KEY:
RV: Ragupathy Venkatachalam
AS: Anwar Shaikh

RV: We have Professor Anwar Shaikh from the Graduate Faculty of Political and Social sciences at the New School University. Anwar, thank you for agreeing to participate in the Goldsmiths ISRF interview series with eminent economists.

AS: Thank you. It is a pleasure to be invited by Goldsmiths. I have very fond memories of my last visit there.

RV: Let me start with what you have been working on for the past few decades. Much of your work concerns unearthing the principles of the capitalist system and the patterns that it generates. How would you describe the process of capitalistic development or how we should look at it?

AS: One of the crucial things about capitalism is that it is extremely dynamic. It evolves quickly. I think of it like a virus. The outside of the system evolves so that it doesn’t appear so easily recognisable, but the inside still has the virus DNA. So you have to be able to distinguish the evolving exterior – historically evolving in different nations – from the common driving force, and that common driving force is profitability. At the basic level, profit is the fuel of the system.

RV: You also mentioned in your work that capitalistic systems should be viewed as a unity of order and disorder fused together, but that is not usually what the standard textbook view is, which is more of a system which is in equilibrium.

AS: This issue of order and disorder being duals of each other comes from the fact that one of the strengths of the capitalist system is that nobody tells individual people what to do. Unlike other systems where there is a feudal lord or king and so on, capitalism is regulated by the fact that individuals make decisions. Firms make decisions, customers make decisions. This is not to say that they are not influenced by things, but nobody can tell you per se what to do, what product to make, what clothes to wear.

That poses a problem. How do all these individual decisions become socially consistent with each other? After all, our decisions to buy something, to eat something, to go somewhere, have to match the decisions of producers to make those things - and vice versa. Hence we have a system in which the balance must come about by imbalance because at no point is the set of our decisions as customers is consistent with the set of decisions of the producers. Everybody is guessing. When I choose to buy something, I am hoping that it will be there, and the producers when they produce it are hoping that I and others will be there. These acts create discrepancies and the discrepancies are adjusted to match the two sides, but the adjustment makes other things change so nothing ever settles down to a balance. It constantly overshoots and undershoots. That is why the disorder is the means for the order.

RV: If the capitalistic systems dynamic is this constant tussle between order and disorder, then how is it that we have very powerful, stable patterns or ordered patterns over time?

AS: Here the question is: if order and disorder coexist, how do we get patterns? That is because the disorder fluctuates around the order and the order is the source of the patterns. The patterns we get are not balances, equilibria, optimality. They are lurching paths in a way that you can see that a stream in the ocean produces a direction, but nobody says it is a perfect stream. It is always encountering things that disrupt it and the force of the movement keeps it going in a particular direction until it hits something that changes it.

These ordered patterns have periodic collapses, reversions or reversals, which are part of this whole balancing mechanism. You could have fluctuations that are balanced over a relatively short time – 5 to 7 years. You can have longer fluctuations, historically called the business cycle – 10 to 11 years. Then you have even longer fluctuations that we call long waves that span 40 to 50 years. Now you can see all of these empirically and if we understand that they are intrinsic then we don’t try to derive them from this person’s action or that. The history of business cycles and these waves tend to give them names associated with particular historical events, but if you see them coming from the intrinsic pattern then you see that while the naming identifies particular local movements, the broad pattern of overshooting and undershooting comes from the dynamics of the system itself.

RV: Where do you see history and institutions playing a role in shaping these patterns? Do they have a role at all?

AS: Yes, they do and that is a very interesting question. Where do history and institutions come into it? For one thing, the patterns have an inner drive, but that doesn’t mean that their drive is always expressed in the same way, because the expression depends on the surrounding structure. It depends on the nation, its history. That is what we call path dependence. You see the pattern, but it starts from a particular place. It is influenced by the things it encounters and can even be stopped, but it can be stopped only at the expense of real disruption. Those stoppages, if they are historical or institutional stoppages, have consequences.

Let me give you two examples of this. The first application of Keynesianism was Hitler’s Germany. In the 1920s Germany was suffering tremendous unemployment and Social Democratic governments were not able to solve that without tremendous inflation. Hitler comes into power in 1933 and in one year eliminates unemployment. How does he do that? He pumps up the system. Now this is a social institutional effect. In pumping up the system, however, he doesn’t get inflation, he doesn’t get a crisis following that because at the same time he is pumping it up through deficit spending he is also saying to workers, ‘We can’t raise your wages because that would be against the Reich’s plans.’ He also says to capitalists, ‘You can’t raise your prices because that is against the war effort,’ and the Central Bank is also keeping the interest rate low. So, what is happening? There is an expansionary push on the system from one side while the linkages that feedback onto wages, prices and interest rates are cut. If they are cut, you don’t get the full consequences of the whole thing. But that can only be done for a while. How long can you tell capitalists, ‘You can’t change the prices’? How long can you tell workers, ‘You can’t fight for wages’? How long can you tell the central bank that the interest rate cannot be left to the market?

When the market was allowed to fully react, that same activity had a different consequence. That happened in all the advanced world in the post-war period. During the Great Depression and then in World War II, in the US Roosevelt also pumped up the economy while cutting the crucial feedback links. The war economy was running at full employment, with no inflation, stable wages and rising profit rates. But in the Postwar period, all the advanced countries said, ‘Okay, the market now can go back to its normal functioning.’ What happens when you allow the market to fully operate is that operations of stimulating it are now no longer possible in the same way because the market is reacting to that. Then you get consequences which are different. You pump up the economy, you get unemployment going down. But as the economy gets tight, the labour market tightens, real wages start to go up faster than productivity, profitability goes down, and since profitability drives the system, growth slows down. Growth slows down, unemployment comes back up. Now you pump it again and each time you do that, you get more inflation in each pump and less of an unemployment-reducing effect. You get what was called Stagflation in the 1970s – stagnation with inflation. No one could explain it from the Keynesian side but the conservatives – Friedman and others – said, ‘It is not a problem. There is no unemployment. The welfare state is allowing people to choose not to work– giving them a chance to sit around and do nothing’. From that point of view, what appears to be unemployment is really voluntary non-employment. According to Friedman the market provides employment to all who want it – i.e. there is full employment. It follows that Keynesian stimuli would just induce inflation, so we should avoid such policies. The conservatives won that intellectual battle. They are still winning.

RV: Would it be fair to characterise what you have said as talking about inherent limitations or limits to state intervention in the capitalistic system?

AS: Yes. The question is: can the observed outcome be viewed in terms of inherent limits to capitalist operation? The answer is: it can, because the thing that drives the system is profitability. If you intervene in such a way as to get negative consequences on profitability, i.e. to have real wages rising faster than productivity, then you effects which will undermine your desired stimulus.

Let me give you another example. Why not keep fighting for ever higher real wages, which was historically quite successful? Why not have a welfare state which says you shouldn’t have unemployment, we will provide employment where we need to? The answer is that that such efforts weaken the power of profit. Capitalists tell you this openly. In 1933 a delegation came to Roosevelt and said, ‘You have to stop saying that it is a function of the state to provide employment because if you say that, it means that we are not the ones providing employment and that is undermines the order and logic of the system and of our place in it.’ They were right. I am not saying I agree with their intention, but they were right in expressing the real dynamic of the system. That is true in many different domains. We – I am speaking of the left – like to see certain outcomes and we have succeeded in getting some of them, but there are consequences of higher real wages in terms of competitiveness, for instance. You provide employment, high wages and all, and firms move to Mexico or China. Why is that? Because unit labor costs in those countries are low enough to more than offset any higher transportation costs. Capitalism always has this balancing mechanism which is important to understand. Elon Musk is planning to go to Mars and create colonies, by the way, which I am sure will not have the welfare state built into them!

