In a word, no. No economic system is simply the sum of its parts. The idea that capitalism is based on the subjective evaluations of individuals for goods flies in the face of both logic and the way capitalism works. In other words, modern economists is based on a fallacy. While it would be expected for critics of capitalism to conclude this, the ironic thing is that economists themselves have proven this to be the case.

Neoclassical theory argues that marginal utility determines demand and price, i.e. the price of a good is dependent on the intensity of demand for the marginal unit consumed. This was in contrast to classic economics, which argued that price (exchange value) was regulated by the cost of production, ultimately the amount of labour used to create it. While realistic, this had the political drawback of implying that profit, rent and interest were the product of unpaid labour and so capitalism was exploitative. This conclusion was quickly seized upon by numerous critics of capitalism, including Proudhon and Marx. The rise of marginal utility theory meant that such critiques could be ignored.

However, this change was not unproblematic. The most obvious problem with it is that it leads to circular reasoning. Prices are supposed to measure the "marginal utility" of the commodity, yet consumers need to know the price first in order to evaluate how best to maximise their satisfaction. Hence it "obviously rest[s] on circular reasoning. Although it tries to explain prices, prices [are] necessary to explain marginal utility." [Paul Mattick, Economics, Politics and the Age of Inflation, p.58] In the end, as Jevons (one of the founders of the new economics) acknowledged, the price of a commodity is the only test we have of the utility of the commodity to the producer. Given that marginality utility was meant to explain those prices, the failure of the theory could not be more striking.

However, this is the least of its problems. At first, the neoclassical economists used cardinal utility as their analysis tool. Cardinal utility meant that it was measurable between individuals, i.e. that the utility of a given good was the same for all. While this allowed prices to be determined, it caused obvious political problems as it obviously justified the taxation of the wealthy. As cardinal utility implied that the "utility" of an extra dollar to a poor person was clearly greater than the loss of one dollar to a rich man, it was appropriated by reformists precisely to justify social reforms and taxation.

Capitalist economists had, yet again, created a theory that could be used to attack capitalism and the income and wealth hierarchy it produces. As with classical economics, socialists and other social reformists used the new theories to do precisely that, appropriating it to justify the redistribution of income and wealth downward (i.e. back into the hands of the class who had created it in the first place). Combine this with the high levels of class conflict at the time and it should come as no surprise that the "science" of economics was suitably revised.

There was, of course, a suitable "scientific" rationale for this revision. It was noted that as individual evaluations are inherently subjective, it is obvious that cardinal utility was impossible in practice. Of course, cardinality was not totally rejected. Neoclassical economics retained the idea that capitalists maximise profits, which is a cardinal quantity. However for demand utility became "ordinal," that is utility was considered an individual thing and so could not be measured. This resulted in the conclusion that there was no way of making interpersonal comparisons between individuals and, consequently, no basis for saying a pound in the hands of a poor person had more utility than if it had remained in the pocket of a billionaire. The economic case for taxation was now, apparently, closed. While you may think that income redistribution was a good idea, it was now proven by "science" that this little more than a belief as all interpersonal comparisons were now impossible. That this was music to the ears of the wealthy was, of course, just one of those strange co-incidences which always seems to plague economic "science."

The next stage of the process was to abandon then ordinal utility in favour of "indifference curves" (the continued discussion of "utility" in economics textbooks is primarily heuristic). In this theory consumers are supposed to maximise their utility by working out which bundle of goods gives them the highest level of satisfaction based on the twin constraints of income and given prices (let us forget, for the moment, that marginal utility was meant to determines prices in the first place). To do this, it is assumed that incomes and tastes are independent and that consumers have pre-existing preferences for all possible bundles.

