by
Geoff Mann
View all notes
Orthodox arguments about what markets can do only understand the "market" dimensions of markets, and can only understand those relative to a mythical standard. They cannot comprehend markets as dynamic social institutions, embedded, sometimes deeply, sometimes precariously, in real times and places. They cannot comprehend politics as anything other than external "disturbance" of the market, an obstacle to perfection.
Ultimately, orthodoxy does not have a very strong argument for the superiority of market organization, in the sense that it cannot base it on any sort of proof or logic. On the contrary, the commitment to the market is more a leap of faith; a leap, we are told, that if we all take it together, will performatively make it so. The fact that many of us are reluctant to take the leap has paradoxically become one of the go-to excuses for the failure of markets to work their magic. When capitalism does not deliver the goods, free marketeers almost inevitably attribute it to the fact that we are not committed enough to the market, that somehow we still intervene, preventing competition from realizing its potential.
specifically referring to the Chicago School (UoC's econ dept, e.g., Milton Friedman), which is an important but not the exclusive form of neoclassical economics. an alternative is Hayek (Austrian school)
[...] The common claim that economics is evil because it "quantifies" everything is a weak and distracting argument; too many radical critics give it too much emphasis. It is hard to imagine that whatever world anticapitalism produces will not require lots of "quantitative" analysis. The very notion of redistribution--central to any anticapitalist politics--is unavoidably, if not completely, quantitative. [...]
[...] there are situations in which they don't seem to work all that well--and not merely relative to the perfection some assume they should attain, but even relative to suitably diminished "real-world" expectations. Economists call these "market failures," and perhaps the most commonly noted is the case of so-called "public goods." In political economy, public goods are not just things that are good for the public, but goods or services that it helps everyone to have, but for which there is insufficient incentive for capitalist investment. [...] even if an entrepreneur could come up with a way of "cleaning" the air, there is no way he or she could make a return on their investment because it would be impossible to prevent people from breathing cleaned air for free. Clean air, at least so far, is what economists call "nonexcludable" and "nonrival"--you may be able to provide it for a price, but it is impossible to prevent someone from using it at no cost (nonexcludability), and no matter how much one person uses, it does not diminish available supplies (non-rivalry). In the case of clean air, then, there is no market incentive to provide it: you can't exclude those who don't pay from using it, and no matter who or how many uses it, there is always enough left for others. In other words, you can't control its distribution via contract and you can't make it scarce enough to merit a price.
other examples of market failures: monopolies, and asymmetric information
in the case of asymm info for contracted work, the company might purchase the contractor, "eliminating the market mediation of the relationship, and moving the agent inside the nonmarket command hierarchy of the principal" (cus otherwise, asymmetric information can screw over the company)
[...] 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.
q to consider from the POV of a free marketeer: where does the free market end? how big should corporations be?
[...] 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.
I keep reading bits and pieces about the impact of Bretton Woods on the recent history of capitalism, but this take is good because it's fairly comprehensive and all in one place
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.
footnote 39
- 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.
he's not offering his own views here, but more a common view held by liberals and conservatives alike. note the very orthodox flavour that seems to blame labour
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.
even if the rest of the book weren't fantastic, it would be worth reading just for this paragraph
for diss: not worth citing, but good framing inspo