RV: Let me return to something you said as the main driver, which is the profit motive in your theory. You seem to attribute a causal power to profits that is above the rest as the prominent driver of capitalistic dynamics and patterns. Why is this so powerful as a causal factor?

AS: Why is profit the powerful factor? It isn’t in the sense that everything is determined by it, but it is in the sense that it is the dominant factor. We have jobs. We get income. We can do what we want with that income, so how come we lose our jobs? We lose our jobs because a firm decides that it is more profitable to get rid of us than to keep us or to take the job abroad or to give it to another set of people. We think these jobs come from production. They don’t actually. They come from the decisions of firms to give jobs, but that decision gives income to workers. The workers’ income creates a demand for consumer goods so one source of aggregate demand is profit-motivated employment fed through the decisions of workers. Another source is that firms have to buy raw materials, which creates aggregate demand for raw materials. Firms have to pay dividends to their owners and interest to their bond holders and banker, and this rentier income generates another part of aggregate consumption demand. Finally, firms have to grow otherwise they won’t survive in the battle against each other. That gives rise to the aggregate demand for investment goods.

So the sum of all the individual decisions to produce and expand creates both aggregate demand and aggregate supply. But as I said, neither individual nor aggregate demands and supplies balance automatically. It is their imbalance which creates these waves. Now suppose the state steps in and tries to modulate that. Well, it can do that, of course. We know that it can do so within limits, even suspend some crucial market responses in times of war and of crisis, but it cannot do so for ever unless it says it is no longer capitalism. That is a different question. The question of how capitalism is regulated leads us to see that you get consequences for interventions. In the same way, we can say the driver of human metabolism is the heart. Now we can speed up the heart, we can slow down the heart, we can even damage the heart a bit, but if you puncture the heart – then you have a different consequence.

RV: What part for the role of individual agency in this causal hierarchy? In standard microeconomic theory or modern macroeconomic theories, one starts with individual decisions as the drivers of these patterns, through optimal adjustments and so on. Would that not feature as well in this framework?

AS: It does. Agency plays a big role in the individual decisions not only of consumers, but of firms. Nobody tells a firm to produce something or not, but the market tells them, profit tells them, whether they were successful in their guess. When I walk around any city, I not only look at the shops that are open, I look at the shops that are closed because those shops represent the negative feedback on profitability. They close because they cannot make profit. All shops are based on guesses about the future but the future depends on other people’s guesses, so there is no way to divine the future. There are no bones that you can rattle that will tell you the future.

Economists are almost always wrong in their projections because they are projecting from the past and capitalism is a dynamic system. It does have some momentum that you might capture, but there are the decisions of hundreds of thousands, maybe millions of firms that cohere only in the sense that they don’t cohere and therefore require some balance. The same thing about consumers. We make decisions to buy clothes, to eat food and all that, but if the clothes we buy or the food we buy doesn’t provide the sustenance for the firm, which is profit, then those clothes are not available, the food is not available. Our individual agency is only semi-autonomous because the feedback of our actions comes back to determine some of our options.

Our actions also feed back in another sense because our so-called autonomy is dependent on a heavy pull towards purchasing, towards thinking of ourselves as not adequate to the standards which constantly being modified. When I watch TV, I see how much propaganda we take in every second because alongside the programme (which is also propaganda of a different sort), there is an incessant stream of advertising that says  ‘Buy this, buy that. You need it.’ I saw an advert last night about a new vacuum cleaner that said, ‘You don’t realise how many bacteria are in your carpet.’ It shows a baby walking on the carpet. ‘So, you have to buy our new, more powerful vacuum cleaner that puts water in the carpet and takes out all the bacteria. Then you will be safe.’ But in point of fact we know that if our babies are not exposed to bacteria, they are going to have medical problems later in their life because their system doesn’t learn adequate immune responses. That is why babies taste everything – because they are putting bacteria in their mouth. But this firm’s profit comes from taking the bacteria out and some doctor’s money will come from repairing the damage due to weaker immune responses. That is how the system balances. It feeds back in this peculiar way, driven off balance but always moving forward, not necessarily for the good of consumers or for the good even of the firms.

Neoclassical theory offers us a vision of capitalism in which firms supposedly serve the consumers, so this advert would be said to be really serving the need of consumers. But in fact, it is stoking their fear – we know that – in order to get them to buy. That is an important lesson. Capitalism is very powerful at telling lies. I always say it sells lies, and once you buy the lie, as they say in the US, you own the lie. It is part of your property now and you defend it.

RV: You talked about profit, the search for profit and the constant tussle. This brings me to competition, which has been central to the classical story and also in the standard neoclassical models. But in your work you reject the dichotomy of perfect and imperfect competition in favour of what you call as the “real competition”. Can you elaborate on that?

AS: The theory of competition historically was about how firms actually operate. Adam Smith is talking about firms moving towards higher profitability and it leads him to derive certain principles including the mobility of capital, hiring of labour motivated by this mechanism of survival, which is what competition is about. In that sense, the proper metaphor for competition is a war. That doesn’t mean in wars you don’t make alliances and you don’t sometimes collude with someone else. I always tell my students, ‘If you want to know about how competition works, study the history of the Mafia.’ They make alliances and then you turn your back and they kill you too because they are competing for the same territory. That is the sense in which competition actually operates. Firms fight for market share, they get together when it is convenient and then they stab each other in the back when it is not. That is normal in a war.

Now imagine that I took that notion of a war, a real war, and I turned it into a kind of ballet. Everybody is dancing around, they never touch each other and the music is ethereal. That is the notion of perfect competition. It is a notion in which each firm cares only about the market for its product and profitability, because it assumes that it can sell anything it wants so the market disappears in that sense. It makes a decision to sell something for its own profitability. There are no negative impacts. Why is that perfect? It is not perfect because it represents reality. It is perfect because it represents a vision of capitalism which is ideal and optimal. All the basic tropes of orthodox economics – perfect competition, rational expectations, perfect knowledge of the consumer, no interactions among consumers or firms directly, general equilibrium, optimality, efficiency – all of these concepts are based on this notion of the representation of capitalism as ideal. This efficiency and optimality is defined relative to that.

Here is a problem: if you think about how people behave historically, how we evolved from our ancestors to what we are now, the one striking thing is that we are social animals. We are not direct descendants of apes, who are parallel in evolution, but we share the same propensities, which is for emotions, for empathy, for caring for others and also attacking others. Those are propensities we inherit from evolution. What culture does is take those propensities and our special one of language and build on that. But that doesn’t make us less connected. It makes us more connected. If I were starting as an economist and I were to say, ‘Let me begin with an individual, a consumer,’ the first thing I would do is represent them as a neural network – all these connections linking people and things. Class, race, culture, ethnicity, gender, nationality, everything,. Then I would begin to situate their behaviour in terms of that.

