I’ve been reading a few new books recently. The first is The Establishment by Owen Jones (Allen Lane, Penguin books). I reviewed Jones’ first book, Chavs, a perceptive account of the way the media turned the concept of the working-class into a bunch of feckless, benefit-seeking layabouts or ‘chavs’ (see my post, https://thenextrecession.wordpress.com/2011/06/07/the-working-poor/). As Jones showed, the ruling class and their lackeys in culture want to obliterate the idea of the working-class in society, in a way that reduces social strata to just the middle-class (with just the elite above and ‘chavs’ below). Jones applied to this Britain but it had gone just as far in the US, where the term ‘working-class’ has totally disappeared and every politician and pundit now refer only to existence of the ‘middle class’, when they mean working-class.
Jones’s new book is a well-written, even racy, account of how the British ruling class know each other and work together in all the ‘estates’: monarchy, capital, media and politics. What Marx used to call the ‘executive committee of the ruling class’ is not just the state or government, but all the layers of CEOs in business, newspaper moguls and editors, and government ministers and MPs. They all went to broadly the same schools and universities, belong to the same clubs and meet each other on a regular basis, both formally and informally.
Of course, as Jones says, there is nothing new in this idea of ‘the establishment’, but Jones brings it up to date with plenty of facts, observation and interviews with establishment figures and their hangers-on. He reveals the interconnected nexus at work to preserve and promote the interests of the ruling orders in Britain. Jones perceptively observes that the establishment find nothing wrong with this control of our lives and interests that bears no relation to ‘democracy’ – indeed subverts and by-passes it. Instead, our rulers feel they are ‘born to rule’ and deserve the power, privilege and wealth they accumulate. It is an exercise in unbridled hubris.
This weave of scratch-backing relationships really expresses the power of capital over the majority. ‘Follow the money’ is the cliché. And the establishment that Jones describes in shocking detail, in the final analysis, is glued together by the drive to accumulate profit and wealth for all in the hallowed groupings that constitute it. However, this is the slight weakness in the book. As one reviewer has pointed out, Jones “doesn’t say that corporate welfare is needed because of the weakness of capitalism; a falling profit rate and dearth of monetisable investment opportunities means that capitalism cannot stand on its own two feet.” But then this book is not political economy, but social investigation.
And Jones pulls his punches on what can we do about not letting the establishment “get away with it”. He calls for public ownership of the utilities and the railways, but not big business in general. He wants democratic control and planning of Britain’s state-owned banks, but not ownership of the big five. He wants all sorts of controls and taxes mainly on foreign businesses, as the radical Keynesian New Economics Foundation proposes.
Jones’ hope for a ‘democratic revolution’ along these lines would not be enough to break the establishment. That requires the end of the capitalist mode of production and the power of capital. Even so, Jones provides the reader with the most insightful dissection of Britain’s modern ruling class and all its corruption, venality and contempt for the rest of us. If every potential voter in next May’s general election were forced to read this book in order to vote, the incumbent government would lose by a landslide – and not necessarily to Labour.
Martin Wolf is definitely part of the British establishment: he was even a member of the recent UK banking commission, set up to consider how to improve the solidity of the banking system and avoid another collapse. As one reviewer put it: “Wolf has had top-level access to economic policy makers for decades now, seeing generations of finance ministers and central bank governors come and go. All of them care, deeply, about what he thinks and what he writes, and they tend to spend as much time as they can trying to persuade him of their point of view. The result is a classic virtuous cycle: He’s well informed because he’s extremely influential, and he’s influential because he’s extremely well informed.”
Wolf has a new book out, called The shifts and the shocks: What We’ve Learned — and Have Still to Learn — From the Financial Crisis. (http://www.amazon.com/The-Shifts-Shocks-Learned-Financial/dp/1594205442). It has received the accolades from Krugman and others in the Keynesian stable.
