Eduardo Valencia Vasquez (Pontifical Catholic University, Ecuador)

The first page is a short presentation of the first 10 pages of essay that contain four sections: I. Debate / Controversy about the Crisis of Humanity; II. Criticism against the Scientific Nature of Economics;III. Globalization and Star War; IV. Advance in Sciences related to Economics.


In the history of philosophy sophists were well known for their technical, elegant, and apparently truthful language. But it was soon discovered that behind this rhetoric, usually very skillful in convincing audiences, lay major distortions or transgressions to the truth. In other words, in order to unveil the truth behind the discourse, it is important to previously detect distortions in those syllogisms used, since that is precisely what a sophism means: the premeditated alteration of the truth.
This paper does not intend to address all existing transgressions, but rather only those which are relevant for understanding the problem. As such, we will circumscribe to enunciating, or better still, denouncing the most important ones from the perspective of economic theory and ethics.


1. The Free Market Sophism
The main reasoning behind Adam Smith's theory was that in order to more efficiently allocate resources than through any other system, an unlimited number of buyers and sellers were required; information had to be at everyone's reach; no interference proceeding from any public or private external agent had to exist; all this, provided homogenous products were used in the exchange. Unfortunately, it has been currently demonstrated that these conditions are almost never fulfilled. Joan Robinson demonstrated that modern economies tend to lean towards the monopoly and, in the best of cases, towards monopolistic competence. Joseph Stiglitz proved that information supply was asymmetric; and John Nash set forth that efficiency could no be achieved through mere competency unless everyone involved shared the same objective.
2. The Consumer's Sovereignty Sophism
In order to optimize resource allocation decisions, it is a sine qua non requirement that nothing or nobody interferes with people's decisions. Paradoxically, in modern economies, marketing techniques have turned into an instrument for controlling people's conscience. It is evident that this basic condition has turned into the sovereignty of producers, and not of consumers, distorting the entire system of relative prices formation.

3. The Efficient Allocation of Resources Sophism
If there does not exist complete ex ante freedom in the market for consumers; if producers alter the homogeneity of products; if information reaches clients in an asymmetrical fashion; if suppliers offerers' atomization has been replaced by the monopoly and monopolistic competition; if, as inferred from the previous analysis, there exist persistent influence bonds between producers and governments which interfere in essential micro and microeconomic decision-making, it is clearly evident that the market will not be able to function according to those epistemological fundaments of the free market theory, and will therefore not be able to allocate resources efficiently.

4. The Sophism that Competition Leads to Progress
Going beyond the debatable issue of stressing that "competition" is a "natural" anthropological element in the economy, it has been consistently proven that competition between unequal parties increases the resources of the strongest one, consequently leading to more inefficient private and social allocation of resources. As such monopoly is the "antithesis" of the competitive enterprise which excludes others by nature. Put in other words, if in the competitive race the monopolist excludes others, then society as a whole has chosen the worst of worlds. Thus, competition is a myth, which can by no means lead to progress.

5. The Sophism of Stability as the Primary Objective of Economic Policy
In economic theory, the concept of restoring equilibrium is essential, but this has always been regarded as a short-term occasional problem. What seems contradictory is that in developing countries, instability has turned into a structural problem, and its adjustment has thus become an issue of long-term economic policy, thanks to neo- liberal economists. After having consistently prescribed the economy "antibiotics" in order to stabilize it for overcoming inflation, what has been achieved instead is the nourishment of those pathogenic elements which produced the crisis; thus, aggravating it more: in most developing economies, one can observe a combination of inflation and recession which appears due to a decrease in global production and an increase in unemployment. For this fundamental reason, world poverty is regarded as one of the most damaging symbols of our times.
6. The Sophism that People Practice the Postponement of Current Consumption in order to Increase Future Consumption
The act of saving refers to the attitude people and enterprises assume when they postpone present consumption in order to increase future consumption. Strangely enough, in modern times, this basic principle of economic science has slowly started to disappear: nowadays, consumption and contrary-to-saving doctrines predominate. If those who don't have money do not save, and neither do those who are able to do it, then, how can future consumption be financed?

7. The Sophism that the Savings of the Rich is the Driving Force of Development
It has always been believed that those sectors of society with the highest income are in better conditions to save. But in practice, this healthy objective functions differently; major entrepreneurs prefer to deposit their money in foreign accounts, choosing to collect income in a speculative fashion instead of entrusting their savings to the risks of productive investment in countries which apparently do not offer enough security.

