Neoclassical economics as the foundation of neoliberal governmentality

In their book Economics: Marxian versus Neoclassical (1987), Richard Wolff and Stephen Resnick explain that the criticism of neoclassical economics cannot be a narrow-scope and finalized critique. According to them, neoclassical economics is not simply an economic doctrine about how the capitalist economy works. It is connected to a general power scheme that shapes the market mechanisms, norms, and rationality in the economic realm as well as culture, habits, and patterns of behavior in the non-economic domains. Resnick and Wolff call for a new critique of neoclassical economics in the neoliberal era because, in Foucauldian terms, they consider neoclassical economics as ‘knowledge-power’ that programs the state, society, and the conducts of the individual through security management technologies. In this respect, it is necessary to open up another way of criticism beyond the traditional disapproval of neoclassical economics based on the critique of its scientific assumptions and method, which tries to elicit that neoclassical economics does not explain reality. Considering that the neoclassical theory, which presumably does not explain reality, has the greatest potential to produce truths to govern and construct reality, a new critique becomes necessary. This critique should first identify the links between neoclassical economics and neoliberal governmentality. As such, a new line of criticism is required for the understanding of the dynamism of symbolic tools, political reason, and self- and social technologies of neoclassical economics that disseminate neoliberal norms and rationality starting from economics education. When the problem is described so, Foucault was the first to approach neoclassical economics from this line of criticism.

The term neoclassical was coined by Thorstein B. Veblen in his 1900 article “The Preconceptions of Economic Science” (Veblen, 1900). Veblen (1898, 1909) argues that neoclassical economics with its reductionist, teleological, non-evolutionary, static, and taxonomic theoretical structure was simply the continuation of classical political economy. Thus, he calls it with the term ‘neo-classical’, which delineates little and simple modification of classical political economy. What is more, Veblen argues that neoclassical economics relies on the same logic of liberalism, which tries to advance capitalist property relations by promoting the ‘absentee ownership’ detrimental to the industrial system and material production process which secures the welfare of the society at large. Thus, for Veblen, both classical political economy and neoclassical economics are a kind of‘sabotage’ (Veblen, 1994) of the industrial system and welfare of the society. Although aiming in a similar direction by calling them ‘knowledge-power’, Foucault would not agree in total with Veblen because Foucault recognizes essential differences between the two schools. Foucault discusses these differences in terms of liberal governmentality, not economic theorizing and its ideological biases. However, as already noted, Foucault did not examine and analyze the early neoclassical economics as part of the history of liberal governmentality to the full. “So I will skip two centuries,” he writes, “because obviously 1 do not claim to be able to undertake the overall, general, and continuous history of liberalism from the eighteenth to the twentieth century” (Foucault, 2008: 78). He is mainly concerned with the essentials of the path-breaking shift from classical liberalism of the 18th century to 20th-century neoliberalism. Be that as it may, Foucault’s rapid move into the 20th century is a very quick shift that leads to a huge lacuna in his ‘history of governmentality’ between classical liberal and neoliberal governmentality.

Nevertheless, Foucault is certainly aware that the late 19th century should be distinguished from its early years in terms of the concrete political and economic developments. As the late 19th century witnessed the constitution of welfare capitalism under the increasing fiscal, political, and juridical control of the state, which was all the more fortified during the world wars in the 20th century, the power of laissez-faire economics lost its scientific reliability and credence among the public, thereby falling from the grace as an instrument for governmental apparatus and rationality. In effect, the rise of neoclassical economics was a response to the then decaying position of economics. Its critique of classical political economy also aimed to restore the power of economics as expert knowledge against the growing impact of political reason shaped by institutionalist, ethical, and legal views. Against the backdrop of increasing juridification of liberalism, the rise in bureaucratic power and state interventions, neoclassical economics changed the discipline towards highly deductive theorizing through mathematical devices in order to renew the liberal art of governing. Despite its mathematical content and facet stripped of political and social aspects of economic life, early neoclassical economics took its bearing from the search for establishing new liberal governmentality. That is, neoclassical economics started developing a new political reason by slightly mentioning politics and its long-established structural elements and ontological foundations. Towards that aim, it sought to remove the elements in economic theorizing that moved economics away from becoming governmental expert knowledge. As the economics cut off its relationship with the neighboring social science disciplines which once formed the indispensable part of economic thinking, neoclassical economics and rationality developed a new approach to them by either declaring them as representing the non-rational aspect of the social system or inventing new problematizations like the ‘Adam Smith problem’, which aimed to discard social ethics of sympathy from the liberal art of government (Giirkan, 2016: 135).

