by Michael Roberts
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, http://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
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
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, http://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, http://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, http://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,http://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,
http://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,
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
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
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
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.
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