The crisis of bourgeois economics
The whole of this piece is a worthwhile read even if it is now almost 15 years old. Here though are some germane excerpts for those who might be hung up on "free enterprise" and similar monikers; hopefully, they'll encourage you to read the whole piece and come back to discuss your impressions:
The pre-Keynesian economic orthodoxy was what is normally called the 'neo-classical' or 'marginalist' school (although, confusingly, Keynes in his own writings usually referred to it as 'the classical school'). This arose in the 1870s and 1880s out of attempts by the Austrians Menger and Boehm Bawerk, the Englishmen Jevons and Marshall, the Frenchman Walras, the Italian Pareto, and the American Clark to resolve problems which had beset mainstream economists over the previous half century.4
Until then economists had relied on the ideas of the Scottish economist of the mid-18th century, Adam Smith, and the English economist of the early 19th century, David Ricardo. Smith and Ricardo had written at a time when modern capitalism was still fighting for supremacy with old landed and mercantile interests. Their main concerns had been with what encouraged the wealth of society to grow and what determined its distribution between the different classes in society*especially between the rising capitalist class and the old landowners. They saw an objective measure of value as a precondition for coming to terms with these issues. Smith suggested it was to be found in labour, although he failed to develop the idea consistently. Ricardo went further, and built his whole system around the notion.
But Ricardo left succeeding bourgeois economists with two major problems. One was theoretical: to explain how profits could be averaged out between industries which employed the same amount of capital but different amounts of labour.5 The other was ideological: how to provide some account, other than the robbery of one class by another, to justify the existence of profit at all. Otherwise, they would not be able to prevent radical critics of existing society from turning Ricardo's system into an attack not just on landowners but on capitalism as a whole.
For half a century bourgeois economists floundered as they tried to deal with both problems. As Marx pointed out, they alternated between a scholasticism which consisted in merely repeating abstract expressions from Ricardo, without showing how they related to concrete reality, and abandoning Ricardo's insights so as to apologise for profit. In either case, they abandoned the scientific approach to be found in Smith and Ricardo, which at least attempted to cut through superficial appearances to find underlying causes, in favour of a shallow 'vulgar economics'.
The marginalists took this process a stage further. They proclaimed they could cut through all the problems in Ricardo's system by dropping the very idea of an objective measure of value as mistaken.
But they did not reject everything said by Smith and Ricardo. They enthusiastically embraced those of their contentions which seemed to justify the untrammelled play of market forces*for instance Adam Smith's 'hidden hand' view that the best way to serve the general good was to allow free competition between producers whose only concern was with their individual interests, and Ricardo's 'theory of comparative advantage' defence of free trade. At the same time, they put at the centre of their system a 'law' promulgated by the French economist Jean-Baptiste Say and accepted by Ricardo. This held that generalised crises of overproduction were impossible because 'supply created its own demand'. The extra value of the goods produced by any firm over and above material costs, Say said, was equal to the wages paid to its workers plus the profit paid to the capitalist. So for the economy as a whole, the total amount in people's pockets from wages and profits must be exactly the same as the amount needed to buy all goods that had been produced.
Slumps, then, were logically impossible unless for some reason, a group of people were refusing to sell the goods at their disposal or to spend the money in their pockets. John Stuart Mill had expressed the prevailing view some 20 years before the marginalists developed their own ideas:
Each person's means for paying for the production of other people consists in those [commodities] that he himself possesses. All sellers are inevitably by the meaning of the word buyers... A general over-supply...of all commodities above the demand is...an impossibility... People must spend their...savings...productively; that is, in employing labour.6
The marginalists were only too happy to incorporate this view as a central feature of their own system. Where they broke with the Smith-Ricardo tradition was over what the main concern of economics should be. What mattered to them was not the creation of wealth and its distribution between classes, but rather showing that the fixing of prices through the market, without conscious human intervention, automatically led to the most efficient way of running an economy. And so they abandoned the old view of value, with its concentration on the objective necessity of labour for production...
