts of mathematics or physics? Are human beings, the dramatis personae of economics, similar to atoms in their essential nature? If so, does this not strip humanity of its freedom, its responsibility, its creativeness, its purpose, its meaning? In essence, does it not strip humanity of its humanity? For Schumacher, such questions were at the heart of meta-economics: ‘If economists continue to refuse to face such fundamental metaphysical — or, if you prefer the term, philosophical — questions, I cannot see that they can have any idea of what they are really teaching and what is the relationship of their teaching to truth.’
“Failure to address metaphysical questions has led to many of the central errors of conventional economics. The preoccupation with the physical as opposed to the metaphysical, the quantitative as opposed to the qualitative, has many practical ramifications. For example, the economic obsession with the quantitative has led to price eclipsing value, since price is quantitative whereas value is qualitative. Price is measurable mechanically whereas value can only be evaluated by making value judgments based on philosophical concepts. Since conventional economics shuns these meta-economic concepts, it speaks of ‘value’ only in terms of the market — and ‘market value’ is merely another way of saying ‘price.’ Therefore, intrinsic value does not exist for conventional economics.
“The consequences of this lack of distinction between price and value are far-reaching. As discussed in previous chapters, it has led to a failure to differentiate between primary and secondary goods, or between renewable and nonrenewable goods. It has led to the purely quantitative pricing of the economy in terms of gross national product, ‘which adds everything together, whether it is good or bad, healthy or unhealthy, life-sustaining or life-destroying.’
“Similarly, it has fuelled the idea of the ‘free market.’ Since the market is measured only in terms of price it is assumed that the consumer makes only price-induced judgments. In theory at least, the ideal consumer is a bargain-hunter who is concerned with nothing but price. Consumers do not care whether the goods they are buying are home produced or imported, renewable or non-renewable, organic or chemical, natural or genetically modified, cruelly or humanely produced. Consumers who make any of these value judgments prior to making a purchase are not behaving according to the econometric price mechanism that governs economic theory. They are not behaving as homo economicus should. They have stepped out of line by bringing into the equation value as opposed to price, quality as opposed to quantity, and metaphysics as opposed to physics. They are behaving not as predictable atoms, but as free-willed human beings. By making choices according to supraeconomic standards, people confound the expectations of economic forecasts.
“Clearly, economics needs to be alive to its disciplinary limitations, resisting the academic specialization that isolates it from its traditional roots in ethics and a metaphysical conception of man. It needs to acknowledge the eternally radical statement that ‘Man shall not live by bread alone. . . .’ and to recognize that life is not just a science but an art. In short, if economics is to have any useful or meaningful role, it needs to have a meta-economic ‘soul.’”
— from Joseph Pearce, Small Is Still Beautiful: Economics As If Families Mattered (ISI Books, 2006)