COMPETITION, POWER AND MODERN VULGAR
ECONOMICS: A MARXIST CRITIQUE
Giulio Palermo
ABSTRACT. Competition is taken for granted within neoclassical economics: its cause is human nature and its
functioning is the result of spontaneous interactions. As such, it is contrasted with power, an unnatural
restriction of human liberty, deserving thus scientific explanation. By contrast, for Marx, competition is itself a
coercive mechanism. Its historical development is part of the development of capitalism and what today appears
as ‘human nature’ is part of this process. It is thus within competition, not outside of it, that Marx explains the
coercive nature of economic relations. His critique shows that competition and power appear as antithetical
because capitalism is a mystified system, in which appearance diverges from essence – a divergence that cannot
be grasped by neoclassical economics. The latter (including its ‘radical’ developments) only translates the
appearances into rigorous mathematical terms. In this sense, it is the modern expression of what Marx called
‘vulgar political economy’.
KEYWORDS: Competition, Power, Vulgar economics, Radical political economics, methodological
individualism, essence/appearance.
Everything appears reversed in competition, and thus in the consciousness of its agents … The
vulgar economist does practically no more than translate the singular concepts of the capitalists,
who are in the thrall of competition, into a seemingly more theoretical and generalised language,
and attempt to substantiate the justice of those conceptions.
(Marx Capital, vol. 3, chapter 13).
In neoclassical economics, perfect competition is defined as price-taking behaviour and, as
such, is contrasted with market forms in which some agents have market power. The idea is
that the higher the number of agents in a market, the more each of them is forced to accept
the conditions accepted by competitors. At the limit, when the number of market participants
tends to infinitive, their market power tends to zero. Price ceases to be a decision-making
variable and becomes an external datum, to be taken as it is.
Modern neoclassical theory has extended this conception, by noticing that in perfectly
competitive markets not only do agents have no market power, but also have no power at all.
From the provocative ultra-liberal position of Alchian and Demsetz (1972) to the radical-left
contributions of Bowles and Gintis (1993), the economic debate has being developing a
notion of power as stemming from market imperfections. According to Bowles and Gintis,
for instance, power relations are a consequence of non-clearing markets: in a non-clearing
market, agents on the ‘short side’ (the side with few agents, who might easily find a
counterpart in exchange) have power on those on the ‘long side’ (the side with too many
agents for being all able to find a counterpart), since they can credibly threaten them to
interrupt their market relation. For example, in a labour market with unemployment,
employers have power over their employees, since they can easily substitute them, whereas
the latter would worsen his/her condition if he/she loses his/her job. The employer can thus
exercise his power over the worker by pretending higher levels of effort at work.
Although radicals often declare their scientific indebtedness to Marxism, this
conception of competition, monopoly and power is very different from that of Karl Marx. In
Marx’s conception, there is no opposition between competition and monopoly, or between
competition and power. Competition is not conceived of as a market form, but as a
mechanism of social coordination, operating within all market forms, no matter the
concentration of the market. Willy-nilly, even giant monopolists are exposed to the ‘external
coercive law of competition’. The juxtaposition competition/monopoly is thus meaningless
for Marx, and his analysis focuses rather on the processes and conditions through which
competition tends to give rise to forms of monopoly.
The same is true for the juxtaposition competition/power, for competition is itself a
coercive mechanism compelling agents to behave in certain ways. Different from radical
economists accepting methodological individualism, Marx does not see power as a merely
interpersonal relation. His notion of power is social and is strictly dependent upon class
relations. Capitalism, even in its highly celebrated perfectly competitive form, is a system
based on class relations. There is thus no need to introduce market imperfections to
understand capitalist power relations. The latter do not originate from the lack of competition,
but from the class structure of society. For this reason, Marx accepts the assumption of
unhampered competition, but different from the liberal (and neoliberal) conceptions, he does
not define such a world as the ‘Eden of the innate rights of man’ (Marx 1867, ch 6), free from
power relations and ruled by individual freedom, but shows that it is rather a world of
coercion and social exploitation.
It is not the lack of competition that gives employers power over workers. It is rather
workers’ lack of the means of subsistence that compels them to put their labour power at the
service of the capitalist class. Of course, changes in the market form modify the existing
power relations. But, in Marx’s view, they do not create them: the existence of class relations
in capitalism is not the consequence of a particular form of the labour market, but the product
of the existence of the labour market.
These are, in my view, the main differences between Marx and neoclassical
economists in their analysis of the consequences of competition. But the very originality of
Marxism is to be found in his analysis of the origins of competition, an issue that is not even
dealt with by classical and neoclassical economists.
In the next section, I develop a Marxist analysis of the origins and consequences of
competition. At the light of it, I then critically discuss the neoclassical conception of
competition and its related literature on monopoly and power.
1. MARX’S ANALYSIS OF THE COERCIVE LAW OF COMPETITION
In the attempt to develop a Marxist conception of competition, the first problem is that, in the
Grundrisse, Marx explains that he intends to treat such a topic as a separate issue after having
explained ‘capital in general’. The term ‘capital in general’, however, does not appear in his
main work, Capital. This has raised a controversy. Some authors maintain that the three
volumes of Capital deal in fact with ‘capital in general’ and contain just the aspects of
competition that are strictly necessary for such a purpose. According to this interpretation,
there is thus no hope to find a systematic analysis of competition in Marx’s own work, since
in his life he did not even have the time to finish volume 2 and 3 of Capital. By contrast,
others argue that Marx finally abandoned the notion of ‘capital in general’ and, when he
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organised Capital in three volumes, he incorporated his analysis of competition mainly in the
third volume and partly in the first one.1
In Capital, the word ‘competition’ appears for the first time in volume 1, chapter 10,
titled ‘the working day’, in which Marx explains how competition regulates such a crucial
aspect of the conflict between capital and labour in the production of surplus value. In chapter
12, however, he soon clarifies that he does not intend to consider here the way in which the
laws of capitalist production ‘assert themselves as coercive laws of competition, and are
brought home to the mind and consciousness of the individual capitalist as the directing
motives of his operations’ and reaffirms that ‘a scientific analysis of competition is not
possible, before we have a conception of the inner nature of capital’.
It is only in the third volume of Capital – after having confined his analysis of
competition to its role in the process by which capital as a whole subsumes human activities –
that Marx discusses the relations between many individual capitals and deals thus more
systematically with the effects of competition (cf. Rosdolsky 1977). Such an analysis allows
him to explain some of the main tendencies of capitalism: the rise of the organic composition
of capital and the corresponding increase in productivity, the expansion of capital, its
concentration and centralisation, the fall of the rate of profit and the emergence of crises.