Orthodox textbooks say consumers are represented as only caring about the things they get themselves. They are represented by a utility function whose inputs are commodity 1, commodity 2, commodity 3. I always ask my students, ‘Where is your mother in this story? Where in making your decision do you care about what happens to her? What about your children? What about your father? What about your community?’ Such things are not permissible in this mathematical framework because then the results that you want – that is, the orthodoxy wants – don’t come about. Why is it rational for you to get the most you can out of things without caring about the consequences for your tribe, your family, nationality? It is irrational. What they define as rational is irrational, what they define as efficient is in fact inefficient. The neoclassical definition of the ideal consumer – I am writing a new book so this is part of that – is that of a sociopath. A sociopath literally does what the perfect competitive model says a consumer should do: care only about its own satisfaction. And firms? Well, we know there is a substantial literature that speaks to the sociopathy of corporations. A successful firm doesn’t care about what it does to the environment. It doesn’t care except when you impinge on its profitability. Then when the state says, ‘You pollute that stream, you are going to have to pay for it,’ the firms fight hard against it. Because if they lose, the payments raise their costs and lower their profits. We know this historically.

So, it is bizarre that a social science would be built on the assumption of asocial or antisocial behavior in its fundamental representations.  But it no longer appears bizarre once we realize that the political consequence of that representation is what George Soros called ‘market worship’. That is the real consequence of such a foundation. It is not the math. I do econophysics, for instance, not based on this absurd set of propositions, but rather as a way to formalise some patterns we actually observe.

RV: That is quite interesting what you say about the lack of society in characterising these individuals. Do you think it is inherently incompatible for that framework or is it something that people haven’t managed to do?

AS: First of all you have to ask: how could any school of thought produce such a framework? That raises the question of what the motivation is. This is what I mean by underlying things. Just as the profit motive is dominant in capitalism, the motive of representing capitalism in some supposedly ideal form is dominant there.

So now you have the difficulty: how do you bring in the interactions? Orthodox economics says they are externalities. Externality is a very revealing word because that says that our interactions with each other are external or non-ideal. How could you possibly begin with a framework like that? The problem for orthodox economics is to treat what is real and fundamental to our nature as something outside of perfection. These interactions are labelled ‘imperfections’, so we are in the bizarre situation that we keep adding imperfections in order to get this framework to deal with the real world. You keep adding imperfections and you get this whole accretion in the form of a theory of imperfections.

A standard microeconomics textbook that I was looking at doesn’t have any reference to the idea of interaction between individuals until page 236, where it says: ‘Suppose you smoke a cigarette and the smoke goes into someone else’s face. That is an externality.’ That is a most revealing example. What happens if you eat all the food in your house and your mother starves? That is an internality. What if you share with your mother? That is an externality. We have to reject these tropes – external, internal, efficient, inefficient, optimal – because they are all defined from this basic framework and it is admitted that if we allow these interactions that framework will not give you optimality. So, what is the point? If you don’t start there, you don’t have these notions at all. You can certainly represent consumer behavior as socially produced and still derive all the standard results of microeconomics: downward sloping demand curve, Engel’s law of differential elasticities of basic vs. luxury goods, Keynesian consumption functions, etc. I do precisely that in my book. But the laws of supply are different, they derive from real competition and the profit-principle that regulates it. Consumption and production laws are absolutely not symmetric.

RV: Going back to the question of competition, perfect and imperfect competition can be one way to look at how different theoretical paradigms start. One version starting from the most stable or ideal version of the economy versus another starting from a “real” version where there are imperfections. How is the second, the so-called real version, different from what you are trying to put forward?

AS: How is the distinction between perfect and imperfect, which is the way that this perfection model approaches the real, different from starting initially from the reality itself? A scientific understanding is good if it begins from essentials. It is not good if it begins with something completely fictitious and then tries to add the essentials.  

There is a historical example right in front of us, one we know perfectly well. The Church for millennia proposed the earth was the centre of the universe. Then increasingly over hundreds of years, evidence came that this geocentric model didn’t fit the observed movements of the planets, so they began to add imperfections. These were called epicycles. If Mars doesn’t proceed in the way that it should, we added a little loop in Mars. They did it for every planet and they kept adding epicycles, imperfections, but sum of these imperfections didn’t match each other. That is another problem. You could construct one or the other imperfection, but you couldn’t make them cohere.

Eventually there rose a different a body of work. Kepler, for instance, was addressing planetary orbits and discovered that the orbits were not imperfect circles (circles with epicycles) but rather ellipses. At the same time, the heliocentric view of the world proposed by Copernicus is going forward (by the way, largely, it seems, taken from Arab astronomers) and that is also proposing a different vision. Now you have a heliocentric vision – planets go round the sun – and the orbits are not circular as the church says but rather elliptical. Suddenly these things come together, and we have an analysis that works. But it does not derive from the need to represent the heavens as perfect or from the notion that reality as imperfect. It is the real, understood abstractly and then built up concretely.

I would argue that is how economics used to proceed in the time of Smith, Ricardo and Marx. And others, of course, but in every epoch there is one genius. These are the three geniuses, and then there is Keynes, also struggling with how do you make sense of this world where you have so many unemployed people? He is talking about the 1920s that gave rise to Hitler and he is saying, how can we possibly tolerate mass unemployment? We need to stimulate demand, he says. But there is no concept of effective demand as an independent entity in the ideal framework that Keynes inherited, because the market supposedly produces full employment. So, Keynes has to break with all of that. Unfortunately, he doesn’t make the break completely. He dies fairly young and we don’t know how he would have proceeded, but he was a genius and he would have in my opinion, figured out some way to bring all his ideas on macro and micro together.

The task I set myself was to show that there is a coherent path from a geocentric to a heliocentric vision of capitalism in which the centre is not the earth but the sun, which is profit, and from there to derive the orbits and the fluctuations and movements not as imperfections but as concretions. A concretion is not an imperfection. When Newton tells us that gravity is a fundamental force – in his time the fundamental force – he has a problem. He shows that you can drop a ball and a feather in a vacuum and they both would hit the ground at the same time. There is a video on YouTube – there is a video for everything on YouTube – and you can see the two falling at the same rate in a vacuum. But then every child knows they don’t fall like that in practice. And Newton explains that is because when we put air, which is a fluid, into the chamber, the feather floats through the air and the steel ball rushes through it.

But then Newton had another problem. If this is true for steel balls – that they fall to the earth – when we look up and see the moon, why doesn’t it fall? For that he had to wait seven, eight, nine years – I don’t remember exactly how long – before he was able to show that the law of gravity has two outcomes: things moving in respect to each other either fall together or end up in stable orbits. Once he discovered that, he had closed the gap. It is not an imperfection that there are stable orbits. It is a beauty and perfection of the original idea. It becomes part of the concretion of it.

That is why I oppose this perfection/imperfection duality. I always say to many of my post-Keynesian colleagues who depend on monopoly power as an explanation that there is no such thing as an imperfection without a perfection. By making this an imperfection, you are expressing your allegiance to a framework which is fundamentally false. You should abandon that and start somewhere else.

RV: Picking up from Newton and gravity, I want to get your thoughts on what you would call gravitational tendencies, which has been an important part of the classical paradigm. You distinguish between equalising tendencies and shaping tendencies in your writings. Could you elaborate on what kind of categories these are?

AS: Equalising tendencies bring you into some turbulent balance. For instance, we know that if wages are very different within a country then people will migrate, but migration is not meant to be understood in the orthodox economic sense – suddenly the wage difference disappears and wages are exactly equal. On the contrary, it is meant to be understood that as people migrate to where the wages are higher, they change not only the wages there – they bring them down relative to what they would have been (which is why existing workers can oppose migration into their regions), they also makes labour more scarce where they leave. Therefore making labour more abundant where they come in reduces the wage relative to whatever it was doing and raising it where they leave relative to what it would have been otherwise. That is an equalising tendency. It is not meant to say that wages will be equal. Any country we look across, wages are not equal. There are other factors. Even if you adjust for that, they are not equal, but this movement is a powerful force. Similarly, where profits are higher in one part of a country or one part of the world than elsewhere, then capital tends to move towards that. If they are higher in one activity, they move towards that. If they are higher selling tobacco or real estate, they move towards those. That is an equalising tendency because that closes the profit gaps.

