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October 23, 2014 - by David Gleicher
In his classic work,The Great
Transformation: The Political and Economic Origins of of our Time, Karl Polanyi locates 1795 to 1834 in England as the the decisive moment when an industrial capitalist
system took shape. 1795 is marked by the passage of the Speenhamland laws. The latter constituted a
major reform of existing Elizabethan laws. It changed the basic allowance arrangement by which the State
provided economic support of the needy, notably assisting for the first time low wage laborers in addition to the unemployed. Like the preceding Elizabethan laws, Speenhamland was administered by the locality in which an individual was registered.
1834 is marked by the complete repeal of Speenhamland and beyond that the elimination on
principle of State allowance-giving, on the social responsibility of insuring the life of the impoverished. The principle as initially put by Mandeville in the Fable of the Bee (1714) is: Private
vices are social benefits. It is of course at the core of Smith’s celebrated Wealth of Nations, written some sixty years later. Thereafter more moderate ways were found of expressing the principle instead of vice. Terms that are now universally known and believed in: free market, free enterprise, entrepreneurial economy; capitalism, individualism, liberalism and so forth.
The principle, once having emerged in the 18th century, has under-girded arguably the most influential conception of social life since the idea of a self-regulating market system caught on. And it is as robust and widespread a view today as any other in the 300 years after the publication of Fable of the Bees. The radical removal in 1834 of all State obligations to the
needy is generally treated as a great triumph of the classical school. David Ricardo, the leading thinker of the school spear-headed the drive to get the State not to act to support
life, but to adopt a laissez-faire policy. Polanyi quotes a populist writer of
the time, Joseph Townsend, who voices (much like Ayn Rand) a faith in the principle
so strong that he considers sacrificing for others--all charity by implication--to be socially harmful.
"The Poor Laws proceed from principles which border on
absurdity, as professing to accomplish that which in the very nature and
constitution of the world, is impractical. But once the indigent were left to
the mercy of the well-to-do, who can doubt that the only difficulty is to
restrain the impetuosity of the latter's benevolence?" (1944: )
As discussed in the previous entry it is clear that control
of labor processes by owners of industrial capital was not attained until the
mid to late 19th-century, in tandem with mechanization The repeal of
Speenhamland was a tactic that severed the rural poor from their localities by taking away the allowances connecting them to a locality. Beyond tactics, it should be noted, this was part of the larger erasure of the peasant village, the cultural attachment of peasants to the land. Without income support many were forced eventually into the
newly industrializing cities. In doing so labor was established as what Polanyi calls a fictitious commodity. That is, it is an actual human activity whose purpose vis a vis capital is to be bought and sold as an object.
The forces moving things toward labor as commodity, control
of labor processes, and mechanization come together during the second half of
the 19th century. Taylorism was still being diffused across industries as late as the turn of the century. The repeal of Speenhamland back in 1834 certainly was a factor, but the two other forces in their own right were far more powerful in freeing the supply side of the burgeoning industrial labor markets. .
However, for Polanyi the effect of the repeal in freeing up early-19th century labor markets is secondary. Rather he sees in it an historic cultural shift. A social entity for the first time openly sheds responsibility to support the needy, indeed adopts it as a principle not to give aid to them. This is the darker meaning of laissez-faire. Of particular interest to us here is Polanyi's juxtaposition of an infinite loss to humanity, the degradation of life, to that of a commodity, and on the other side ultimately trumping it, the great harm that would be done by trying to recoup the loss.
"Under Speenhamland society was rent by two opposing influences, the one emanating from paternalism and protecting labor from the dangers of the market system; the other organizing the elements of production, including land, under a market system, and thus divesting the common people of their former status, compelling them to gain a living by offering their labor for sale ... By 1834, there was a general conviction--with many thinking people a passionately felt conviction--that anything was preferable to the continuance of Speenhamland. Either machines had to be be demolished ... or a regular labor market had to be created. Thus was mankind forced into a ... Utopian experiment." (1944: 80-81)
Polanyi bases this on his own economic analysis of Speenhamland. Unlike the Elizabethan laws the worker allowance was now designed to provide all workers with a putatively livable income, At a set-income level or below the worker's allowance became the amount required beyond the wages paid by the employer, to reach that income level. It was required that the able worker be employed to qualify for the allowance.
According to Polanyi, what actually occurred during the crucial years of Speenhamland was an economic disaster, causing such great harm to both capitalists and the impoverished that there was no choice but to embrace laissez-faire. As he sees it, labor during the period was rendered terribly unproductive. And in the range below the set-income level the employer lacked the leverage to do much about it. There was no way of raising the wage rate as a carrot, or reducing it as a stick. On the other side of the coin the employees had no leverage to raise wage rates. And in any case below the set-income level, again, an increase in the wage rate did not increase the income of the laborer. It simply reduced the allowance.so there was no incentive for the workers to push for a raise.
But there is a telling lacuna in Polanyi's discussion. It is apparent in the repeated qualification that wages are equal to or below the set-income level. At its roots is the requirement--found in the negative in Elizabethan laws--that the able worker who can be employed must work no matter how low the wage, In the Elizabethan laws only the disabled, or able workers who genuinely cannot find employment at any wage, that receive an allowance. In Speenhamland, because of this requirement, the employer does have leverage. If the laborer refuses to work he may lose his allowance (and his wages). Putting this in reverse, absent the linkage of the allowance and employment the laborer would not accept a wage equal to or less than the set-income.
This leads to the conclusion that the repeal of Speenhamland does not mark a great transformation,as posed by Polanyi. The historic removal of the State's responsibilities was the enclosure movements in England which peaked well before 1795-1834. The separation of peasants en-mass from the land throughout the eighteenth century was led by merchant and banking capital--mercantilism--spawned around the 12th and 13th century. By the 18th century there was a significant capitalist force acting on the economic system.
The repeal of Speenhamland is better understood then as marking the first transformation of capitalism. The latter is no longer dominated by the circulation of commodities via merchant and banking capital. It is becoming a system of industrial capital. It depends crucially on laborers controlled by capital in production, along with the circulation of merchant and banking capital. That basic control of labor was achieved for the most part by the last decades of the 19th century. This does suggest, however, that another transformation is quite possible. In particular, some 100 years later that is just what is happening.
September 27, 2014 - by David Gleicher
Harry Braverman's Labor and Monopoly Capital (1974) contains
a seminal study of changing forms of capital
and labor over the course of capitalist social systems.He points out that in the
period of the late-17th through much of the 19th century, emergent productive
capital commonly took the form of
subcontracting, notably putting-out arrangements and the like, between capitalist and craftsmen, or not-yet displaced peasants. And it was common for workers to be paid in piece rates for product, rather than wage-rates for labor.
Thus the ones doing the work still were playing a central role in the organization and regulation of the production process; Along with that, capital continued to generate in large part a
return to both merchant and banking capital, exchange but not production. These other forms had risen around the 14th century. Profit
generated by production and sale was thereby not conceived of as a fundamental form of
capital until roughly the mid to late-9th century. (1974: 62-63). In turn, it was not until mechanization had spread across industries that the basic principles articulated by Taylor and Babbage could be put into practice on a larger and larger scale. At that point industrial capitalism became firmly established.
The chief tenet of Taylorism is: conceptualization and
ownership of the product do not generate in themselves enough of a return on
productive capital for that capital to flourish. The very process of production needs to be laid out in the greatest possible detail by management, independent of employees. The latter then are simply to carry out management orders in open time, according to a division of various tasks dictated and assigned by management. “All possible brain work should be removed from the shop and centered in the planning or lay-out department.” (Taylor: 113) Management-determined production is in closed time. It is an idea. This creates not only a clear separation of what management activities are, as opposed to those of employees, but a splitting of the very time dimensions along which these separate agents are experiencing the process.
It bears mentioning that there is a curious juxtaposition in Marxist thought, here, at least as far as it is reflected in Braverman's exposition. Braverman begins the book with Marx's famous assertion that what distinguishes humans from all other creatures is, we humans alone imagine and design, after which we actually create. Industrial capitalism can be seen then as an historic leap (akin to the domestication of animals), the tailoring of production imagined and designed so as to create what amounts to mechanized labor; that is, labor requiring of the individual as little thought as possible. Ideally, it is purely physical (robotic) activity in open time..
Babbage's Principle, as it is known, complements that of Taylor. It is predicated on the dividing up of labor in such a way that each employee's identity derives from a set of tasks they are assigned to do. Those tasks are literally the occupation of the employee. And in unrestricted labor markets the nature of the occupation--not the product per se--is what the payment of the wage is for. In short the individuals employed within the process of productive capital are not to be producers as such. Babbage's principle, then, is to design
production always with a mind to further simplifying the sets of tasks--what
Braverman calls de-skilling--thereby reducing wage costs. It is easily seen that mechanization along these lines fulfills Taylor’s call for strictly defined tasks imagined and designed by management. It also supports Babbage’s principle of simplifying tasks which in turn furthers the mechanizing of labor as championed by Taylor..
In the framework of this entry, Systems of Capitalism, Braverman makes a striking assertion concerning the period prior to industrial capitalism. Beginning in the final stages of the enclosures, the late-17th century, especially in Britain, and ending with the establishment of industrial capital, notably Britain. US and Germany.
"[T]he early domestic and subcontracting systems represented a transitional form, a phase during which the capitalist had not yet assumed the essential function of management in industrial capitalism; for this reason it was incompatible with the overall development of capitalist production, and survives only in specialized instances." (1974: 63)
My own sense is that the current crisis has brought home to many another reality from what it was before. Industrial capitalism, as a particular social system, is rapidly transforming
into something else. Braverman rightly concludes that there is an
"essential function of management in industrial capitalism." The
questionable Hegelian notion of an "overall development of capitalist production,"
however, obscures the possibility that the social system in the period preceding industrialization was not a "transitional form." Rather it can be understood to have been a social system in its own right, one that indeed lasted some 100 to 200 years.