As far as the origins of competition are concerned, perhaps the most explicit
discussion is developed by Engels in his Outlines of a critique of political economy, where he
puts it in relation with the development of private property and market relations. The same
issue is dealt with by Marx in the Economic and philosophical manuscripts of 1844, in which
he criticises bourgeois economists for taking for granted private property and all the
categories that presuppose it (including competition) and explains them as a consequence of
estranged, alienated labour. Finally, in The poverty of philosophy, by taking inspiration from
the work of Pierre-Joseph Proudhon, Marx develops his most explicit and polemical
arguments against the conception of competition of bourgeois economists.
The commodity, private property and the market
Marx’s Capital does not begin with the isolated individual or with a system of complete and
perfect markets, but with the commodity. The commodity contains all the distinguishing
social relations of the capitalist mode of production. Things are not in their nature
commodities. They become commodities only under particular historical conditions, with
particular social relations. The category of the commodity encompasses the categories of
private property and the market. Private property is a social relation that defines a series of
duties and rights in society and their distribution among agents. Through the market, then,
commodities receive a social appraisal (the price system) and, on this basis, are exchanged.
Private property and the market, however, are not sufficient to characterise capitalism.
The specificity of capitalism is that the process of commodification includes labour power as
well. In capitalism, property is characterised not only by its legal form as private property,
but also by its unequal distribution between the two classes of capitalists and wage workers.
Property relations are thus also class relations in capitalism (Campbell 1993). Marx discusses
at length the conditions under which labour power becomes a commodity. He explains that
for the wage-labour relation to arise the worker must be free in a ‘double sense, that as a free
man he can dispose of his labour-power as his own commodity, and that on the other hand he
has no other commodity for sale’ (Marx 1867, ch. 2). Marx then discusses the historical
1
A concise survey of this debate is presented in Historical Materialism 2010, 18: 209–12.
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circumstances that produced ‘on the one side owners of money or commodities, and on the
other men possessing nothing but their own labour-power’, and the mechanisms that
reproduce these classes of people.2
Class relations
The asymmetric distribution of private property is at the origin of the labour market. This
produces a qualitative separation within population: on one side, there are people that, given
their (lack of) property, must sell their labour power; on the other side, other people, thanks
to their property, can buy this labour power and make a profit from it.
Without mechanisms capable of reproducing this asymmetry, there would be no stable
labour market, and wage labour might not be the dominant form of production. This entails a
form of economic compulsion, mostly indirect, operating through economic constraints,
which brings a class of persons to work (voluntarily) for another class of persons. This form
of compulsion is not the consequence of deliberate choices of particularly powerful
individuals, but rather the effect of the impersonal mechanisms that govern market prices and
that prevent workers from becoming independent from wage labour.
In Marx’s work, although the ‘history of mankind is a history of class struggle’ (Marx
and Engels 1848), there is no systematic discussion of social classes.3 The analysis of the
capitalist mode of production in its pure form, developed in Capital, is based on a class
structure with two main classes: capitalists and workers. In the study of concrete social
formations, however, Marx does not hesitate to consider a greater number of classes,
characterised not only by their economic role, but also by their political and ideological
homogeneity (Marx 1850, 1852, Engels 1845, Marx and Engels 1848).
Here we do not need to develop the complex relations between the economic, the
political and the ideological structures of capitalism. The economic separation of the
population into buyers and sellers of labour power is sufficient to determine an essential
aspect of class relations. This is not to reduce social classes to an asymmetry in economic
constraints; it is rather to recognise that such an asymmetry is not occasional but necessary in
capitalism. Abstractly, private property and the market might exist without class divisions.
Class monopoly of the means of production, however, is not an historical accident. It is rather
the necessary historical condition for the development of wage labour and for the functioning
of capitalism.
The origins of competition
Unlike classical and neoclassical economics, Marx does not see competition as the result of
2
Marx dedicates the whole Part VIII of Capital 1, to study the process of ‘primitive accumulation’ and the
divorce of the worker from his/her means of production and harshly criticises ‘vulgar economists’ for their
abstract speculations on the origin of capitalism. Unfortunately, the same speculative method, based on
hypothetical spontaneous interactions between isolated individuals, has today become the distinguishing feature
of new institutionalism. Although closer to a radical tradition, Putterman (1995) follows the same idea that
hierarchical relations within the capitalist firm are the result of voluntary decisions. Similarly, Stiglitz (1975)
contends that these relations were voluntarily selected by workers for efficiency reasons. A Marxist reply to this
position is offered by Braverman (1974), Marglin (1974, 1975) and Edwards (1979).
3
In Capital 3, there is a draft chapter dedicated to the subject. However, the chapter is incomplete and its
purpose seems to be more to point out the problematic aspects of defining classes, than to provide the blueprints
for such a project.
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the opposition of private interests of atomistic individuals. Human interests, with a highly
developed division of labour, are necessarily social interests. Competition, therefore, is not
merely a mechanism whereby isolated individuals pursue their goals, according to their
innate preferences, but a mode of coordination of social individuals, with convergent and
divergent social interests, determined to a large extent by class relations.
According to Marx and Engels, the development of economic competition is a
consequence of private property. In Engels’ words,
We have seen that in the end everything comes down to competition, so long as private property exists
... because private property isolates everyone in his own crude solitariness, and because, nevertheless,
everyone has the same interest as his neighbour, one landowner stands antagonistically confronted by
another, one capitalist by another, one worker by another. In this discord of identical interests resulting
precisely from this identity is consummated the immorality of mankind’s condition hitherto; and this
consummation is competition. (Engels 1844)
In turn, competition is also the cause of the tendency for private property relations to expand,
both extensively (geographical expansion of market relations) and intensively
(commodification of all aspects of nature and human life). This means that capitalism is, by
its nature, dynamic and self-expanding, and that what we today call globalisation is in fact an
intrinsic aspect of capitalistic development. Competition and private property are linked by a
dialectical relation: private property puts individuals one against the other and unleashes
rivalry behaviours; competition, with its economic incentives, contributes to develop and
generalise property relations.
Here, however, Marx and Engels take two slightly different theoretical routes. Engels
(1844) intends to show that all the categories of political economy and the realities to which
they correspond presuppose both competition and private property. In his critique, however,
Engels (1884) explains competition as a consequence of private property, but discusses the
origins of the latter mainly historically. It is Marx that explains also logically the origins of
private property (cf. Clarke 1991). Particularly in his early works, he focuses on the relations
of private property to another social relation, namely alienated labour, which suggests a more
articulated relation between private property and competition. As he explains, in order for
labour to be appropriated in the form of property, it must first take the form of alienated
labour. In this sense, ‘although private property appears as the basis and cause of alienated
labour, it is in fact its consequence … Later, however, this relationship becomes reciprocal’
(Marx 1844). To put it differently, Marx arrives at his social conception of competition via its
relations with alienated labour; Engels focuses instead on the necessarily asymmetrical
distribution of private property between social classes. But commodification of labour power
is for both of them the theoretical and historical reason for the class dimension of competition
in capitalism. Let us thus consider how competition regulates the reproduction of class
relations.