8. The Sophism that Economic Growth Solves the Unemployment Problem
Economic theory has always argued that the more production increases in a country, the more the demand for resources grows, among those, that of labor force. Nevertheless, in modern times, such affirmation is not necessarily automatic: in order to be in conditions to compete in the international market, it is necessary to incorporate technological innovations to production processes, which normally discourage the demand for labor force. Growth benefits usually reach those who have a bigger share in the ownership of productive units, which are normally of monopolistic nature. The end result is that, paradoxically, the economies of countries can indeed grow but without generating the required employment levels.

9. The Sophism that Underdevelopment is caused by Inefficient Performance in the Workplace
Entrepreneurs, grouped inside powerful associations, have always argued that people's "ignorance" and "laziness" is what causes underdevelopment. Supposedly, due to these reasons, economies do not have high levels of productivity. Although, it is true that more intense educational programs geared at the poorer population would help improve their performance, it must be stressed that, if it were not for the enormous contribution made by those who currently work in the informal sector and that of immigrants the economies of a vast majority of poor countries would crumble into pieces. In an era when inflation and recession coexist and dramatically affect poor communities, the great majority of people must hold two or more jobs simultaneously in order to survive.

10. The Sophism that Country Risk Adversely Affects Investment Financing and Economic Recovery
Ever since, within the globalization framework, the international economic power passed from the hands of governments to those of large banks, major international financial institutions began to use the concept of "country risk" to determine the difficulties poor countries have in servicing the bank debt which, paradoxically, they themselves had granted. Curiously enough, inside those countries, local banks also appropriated this concept in order to demand their clients' fulfillment of their obligations. Under the pretext that their country is supposedly at risk, local bankers have applied profiteering interest rates to producer and consumer loans. And precisely due to those conditions, borrowers are not capable of paying back. Hence, non-fulfillment of debt spreads, and the economy enters into a depression.
If the 'country risk' argument had any grounds, it is evident that those who should demand higher retribution are savers who fiduciary invest in financial institutions, and not as takes place in our countries where private bankers increase their income margins at the cost of the saver, the producer, and the consumer. Do we still need to provide additional arguments to explain why our societies get poorer and poorer with the passing of time, while fewer and fewer individuals disproportionately increase their wealth?

11. The Sophism that Free Market Achieves Equity
It has been argued that free market, besides representing the best mechanism for the efficient allotment of resources, can also achieve equity since, in the long run, every consumer will be able to satisfy his/her needs and all producers will sell that production which will cover their costs, since the limit at which they would be willing to sell their products is that where income covers costs, without generating any profit. It has been argued that this way, the entire aggregate production available in the market "will be fairly distributed" among entrepreneurs; by which it can be consequently assumed that the demand of productive resources will also reach its peak. Unfortunately, outside the textbooks, reality is quite different. On the one hand, as already noted, basic requirements are not met, and hence, authentic competition does not take place in the market. On the other hand, even if these requirements were met, equity could never be achieved because consumers and producers enter the market with an uneven factor and wealth endowment that obviously benefits the richer and harms the poorer.
12. The Sophism that Economics is an A-ethical Science
During more than two centuries there existed a generalized belief that economic theory presupposed leaving ethics aside. Lately, many researchers have argued that such affirmation is not true, stating that the Scottish philosopher set forward this axiological proposal through the" sympathy" concept, which he assumed economic agents had to undertake in their market activities.
But it is probably more important to argue that the ethics implicitly stated in his theory is that deep down he desired a more just society when he proposed that as a result of market competition entrepreneurs would ultimately reduce their profits thus sharing those benefits with society. It is in the economic objective of justice where Smith's located his ethical objective; hence, one can conclude that his work was indeed a scientific proposal of ethical nature. Be it or not, the truth is that neo-liberalism and its main entrepreneur advocates from the financial world always interpreted the economy as a science unrelated to ethics. It is quite evident that discrepancy still exists and confusion reigns because this idea was placed at the center, as if it were the only and most important one included in the book The Wealth of Nations. But if they had taken in consideration other ideas from the book that was most important to him: The Theory of Moral Sentiments, this biased interpretation of renowned financiers would have been quite different. In it, he clearly locates the economy as part of moral philosophy. (To be concluded)
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