Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards, by Norbert Häring & Niall Douglas. Anthem Press, 2012.
One of the gratifying aspects of a major financial crisis is that public understanding of capitalism, as distinct from just ‘markets’, increases significantly. Prior to 2008, one would have been hard-pressed to find a discussion of where money comes from, or the relationship between central banks and the rest of the financial system, beyond the pages of obscure – and professionally marginalised – journals of heterodox economics. Marxist analyses of the state have always assumed that governments and theorists act in alliance with particular class and industrial interests; but this analysis was often too bound up in its own theoretical abstractions or political radicalism to penetrate the broader public consciousness.
What has been interesting to watch over the past five years has been the unwitting discovery of heterodox and Marxist insights by relatively mainstream scholars, intellectuals and activists, who otherwise associated Marx with totalitarianism and had never heard of Hyman Minsky. Yet, rather than a systemic critique of ‘capitalism’, ‘neoliberalism’ or ‘financialisation’, there is more often the sense of a conspiracy being exposed. The 2010 movie, Inside Job, gave a frightening insight into the rigging of the financial system, by a small coterie of American elites. Books such as Winner-take-all Politics by Jacob Hacker and Paul Pierson revealed how US government policy led directly, often deliberately, to extreme concentrations of wealth.
Economists and the Powerful performs another valuable unmasking act, this time of the surreal misrepresentations of capitalism, as proffered by mainstream economic theory. Beginning with an account of how economics was cleansed of any theory of power during the ‘marginal revolution’ of the 1870s, it goes on to show how it is consequently unable to account for what actually takes place in settings such as large financial institutions, corporate boardrooms, workplaces and even markets themselves.
The fact that this unmasking is carried out by relatively orthodox economists, and therefore represents something of a mea culpa, potentially adds to its political and critical impact. The wild mis-match between taught theories of financial economics, and the appalling realities of how banks exploit customers, the state and the public in pursuit of profit, ought to be enough to discredit every economics syllabus in the English-speaking world. Marxists or post-Keynesians may read this with a frustrated sigh, and wonder why it took a multi-trillion dollar privatization of public wealth, before long-standing truths about financial capitalism could become publicly accepted. The marginalization of political economy, both within public discourse and the economics profession, is indeed hard to fathom.
In the absence of some Marxist notion of ‘ideology’, some form of conspiracy theory is all we have to work with, and this is effectively what Economists and the Powerful (like Inside Job) points towards. Yet it is often vague as to how this conspiracy was organised and maintained. Its account of how American economics was stripped of moral or political content makes sweeping allusions to the nationalist agenda of the Cold War, and the need to offer theoretical credibility to the politically proclaimed liberalism and efficiency of the US capitalist model. Various apparently ‘neutral’ economic measures and theories, such as those which underpin Gross Domestic Product, are shown to serve US national interests. But the empirical and historical detail to support these claims is often a little thin, even while the suggestions seem plausible.
At times, one wonders whether Häring and Douglas have selected straw men for their critique of mainstream economics. They focus on the most abstract and mathematical economic theories, which inevitably have little to reveal about capitalist reality. And yet the most influential economic theorists of the 20th century were arguably precisely those who did – implicitly or otherwise – think about how power is to be organised. Keynes is the obvious example, but the neoliberals of the post-war Chicago School (who get scarcely a mention in Economists and the Powerful) were deeply conscious of the need to theorise and transform capitalism, and not simply produce clever models. Competition authorities, for example, imported Chicago School thinking from the 1970s onwards (to the great benefit of corporate monopolists and shareholders) because that thinking offered a clear theory of regulation, law and dominance, that was empirically grounded and ready for use. And the ideas of Schumpeter, arguably the twentieth century’s pre-eminent theorist of economic power, were seized upon by the doyens of ‘competitiveness’ and the ‘knowledge economy’ from the mid-1980s onwards.
Debunking the most abstract of economic theories, by comparing them to empirical cases and evidence, is a worthwhile exercise, if it induces more economists to question and criticise how capitalism actually works. But debunking and jettisoning the abstractions, albeit while pointing to whose interests they seem to serve, does not provide an example of how else to theorise capitalism. Committed to attacking the lunacy of their more blinkered colleagues, Häring and Douglas sometimes get tangled in modes of thinking that simply shouldn’t be plausible in the first place. ‘The interplay of economic and political power is complex’, they write, ‘and cannot possibly be understood within the ahistorical equilibrium analysis of mainstream economics’. But this is like arguing that you can’t bake a cake using only a sieve; it’s so manifestly true as to be almost meaningless.
For a book about power, and its absence from mainstream economics, Economists and the Powerful suffers slightly from offering no actual theory or definition of power itself. Assuming that Marxism isn’t where the authors want to go, there are plenty of non-Marxist theories of power that they could have selected from. Institutionalists such as Peter Hall study how economic ideas iseorganise economic policy; sociologists such as Neil Fligstein view the state as a means of reducing uncertainty on behalf of dominant firms; world systems theorists, such as Giovanni Arrighi, specialise in studying the interplay of economic and political power; ‘cultural economists’, such as Timothy Mitchell and Koray Caliskan, have studied economics as a tool of power, within specific market situations. From the wide range of more realistic accounts of capitalism available, Häring and Douglas make only passing commendation of French critical sociologist, Pierre Bourdieu, and neoliberal Harvard competitiveness guru, Michael Porter – an implausible double act if ever there was one.
This is perhaps not as radical a book as the authors might like to think. This can be witnessed in its enthusiastic appeals to experimental and behavioural economics, disciplines which seek primarily to patch up neo-classical economics, rather than to abandon it. But what it does achieve, often thrillingly, is confirmation that capitalism currently lacks any credible or coherent governing framework. The theories which have legitimated and organised the running of the capitalist economy (especially its financial elements) are manifest garbage, sustained by a conspiracy of silence on the part of those who creamed off the surpluses while nobody was watching. Now, finally, the public and (one would hope) the economics profession is watching a little more closely, and will demand explanations, evidence and theory to interpret and criticise what is actually going on. Economists and the Powerful doesn’t itself provide this, but should nevertheless be required reading in every university economics department, central bank and treasury department, to accelerate the journey out of the current crisis.
William Davies is Assistant Professor at the Centre for Interdisciplinary Methodologies, University of Warwick. His blog is at www.potlatch.org.uk.