Broken Economics: Why we Need to End Londongrad

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In 1993, an economics professor at Cornell University published a study with a damning conclusion: economics is making us selfish. After giving his students assignments to determine their levels of generosity before and after teaching rational choice theory, Robert Frank found that the longer we study economics, the less altruistic we become. As he put it, “We become what we teach.”

Frank had demonstrated within his own discipline what the social scientists had claimed for decades: the subject has a habit of attributing symptoms to causes and self-fulfilling prophecy to innate human behavior. Yet the hamartia of economics goes beyond its propensity to neglect root causes. Ideas about corporations, statesmanship and liberty regurgitated by the average aspiring City banker would leave our ancestors aghast, because fundamentally, the discipline’s understanding of the scholars that made it is mistaken at best and guilty of revisionist cherry-picking at worst.

The backdrop of the 21st century economy is unique to say the least. Since the rise of neoliberal policy in the late 1970’s, charts like Figure 1 show that as inequality between nations has decreased, inequality within them has widened. Legally and ideologically speaking, corporations are considered artificial persons of which our economy caters to and governs for. As a result, market democracy takes aim at what Noam Chomsky described as a “vibrant political culture” of neighbourhood organisations and trade unions with the justification that they are impediments to the all-knowing force of the free market.

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Yet what we would call ‘free’ markets today are not free by past standards at all, but cornered by a minority of corporations that dominate business affairs and even dictate social values. The idea of a corporation conducting itself in such a way blurs the boundary between public and private — a notion our academic predecessors would have vehemently opposed. Even free trade, a core tenet of right-wing economics, is often composed in the 21st century of transactions which are centrally managed within single corporations. The utopianism of free market capitalism has fallen short, and the scholars of our history would have a lot to say about this fact of our existence.

Perhaps the most famous Western economist is Adam Smith, whose pivotal work The Wealth of Nations (1776) is widely regarded as the most influential economic text ever conceived. Smith was the first to argue that markets are guided by an ‘invisible hand’ when left without interference, which allows them to allocate resources fairly. The conditions he set for a free market were twofold: firstly, that businesses could act freely and secondly, that individuals would be free to engage in trade. He understood human behavior as motivated by self-interest, and is, if only as a result of misinterpretation, responsible for carving out an early formulation of what was to become a well-known maxim of modern capitalism: greed is good.

If we could bring Smith back to life and give him the task of observing our economy, the first problem he would encounter would undoubtedly be our dubious understanding of what it means for a market to be ‘free’. As Foucault argues, a ‘state-phobic’ consensus emerged across the political spectrum following the horrors of WW2, which regarded the state as the enemy of human freedom due to its potential to dissolve into fascism. National governments took on the objective of fostering conditions that would establish a free market through decentralization and deregulation — euphemistically termed ‘the removal of red tape’.

However, the power of the state never truly shrank. Coupled with the rapid technological advancements of the late 20th century, what Imogen Tyler describes as the “tentacles of government” extended into every part of “social and cultural life, working tirelessly to unblock impediments to capital, to deregulate resource extraction and to securitize profits within the new global class of the super rich.” Power had not changed hands from the state to the markets but combined. Businesses and banks were regularly subsidized and bailed out despite ideological commitments to cutthroat competition and merit-based social hierarchy. Under the assumption of a new equitable world order came Thatcherite ‘solutions’ to unemployment such as ‘get on your bike’, which justified slashing welfare and trivialized poverty as a consequence of personal choice.

Smith’s stance on regulation is overwhelmingly misconstrued. Although his ‘invisible hand’ theory is well-known, his advocation that government “regulation in favor of the workmen is always just and equitable” is not. He goes further, clarifying that not only are worker protections necessary but that regulation “when in favor of the masters” is unjust and inequitable.

Similarly, Smith’s writings on the benefits of the division of labour — the separation of tasks between many workers — are taught across the political sciences, but his disclaimer that workers become “as stupid and ignorant as it is possible for a human creature to be” as a consequence goes without mention. His writings come before the revolutionary invention of the assembly line, what is perhaps the culmination of this division; and before globalisation — a byproduct of which means that each part of each product can be manufactured in more countries than most will travel to in their lifetimes. Despite obvious benefits, cheap and inhumane labour persists due to international deregulation pushed by organisations like the WTO.

Like his writings on labour and regulation, Smith’s doctrine of self-interest is widely known, but his extensive appraisal of compassion is not. Economics students have likely heard that “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest”. Yet in The Theory of Moral Sentiments, Smith writes, “How selfish soever man may be supposed, there are evidently some principles in his nature, which […] render their happiness necessary to him, though he derives nothing from it […] The greatest ruffian, the most hardened violator of the laws of society, is not altogether without it.”

Even the founding father of rational choice theory understood our interests as entangled with those of the group. In fact, this belief underpins his justification for free markets: the ‘invisible hand’ is not the hand of capital but compassion, moving the wealthy to reduce inequality when the markets cause suffering. Friendship — what Smith called “fellow-feeling” — motivates the butcher, brewer and baker not only to seek profit but to serve his community through the service he provides. Thus, the grand conclusion of Smith’s economic theory is one of bitter irony within the context of mainstream economic schools of thought: a fierce defence of equality of outcome.

