The core theory of modern orthodox neoclassical economics is the Walrasian or general equilibrium theory of a perfectly competitive market economy. This is an economic system in which the supply and demand sides of all markets balance each other simultaneously and consequently clear at a 'general equilibrium' price - and in so doing produce both an optimal and efficient outcome in which no one can be made better off except by making at least one other person worse off. It's built on the basis of a specific set of stringent assumptions, such as rational economic agents with perfect information and perfect foreknowledge of the future, perfect competition, no externalities, complete markets (plus several others), which must all hold if the general equilibrium model of a perfectly competitive market economy is to be realised in a real market economy like capitalism.
This model of a market economy is theoretically construed by modern orthodox neoclassical economists as the ideal type of a market economy. It's what a real market economy like capitalism should strive to be if it's to be a highly optimal and efficient economic system.
For both modern orthodox neoclassical economics and its critics (like Joseph Stiglitz), there is nevertheless a discrepancy between this ideal type of a market economy and a real-world market economy like capitalism. There are many possible 'reasons' for this discrepancy between an ideal market economy and a real one like capitalism, such as various 'market imperfections' like 'imperfect information' and 'imperfect competition'. But for the time being, I will put these concerns aside in order to establish the theoretical status of this ideal model type of a market economy.
The best way to construe this ideal model type of a market economy is in Platonic terms.
In Plato's Theory of Forms or Ideas, there are perfect entities in the world which can only be known by the mind, which are called 'Forms' or 'Ideas'. So for Plato there is a Form or Idea for a circle, a sphere, a human being, numbers, morals, a political state, and just about anything else imaginable in the world of Forms or Ideas. As such, they are all archetypes of perfection. So, for instance, the Form or Idea of a circle is a perfect circle in which there are no irregularities in its circumference or shape. Similarly, there is a Form or Idea for a perfect political state, like in his Republic, in which there is a perfect political arrangement amongst all its members from the philosopher kings (the guardians and rulers of society) down to the plebeians and slaves (those who toil on behalf of others who own property). Thus Plato's Theory of Forms or Ideas purports to be a philosophical theory about what are the perfect archetypes of things.
Plato's Theory of Forms or Ideas is also the philosophical means by which to measure whether the real world, in all its human or non-human aspects, actually replicate its respective Forms or Ideas. For example, does a real circular thing replicate the Form or Idea of a perfect circle? Similarly, does an ancient Greek city-state replicate the Form or Idea of a perfect political state, like Plato's Republic?
(For a good concrete example of Platonic conceptions, think of Michelangelo's David. It's meant to be an ideal Form of a male human being, even though none of its anatomical proportions bear any relation to any real male human being. Nevertheless, it's held up as the perfect archetype of a male human being.)
Now, it is in similar terms that we can construe the Walrasian or general equilibrium theory of a perfectly competitive market economy in modern orthodox neoclassical economics. It too is a theory which purports to be a perfect conception of what an ideal market economy is (as spelt out in the above account of it). It does this on the basis of its specific set of stringent assumptions, which all trade in on a perfect notion of something. It is a conception which has only been developed at the level of theoretical ideas, ie, at a level independent of any empirical import from the real world. In that sense, it purports to be a pure theoretical model of a perfectly competitive market economy - nothing more. Hence, like Plato in his Republic, modern orthodox neoclassical economics also offers an ideal picture of something.
But this is not all. Like Plato's Theory of Forms or Ideas, especially in his Republic, modern orthodox neoclassical economics also uses this pure or ideal theoretical model of a perfectly competitive market economy to assess and/or measure whether a real market economy like capitalism replicates it.
So, it's in at least these two ways that we may construe the core Walrasian or general equilibrium model of modern orthodox neoclassical economics as being a Platonic conception. This is especially so given that it's conceived at the level of pure theoretical ideas, independently of any empirical import from a real-world market economy like capitalism.
As we will come to see in greater detail throughout these blog posts, the core theory of modern mainstream economics is both the ideal of what a market economy should look like and the benchmark by which to assess examples of a real-world market economy like capitalism.
Once again, we can ask the question here about whether this core model of mainstream economics is an accurate and/or realistic picture of a real market economy like capitalism? Or is it a piece of pure fantasy? Or is it simply a piece of social engineering, designed for a particular ideological purpose in the interests of, above all, a specific socio-economic class? Or is it none of these things, but just the work of a naive school of thought which, in terms of Plato's famous Allegory of the Cave, does not go beyond looking at the shadows cast on the walls of the cave by the flickering flames of the fire?
These are questions (and many others like them) which I shall take up in later blog posts, especially when examining the realism of the core assumptions of modern orthodox neoclassical economics and its 'as if' approach.
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