The profit rate equalizing tendency produces a distribution around some average rate of profit, but that doesn’t tell us the path of the average rate itself. The path of the average profit rate, which is the centre of gravity of this equalising process, is dependent on other shaping factors: wage rates, technical change, productivity, social intervention which shapes working conditions and environmental effects. These shaping factors are historical, institutional, fundamental mechanisms of producing a direction. That direction may not be what capitalists want. Every major economist has argued that capitalism has a tendency towards falling profitability. Smith says that, Ricardo says that, Marx says that, Keynes says that, Pigou says that. They believe that as capitalism grows, profitability falls. They have different explanations for why, but each one of those factors is a shaping factor and the tendency comes from the effect of these shaping factors.

Another point is that neoliberal economics also functioned as a shaping tendency. It cut back the strength of the welfare state so real wages began to rise more slowly and in some cases like the United States they actually fell for many sets of workers. It enhanced international capital mobility, imposed capitalism and capitalist rules on many countries. Now those kinds of movements are shaping tendencies too and as a consequence, workers in the advanced countries began to lose their jobs to workers elsewhere. That is a political consequence of a shaping tendency. In the United States, Trump saw that, but so did Bernie Sanders. We see it all over Europe: this opposition to people coming into your area and taking your jobs – at least perceived as doing so. That has a political consequence. How that is going to play out is not clear yet.

RV: In all these movements, what about profits is getting equalised? What is that which the system is driving to?

AS: Profit rate tendencies, shaping tendencies or directional ones like equalisation are related to each other. If I say that firms move from low profit to high profit, that makes their profit rates more equal because it brings profit rates down where they are high because capital is rushing in, it brings them  up where they are low and so the difference between the two gets smaller. It doesn’t imply that the two will become equal because the very process of moving creates other factors so the differences themselves are altered by that.

Now economists at the most abstract level will say, ‘We can ignore the adjustment process. Let’s assume they are equal.’ This is useful for the study of certain systemic properties, but it is not exactly true empirically because there is always an ongoing process of adjustment. If you understand that, you look and you see a distribution around the average rate, and that leads to a different question. If they are all trying to equalise around some hidden centre, what is that average rate doing? That is a different question because the average rate is determined by different factors. The equalisation is lateral. You move from high to low and low to high so you make it roughly equal, but the centre of gravity of that equalisation is moving itself and you need to make that distinction. Most economic theory will assume that profit rates are equalised to take the adjustment part out of the story and focus instead on the path of the equalised rate, sometimes called the uniform rate. That is okay analytically in the same sense that Newton can talk about a vacuum chamber, something without a fluid.

But if you are trying to build an airplane, it is not adequate to assume that we live in a vacuum. We need to know the laws of gravity and the laws of fluid dynamics, which are not the same thing. When we are doing policy or empirical work, we are really building airplanes. We need to know the fundamental principles and we also need to know the fluid dynamics arising from the interaction of more concrete elements.

RV: So far we have talked about capital a lot. The measurement of capital has been a very contentious issue in the history of economics, certainly in the last century.  What is your take on the measurement issues of capital? Is it something relevant?

AS: Since capital is so central, there rose a debate about the measurement of capital, but that debate was confined to a particular framework in which both sides agreed that they were talking about the movements of these things in a vacuum without air. What does that mean? They assumed the profit rates of every firm are already equalised and remain equal. They assumed that the prices reflect equal profit rates. They were exploring the properties of a system which has got no fluid in it. It is in a vacuum. Then the question arose: if you change something in this vacuum – you change technology or wages – what happens to profitability and then what happens to prices? The profitability part was well known from Smith, Ricardo, Marx and all the others; you raise real wages, you lower the profit rate.

But to show that formally what happens in a system with many commodities was not easy. Probably the most central work was Piero Sraffa’s formal and extraordinary beautiful, elliptical work^[1]. It is only about 60 pages, it took him 40 years to write, and is hard for economists to read because he doesn’t use much formal mathematics. He does explain everything analytically, but he does it verbally. The core of his proposition is that if you raise real wages, the profit rate will go down – “the” profit rate meaning the uniform single profit rate that never appears in practice but is rather the profit rate as it appears in the vacuum. Then prices must change. Some prices will go up and others will go down. That is one thing Sraffa shows. Then he goes on to show that the movements might be very complicated, that as you successively move the wage rate up, individual prices could go up and down. That led to the notion that you cannot measure any aggregate quantity such as the quantity of capital in any simple way because aggregate “capital” is itself the price of a bundle of capital goods, and like the price of any single good, aggregate capital value can rise or fall as the profit rate falls. Such fluctuation would vitiate a core proposition of neoclassical theory. Neoclassical theory depends on a particular ordering, which is that as the aggregate capital-labour ratio rises as the profit rate goes down: as they read it, as capital becomes more abundant relative to labor, the return on capital will fall and the real wage will rise. The problem is not that we cannot measure capital, but rather that the measure of capital will not behave in the manner posited by neoclassical theory.

This finding led Sraffians to attack neoclassical theory and say, ‘Look, capital value could go up or down as the profit rate is lowered.’ Part of my work and my book ^[2] especially is that I show these patterns that Sraffa was talking about almost never appear at an empirical level. Then we have to ask a further question: why is it that such theoretical results are empirically rare? I believe that is because the abstract framework does not adequately reflect some central properties of real economies. I discussed the mathematics, the empirical evidence and some central results in my book.

RV: But surely every modelling exercise or every theory involves a certain level of abstraction. I don’t suppose you are against abstraction or mathematics per se.

AS: No. But since every theory involves abstraction, how would you choose among abstractions? Since every theory involves abstraction, you must have some way to choose. For instance, Darwin’s abstraction is that evolution operates from the beginning and that we as humans arise through a very long and complicated process. The church’s abstraction is that God created humanity and we started from the Garden of Eden. Now these are both abstractions. Everybody understands, the Church understands, how the real world operates. It has been very successful in the real world. Darwin and evolutionists have more work to do to arrive at real world phenomena because they have to derive it from their own fundamental foundation.

So the fact that they both start from abstractions does not tell us how to choose between starting from the Garden of Eden or from evolution. That is a difference of method. Every science has abstractions, but not every science’s abstractions are well grounded or well founded. Then you have a problem. You can abstract by beginning from the real as Newton did. You can also abstract by beginning from the ideal. The Church is representing an ideal vision which also keeps the Church at the centre of it – geocentric, humanity arising at some point – but that is not derived from observations of reality. It is an imposition on the reality for another purpose, a purpose of supporting the religion, of the ideology and so on. Then you come back to asking not only is this abstraction right or wrong, but what is motivating it in the first place? How is it able to maintain its claim that humanity arose 5,760 years ago when we have human societies that go back tens of thousands of years, hundreds of thousands of years. We know this. Even they knew it, so how did they arrive at their story?

RV: Speaking of choosing among abstractions and attacking abstractions which are unsuitable, I am told you have a nice story about humbug production functions, which is quite famous. Would you like to recollect that story and how it happened?

