PAKISTAN BUSINESS REVIEW - Institute of Business Management

Refreshing Incoherence in Neoclassical Economic Theory
Research
‘subsistence wage’ may differ as it is dictated by the level of
development that has taken place in any society at any specific
time (e.g. subsistence wage in Pakistan will be far lower than that
in the US). Marx took this ‘class-based’ analysis to its logical
conclusion by showing that capitalism is a system of production
where workers are exploited by the capitalist class. Neoclassical
economic theory of income distribution was developed to refute
the ‘class-based’ theoretical analysis put forward by the Classical
economists in the early and middle parts of the 19 th century.
Neoclassical economics sets itself the task to prove that the
fundamental characteristic of the market economy is ‘harmony’
and not ‘class-conflict’; and that the market is not a source of
exploitation but of welfare maximization. The response to the
Classical heritage came in the form of ‘equilibrium based analysis’
which asserted that competitive markets generate prices which
leave all market participants in a state which cannot be improved
upon by any other means—no one can be made better off by
means other than participating in the market. Hence, to
neoclassical economists, ‘market equilibrium’ is not only efficient
but also welfare maximizing for all agents.
But as pointed out above, this harmonized projection
of capitalist social reality is based upon erroneous conception
of asocial and ahistorical individuation—which is itself a specific
conception of human self as a natural disposition of human
nature. The idea of methodological individualism presumes that
men could exist before the establishment of societies—an idea
which is quite implausible. Ferguson (1776) attacked such an
asocial and ahistorcial conception of human being (used, for
example, by Rousseau or more recently by Rawls) as:
“if we would know him (man), we must attend to
himself, to the course of his life, and to the tenor of
his conduct. With him the society appears to be as
old as the individual…If there was a time in which
he has his acquaintance with his own species to
make and his faculties to acquire, it is a time of
which we have no record, and in relation to which
our opinions serve no purpose and are supported
by no evidence” (p. 9)
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