Foucault is also well aware of the aforementioned developments that changed the epistemic conditions of the production of knowledge and how they had a bearing on the reshaping of the structure of knowledge. Foucault recognizes that there are differences between the early and late 19th century in terms of the knowledge structure of human sciences. Psychology increased its epistemic power over the social sciences in the wake of Freud s analysis of the unconscious in the last quarter of the century (Foucault, 2011: 27). As a result, psychology' became the epistemic mainstay of economics with the marginalist revolution. It should be recalled that Alfred Marshall (1962) at this time regarded biology' as having the potential to form a new knowledge system for economics, which was the case for Veblen (1898), who called for a Darwinian evolutionary turn in economics. Like Veblen, Marshall seems to be hesitant about acknowledging the supremacy of psychology over biology when he identifies “economic biology” as “[t]he Mecca of the economist” (Marshall, 1962: xii) to develop a dynamic approach to economics, which refers to the evolutionary thinking in economic theorizing. At the back of the changing structure of the human sciences under the auspices of biology and psychology', Foucault is also conscious of the fact that neoclassical economics made modifications in classical governmental reason in The Birth of Biopolitics as well as its epistemic structure in The Order of Things and then The Archeology of Knowledge. In comparison, the transformation of the governmental reason is clearer than the epistemic modification in Foucaults work. Neoclassical economists radically modified classical liberalism shaped by classical political economy', and what is more, these modifications were essential for the development of neoliberal governmentality developed as a ‘thought collective’ (Mirowski & Plehwe, 2009) after 1930 and a global art of government in practice after 1980.

Therefore, neoclassical economics stands at a very critical position and juncture in the overall history of liberal governmentality as presented by Foucault, and it is crucial to understand the specificity, reality, and attributes of neoliberal governmentality. Given that marginalist economics in the late 19th century carried out very radical modifications of classical liberalism, it is fair to say that there are not two types of liberal governmentality as Foucault argues. Three stages or types can be distinguished in the history of liberal governmentality: classical liberalism, neoclassical liberalism, and neoliberalism. Classical liberalism was the early liberalism that was still in the domain of the reason of the state configured by police and discipline: neoclassical/neoliberal economics and governmentality together formed ‘advanced liberalism’ (Rose, 1993). However, Foucault, if not totally, seems to be ignorant of the importance of the late 19th century in terms of political/economic events and theories. As noted, he has a reason for this deliberate neglect. Foucault states that he does not want to be engaged in presenting the entire history of liberal governmentality and prefers to center his focus on the shift from classical liberalism of the 18th century (Smith) and the early 19th century (Ricardo) to neoliberal governmentality of the 20th century. By doing so, Foucault specifies the aspects of neoliberal governmentality. Nevertheless, there remains a huge gap in the history of (neo) liberal governmentality. He little mentions about the first half of the 19th century around Ricardo’s political economy, but they are very much rare when it comes to the late 19th century.

Foucault’s approach to early neoclassical economics was a matter of debate between Lawrence Birken (1990) and Jack Amariglio (1988, 1990) in the late 1980s. In this debate, the question of marginalism is about its episteme. The authors were the first to ask the position of marginalist economics in Foucault’s work. Although their articles are valuable to develop an understanding of Foucault’s thoughts on the marginalist turn in economics, this early debate remained in the scope of the question of episteme. This is so because Foucault’s analytics of government he developed in his lectures 1977—8 Security, Territory, Population and 1978-9 The Birth of Biopolitics came to be known fully after 2000.

