Power in Economic Thought

Manuela Mosca

• Publisher: Palgrave Macmillan
• Year: 2018
• Print ISBN: 9783319940380
• eBook ISBN: 9783319940397
• Topic: Economics
• Subtopic: Business General
• Index: Economics

This book offers a pluralistic vision of the way economists have dealt with the question of power in society over the last two centuries. Economists' ideas about power are examined from political, theoretical and policy-making points of view, with additional discussion of the active participation of economists in the management of power.

The book is organized into four main conceptions of power relations: i)Power as embedded in political institutions; ii)Power as emerging from the asymmetric relations caused by the unequal distribution of income and wealth; iii)Power as associated to the monopolistic or oligopolistic position held by some firms in the market; and iv)Power as the management of economic policies by the state.

Mosca brings together contributions from a range of scholars to analyse how economists have considered the role of power, putting the discussion into a much needed historical context.

© The Author(s) 2018

Manuela Mosca (ed.)Power in Economic ThoughtPalgrave Studies in the History of Economic Thoughthttps://doi.org/10.1007/978-3-319-94039-7_1

Begin Abstract

1. Introduction

Manuela Mosca¹

(1)

University of Salento, Lecce, Italy

Manuela Mosca

Email: [email protected]

I would like to thank Piero Bini, Bruna Ingrao, Heinz D. Kurz and Stephen Martin who helped me a lot in the preparation of this volume. I am particularly indebted to Bruna Ingrao for her precious suggestions, especially on the structure of the book.

End Abstract

1. 1.
   In an article published in 1898 in the Economic Journal, the Italian marginalist Maffeo Pantaleoni claimed that the perspective of economic theory was “singularly narrow” (Pantaleoni 1898, p. 184). For him, the only phenomena studied by economists were those of a contractual, voluntary and peaceful nature, excluding the possibility of considering the strengths and weaknesses of the parties. He identified three political settlements resulting from the division of the world into weak and strong: the predatory settlement where the strong eliminates the weak, the parasitic one where the strong exploits the weak, and the mutualistic one in which there are no opportunities for conflict (and which he considered merely utopistic).¹ This work by Pantaleoni was perhaps the first in which an economist had pointed out that the economic theory springing from the marginalist revolution excludes the treatment of power.²

