Neoliberalism is a political project to remake the world into an unrealizable utopia. Neoclassical economics is a supposedly scientific effort to explain the world by its deviations from an unrealizable utopia. And they are both about how the world deviates from that utopia. This post is about this resemblance, not the differences, between neoliberalism and neoclassical economics.
This utopia consists of a society organized around markets1. These markets require government to define property rights and enforce contract law. But, in the utopia, they are not to be embedded in a broader institutional setting that prevents their supposedly free adjustment. Examples of government-imposed inference with such self-regulation include minimum wages, rent control, laws against price-gouging, usury laws, subsidies for farmers to limit the size of harvests so as to maintain their income, payments to the able-bodied unemployed2, and so on. Polanyi's claim is that such so-called interventions are bound to arise. The ideal which those enacting such laws were reacting against is unachievable, anyways. In the ideal, land, labor, and capital are treated as if they are only commodities. But land is the natural setting in which the economy takes place, and labor and capital involve social relations that cannot be reduced only to market relationships.
Both neoliberals and neoclassical economists often recognize their utopia must be constructed3, that it, will not emerge naturally, in some sense. The solution for problems with markets is said to be to construct more markets. I think about the tragedy of the commons, the theory of externalities4, 5, and the emphasis in neoclassical welfare theory on Pareto optimality. A paradigmatic policy recommendation, for both neoliberals and neoclassical economics, is the establishment of markets for pollution permits.Footnotes
- I have been reading Block and Somers (2014), and I read Polanyi (1944) more than a decade ago.
- Block and Somers approvingly cite revisionist history from Mark Blaug in the 1960s that challenged centuries-long interpretations of English Poor Laws, especially the Speedhamland system. I know Blaug through his (multi-edition) history of economics and his misrepresentations of Sraffians and the Cambridge Capital Controversy. So I was glad to see a cite where he seems to be correct.
- This emphasis on the need for government to construct markets, to my mind, is a distinctive difference between classical liberals and sophisticated neoliberals.
- Some mainstream economists defend themselves from critics by asserting that the critics attack a strawperson. Economists do not believe, they say, that markets are perfect. And they'll ask why are the critics not aware of the frequent teaching about externalities. This objection seems to me to be beside the point if neoclassical economists react, as many do, the existence of an externality by calling for policy for internalizing the externality (or, at least, imitating the result of such policies).
- If one accepted neoclassical economics as a positive science, how could one call for any policy conclusion without an explicit statement of normative values at some low level of abstration?
- Fred Block and Margaret R. Somers (2014). The Power of Market Fundamentalism: Karl Polanyi's CritiqueHarvard University Press.
- Karl Polanyi (1944). The Great Transformation: The Political and Economic Origins of Our Time.