ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Today’s Mainstream Economics Is Science Fiction, Not Science

Today’s gross domestic product accounting format treats many examples of economic rent as “product,” not as zero-sum transfer payments. The result is to give rentier activities, above all, those of the finance, insurance and real estate sectors the illusion that they play a productive role rather than merely transferring income from debtors, clients, and renters to creditors, monopolists, and landlords. The contrast between productive and unproductive economic activity was central to 19th-century classical economics. The major aim of its value and price theory was to isolate economic rent as unearned income—revenue that was not an incentive for playing any productive role, but was simply a return to privileged property rights.

The economic theory did not start by being unscientific. The classical economics of France’s Physiocrats, Adam Smith, David Ricardo, John Stuart Mill, Karl Marx and their followers over the course of the 19th century developed a logic to free their countries from the legacies of feudalism: a landlord class receiving land rents as a hereditary privilege bequeathed by their warlord ancestors; a financial class receiving interest and other revenues for credit that played little productive role in financing industrial investment; and monopolists, many of whose rent-yielding privileges were created to pay government bondholders for loans they had made to finance wars.

These reformers defined economic rent paid to landlords, bankers and monopolists as the excess of market price over intrinsic cost-value. Explaining how land rent and banking based on war financing were introduced in Europe violently, they defined a free market as one that was free from economic rents and unproductive debt. Not playing a productive role, it was an economically unnecessary burden on the cost of living and doing business. If industrial economies were to expand and win markets throughout the world, their cost of living and doing business had to be minimised.

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Updated On : 20th Oct, 2023
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