Along the same lines, industrial capitalism seems to have entered a final stage around 1980. Thus it has been a dominant form for some 150 years. And the transformation is clearly seen in the radical change in the function of management. Much of industrial capital now takes the form of a financial asset and is taken away from production of goods for profit. The transformation is exemplified by two contemporary aspects of virtually all the major industries: extreme concentration seemingly leading in a few cases already into duopoly and even monopoly; and secondly, expansion of scale to an increasingly global level. Conjointly, the new reality is seen directly in in productive industries evolving into quasi-banking institutions, the revenues from production and sale effectively treated as deposits.
August 27, 2014 - by David Gleicher
It's been my habit for several years now to go back every once in a while to
some book that I tried to read when I was much younger, but
the experience was, let us say, unsuccessful at the time. In some rare cases this has been not just a
single book but many works of a particular author. (The prime example of this for me
is all of Kafka's fictional writings, which
I was re-reading intensely recently, not to say teaching and
writing about as well.)
The books that I've gone back to are only the few that while
abandoning them in the moment nonetheless I remain puzzled by them, to the point where
at a certain age, or because of a random circumstance, I decided to see what if anything I had missed out on, something I’d been perhaps too young to perceive. As we
were taught at St. John's College: Upon being confronted by a great work that leaves
you cold ask yourself the question, To what flaw in me do I owe this lack of
Maybe it was recent thoughts of the 60s--e.g., see entries 13 and
14--that put it in my head not long ago to revisit a novel by Hermann Hesse, Steppenwolf. In my last year of high school, and then into my college years, I avidly read virtually all of
Hesse's novels. It was a time when elements of the Beats of the late-50s had melted into Hippies, and more generally a cultural/political stew was bubbling in the pot. Hesse's poetic writings were nice spices thrown into the brew. With one true exception, Steppenwolf, each of his novels was a closed narrative prose poem similar to the works of Novalis a century or so earlier. Each book an elegantly spun spiritual tale.
Hesse's novels aligned easily with the peace/ love missive of the hippies and with the attraction of non-Western philosophies in reaction to the consumerism of the 50s. And it was toward the end of 1966, around Thanksgiving (the beginning of my senior year) that out of nowhere I entered what I experienced as the most exotic, exciting mysterious, liberating and encompassing transformation of who I was in my life up until then, and ever after. I was ushered into a new world by two brand new high school companions: my first never to be forgotten love, and a best friend of hers and soon a best best friend of mine. I'd become a Steppenwolf.
One of their initial gifts to me was an introduction to Hesse's novel Demian, first published at the end of WW I in 1919; the same year that Hesse settled in Switzerland (away from Germany). He then lived a secluded life there, continuing to write until his death in 1962, at the age of eighty-five. Thomas Mann in 1947 wrote of Demian:
"The electrifying influence exercised on a whole generation just after the First World War, by Demian ... is unforgettable. ... With uncanny accuracy this poetic work struck the nerve of the times and called forth grateful rapture from a whole youthful generation who believed that an interpreter of their innermost life had risen from their own midst--whereras it was a man already forty-two years old who gave them what they sought." (1947: ix-x)
Taking a page from this adumbration of the 1920s, the year 1967 contained an obscure but interesting signal, the cultural upheaval within the baby boomer generation. Four leading novels of Hesse's were newly issued in paperback. In addition to Demian (1919) the book racks contained Sidartha (1923), Steppenwolf (1927) and The Glass Bead Game (1945). (Also available in paperback at that time was Journey to the East, Hesse's last book. It was first published in 1956 in paperback and had been available as such in the interim.)
Accustomed to and entranced by Hesse's poetic writing in 1967, I see now, having re-read Steppenwolf, why I was unable to grasp large segments of the various inter-woven narratives of which it was composed. I found them, unlike any other book by Hesse, tedious at best and at worst verging on the reduction of sentences to pure sound.
I see now that I was indeed blind along one crucial dimension of the work. Steppenwolf is an unusual, if not unique case of an author writing an anti-novel directed at, among other things, the genre of the novels that the author writes. Mann, in the same passage as above comments along these lines: "[A]s an experimental novel, Steppenwolf is no less daring than Ulysses and The Counterfeiters."
What I missed in 1967 was that I, the reader, was experiencing Hesse himself--almost as he is writing it--a man about to turn fifty (1927) in the midst of a deep mid-life crisis. At the heart of the novel is a painful self-mockery of Hesse's own spiritual tales, a condemnation of his personal failure to live life in open time, in the moment. This is expressed in the anti-novel by turning the closed time of his tales inside out. Hesse in Steppenwolf is a writer struggling throughout to reach open time. And in the end Hesse wearily concludes:
"[I knew that a]ll the hundred thousand pieces of life's game were in my pocket. A glimpse of its meaning had stirred my reason and I was determined to begin the game afresh. ... One day I would be a better hand at the game." (1927: 245-6)
Hardly the inspiration to 1960s adolescents at the threshold of the unknown. However, along another dimension there is a social critique within Steppenwolf, particularly the first few narratives in the book. And indeed I remember being absorbed reading the early parts, and some of the images never left me. In this respect the anti-novel in betraying poetic writing, allows Hesse, perhaps for the only time, to openly contextualize contemporary culture as he sees it, via the fictional imagining at which he was, of course, a master.
Reading the novel now, brings back to me what actually fueled to a great degree the desire for an alternative culture on the part of so many baby-boomers, as they entered adolescence and then young adulthood. This, even as the economic golden age in the US was at its peak. It was an adolescent's rebellion against their fearful parents, the silent generation. But it was a deeper critique on a macro level. of a society whose being had been mechanized and whose wants were becoming measured by money.
"A wild longing for strong emotions and sensations seethes in me, a rage against this toneless, flat, normal and sterile life. ... For what I always hated and detested and cursed above all things was this contentment, this healthiness and comfort, this carefully preserved optimism of the middle classes, this fat and prosperous brood of mediocrity." (Hesse, 1927: 28-2
"You are right, Steppenwolf ... and yet you must perish. You are too exacting and hungry for this simple easy-going contented world of today. ... Whoever wants music instead of noise, joy instead of pleasure, soul instead of gold, creative work instead of business, passion instead of foolery, finds no home in this trivial world of ours--" (1927: 170)
"The modern man ... has lost the love of inanimate objects. He does not even love his most sacred object, his motor car, but is ever hoping to exchange it as soon as he can for a later model." (1927: 180)
It is striking that these words of Hesse's, written in the roaring 20s, now can be read as an uncanny echo, in reverse, of the 60s, amazingly with the same effect on adolescents. For this reason perhaps Steppenwolf is the most-known of all his novels. Moreover--and of particular interest to those reading recent entries here--Hesse explicitly contexturralizes his own generation, placing it between the European enlightenment of the 17th and 18th centuries, on one side, and on the other that of mechanization through the 19th century and into the twentieth, on the other.
"[T]here are times when a whole generation is caught in this way between two ages, between two modes of life and thus loses the feeling for itself, for the self-evident, for all morals, for being safe and innocent. Naturally , everyone does not feel this equally strongly. A nature such as Nietsche's had to suffer our present ills more than a generation in advance. What he had to go through alone and misunderstood, thousands suffer today." (1927: 23-24)
Two points. Hesse sees colliding ages in time. Masses of individuals are left to suffer. They are bereft of a social anchor to keep their very identities in tow. And these are the very periods that contemporary economic theory--Marxist, Neoclassical and Keynesian--treat as virtually monolithic. These schools of thought are for the most part blind to the fact that the self-regulating competitive economic system is not an appropriate model in the context of mechanization.
The second point is that Hesse did not live to see the age of mechanization colliding with digitalization. In terms of the economic system, the post-golden age has seen the spread of a culture of liquidation that in many respects is contrary to that of mechanized production, as it has existed roughly from the 1980s . Hesse, in tune with his young readers in 1967, paints the picture of a large bourgeoise who are blessed with a surfeit of goods and services generated by machines, and therefore are cursed by lacking any creativity of their own.
"[S]o it is with the majority of men day by day and hour by hour in their daily lives and affairs. [T]hey ... sit out their hours at desks and on office chairs; and it is all compulsory, mechanical and against the grain, ... [I]ndeed it is this never-ceasing machinery that prevents their being ... the critics of their own lives and .... recognizing the stupidity and shallowness, the hopeless tragedy and waste of the lives they lead, and the awful ambiguity grinning over it all." (1927: 86)
As has been a major theme of entries to this blog, in the age of digitalization the bourgeoisie are not growing fat and lazy they but are literally dying out. They are swamped by a global labor force, countless workers outside the realm of the leading capitalist systems, employed by oligopolistic corporations for whom production as such is subservient to asset value and liquidation, and employees are pure liabilities that must be minimized.
And it is the baby-boom generation--who grew up during the golden age and for whom much of their adulthood has been during the post-golden age--that now bridge two colliding ages. And yes, Hesse is right, many of us as we grow older are experiencing loss of the feeling for who we are, for the self-evident, for all morals, and for being just safe and innocent.
Hermann Hesse. 1927. Steppenwolf. Buccaneer Books. 1976.
Thomas Mann. 1947. Introduction to Demian: The Story of Emil Sinclair's Youth: v-xii. Buccaneer Books. 1976.
July 24, 2014 - by David Gleicher
It is not often commented on in the academic literature that
the classical school of the late-17th through early 19th
century—most associated with the writings of Adam Smith and David Ricardo--conceived
of capitalism in a context prior to mechanization. At the same time, basic concepts framed
in this very early period of capitalism have come to constitute an increasingly
atavistic foundation upon which current economic theory heavily, and at the same time uneasily rests.
Three major schools of economic thought have been variously taught
in university economics departments over the
past sixty years or so. By date of arrival: Marxist political economy, neoclassical economics (Austrian
and Walrasian) and Keynesian macroeconomics (neo-, new- and post-).