AS: When I was a graduate student, one of the things that disturbed me about neoclassical theory was the idea of an aggregate production function, which was something that had built into it what we were talking about before – the capital-labour ratio has to rise as the profit rate falls. Even more important was the idea that each class gets what it contributes to the product. Workers add a certain amount of product and that is what they get as real wages. Capitalists add a certain amount of product and that is their profit rate. This proposition seemed to fit the empirical evidence. Cobb and Douglas in their famous empirical estimation ^[3] fitted the data and it seemed to fit what is now called the Cobb-Douglas function, one in which the wage share was constant, the wage rate was equal to the marginal product of labour and the profit rate was equal to the marginal product of capital. They say explicitly that this shows that the distribution between classes is exactly due to their contributions and therefore it is ideal, it is perfect and it is not dependent on class struggle, on social or institutional factors.

Now I was born in Pakistan. It seemed very clear to me that the distribution between labour and capital is something historical because coming from Pakistan to the US or to Europe you see the long historical build-up of the struggles to get higher wages, shorter working day, safer working conditions, unemployment insurance, medical care. All of that stuff came not from the capitalists or the production function; it came from concrete historical struggles. I was looking then at this empirical evidence and the person who has revived that – in fact got the Nobel prize for that – Robert Solow, who had done a modern estimation of this hypothesis. As a graduate student at Columbia, I had invited Joan Robinson from Cambridge University to come and give a talk. Afterwards I got to know her and she said, ‘Why don’t you look into this problem? We as Sraffians have already shown that the mathematics of this doesn’t work out. Even Samuelson, the first Nobel Laureate, had admitted that they don’t work, but empirically it seems to be successful.’ I decided to do it as a seminar paper – a foolish thing to do because I didn’t have an answer to that at that point. My supervisor let me do this and I spent a lot of time trying to work it out. It didn’t come. One time he actually called me up to the blackboard and said, ‘So what results do you have?’ I didn’t have any results. I showed him the various things I had tried this, but they didn’t work. He said, ‘Alright. Go sit down.’ But one day…

RV: Who was this?

AS: Ron Findlay was my supervisor. A brilliant and wonderful person. Then one day it just came to me. Of course, you solve this as you read things and try different approaches. I was reading an article, a very simple clear article by Amit Bhaduri ^[4] about how you can put all of these issues into a simple identity, which is that output is equal to wages and profits. That is a national income account identity and there is nothing mysterious about how the accounts are kept. Then it began to hit me that if I differentiated that identity I got one part, which is a production function, and I got another part, which is residual used to measure technical change. Then I went back and thought, this thing that I did doesn’t depend on any underlying theory of it. I realised that I could take any data and do this operation on the data and I would show I would get the same results as Solow did because the underlying identity was linking the two sides. It was an algebraic identity.

I thought, how should I illustrate this? My original idea was to write some words and then show that it fits. So I wrote the word ‘Humbug’. Now humbug is something that shows up in the English literature. It is not very American. You don’t see it much, but it is the idea of something or someone that is a fake, pretending to be something that is not. I wrote out points spelling the word Humbug and I showed that I could get the same empirical result as Robert Solow. Regrettably, I did not get the Nobel prize for that. He did.

But the idea was to show that it was an empirical artefact of an identity and not proof of a theory of distribution. At that time I was a second or third year graduate student. I sent it off to a prestigious journal, they accepted it, but then apparently Solow got extremely angry so they moved it from an article to a comment on Solow, ^[5] which meant that he had the right to respond and I did not. He responded and I was effectively removed from the profession like Trotsky from Soviet literature and pictures. But I decided that I did not want my work to be dependent on this sort of negative result. My supervisor said, ‘It is very cute, but it is not a positive result,’ so I left behind my initial and only success for many years and started to work in a different way on how to understand the system itself, including how to explain wages and profits.

RV: Let me go back slightly to asking you about your early years and your intellectual influences and how you came about finding the path and the framework that you eventually developed.

AS: My early years. I came as a son of a diplomat to the United States. I came from some degree of luxury. Pakistani diplomats don’t live in castles, but we had a good life. I went to Stuyvesant high school in New York, which is a wonderful school where I met many interesting people who were creative and weird, nerds like me. Then I went to Princeton as an undergraduate. By that time, I was already moving politically away from the notion that what we have is good or ideal or good enough. I didn’t have a particular focal point, but I was clearly moving in that direction. Coming from a poor country in a very poor part of the world itself, it seemed to me that we needed to understand that.

There I encountered three different things which were shaping for me. One is that I heard Martin Luther King speak at Princeton. It was a powerful and moving message and resonated with me as a brown boy in a university that was proud of its connection to the South. The second was that some students at Princeton were very angry at this Martin Luther King thing and the general rise of a critique of the South, so they invited a Southern governor to come down and speak. I attended that also. The governor talked about how white races were superior, which was not persuasive to me, and how any culture which has mixed the races eventually failed. He cited Egypt as an example. He didn’t know anything, but the point was he was expressing a sentiment which even some students at an elite university like Princeton were finding resonated with them. By that time, my sides were very clear. I had experienced racism, of course, in the United States. The third one is that the head of the Islamic Studies Department at Princeton, whose name was T. Cuyler Young, invited Malcolm X to come and speak. That was extraordinary because Malcolm X had been almost completely cut out of white discourse. He was hardly mentioned on the news or newspapers or television, anything. I was dragged there by an African friend of mine who said, ‘You have to come hear him’. I had heard about how terrible Malcolm X was through the news and I was stunned. He was extremely articulate, shy almost, quiet, but he spoke about Islam in a way that I had never heard before. I hadn’t heard it in my own country because I went to a Catholic school and I didn’t hear it in the US obviously. Afterwards, I went up to him. I think I called him Mr X. That was his last name, right? I had to call him something! I said, ‘Thank you. That was a very interesting lecture.’ He said to me, ‘Are you a Muslim?’ I said, ‘I was born Muslim, yes.’ He said, ‘Then you have to come see me in the mosque in Harlem.’ I said, ‘Okay, I will.’ I went abroad. My father was posted to Kuwait. My visa was up as I graduated so I went there, and when I came back, Malcolm X was dead.

I think that idea that someone can come from a background which is so different and can be so aware of how the world operates and so committed to changing the world – Malcolm X, and Martin Luther King who came from a better background, both African American people – that had a big influence on me. I went to Kuwait and I worked there. Then I decided to go to graduate school.

RV: You went to graduate school to study economics. How did the shift happen from engineering?

AS: When I was in Princeton, I was studying aeronautical engineering. I had a deep motivation. My uncle was an aeronautical engineer, someone I admired, but I quickly found that I wasn’t doing very well because I had this difficulty going to classes: I tended to skip classes. I was 15 years old when I went to Princeton. In retrospect I was lonely and depressed, and that affected my performance. I came from this very fancy educational background in Stuyvesant, one of the top schools in the country, maybe in the world, but at Princeton I couldn’t find my place.

Then I began to come out of that, but I also began to realise that I didn’t have a future in aeronautical engineering in the United States because there were no non-white people in aeronautical engineering. The icon of aeronautical engineering in my time was Werner von Braun, who was Hitler’s rocket man. Americans grabbed him before the Soviets could and made him into an icon in the US. If you have seen Dr Strangelove, the movie, he is Dr Strangelove. I realised that I could not become the kind of person I dreamed of being because I would not have a place in this racially restricted scientific tradition.

It wasn’t until I think the 80s or 90s, maybe even later, that you saw non-white people in the US space program. I watched the Mars Rover landing in 2013. We woke up at 2:00 in the morning, a friend of mine with popcorn, to watch. It was the first time that I saw non-white people in the control room. It certainly didn’t happen in my time. I was influenced by a desire to be part of that, but I realised that I couldn’t have a place and I am not the kind of person who could accept a second or tertiary place. Partly my nature, partly my class background.

