The “Invisible Hand”: Neoclassical Economics and the Ordering of Society1

Abstract

The dominant economic discourse of the industrialized world — in political, academic, and popular terms — is neoclassical economics. A founding proposition is that an “invisible hand” aggregates individual decisions driven by rational self-interest into socially optimal outcomes. We draw upon economics as well as the sociology and philosophy of science to question this fundamental proposition and investigate neoclassical economic theory's dominant position in shaping social and political organization. We document the historical and contingent processes by which the neoclassical narrative has come to dominate the discursive space of capitalist societies. We argue that, contrary to claims of value neutrality, neoclassical economics functions as a master social narrative, or a technology of power, that concentrates power by transferring socio-economic decision-making from multiple sites to the centralized nodes of global economic and political institutions. This transfer occurs through the domination of the discursive space. The “invisible hand” is power.

Inadequacy of Neo-classical Theory and Its Reflection on the Market Economy

“…Although it is possible to list them as below, it is nearly practically impossible to realize the conditions perfect competition in real economic life. (Finlayson et al, 2005: 530)  The mobility condition is based on full freedom of the buyer, seller and production factors. The condition cannot always be fulfilled due to the number of factors in the real economic life and cause the total number of the companies to be fewer than n.  The atomicity condition assumes that the society is formed by the individual human beings and accept them as a basic unit, just as the atom for physicists and genes for the biologists.…”

Bringing Water Regulation into the 21st Century: The Implementation of the Water Framework Directive in the Iberian Peninsula

“…It is not clear to everybody that statehood is being qualitatively reformulated according to a wild interplay between homogenisation and particularisation, which unfolds towards higher levels of business competition, market liberalisation and economic growth (Brenner, 2004). The hegemonic reorganisation of the state according to neoliberal demands constitutes a multifaceted, non-linear and multiscalar process that tends to engulf all areas of social action and, crucially, to reshape socionatural relations according to the political and economic priorities of global markets (see Finlayson et al, 2005). The difficult challenges involved in that progression towards an Europe of interconnected localisms and pervasive market rationality is yet more acute in its semiperipheral countries, such as Portugal and Spain, which are expected to breach the development gap with northern regions whilst also cope with democracy deficits and growing environmental threats.…”

Neoclassical economics and new institutional economics

“…The neoclassical school of economics Neoclassical economics, also referred to as mainstream or orthodox economics is undoubtedly the most prominent and dominant tradition of economic thought (Hodgson, 1992;Finlayson et al, 2005). Gowdy (2009) attributes the dominance of neoclassical economics to its long intellectual history and its cohesive, well developed paradigm and rigourous methodology with which to approach a variety of practical and theoretical problems.…”

“…Gowdy (2009) attributes the dominance of neoclassical economics to its long intellectual history and its cohesive, well developed paradigm and rigourous methodology with which to approach a variety of practical and theoretical problems. It is "classical" based on the notion that free market or perfect competition results in efficient resource allocation which regulates economic activities and establishes equilibrium through market forces of demand and supply or through the self-regulating individual ambition of market participants which Adam Smith called the "invisible hand" (O'Sullivan and Sheffrin, 2003;Finlayson et al, 2005). The "neo" conception is based on the significant departure in its methodological approach from the classical viewpoint or tradition which focuses on economic production and the factors influencing it, to a formal and analytic approach that places great emphasis on individual choices and the maximization of utility with the adoption of mathematical techniques for economic analysis.…”