Each was spawned in the context of mechanization, spanning the mid-19th
century to the second decade of the 20th.
While the three are usually considered distinct
approaches to economics, a fundamental concept at the start of each of them is:
All markets are competitive. In other
words all economic agents are price-takers. That leads (by hook or by crook), to
the normative principle of Pareto efficiency and in turn the normative notion
of an ideal set of prices, over any given (finite) time-horizon, that uniquely clears all
markets. Inferred then are stability forces drawing the system to this set
of prices. And from this is inferred a systematic movement to full employment of labor and a uniform
rate of return on capital across industries. Also, but tacitly, the return on
capital is commonly understood to be generated by the production and sale of goods.
Finally, the three share an understanding that the pivotal agent in the capitalist
system is the competitive firm.
The core models, whichever of these schools one singles out, mostly
neglect, analytically, the striking difference between the pre-industrial and
industrialized capitalist systems, for that matter between the former and
today's digitalized system. Envisaged as early as the late 17th century, capitalist businesses were seen in a pre-industrial
context, taking in the main the form of individual entrepreneur, family businesse, partnership etc., and including financial relations involving silent partners, local
bankers, issuance of bonds, stock
companies of various sorts and so on. The capitalist is understood to be engaged
in employing primarily manual workers, and selling the goods produced primarily
in local markets.
In contemporary economic life, on the other hand, firms are publically-owned
oligopolistic corporations engaged in highly-mechanized, digitalized production,
involving global supply chains necessary to a global labor-force. Despite this, the competitive
firm remains at the center of economic theory, as any economics major or graduate student would attest to. The competitive firm in an industrial context is a black box when it comes to economic reality. Reality has been stuffed in the box and hidden away.
Throughout the 20th century then, and now into the 21st,
atavistic elements of pre-industrial reality have eaten away
at economic thought. Not only have these elements weakened the credibility
of current economic theory, as such, but they have also drastically limited useful
applications of theory to meaningful policy-making. The result is that effective managing of concrete
economic outcomes in open time hardly goes on any longer, especially in the US.
The long-standing erosion of economic thought is no better
exemplified than the abandonment of basic macroeconomic demand policies in the mid-70s. The latter were first instituted
of course in the mid-1930s, in response to the Great Depression. Almost
immediately atavistic seeds were planted in Keynes's conceptualization, and surprisingly, to some extent by Keynes himself. In the General Theory he advances a notion of money illusion related to aggregate labor supply (money illusion was coined earlier by Irving Fisher but within a financial domain). According to it, workers only act with respect to their nominal wage--literally the money they make in income--without taking into account existing prices; i.e., what the money can actually purchase.
This purely speculative hypothesis is clearly motivated by a felt-need on Keynes's part to account for an excess supply of labor over any significant time span. His argument is that lack of goods demanded, as in the Depression, causes
price deflation in goods markets, raising real wages and hence lowering labor demand. In the context of competitive markets this in turn should put downward pressure on nominal wages. But the illusion causes workers not to
respond. The nominal wage has not changed. However, absent the illusion the unspoken implication is that unemployed workers will eventually bid the nominal and with it the real wage
down. The effect would thereby be to increase labor demand and reduce labor supply until a
full-employment equilibrium is reached.
To parse this reasoning differently, Keynes feels compelled to
justify a State-run demand policy regarding unemployment, because he is (uncharacteristically for him) seeing
the macro-economy in the context of a pre-industrial
economy. In the latter, unless something exogenous interferes--such as money
illusion--all agents are price takers, and all markets including the labor
markets therefore inexorably move toward a general equilibrium. In all markets
supply and demand move toward equality; in other words, State policy is not needed then to attain full-employment.
Neo-Keynesianism ruled macro-economic policy during the
golden age period, following WW II. It was effective in preventing extreme
recessions and expansions of production, providing some assurance to the public
of available employment, along with price stability. State management of interest
rates, and more broadly the regulation of the private banking oligopoly were
instituted as well. Practical neo-Keynesian economists--among them Hansen, Heller,
Kuznets, Modigliani, Okun, and Tobin--paid lip-service to a long-run
full-employment equilibrium. But in designing policy the neo-Keynesians
virtually ignored long-run theory. They were guided by the same ISLM model that
still lies at the center of advanced undergraduate and graduate macroeconomic
courses. It also is still the basis of government estimates in the US of future movements of the
macro-economy in open time.
In the US, as neo-liberalism mounted in the years leading up
to the election of Ronald Reagan, a sharp shift in the economic landscape
occurred. Neo-Keynesian demand policies, especially fiscal policy, were
abandoned. Instead there was a new focus on a long-run aggregate supply and
demand model. It was derived from ISLM, and purports to show that the
macro-economy equilibrates in the long-run at full-employment. Many
neo-Keynesians as a consequence -for instance, Joseph Stiglitz--have spent
much of their academic careers putting forward other exogenous factors to
account for ongoing unemployment. In doing so, however, they validate the
atavism filling aggregate supply and demand analysis. At the same time they hollow
out and stultify Keynes’s conceptualization in its own right.
The outgrowth of the shift toward the long-run was
the sudden prominence of new-Keynesianism. Over the course of the post-golden age the new-Keynesians came to dominate the teaching of macroeconomics, especially at a graduate school level, at the expense of the neo-Keynesians; a conceptualization so atavistic that it extends macro-economics back further than Smith to his chief predecessor Bernard Manville. Manville's Fable of the Bees was published in 1714. Markets as conceived in a New Keynesian model do not just clear they are never in disequilibrium. Effectively, all agents are not just price-takers, the market itself is a price-taker. There is no force pushing down wage rates leading the economy from a state of excess labor supply to full-employment. Aggregate supply and demand are continuously equal.
It is easy to overlook that empirically Keynesian demand policies were effective for some twenty-five years. They dealt very well with one of, if not the major economic issue that has been faced by industrialized (and digitalized) capitalist economies: the unavailability of jobs in a system where, for the vast majority of people, income received for labor is necessary to life. The policies have been lost in part by the historic failure of economic theorists. Over the last sixty years there has grown an unwillingness to confront capitalism as it really exists in favor of extravagant models positing such fantasies as perfectly competitive markets, perfect foresight on the part of all agents, a uniquely ideal general equilibrium price outcome based on an imaginary clearing house and no money, models that mathematically cause, within the profession, much sound and fury, but nonetheless in the end signify nothing.
July 11, 2014 - by David Gleicher
Ring the bells that still can ring
Forget your perfect offering
There is a crack,
a crack in everything
That's how the light gets in …
That’s how the light gets in ...
-- L. Cohen
The purpose of the previous entry was not to downgrade Costas Lapavitasas's Profiting without Producing. To the contrary, I think his work locates a key theoretical cusp, one side of which is Marxist thought, and on the other side the Beyond. And implicitly tied to this, Lapavitsas also taps into a basic commonality within Marxist thought shared by virtually all orthodox thinkers. Beginning with, among others, Manville, Steuart and Smith, these common precepts have continued into the present, some three hundred years later, in the writings of Becker, Debreu, Arrow and so many others.
In the same chapter referred to in entry 25, aptly entitled The Conundrum of Financial Profit, Lapavitsas points to a direct connection of Marx to James Steuart --contemporary of Smith, and by most accounts as highly regarded as Smith in their lifetimes.
"Marx deployed Steuart's concept of profit [as] expropriation in his work, though not extensively and often in analysis of financial transactions relating to personal income of workers. ... Exploitation occurring in financial transactions is qualitatively distinct from exploitation in production. To be specific, exploitation in financial transactions amounts to a direct transfer of value from the income of workers to lenders--that is it stands for a re-division of money revenue streams, typically taking the form of interest. ... The more standard form of exploitation in production, on the other hand, amounts to creating a fresh flow of value out of unpaid labor. ... It follows that profit [as] expropriation that arises from lending to workers represents a form of exploitatioin which is independent of surplus value." (Lapavitsas, 2013: 143-144; also see Marx, 1905/10: 487 cited by Lapavitsas)
observes throughout the book that most significant corporations have been
financialized to some extent over the last thirty to forty years or so. And yet, he does not
seriously confront the ramifications of such a monumental change. To take an example, a question--one of special interest to Marxists--arises: In the present context,
what is the corporation's motivation with respect to those who need to work to attain money to buy things that are what McMurtry (2013) calls life-needs.
Debt is created to
the degree that wages are driven near or below the money required to fulfill
life-needs. Such debt then, if allowed to, invites usurious interest rates, fees,
seizurers of property, collection agencies, bankruptcies, et al.
In short, the culture of liquidation has been able to tap into a rich source of money to expand. This practice in radically different context than capitalism was known to Marx back in the 19th century. However, he dismissed it as atavistic, as it certainly appeared to be at the onset of mechanization. Marx writes that "it was seen only in such branches of industry as still struggled against their extinction and absorption into the modern mode of production" (1939: 853) He implicitly makes it clear here that the Ricardian conceptualization of capitalism basic to his own, rules out such creation of debt ownership--i.e., independent of goods production--via poverty wages.
"[It is] the most odious exploitation of labor ... What takes place is the exploitation by capital without the mode of production of capital. ... This form of usury, in which capital does not seize possession of production, hence is capital only formally, presupposes the predominance of pre-bourgeois [i.e., pre-capitalist] modes of production." (1939: 853)
Given the context of digitalization, it is not difficult to provide reasonable hypotheses addressing the question: Why are the ever-more concentrated oligopolies thriving when many capitalist economies--notably the US—have become low wage, low demand, high-unemployment, high-poverty nations? At the risk of being simplistic, one obvious development spearheaded by the oligopolies, points the way to the financialized corporation as the answer.
