By Michael Every of Rabobank
Power abhors a vacuum
There’s an old phrase that neoliberal economists pay virtually no attention to at all, and which is one of the largest problems with the discipline: power abhors a vacuum.
None other than Adam Smith himself stated “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices." You don’t hear too much of that echoed when it comes to regulatory action; and less so as globalization has made the largest firms even larger. ‘Leviathan’, indeed. Smith also added “The government of an exclusive company of merchants is, perhaps, the worst of all governments for any country whatever”. You don’t hear too much of that from economists talking about election (or lack of election) results in places where “business-friendly” candidates win. Quite the opposite.
In short, Smith was passionately interested in far more than just the efficiency of pin-making – he understood power in general, not just the power of markets. By contrast, neoliberal economists who claims to follow Smith have long tried to focus just on ‘pin-making’ and not underlying power - while theoretically justifying this by counting how many hypothetical angels can fit on the head of a pin. In particular, this was done by rolling the classical economic conception of ‘rent’ into ‘capital’, leaving ‘labor’ to struggle against both in one. ‘Leviathan’ again.
For a purported science like economics, to overlook the structure of the society in which it operates makes us much sense as for physics to fold one of the three...