This produces a graph that shows different quantities of two different goods, with the "indifference curves" showing the combinations of goods which give the consumer the same level of satisfaction (hence the name, as the consumer is "indifferent" to any combination along the curve). There is also a straight line representing relative prices and the consumer's income and this budget line shows the uppermost curve the consumer can afford to reach. That these indifference curves could not be observed was not an issue although leading neo-classical economist Paul Samuelson provided an apparent means see these curves by his concept of "revealed preference" (a basic tautology). There is a reason why "indifference curves" cannot be observed. They are literally impossible for human beings to calculate once you move beyond a trivially small set of alternatives and it is impossible for actual people to act as economists argue they do. Ignoring this slight problem, the "indifference curve" approach to demand can be faulted for another, even more basic, reason. It does not prove what it seeks to show:

"Though mainstream economics began by assuming that this hedonistic, individualist approach to analysing consumer demand was intellectually sound, it ended up proving that it was not. The critics were right: society is more than the sum of its individual members." [Steve Keen, Debunking Economics, p. 23]

As noted above, to fight the conclusion that redistributing wealth would result in a different level of social well-being, economists had to show that "altering the distribution of income did not alter social welfare. They worked out that two conditions were necessary for this to be true: (a) that all people have the same tastes; (b) that each person's tastes remain the same as her income changes, so that every additional dollar of income was spent exactly the same way as all previous dollars." The former assumption "in fact amounts to assuming that there is only one person in society" or that "society consists of a multitude of identical drones" or clones. The latter assumption "amounts to assuming that there is only one commodity — since otherwise spending patterns would necessary change as income rose." [Keen, Op. Cit., p. 24] This is the real meaning of the assumption that all goods and consumers can be considered "representative." Sadly, such individuals and goods do not exist. Thus:

"Economics can prove that 'the demand curve slows downward in price' for a single individual and a single commodity. But in a society consisting of many different individuals with many different commodities, the 'market demand curve' is more probably jagged, and slopes every which way. One essential building block of the economic analysis of markets, the demand curve, therefore does not have the characteristics needed for economic theory to be internally consistent . . . most mainstream academic economists are aware of this problem, but they pretend that the failure can be managed with a couple of assumptions. Yet the assumptions themselves are so absurd that only someone with a grossly distorted sense of logic could accept them. That grossly distorted sense of logic is acquired in the course of a standard education in economics." [Op. Cit., pp. 25-7]

Rather than produce a "social indifference map which had the same properties as the individual indifference maps" by adding up all the individual maps, economics "proved that this consistent summation from individual to society could not be achieved." Any sane person would have rejected the theory at this stage, but not economists. Keen states the obvious: "That economists, in general, failed to draw this inference speaks volumes for the unscientific nature of economic theory." They simply invented "some fudge to disguise the gapping hole they have uncovered in the theory." [Op. Cit., p. 40 and p. 48] Ironically, it took over one hundred years and advanced mathematical logic to reach the same conclusion that the classical economists took for granted, namely that individual utility could not be measured and compared. However, instead of seeking exchange value (price) in the process of production, neoclassical economists simply that made a few absurd assumptions and continued on its way as if nothing was wrong.

This is important because "economists are trying to prove that a market economy necessarily maximises social welfare. If they can't prove that the market demand curve falls smoothly as price rises, they can't prove that the market maximises social welfare." In addition, "the concept of a social indifference curve is crucial to many of the key notions of economics: the argument that free trade is necessarily superior to regulated trade, for example, is first constructed using a social indifference curve. Therefore, if the concept of a social indifference curve itself is invalid, then so too are many of the most treasured notions of economics." [Keen, Op. Cit., p. 50] This means much of economic theory is invalidated and with it the policy recommendations based on it.