Keynes was a trenchant critic of the notion now, popular in ruling circles once more, that the 'free market' system could automatically solve all of humanity's problems. He insisted again and again that the answer to unemployment was not to cut wages, or to provide the rich with 'incentives' for saving. And on occasions his talk of the evils of the 'free market' could sound very radical indeed. So, for instance, in a lecture in Dublin in 1933, he lambasted the orthodox economic view:
We have to remain poor because it does not 'pay' to be rich. We have to live in hovels, not because we cannot build palaces, but because we 'cannot afford' them... With what we have spent on the dole in England since the war we could have made our cities the greatest works of man in the world... Our economic system is not enabling us to exploit to the utmost the possibilities for economic wealth afforded by the progress of our technique.39
In The General Theory he is scathing about the idea that interest is a reward for the abstinence of the saver, insisting that 'interest today rewards no genuine sacrifice, any more than does the rent of land', and goes on to urge the gradual 'euthanasia' of the 'rentier' who lives off dividends.40
Yet he did not regard any of this as implying, in any sense, a revolutionary challenge to the existing economic system. 'In some respects,' he argued, his theory was 'moderately conservative in its implications'.41 All that was needed for the existing system to work was for the existing state to disregard the old orthodoxy and to intervene in economic life to raise the level of spending on investment and consumption. Two sorts of measures were necessary.
First, he argued, governments could intervene in money markets to drive down the rate of interest. This would both encourage better off people to spend rather than save their incomes, so providing a market for the output of others and encourage firms to invest*although, Keynes noted, he was 'somewhat sceptical of the success of a merely monetary policy directed towards influencing the rate of interest'.42
Second, governments could undertake direct expenditures of their own, to be financed by borrowing. Such 'deficit financing' would increase the demand for goods and so the level of employment. It would also pay for itself eventually through a 'multiplier effect' (discovered by Keynes' Cambridge colleague Kahn). The extra workers who got jobs because of government expenditures would spend their wages, so providing a market for the output of other workers, who in turn would spend their wages and provide still bigger markets. And as the economy expanded closer to its full employment level, the government's revenue from taxes on incomes and spending would rise, until it was enough to pay for the previous increase in expenditure.
These two measures were soon seen as the archetypical 'Keynesian' tools for getting full employment. It was these that both conservative and social democratic politicians took for granted as the key to economic management in the 1940s, 1950s, 1960s and early 1970s.
At some points in The General Theory Keynes seemed to look to more radical forms of state intervention. The state, he argued, was 'in a position to calculate' the long term results of investment, and so could take 'an ever greater responsibility for directly organising investment...'43 'I conceive' he argued,'that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment'.44 But even this did not depend on 'state socialism', since 'it is not the ownership of the instruments of production which it is important for the state to assume.'
If the state simply determined 'the aggregate resources' to be devoted to new investments, 'it will have accomplished all that is necessary'.45 So there was the possibility of 'all manner of compromises and devices by which the public authority will co-operate with private initiative', bringing about the necessary changes 'gradually and without a break in the general traditions of society'.
The 'socialisation of investment' would follow inevitably as low interest rates weakened the position of bondholders, while industrialists, dependent on government stimulation of the economy, allowed it to play an increasingly central role. There would be no need for any sort of radical break with the past.
So unrevolutionary did Keynes conceive such change to be, that he argued that once it was in place, the existing economic orthodoxy would then be applicable:
If our central controls succeed in establishing...full employment...the classical theory comes into its own again... Then there is no objection...against the classical analysis of the manner in which private interest will determine what in particular is produced, in what proportions the factors of production will be combined to produce it, and how the value of the final product will be divided between them...46
Reform versus revolution
Keynes believed his approach was the only one which could save capitalism from itself and win young people from the lure of Marxism. A friend of Keynes at Cambridge, Julian Bell, described in 1933 how the student body was pulled sharply to the left under the impact of the world economic crisis and the rise of fascism in Europe:
In the Cambridge that I first knew in 1929 and 1930...as far as I can remember we hardly ever talked or thought about politics. By the end of 1933 we have arrived at a situation in which the only subject of discussion is contemporary politics, and which a very large majority of the more intelligent undergraduates are Communists or almost Communists.47
This state of affairs horrified Keynes, 'who was scathing in his attacks on Marxism'. He told Bell that Communism was a 'religion', and that 'Marxism was the worst of all, and founded on a mistake of old Mr Ricardo's'.48 He claimed in a letter to Bernard Shaw at the beginning of 1935 that his new theory would 'knock away...the Ricardian foundations of Marxism'.49 Later in the year he told students, 'Marxism...was complicated hocus pocus, the only value of which was its muddleheadedness.'
