The Conscience of a Progressive

by Steven Klees

This takes us to the central neoclassical economics story of the supposed efficiency of a competitive, capitalist, market system that goes back to the eighteenth century and Adam Smith, with little fundamental variation to today. Codified at the end of the nineteenth century in what was called the “neoclassical synthesis,” the belief that a market system is “efficient” rests on the behavior of an abstraction economists call “perfect competition.” Under perfect competition, firms maximize profits, consumers maximize their happiness (which economists call “utility” to make it sound more scientific), all units are small so no one can exercise any market power, no one is affected by the decisions of others, there are no barriers to any firm starting up in any business, and knowledge is free and perfect. There are no big corporations, no patents, no unions, no entities with market power. Under these (unreal) conditions, in this idealized world of perfect competition, it is argued that the economy will be efficient in a number of ways. All goods and services will be produced as cheaply as possible and, not only that, they will be sold to us at that price. Consumers will be “sovereign,” that is, the market will be directed by the money “votes” of consumers – what economists call demand. Neoclassical economists do explicitly acknowledge that the more money you have, the more votes you have to direct the market toward producing the goods and services you want. In sum, efficiency me...