Michael Roberts: 2018 Book Reviews

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Books in 2018: value, crashes and socialism

by Michael Roberts

Let me remind you of the books that I reviewed on the blog this year.  Of course, they are economics books only and not necessarily the best books published or let alone Marxist in approach.  But several got a big audience.

Factfulness. was a book that swept the popular media  Hans Rosling posthumously argues that, contrary to the conventional wisdom, the world is becoming a better place.  Global poverty is falling, life expectancy is rising; health levels are improving; people have more things and better services.  Even violence and wars are in decline; and democracy is on the rise.  The facts provided in the book lend support to these assertions.

As a result, many of the great and good have praised the book in countering the doom and gloom of many that capitalism is a failed and broken system.  For example, the world’s richest man, multi- billionaire Bill Gates of Microsoft, saw Factfulness as justifiying his view that things are getting better for the majority.  With the right policies on health, education, population, climate change etc, the world could progress without any change in its mode of production and social structure is the conclusion.

What Factfulness tries to ignore, however, is that inequality between rich and poor is widening, within and between many countries, including the rich ones.  And climate change and global warming are accelerating despite the technological possibilities for controlling it.  And Factfulness does not deal with or explain the causes of the recurring crises of production in world capitalism that regularly wipe out the living standards of millions for a generation.

Within the world of academic economics, one book got massive widespread coverage. Mariana Mazzucato’s The value of everything seemed to have caught the imagination of the liberal wing of mainstream economics.  So much so that Mazzacuto even got a spot on Desert Island Discs, a BBC radio programme that invites ‘celebrities’ to outline what music they would like to take with them if marooned on a desert island.  As I write, the Financial Times has again highlighted her work.

Mazzucato previously wrote an important book, The Entrepreneurial State, that ‘debunked’ the mainstream myth that only the capitalist sector contributes to innovation while the state sector is a burden and cost to growth.  In this new book, she took on a bigger task: trying to define who or what creates value in our economies, a subject that has been debated by the greatest economists of capitalism from Adam Smith onwards.

Her arguments were that 1) government is not recognised in national accounts as adding to value through its contribution to investment and innovation but should be; 2) finance has sneaked into accounts as productive and value-creating when in reality it ‘extracts’ value from productive sectors and breeds speculation and ‘short-termism’ etc.; and 3) there has been the growth of a monopoly sector in modern capitalism that is ‘rent-seeking’ rather than ‘value-creating’.

There are many powerful truths in Mazzucato’s theses.  But there are also serious weaknesses, in my view.  To argue that government ‘creates’ value is to misunderstand the law of value under capitalism.  Under capitalism, the commodities (things and services) are produced for sale to obtain profit.  Sure, commodities must have use value (be useful to someone) but they must also have exchange value (make a profit).  From that capitalist perspective, government does not create value – indeed, it can be seen as a (necessary) cost that reduces the profitability of capitalist production and accumulation.  It is the profitability of the productive sectors that is essential to a capitalist economy, not the overall amount of use values produced.

Finance is clearly ‘unproductive’ even in a capitalist sense.  But it is not just finance that is unproductive.  Real estate, commercial advertising and media and many other sectors are not ‘productive’ because the labour employed does not create new value but instead just circulates and redistributes value and surplus value already created.

The result of Mazzucato’s view is that finance is the enemy, not capitalism.  So she does not call for the replacement of capitalism but “how we might reform it” in order “to replace the current parasitic system with a type of capitalism that is more sustainable, more symbiotic – that works for us all.”  She wants a “partnership between government, multi-nationals and a ‘third sector’ (presumably social non-profit coops etc).” Indeed, she makes no mention of bringing the ‘parasitic’ finance sector into public ownership, let alone the ‘short-termist’, ‘rent-seeking’ monopolies.

The other academic book with huge impact in 2018 was that of economic historian Adam Tooze of Columbia University.  Crashed, How a decade of financial crises changed the world is an important contribution to the economic history of the global financial crash of 2008-9.  Tooze shows how it came about that the great credit boom of the early 2000s eventually led to the biggest financial disaster in modern economies and the ensuing deepest slump in capitalist production since the 1930s.  Tooze particularly emphasises that the crash was not so much a story of the US spreading its financial contagion to Europe. The credit boom was just as strong in Europe.