This elimination of individual differences in favour of a society of clones by marginalism is not restricted to demand. Take the concept of the "representative firm" used to explain supply. Rather than a theoretical device to deal with variety, it ignores diversity. It is a heuristic concept which deals with a varied collection of firms by identifying a single set of distinct characteristics which are deemed to represent the essential qualities of the industry as a whole. It is not a single firm or even a typical or average firm. It is an imaginary firm which exhibits the "representative" features of the entire industry, i.e. it treats an industry as if it were just one firm. Moreover, it should be stressed that this concept is driven by the needs to prove the model, not by any concern over reality. The "real weakness" of the "representative firm" in neo-classical economics is that it is "no more than a firm which answers the requirements expected from it by the supply curve" and because it is "nothing more than a small-scale replica of the industry's supply curve that it is unsuitable for the purpose it has been called into being." [Kaldor, The Essential Kaldor, p. 50]

Then there is neoclassical analysis of the finance market. According to the Efficient Market Hypothesis, information is disseminated equally among all market participants, they all hold similar interpretations of that information and all can get access to all the credit they need at any time at the same rate. In other words, everyone is considered to be identical in terms of what they know, what they can get and what they do with that knowledge and cash. This results in a theory which argues that stock markets accurately price stocks on the basis of their unknown future earnings, i.e. that these identical expectations by identical investors are correct. In other words, investors are able to correctly predict the future and act in the same way to the same information. Yet if everyone held identical opinions then there would be no trading of shares as trading obviously implies different opinions on how a stock will perform. Similarly, in reality investors are credit rationed, the rate of borrowing tends to rise as the amount borrowed increases and the borrowing rate normally exceeds the leading rate. The developer of the theory was honest enough to state that the "consequence of accommodating such aspects of reality are likely to be disastrous in terms of the usefulness of the resulting theory . . . The theory is in a shambles." [W.F Sharpe, quoted by Keen, Op. Cit., p. 233]

Thus the world was turned into a single person simply to provide a theory which showed that stock markets were "efficient" (i.e. accurately reflect unknown future earnings). In spite of these slight problems, the theory was accepted in the mainstream as an accurate reflection of finance markets. Why? Well, the implications of this theory are deeply political as it suggests that finance markets will never experience bubbles and deep slumps. That this contradicts the well-known history of the stock market was considered unimportant. Unsurprisingly, "as time went on, more and more data turned up which was not consistent with" the theory. This is because the model's world "is clearly not our world." The theory "cannot apply in a world in which investors differ in their expectations, in which the future is uncertain, and in which borrowing is rationed." It "should never have been given any credibility — yet instead it became an article of faith for academics in finance, and a common belief in the commercial world of finance." [Keen, Op. Cit., p. 246 and p. 234]

This theory is at the root of the argument that finance markets should be deregulated and as many funds as possible invested in them. While the theory may benefit the minority of share holders who own the bulk of shares and help them pressurise government policy, it is hard to see how it benefits the rest of society. Alternative, more realistic theories, argue that finance markets show endogenous instability, result in bad investment as well as reducing the overall level of investment as investors will not fund investments which are not predicted to have a sufficiently high rate of return. All of which has a large and negative impact on the real economy. Instead, the economic profession embraced a highly unreal economic theory which has encouraged the world to indulge in stock market speculation as it argues that they do not have bubbles, booms or bursts (that the 1990s stock market bubble finally burst like many previous ones is unlikely to stop this). Perhaps this has to do the implications for economic theory for this farcical analysis of the stock market? As two mainstream economists put it:

"To reject the Efficient Market Hypothesis for the whole stock market . . . implies broadly that production decisions based on stock prices will lead to inefficient capital allocations. More generally, if the application of rational expectations theory to the virtually 'idea' conditions provided by the stock market fails, then what confidence can economists have in its application to other areas of economics . . . ?" [Marsh and Merton, quoted by Doug Henwood, Wall Street, p. 161]

Ultimately, neoclassical economics, by means of the concept of "representative" agent, has proved that subjective evaluations could not be aggregated and, as a result, a market supply and demand curves cannot be produced. In other words, neoclassical economics has shown that if society were comprised of one individual, buying one good produced by one factory then it could accurately reflect what happened in it. "It is stating the obvious," states Keen, "to call the representative agent an 'ad hoc' assumption, made simply so that economists can pretend to have a sound basis for their analysis, when in reality they have no grounding whatsoever." [Op. Cit., p. 188]

