3.3.5 Deviations from Classical Economics
Deviations from classical economics, such as irrational behaviour, external shocks, and restrictive practices, make economies unpredictable.
Economic power has been presented, so far in this book, in classical terms. Classical economic theory is predicated upon people and organisations behaving rationally in their own self-interest, guided by what Adam Smith called ‘the invisible hand’, to optimise wealth creation. This section looks at some of the ways in which the economy may not always behave as expected, as described in the following sub-sections:
● Individual economic choices are sometimes irrational, or reflect moral or political agendas (3.3.5.1). Human rights and the environment are two examples of topics which can cause individuals to make choices that would not be forecast by economic models.
● Unpredictable external events, such as technical innovations, geopolitical events, and extreme weather, constitute what are known as ‘economic externalities’ (3.3.5.2).
● Market distortions can be caused by trade union restrictive practices, corporate abuse of monopoly powers, or government interventions that prevent fair competition (3.3.5.3).
In addition to the above deviations from classical economics, there can be criminal or immoral behaviour such as fraud, deception, scams, theft etc. Regulation can combat many of these abuses when they are within a single country, but it is often difficult to pursue malpractice that originated in another country. In the absence of global regulation, the only defence against many abuses is vigilance – which in this book is categorised as Self-Protection (7.2.2).
This page is intended to form part of Edition 4 of the Patterns of Power series of books. An archived copy of it is held at https://www.patternsofpower.org/edition04/335a.htm.