So I decided to go to graduate school. In Kuwait I met someone at a party and he said, ‘You should study economics.’ I thought, okay. I’ll study economics. I thought that was because economics would help me explain the other side of my interests: why was there Malcolm X and Martin Luther King and poverty, why was Pakistan poor and the US so rich? So, I went to graduate school. There in graduate school, I found out that I was faced with this perfectionist framework: perfect competition, perfect this, perfect that. A development economist was not supposed to do fundamental theory because that was given to us by the gods – Samuelson, Solow, Friedman, all of those people. Instead, we were to apply it to our particular domain. Now I knew our world in some way and I was convinced that the orthodox foundation was wrong.

A third thing that was happening was that the anti-war movement in the United States was growing and I was radicalised by that. I was strongly opposed to the war. There were marches and demonstrations and all that. I didn’t participate in those at the beginning, but there was a strike at Columbia in 1968. A group of students took over buildings because the university had planned to build a gymnasium in the park that separated Columbia, which was on a height of the park, and Harlem which was at the bottom. I happened to be teaching in Harlem and so my sympathies were with the Harlem side. I was actually living in Harlem, but I didn’t initially join the strike. The strike was by undergraduate students and I was a graduate student who had little contact with them. One day I was walking past a building they were occupying and I saw a man dressed in a suit. He had an umbrella and he started hitting the strikers. I thought, alright. I have to choose. So, I went to the buildings, I joined the occupation and that also transformed me in a way because it set me free from trying to balance these things. I knew which side I was on.

Then I began to read a different economic literature. I ran across the Cambridge Capital Controversy. Geoff Harcourt was my god for years. I would carry his article around and wave it at my teachers and say, ‘What about this? The aggregate production function doesn’t work!’ It is through that that I got the idea of inviting Joan Robinson to Columbia. I tell this story in my biography. It is such a good story for young people to hear. I didn’t know that you are not supposed to invite people to speak in a department if you are a graduate student, so I invited her and she said yes. I was so excited, I went to the department Chair and said, ‘I contacted Joan Robinson and she said she would come to speak. It won’t cost very much because she is already in Canada.’ He was a very nice man. He said, ‘I have to ask the department. It is not done that way.’ He asked the department and the department said no. Now here is one of the most famous economists in the world, the only woman of her rank, and they said no. I said, ‘Why not?’ They said, ‘Because she is not really an economist.’ I was so offended by that that it became clear in my mind that of the two sides – again, here is another case of the two sides – I knew which side I was on. Harcourt’s article ^[6] led me towards a literature which I didn’t know. It led me to the meeting with Joan Robinson. It led me to write the humbug production function. It led me ultimately to Marx, to various writers who wrote about Marx, but also to the actual reading of Marx. I found that resonated with me, even at an abstract level.

This movement in my feeling led me ultimately to resign my position at Columbia when my comrades were fired and I was not because I was younger and still had one-year on my contract. That also led me to discover what it means to be in the reserve army of labour. Eventually, by accident, it led me to a job at the New School where another influential person in my life, Robert Heilbroner, gave me a part-time job and then by accident I got a full-time job because a full time faculty member died in a car accident. The courses that I was teaching as an adjunct then became part of my full time portfolio. My life was shaped by a series of accidents really, and that is true of most of our lives, I think.

RV: That is a great story and surely an inspiration for a lot of young people. You talked about different sides and about different things that were happening during the time. One feels that the profession is a lot more centralised than it used to be when you went to graduate school probably, if it is a fair characterisation. How do you think the profession has changed over time in your opinion? Has it become more monolithic?

AS: When I was in graduate school, the profession of economics was influenced by two things. One was the institutional historical framework in the US. The US didn’t have any great presence of Marxist parties or Communist parties like many European countries did, because these parties had been decimated by the McCarthy period, a period in which anybody even deemed of being Left could be accused of being a communist and therefore their lives could be destroyed. The economics profession early on began to move in the direction of protecting itself against this. People like Samuelson, Baumol, Arrow, Solow, all were conscious of this. They came from groups who were pretty much on the Left and they began to move to safeguard themselves. So, they made economics more apparently neutral. They chose that direction. That was one movement. The other at the same time, by 1968, was this big struggle on the ground to make institutions more socially relevant and to make economics more socially relevant. In 1968 I helped found an organisation called Union for Radical Political Economics (URPE), which just had its 50th anniversary in 2018.

The radical movement spread to other professions, but not much to economics. Economics had already moved towards this abstract, formal idealisation of capitalism. It was already there and it moved further to the right with the initiation of the Swedish Central Bank Prize in Economic Sciences in Memory of Alfred Nobel. This was initially set up in order to move the profession and general intellectual discussion towards what they felt was a correct view of the market, which was that it should not be interfered with ^[7]. That prize then had a powerful impact adding to all the conservative movements already: the move to the right with neoliberal economics against the left protesters – all over the world, by the way. It became the way to imprint a seal of approval on neoclassical economics. In first decades there were almost no outliers. One or two. Arthur Lewis was black, but he was also conservative, and he used neoclassical theory. Gunnar Myrdal got the Nobel prize but in a kind of insult to him they split the prize with Hayek, an Austrian economist who was even to the right of the orthodoxy.

That had a powerful impact because it made orthodox ideas seem to be the height of scientific correctness and any other ideas just not good enough to be able to compete in the same domain. People still do this all the time. Orthodox economists say, ‘Those students in Paris who are complaining about economics are not good students. If they were good, they would be working with us’. That has had a powerful impact because administrators – Deans, Presidents – say, ‘We want the best people in the profession,’ and the best is defined this way. That shifted economics to the point where it is almost entirely neoclassical except for small tribes of people of other sorts across the world fighting for survival – and many times being extinguished, by the way. That typically happens unless the ground moves underneath, and the ground is now moving. Which way that is going to go is not clear.

After 2007, there were widespread criticism of economic orthodoxy from the Queen of England, from the Pope, from the Financial Times. Economics has not been much affected by this. If anything, the power of orthodoxy has expanded because now it dominates every country in the world. Before it was dominant in the US, England maybe, some parts of France. Now it dominates every economic department in the world and as a result it is hegemonic in India, China, Latin America. Think about that. It is hegemonic in Russia. That means that it is very hard to get purchase against these people. There was a time when Cambridge University Economics Department had Keynesians. Now it is largely neoclassical. You are considered a neoclassical Keynesian, a neoKeynesian, if you find a way in your neoclassical foundation to derive an outcome that looks similar to some Keynesian proposition.

This is from my point of view a rather bleak time in the economics profession. I am not an optimist by nature so I can’t say that a bleak time implies a better time later, but I do think that younger people are waking up, are saying, ‘We want a better understanding of the world.’ Whether that will come, I don’t know. We can try.

RV: Do you think standardisation of textbooks and lack of teaching modules like history of thought, which introduces people to global ideas, has in some ways augmented this process?

AS: Yes. This process I was talking about – domination – came about also through the domination of textbooks. Samuelson’s influential textbook ^[8] was the classic one, but others became more conservative. When you got Lucas’s rational expectations and textbooks began to build that into the story, they got further and further away from the reality into a representation which is for the sake of internal consistency. Students coming at an undergraduate level are not involved in that per se. They have to have some path to some recognisable features, but there too the textbooks are dominated by the orthodoxy. Even though some economists are progressive – some of them like Krugman and Stieglitz are very progressive – the textbooks they build their arguments on are the same old perfect competition, externality, all that set of tropes.

