THE ECONOMICS OF THE POWERFUL

All professions are conspiracies against the laity.

— George Bernard Shaw, 1906

The lack of explicit consideration of power in modern mainstream economics is odd. Mainstream economics is built around the theme that people impersonally use their resources to achieve their goals. No one seriously denies that power is an important goal for many people, so why then would the theory of the acquisition and use of power not be a core part of economic theory, especially given that power relations and hegemonics are a core part of most other social sciences? A look at the history of economic doctrine reveals that power was not always absent. It dropped from the radar screen at some point; or rather, it was erased.

This chapter will examine how we got from an economic science that treated relative economic power as an important variable and regarded the resulting income distribution as a core issue of the discipline, to a science that de-emphasizes power and does not want explicitly to deal with distributional issues. The reader should not expect a history of economic thought in general from this chapter. Rather, it is concerned with the dogmatic shifts that led to the current mainstream, which dominates textbooks and policy advice.

Three developments were particularly important. The first was the triumph of marginalism in the second half of the nineteenth century, which allowed economists to appear to have the power to predict the future using numbers just as a hard science like physics might. The second was the so-called "ordinalist challenge" – a dogma imposed starting in the 1930s that forbade the comparison of preferences or utilities between different people. Finally, there was the rational choice movement, which gained prominence in the 1950s and served to discredit any kind of group action or even religious faith as being irrational and destabilizing. Each of these dogmatic revolutions had a sociopolitical or geopolitical role to play. One of these roles was the intellectual defense of the capitalist system against the threat of communism. As this confrontation morphed into the Cold War between the capitalist West and the communist East, economic science became a tool in the geopolitical arsenal of the dominant nation of the West, the United States.

The problem with using economic science as a weapon in an ideological war is that as a result it has become driven further away from helping society better understand itself. Since the end of the Second World War, the US has been able to control the way in which economic success is measured and to promote an economic science that makes the economic model of the United States appear better than any other. This, especially in the past decade, is beginning to look like self-deceit: the relative power of the United States within the world has begun to wane, but the methods by which the numbers are calculated have been modified since the 1990s to show less of a decline than under previous calculation methods. One must wonder if it is wise for the United States to pretend that its decline is not as substantial.

IN SEARCH OF POWER LOST – A BRIEF HISTORY OF ECONOMIC DOCTRINE

Facts do not enter the world in which our convictions live, they have not caused them, and they cannot destroy them.

— Marcel Proust

Pre-classical economists from the fifteenth to the seventeenth century had a viewpoint very different from the current individualist bent. The perspective and interests of the state and of the emerging merchant class dominated. Early protagonists of this statist school of thought, the Bullionists, were concerned with maximizing the amount of gold and silver coins circulating in the national economy, as they considered this the basis for a high tax base and profit base. They wanted to keep imports down and promote exports. At the time, all economists were aware that gold was an important means to achieve wealth and power, and that wars were won with gold (Screpanti and Zamagni 1993; Reinert 2007). Later, a more refined and generalized form of mercantilism emerged, which distinguished between kinds of goods. Raw materials and unprocessed food were to be imported freely, as these could be used to produce industrial goods with high added value. Exports of raw materials were discouraged or prohibited, with the twin goals of making industrialization harder for competing countries and of promoting usage of these raw materials in local industries. High tariffs on imports of industrial goods served to protect the domestic industry against foreign competition. These policies were widely pursued in Europe in the late sixteenth and seventeenth century, including, most notably, England (Screpanti and Zamagni 1993; Reinert 2007). And if such an export-orientated policy sounds familiar today, it is because China and Germany (in the guise of the EU) have recently been using similar policies to gain advantage against all others in industrial production with great success.

HOW POWER WAS PURGED FROM INTERNATIONAL ECONOMICS

However, after Britain had obtained the position of industrial world leader, classical British economist David Hume (1711–1776) fiercely criticized mercantilist theories and politics as unreasonable. He and his famous compatriots Adam Smith (1723–1790) and David Ricardo (1772–1823) became champions of global free trade. They agitated against continental European attempts to grab market share from the leading economy using the same mercantilist policies that Britain had so successfully employed before. Even so, it was not easy to convince other countries that it was best for them to continue exporting raw materials to Britain and importing industrial goods back from Britain. Thus England often used her supreme military power to back up the message of the economists. England explicitly prohibited colonies from engaging in manufacturing. Their negotiation strategy with weaker countries was to adopt treaties that forced the weaker country to deliver raw materials for English industry and to provide open markets for industrial goods from England, thus ensuring that the native industries of the weaker country were put out of business. One of many examples is the Methuen Treaty of 1703–1860 with Portugal (Reinert 2007). This treaty granted a one-third reduced tariff import of Portuguese wine into Britain in exchange for tariff-free import of British cloth into Portugal. This placed the Portuguese cloth industry in direct competition with Britain's vastly larger cloth industry, which was technologically more advanced and had significant economies of scale, and thus could produce cloth at much lower prices. In exchange, Portugal gained free access to British ports throughout the world, which was a boon for its traders, who were able to resell British manufactured goods with a much better profit margin than their French or Spanish counterparts (and Britain did not try to seize Portugal's Brazilian...