The globalization of employment has made a considerable swath of the labor force in the US virtually free of charge. The free rein to employ labor globally has taken the bottom out of US wage-rates. What is paid in wages by the corporations as a whole is offset by the debt ownership it generates, which is used to leverage money in the financial markets. Ford's well-known Keynesian insight is: The workers are the ones who buy the cars. Within the culture-of-liquidation it is instead: The poorer they are the more expensive the loan.
And Marx himself it seems would
agree that capitalist digitalized economies being attacked by a
spreading cancerous culture of liquidation is beyond even Marx.
(2013). Profiting Without Producing, New Left Review (Verso).
Karl Marx (1905/10).
Theories of Surplus Value. Part 3.
Lawrence & Wishart, 1972, cited by
Lapavitsas, 2013: 144.
Karl Marx (1939). Grundrisse. Penguin/NLR, 1973, cited by
Lapavitsas, 2013: 145.
(2013). The Cancer Stage of Capitalism.
Pluto Press. Edition 2.
June 20, 2014 - by David Gleicher
The difficulty that Marxist theorists have in going beyond the contextual limitations
of Marx's thought is epitomized by Costa Lapavitsas's recent work, Profiting
Without Producing: How Finance Exploits Us All, 2013 (Verso). This is not
to say that Lapavitsas has nothing of interest to tell. Quite the contrary, certain of
his insights into the meaning of money and the empirical evidences
of the culture of liquidation are very sharp and well-worth reading. In
addition the writing is remarkably clear, helpful to those less schooled in these things.
However, the reality of a malignant culture of liquidation--a
cancer as John McMurtry conceives of it that metastasized in the 1980s--never comes to the
surface of Lapavitsas's book. And, on the other side of the coin, the clarity
of the writing makes it all the more
painful to read vast tracts searching out writings of Marx
for answers to the mysteries of a new capitalist economic system.
The mechanization of the 19th century that transformed the capitalist economy is an empirical and theoretical foundation of Marxist thought: oligopolistic profit-driven industries, comprised of publically-owned corporations, financing production in part by the issuance of debt sold to the public in the form of shares. And to give Marx his dues, his thought proved to be the most powerful means of analyzing capitalist systems in Marx's own lifetime and through the 20th century; that is until its last two decades and the first decades so far of the 21st century.
For roughly the last fifty years the mechanized profit-driven oligopolies have been digitalized. And in that new context, the corporations have been financialized. With this has come the domination of
the financialiszed oligopolies by private, but government-protected, digitalized banks and ancillary private Funds that leverage at great multiples ownership of debt. These banking institutions have thereby created ongoing accumulations of money, termed by McMurtrey as money sequences, held as tightly as possible inside the culture of liquidity.
In the key chapter of Lapavitsas's book, aptly entitled The Conundrum of Financial Profit, he repeats an important point he'd made previously (in reference to the meaning of money):
"Marx assumes the borrower is a functioning capitalist (typically an industrialist) who obtains the capital necessary to the project in hand and proceeds to generate surplus value. ... Marx related this qualitative distinction to the putative division of the capitalist class into the moneyed and the functioning factions that are in opposition to each other over the division of total profit. To be specific, the relationship. As was discussed, this is not a persuasive argument especially in conditions of financialized capitalism." (2013: 151-152)
faced with the challenge of confronting financialized capitalism for what
it is, and therefore going beyond Marx, Lapavitsas doubles back.
The reader is offered a simple principal-agent model based on a slightly more moderate opposition of agent and principal, but otherwise one that retains the same basic class separation of moneyed capitalists in opposition to functioning capitalists conceived of by Marx.
"For the purpose of analyzing the conceptual content of financial profit, the most prominent feature of joint-stock capital is the separation of ownership from control. This is a direct result of enterprise organization that relies on pro-rata, tradable, limited liability ownership combined with a corporatist internal bureaucracy." (2013: 157)
This conception of the corporation generally is associated with the well-known book The Modern Corporation and Private Property (1932), written by two definitely-not Marxists, Adolph Berle and Gardiner Means. But as Lapavitsas observes (2013: 57), it was introduced by Rudolf Hilferding in a major work of Marxist theory, Finance Capital, published in 910.
Thus, Lapavitsas bases his model on a premise that effectively denies the financialization of the corporation, i.e., the reality that corporations are increasingly understood to be debt ownership of major shareholders (see entries 6, 11 and 24). Hence there is less and less of a principal agent problem as the cancer continues to spread. The corporation has become a shareholder-value, in units of money at a moment in time. For the most part it is not anymore a profit-making institution embodying classical 19th century social relations of production, as understood by Marxists.
In a passage of her must-read book, Liquidated: An Ethnography of Wall Street (2009), Karen Ho points to the crucial roles of culture and context in confronting the late-twentieth century transformation of the economy from mechanized production to digitalized finance.
"Shareholder value has been, on the one hand, largely ignored by anthropologists as a powerful explanatory tool, and on the other, decontextualized, naturalized, and globalized by institutional financial interests and many economists. A historical and localized understanding of shareholder value is crucial to understanding the extent to which corporate values and mainstream economic assumptions have changed since the mid-twentieth century. ... In the 1990s during an historic economic boom workers in the US suffered massive downsizings. ... I argue that the notion of a jobless recovery is only a quandary if social scientists are still trying to explain today's social economy using the terms and assumptions of the post-Second World era. In other words, if shareholder value, not welfare capitalism, is the ideal, then the jobless recovery makes perfect sense, for stock prices (which spike because of downsizing), not jobs, are the focus and the measure of corporate health and success." (2009: 153)
Adolf Berle and Gardiner Means (1932). Modern Corporation and Private Property. Commerce Clearing House Inc.
Rudolf Hilferding (1910). Finance Capital. Routledge. 1981.
Karen Ho (2009). Liquidated: An Ethnology of Wall Street, Duke University.
Costas Lapavitsas (2013). Profiting Without Producing. New Left Books (Verso).
John McMurtry (2013). The Cancer Stage pf Capitalism [Edition
2, 2013], Pluto Press.
May 30, 2014 - by David Gleicher
John McMurtry comes the closest (that I know of) to saying it outright. The onset of the corporation as essentially a financial asset, a creature born to the culture of liquidation, and a shift away from a common conception of capitalist economies encompassing Marx's thought and that of both the classical and neoclassical schools.
McMurtry's critique of capitalism, in the context of what he terms the current cancer stage of capitalism, goes much deeper than the Marxist's critique during the golden age: 1950-1980. . That critique dates back as far as the late 19th century in the writings of Cornot and Marshall. Contesting the neoclassical faith in the efficiency competitive markets, it has long been clear to Marxists that since the industrial revolution production, in and across capitalist States, markets have dominated by corporate oligopolies. The latter strategically set prices in conjunction with production levels aided of course by mass marketing, collusion, political corruption and so forth. Hence perfect competition, which gives life to the invisible hand--or as expressed in 1705 by Mandeville, "private vices bring public benefits"--is invalidated.
The deeper critique, however, aimed at Marxist thought no less than classical or neoclassical, is directed at an assumption common to each chool, one so basic that it is seldom made explicit. Ricardo in the chapter On Profits and Interest (Principles of Political Economy and Taxation) obliquely but succinctly articulates it: "The rate of interest, though ultimately and permanently governed by the rate of profit , is however subject to temporary variations from other causes." (1821: 349-50).
Marx, casts a faint shadow over this assumption which, like Ricardo, he refers to somewhat obliquely. Discussing the particular features of the money circuit (money invested to make more money):
The circuit M ... M' on the one hand intermingles with the general circulation of commodities, proceeds from it and flows back into it, is a part of it. On the other hand it forms an independent. movement of the capital value for the individual capitalist, a movement on its own which takes place partly within the general circulation of commodities, partly outside of it, but which always preserves its independent character. (1893: 55)
However, further in the text, where Marx is now treating, altogether, the three circuits--money, production and commodity--the shadow over the money circuit seems to be lifted. The assumption is left to speak for itself:
Since every one of these circuits is considered a special form of the movement in which various individual industrial capitals are engaged, the difference always exists only as an individual one. But in reality every individual industrial capital is simultaneously in all three circuits (1893: 101).
In short, there has been an uncontested belief about capitalist economies, held even by Marxists, that a necessary vehicle by which owners of debt make a return on money ultimately is profit-motivated production of commodities. As we have discussed in previous entries, however, money is accumulated now within a financial system which generates money internally, independent of profit-making production. It forms a vast web of money circuits that does not include industrial capital, in the traditional senseof Ricardo, Marx and Wicksell.
The financialization of the corporation, then, is a transformation of object, away from profit maximization, per se. Rather, production itself is reduced to one of several means by which the corporation funnels revenues into the money circuit, wherein the accumulation of money then resides.
Even the world's leading productive-capital formations have moved to this unmediated system of decoupled money-capital growth. General Motors and General Electric, for example, both made more profits in 1994 from their financial subsidiaries lending credit-money than they did from all their production of automotive and electrical manufacturers put together. ... But it was not until recent years when the money-to-more money sequence became autonomously self-multiplying that productive-coded enterprises switched their dominant pathways of growth to this non-contributing circuit of money-profit appropriation (McMurtry, 2013: 175)
A sign that we are in the midst of an historic change in the nature of the capitalist economy--one more telling than banking wings attached to corporations-- is the self-identification of finanicalized corporations as institutions exclusively owned by share-holders. The object becomes to leverage flows of money coming into the corporation whether through sales or by taking it out of the corporation itself via junk bonds, equity firms and so forth.
The cost of generating these flows of money is of course minimized. But this is in order to maximize net revenues, not profits per se. In particular cases the self-multiplication of leveraged revenues are maximized with there being no profit from production at all, even losses, but nonetheless creating enormous share-holder value (e.g., Amazon?).