Competition and class struggle
As already mentioned, Marx’s discussion of competition in Capital begins with one of the
central conflicts between capital and labour: the length of the working day. Before chapter
10, Marx has supposed that ‘labour power is bought and sold at its value’, which, ‘like that of
all other commodities, is determined by the working-time necessary to its production’ (Marx
1867, ch. 6). The value of labour power is socially determined and changes historically with
the evolution of the set of commodities needed to reproduce the worker and the labour time
necessary to produce it. Although such a value is in fact the result of moral principles,
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cultural hegemonies, the state of civilisation and that of class struggle, in a given
geographical and historical context, it can be taken as given.
Given the value of labour power, the length of the working day is a crucial factor
determining the amount of surplus value appropriated by the capitalist. Marx explains that
capitalists and workers have opposite interests, but their struggle is internal to the law of
exchange:
The capitalist maintains his rights as a purchaser when he tries to make the working-day as long as
possible … and the labourer maintains his right as seller when he wishes to reduce the working-day to
one of definite normal duration. There is here, therefore, an antinomy, right against right, both equally
bearing the seal of the law of exchanges. Between equal rights force decides. Hence is it that in the
history of capitalist production, the determination of what is a working-day, presents itself as the result
of a struggle, a struggle between collective capital, i.e., the class of capitalists, and collective labour,
i.e., the working-class. (Marx 1867, ch. 10)
As Marx puts it, the result of the conflict between capitalists and workers is a matter of force.
At first sight this has not much to do with competition. Soon after, however, Marx explains
that the force of each class is dialectically linked to competition within each class. Let us
consider this relation more carefully.
Consider first the struggle between classes. In this struggle, like in any other, the
stronger often wins. And it is not difficult to understand that workers and capitalists have not
the same strength, for the former must work to live, whilst the latter can live on their capital.
This asymmetry between classes influences the internal relations within each class:
competition tends to be stronger within the weaker class, that is, generally, on the workers’
side. In turn, competition within classes influence the strength of each class in its struggle
with the other class. As Engels (1845, ch. 3) writes, ‘competition of the workers among
themselves is … the sharpest weapon against the proletariat in the hands of the bourgeoisie’.
This dialectical relation between competition and class struggle regulates wage
dynamics and unemployment or, in Marx’s (1867, ch. 25) words, the ‘industrial reserve army
of labour’. The industrial reserve army is an essential aspect of capitalism: first, it exerts
pressure on the wages and working conditions of employed workers; second, in periods of
expansion, it cushions the effects that an increasing demand for labour may have on the
labour market. But unemployment is also a consequence of capitalist accumulation. Very
simply, the ‘surplus population’ could all be put to work if the length of the working day
were reduced. The point, however, is that there is no automatic tendency for this to occur, and
capitalists surely do not have an interest in this. More generally, this explains the historical
hostility of the bourgeoisie towards workers’ associations – a hostility whose concrete
expression ranges from legal prohibition in the past to ideological condemnation, as a
violation of perfect competition, in more recent times.
Consider now wage determination. When competition among workers is strong, the
wage reaches the subsistence level, a level below which there is no reason to work. This limit
is relative and socially determined by ‘the average needs and the grade of civilisation of the
workers’ (Engels 1845). Symmetrically, the maximum wage is determined by the
competition of capitalists among themselves. If workers need capitalists (to live), capitalists
need workers as well (to make profits). Competition among capitalists for employing new
workers tends to increase when the demand for the commodity they produce increases and
when the reserve army is small. In these conditions, each capitalist prefers to pay slightly
higher wages rather than let the whole profits escape him. The wage tends thus to increase
above the subsistence level. However, as soon as this risks reducing the ordinary average
profit, capitalist competition loses momentum, and the wage no longer increases.
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The contradictory effects of competition
In any period, in a given geographical context, class struggle brings to institutional
arrangements that crystallise the relative strength of each class and establishes a temporary
equilibrium between their conflicting interests. These institutional arrangements evolve with
the changes in the balance of power between classes. The contradictory nature of capitalism,
however, is not in the conflicting relations between classes, but in the internal relations within
classes.
A first manifestation of this contradiction concerns the length of the working day.
Marx notices that ‘the unnatural extension of the working day … shortens the length of life of
the individual labourer, and therefore the duration of his labour-power’. This raises the costs
of its reproduction ‘just as in a machine the part of its value to be reproduced every day is
greater the more rapidly the machine is worn out’. Here it is no question of force. Class
struggle cannot solve this contradiction. Like in other societies, it can adjudicate the
antinomy between classes, by determining the amount of surplus labour and surplus product
that the working class must produce at the benefit of the ruling class, but cannot solve the
internal relations within each class.
Within the capitalist class, the problem is that the same mechanism that forces capital
to expand and that pushes each capitalist to increase his own capital is also an obstacle to the
overall expansion of capital and to the general interests of the capitalist class.
Après moi le déluge! is the watchword of every capitalist and of every capitalist nation. Hence Capital
is reckless of the health or length of life of the labourer, unless under compulsion from society. To the
outcry as to the physical and mental degradation, the premature death, the torture of over-work, it
answers: Ought these to trouble us since they increase our profits? But looking at things as a whole, all
this does not, indeed, depend on the good or ill will of the individual capitalist. Free competition brings
out the inherent laws of capitalist production, in the shape of external coercive laws having power over
every individual capitalist. (Marx 1867, ch. 10)
Competition forces individual capitalists to extract as much labour as possible from the
labour power of workers. It is not a question of ‘good or ill will’, but the necessary condition
for minimising costs and remaining in business. This is the ‘essential locomotive force of the
bourgeois economy’ as Marx calls it in the Grundrisse. But, in doing so, competition also
tends to deteriorate labour power, to the point of becoming an obstacle to capital
accumulation.
This perverse effect of competition expresses the contradiction of the inner nature of
capital, which here presents itself as a contradiction within the capitalist class that personifies
it. Like an engine that goes too fast tends to finish its fuel, capitalists’ competition tends to
‘over-exploit’ labour power and deteriorate its ability to reproduce itself.
