1771: “Everyone but an idiot knows that the lower classes must be kept poor, or they will never be industrious”

The texts do indeed imply a sort of ‘level playing field’ between buyers and sellers in both markets for goods and services as well as in the labour market. This follows from the central place that’s given to the supply and demand model (which is “short-hand” for the perfectly competitive market).

There, everyone is a ‘price taker’. There is no room for businesses to use their bargaining power to squeeze workers’ wages, to prevent workers from unionizing, to force down their suppliers’ prices, or to raise their selling prices once they’ve eliminated their competition. (Think Walmart.)

But ‘market power’, the ability to push the price away from a hypothetical competitive level, is just the tip of the power iceberg. At least the texts acknowledge this form of power, even if they downplay it. If students think for themselves, they could realize the practical irrelevance of the perfectly competitive market structure. More likely, at least with those who stick with economics, they will start to see the world as composed of competitive markets, regardless of their actual structure. Indeed, some textbooks explicitly justify this by asserting that most markets are ‘competitive enough’ to be approximated by perfect competition.

Most aspects of power remain discreetly out of sight in the texts, even though, as you say, you’d have to be blind not to see them in real life. I like to paraphrase a line from Ben Bagdikian’s The Media Monopoly: the texts can’t tell you what to think, but they can tell you what to think about.

So while they focus students’ attention on these powerless markets, they say little or nothing at all about the power of the wealthy, or the businesses they own, and how they can influence the ‘rules of the game’. As Ha-Joon Chang reminds us in the first chapter of 23 Things They Don’t Tell You About Capitalism, there is no such thing as a ‘free market’: all market exchange takes place within a set of rules and institutions and those matter to market outcomes. But any serious discussion of what determines them would draw attention to the links between economic and political power. It would also provide an extra reason to be concerned about the rapid growth of economic inequality in many countries.

In the world of the texts, the managers of profit-maximizing firms allegedly spend all their time trying to hire the right combinations of labour and capital while spending no time trying to increase profits by influencing laws and regulations. In the world of reality, small armies of lobbyists and corporate lawyers work to do just that, even helpfully drafting laws for busy legislators whose political campaigns they help to finance.

Incidentally, the one notable exception to this in the texts is the discussion of regulating monopoly. The story is that regulators are often ‘captured’ by the industry they are supposed to regulate so that with government screwing up (as it often does in textbook examples) no regulation might be the better option. An ideologically convenient story!

Other aspects of power are also absent. The firm is largely treated as a black box, so authoritarian relations within it are ignored; questions of economic democracy do not arise. The analysis of trade and foreign investment ignores the effects of the relative power of different countries.

I can’t prove how all this affects students. But in my own case I feel I was effectively blinded for an embarrassingly long time to many of these obvious aspects of the world.

PP: And how do you think the textbooks go about hiding these sorts of assumptions?

Rod Hill: In a way, I think the texts hide these assumptions in plain sight while using the magician’s trick of focussing the students’ attention elsewhere. When the supply and demand model is introduced, the texts don’t stress the unrealistic assumptions of the perfectly competitive model (perfect costless information, no geography so that all transactions take place on the head of a pin, no one has any power over prices, no product differentiation). In part, this is because these are deemed to be not important for the questions being asked.

Students’ attention is directed to questions where the model’s predictions seem to accord with common sense: demand goes up, prices rise; costs go up, prices rise, and so on. The student might think this looks plausible and, for much of the text and the course, it’s the only game in town.

But the model also predicts ‘no advertising’, ‘no political contributions by firms’, ‘little or no research and development spending’, ‘all sellers sell identical goods for the same price’ , and ‘people doing the same work get the same wages’ in the labour market. However, no questions about those things are asked, so the predictions are not confronted by the evidence that would refute them. Students would have to figure this out for themselves. And not coincidentally, these questions also raise issues of power: firms’ power over consumers, firms’ power in the political arena, firms’ power over their workers.

So independent-minded students could ask these questions, but (unless they stick around long enough to go to graduate seminars) they are not shown any way of thinking about them in their principles of economics class.