There is a certain irony about the change from cardinal to ordinal utility and finally the rise of the impossible nonsense which are "indifference curves." While these changes were driven by the need to deny the advocates of redistributive taxation policies the mantel of economic science to justify their schemes, the fact is by rejecting cardinal utility, it becomes impossible to say whether state action like taxes decreases utility at all. With ordinal utility and its related concepts, you cannot actually show that government intervention actually harms "social utility." All you can say is that they are indeterminate. While the rich may lose income and the poor gain, it is impossible to say anything about social utility without making an interpersonal (cardinal) utility comparison. Thus, ironically, ordinal utility based economics provides a much weaker defence of free market capitalism by removing the economist of the ability to call any act of government "inefficient" and they would have to be evaluated in, horror of horrors, non-economic terms. As Keen notes, it is "ironic that this ancient defence of inequality ultimately backfires on economics, by making its impossible to construct a market demand curve which is independent on the distribution of income . . . economics cannot defend any one distribution of income over any other. A redistribution of income that favours the poor over the rich cannot be formally opposed by economic theory." [Op. Cit., p. 51]

Neoclassical economics has also confirmed that the classical perspective of analysing society in terms of classes is also more valid than the individualistic approach it values. As one leading neo-classical economist has noted, if economics is "to progress further we may well be forced to theorise in terms of groups who have collectively coherent behaviour." Moreover, the classical economists would not be surprised by the admission that "the addition of production can help" economic analysis nor the conclusion that the "idea that we should start at the level of the isolated individual is one which we may well have to abandon . . . If we aggregate over several individuals, such a model is unjustified." [Alan Kirman, "The Intrinsic Limits of Modern Economy Theory", pp. 126-139, The Economic Journal, Vol. 99, No. 395, p. 138, p. 136 and p. 138]

So why all the bother? Why spend over 100 years driving economics into a dead-end? Simply because of political reasons. The advantage of the neoclassical approach was that it abstracted away from production (where power relations are clear) and concentrated on exchange (where power works indirectly). As libertarian Marxist Paul Mattick notes, the "problems of bourgeois economics seemed to disappear as soon as one ignored production and attended only to the market . . . Viewed apart from production, the price problem can be dealt with purely in terms of the market." [Economic Crisis and Crisis Theory, p. 9] By ignoring production, the obvious inequalities of power produced by the dominant social relations within capitalism could be ignored in favour of looking at abstract individuals as buyers and sellers. That this meant ignoring such key concepts as time by forcing economics into a static, freeze frame, model of the economy was a price worth paying as it allowed capitalism to be justified as the best of all possible worlds:

"On the one hand, it was thought essential to represent the winning of profit, interest, and rent as participation in the creation of wealth. On the other, it was thought desirable to found the authority of economics on the procedures of natural science. This second desire prompted a search for general economic laws independent of time and circumstances. If such laws could be proven, the existing society would thereby be legitimated and every idea of changing it refuted. Subjective value theory promised to accomplish both tasks at once. Disregarding the exchange relationship peculiar to capitalism — that between the sellers and buyers of labour power — it could explain the division of the social product, under whatever forms, as resulting from the needs of the exchangers themselves." [Mattick, Op. Cit., p. 11]

The attempt to ignore production implied in capitalist economics comes from a desire to hide the exploitative and class nature of capitalism. By concentrating upon the "subjective" evaluations of individuals, those individuals are abstracted away from real economic activity (i.e. production) so the source of profits and power in the economy can be ignored (section C.2 indicates why exploitation of labour in production is the source of profit, interest and rent and not exchanges in the market).

Hence the flight from classical economics to the static, timeless world of individuals exchanging pre-existing goods on the market. The evolution of capitalist economics has always been towards removing any theory which could be used to attack capitalism. Thus classical economics was rejected in favour of utility theory once socialists and anarchists used it to show that capitalism was exploitative. Then this utility theory was modified over time in order to purge it of undesirable political consequences. In so doing, they ended up not only proving that an economics based on individualism was impossible but also that it cannot be used to oppose redistribution policies after all.