I will return to this in the next entry. But it can be said here that central to Marx's thought, capitalist relations of production link the capitalist and worker classes, while dividing the two over the distribution of income and power. One might say this is being replaced by relations of debt that neither link or divide those who accumulate money (owners of debt) and those whose life-needs are endangered for lack of credits. What is wanted is not a worker revolution, but rather, for example, the severing of work from a State-guaranteed income sufficient to meet the life-needs of all.
Addendum concerning my previous entry (23)--my response to Working Families Party's decision to support Cuomo: "Well, two birds killed with one stone. De Blasio and WFP. Count me out. Who has time to be used by sell-out (never-was?) leftists. And by the way, no more votes for Democrats on the WFP line for me. What a waste!
May 04, 2014 - by David Gleicher
The sinking of the Titanic started as little punctures along the starboard side of the ship, from scraping the iceberg it was trying to avoid. The holes covered a mere 12.5 square feet or so of the titanic ship (see McCarty and Foecke, 2008: Ch. 6: 78-86). So too there are tiny holes in the side of the seemingly invincible culture of liquidation, the huge oligopolies, homes of the global corporations in which the culture thrives; Frankenstein monsters of the post-golden age brought to life by Drs. Reagan and Clinton via the revamping of the US and in turn the European financial systems. In the still-nascent struggle of people to regain some control over these institutions, there are faint signs that the culture of liquidation may be pricked enough to eventually be opened up. And perhaps, amazingly, the monsters as we now know them will suddenly sink into the darkness of the sea, like the unfortunate Titanic.
Right now one of those precious punctures could be made by New York State (NYS) in the coming months. It may mark the beginning finally of a break in the two-party stranglehold on the political system in one of the leading states in the US. The Republican and Democratic parties, increasingly seeped as they both are in the culture of liquidation, challenged by a third party, one that publically stands for those victimized--the 99%--by that very culture.
Not incidental to pricking the corporations' protective skin is the clear repudiation of Michael Bloomberg in the recent nomination and then election of Bill de Blasio as New York City (NYC) mayor. Bloomberg himself could not run again, having already violated once the NYC 2-term mayoralty restriction. But when his would-be successor, Christine Quinn, was defeated handedly by de Blasio it became obvious that New Yorkers had had enough of being ruled by a mayor from the 1%, or even just sympathetic to it. It was a rejection of Bloomberg's uncompassionate attitude toward the poor, his unthinking drive to corporatize primary and high school education, his police department's racist treatment of the poor, his unyielding stance in negotiating with public worker unions, and, in general Bloomberg's pronounced social isolation, characteristic of the 1%.
The Working Families Party
(WFP) has been for a long time a major supporter of
de Blasio, and in various states along with NYS it is a strongly
allied with the labor union movement writ large. It is the most established political party on the
Left in New York, which itself of course is a very blue state. Like other minor political
parties in New York in relation to one or the other of the major parties WFP often
nominates Democratic nominees. In those cases therefore the candidate appears twice on
the ballot, the voter choosing the party one supports. As a result, especially in the NYC area WFP receives a significant number of votes attributed to Democratic candidates, particularly in races for the higher-level state and city offices. This affords an important segment of the NYC public and that of certain other localities in the state as well, the ability to be unaffiliated with both of the major parties without effectively benefitting Republican candidates.
The question being raised now, however, by the WFP leadership is: Is this the time to move decisively toward transforming WFP into a third major party in New York? This is to say, not nominating Governor Cuomo again, for re-election, but rather putting forward a well-established candidate state-wide of the same political stripe as as de Blasio. Eric Schneiderman the state Attorney General for instance. WFP has written to its members that there is much debate about who the party will endorse at their state convention in late May and that in a Siena college poll 24% of New Yorkers supported a progressive WFP candidate for Governor -- just 15 points behind Governor Cuomo. Along with the election of de Blasio, such a decision seems feasible because Cuomo has been caught in clumsy (and at this point obvious) Clintonesque triangulations in wake of the mayoral election. Like a boxer who throws a punch with his head arched up, Cuomo's chin has certainly been exposed to a knockout counter.
Right after the mayoralty election Cuomo voiced his disapproval of a tax increase to be paid by the richest of the rich, a popular proposal de Blasio had put forward in his campaign as means of financing universal pre-kindergarten classes. This opposition was coupled with Cuomo's executive budget in January, which set a cap of 2% growth of state-government expenditures, so as to produce projected surpluses, while pronouncing myriad corporate, business and property-tax extensions and cuts.
In a similar fashion, but in even starker opposition to de Blasio, Cuomo has quickly proved to be, like Bloomberg, an unabashed backer of the charter-school movement in New York, putting him in line nationally with the push toward corporatization, and ultimately financialization of public institutions, The quality of the city's schools of course is a local issue of great concern to parents and children. Cuomo not only has opposed de Blasio's popular call for charter schools to pay rent on their use of public school space if they are operated privately. He's gone further, cutting a deal (as is done in Albany) by which State legislation was passed giving the charter schools in the city much wider protections from local government requirements than it currently had. Among these was that the charter schools cannot be denied free space in public buildings.
On a more national scale, de Blasio announced in his State of the City speech in February that he would ask the NYS Legislature for permission to raise considerably the NYC minimum wage. Cuomo immediately dismissed this as a matter for the state, and create chaos. His chin in the air, he seems oblivious to the growing movement of progressive city and state governments toward enactment of a living wage. The latter is contained within a truly transformative policy principle: a guaranteed livable income for each.
Could there be then a more opportune moment for creating a truly competitive three-way race for governor of one of largest and most influential states in the US. It is an opportunity to alter the fault-line that heretofore has separated the Democratic and Republican parties--at least during the post-golden age--in virtually all political contexts, Other separations are then reduced to extremism on one or the other side of the line. But at this moment the divide is that of WFP and the Democratic Party, where the latter is at one with the Republican Party. In this way, Cuomo personifies the Clintons' rule over the Democratic Party for more than two decades now.
It cannot be emphasized enough that while the Reagan administration set the plate for the coup carried out by the commercial bank oligopoly, ending for good the golden age, it was under Clinton that Rubin, Summers, Greenspan, et. al that ushered in the world of junk bonds, equity firms, hedge funds, the primacy of shareholder value, proprietary trading and ultimately the straight out repeal of Glass-Steagal. The same Democratic Party under Clinton, and now Obama, that has played their part in weakening the Federal entitlement programs, replacing them in large part with grants to the state, while allowing the minimum wage rate to decline sharply. The same Democratic Party that has championed global treaties allowing unfettered foreign investment, both financial and productive without any protection of workers, nor any internalizing the cost of corporate externalities.
All and all the Democratic and Republican Parties are in a position to be juxtaposed rather than opposed to each other. WFP is a unique party in its own right. On the heels of de Blasio's election victory, the consequent ramifications of a governor that will team up with rather than being an opponent of de Blasio is too good not to pursue.
April 21, 2014 - by David Gleicher
Money purchases power by buying debt, and power commands money by selling debt. The freeing up of a recursive connection between the two occurred in the 1980s and 90s, as it did in the late-19th century, leading eventually to the crisis of the 1930s. But sadly this time there has been no New Deal.
We are witnessing a tiny coterie of asocial subjects spread throughout the globe, their unchecked buying and selling of debt threatening whole social and ecological systems with destruction. Yet these individuals are oblivious. They inhabit a walled-in world of their own (see entries 4 and 11), in which virtually all others--whether individuals, the State or even the corporation as a generic institution--are purely instrumentalities. And their objective is itself instrumental: an accelerating accumulation of money and power in the hands of the individual.
Homer captures the essence of the asocial subject in his description of the high and mighty Cyclops, one-eyed giants on whose land Odysseus unwittingly trespasses on his journey back home from the war: "Lawless brutes, who trust so to the everlasting gods they never plant with their own hands ... They have no meeting place for council, no laws either, no, up on the mountain peaks they live in arching caverns--each a law to himself, ruling his wives and children, not a care in the world for any neighbor." (1996: 214-215).*
Due to the post-golden age empowerment of asocial subjects, the corporatization of higher education, over the last decade or so, has gone well beyond the large elite research institutions discussed in the previous entry. It has clearly been moving into schools like Adelphi that generally speaking service undergraduates, offering selected graduate programs for the most part in professional fields.
Such institutions--the vast majority of US undergraduates go to them--are not financed to a significant degree by endowments and research contracts. Rather, they depend a great deal on tuitions, and in the case of public universities, of course, government funds. The nature of the movement is innocently observed in an interview of one Chris Hunt, an expert on search firms that structure and otherwise advise universities in the process of a Presidential hire.
"The game has stayed much the same over the years, but the players have changed. It used to be that the president of the university came right out of academia. It would be a former president of another university or someone who might be in no. 2 position, like a provost at another university ... Recently [it is] important to bring in leaders from other industries, who bring in a fresh skill set into the mix. Many colleges are run like companies. They are big, big operations, and you need to have someone who has those skills." (Pitt News, 2014).**
He correctly observes that colleges are not companies, but they are being run like companies. In particular Boards of Trustees are dominated by individuals engaged in the buying and selling of debt on an enormous scale, and as Hunt suggests, more and more university presidents are the same. He then asserts, however, that the college must have someone who has those skills. But those skills, exist, as such, in the context of a culture of liquidation. They are the skills of playing money and power games at the highest of levels. As such the object of the game-and hence skill at the game, has no purpose outside the money and power accumulated by each detached individual.
There is an incursion of university presidents into many colleges and universities across the country , then, with roots in the culture of liquidation, appointed by Boards of Trustees who share the culture.. This is intended to strengthen the wall, to shut out literally, but also in their own minds I think, all who are not playing the money and power games of buying and selling debt. Just as the construction lavish buildings to isolate their offices and conference rooms, attaching underground garages reserved for their cars.
The wall is visible in the brief overview of Adelphi's key executives, appearing currently on-line.. The business relationships, within the Board, including the President, are multiple and one suspects intertwined. On the other hand, the other executives, those not on the Board and whose jobs concern the day to day functioning of the university, have no business relationships whatsoever with any of the others.