   Since Pantaleoni’s time, in every decade, various voices from economists belonging to different schools of thought have lamented the lack of the concept of power within economic science and have suggested various ways of introducing it. In the 1940s, Yasuma Takata stated that the “effects of power upon an economy are conspicuous, but for the most part ignored” (Takata 1995, p. 3). Building on the assumption that “if rents and wages are distorted by the wielding of power, then their displacement would extend to the price of other commodities and general equilibrium values would be influenced across the board” (Morishima 1995, p. xxiv), he developed a power-based theory of economics. Other attempts made in the 1940s, 1950s and 1960s are collected in a book edited by K.W. Rothschild (1971), who attributed the lack of power considerations in the hundred years after the marginal revolution both to the “complete victory of ‘perfect competition’ as the basic model for economic theorizing” (p. 8) and to the specialization of disciplines inside the realm of the social sciences (p. 11). However, Rothschild mentioned the “important exception” of “monopoly and trade union questions” (p. 9), and the “big exception” of the Marxist, institutionalist and historical schools (pp. 13–14). The essays included in his book³ dealt with power in the realms of game theory and bargaining theory; some of them focused on the influence of economic power in the political sphere, others analyzed the power of managers and experts, or expressed doubts on the effectiveness of the countervailing powers, and inquired into the causes and consequence of the uneven distribution of wealth and power at the national and international level. In the 1970s, we find very different approaches to the issue of the relation between power and economics. For the libertarian anarchist M.N. Rothbard (1970), the two elements in the title of his book, Power and the Market, cannot co-exist: he stated that where there is the market (the place of voluntary exchanges), there is no power (present in the coercive and “unnecessary” institution of the state). From an opposite perspective, F. Perroux (1973), after stating that the neglect of power in economic theory does not occur by chance (p. 5), proposed an ambitious plan to construct a general theory of power in economic relations (p. 13) incorporating this concept in micro- and macroeconomics.⁴ Then, A.O. Hirschmann (1977) investigated “the salutary political consequences of economic expansion” (p. 117) seen as a victory for the disciplinary effect of interests over passions, including those of the powerful. Finally, Foucault (1978–79) has shown how, after the collapse of a state (as in the case of post-Nazi Germany), political reconstruction can take place starting from economic institutions, especially the market. We also mention his notion of “biopower”,⁵ and his analysis of the intimate relationship between knowledge and power, also considered in its economic dimension.⁶ The 1980s opened with the institutionalist book The Economy as a System of Power (Tool and Samuels 1980, second edition completely revised 1989) the subject of which was the “locus and use of the power to determine economic institutions and their operation and outcomes” (p. viii).⁷ Then, in 1983, another author associated with the institutional school, J.K. Galbraith, wrote a book intended to be a “general theory of power”,⁸ but “not especially concerned with economics or economic power” (Galbraith and Bartel 1983, p. 26). At the end of the decade, there was a systematic attempt to develop an economic theory of power by R. Bartlett (1989, p. 198), who considered the “possibility of social influences on human utility functions” (p. 170) and focused on decision-making processes in order to pinpoint how an “external human intervention into the constrained maximizing behavior of individuals” could affect their final utility (p. 37).⁹ Bartlett identified power relations in cases of asymmetric information and uncertainty, underlined the role of power as the rationale behind the existence of organizations, its centrality in employment relation and in the creation of rights. He showed that, in many examples taken from microeconomics, power was indeed present, but it was not recognized as such. In the 1990s, S. Bowles and H. Gintis introduced power into the theory of competitive markets by relaxing the “exogenous enforcement axiom”¹⁰: basing power on the possibility of imposing “sanctions to further one’s interests” (1993, p. 325), they show how it is exercised by owners over managers and workers, by employers over employees and by creditors over debtors. At the end of the decade, the volume edited by S. Bowles et al. (1999) analyzed the power relations deriving from transaction costs, incomplete contracts, bargaining costs and opportunistic behavior. The papers therein included¹¹ showed, for example, the counterintuitive idea that “[t]he exercise of power is a characteristic of voluntary exchange under quite general conditions” (p. 14). They also built on Hirschman’s exit/voice categories, proposing a sanctioning/recontracting response to opportunistic practices (Chap. 3), and, following in the footsteps of Hirsch, considered power as a positional good (Chap. 5). Despite these contributions, the dissatisfaction with the absence of power in economic theory continued in the new century. Rothschild (2002) complained again that “the treatment of power problems … [was] almost completely restricted to … monopoly power and bargaining power in goods and labor markets” (p. 433) and identified “deliberate strategies to remove power questions to a subordinate position” (p. 437). In 2014, a conference was organized in France, on the subject of “The Economists and Power”,¹² mainly devoted to the role of the economists as experts and policymakers. In the same year, M. Perelman (2014) again denounced “the systematic absence of power in economic analysis … except for what it considers to be abuse of power by government and labor unions” (p. 284). However, in the recent book Economics and Power, its author G. Palermo (2016) does not claim that economic theory neglects the role of power but denounces the fact that power is commonly linked to some imperfection in the competitive process. His Marxist critique is addressed to all the approaches which dealt with the concept of power on the basis of the hypothesis of rational individuals. The author develops “an explicit ontology of coercion and power in the capitalist mode of production” (p. 112), surprisingly showing that this “coercive mechanism” is due to the presence (not the absence) of competition. In 2016, the conference “Economics and Power: An Historical Perspective” was organized,¹³ which was at the origin of the present book.
2. 2.
   In order to directly verify whether or not the category of power is present in contemporary economic theory, I made a search in three mainstream economic journals¹⁴ for articles that in the last twenty years used the word “power” in a title.¹⁵ My criterion of selection is therefore far more restrictive than that of Bartlett, who looked for power even where it was not recognized.¹⁶ Despite the limited size of my sample, I found a large number of articles, and their treatment of power falls into four broad areas, in each of which power emerges prevalently from situations of asymmetric information or from bargaining problems, and is mainly dealt with using the formal approach of game theory. The first area is political power. It includes economic models of the political process, the analysis of legal power, rent-seeking, lobbying, elections, voting behavior and all the aspects related to the decision-making process in the political sphere. The second concerns asymmetric positions in private organizations, that is, the analysis of collective decision-making in private institutions, the power of leaders, elites and private authorities. It also includes the analysis of labor markets, the economics of gender and of minorities. The third area, market power, is related to the study of market structures (monopoly, oligopoly, imperfect competition), market performances, firm strategies and firm behaviors. The fo...

Table of contents

• Cover
• Front Matter
• 1. Introduction
• Part I. The Republic and the Sovereign: Economists on Political Power
• Part II. The Asymmetries of Power: Income, Wealth and Social Control
• Part III. Market Power and Institutions in Theory and Policy
• Part IV. Managing Power: Economists as Policy Makers
• Back Matter