One could then ask, ‘Why aren’t there better textbooks?’ The answer is the profession won’t let you teach them. That is why. If there are better textbooks – and there are some out, more progressive. Nonetheless, many of them do what we were talking about earlier. They say, ‘This is a world of perfect competition which no longer holds so now we have imperfect competition.’ They try to be progressive in that framework. They bring in social factors and all that, but that is like bringing social factors into the Garden of Eden. You can’t do it because there is no Garden of Eden. You are not talking about anything real. You are talking about a fiction that you want to make more plausible. There is no purchase that I can see for a textbook that starts in a different way. I wrote the book I did to try to provide that way. ^[9] It took me probably the bulk of my intellectual life. Just writing the book itself took 20 years, but there was work I did 20 years before, because coherent ideas don’t come out of the sky. You have to develop them. You have a question, you search for some way to answer that question. But for me, every answer had to be consistent with every other answer because it is not a framework if you say, ‘Feathers and steel balls fall in the same way here, but if we are in another place maybe one will go up, the other go down.’ You have to build it from the same foundation and that took a long time. Sometimes answers to a question would take a decade. I knew the question, but I didn’t know the answer.

Typically, the way I work is to read a lot of the literature outside the economic orthodoxy, but I also read the business literature. Who understands capitalism better than the capitalists themselves? Harvard Business Review has lots of articles about how businesses operate, how capitalism operates. And in their time, Smith, Ricardo and Marx studied similar sources.

In the case of Marx, one serious problem is that Marx never finished anything without pressure. I saw recently a German-made movie called Young Marx. I don’t know if people know about that, but it is about Marx and Engels as young men – young radicals. They meet and bang, they clash, they don’t like each other at first. But eventually they come to understand each other and then they work together to write the Communist Manifesto. In one moment in the movie, Engels is saying, ‘Karl, have you finished that draft?’ and Karl is going, ‘No, I am just...’ He says to him, ‘Karl, you never finish anything!’ It is actually true. Without pressure, Marx never finished most things. Engels and Marx working together, Engels pushing Marx to finish Volume 1 of Capital. Marx wouldn’t finish it. Engels keeps saying, ‘Karl, we need this. It is overdue.’ ‘Yes, I just want to change this or that.’ Eventually, Marx finished Volume 1 of Capital. ^[10] But Marx intended to write six ‘books’ that went all the way from the abstract concept of value to the world market and crises. The first book was supposed to have four volumes. Marx finished one quarter of the first of six books. The rest he left behind in notes. Some of them got lost so we don’t even know what was in them. He also had terrible handwriting. At the end of his life, he tells Engels, ‘You put this together.’ Engels by that time is old, his sight is going, he doesn’t know what Marx was doing in most of this material because they didn’t communicate much on that, so he has to make some sense out of this mass of manuscripts. This man, out of his love for his friend, put together volumes 2 and 3 as best he could, but there are many gaps, many holes.

Unfortunately the Marxist tradition never filled these gaps in a systematic way. Many good Marxists were killed off in political battles or killed by Stalin, and in the Soviet Union in general the academic ones were side lined. Similar side-lining in the West. You couldn’t be a Marxist and get a job after a certain generation. You had Marxists like Dobb, Meek, Baran, Sweezy but after that not many in economics. The reconstruction of Marx’s work lay fallow. I think of it as having discovered the ruins of an ancient civilisation. At first you think, there are rocks here. Then you dig down and there is a structure, but it has holes in it either because it was unfinished or because time has removed the connections. I saw this as a task – not consciously in the beginning. I was just filling in questions, but I saw this task to put together that framework which I thought could be made consistent all the way from Smith to Keynes, not that they were necessarily saying the same thing. That has been a very exciting ride full of a lot of angst and terror at different points, but in the end I am proud of what I did.

RV: You have been a teacher for now more than four decades. History of economic thought is one way of introducing people to different schools of thought. Have you benefited from using history of thought, which is one of the defining features of your work, in teaching as well? How would you advise teaching economics in a pluralist fashion?
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AS: I always tell my students, ‘We have to study the history of thought for two reasons. It is really interesting.  Also the Greats were smarter than we are. If you want to know what you are missing, start with the Greats.’ We actually read them at the New School. That is because my mentor, Robert Heilbroner, was a historian of economic thought. His classic book, The Worldly Philosophers, ^[11] convinced many of us to be economists because on reading it we thought, wow, this is a really exciting profession! It turned out that was not what the profession had become, but rather what it used to be like. You could see in the history of thought the social political content of economics. Adam Smith says people behave in a variety of ways. The theory of Moral Sentiments is not some mechanical beings. It is about people having many social determinations, ambiguities and inconsistencies in their behaviour.

Adam Smith was an economist who was also familiar with philosophy and politics and society. He describes these elements in The Theory of Moral Sentiments ^[12] and in The Wealth of Nations. ^[13]  He builds up a picture of this new progressive system, a system which has many virtues compared to old ones, but he is not one to say that it is perfect. On the contrary, he speaks at many points about its deficiencies also, but he sees it as the future of society and in the process he describes these underlying principles we now call the invisible hand, though he only uses that term three times. These equalisation principles we were talking about before, and the general shaping principles, they are all there in Smith. Then comes David Ricardo, who takes these principles and gives them a hard edge. He is very sharp and identifies central tendencies. He builds a framework on that, some of it departing from Smith like the theory of trade, but others extending that.

Then comes Marx, who studies political economy. You see that in the movie I mentioned, Young Marx. Marx doesn’t know much political economy at first. He is a philosopher, but in beginning to study the world he realises he has to study political economy. He absorbs Smith, Ricardo and many others and begins to develop his own extension, his critique of political economy and its representation of capitalism. There too you see many powerful social political elements to the functioning of the system and also you see some of the same thing as in the classicals –driving common forces underneath that tend to create their own patterns shaped by historical institutional factors, but not eliminated by them. When I teach, I say, ‘Pay attention to what is going on. This is a description of the history of capitalism, of the underlying logic of capitalism, and when we come to the end of that hopefully you will see a framework that is capable of understanding that.’

Now switch to this other side that comes up in the 1890s, of marginalism, of the ideal framework, partly driven by opposition to the class struggle which had become pretty obvious by the mid-19th century – workers’ struggles that Marx was involved in, as were others such as utopian socialists and so on. The marginalists draw back from that world and construct a perfect, ideal world. One way to think of it is a post-traumatic stress disorder. Economics was going through this crisis in its understanding and it withdrew into a fantasy world. That turned out to be very effective because it provided capitalism what it needed, which is a representation of itself as not only the better system than feudalism, which is what Smith says, but the ideal human system. The system develops more and more, grounding itself in human nature given as perfectly as selfish and all that. That becomes a foundation of the mathematics to they for elaboration.

Mathematics in my opinion is not the explanation for neoclassical economics, it is the Latin of the church. As Latin, it doesn’t make the story any more true. If you tell the story of the Garden of Eden in Latin, it is not more true than if you tell it in Urdu or Hindi or English, but it sounds more mysterious and weighty. Mathematics becomes a weapon to protect the system. As a former student of aeronautical engineering, I have no fear of mathematics. I like it a lot actually. There is a lot of beauty in mathematics, but it will not give you anything more than you give it. You give it a bad idea, it will give you a mathematical representation of a bad idea.

One task is to bring people to the present reality and present tools, with the understanding that economics is a social political discipline. The latter that has to be taken into account, yet one must also recognise what the neoclassicals overemphasised: that it has some fundamental characteristic patterns that are not dependent on the specific historical moment or the  government in power. That I think is what the old economists and Keynes did and it is powerful to this day.

