Keen – equilibrium and ideology

Steve Keen on ideology in mainstream economics

The following is an extract from pp.171-172 of Keen, S. (2011). Debunking economics: the naked emperor dethroned? (Rev. and expanded ed.). London; New York: Zed Books Ltd.

Equilibrium and an invisible ideology

Economics as a discipline arose at a time when English society was in the final stages of removing the controls of the feudal system from its mercantile/capitalist economy. In this climate, economic theory had a definite (and beneficial) political role: it provided a counter to the religious ideology that once supported the feudal order, and which still influenced how people thought about society. In the feudal system the preordained hierarchy of king, lord, servant and serf was justified on the basis of the ‘divine right of kings.’ The king was God’s representative on earth, and the social structure which flowed down from him was a reflection of God’s wishes.

This structure was nothing if not ordered, but this order imposed severe restrictions on the now dominant classes of merchants and industrialists. At virtually every step, merchants were met with government controls and tariffs. When they railed against these imposts, the reply came back that they were needed to ensure social order.

Economic theory — then rightly called political economy — provided the merchants with a crucial ideological rejoinder. A system of government was not needed to ensure order: instead, social order would arise naturally in a market system in which each individual followed his own self-interest. Smith’s phrase ‘the invisible hand’ came along rather late in the process, but the notion played a key role in the political and social transformations of the late eighteenth and early nineteenth centuries.

An essential aspect of this market social order was equilibrium.

From the outset, economists presumed that the market system would achieve equilibrium. Indeed, the achievement of equilibrium was often touted as an advantage of the free market over any system where prices were set by fiat. Equilibrium was therefore an essential notion of the economic defense of capitalism: the equilibrium of the capitalist market would replace the legislative order of the now defunct feudal hierarchy.

More importantly, whereas the feudal order endowed only the well born with welfare, the equilibrium of the market would guarantee the best possible welfare for all members of society. The level of individual welfare would reflect the individual’s contribution to society: people would enjoy the lifestyle they deserved, rather than the lifestyle into which they had been born.

If, instead of equilibrium, economists had promised that capitalism would deliver chaos; if, instead of meritocracy, economists had said that the market would concentrate inequality, then economists could have hindered rather than helped the transition to capitalism (though they more likely would have been ignored).