Krugman in his review of Wolf (http://www.nybooks.com/articles/archives/2014/oct/23/why-werent-alarm-bells-ringing/) points out that mainstream economics signally failed to forecast that a major credit and banking crisis was coming, then underestimated its depth and length in the Great Recession and since then have been unable to explain it. Krugman reckons that this was because mainstream economics was wedded to the neoclassical model of equilibrium and Says law, that supply will create its own demand, so anything that is not in equilibrium is a temporary ‘shock’.
It is rather ironic that Krugman and Wolf should paint this picture of failed neoclassical models, because neither of them forecast or predicted that a crisis was brewing from the development of capitalism in the 1990s onwards. Indeed, in 2005, before the global crash, Wolf had written a book, Why globalisation works, arguing that globalisation was beneficial to the world economy, raising living standards through the expansion of international trade and unregulated capital flows in the best of all possible worlds. Krugman won his Nobel prize for economics from expounding models of beneficient international trade.
In his new book, Wolf grudgingly admits that he was wrong about globalisation and the Great Moderation, as Ben Bernanke termed those years of ‘equilibrium’ and growth in the 1990s. It was merely disguising terrible imbalances and inequalities that eventually broke the bank, or banks. But still, in the title of his new book, Wolf talks of the global financial crisis in terms of a ‘shock’, (a surprise), just as neoclassical economic models do.
Krugman said in his own book on the crisis (End depression now! –see my post, https://thenextrecession.wordpress.com/2012/05/27/krugman-and-depression-economics/) that anyway it does not matter what caused the crisis, let’s get on with fixing it. And he reckons that mainstream (Keynesian) economics has a Standard Model that does just that. Wolf’s book is “best viewed as an extended, learned, and well-informed exposition of this Standard Model and what it implies about where we should go from here.”
What is this Standard Model to which Krugman and Wolf subscribe? Well there was “a long period of relative economic stability which fueled complacency in both the private and public sectors, leading to an unsustainable rise in debt. Meanwhile, free-market ideology blinded policymakers to the dangers of growing financial debt, as with the vast number of underfunded mortgages, and in fact led them to dismantle many of the protections we had. And there was, inevitably in retrospect, a day of reckoning, in which the bubble of complacency burst and the fragility of our financial system turned that bursting bubble into catastrophe.” (Wolf).
So there it is again. There is nothing wrong with the process of capital accumulation and a profit-making economy. What is wrong is distribution of those profits. Rising inequality led to a lack of demand among consumers and imbalances in a globalising world. This led to an excessive expansion of debt that eventually burst. But the real problem was the fragility and weakness of the banking system to cope. Krugman comments: “Wolf’s essential story remains that of Minsky’s financial instability hypothesis: stability begets complacency, complacency begets carelessness and hence fragility, and fragility sets the stage for crisis. It’s a good story. But is it good enough?”
No, it is not. Wolf ignores the failure of productive sectors of the capitalist economy and so rests his explanation purely on the financial sector, for which the policy solution is ‘more regulation’. For him, even Thomas Piketty’s recommendation of a global wealth tax to deal with the cause of the crisis, inequality, “is unquestionably too ambitious.” Instead, he wants all kinds of regulatory measures, including equity-like mortgage contracts so that borrowers and creditors bear equal risk on loans, something advocated by Mian and Sufi in their celebrated book, House of Debt (see my post, https://thenextrecession.wordpress.com/2014/06/28/its-debt-stupid/).
Above all, for Wolf, any policy changes will have to be made “without eliminating those aspects of an open world economy and integrated finance that are of benefit.” So reform will have to done without affecting the banking system too much – so no real reform then.
James Galbraith is altogether more radical because he is not part of the American establishment. Indeed, he has been confined to the ‘backwater’ (as he puts it) of economic thought and policy by the established mainstream. Son of the famous JK Galbraith of the New Deal and 1960s institutional radical economics, who was also consigned to the economic rubbish bin by dominant neoclassical economics, son James also has a new book on the crisis called The End of Normal (http://books.simonandschuster.com/The-End-of-Normal/James-K-Galbraith/9781451644920).