Indeed it seems these are situated on the fence (to mix the metaphor). At least regarding three of them the very title they are given depends on which side of the wall they are on. Notably, the Senior Vice President for Academic Affairs is the Provost. In general, giving everyone the title of Vice President of something or another is emblematic of the refusal to acknowledge the university as an entity in its own right.
Company Overview of Adelphi University
Key Executives for Adelphi University
Adelphi University Board Members*
The experience of the university is in its essence dialogical. On one side of the wall I think that that is still often the case. The faculty that primarily teach undergraduate courses, almost all of whom have PhDs, are especially immersed in an academic culture which is not easily taken from them. It is a culture that will ever be a mystery to those caught in endless pursuit of money and power signifying nothing.
* 1996. Homer, Odyssey. Robert Fagles, translator. Penguin Books.
** 2014. Danielle Fox, Staff Writer. Pitt News. Welcome Back: Professionals speculate on progress of Pitt's chancellor search, Jan. 9, 2014.
Excuse the delay for this entry, due technical problems. Comments are not yet possible, but will be soon.
March 23, 2014 - by David Gleicher
The corporatization of the university first blossomed in the 1950s. And, despite being put on the defensive by mass student resistance in the mid-1960s into the early 70s, it had become by the 80s deeply rooted. in an oligopoly of leading state universities, e.g., UC Berkeley Texas, Michigan, and leading private ones e.g. MIT, Stanford, Harvard. It occurred in the science departments and schools within the university specializing in technical fields of engineering, computer science and the like.
By the waning years of the golden-age, graduate work in these areas was generally being guided by professors and programs connected to particular industries. Through a relatively small number of extremely large, and, in the case of many, extremely wealthy institutions, higher education had become firmly entrenched in the military-industrial complex and its many ancillaries. And It expanded to other industrial complexes rapidly with the advent of the post-golden age.
Advanced work in physics, chemistry, biology and even psychology--not to mention the queen of the social sciences, economics--became and continue to be molded to fit the needs of corporations (undergirded by computerization, and with it an ever-burgeoning ability to do complicated mathematical modeling). In turn, professional schools, notably law and medicine, became and continue to be fitted to suit corporate purposes as well.
In this way corporate profit has come to dominate the province of practical knowledge. Expertise produced through mediation of graduate work is now tailored to the armament industries, the agri-businesses, the pharmaceutical and private health insurance industries, the fossil-fuel and nuclear-power industries and so on .. and on.
Kristof (see previous entry) is not alone in appearing oblivious to the subordination of scientific endeavor, within the university, to corporate profit and its social effects. It has contributed mightily to such major forces bearing upon life in the post WW II period as: more and more destructive weapons of war, less and less nutritious food; more and more destructive pharmaceutical drugs and medical practices; more and more exploration and use of fossil fuels, despite the possible mega-effect of destroying the natural environmental needed to support human life..
Failure to perceive the post-WW II symbiosis formed between the university oligopoly and the corporations leaves Kristof with little insight, either. into higher education in the post-golden age. That is, an age when the culture of liquidation (see entries 5,6,7,8,11) is spreading wildly on a global scale. Within this culture there is no conception of the university as essentially an institution of deep learning, ideally occasioning a transformative experience of intrinsic value.
Very few corporate leaders (I don't know of any)--or contemporary political leaders almost all of whom share the same culture--evince even the slightest grasp of it. This is precisely because a transformative experience is an intrinsic value. As far as I know, there is not one US president in the post-War period who has anything beyond a mediocre academic record. Neither, are there references made by any of them as to what they got out of their college education other than high positions in student government, a political apprenticeship with one of the major parties and political connections.
Hence, building on the symbiosis established with the university oligopoly, the culture of liquidation seeks to minimize aspects of the university that are not instrumental, and some that are downright detrimental, to the corporation. Previous entries of this blog (entries 4, 15) have touched upon the imposition of outcome-assessment and the flood of digital technology. Here we make the larger point that these do not only serve corporations, they also shut out the dialogic experience of professor and student in what is essentially the formal study of ideas. Ideas held by deep thinkers historically and ideas thought by contemporary ones now.
At Adelphi virtually all the seminar rooms in the university are used only for courses taken by our Honors College and which therefore are all located in the Honors College. Recently there was some confusion when I tried to schedule a seminar room for the economics department's Senior Seminar Capstone course. At first I was asked by those in charge of room assignments what exactly I meant by a seminar room, as that was not a category that they used. That got clarified (and as it turned out one very tiny seminar room on campus was discovered for our use). And it was explained to me that there used to be seminar rooms but they'd all been converted to smart rooms.
March 02, 2014 - by David Gleicher
Nicholas Kristof, a few week ago, devoted his column in the Times to lamenting the decline of the public intellectual, a term that itself is virtually absent from the vocabulary. Entitled "Professors, We Need You!" (February 15), the piece is a scolding of university professors. Among other things, Kristof complains of their using languages that only those among them (specialists) understand, and criticizes them for "relying on quantitative models or developing theoretical constructs." The consequences are that professors thus exclude themselves from the public debate and (implicitly) thereby render themselves unable to educate the public.
As to research, one of several letters to the editor published in response to Kristof (February 19 [Steinberger]) makes the salient point that "Such criticism [that of Kristof] simply denies the possibility that many important questions are in fact enormously difficult, inherently technical and deeply complex in ways that require modes of analysis and forms of discourse that are equivalently difficult, technical and complex." Coming to grips with mathematical models, for instance, and articulating the foundations of existing theoretical approaches, in various disciplines, is in its own right a valuable aspect of studying at a university. It fosters the ability and even the need both to identify and to question one's own ideas through formalized dialogue with others.
Strangely, perhaps, Kristof does not realize that a crucial contribution of higher education is in fact the great opportunity to master languages of the specialists: philosophy, mathematics, physics, economics, history, literary criticism, the fine and performance arts and so on. The new meanings contained in these languages are sources of real transformation of the subject (the I), at an age, for most college students, when one is developing a consciousness of identity for the first time.
Thus, a university education can be and often is at once a strenuous, intense, exciting and fulfilling experience. It will also be a unique experience for many, like late-adolescence itself, never to be repeated. Enabling the university to provide students such a rich experience is a great contribution made by professors and administrators alike. Sadly, absent in Kristof's conception of the university, like that of so many other's, is this transformative center of higher education, an intrinsic value, internal to the dialogue between student and professor and framed by the wisdom of contemporary thinkers as well as those of the past.
To the extent that it becomes an instrumentality, however, the experience changes and the intrinsic value is liable to become secondary, if not to disappear altogether. Of course, acquiring mastery of these languages, the ones that Kristof is so critical of, ultimately is what connects higher-income employment to higher education. The embedding of professional schools within the university-- usually along-side a liberal arts college that serves them on an undergraduate level--is understandable on that ground. And this structure has long been the norm in the US.
A notable exception are schools, some of the oldest ones in the US, that are solely liberal arts colleges. The share of these peaked during the 1960s and early 70s. Nonetheless they are a significant element of undergraduate education in the US. As exemplified by my own alma mater, St. John's College, they cater to an indomitable set of students for whom the object of education is the intrinsic value of the formalized dialogue. In addition, however, these institutions typify the fact that a conflict exists between that value and economic want. These schools in particular implicitly ask of students that they follow Joseph Campbell's famous rule of the inner-life: "Follow your bliss and don't be afraid, and doors will open where you didn't know they were going to be.”
The professional element within the universities became intertwined with the GI Bill after WW II, lending a patina of universality to going to college. This added to the subsequent explosion of university enrollment between the mid-1960s and early 80s as the baby boomers entered college age. By the time the post-golden age was maturing, around the turn of the century, the stature of a university degree had grown to that which is needed to guarantee a job paying a decent ncome. And in the current crisis, the stature seems to be growing into that which is needed to get a job at all. Thus, even the liberal arts colleges are under great pressure to prove their instrumental bona fides.
In this context, Kristof is unfortunately oblivious to what is actually happening. University professors are coming face to face with the culture of liquidation (entry 11), in the context of the corporatization of the university.
February 06, 2014 - by David Gleicher
In the previous entry I described in semiotic terms, a homonymic relationship of Keynesian thought to that of CH Douglas with regard to the concept of effective demand . Here I want to address a similar relationship of the two conceptualizations with regard to the real economy, a term coined by Keynesians.
Of interest is a passage in Keynes's first major work, A Treatise on Money (specifically The Pure Theory of Money, Ch.2:20-27), published in 1930. This work predates Keynes's famous General Theory, published in 1936, and it was written several years before the radical restrictions placed on the large private banks by the Glass-Steagall Act of 1933. It points to the fact that in the midst of the 1920s Keynes, as well as Douglas, are observing a banking system that parallels the present post-golden-age one; the latter ironically ushered in by a dismantling of Glass-Steagall completed in 1999. (This is discussed in previous entries, notably1-3 and 9.)
Keynes distinguishes between passive and active deposits. The former are a way of realizing liquidity, deposits owed by the bank on demand. Active deposits however, are created by the bank, through purchase of debt. The bank opens a new deposit in the name of the borrower. In doing so it effectively creates financial credits. "It follows that the rate at which the bank can, with safety actively create deposits by lending and investing has to be in a proper relation to the rate at which it is passively creating them against the receipt of liquid resources from its depositers ..." (Keynes, 1930: 21-22).
The same observation is made by Douglas, but in strikingly different terms: "Banks and bankers can and do create financial credit, and by successful manipulation appropriate the power resident in the real credit of the community." (Douglas, 1922: 30-31)
Keynes, and Keynesians in general are concerned with a stable banking system that in turn serves the real economy. By the latter is meant the aggregate production of commodities and the employment of workers. Hence, Douglas's complaint that Hobson is a defender of the existing banking and financial system." (1922: 29).
