RETHINKING NEOCLASSICAL ECONOMIC ANALYSIS OF ENERGY USING RÉGULATION THEORY

Abstract

Energy is treated by Neoclassical Economics as an abstract adjunct to the capitalist economy in the form of inter alia an intermediate production input, a market, a commodity, or the source of production externalities such as air and water pollution. The energy policy prescriptions of Neoclassical Economics, underpinned by econometric and other mathematical techniques, are framed around price, supply and demand, and the deregulation of markets. This paper posits an alternative analytical framework to understanding energy, and its relation to the environment and the capitalist economy. Drawing on French Régulation Theory—informed by Marxian and Institutional Economics—institutions are the focus of inquiry, and the analysis of energy is situated within the context of its use by capitalism, the processes of economic change and the impact of its use on the environment. This approach illuminates the co-constitutive nature of energy, the environment and the accumulation process as capitalism has become increasingly dependent on non-renewable fossil fuels actively supported by nation-states and supra-national institutions. A critical difference between Régulation Theory and Neoclassical Economics, and thus the respective methodologies, is the social ontology underpinning each framework. The worldview of Neoclassical Economics, presupposed by its formalistic methods, is one of a closed economic system in which event regularities occur, events have casual sequence, there are no exogenous influences and thus no social context. The social ontology of Régulation Theory is of the capitalist economy as an open system, structured by conflictual social relations and the process of capital accumulation, and subject to endogenous and exogenous influences. It is posited that this ontological view of social reality leads to a more realistic analysis of energy’s interrelationships with the real economy and the environment compared to the abstract analysis of Neoclassical Economics.