Galbraith’s main argument is that after the Great Recession, there will be no ‘return to normal’ – a theme that I have also pushed in this blog (see my post, https://thenextrecession.wordpress.com/2014/08/14/the-myth-of-the-return-to-normal/). For Galbraith, the ‘market system’ does not tend naturally toward a state of full production and high employment. That’s because there is no free market, but really a series of oligopolies.
Galbraith is convinced that the crisis of capitalism lies in the fast exhaustion of natural resources by rapacious multi-nationals. Large companies have stopped investing in technology etc because of the lack of good growth opportunities, caused by scarce or expensive resources. The crisis came about because capitalists speculated and fraud took over because it was expedient to allow the financial system to make up for lack of growth opportunities elsewhere. He concludes that “fixed capital and embedded technology are essential for efficient productive operations, but that resource costs can render any fixed system fragile, and that corruption can destroy any human institution.”
Following his father, Galbraith reckons that it is not some law of falling profitability that pushes capitalism into crisis, but that large monopoly organisations are not only not efficient but also rigid and so destabilise when conditions become adverse. This theory suggests that a freely competitive economy without monopolies would be stable or that it is not the exhaustion of profit that causes an investment strike, but the exhaustion of natural resources, Ricardian or Malthusian style. But has capitalism collapsed because populations have rocketed or oil has disappeared? No, oil production has rocketed with the expansion of shale in North America and population growth has slowed in most major capitalist economies. Capitalism continues to exploit resources successfully (and rapaciously) at the cost of planet and climate.
Galbraith really denies that there are any laws of motion in capitalism; it is all a question of institutions. Get rid of ‘cronyism’ and get more democracy in industry and commerce and all will be well? Recently Galbraith spoke at the Rethinking Economics conference in New York (see my post,https://thenextrecession.wordpress.com/2014/09/16/rethinking-economics-in-the-backwater/) in which he argued that economic theory was too embedded in models and not in the history of institutions. Look at correcting institutions and not at models of economies, says Galbraith. But in doing so, Galbraith seems to reduce recurrent economic crises to just the ‘fragility of complexity’. What about the contradiction between private profit and social need under the capitalist mode of production? In another place, Galbraith has dismissed the Marxist view (see his paper, http://eric.ed.gov/?id=EJ930471) as one that “lacks interest in policy: at the heart of things, they (the radicals/Marxists) don’t believe that the existing system can made to work”. Indeed, but it seems Galbraith does.
This brings me to the only new book with a Marxist perspective and by definition part of the backwater and anti-establishment. In Deciphering Capital (http://www.bookmarksbookshop.co.uk), Alex Callinicos analyses Marx’s method in reaching an understanding of the laws of motion of capitalism. And such laws do exist.
It is said that everybody reckons that they have a novel in them waiting to come out. It is also said that is just as well that most people don’t get round to writing it. Unfortunately some do. Near the beginning of his new book, Callinicos refers to a comment by David Harvey, who in the preface of his book, The limits of capital, says “Everyone who studies Marx, it is said, feels compelled to write a book about the experience”. Somehow I doubt that is true, but certainly Callinicos has wanted to complete such a book, particularly on Marx’s Capital. And on this occasion, it was worth doing.
Callinicos aims to identify the purpose and structure of Marx’s Capital with the central idea of capital as a social relation. In particular, he cites early on the confusions created by Michael Heinrich, an eminent scholar of Marx’s writings, about Capital. This is a critique that I can chime with as I (with G Carchedi) only last year spent some time dealing Heinrich’s attempts to rubbish Marx’s law of profitability and its relevance to crises of capitalism (see my posts,
https://thenextrecession.files.wordpress.com/2013/12/mrhtprof.pdf and our paper,
Callinicos correctly isolates the key double relation of capital as a mode of production. It is first the exploitation of wage labour by the owners of capital; and at the same time, a competitive battle among capitals. The first is an analysis of ‘capital in general’ and the second is one of ‘many capitals’. Both are necessary to a clear understanding of capitalism’s laws of motion.