Indicating the homonymic relationship of the two, Douglas, is concerned with money that functions as real (aka social) credit. Such real credit is the means of sustaining lives worth living. A premise of Douglas's is that the such a standard should be met for all individuals and families within a community. And on that basis the process of providing such sustenance is the real economy. Financial credit, on the other hand, functions purely as capital, a limitless self-expansion of what Keynes himself terms a money of account and which Keynes separates from money as such (1930: 3-5).
In an important, though perhaps flawed work--The New and the Old Economics published in 1932--Douglas succinctly states the three most fundamental propositions embraced by his macroeconomic theory: "a) Financial credit pretends to be, but is not, a reflection of real credit; b) Real credit is a correct estimate, or if it be preferred, belief, as to the capacity of a community to deliver goods and services when and where required; c) The cost of production is consumption." (1932: 6). The third of these propositions requires some interpretation.
First, at the risk of putting words into Douglas's mouth, the real economy by his lights is to be judged according to the degree social credits are accrued by individuals and families, coupled with the set of prices, such that the purchases available meet the standard of, life worth living. Given the context of late-industrialization, Douglas suggests it is not technically impossible to achieve a social system in which virtually all are so provided for. The difficulty is the all-inclusive spread of capital.
Second, Douglas rejects the Keynesian (and neoclassical) belief that the origin of money lies in expanding and regularizing barter exchange. Rather he takes the stance of many anthropologists that instead commodity exchange grows out of the emergence of credits. In this case it is the payment of wages to workers, expressed in credits, by owners of capital. These credits then circulate, purchasing commodities for consumption and in doing so returning the credits back into capital. And so on and so forth.
"The worker for wages gives 'credit' to the idea that the more he produces the more satisfaction of primal needs is thereby made possible, i.e., this real credit is based on the rate of determining the required goods (Douglas's italics throughout) The financier uses this belief as a basis for financial credit, which is essentially a measure of the rate of making money. The nexus between the two is the price. ... It is in the lengthening of this nexus that misdirection of effort must occur." (Douglas,1922: 9).
Just as he plays with the words "the worker gives credit" one can't help but wonder whether "the cost of production is consumption" refers, on the one hand, to the cost of the workers' production of goods in the form of their wages, but on the other hand it is also the cost of producing money by the holder of capital. With regard to the latter in particular the perverse motivation is to reduce consumption by the worker to a minimum, while financializing large accumulations of industrial capital.
Along these lines, Douglas implicitly discounts neoclassical price theory, notably long term cost prices marked up by a uniform rate of return. Indeed he overtly makes the point that industry and finance, just as now, are both dominated by oligopolistic institutions, capable of price setting aimed at squeezing the purchasing power of the circulating social credits as much as possible.
CH Douglas. 1922. "These Present Discontents" and The Labor Party and Social Credit. Forgotten Books, 2012.
CH Douglas. 1932. The New and the Old Economics. Tidal Publications, 1973.
John Maynard Keynes. 1930. A Treatise on Money, Vol. V Collect Works of., The Pure Theory of Money. St. Martin's Press, 1971.
January 20, 2014 - by David Gleicher
Congratulations and best of luck--you deserve it--to the MINNESOTA ORCHESTRA--which Entries 7 and 8 concerned. The lockout after more than a year is finally over! LET THE MUSIC BEGIN!
The significant response to Entry 17 leads me to delve further into the thinking of CH Douglas, comparing it to the early Keynesians. Of central interest is the homonymic relationship the theories of Douglas and Keynes have. The two make the same sounds, so to speak, but are communicating sharply different meanings. Moreover, the difference is perhaps of more importance in the contemporary post-golden age, than even the decade prior to the Great Depression, when Keynesian macroeconomics was just leaving the womb of Marshallian microeconomics..
In Entry 17 my chief source is the first reprinting, in 2012, of two essays by Douglas, originally written in 1922: "These Present Discontents" and "The Labor Party and Social Credit." Together they shed great light on Douglas's understanding of money as a pure credit, that which to exist must be realized in the acquiring of a good. And along with this, he clearly places social priority on the allocation of credits as the grounding of price formation in regard to basic goods.
Toward the beginning of the second essay (1922a: 18) Douglas refers to a separate piece in which he responds specifically to Hobson's critique. As it would happen, this other piece was reprinted (by BiblioLife) in 2009, entitled: "The Douglas Theory: A Reply to Mr. JA Hobson" (circa 1922). In it Douglas confronts the key unifying concept of Keynesian theory: effective (aka aggregate) demand.
Setting out the homonymic relationship, Douglas starts:"It is to be noted that, as might be expected from a critic possessing Mr. Hobson's qualifications, there is no disagreement with my statement that the root factor in the whole industrial crisis and problem is lack of effective demand. But at this point the fundamental divergence begins ..." (circa 1922: 3).
He then addresses Hobson's Keynesian (under-consumptionist) assertion that lack of effective demand is due to excess saving. That is, the problem in real terms, according to Hobson, is over-production of capital goods and net exports. And--without Douglas explicitly saying so--this is manifested by unplanned inventories, excess capacity, reduced production and, notably, unemployment.
Douglas's response is that these negative outcomes are not caused by too much savings (what Keynesians refer to as the paradox of thrift). His argument is unique and virtually unheard of by contemporary economists of any stripe. Keynesian theory is not wrong in its own limited social space. But within a broader space lack of consumer demand literally has an other meaning. In terms of money--nominal terms--the lack of effective demand means that too many unrealized credits are being accumulated within the financial system and hence are not available for the purchase of goods.
Lack of demand becomes "a fact arising out of a defective credit system." (circa 1922: 3). For Douglas, price serves a purpose prior to and exclusive of the replication and creation of capital in the form of credits. And conjointly, the premise that credit-allocation is centered in individual sales of labor is removed. Hence if goods that would otherwise constitute a decent standard of living for all are not being purchased, it is because the price of goods per credit being allocated is too high for significant numbers of people. People who do not make a living wage.
In the first instance, then, in Douglas's social space the question of lack of effective demand calls for policies of re-allocating credit. Such policies may or may not include fostering economic growth so as to reduce unemployment and thereby provide more credits via the labor markets. By contrast, as a first principle the State might assure all individuals and families enough credits, in the form of income and benefits, for each to enjoy a decent standard of living.
Douglas writes: "Considered as a fact, it [implicitly Keynesian demand policy] is one of the many premises of which to take cognizance in suggesting methods by which to achieve the greatest enhancement of opportunity of the greatest number. In other words, both Mr. Hobson and I see a world whose financial mechanism is failing to deliver the goods. Mr. Hobson implies that a change in the nature of the steam which provides the motive force is required; I suggest that the valve gear wants re-designing." (circa 1922: 4).
An illustrative case is the current debate over unemployment benefits in the US. These come in the form of a money income--not a living wage--for six months, transferred from the government to individuals laid off through no fault of their own. The issue at hand is whether to continue to extend benefits to those whose six months are up, due to the high rate of unemployment. The latter itself is connected to the low of rate of economic growth since 2008. The homonymic relationship of Keynesian theory and that of Douglas is seen in the fact that both point to extending unemployment benefits, under the circumstances, continuing to provide new credits (government spending) to these individuals.
The Keynesian rationale is that this will increase effective demand and hence contribute to growth and declining unemployment. Along those lines, they adhere to the existing practice of ending the extensions once the rate of unemployment becomes acceptably low (around 5%). Along with those who are against extending the benefits, the Keynesians do not want the norm to be credits provided by the government to individuals and families without the selling of labor.
The Douglas rationale is that any income provided by the government to individuals whose income from labor is otherwise not a living wage, is to be supported. And following this logic leads to a social system that ultimately finances all of an individual's or family's basic goods and services, designing capital and labor markets as we know them, separate from the basic sector. .
Douglas, CH. 1922. "These present discontents" and "The Labor Party and Social Credit." Forgotten Books, 2012
Douglas, CH circa 2012. "The Douglas theory: a reply to Mr. JA Hobson." BiblioLife, 2009.
December 27, 2013 - by David Gleicher
"If an attack were leveled at a treatise on the game of cricket on the grounds that the author's theory did not conform to generally accepted views on stool-ball, it would be necessary to stress some general differences between the games, if for any reason an answer to such criticism were deemed to be desirable." ( Douglas: 1922, The labor party and social credit, Appendix 1: 29).
CH Douglas is an unappreciated and largely unknown but heavyweight thinker about economics and finance in the inter-War period of the 1920s and 30s. His treatise, published in 1922, was reprinted for the first time in 2012. It is composed of two essays, "These Present Discontents" and "The Labor Party and Social Credit." Douglas's ideas are distinctively macroeconomic and were formed around the same time as Keynes's were. One might say they were like Keynesian thought, as cricket is like stool-ball.
Using a semiotic term, the ideas of Douglas and Keynes are homonymic. That is, the concepts used by each appear to be alike. Unlike neoclassical thinkers, each refers specifically to an industrialized market economy. But the "premises" of the social systems envisaged by each are wide apart. Douglas himself specifies four meta-differences between his premises and those of the early Keynesians (1922: 30-31). He enumerates these in response to an attack on his writings ("Report") by JA Hobson, a well-known precursor of Keynes. Douglas asserts: "To the extent that the Report is a reasoned ... document, it is a defense of the existing banking and financial system. (1922: 29).
The first meta-difference between the premises concerns the meaning of contemporary money. To an extent there is agreement that it is, in Douglas's terms, social credit., not commodity money. At the outset of his Treatise on Money Keynes, who is more ambivalent, refers to money as "a debt of the State [which] may then use its ... prerogative to declare the debt itself as an acceptable discharge of a liability" (1930:5).
