[...] in capitalism the realms of market and the firm are in fact necessary complements. There is choice regarding markets and hierarchies because both are essential to capitalist relations of production, distribution, and consumption. [...] the capitalist firm is a response to the information, coordination, and social conditions that limit what markets can do. In other words, one of the fundamental institutions of capitalism exists precisely because orthodox economics is wrong, and markets cannot do the work they are supposed to do.

[...] If wages were sufficiently flexible to clear all labour markets, then all firms would pay the same wage for the same work, and all workers could find work (the definition of market clearing). From a worker's perspective, quitting would be virtually costless. From an employer's perspective, commitment to the employee would be useless because they are all replaceable. This would build an unmanageable instability into capitalism, and--as unfortunately little-known economist Michael Kalecki has pointed out--is patently against capital's interests.

As Kalecki puts it, if the labour market ever worked the way neoclassical theory imagines it--if wages were flexible, Say's Law held, and all willing workers found jobs in some orthodox "full employment" dream--then workers would have no fear of "the sack." [...] Full employment would put the workers in charge [...]

In other words, despite any claims to the contrary, capitalism must have unemployment. It is essential to the system's political stability (by disciplining workers) and productivity (by keeping the prodction process in motion). This only further weakens the edifice of neoclassical "market-clearing" theory, because even if unemployment were not in capital's political economic interest, joblessness would persist. [...]

Kalecki's point is not only that full employment is impossible in capitalism, but that any substantial effort to provide full employment--perhaps through the state, or reduced work-weeks--would be aggressively opposed by employers. [...]

[...] Polanyi has been rediscovered by critics of capitalism in recent years for two principal reasons. The first is his argument that capitalism only developed via the evolution of three "fictious commodities"--things that it must pretend are produced for sale on the market, but are not: land, labour, and money. Polanyi says that none of these are a commodity in the "widget" sense. Yet, because land, labour, and money must circulate on markets like other commodities to make capitalism work, we accept the fiction that they are commodities.

Polanyi's second contribution is his acount of modern capitalism's attempt to produce a social structure that "disembeds" the market from its broader historical and geographical context. This allows it to appear "self-regulating," divorced from the life-world in which all human activity is unavoidably embedded. [...] The upshot is that the contractual relations that define markets and firms in capitalism hinder by their very structure the creation of perfectly efficient, autonomous markets.

Bretton Woods (to which Keynes contributed significantly, although the final arrangements differed from his proposals in important ways) had three main formal aims: to promote and fund postwar European reconstruction, in Germany and France especially; to secure the political stability of debtor nations (the UK in particular, whose finances the war had left in tatters, deeply indebted to American finance and the US state); and to stabilize the international monetary regime, which was (correctly) understood to be crucial to the first two goals. Forty-four nations, including the most powerful states in the world and led by the US (which emerged from the war the clear capitalist hegemon), signed the agreements. According to their architects, the institutions would work as follows:

The IMF, using funds contributed by all nations, would provide low-interest loan coverage to debtor states to prevent default during reconstruction and reconversion (the shift from a war-economy to a "peace-time" economy). The World Bank would provide loans or grants for the reconstruction of European (and, eventually, Japanese) economies, a flow of funds greatly enhanced by the US's Marshall Plan, which rebuilt German industry remarkably rapidly in the 1940s and 1950s (the US wanted German demand for its intermediate and consumer goods, so reconstruction was essential). To make all this possible, the international monetary regime was stabilized via a system of "fixed" exchange rates between all major currencies, so all capitalist nation-states had the value of their moneys "pegged" to specific rate against the US dollar (unsurprisingly, China and the Soviet Union were not signatories). The foundation of the system lay the US dollar's anchor to a gold standard. In other words, its value was pegged to gold, which made the US responsible for the stability of the regime as a whole. Every US dollar was to be backed by--exchangeable for--gold: 1 troy ounce for every 35 US dollars, to be precise.

Although the term "Keynesian" has come to describe the deficit-financed welfare function of the state, as discussed in Chapter 2, it is in some ways quite far from what Keynes' theory suggests and the policies he endorsed. While he recognized the temporary need for state debts, he was no fan of permanent welfare mechanisms. Indeed, the massive infrastructure of the modern welfare state would have almost certainly alarmed him.

• Low unemployment levels empowered labour, which demanded a bigger income share [...] thus reducing profit and slowing innovation.
• High capacity utilization the proportion of productive resources actually in use) and growth increased demand and stressed supply, causing inflation.
• Europe and Japan [...] "caught up" with the US, challenging the Bretton Woods political economic hierarchy, which was explicitly structured with the US on top.
• Existing technologies were pushed to their limits, reducing the Long Boom's unprecedented rates of productivity growth.
• The isolation of planned economies [...] allowed them to grow also [...] fanning domestic opposition in the capitalist core.

This underlines the fact that how we explain the crisis of the 1960s and 1970s is not merely "academic". On the contrary, it is enormously important today, both politically and economically, because we are constantly struggling over what lessons the past teaches. Different interpretations of the past lead to different conclusions regarding what can be done at present. But we must not reject orthodox explanations just because they are orthodox. In fact, capitalist reason provides some very helpful tools for understanding capitalism. There are aspects of contemporary economic life that appear to be very well diagnosed by conventional tools. Rather than rejecting orthodoxy because of its ideological predisposition to posit capital as the engine of historical progress, even in periods before capitalism itself existed, and to see workers and noncapitalists as "backward" forces, hindering progress, we need to see it for what it is: a set of ways of understanding the world that is a product of the very world it is trying to explain. Capitalist reason is embedded in and emerges from a particular, ideologically saturated world. Recognising the embeddedness of "reason" in its time is about as close to truth as we are ever going to get with respect to actually existing human communities. We have to resist the desire to dismiss it out of hand, and search instead for the truth in it, truth of which that reason might not itself be aware.

[...] It has never been interested in upsetting capitalism or its key institutions. If the UAW had its way, the Long Boom would have been Longer, ideally Eternal. [...]

[...] the crisis that ended the good ol' days of the Long Boom was a distributional struggle. Orthodoxy almost never says this explicitly, but it is right there in its account of the history of capitalism. This struggle had two fronts: (1) a struggle between labour and capital over the distribution of income--an increasingly empowered labour-force wanted more of it; (2) a struggle between nationally based capitalists over the distribution and control of productive power and international market share. One might also add: (3) conflicts between highly developed rich countries and resource-rich but less powerful countries. [...]

[...] It put capital back on top of the political economic hierarchy--it had never really been usurped, but it had been forced to cater to the rabble--by choosing domestic conflict management option (b) above: clamp down by reducing government spending, raising interest rates, suppressing wages and benefits, and tightening up the supply of money and credit in circulation. This hurt capital in the short term, and support among business people for this radical economic restructuring was by no means unanimous, but in the long term it was one of the most brilliant moves it ever made. This turn to inflation control marks the consolidation of the neoliberal capitalist state in the industrialized world.