Foucault (1989, 2002) used the method of archeology in his early works, and he dealt with long-term epistemic structures of knowledge in unity. He distinguishes the pre-classical period of episteme based on ‘resemblance’ before the 16th century from the classical age, which was based on ‘representation’ and lasted until the end of the 18th century/early 19th century. Afterward, the modern period develops. The modern era in which Man as a finite being is invented is ‘the age of Man’. Over the modern era, man evolved into ‘human species’ from ‘mankind’ with the effect of human sciences shaped particularly by psychology and biology' as well as political economy and historical philology (2007: 78). Man becomes a subject having a biological and psychological life (the body, mind, desire), working life, and a historical language. ‘Classical political economy’ gives weight to the body (physical effort to be disciplined in a panoptical system of control) and (neoclassical) economics to mind and desire. The first sees the body as the physical force; the latter conceives it as a neurological and, to a greater extent, psychological force and being. What is more, Foucault within the scope of the archeological method identifies a critical moment in Ricardo’s political economy. Ricardo invented ‘finite man’ in the modern age of episteme (human sciences) and biopolitics as Kant once did in philosophy by bringing the question of the present into philosophy (Foucault, 1988: 87, 89, 95). In his work Foucault (2011: 27) seems that he does not recognize a critical moment or an immense epistemological break in marginalism, but in an interview with Alain Badiou in 1965 he states that Freud’s analysis of the unconscious in late 19th century paved the way for a new turn in human sciences, a kind of “deep archeological transformation”. Accordingly, psychology started dominating human sciences. This is the very moment that neoclassical economics emerged as a new science of political economy or economics omitting the political. It is also fair to argue that its rise was the emergence of a new governmental reason. In the light of the archeological method of Foucault, the continuity and discontinuity between classical political economy, particularly Ricardian economics, and neoclassical economics are seen around their epistemic structures and position within the wider episteme of more or less the same modern age in unity. Within the framework of the archeological method, this changing epistemic line between them is less discernible in comparison to their altering governmental logic. The modification of governmental reason is clearer and more severe towards a break.

In terms of the epistemic structure of marginalist economics, it is hard to identify another radical ‘epistemic break’. Marginalism was still in continuity with the utilitarian philosophy of classical political economy, but it took a huge step, but not the first, to dismantle the classical governmental and political rationality and modify the general epistemic structure of classical political economy situated in naturalism. The first step was taken by John S. Mill, who still regarded the class structure of society and the labor theory of value as the unit of analysis in economics but brought forward active homo economicus (the rational economic man) as governmental technology that ceases to be part of the natural and exchange-based market economy. With Mill, political economy entered into its age of Man. As Margaret Schabas (2005) shows, marginalism followed and completed Mill’s effort of‘denaturalization’ of economics by shifting the focus of economics from nature and the reason of nature towards the calculative reasoning of man within a strict hedonistic conception of the existence of human being. The oscillation from nature to the human mentality' blended with a strong psychological grounding was a great step to modify the epistemic structure of classical political economy', which makes economics a ‘mental science’. As homo economicus in classical political economy' is the natural limits of the state intervention, in neoclassical economics the hedonistic economic man becomes “a lightning calculator of pleasures and pains” as Veblen

(1898: 389) sarcastically criticizes. Shortly after Mill, marginalism developed further this shift towards a complete ‘mental science’ (Schabas, 2005) in a way to make a break with classical naturalism in terms of more or less active governmental reason based on the human mind, whether in the form of welfareplanning bureaucratic mentality as in the British neoclassical economics, single political leader as in the Italian neoclassical economics, single super-rational homo economicus in the market behaving according to alternative costs as in the Austrian neoclassical economics, or rational civil collective action in the political market as in the Swedish neoclassical economics, which is close to Buchanans neoliberal economics (Kayaalp, 2004). So, we observe three types of homo economicus in the history of liberal governmentality: first, ‘untouchable’ homo economicus in classical political economy who specifies the natural border of the state under the rule of an ‘invisible hand’; second, the neoclassical homo economicus as an absolute mental being who is solely directed by desires and self-interests; third, the neoliberal homo economicus as an acting agent who responds to the environment which is to be constructed in an economization process. Under the present condition of authoritarian neoliberalism, Wendy Brown (2015: 213) mentions another type of the neoliberal homo economicus to be sacrificed for the market economy, particularly for the sake of the financial industry.