Money, however, as Douglas uses the term is only actualized by the goods (in the literal sense of "good") that the money attains. Money that is multiplying itself wholly within financial institutions, notably private investment funds, is capital, only an allusion to money. It is never actualized. By the way, this helps explain why the pouring of literally trillions of dollars into the commercial banks by the Federal Reserve since the crisis of 2008, dollars which have multiplied like rabbits purely within the financial markets, have nonetheless failed to have any extraordinary effect on either aggregate production or for that matter price inflation in the real economy.
In the social system envisaged by Douglas, then, money providing, directly or indirectly, fundamental goods to all individuals and families, must be quarantined--as a matter of course--from allusional money. "[F]inancial credit is a mere device, which can have no economic significance apart from real credit. i.e., the correct estimate of the ability [how much money does it take, DG] to deliver goods and services when and where required."
No need to dwell on the second meta-difference cited by Douglas, and which might be thought of as a corollary of the first. Anticipating the post-Keynesian departure from neo-Keynesian orthodoxy (for further discussion of this see entries 9 and 16) Douglas asserts that private banks, independent of the State, can create financial credit (allusional money). Douglas departs from post-Keynesian thought even here, however, by adding to this that in creating financial credit "banks and bankers ... by successful manipulation appropriate the power resident in the real credit of the community for purposes largely anti-social and selfish."
The third and fourth meta-differences refer to a market economy that these days is virtually unheard of, although elements of it have always existed in industrialized market economies to one degree or another. During the golden age these elements were acknowledged by leading neo-Keynesians, e.g., Samuelson, in the use of a term rarely used anymore, the mixed economy. But these elements were literally treated as outside the social system itself, the name for which being externalities. Douglas internalizes them.
The third difference concerns what is meant by a good's price. As Douglas puts it, the Keynesians (and all of us, just about) equate price, in all contexts and regarding any "thing," with effective demand; that is, "the price of an article is what it will fetch." It reflects the willingness and ability of purchasers to pay. Douglas, however, observes that regarding fundamental goods, those necessary for each individual or family to have a decent life--such as early education, health-care and long-term care for the disabled and elderly--the price is different. It is rather: "the price of an article ... that will get it produced and delivered in the maximum quantity desired."
Thus, for instance, private pharmaceutical companies in the US commonly charge prohibitively high prices for certain drugs that can fetch it. The prices are paid by a small proportion of purchasers able to get their hands on sufficient money. By contrast, in many countries, instead, the State purchases the drugs from the pharmaceutical providers, making it freely available to the public. It finds the price at which the producers are willing to provide the needed quantities of maximum quality drugs.
The fourth meta-difference most exposes the homonymic relation of Keynesian theory from that of Douglas. It concerns the objective of macroeconomic policy. The Keynesian premise, Douglas avers, is:: "[T]he objective of the industrial system is employment." From other passages it is clear that Douglas is including in this the Keynesian objective of maximizing economic growth.
This objective is (at the very least rhetorically) championed by an amazingly vast majority of political forces acting n the US, from the Occupy Movement to the Green to the Tea Parties, and the Chamber of Commerce , the Progressive Caucus, even Bernie Sanders and Elizabeth Warren, and of course the Democratic and Republican Parties. And pretty much he same can be said is the case globally.
In Douglas's social system the premise is different: "[T]he objective of the industrial system should be the delivery of goods and services to the orders of individual consumers. It should not be employment." Thus, for example, the great transformation of technology in the last 200 years or so--much of it achieved during the golden age--should be used to reduce the work needed to provide each individual the fundamental goods required to lead a decent life.
Keynes himself points to how perverse his own conception of effective demand is, half-jokingly saying that it would be perfectly fine Keynesian policy to pay for workers to dig holes all day and then fill them up again the next, as long as they are paid wages to do it. Douglas implicitly raises what should be--except for a deep-rooted Calvinist theological belief that keeps it hidden--an obvious question. Why not just pay the individual without linking it to unpleasant work that does not make anything good?
Douglas articulates this in ""a passage from These Present Discontents" (1922: 12), fascinating in its stripping away what we conceive of as an industrialized market economy:
"The practical object of the whole economic and industrial system is to deliver not "more" (quot. marks: CHD), but the right quantity of the right goods to the whole of the people, with the minimum of discomfort to all concerned ... After (itals: CHD) that object has been attained, the productive organization may legitimately be an outlet of creative activity. At no time is it a legitimate object of the general productive process to "provide employment" (quot. mark: CHD) for the purpose of distributing wages--to make things which the public do not need and the makers do enjoy making, in order that some canon of obsolete theological morality ... may thereby be satisfied."
Douglas, CH. 1922. These present discontents. Repriint, Forgotten Books, 20012. Keynes, John Maynard. 1930. A Treatise of Money, volume 5: The Pure Theory of Money. London: MacMillan Press, 1971.
December 08, 2013 - by David Gleicher
From the post-war period of the 1950s to the current crisis Keynesian economics has been a lynchpin of so-called "macroeconomics," even during its decline beginning in the mid1970s. A marker of the post-golden age, indeed, is the official abandonment of basic Keynesian fiscal and monetary policies by both major political parties in the US at that time.
Nonetheless, the term macroeconomics itself, not to say the basic categorization and therefore measurement of the "national economy,." is Keynesian. It is also a fact that, at least through the 1980s when faced with recessionary movements Keynesian theory was still applied by the powers that be, it just wasn't invoked.
Orthodox --"neo-Keynesian"--thought is built around ISLM/aggregate supply and demand models. Among heterodox economists, including many Marxists, there has been a coalescence of sorts around "post-Keynesianism." In general, the latter approach excludes the very strong neoclassical (in particular Walrasian) elements embedded in the orthodox models.
In this regard the baroque phase of neo-Keynesianism certainly was reached with the advent of "rational expectation theory" also in the mid-1970s. The latter, despite its fantastic notions of time (among other things) proved to be the theoretical foundation upon which the jettisoning of Keynesian policy rested. And, it might be said, this in turn spelled the end of the golden age. Of note, rational expectation theory also was intertwined with the infamous "efficient financial market theory," described, perhaps tongue in cheek, by Skidelsky (2009: 38) as "the biggest casualty of the current financial meltdown."
Post-Keynesian theory on the other hand has taken hold and is a major force within heterodox economic circles in terms of basic theory. As discussed in entries 1-3 the post-Keynesian discussion of money has led to deep exploration into the functioning of the financial system in the post-golden age. This has given new insight into truly interesting ways the current crisis developed and has been handled.
But what is seen through post-Keynesian eyes is very close-up, no further than one's nose. There is no uniquely post-Keynesian policy approach beyond the immediate short run. Just like neo-Keynesians of all stripes, post-Keynesians adhere to an underlying and unifying tenet. The problem of unemployment is solved by increasing economic growth and thereby the demand for labor.
Of course the workability of golden-age Keynesian demand policy has been fiercely undercut in recent decades. The immediate causes are a great weakening of labor unions in the US, and more recently in much of Europe as well,, in the face of more and more concentrated and politically powerful corporate oligopolies.
In addition, the complementary globalization of labor markets, via elaborate profit-maximizing supply chains that delocalize production, has created a strong monopsonistic force exercised by the oligopolies, pushing down wage rates even as the oligopoly pushes up prices by restraining supply.
But such difficulties, while considerable, call for resistance to the degree of corporate power--pushing for regulation--rather than necessarily sounding the death knell of Keynesian theory. However it is much more than that. The Keynesian tenet itself is being rendered short-sighted and ultimately irrelevant. What we know now of the social system reveals a crucial blind spot conceptually intrinsic to Keynesian models.
A critical term is growth. As it is conceived by Keynesians it means generating more and more stuff per capita that can be sold for a profit. But this, one cannot help but see, is resulting in an accelerating rate of disruption and unimaginable destruction of the natural environment. Thus, to provide a source of income based on employment, Keynesians advocate unlimited and universal quest for growth for foreseeable future. And in reality that cannot be sustained without catastrophe One that necessarily would upend the social system itself.
The case of the natural environment is emblematic of the blind spot in Keynesian theory. It is known, but has long been put aside, that homogenization of the stuff annually produced and sold for profit through commodity prices is arbitrary. Credit money is only valued in what it purchases. As such, to individual subjects it has no necessary relation to the dollars which it exchanges for in the market.
The fact that a certain design pocketbook is produced and sold for $5,000 does not mean that more has been produced in the aggregate than, for instance, $500 a week of good-tasting nutritious meals or a month of health insurance (whether or not these are measured in so-called real terms). In the same way, destruction of the natural environment beyond a certain point is catastrophic. No amount of credit money can represent the loss.
With this in mind, three categories of the stuff produced and presently sold for profit are: 1) goods and opportunities needed by all individuals to have a decent life; 2) goods that provide fulfillment and perhaps are even needed by some individuals but not others; 3) stuff--but not goods--that are destructive to many purchasers, limiting the chances of their enjoying a healthy life. The first and third categories clearly point to policies aimed at State-guaranteed provision of entitlements, on the one hand, and State sanctions on production and sale of any product that diminishes life on the other.
The first uses what Wray has termed, a "government that does not face an affordability constraint." Through government spending the State can transfer money and production to goods that afford each individual their entitlement. A living wage is a leading example of this.
The second policy aim suggests a strategy to restore and protect the natural environment. This would be to to minimize industries that destroy the environment,, as well as those which through addiction or fraudulent claims creat the stuff produced in category 3. This has occurred, at least domestically, in the case of tobacco. But it would also apply, for example, to the soda industry, processed foods and fast food industries in general, and the gun industry, to name some leading ones.
It would also apply to the elimination of certain other private industries. These would become run by the government or by non-governmental non-profit institutions. For example single-paper health care replaces the private health insurance companies, the elimination of the private drug industry is replaced by non-profit drug producers, replacement of private prisons, and beyond that replacement of the enormous private military goods industry, these also being brought directly under the umbrella of the State.
Skidelsky, Robert. 2009. Keynes: the return of the master. Perseus Book Group.