He put his argument rather more logically during a series of lectures outlining his new theory in 1934. Marxism, he argued, was wrong because it accepted, as much as the neo-classical orthodoxy, that state intervention could not improve the operations of capitalism:
The Marxists have become the ultra-orthodox economists. They take the Ricardian argument to show that nothing can be gained from interference. Hence, since things are bad and mending is impossible, the only solution is to abolish [capitalism] and have quite a new system. Communism is the logical outcome of the classical theory.50
He believed his 'general theory' showed how capitalism could be saved by relatively simple reforms, and that therefore the Marxists were fundamentally mistaken. It was an argument some at least of the 1930s left wing intellectuals accepted, especially as they became disillusioned with Stalinism after the Stalin-Hitler pact in 1939. And it was a view which spread when the boom of the post-war failed to give way to the imminent slump many predicted.
In Britain, John Strachey had been by far the best known Marxist writer on economics in the 1930s. His The Nature of the Capitalist Crisis, The Coming Struggle for Power and The Theory and Practice of Socialism had taught Marxist economics to a whole generation of worker activists and young intellectuals. Yet by 1956 he was arguing, in his Contemporary Capitalism, that Keynes had been right and Marx wrong on the crucial question of whether the capitalist crisis could be reformed away: 'There are no specifically economic fallacies in the Keynesian case... If the Keynesian remedies can be applied they will have broadly the predicted effects'.51
Keynes's only mistake, Strachey held, was that he thought the capitalists or their political parties would introduce such remedies of their own volition. In fact it required pressure from below, from the workers' parties and unions. 'The Keynesian remedies...will be opposed by the capitalists certainly: but experience shows they can be imposed by the electorate'.52 Keynes helped 'the democratic and democratic socialist forces to find a way of continuously modifying the system, in spite of the opposition of the capitalist interests... And in doing so he helped show the peoples of the West a way forward which did not lead across the bourne of total class war...'53
Strachey was articulating what became the conventional social democratic argument throughout the 1950s and 1960s. Capitalism had experienced a deep slump in the inter-war years and governments had been unable to cope. But this was not because of the intrinsic faults of capitalism as a system. It was because governments had adopted the wrong policies, imprisoned by a hidebound doctrine that led them to cut public expenditure and wages, pushing down consumption when really the need was to do the opposite. They need never make the mistake again, now that Keynes's theory had provided them with a new intellectual tool for understanding what was happening. Indeed, it was said, British governments need not have made the mistake in the inter-war years themselves since, even before he published The General Theory, Keynes had advised them against going on the Gold Standard in 1926 and cutting public expenditure to balance the budget in 1931.
It is an argument which people like The Observer editor Will Hutton try to revive today when they argue that, if only governments would abandon 'dogma' and follow in Keynes's footsteps, there would be an alternative to economic crisis and social deterioration. But there is one glaring fault with this argument. It does not take into account what really happened, either in the inter-war years or during the long post-war boom.
Now we're talkin'...
If we want to talk about economics, let's start with something that makes a serious stab at it. The article is not without its weaknesses. Harmon gives too much weight to the issues of Marx's day (some of them have "evolved"), he gives too much coherence to Keynes (the man was infamous for being on all sides of the same question) and there is a lot to quibble with in the details... BUT, it as good a start as we'll get if we wanna talk about "Economics" in the context of the last 50 years (as opposed to the last 5 years, which is common and nearly worthless).
So, try this on Mr. PC.