The contradictory nature of capital does not manifest itself only in the way capital
treats living labour, but also in the way it treats constant capital, dead labour. As Marx shows
in the third volume of Capital, competition between capitalists tends to increase constant
capital, both in absolute terms and in relation to variable capital. The valorisation of constant
capital by living labour tends thus to become harder and harder. This is perhaps the most
debated consequence of competition. According to Marx, in the same way as competition
stimulates growth and capital expansion, it also creates a tendency to stagnation and crisis.
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The tendencies caused by competition
The struggle between individual capitals gives rise to a number of tendencies in capitalism.
As Marx explains:
The development of capitalist production makes it constantly necessary to keep increasing the amount
of the capital laid out in a given industrial undertaking, and competition makes the immanent laws of
capitalist production to be felt by each individual capitalist, as external coercive laws. It compels him
to keep constantly extending his capital, in order to preserve it, but extend it he cannot, except by
means of progressive accumulation. (Marx 1867, ch. 24)
In the attempt to increase his own profit, each single capitalist is pushed to innovate, to
introduce more advanced technologies and to exploit better increasing returns to scale. Risk
attitude, predictive ability and other subjective considerations are decisive factors influencing
the strategies of individual capitalists. But the imperative is the same for all of them:
‘Accumulate, accumulate! That is Moses and the prophets!’ (Marx 1867, ch. 24). And, above
all, once a capitalist introduces an innovation, there is no real choice for competitors: either
they follow, or they go out of the market. In this process, innovating firms make higher
profits, accumulate faster and increase their market shares at the expense of small capitals,
incapable of taking the pace of competition. Capital tends thus to concentrate not so much as
a result of subjective choices by capitalists, but as a consequence of the coercive law of
competition, which imposes each individual capital to grow, in order not to die.
Such a process of concentration of capital is further reinforced by the tendency to
mergers and take-overs that proceeds with capitalist accumulation. In analysing this process,
Marx (1867, ch. 25) points out the active role played by the credit system and the acceleration
prompted by crisis. The effect of these processes is that fewer and fewer capitalists control
more and more capital. The competitive process is thus characterised by a tendency toward
capital concentration, market power and monopoly.4
Of course, competition is not the only driving force towards monopoly. Association
among capitalists might in fact produce the same effect. In this respect, Marx and Engels
insist upon the dialectical relation between competition and association. They argue that, both
in the capital/labour relation and in the relations between capitals, capitalists tend to associate
among themselves in order to defend their class and private interests against the contradictory
effects of competition.
Market power and monopoly, however, might be rational solution only for individual
capitalists, not for capitalism as a whole. Although individual capitalists might see their
innovating decision, cartels and mergers rewarded by higher profits, the rise in the organic
composition of capital that accompanies these processes reduces the average rate of profit
prevailing in the economy. The same profit motive behind the success of innovating firms
becomes thus the cause of systemic crisis. Individual rationality and systemic irrationality are
two aspects of the same process.
Association against competition
Against ‘the sharpest weapon of the bourgeoisie’, Marx and Engels’ (1848) reply is political:
‘Working men of all countries unite!’ are the last words of the Communist manifesto.
4
Concentration and centralisation also reinforce the reproduction of the reserve army by creating the conditions
for economising and rationalising labour.
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‘Association’ is in many respects the opposite of competition. Different from competition,
however, this mechanism is not a direct consequence of the economic structure of capitalism,
and its concrete working depends on class consciousness and political action.
More importantly, its existence is itself conditioned by the asymmetric power
relationship between classes. It is not historically accidental that associations emerged quite
spontaneously (and legally) among capitalists, whilst they encountered many obstacles
among workers and had to remain secret for quite some time. In fact, the right to associate is
itself a political victory of the workers’ movement, a result of class struggle – a result,
however, that is not at all once for all, but that can be put into question by employers at any
time, if power relations between classes allow them to do it.
In the analysis of the essential mechanisms of capitalism, the difference with
competition is that association is not a direct consequence of the functioning of the capitalist
mode of production. It can be a response to competition. But this surely does not come
automatically. This is why Marx and Engels discuss the mechanism of association mainly in
their studies of concrete social formations and in their political works, where association
takes the feature of a conscious subjective response to the objective coercive law of
competition. Such a mechanism, when and where it is effectively at work, interacts with
competition and contributes to govern concrete processes and phenomena.
Notice also that, in the concrete working of capitalism, in some cases association has
stabilising effects. As David Harvey (2010) points out, in their attempt to protect themselves
from the coercive law of competition, workers sometimes manage to impose regulations on
the way, the forms and the pace of extraction of labour from their labour power. By
defending their class interests, they help thus solving the contradiction arising from the
competitive tendency to over-exploit their labour power.
In the analysis of the capitalist mode of production in its pure form, however,
competition alone is an essential mechanism, a necessary device regulating the reproduction
of class relations. Its essential role stems directly from private property and the market, two
conditions without which no capitalist system might exist. Association, by contrast, stems
from a conscious action that might or might not occur in the concrete working of capitalism.
2. COMPETITION AND POWER IN MAINSTREAM ECONOMICS
If classical economists evaded a discussion of competition by assuming private property,
without explaining it, neoclassical economists assume that competition is the natural form of
market relations, but do not examine where the latter come from. The most explicit author in
this sense is probably Oliver Williamson. In his market/hierarchies framework, which earned
him the Nobel prize in 2009, he assumes that ‘in the beginning there were markets’
(Williamson 1975, p. 20). Not of course real markets, but neoclassical markets, with
atomistic agents and perfect competition. Starting from such an abstract Walrasian world, he
then explains the firm, the state and all forms of hierarchies as solutions to market failures.
Non-market institutions and non-competitive behaviour are thus the phenomena to explain.
Market relations and competition, on the contrary, are explanatory factors and, as such,
deserve no explanation.
This is a curious position for an author whose scientific project is to explain ‘the
institutions of capitalism’ (the title of one of his most influential books). By assuming the
market, indeed, Williamson precludes himself the possibility to explain it. At best he can
explain the other institutions of capitalism, but not this one, which is at the core of the
capitalist mode of production.
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Moreover, as an abstract assumption, rather than a historical category, the market is
emptied of all its institutional features and becomes an ideal mode of interaction, a natural
entity, without history. Against this method, William Dugger observes:
The neoclassical market is an act of God, not an act of man. It is natural rather than artificial. ( . . . )
The natural market is beyond the will of humans. It is a product of nature existing outside of history. ( .
