The Nature of Economics (1)


The Nature of Economics (1)
Many people believe that economics is a science that promotes the welfare of all human beings. However it is actually used to justify strategies of particular groups as in the case of free trade. Today’s economics is an ideology.
The basis of an ideology is formed first intuitively and then the whole is justified by cleverly applying logic. A widely used method of clever application of logic is to use only facts or assumptions that are convenient for justification.
Neoclassical economics or mainstream economics is an ideology that justifies individual freedom or individualism to the maximum. Because of its mathematical nature, we can easily know what assumptions are used in it. We can know further that it ignores many inconvenient facts.
One of the most important assumptions of neoclassical economics is contract completeness, which means that all transaction contracts are sufficiently detailed. Otherwise it cannot justify Western individualism. But how can you make sufficiently detailed labor contracts? Can a labor contract specify every move of a white-collar worker? How can contracts control what school teachers do in their classrooms? It would be astronomically costly to make such sufficiently detailed contracts in the real world.
Contracts are complete in neoclassical economics because it ignores transaction costs, i.e., it assumes they are zero. Transaction costs are what individuals need to bear in addition to the prices of the traded goods. Example are the costs of information collection, making contracts, and monitoring. The time spent for shopping is another example all people experience.
Since the costs of making contracts are assumed to be zero in neoclassical economics contrary to the real world, agents there can make complete contracts. By doing so, they are supposed to control their trading partners.
What if the partners violate the contracts? The partners are assumed not to violate them. They are assumed to perform the contracts under no legal system. In fact, neoclassical economics does not have governments or courts. It has so many unrealistic assumptions!

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