Though the groundwork for giving aid to the poor was established in the minds of 18th century visionaries like Smith, today we have little sympathy for those we view as the losers of free market policy. In fact, we have developed a distaste for those who work in poorly paid jobs even when those jobs have significant social utility. This is demonstrated through both cultural attitudes towards retail workers, cleaners and other essential jobs, and at a governmental level, where commonplace initiatives which aim to tackle poverty by ‘raising ambition’ hold the implicit implication of escape as opposed to reform. It seems the conclusion has been reached that one can no longer establish a career as a butcher, brewer or baker at all, and must progress up the social hierarchy in order to leave their unambitious peers behind.

Of course, essential jobs do possess ample social value and their necessity cannot be understated. In 2009, think tank NEF compared the utility of various occupations and found that hospital cleaners generate far more social value relative to their wage compared to high earners like advertising executives and bankers.

Questioning the legitimacy of deregulation and cutthroat competition might sound dangerously left wing to 21st century ears, but these ideas do not even go beyond the tenets of classical liberalism. Only half of the doctrinal story has been disseminated into mainstream economic thought — the half that conforms to a hard-right consensus reached in the 1980’s which hops on the bandwagon of liberalism without paying full attention to the pillars upon which it rests. But the accuracy of these ideas are irrelevant to the scale of their influence: as George Gerbner wrote, “[He] who tells the stories of a culture really governs human behavior.” And it is these stories that so often override the true nuance behind an author’s work.

One of the greatest ideological stories is the American dream, which began with the Founding Fathers. James Madison, 4th US President and Father of the Constitution, is often hailed as one of many American champions of personal liberty and competitive enterprise. He was deeply motivated by a desire to protect the right to private ownership, stating that “Those without property, or the hope of acquiring it, cannot be expected to sympathize sufficiently with its rights.” He put it more bluntly when he expressed that the utmost burden the state must fulfill is “to protect the minority of the opulent against the majority.”

Whether he was right is largely irrelevant. What matters more is what slipped through the cracks of the mainstream academic canon. As Madison watched America develop, his assumption of rulers as “enlightened statesmen” was caught in the firing line between the reality of private owners — “the pretorian band of the government […] bribed by largesses” — and the idealism that free markets could exist free from corruption. For this reason, it is safe to say that the Constitutional ‘rights of persons’ Madison and his contemporaries invoked do not expand to our new definition of ‘person’ as any organization, company or branch, deserving of the same liberties as ourselves. Madison saw the early consequences of giving corporations the rights of an immortal, astonishingly wealthy individual, and he warned of a crumbling democracy.

Today, the story of the American dream conflicts the necessity for millions to have their income topped up by the state. Contrary to popular myth, the majority of people on welfare are employed, illustrating a simple problem: businesses are not being held accountable. Through the welfare state, companies are subsidised, but only to the most minute extent governments can get away with. In an attempt to maintain equilibrium between the subsidisation of businesses who won’t reach into their pockets and the fear of a ‘nanny state’, certain cultural beliefs arise. If those on low wages have supposedly failed at getting a better job, and those who are not in employment have failed at getting one at all, we can forget about tackling structural inequality altogether.

The truth of modern economics is that state subsidisation abounds, but never for the poor or the floundering small business, and rarely for the medical care of a dying child or the trial for a victim of violent crime. It is overwhelmingly a minority of large corporations who receive such endowments, and for the rest of us to ask for the same contingencies is decried as socialist nonsense. Although leaders publicly support the laissez faire approach, to describe the most successful capitalist economies as ‘hands-off’ is laughable. For example, after WW2, US business leaders urged the state to avoid a depression by intervening in the free market, and a long-forgotten example of the effectiveness of state subsidisation was born. Decades later, America subsidised its own agricultural businesses in order to undercut foreign producers — a contributory factor to the ensuing drug problems of Colombia after its wheat industry was decimated. Markets are rarely conducted in the spirit of true competition at all, but guided by the invisible hand of global superpowers pursing their own interests.

Because — as Chomsky writes — corporations operate along “non-democratic lines”, the freedoms envisioned by many American pre-capitalists who had witnessed first-hand the passing of the Homestead Acts and the fight for ‘free labour’, continue to erode. Compare the GOP in the 19th century to today: in 1890, Illinois Republican Richard Yates stated, “The great idea and basis of the Republican party […] is free labor. […] To make labor honorable is the object and aim of the Republican party.” The primary goal of American individualism was once the facilitation of independent labourers owning their own land and the products of it. In 2023, millions of rental properties in the US such as apartment blocks are not even owned by individuals or families but businesses, allowed to increase rents or leave buildings vacant despite rising homelessness.

Our ancestors were ambitious, their logic was rigorous and the societies they imagined often ahead of their time. Though their visions may vary in persuasiveness, we must shed light regardless on the misguided foundations of our modern economic dogma — because if we accept that the basis on which it stands is misinterpreted, we can call into question the so-called ‘common sense’ economics that are no longer considered up for debate in the public sphere.

Written by Tilly Middlehurst

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