. . ) But the spontaneous market, the natural market, is an assumption. It is not a unit of enquiry,
something to be investigated. Instead it is something to be assumed, taken for granted ( . . . ) the market
is taken as the only real circulation process and the market is simply assumed to exist. It is viewed as a
self-generated phenomenon, a product of immaculate conception and virgin birth. (Dugger 1992, p. 89)
Within modern neoclassical economics, the same quasi-religious conception is developed by
authors belonging to different economic schools and political convictions, sometimes
presented as heterodox or even radical, but sharing the same method, exemplified so
explicitly by Williamson. These schools include the contractual approach (Alchian and
Demsetz 1972, Jensen and Meckling 1976, Cheung 1983, 1987, 1992), the transaction cost
economics (Coase 1937, Williamson 1975, 1985, 1995, Simon 1951, 1991), the property
right school (Grossman and Hart 1986, Hart 1987, Hart and Moore 1988, 1990, Moore 1992),
and those parts of radical political economics (Bowles and Gintis 1988, 1990, 1993, 1994,
Putterman 1993, 1995, Screpanti 2001) that accept methodological individualism even if only
as a theoretical challenge.5
If I assemble theories that are often considered as competing with one another, it is
because their individualist methodology presupposes the same economic ontology, according
to which society is nothing more than a set of isolated individuals, which are assumed to be
independent of one another and of the system of which they are part. Even when these
theories focus on the capitalist-worker relationship, these two figures are not bona fide social
entities. They are simply individuals. Therefore, their asymmetry is not sought in the capitallabour relation (of which they are expression), but is explained as consequence of their innate
individual qualities.
Perfect competition, Pareto efficiency and power
The methodological choice to start with isolated individuals and perfect competition contains,
right from the outset, a magnification of the market. Capitalist institutions exist only to the
extent that they are more efficient than the market, under certain conditions.
According to this conception, if real capitalism is not like Walras’ fiction, but is a
system where different institutions coexist, it is because, in real markets, competition alone is
not sufficient to guarantee Pareto efficiency. In order to explain the firm, the state and the
other institutions of capitalism, it is thus necessary to exit from the Walrasian context of
perfect information, logical time, absence of radical uncertainty, etcetera – a context in which
perfect competition is Pareto efficient – and assume a problematic theoretical context, in
which markets are imperfect or incomplete. That is why all these approaches invoke
asymmetric information, uncertainty, bounded rationality and any sort of transaction cost. In
a way or another, if non-market institutions exist in reality, for these authors, it must be
because the market is inefficient in their model. Eliminate these sources of market failures
and capitalism can work without firms, states and the rest. Needless to say it, the possibility
5
In ***, I argue that new institutional economics fails both its attempts (1) to characterise theoretically the
capitalist firm and (2) to analyse the power relations of capitalism. In ***, we focus the critique on
Williamson’s transaction costs economics.
10
that capitalism might not be efficient, or that perhaps it is not the best of all possible worlds,
is not even contemplated.
The same method is used to explain power. Within Walrasian competition, there is no
room for power relations, since everybody can leave his relation with his counterpart at zero
cost and easily find another counterpart. In the words of two leading exponents of radical
political economics:
The absence of power in the Walrasian model is based on the presumption that supply equals demand
in competitive equilibrium for, when markets clear, each agent’s transaction is equivalent to his or her
next best alternative. (Bowles and Gintis 1994, p. 301).
According to the authors, the relative strength of two individuals who interact in the
market depends on the difference between their current relation and their next best
alternative. If a capitalist pays a wage that is higher than the perfectly competitive one, then
he holds the worker in check, and has power over him.6 But soon they notice: in the reign of
Walrasian competition, this cannot occur. Therefore, they conclude, power and perfect
competition are incompatible: where there is one, there is not the other.
The separate reigns of freedom and coercion
Perfect competition presupposes full rationality, perfect information, and absence of radical
uncertainty and historical time. Therefore, according to this conception, power relations can
exist only in empirical contexts characterised by these sorts of imperfections. At an
ontological level, reality is so divided into two distinct closed systems: a system without any
imperfection, in which interpersonal relations are governed by perfect competition; and
another with imperfections, in which interpersonal relations involve power.
This distinction might appear purely theoretical. However, it is only when such a
distinction exists in reality that it is meaningful to develop different and incompatible theories
based on perfect and imperfect theoretical contexts: only in this case, can the two group of
theories be simultaneously valid, each one in its subset of reality. If, on the contrary, the
perfect theoretical context is a pure fiction, with no empirical counterpart, then the whole set
of theories built in it should be considered irrelevant in realist terms.
Although this ontology remains mostly implicit in the discourse of mainstream
economists, it is however the sole justification of the neoclassical methodology, which
explains economic reality by two (incompatible but complementary) sets of models: a model
of Walrasian competition, explaining the relations within the perfect world, and a set of
models of economic power, explaining interpersonal relations within those parts of the
system characterised by imperfections (it goes without saying that the former defines the
body of economic theory, whereas the latter serves uniquely to explain what the former
cannot).
The extent of non-market institutions and power relations in capitalism becomes thus
a merely empirical question, depending on the spread of imperfections in the real world. At
one extreme, we find authors such as Alchian and Demsetz who believe that the Walrasian
context is the rule not only in the market, but also within the firm. In their view, perfect
6
The authors distinguish between ‘perfect competition’ and ‘perfect Walrasian competition’: the former does
not imply market clearing, the latter does (and coincides with what in the literature is generally called ‘perfect
competition’). Ultimately, this is why they can claim that power relations exist even in the reign of perfect
competition (with non-clearing markets).
11
competition is always at work, even outside proper markets, since the market is not a specific
institutional arrangement, but a universal mode of coordination. The firm is itself a form of
the market – one in which price is not continually re-bargained, though the outcome is as if it
were. Within this conception, if there is no room for power in perfect competition, there is no
room for power in the firm either. They write as follows:
It is common to see the firm characterized by the power to settle issues by fiat, by authority, or by
disciplinary action superior to that available in the conventional market. This is delusion. … [The
employer] can fire or sue, just as I can fire my grocer by stopping purchases from him or sue him for
delivering faulty products. (Alchian and Demsetz 1972, p. 777)
At the other extreme, authors of radical inspiration see imperfections as endemic and
maintain that power relations are ubiquitous in the real world. For instance, Screpanti (2001,
p. 145), after defining a complex context characterised by bounded rationality, imperfect
information, uncertainty and various externalities, affirms: ‘Perfect and atomistic competition
cannot exist in this world, even as a limit case – I mean the neoclassical competition that
eliminates all inefficiencies and power hubris’. But these apparently opposite positions share
the same conception, according to which the pervasiveness of power relations in reality
depends on the empirical diffusion of market imperfections.
Competition and power as universal categories
In this (implicit) ontology, according to which power relations are caused by ‘imperfections’,
competition and power are conceived of as abstract coordination mechanisms, whose
existence and modes of functioning have nothing to do with the specific features of
capitalism. Imperfect information, uncertainty, historical time, bounded rationality and the
like, in fact, are not specific to capitalism; they are features of all human relations in any
historical context. Therefore, if we follow this logic, we must conclude that power relations
should be the same in all kinds of society.