To give you an example, if you look at the Smithian idea of wages being equalised even within a country – we are not talking about immigrants coming over borders which are blocked to them, but within a country – you don’t see equal wages. What you see is a persistent set of differences. It turns out some physicists have observed – Victor Yakovenko ^[14] especially – that the distribution of wages has a remarkable mathematical property, which is that it is a probability distribution that is roughly exponential. Now for people who don’t know what that means, it means that the distribution has the following signature: if we plot on the vertical axis of a graph the log of the probability from above, and plot on the horizontal axis the wage level (in bins), the probability distribution appears as a roughly straight line. Yakovenko showed that for every year in the United States, it is a straight line whose height rises average wages go up, but the shape remains a straight line. Others have shown the same thing in other advanced countries.

How can that be? We have social historical factors operating throughout.. I wrote a paper with two graduate students on distribution of wages by gender and race because we had that data. Same thing. The average wages of women are lower than those of men, blacks have lower average wages than whites. But each distribution is a roughly straight line whose height varies according to the average wage in a particular year of the group in question. They have the same shape – a straight line on a log-linear scale ^[15]. That led to a theoretical question: how do we, coming from this idea of turbulence, equalisation, social historical determination, explain a pattern which is independent of that? For this a student and I turned to physics, to Fokker-Planck equations, which describe turbulent movements of individual particles that produce a pattern, a distribution. We showed that applying Adam Smith’s principle that people move from low wages to high wages in the context of a multitude of factors that enhance or inhibit this process, we end with an exponential distribution of wages ^[16]. That took us several years of work, but the result is a thing of beauty. When you see that, you think it is worth it – all the hard work – because now you can explain a real pattern from a foundation based on how actual movements operate.

That is part of the beauty of doing intellectual work: when you see something fall into place like that. I once said to students in a class that I had worked on another problem that took me years and years until one day on the computer I saw the results fall in place. I said to them, ‘I was high for months.’ They said, ‘You were high for months? What were you doing?’ I said, ‘I was looking at the computer, but I was high for months because it was so beautiful to find something like that.’

RV: What advice do you have for young economists and students who are starting to study economics?

AS: What should younger people be studying in economics? I have to say that depends on their purpose for studying economics. If they are studying economics to get a career and play it safe, I wish them good luck. I am not interested in helping further. If they are my students, I am interested in helping them get a career, but I think that as academics and intellectuals we should be involved in changing the world, in bettering the world. Part of bettering the world is to understand how it works. You cannot better it effectively if you are starting from a foundation which is false because then the consequences of your errors are not on you, they are on the people you on whom any policies are imposed. If you want to be a better surgeon, you should study surgery, not some ideal framework of how surgery should be done by gods. You have to get your hands dirty, bloody, you have to learn the accretion of technique of practical surgery as well as the theory of surgery, and then hopefully apply both.

I advise them to not be afraid of being able to think about a better future, not be afraid of leaving the safety of what their degree may provide them, but trying to go beyond that. Now I am fortunate because I teach in a university where many people in my department believe in this principle. We don’t agree how you should do it, but most of us tell the students, ‘Read the history of thought, read the standard theory, which we will examine you on. If you don’t make it there, you don’t make it, but also read the other stuff.’ Learn to do econometrics, learn to do econophysics, whatever it is you need to do. Historical work, labour economics, but keep in mind that there is more than one way to approach it. Keep your mind open to that and see if you can pass on the enthusiasm and excitement of teaching.

I love teaching. I have been doing it now for a very long time, since 1973 at a graduate level, but I started teaching in 1965 when I was in Kuwait visiting my family because my US visa had expired. I started working in a bank. I hated it. I worked in the Kuwaiti desert as an engineer because I have an engineering degree. It was extremely hot, 38 degrees centigrade and that wasn’t even in the sun. That was in the shade. I got what is called desert blindness, because Kuwait is on the coast so it is very humid and the sand irritates your eyes. My eyes got inflamed and I woke up one morning, I couldn’t see.

Now this is a biblical story. I couldn’t see and while I was lying there, my father got a call from the Kuwait American high school saying, ‘Can we talk to your son? We hear he has an engineering degree. Could he teach maths, physics and social science?’ There lying in darkness, I said yes. When my sight recovered, I started teaching high school and I discovered I loved it. I was shy, I was the kind of person who at a party had trouble talking to others. I suddenly discovered that I loved teaching. The students liked me. But then I thought, I am teaching other people’s work here, but I want to move on to develop something of my own. That is how I chose graduate school, from teaching.

RV: A wonderful story. Unfortunately we are running out of time. It was great talking to you Anwar and thanks for taking the time to speak to us.

AS: Thank you for inviting me. It is a pleasure to be here and to be interviewed. I look forward to the outcome.

(End of recording)

Notes:

[1] Sraffa, P. (1960). Production of Commodities by Means of Commodities. Cambridge: Cambridge University Press.
[2] Shaikh, A. (2016) Capitalism: Competition, Conflict, Crises, New York: Oxford University Press.
[3] Cobb, C. W., & Douglas, P. H. (1928). A Theory of Production, The American EconomicReview, 18 (1), 139-165.
[4] Bhaduri, A. (1969). "On the Significance of Recent Controversies on Capital Theory: A MarxianView." The Economic Journal 79 (315): 532-539.
[5] Shaikh, A. (1974). Laws of Production and Laws of Algebra: The Humbug Production Function. The Review of Economics and Statistics, 56(1), 115-120.
[6] Harcourt, G. C. (1969). "Some Cambridge Controversies in the Theory of Capital." Journal of Economic Literature 7(2): 369-405, and Cohen, A. J. and G. C. Harcourt (2003). "Retrospectives: Whatever Happened to the Cambridge Capital Theory Controversies?" The Journal of Economic Perspectives 17(1): 199-214.
[7] The history and purpose of the Swedish Central Bank Prize is documented in Offer, A. and G. Söderberg (2016). The Nobel Factor: The Prize in Economics, Social Democracy, and the Market Turn, Princeton University Press.
[8] Samuelson, P. (1948) Economics: An Introductory Analysis, New York: McGraw-Hill Company.
[9] Shaikh, A. (2016) Capitalism: Competition, Conflict, Crises, New York: Oxford University Press.
[10] Marx, Karl. (1967 [1867]). Capital. Vol. I. New York: International Publishers.
[11] Heilbroner, R. (1953) The Worldly Philosophers: The Lives, Times and Ideas of the Great Economic Thinkers, New York: Simon & Schuster.
[12] Smith, A. (1759) The Theory of Moral Sentiments, A. Millar, in London and A.Kincaid and J. Bell in Edinburgh.
[13] Smith, A. (1776) The Wealth of Nations: An inquiry into the nature and causes of the Wealth of Nations, London: W. Strahan.
[14] Dragulescu, A. A. and V. M. Yakovenko (2001). "Evidence for the exponential distribution of income in the USA." The European Physical Journal B 20: 585-589 DOI: https://doi.org/10.1007/PL00011112.
[15]  Shaikh, A., N. Papanikolaou and N. Weiner (2014). "Race, gender and the econophysics of income distribution in the USA." Physica AVolume 415: 54–60 DOI: https://doi.org/10.1016/j.physa.2014.07.043.
[16] Shaikh and Juan Esteban Jacobo (2020), "Economic Arbitrage and the Econophysics of Income Inequality", Review of Behavioral Economics: Vol. 7: No.4, pp 299-315. http://dx.doi.org/10.1561/105.00000129