I thought I would remind myself and blog readers of what seemed to me were the best books on economics published this year. The criteria for me were whether the book added any new idea or understanding of developments in modern capitalism or in Marxist economic theory. Yes, I know, very boring with no jokes or stories involved.
Let start with those books that looked at the activities of finance capital and imperialism in the major economies and globally. In his excellent new book, Finance Capital Today, French Marxist Francois Chesnais analysed in detail the key developments in modern finance and the causes of the global financial crash in 2008.
As Francois says in a comment to my blog, “Today not enough surplus value is being produced to re-launch the accumulation process and the amount that is serves to consolidate the accumulation of dividend and interest bearing assets by banks, funds and individuals (financial accumulation) and so the claims on this already very insufficient amount of surplus value. This has led both to the dead-end of the quasi-zero long term interest rate regime, which not simply the outcome of quantitative-easing and to the endless small shocks in the global financial system. Of course government debt and the resulting pro-rentier, pro-cyclical austerity policies only aggravate this situation but they do not explain it and their reversal would not solve capitalism’s basic problem.” Tony Norfield provides a really comprehensive and positive review of Chesnais’ book on his blog site.
And of course, in 2016, Tony published his own analysis of modern capitalism with The City: London and the Global Power of Finance. Norfield brings us key insights into understanding the nature of modern financial systems and what role they play in the working (or non-working) of capitalism. Tony defines as imperialism where a small number of countries dominate world markets through their multi-national corporations, which can be both making things, providing services and financial, or often all three. Financial privilege is a form of economic power, enabling imperialist countries to draw upon resources and value created elsewhere in the world. Finance and production in 21st century capitalism are inseparable – “they are close partners in exploitation”. Norfield also reveals the large role of British capitalism in imperialism. Britain is second only to the US in the importance of its financial sector globally and in some areas like foreign currency trading it leads. In a way, Britain is the world’s largest ‘rentier’ economy. For that reason alone, the Brexit referendum vote puts the future of London as the centre of global finance capital in jeopardy.
While Tony Norfield’s book looked at modern imperialism from the apex of finance capital, John Smith, in his Imperialism in the 21st century, looked at it from the point of view of billions living under the grip of imperialism in what used to be called the Third World and is now called the ‘emerging’ or ‘developing’ economies. There was quite a debate on my blog during the year on John’s view that it was the ‘super-exploitation’ of wage workers in the ‘South’ that is the foundation of modern imperialism. That only helped to emphasise the importance of John’s book.
The role of finance in causing instability in modern capitalism was the theme of Jack Rasmus’ intriguing book, Systemic Fragility in the Global Economy. Rasmus reckons that mainstream economic theory has completely failed to account for this fragility; or forecast any crises like the Great Recession; or explain the ensuing depression. But Jack is not only damning about mainstream economics. He maintains that heterodox theories of crises in the post-1970s world economy have also been found wanting. The followers of Keynes and Marx come in for criticism. The Keynesians are at fault because they have lost the essence of Keynes’ insight into the instability and uncertainty found in a monetary and financially-dominated economy. His book is certainly a thought-provoking contribution to an understanding of the fragility of modern capitalism.
The various theories or explanations of the cause of crises under capitalism from a Marxist or radical perspective were brought together in a collection of papers entitled The Great Financial Meltdown cleverly edited by Turan Subusat.
Turan provides an excellent introduction and summary of the views of top Marxist scholars. It includes a debate between David Harvey and myself on the relevance of Marx’s law of profitability to crises. Turan argues that the causes of crises under capitalism and, in particular, the recent global financial crash and subsequent Great Recession, can be considered from three angles: is there a systemic underlying cause of crises (the falling rate of profit or underconsumption); or is it conjunctural (each crisis has a different cause); or is it the result of policy decisions (eg the neoliberal agenda, financial deregulation etc)?
The failure of mainstream economics to have any useful part to play in such discussion was exposed Ben Fine in two volumes, called Microeconomics and Macroeconomics: a Critical Companion, Fine (along with co-author Ourania Dimakou) delivers a comprehensive critique of all mainstream economic theories and models. This makes it an invaluable antidote to the conventional poison of marginalism and general equilibrium theory in microeconomics; and Say’s law and the denial of crises or slumps in macroeconomics.
Fine makes the point that macroeconomics has shifted from theory to models. Mathematical models replaced theory, with models to be tested ex-post. What is wrong with mainstream modelling is the lack of realism in the starting assumptions. Fine goes through the famous accelerator-multiplier Keynesian model that shows the instability of capitalism but does not show why. Fine goes onto analyse the counter-revolution against Keynes’ more radical model of instability and how the mainstream has castrated that into a model that moves to equilibrium given the assumptions of falling prices and wages – indeed, a synthesis with neoclassical theory. Growth models are divorced from short-run fluctuation models.