Historically, however, market interaction and economic competition are not at all
everlasting forms of social coordination. Markets have not always existed and economic
competition has become the main form of social coordination only in relatively recent times.
The paradox is then the following: on the one hand, mainstream economics recognises that
power relations have existed even before the historical development of market relations and
economic competition (since they are a consequence of universal qualities such as bounded
rationality, uncertainty and imperfect information); but, on the other hand, it conceives of
them as a violation of Walrasian competition in a market system.
In sum, according to this approach, power relations have always existed, but have
become visible only with the historical development of capitalism and the consequent
possibility of conceiving of a model of complete markets and perfect competition. In this
sense, our theoreticians of power must consider themselves to be very lucky to live in the sole
epoch in which everlasting power relations have finally become visible. Although their ahistorical ontology does not allow them to see it, however, if pre-capitalist systems, with less
developed or completely absent market relations, had not been regulated by perfect
competition, it cannot be because of market imperfections, but because of lack of market
relations.
12
The imperfect world and the nature of the firm
Let us now consider the relation between the perfect and the imperfect worlds in more details.
In a perfectly competitive context, there is no room for power relations: the internal structure
of the firm is irrelevant and competition clears all markets, therefore nobody can have power
over anybody else. As Paul Samuelson (1957, p. 894) puts it, ‘in a perfectly competitive
model, it really doesn’t matter who hires whom; so let labor hire capital’. Out of such a
perfect world, by contrast, intra-firm relations have an impact on the firm’s performance and
markets do not necessarily clear. In these circumstances, it does matter who hires whom.
According to Hart and Moore (1990), the solution of this problem depends on who,
the worker or the capitalist, is more indispensable to the existing assets, according to the
features of the (imperfect) theoretical context.7 More precisely, they classify contractual
rights in two categories: specific and residual rights. The former are the rights explicitly
specified in the contract; the latter are the rights to use assets according to one’s wishes in all
cases not mentioned in the contract. Residual rights are conferred by ownership. The owner
of an asset can decide how it should be used and by whom (of course, within the constraints
imposed by law and specific contracts). In particular, he is entitled to prevent the other party
from using his assets in case of disputes.
This solves, at least formally, Samuelson’s and Alchian and Demsetz’s paradoxes,
based on the assumption that the world is of a Walrasian kind and that the work relation is not
qualitatively different from any other market relation. If the boss hires the worker and not
vice versa, it is because, out of the Walrasian context, this is more efficient. As Moore says:
when a customer ‘fires’ Alchian and Demsetz’s grocer, the grocer (being a separate contractor) gets to
keep the store; whereas if the grocer were an employee of the customer, the customer (the boss) could
deny the grocer (the worker) access to the store, and could hire another grocer on the spot labour
market. (Moore 1992, p. 497)
In a world without imperfections, Samuelson is free to assume who hires whom and Alchian
and Demsetz can assume that the competitive mechanisms is always at work. But Hart and
Moore do not want to assume, but to explain, why one hires the other. The problem is that in
their explanation they do not find anything better than to assume an imperfect world in which
it is efficient to do so.
The terms of the debate
This implicit ontology, according to which economic reality is split into two empirical
domains – one with power, the other without it – explains why theoretical investigation of
power relations starts from the firm, a domain in which hierarchy and authority are so evident
as to be considered the phenomena to explain (in 1991, Ronald Coase has been rewarded by
the Nobel prize for having defined such a problem in his 1937 paper).
In a first stage of the debate, the fact that, for some reasons, market relations have
been depicted as power-free has led to analyse economic power (within the firm) as an
exception to the general model of perfectly competitive markets. This has led to the question
of ‘the boundaries of the firm’ – as if the firm, with its authority relations, were in fact
antagonistic to the market, with its competitive and power-free relations. In this way, the
7
The authors also define formally ‘idiosyncrasy’ and ‘essentiality’ of an asset to an agent, ‘dispensability’ of an
agent, ‘complementarity’ and ‘independence’ of assets.
13
obvious fact that the firm and the market are both essential institutions in capitalism is lost.
The successive step in the debate, consisting in questioning the assumption that power
is effectively confined within the firm, has finally led to redefine the problem more
accurately. The theoretical question has then become: where are the boundaries of economic
power? With this narrow definition of the problem, the answer is clear-cut, although different
for each of these neoclassical schools: the whole set of economic relations is divided in two
sub-sets – one regulated by Walrasian competition, the other regulated by power relations –
and the difference between all these theories is about the dimensions of these subset.
If we represent power and competition on a segment expressing economic relations –
with the convention that to the left of the borderline, interpersonal relations are regulated by
Walrasian competition, and to the right by economic power – the real controversy within
neoclassical economics concerns the exact position of the borderline. If we let the borderline
move from left to right, the sphere of existence of power relations is progressively
compressed. As limit cases, if the borderline is at the left boundary of economic relations, we
have a conception according to which power relations embrace the whole economy. If it is at
the right boundary, we have a conception of the economy as regulated by pure competition,
whose formal representation is provided by the general equilibrium model.
Figure 1.
The boundaries of competition and power
Borderline
Perfect Walrasian competition
E C O N O M I C
Power relations
R E L A T I O N S
In this representational scheme, the approach of Alchian and Demsetz is the most radical one
on the right hand side. They see perfect competition everywhere, even when this mode of
interaction is actually suppressed by other economic mechanisms. For this reason they deny
the existence of any power relation in the economy and compress the sphere of existence of
power into the nil set. Their underlying theoretical context, however, is ambiguous. On the
one hand, in order to explain the firm, Alchian and Demsetz explicitly introduce imperfect
information; yet, on the other hand, they implicitly assume a perfect theoretical context when
they claim that the employer has no real power over his workers. Faced with this
contradiction, the authors remain caught in the middle.
Alchian’s pupil, Stephen Cheung, however, takes a well defined route and, in order to
coherently defend the thesis that there is no power in capitalism, does not hesitate to go back
again to the Walrasian context – a context in which power relations disappear, but the firm
disappears as well. In his view, what we generally call a ‘firm’ is, in fact, a complex nexus of
market contracts. The firm is itself a sort of market and is thus theoretically indistinguishable
from it. Nobody is clearer than the author himself:
14
It is often the case that the entrepreneur who holds employment contracts (and it is not clear whether it
is the entrepreneur who employs the worker or the worker who employs the entrepreneur) may contract
with other firms; a contractor may sub-contract; a sub-contractor may sub-sub-contract further; and a
worker may contract with a number of “employers” or “firms”. ... With this approach the size of the
firm becomes indeterminate and unimportant. (Cheung 1987, p. 57)
The truth is that according to one’s view a firm may be as small as a contractual relationship between
two input owners or, if the chain of contracts is allowed to spread, as big as the whole economy.
