Moral philosopher Adam Smith’s inquiry into the nature and causes of the wealth of nations started with observation of a pin making workshop, noting the tremendous cost savings that could be made by people specialising in different production tasks, collaborating in the overall manufacturing process.
The practical processes of production, as in pin making, were repeatedly adopted, with remarkable success by those involved in the first industrial revolution and in manufacturing and all real economic processes ever since. Understanding how those organisational systems work is the key to understanding the economy and how it might best be governed for a sustainable and prospering population. But it hasn’t been taught as an academic subject area.
Smith also conjectured about the labour theory of value – the value of anything being dependent on the amount of labour involved in its production. Those thoughts were were picked up by Riccardo, Say and others leading to the development of classical economics as an academic subject.
Its dubious theoretical foundations led economists to try to develop it as a ‘science’ in the form of mathematically based neoclassical economics. Its abstruse theories, hypotheses, models and unrealistic assumptions have all been falsified many times, but they’ve remained in place as a widely taught subject with increasing influence over those who rule.
Ruskin likened it to ‘alchemy, astrology, witchcraft and other such popular creeds’. All it lacked was ‘applicability’.
Almost every facet of it is wrong. For example, markets free from regulation, tend naturally to mutate from being competitive towards cartel and monopoly, being controlled for the benefit of the monopolist rather than the customer. That tendency was recognised in the US in the age of the so called ‘robber barons’ and regulated by the passing of anti-trust legislation such as the Sherman Act, and post the 1929 relearning experience by further regulation such as the Glass-Steagall Act limiting the power of would be banking monopolists, which Roosevelt referred to as ‘organised money’, Government by which was ‘just as dangerous as Government by organised mob.’
Those inconvenient lessons regarding the failures of neoclassical economics have nevertheless been set aside and over the past four decades an even more extreme version of economic ‘science’, neoliberal economics, has come to dominate economic education as well as government policy and the general population’s understanding of how the world works.
A key marker of difference between neoclassical and neoliberal economics was Friedman’s 1962 assertion regarding the role of ‘corporate officials’. They had no social responsibilities other than ‘to make as much money for their stockholders as possible.’ The primacy of stockholder interests over those of the corporate entity itself, or its customers, or any other stakeholder, is a crucial part of neoliberal economics. Neoclassical’s profit maximisation left it up to corporate management as to how best to allocate the profits so maximised. They might be invested in long term development of the corporate organisation, in R&D, in expanding facilities, or retained within the organisation as security against some future unanticipated need. Neoclassical economics left the decision up to management.
The neoliberal insistence of its allocation to stockholders, removes that discretion from management control. That has proved to be a crucial step in the progressive dominance of corporate management by neoliberal bullshit.
It had been ‘lying around’, as Friedman himself put it, when the Reagan administration picked it up and it has since been the guiding economic light of successive administrations. A similar pattern has also driven UK governments from Thatcher’s time on. The result has been a complex of social and ecological destructions, gross inequalities, denials of basic human rights and equal opportunities as well as outrageous degrees of fraud and criminality for which corporate entities are fined and responsible individuals avoid any personal repercussions.
According to Sir David Attenborough, who is hardly a sensationalist, this is the most serious challenge mankind has ever had to face up to – it threatens life on earth.
So, hopefully, Donald Trump and Theresa May, or Jeremy Corbyn, will do something about it in 2019…