It is interesting to compare Fine’s critique with that of Paul Romer, a mainstream economist, also lays into the state of macroeconomics in his paper The trouble with macroeconomics, Romer says that the explanation of crises under capitalism as just being the result of ‘exogenous shocks’ to an inherently harmonious process of economic growth is useless. If you just keep adding possible ‘imaginary shocks’ to explain sharp changes in an economy, “more variables makes the identification problem worse.” As Romer points out, “solving the identification problem means feeding facts with truth values that can be assessed, yet math cannot establish the truth value of a fact. Never has. Never will.
Two great books on the big issues of modern capitalism: rising inequality and falling productivity and growth, were produced by non-Marxists. In his book, Global Inequality, former World Bank chief economist Branco Milanovic shows that global inequality has increased since the early 1980s, when ‘globalisation’ got moving. Rising inequality is the result the drive of capital to reduce labour’s share and raise profits and to the recurrent and periodic failures of capitalist production. Growth of incomes has been concentrated in China, and to a lesser extent and more recently, India.
The most controversial economics book among the mainstream in 2016 was Robert J Gordon’s The rise and fall of American growth. In his book, the accumulation of research over the last decade, Gordon concludes that the great new productivity-enhancing paradigm that is supposedly coming from the digital revolution is actually over already and the future robot/AI explosion will not change that. On the contrary, far from faster economic growth and productivity, the world capitalist economy is slowing down as a product of slower population growth and productivity.
Balanced against Gordon are a myriad of techno-optimists and economists who reckon that the world is on the brink of a productivity explosion driven by robots, artificial intelligence, genetics, and a range of new ‘disruptive technologies’ – disruptive in the sense that traditional jobs and functions are going to disappear and be replaced by robots and algorithms. The optimists argue that, since the time of Thomas Malthus, eras of depressed expectations like our own have inspired predictions of doom and gloom that were proved wrong when economies turned up a few years down the road.
Providing a balanced view of the impact of technology under capitalism is a short but great book, The Bleeding Edge, by Bob Hughes. Hughes graphically outlines in a series of chapters that, if technology was controlled by public organisation and in common (or as he prefers, following Kropotkin, the thoughtful anarchist, in ‘mutual association’), then huge strides in innovation could be made. He provides a host of examples for solving global warming, reversing environmental destruction, reducing wasteful production and protecting natural resources, including flora and fauna.
Finally, but by no means least, I come to the two great books of Marxist economic theory released this year. Anwar Shaikh says he is not a Marxist but a ‘classical economist’. In his magisterial 1000-page Capitalism: Competition, Conflict, Crises, Shaikh explains that his “approach is very different from both orthodox economics and the dominant heterodox tradition.” He rejects the neoclassical approach that starts from “Perfect firms, perfect individuals, perfect knowledge, perfectly selfish behavior, rational expectations, etc.” and then “various imperfections are introduced into the story to justify individual observed patterns” although there “cannot be a general theory of imperfections.
Shaikh emphasises that it is profit under capitalism that drives growth and there are cyclical fluctuations in profitability. These are expressed in business and fixed capital cycles inherent in capitalist production. Crises are normal in capitalism. The history of market systems reveals recurrent patterns of booms and busts over centuries, emanating precisely from the developed world. The key crises under capitalism are ‘depressions’, such as that of the 1840s, the “Long Depression” 1873-1893, the “Great Depression” of the 1930s, the “Stagflation Crises” of the 1970s and the Great Global Crisis now.
Shaikh reckons that on the surface, the last crisis, the Great Recession, looks like a crisis of excessive financialization. But this fails to identify the real cause of the crisis. Keynesians and Post Keynesians argue that the cause of the current crisis is inequality and unemployment, so there is a need to maintain a stable wage share and to use fiscal and monetary policy to maintain full employment. But Shaikh argues that such policies would not work because, at least in the US, the post-Keynesians have got the causes of the crisis wrong, the cause of which is the movement in profitability – the dominant factor under capitalism.
Fred Moseley’s book Money and Totality is a profound defence of Marx’s value theory and its relevance to the laws of motion in modern capitalism. Moseley takes the reader carefully and thoroughly through all the competing interpretations of Marx’s value and price theory and shows that a Marxist analysis delivers a single realistic system of capitalism. If we interpret Marx’s as a single system, an actual capitalist monetary macro-economy, then it is perfectly possible (with all the caveats of measurement problems and data) to carry out empirical analysis to verify or not Marx’s laws of motion of capitalism. Testing theory and laws with evidence is now the name of the game. Fred Moseley allows us to do that with confidence that we are testing a logical and consistent theory that is verifiable empirically.