(Cheung 1983, p. 17)
If we cannot in any meaningful economic sense identify “firms”, as separate entities, we do not know
what a firm is when we see one in the real world. (Cheung 1992, p. 56)
Cheung’s contribution is peculiar: he assumes that markets are universal and everlasting and,
on this basis, carries Alchian and Demsetz’s approach to its logical conclusion. Faced with
the inevitable conflict between his theory and reality, he rejects, on theoretical grounds, the
existence of the reality he wished to explain: in his theory of the firm, firms do not exist! But
at least power does not exist either.8
New institutional economists, such as Williamson, Grossman, Hart and Moore, in
open contrast with this position, recognise that power relations do in fact exist. They
explicitly define imperfect theoretical contexts in order to explain the firm and identify power
relations with intra-firm relations. For this reason, they restrict the analysis of power relations
to the particular forms that these relations acquire within the firm, namely authority and
hierarchy. At the same time, however, they concede that outside the firm, in the market, there
is no room for power. Like Alchian, Demsetz and Cheung, they thus assume that the
boundaries of power coincide with those of the firm. Unlike them, however, Williamson,
Grossman, Hart and Moore do not see the firm as a form of (perfectly competitive) market,
but rather as an alternative (and, under certain conditions, more efficient) allocative
mechanism.
Bowles and Gintis make a further step on the left and show that power relations exist
even beyond the boundaries of the firm, to the extent that markets are imperfect. It is not
clear whether Bowles and Gintis push the borderline between power and perfect Walrasian
competition to the far left boundary of economic relations. The authors explicitly contend that
power relations are ubiquitous in real capitalist economies. This might suggest that there is no
room for power-free relations in their conception. But this is only because they see
imperfections as pervasive in the real world. Just as for their less radical colleagues, then, the
sphere of existence of power relations coincides with the diffusion of imperfections in the
theoretical context. Therefore, if, in a particular market, it happens that demand equals
supply, then their theory implies that, within such a subset of the economic realm,
interpersonal relations are power-free.9 Bowles and Gintis’ theory, therefore, does not at all
challenge the neoliberal conception of power relations. Their radicalism consists simply in
moving the borderline a bit more to the left. But, at the same time, it is entirely internal to the
logic of mainstream economics, a logic according to which competition is natural and its
failure is the cause of power relations.
8
Gary Becker’s comment to Cheung (1992) is sharp: ‘We generally know a firm when we see one’ (Becker
1992, p. 68).
9
Elsewhere I have developed an alternative conception of power relations within a Marxian perspective and I
have argued that capitalism is a system of power (***). However, I would not locate my position on the far left
boundary of economic relations, since, as I will try to clarify, I find this antagonism between power and
Walrasian competition untenable.
15
Figure 2.
The terms of the debate
Bowles-Gintis
Williamson
Grossman-Hart-Moore
E C O N O M I C
Alchian-Demsetz
Cheung
R E L A T I O N S
The reversed world of perfect competition
To better grasp the nature of power relations within the neoclassical conception, compare a
typical Walrasian model, where there is no room for power, and a Bowles-Gintis’ one, in
which imperfections of some sort prevents some markets from clearing and give rise to power
relations. Suppose, for instance, that the labour market does not clear.
In Walras’ model, workers get their perfectly competitive wage, wpc, in exchange of a
normal working day at a normal level of effort. In Bowles and Gintis’ one, by contrast,
asymmetric information prevents the capitalist from knowing precisely the level of effort
provided by the worker, which allows the latter to ‘cheat’. In these circumstances, Bowles
and Gintis suggest that if the capitalist pays a higher wage, say wbg (wbg > wpc), the worker
will be induced to increase his effort, so not to lose such a privilege. Power is thus a sort of
commodity: the capitalist buys it in the market, pays a price for it, and then uses it, in this
case to increase the effort of the worker. This solution is efficient as long as the increase in
productivity overbalances the differential wage (the difference between wbg and wpc). But the
real point, according to the authors, is that this solution implies that, in equilibrium, the
capitalist has power over the worker.
In this way, thanks to their sophisticated model and the rigour of mathematics, Bowles
and Gintis apparently substantiate one of the central tenets of Marxism: the power content of
the capitalist/worker relationship. Such a result, however, is obtained at a dear price that
probably Marx would not be willing to pay.
In their argument, the power relation of the individual capitalist over his individual
worker is not a consequence of the strength of the capitalist class, as Marx believed, but of its
weakness: compared with the Walrasian model, their model presupposes an information
structure in which capitalists, not workers, are worse off. Yet, at an interpersonal level, power
appears in the hands of the capitalists. If we read Bowles and Gintis’ exercise in terms of
class relations, the information asymmetry they introduce strengthens the position of the
working class. In their model, however, classes do not exist and it is the individual capitalist
that has power over the individual worker.
Their exercise is thus quite original: they assume more favourable conditions for the
worker, so to make it convenient for the capitalist to buy some power in exchange of a higher
wage. To say it jokingly, in Bowles and Gintis’ conception, power is like medicines: you
16
must buy them when you have fever, but in general it is better to have neither medicines nor
fever, than to have both of them.
Marx repeatedly said that in the reign of competition things appear upside down: this
is because in a reified world we see the appearance, not the essence. Bowles and Gintis tell a
story in which their capitalist is worse off than the Walrasian one. Yet, they conclude that he
has power, whereas the latter has not. The reason is that in their conception there is no
distinction between essence and appearance, and reality is assumed to coincide with the
appearance of interpersonal relations between isolated individuals.
Marx insisted that, in capitalism, individual freedom and social coercion are two sides
of the same coin, representing the visible appearance and the hidden essence of such a mode
of production. In an often quoted passage, he affirms that ‘all science would be superfluous if
the outward appearance and the essence of things directly coincided’ (Marx 1894, ch. 48).
Marx’s scientific goal is thus to reconcile appearances and essence, by moving dialectically
from one to the other, and to explain how they are compatible notwithstanding they seem
contradictory. The scientific project of Bowles and Gintis is instead an attempt to explain the
appearance, by sticking at the domain of appearances. And as things appear reversed when
one remains in the reified world of competition, they find nothing better than to reverse
(implicitly) the essence, by putting power in the hands of the (class of) workers, in order to
make it appear in the hands of the (individual) capitalist.
Reversed economic history
In their attempt to explain the institutions of capitalism within the reversed appearances of
competition, mainstream economists are forced to reverse economic history as well.
