CHAPTER 4

THE ORIGINS OF CONSUMER FINANCIAL LITERACY EDUCATION

Neoclassical Economics and Consumer Education

INTRODUCTION Like the financially literate individual, consumer financial literacy education did not appear ex nihilo but instead builds upon its neoclassical economic and consumer education foundations. This chapter continues the goal of de- naturalizing and critiquing consumer financial literacy education’s historical foundations so as to support the argument for an expanded, critical financial literacy education in chapter seven. The driving assumption behind this chapter’s de-naturalization and critique is the belief that if economics and consumer education were more hospitable to moral, political and sociological concerns, financial literacy education would not have been so readily accepted in the individualist and consumerist form it currently takes. Supporting this chapter’s goal, the first section will provide four causes for the rise of neoclassical economics to illustrate its historical contingency and examine each cause’s influence on economic inquiry in turn. While neoclassical economics, as with all disciplines, has internal disagreements and evolves over time, the aspects of the discipline that are dominant and are reproduced within consumer financial literacy education are those that are discussed below.

THE RISE OF NEOCLASSICAL ECONOMICS Neoclassical economics, solidifying into a discipline with the writings of William Stanley Jevons, Carl Menger, Leon Walras and Alfred Marshall in the nineteenth century, transformed the discipline of economics and produced a new vision of the economic sphere that was much narrower than its predecessor, political economy. Thus, contrary to what is often presented, neoclassical economics’ particular conception of what counts as worthy of study within the domain of economics is not universal or natural, nor is it even the unproblematic outcome of ‘scientific progress.’ Instead the reasons for neoclassical economics’ overshadowing of the broader economic discipline, political economy (of which Marxist economics is a critical relative), were multi-determined, contingent and political.

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One reason, which is in danger of falling victim to the commonsense conception of science, is that the labour theory of value (LTV) that supported political economics was abandoned because it could not explain, as well as neoclassical economics’ theory of marginal utility could, why prices fluctuated when labour costs were static (the ‘transformation problem’) (Sandelin, Trautwein, & Wundrak, 2008). The dominant narrative is that given that its theory of value was worthless, political economy had to be tossed into the dustbin of history to make way for neoclassical economics and its subjective, utilitarian theory of value. To end the story there, however, misses the point: the LTV and ‘socially necessary labour time’ are concepts that, within Marxist economics, do not purport to aid one figure out all the reasons why prices fluctuate but rather help one “find out exactly how value is put upon things, processes, and even human beings, under social conditions prevailing within a dominantly capitalist mode of production” (Harvey, 2006b, p. 38). Marx’s labour theory of value enables us to “unravel the constraints under capitalism” (Harvey, 2006b, p. 38) and account for exploitation, alienation, crises, unemployment and technological and societal change. Marx in Capital vol. 1 explicitly states that he is suspending the law of supply and demand and a host of other economic phenomena that would influence the transformation of values into prices in order to emphasize certain relationships between various phenomena (capital and labour, use value and exchange value, etc.) and states that he is only assuming that objects trade at their value in order to elucidate capitalism’s inherent contradictory tendencies (1867/1990). He is not attempting to discern why commodity x has price y at a moment frozen in time; this is the minutiae concern of neoclassical economics (Harman, 2009). It is not that the LTV is erroneous but that its use enables one to see and explain certain phenomena that are not the focus of an individualist neoclassical economics, but are arguably much more important.44 The losses resulting from the jettisoning of the labour theory of value were compounded by neoclassical economics’ occlusion of the social and political, which led to the further banishment of questions and methodologies that were once commonplace but are now considered outside the scope of a discipline that apes at being one of the ‘hard sciences.’ Though we should not unduly laud the more expansive terrain of past bourgeois political economy, even its scope of inquiry allowed for an analysis that took into consideration a wider variety of phenomena than neoclassical economics. Adam Smith, for instance, was concerned about the effects of the division of labour on workers’ mental health and character (1776/1991). In contrast to the view provided by political economy (or critical heterodox economic approaches, including Marxism), neoclassical economics’ limited scope leaves little space for moral or political discussion and debate.45 Neoclassical economics’ price theory, which replaced the labour theory of value, was not a natural expression of our human telos but was instead the

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