"The Marxists have become the ultra-orthodox economists. They take the Ricardian argument to show that nothing can be gained from interference. Hence, since things are bad and mending is impossible, the only solution is to abolish and have quite a new system. Communism is the logical outcome of the classical theory.50
He believed his 'general theory' showed how capitalism could be saved by relatively simple reforms, and that therefore the Marxists were fundamentally mistaken."
So, let me take the most controversial position:
1) Keynes was essentially right.
2) It doesn't matter because it changes nothing, thus negating his rightness.
3) The only remaining residue is, "Communism is the logical outcome of the classical theory."
What say you to each?
I won't be able to respond for some time cause I won't have time to read until later...
...looking at my night tonight and morning tomorrow, its unclear when that will happen.
But I'm looking forward to giving it a read.
Well you win some kind of prize
because I can't think of anyone else who agrees with all three of those points
I actually do agree with all 3.
Fine... Make your case.
I wasn't commenting on myself
just saying that there is no one ELSE. You've explained some things about Keynes to me before.
But your thesis catches flak from both sides. "Keynes was right", "Keynes was wrong" and "Ricardo was wrong" for good measure
I think Ricardo's thesis looks righter by the day personally..
Nah... It's a trick question.
Keynes is exactly right. A few "simple reforms", like "socializing investment", preventing over-production through central planning - which as a side effect decides "winners and losers", spreading the "misery" among the capitalists as a whole, the creation of a state sector responsible for "full employment" on the one hand, and deciding which industries can no longer "compete" on the other... sure "it works", if all other capitalist countries also spontaneously decide to "co-operate" and not take advantage of this "uncompetitiveness" for "social purposes". And, oh yes, the bourgeoisie will not mind the usurpation of their political state in order to impose the exact opposite of what was intended...
Keynes is the ultimate middle-class twit. Once everyone knows what he knows, of course they will all abandon their partisanship in favor of his recipe... for the greater good, of course... of the bourgeoisie in general.
Whoever heard of the bourgeoisie in general? It's about private interest, you schmuck. Of course Ricardo is right. He was no "liberal" either but he had the great advantage of getting to the game early when the issues of the future remained as abstractions.
Neither does one have to "read books" to understand any of this. One can turn on the television and watch it all play out right before one's eyes... right now, as we speak. Or one can pick up the NY Times and listen to Paul Krugman, who wouldn't have the nerve to propose 1% of Keynes' "simple remedies", constantly frustrated that not a soul is interested in implementing his "simple" but lame proposals... unbelievable! What a bunch of Bozos. They make Robert Owen look like a realist.
What is interesting is the distillation of Keynes by Harmon which basically says that the social science of economics IS Marxism, according to Keynes.
Well, I guess that doesn't have to be true. If one could spontaneously levitate all the corn in Iowa, suck it in through their ears, magically transform it into pixie dust, shoot it out their ass like a comet, around Saturn and make it come back to earth as rational bourgeois collective feeling in say a generation or two... THEN, maybe...
This also partially explains
why America is and looks to remain the worlds lone "superpower" while Western Europe remains a junior partner. As everywhere they look to roll back social spending..
I worked my way through this and I agree with the conclusion.
Subtle nudges are not going to be effective.
To me, it's almost (but not completely) meaningless as to how some of these things that are talked about relate to our current situation. Sure, it matters whether these things are true or not, and which is more correct than the other, but other than that, how can it have so much relevance.
We do not have an economy that is ANYTHING like what is discussed there. At least not in my view.
There are 200 trillion dollars worth of default credit swaps, held by our financial institutions, that were created (produced?) in the last 8 years. That's about 15 times our GDP.
We have a government that is giving trillions in cash to somebody, for nothing, it seems, and we don't even know who they are giving it to.
Is anything like that talked about by Marx, or Smith, or Keynes, or even Freidman for that matter?
I'm just wondering if any of those guys ever mentioned anything like that before now.
And, if they didn't, I'm sort of wondering why not, if what they did talk about is supposed to be so on point.
And, I'm also wondering if the answers to these reservations are material or not. I understand we don't want to reinvent the wheel and all, but is anybody here sure that there exists a wheel that will get us out of the mess we're in?
You don't want to ask that question in that way.
