Abstract
Power is a pervasive phenomenon in the economy and society, associated with inequality of income, wealth, race, gender, information, and so on. However, much of contemporary economics still cherishes the purely abstract case of perfect competition in which no agent has any economic power whatsoever. Things were totally different at the time of the classical economists from Adam Smith to David Ricardo. Smith approved of Thomas Hobbes’ dictum that wealth is power but did not share the political inferences the latter drew from it. He and David Ricardo instead proposed economic policies, laws, regulations and institutions designed to contain the amassing of power in the hands of a few that endangered “the security of the whole society” (Smith).
This is a substantially revised and considerably shortened version of a keynote lecture given at the 14th conference of the Italian Association for the History of Economic Thought (AISPE) at the University of Salento, Lecce, 28–30 April 2016. I am grateful to the participants for useful discussions and to Manuela Mosca also for her hospitality. Tony Aspromourgos, Amit Bhaduri, Christian Fleck, Christian Gehrke, Geoff Harcourt, Peter Kalmbach, John King, Ulrich Krause, Fabio Petri and Richard Sturn kindly sent me valuable comments and suggestions on earlier drafts of the chapter. Any remaining misconceptions are, of course, entirely my responsibility.
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Notes
- 1.
The situation is quite different in sociology and political science.
- 2.
In Weber’s writings, especially in Wirtschaft und Gesellschaft ([1922] 1972), the concepts of power and domination played a significant role in numerous contexts. He discussed, for example, the distribution of power amongst the different ranks of people in Italian towns in the middle ages, the power of guilds at the time, the power assumed by bureaucracies in modern times, the power of the Roman Catholic Church and the “power of capital”.
- 3.
Jessop (2012: 3) speaks of power relations in the Marxist tradition “as manifestations of a specific mode or configuration of class domination rather than as a purely interpersonal phenomenon lacking deeper foundations in the social structure”.
- 4.
The set of data typically invoked by general equilibrium theory thus loses much of its appeal as providing a solid platform to start from. We may already here renounce the widespread view that general equilibrium theory managed to formalize Adam Smith’s social theory. This view cannot be sustained vis-à-vis, inter alia, Smith’s insistence on the shaping of the needs and wants of agents by the social milieu from which they come and the social strata to which they belong.
- 5.
With multiproduct firms, which are the normal case, the power or influence of a business leader could be conceptualized as some weighted average of these product-specific powers.
- 6.
- 7.
We only mention in passing that Smith, the moral philosopher, was convinced that the acquisition of power and riches does not keep the promises man associates with them. He insisted: “Power and riches … keep off the summer shower, not the winter storm, but leave [man] always as much, and sometimes more, exposed than before to anxiety, to fear, and to sorrow; to diseases, to danger, and to death” (TMS: 302). He added: “And it is well that nature imposes upon us in this manner. It is this deception which arouses and keeps in continual motion the industry of mankind” (TMS: 303).
- 8.
See also the related concepts of the integrated wage-commodity sector and the profit function in Garegnani (1984).
- 9.
Sraffa normalizes the system by taking total employment as equal to unity.
- 10.
A measure of power alternative to Smith’s and Sraffa’s is, of course, Karl Marx’s concept of the rate of surplus value or “exploitation”; see Garegnani (1984).
- 11.
- 12.
Because of incessant attempts of firms to restrict competition, Smith would have in all probability received with disbelief Böhm-Bawerk’s view that it is legitimate to start from the assumption of perfect competition. Smith was aware that “improvements” of the productive apparatus would give the innovating firms a temporary monopoly, but this case was different from trying to be granted privileges by the Crown as, for example, in the case of the East India Company.
- 13.
- 14.
- 15.
Vis-à-vis statements like these, it comes as no surprise that the landed gentry was hostile towards Ricardo; see expressions of Ricardo’s anticipation in this regard and his expectation to be exposed to “all the charges and vituperation of the landed gentlemen against me” (Works IX: 262; see also X: 349). Landlords, he also argued, had a permanent interest in restricting trade in corn and other agricultural products, whereas the manufacturers’ interest in protecting their business was only temporary.
- 16.
It deserves to be mentioned that Nicholas Kaldor, inspired by Ricardo, took the repeal of the Corn Laws in 1846 to exemplify the compensation criterion he suggested as a solution to the problem in welfare theory that policy measures typically have gainers and losers. According to Ricardo’s above argument, landlords benefiting from the Corn Laws could not compensate workers and capitalists because their gains in physical terms were smaller than the losses incurred by the other classes of society.
- 17.
Smith’s earlier idea was developed by Anonymous (1821) and recurs in Piero Sraffa’s papers and notes drafted in the late 1920s and early 1930s, which eventually led to his 1960 book; see Kurz (2012). In the perspective assumed, the claims of the different parties to the product resided in their power to threaten society by “withdrawing” their productive resources. Workers have to be paid, Smith stressed, at least a real wage that allows their “race” to reproduce itself. In case of a lack of alternatives to the use of their land, landowners, Sraffa surmised, have to be paid a zero rent if their land is not scarce. To capitalists, interest (profits) has to be paid, Sraffa argued at the time—again in accordance with Smith, in order to prevent capitalists from withdrawing their circulating capital (including the wear and tear of fixed capital), thus thwarting the “self-replacement” of the economy.
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Kurz, H.D. (2018). Elements of a Science of Power: Hobbes, Smith and Ricardo. In: Mosca, M. (eds) Power in Economic Thought. Palgrave Studies in the History of Economic Thought. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-94039-7_5
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