In trying to explain how this double relation works, Callinicos seeks to dissect the structure of Capital, the book. His first insight is to argue that, while Marx owes a huge debt to Hegel, the philosopher of dialectical thought who brings out the contradictions in society, Marx transcends and leaves Hegel behind, both in his materialist conclusions and in the structure of Capital, the book. Callinocos takes some space to explain the connection between Marx’s method and that of Hegel. These can be difficult chapters for the uninitiated but worth pursuing. Callinocos reaches the original conclusion that Marx transcends Hegel not just in ‘turning him upside down’ from idealism to materialism, a well-known insight, but in the dialectical structure of Capital itself.
As Callinicos perceptively points out, Marx dealt with problems by working them out as he went along. Indeed, Marx forges his own ideas ‘in dialogue’ with Hegel on the one hand and economist David Ricardo on the other. For example, it is not just noting that value is to be found in the substance of labour as Ricardo had realised. For Marx, it was that the capitalist mode of production had become the driver of all human labour power.
The biggest problem for anybody trying to grasp where Marx is going is that his work is so vast and often just sheafs of notes not worked out in a final text. Marx never seemed to finish anything before he was onto to the next subject or sidetracked into a different path, apart from facing permanent problems of money, living and health for him and his family. As a result, even Capital is unfinished and left for Engels and others after him to edit and interpret. Engels comes in for a lot of stick for ‘editing’ Marx into distortion – a charge Heinrich and others have levelled. But as Callinicos points out, Engels did the best he could and in reality he was the only one who could read and edit Marx’s manuscripts. Later editors like Kautsky have much more to be criticised for.
Whatever the failure of editors, it is clear that a reading of Capital in its three volumes and the Theories of Surplus value provide an overall theory of the capitalist mode of production, which “had taken definite shape in the course of the 1860s that Marx does not seem to have subsequently abandoned”. Thus Callinicos confirms the conclusions of Henryk Grossman and Rodolsky before.
Marx’s method is to proceed from the abstract to the concrete, from commodity to value and surplus value and then to capital, and from production to distribution. In other words, the essence of capitalism is then added to with “increasingly complex determinations”. Or as Henryk Grossman argued back in 1929, ‘[t]he construction of all three volumes of Capital was carried out methodologically on the basis of the meticulously thought-out and actually implemented procedure of successive approximation [Annäherungsverfahren]…. Each provisional simplification correlates with a later, corresponding concretisation.’ So the initial abstract treatment of capitalism is made progressively more concrete. Or as Callinicos puts it, Capital is structured like a “chain of problems, the solution to each of which drives us onto the next”.
Why is this method so important? It avoids crass empiricism by providing a theoretical framework for analysing data or phenomena (it sets up some ‘priors’ if you like), but it also avoids arid theory by connecting all the surface appearances of Capital. Thus a stock market crash can be seen in the context of the law of value and Marx’s law of profitability. Callinicos brings that home in an excellent chapter on Marx’s theory and explanation of crises.
Callinicos accepts that Marx does not present “an articulated and finished theory of crisis” but cleverly identifies six ‘determinations’ of crisis in Marx’s writings. There is the formal possibility (or enabling factors) of crisis in commodity exchange and the credit system (the area so beloved by Keynes and Minsky). Then there are the conditioning factors of the accumulation of capital and the generation of the reserve army of labour. And finally there are the contradictory conditions invoked by the law of the tendency of the rate of profit to fall and the profit and credit cycle.
In his early works, Marx had really only conceived of the enabling factors in crises: the separation of purchase and sale in commodity transactions and the disruption of money’s role through credit. It was only from Grundrisse onwards that he develops his fully fledged theory of crises based on the law of the tendency of the rate of profit to fall as the “most important law of political economy”.
Callinicos deals well with the alternatives to his interpretation of Marx’s crisis theory that are based on underconsumption (overproduction), disproportion of sectors, or intense competition or stagnating monopoly. In contrast, for Marx, crises are a “necessary violent means” for a “restoration of a sound rate of profit” and because the tendency is for that to fall over time, crises continually reoccur. And thus there is no way out of exploitation and continual, and ever more devastating, slumps in the employment and incomes of the majority except through the replacement of the capitalist mode of production – contrary to the views of Wolf, Krugman or even Galbraith.