Williamson is again the most explicit in this operation. Soon after having developed his
comparative statics framework for the analysis of markets and hierarchies, he engages in the
historical debate on the origins of hierarchy within capitalist institutions. His arguments
address the historical works of David Landes and Sidney Pollard, who stress the need for
hierarchical management and control in the light of technological developments and the
factory system, and criticises the theory of the radical political economist Stephen Marglin.
Williamson’s historical analysis, however, is bizarre: the statement that capitalist
institutions originated without coercion is not documented historically, but argued
deductively. He does not investigate what has effectively taken place, but analyses the
conditions that make an institution efficient and from this deduces its historical emergence:
Suppose that adaptations to changing market circumstances are needed in order to utilize resources
efficiently. While a full group discussion could be held to determine what adaptation is to be made, this
is time consuming and may yield little gain. ... Authoritative assignment of decision-making
responsibility to the occupant of the center is again indicated. (Williamson 1975, p. 47, italics added)
The internal division of labour of a hierarchical structure is itself explained, deductively, by
assuming particular starting conditions, such as ‘unequally distributed administrative talent’,
‘oratorical gifts’, ‘information processing’, and ‘decision making skills’ (Williamson 1975,
pp. 47-52). His argument makes use of the heterogeneity of individual natural endowments,
but such heterogeneity is not investigated, it is taken for granted.
The assumption of a never-existed system and the story of never-happened processes,
however, make the understanding of real economic dynamics problematic. Even though in
non-capitalist societies markets did not exist or, at best, played a subordinate role,
Williamson assumes that ‘in the beginning there were markets’! Instead of trying to provide a
17
theory that explains reality, he defines reality in accordance with his theory. With respect to
economic historians, he goes the other way round: he does not start from the past in order to
explain the present; rather, he starts from the present and assumes that the past was such that
the present is economically superior to it. Economic historians, in their attempt to explain the
course of history, provide a picture of the present made up of contradictions, conflicts,
convergences and divergences. Williamson and, more generally, new institutional economists
assume instead that the present is a coherent expression of economic efficiency and invent a
story of Pareto improvements whose logical end is precisely the existing reality. If David
Hume urged that it is not scientifically correct to deduce what ought to be from what is, here
we have what is being deduced from what ought to be, which is no less methodologically
unsound. Rather than trying to explain economic history in its logical and chronological
development, Williamson invents a fairytale whose happy ending is the present. The result is
not the history of capitalism, but a story that simply fits the theory.
Against this method, more than a century and half ago Marx wrote:
Do not let us go back to a fictitious primordial condition as the political economist does, when he tries
to explain. Such a primordial condition explains nothing. He merely pushes the question away into a
grey nebulous distance. He assumes in the form of fact, of an event, what he is supposed to deduce …
Theology in the same way explains the origin of evil by the fall of man: that is, it assumes as a fact, in
historical form, what has to be explained. (Marx 1844)
By assuming a primordial ideal system that has never existed, Williamson prevents himself
from understanding the real, actual system. If we want to understand reality, our hypotheses
must be founded in reality. If, on the contrary, we start our explanation by assuming an
imaginary system, we cannot but end up with the theoretical understanding of an imaginary
world. The result is a theory about a system which is purely ideal and that has no relation
with reality (apart from the fact that it is, in fact, the product of the consciousness of persons
living in the capitalist reality). Markets and competition are so transformed into universal and
everlasting categories, existing out of history and before society. The specific modes of
capitalistic interaction become the product of ‘human nature’ and, more generally, the history
of human society becomes a history of capitalism, not the history that leads to capitalism
(and, perhaps, to its overcoming).
Without quoting him, Williamson ends up with the same conception of Proudhon,
who pretended to prove the eternity of competition as a product of human nature. Against this
conception, Marx observed: ‘M. Proudhon does not know that all history is nothing but a
continuous transformation of human nature’. Instead of attempting to understand actual
‘human nature’ and society as a result of the evolution of preceding societies, Williamson,
Proudhon and their old and new vulgar colleagues go the other way round, understanding the
past as if it had worked according to the same principles as the present.
3. CONCLUSIONS
Mainstream economics, based on methodological individualism, defines competition as a
state of affairs in which equilibrium is characterised by many agents of small dimensions.
This conception, however, confuses the mechanisms that govern empirical phenomena with
the phenomena themselves. In my interpretation of Marx, by contrast, competition is a causal
mechanism. As such, its working is not directly detectable empirically but can only be
grasped by analysing the tendencies it produces and their interaction with tendencies
18
produced by other mechanisms.
Competition is not a specific mechanism of capitalism, but exists in other modes of
production as well. As Engels suggests, it exists in all economic system in which private
property and the market exist. In capitalism, however, it assumes a special role, since private
property and the market impose their logic on the overall production process. Competition
becomes thus the general mechanism regulating this mode of production.
According to Marx and Engels, the historical development of competition is nothing
else but the process through which capital accumulation becomes an independent force,
detached from the needs and preferences of individuals and society. In this process, capital
accumulation becomes a goal in itself, whose paladin is indeed competition. Nobody is
obliged to produce a particular commodity with a particular technique. But if one does not
produce the most profitable commodities, with the cost-minimising technique, competition
tends to put him out of the market. This is not to say that, in capitalism, individuals and
society cannot pursue their own autonomous objectives. Yet, they must mediate them with
the logic of competition and capital accumulation – a logic based on profit seeking and
capital valorisation, with no regard for social purposes and individual preferences.
In these processes, competition acts as an external coercive law, which imposes its
logic over individual free will and defines the margins of subjective choices. Individual
freedom and social coercion are thus perfectly compatible in capitalism: they express the way
competition regulates human relations at an interpersonal and a social level.
Against this conception of competition as a contradictory force of capitalist
development, neoclassical economists take competition as benchmark of social rationality.
Without even trying to explain its causes, they define it as an everlasting principle to which
all economic relations should conform. The scientific question is so transformed from a
positive to a normative one: the problem is not to understand how competition works, but to
demonstrate that it works well. By contrasting competition with monopoly and power,
neoclassical economics tries to show that the problems of capitalism – its failures to reach
Pareto efficiency – are not at all caused by competition, but by the lack of it.
In this conception, competition and the market are abstract initial categories and
economic evolution becomes an exercise in comparative statics. Power relations lose their
social content and appear as purely interpersonal relations. Competition is emptied of its
coercive contents and presented as an expression of individual free-will.
In this process of idealisation and sacralisation of competition, mainstream
economists do nothing more than rationalise the commonplaces of bourgeois culture and
attempt to substantiate them scientifically. Methodological individualism, subjectivism and
‘as if economic history’ are the ingredients of this scientific programme. Vulgar economics is
the result.
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