He shows how governments ensured that the stronger and luckier big banks gained at the expense of the weaker and smaller; and how government intervention provided funding for the culprits of the financial disaster at the expense of the victims, working people, tax payers and small businesses.  Crashed is a granular and fascinating account of the crash and its aftermath.  It powerfully shows what happened and how, but, in my view, does not adequately show why it happened.  For Tooze, the cause seems to be the previous deregulation of the banking system, financial greed and incompetent authorities.  For me, these are only symptoms or immediate catalysts of the underlying causes in the capitalist economy.  For the latter, we must go deeper to the nature and movement of profitability in capitalist economies.

The theme that the global financial crash and the Great Recession were caused by financial deregulation and reckless bankers was also promoted by Lord Robert Skidelsky in his new book Money and Government: A Challenge to Mainstream Economics.  Lord Robert Skidelsky is emeritus professor of economics at Warwick University, England.  and the most eminent biographer of John Maynard Keynes and a firm promoter of his ideas.

Skidelsky’s book, its cover blurb says, is “to familiarise the reader with essential elements of Keynes’s ‘big idea’.“ Skidelsky starts from the premiss (like Keynes) that capitalism is the only viable and best mode of production and social relations possible – the alternative of a socialist system of planning based on public ownership is anathema to Skidelsky (as it was to Keynes).  But capitalism has fault-lines and successively recurring slumps and depressions reveal that. So Skidelsky’s job (as Keynes also saw it) is to save capitalism and manage these recurring crises to reduce or minimise their impact.

What does Skidelsky think we should do?  First, we must break up the big banks into smaller units and “institute controls over the type and destination of loans they make.” Second, we need to ‘manage’ capitalism with proper fiscal and monetary policies.  Third, we need to reduce inequality so that wages are sufficiently high to sustain “the consumption base of the economy”. Otherwise it “becomes too weak to support full employment.”  Thus Skidelsky seems to think that the causes of crises are low wages and consumption.  And like Tooze, Skidelsky says that unless we act along these lines to save capitalism, there is the danger of the rise of ‘populism’ and “the flight of voters toward political extremism.”

Mazzacuto’s attempt to resuscitate classical value theory is flawed, in my view.  In contrast, Professor Murray Smith of Brock University Canada offers a much clearer analysis, in his 2018 book, Invisible Leviathan, which, of course, has not got any acclaim or coverage from the left, let alone, the mainstream.  Smith critically explores the debate surrounding Karl Marx’s ‘capitalist law of value’ and its corollary, the law of the falling rate of profit.  The reader gets a clear account of the various interpretations of value theory and Smith makes his own significant contribution.  In my view, it is essential reading (not just because I wrote a foreword!).  The price set by the publishers, Brill, is prohibitive.  However, a paperback version will appear in 2019.

The capitalist mode of production is coming to an end.  But it is not being replaced by socialism. Instead, there is a new mode of production, based on a managerial class that has been forming in the last hundred years.  This managerial class does not exploit the working class for surplus value and its accumulation as capital.  The managers instead use power and control which they exercise through the management of transnationals and finance.  The working class will not be the ‘gravediggers’ of capitalism, as Marx expected.  The ‘popular classes’ instead must press the managerial class to be progressive and modern; and eliminate the vestiges of the capitalist class in order to develop a new meritocratic society. Such is the thesis of Managerial Capitalism, by Gerard Dumenil and Dominique Levy (D-L), two longstanding and eminent French Marxist economists.

For me, this seemed an old-fashioned, outdated and refuted scenario to present in 2018.  After all, Marx wrote about joint stock companies 150 years ago.  Surely, the real question is: in whose class interest do managers carry out their managerial labour? The very nature of the capitalist economy obliges the managers to manage in the interest of the 1%.  Their jobs depend on the decisions of the shareholders, the company share price and its earnings performance, however highly paid they are.  Capitalism has not really changed in its fundamentals in the last 150 years.

But one thing has changed – the ‘socialist’ alternative of the Soviet Union has disappeared.  What can we learn about the feasibility of socialism from this failed state?  In a new book, Varieties of Alternative Economic Systems, edited by Richard Westra, Robert Albritton and Seong Jeong, Marxist economists try to ‘look beyond’ just a critique of capitalism and consider ‘practical utopias’ for the socialist alternative.

How a socialist future might work is a badly neglected area of debate with most Marxists just relying Marx’s own short Critique of the Gotha Programme of the German Social Democrats, or occasional economic analyses that deny the feasibility of socialism. This book moves things on to discuss ‘positive practicalities’ with some ground-breaking work from the likes of Richard Westra, Al Campbell and Seong Jeong.  Factfulness argued that the future is bright – but this book shows that this is true only with the arrival of ‘practical’ socialism.