Not only does it invite one of a thousand obvious responses ("Who cares about Newtonian Physics anyway... Nobody sits under apple trees anymore and he never had an iPhone"), but more importantly, it challenges contemporary wisdom. There isn't a single political party or government in the world today which doesn't think that Keynes is relevent to what is happening currently... even if they take the opposite view.
Now you are on the other side of common knowledge. It falls on you to demonstrate how credit default swaps change "ANYTHING" in a fundamental way and thus make discussions about the theories of such dead people, moot.
Alternatively, you are simply channeling Protagoras, who is an even older dead guy.
More libertarian garbage...
but that's OK...Americans don't know much about history and treat the world as if it was a supermarket; pushing their cart down an aisle and picking out products they like to eat.
At no time, except in the addled minded American tradition did anyone on the REAL LEFT THINK Keynes was a radical and not a bourgeois economist, so what exactly is the point of this garbage other than to point out that very stupid people who never bothered reading Keynes' 'bourgeois economics' continue to use it as a straw man to push American 'bourgeois economics'...like libertarianism, monetarism, cronyism or whatever a bunch of lobbyists decide is an 'ism' to the current crop of American idiots pushing their poison...like Reaganism or Thatcherism.
(psst...libertarianism is a political movement and not an economic theory...dumb ass)
Yer stupid too...
Why not ask him to explain Keynes' multiplier effect?
Last time I looked that Keynes theory was bedrock in American capitalist theory?
"If you build it, they will come!"
dumb asses leading dumb asses...
Why is it that American references are either the Bile or ancient Greeks and Romans?
Answer: Your hardwired for fascism.
Chris Harman is a British Trot.
He is or was on the Central Committee of the British Socialist Workers Party. He is also an economist (from the LSE). The Trot usually shows through, but not so much in this article.
Who is a Libertarian?
(psst... another outburst you are either going to retreat from, or make up some convoluted shit to support).
You must have looked in 1975.
You are a waste of time. Let's just avoid each other.
your posts are barely intelligible
And you are calling others stupid and dumbass?
I think I must have asked the question wrong then.
I think the piece assumes that there will be some controls. By modifying those controls things can be made to be more predictable. What some of the controls are, how effective they are, is what I got out of the piece. My question was, is there any prediction of what happens when those controls are gone, or ignored, or not used? That seems to be the question of where we are right now, or at least where we are headed, isn't it?
As for the CDS question and whether or not it changes anything, I'm not saying it does or doesn't, I just assumed it would since the salaries and bonuses have to come from somewhere. Also, it caused a big brouha which would have been unecessary if nothing changed.
From what I understand about Keynes, his approach is accurate. If it is accurate, then I don't know how someone "opposes" that, unless they can come up with something that is more accurate.
As far as Newton, I would ask what gravity has to do with baking bread, other than keeping the dough in the pan? Or do you think it's time to make bread yet?
And there it is...
There is your convoluted shit. A minute ago he was a "Libertarian" and now that shit is forgotten. On to the next....
You don't know jack, except how to posture. You want the last word, pompous ignorant asshole? It's yours.
About that cannon..
I found the whole story to be so on point that it's hard to find a place to begin. Besides the title, I find the story line to be appropriate. The way the innovation occurred, everything finally going well and then a kid throws a rock into the works and something completely different results. And I thought the whole Poor Richard style was hilarious. It made me belly laugh. I think I just made you shudder. Also, the way the character became more and more sophisticated. I just think it is an appropriate story. I should have made this response over there when you asked me about it, but with all the spamming and everything. I admit I handled it rather poorly. It's as if people are expecting to get something accomplished here or something. I think the spammers should go. It contributes absolutely nothing other than disruption and in most places message board spammers are considered to be the lowest form of life on the internet. I guess here it is tolerated so that the lowest spot can be reserved for -- fill in the blank --
I wish I had it to do over again.
Message moved to "T!me Out to Chill Out" forum. You can visit it [link:http://www.progressiveindependent.co...7&topic_id=152 | here] .
Message moved to "T!me Out to Chill Out" forum. You can visit it [link:http://www.progressiveindependent.co...7&topic_id=153 | here] .