As such, the specificity of marginalism in the late 19th century lies in a modification of the epistemological structure of classical political economy and a radical change close to a break in terms of governmental reason, which laid the foundations for neoliberalism. As classical political economy evolved from Smith. Ricardo, and Mill towards neoclassical economics, the marginalist turn made clearer in-depth modifications of the previous forms and structure of knowledge and political reason. Nature/physics and the working man were replaced by psychology and the desiring man within the same age of Man. At that time, biology was seen by radical and critical evolutionary economists like Veblen as the alternative approach against the neoclassical economics, having the potential to recast the historical aspect of the former in a dynamic way as well as having an alternative governmental reason. However, modern biology based on the Darwinian evolutionary theory, then, could not establish another successful rupture in epistemic structure and governmentality' within economics as ‘knowledge-power’, which, however, is crucial today to envisage the alternative against the epistemic and governmental matrix of neoclassical/ neoliberal economics.

When Foucault turns to genealogy, power, and government, he details this great transformation in the late 19th century more but does not specifically make it part of the history of liberal governmentality’. And yet, when we look at his mentions about marginalism and early neoclassical economists, we see that Foucault is well aware of how important it is for neoliberal governmentality because marginalism, as noted, carried out radical modifications in the classical liberal governmentality. And this is not about the discarding of the labor theory of value by the utility theory of value. There are other radical modifications by early neoclassical economics. Accordingly, we are moving away from classical naturalism towards the human agency and radical humanism around the question of calculative human reason against the reason of nature and reason of the state in which classical political economy was placed. Thus it can be argued that marginalism and classical political economy were situated in more or less the same episteme but produced different governmentalities. The relationship between episteme (long-term knowledge structure) and governmentality reason (political power) is another issue to be taken up thoroughly, but it is fair to say that the 19th century saw two radically different governmental rationalities.

Foucault (2008: 61—62, 118—121, 219ff) discusses neoclassical modifications that laid the foundations of neoliberal governmentality over the period from 1870 to 1930 in a dispersed manner, but their main context is the shift from classical liberal governmentality to neoliberal governmentality. He accords critical importance to early neoclassical economics in three shifts: the first shift is the reconception of homo economicus by neoliberal governmentality as a competitive and consumer subject rather than a subject of equal exchange and material production. The second shift from classical liberal to neoliberal governmentality occurs in the context of the move from the naturalist conception of the market to the constructivist and ‘active governmentality'’ that considers the market as a field of permanent intervention and a field to be constructed around the competition principle, which, in turn, becomes the model and benchmark of all governmental reason and practice. The third shift is from the classical conception of labor around the idea of labor power, which refers to the effort of the physical body, to the neoliberal conception of the worker as a self-enterprise or entrepreneur. So, the meaning of work, worker, and wage changes, and they' are not characterized anymore by antagonistic social relations, working time, and material conditions. They acquire their meaning through human mentality', subjective point of view, and individuals’ rational choices.

In neoliberal governmentality, a normative political project, we see a constructivist and active government that generalizes the economic rationality and practices across the society' at large in which individuals as competitive selfenterprises unfold. This entire story and discourse about the economization of life, constructivist governmentality, and competitive self-entrepreneurial agency' began with the marginalist revolution in economics. In this sense, although it is still a debatable issue to argue that it was a radical epistemological break in the widest sense, one thing is certain — there is a radical transformation towards a clear-cut rupture materialized by early marginalist economics in terms of governmentality, which was later perfected by neoliberalism over time up until the present.

To recap, neoclassical economics shifted the field of analysis of economic theory from production to consumption. In doing so, neoclassical economics considers competition, not the equal exchange, as an organizing principle of the economy and society. It has made human behavior an object of economic study. As such, it discovers the entrepreneur as a singular subject. But it does not understand the mechanics of the entrepreneur’s movement.

Neoclassical economics mostly understands the entrepreneurial subject as a natural being within the static relations of material conditions of production and consumption. Joseph Schumpeter (1950, 1961) develops this discovery in capitalism from a sociological and historical point of view. And Schumpeter conceptualizes the entrepreneur as an extraordinary subject, almost like a hero. Neoliberalism modifies this conception of hero-entrepreneurship into mass-entrepreneurship in a way to construct everyone as a single entrepreneur and, as such, to form an entrepreneurial society' under permanent and active governmentality. Thus, there are continuities and discontinuities between neoclassical economics (early marginalism, the Schumpeterian modification, and established orthodoxy in the 1920s) and neoliberal governmentality (ordoliberalism, American anarcho-capitalist neoliberalism, and Austrian neoliberalism). Public choice theory is another type of neoliberal governmentality that has been carved out within these continuities, discontinuities, and modifications, which Foucault completely' left untouched.