Following videos on Marx, Keynes, Adam Smith and Capitalism, and in the interests of some kind of balance, here is a brief video introduction from The School of Life on Austrian School economist Friedrich Hayek. His thinking influenced the political programmes of Reagan and Thatcher in the 1980s and, many years before, he was involved in some great intellectual debates with Keynes.
I found the video useful, as I have not read any of Hayek’s work, though I have read other writer’s critiques of him. One of the points in the video that stood out for me was Keynes’ questioning of Hayek as to where the line should be drawn between government intervention and the private sector, given the inevitability of some state planning. Of course, private firms make plans as much as governments, but the balance between the public and private will surely vary over time in any country depending on a range of factors.
I would also make the point that Thatcherism has been described by one academic as ‘the free economy and the strong state’. If this is an accurate characterisation, it illustrates the inevitable and shifting relationship between the market and the state, and a range of other institutions. Like it or not, modern capitalist economies are all mixed economies with interventionist states. There will always be room for debate over the balance between the various and evolving institutions that comprise such a system.
This post summarises some of the ideas in an interesting article from the May issue of the Cambridge Journal of Economics. The piece shows that an analysis of ‘complex networks’ using ‘big data’ lends support to structuralist arguments about growth and development. I briefly discuss the implications for industrial policies intended to promote the ‘catching up’ of poor countries with richer ones.
The Cambridge Journal of Economics(CJE) is an influential heterodox journal published six times a year. It includes as one of its patrons nobel prize-winner Amartya Sen and as associate editors Ha-Joon Chang, Mushtaq Khan and Anwar Shaikh, whose ideas I have sometimes discussed in previous posts.
As CJE articles are usually behind a paywall, I thought it would be helpful to summarise and comment on one or two when they are interesting and relevant to this blog. Continue reading →
2018 marks 24 years since I first took an interest in what is sometimes referred to as the ‘dismal science’. Not a particularly notable landmark, though it is more than half my life. And I certainly have not spent all that time with my nose in books about economics, although I have spent quite a bit of it like that, maybe more than is good for me.
Apparently it was the Victorian historian Thomas Carlyle who coined the phrase dismal science in the 19th century. I am sometimes inclined to agree, when observing a malfunctioning economy and its malfunctioning stewards in government and business. But more often I am prepared to be optimistic that we can find solutions to the problems of humanity. Some of them might even come from studying economics!
Keynes looked forward to a time when the economist’s role in society would be akin to that of dentists, as humble, competent fixers of minor problems. Notwithstanding a call from the UK’s current environment secretary during the campaign for Brexit to pay less attention to experts, economists and their ideological categories of supply, demand and growth have become extremely powerful and accepted, even if with passivity, resignation or incomprehension. Continue reading →
More on Adam Smith, this time from the pen of Michael Hudson in his excellent heterodox ‘dictionary’ J is for Junk Economics (p.28):
“Adam Smith (1723-1790): Traveling to France and meeting with the Physiocrats, Smith adopted their advocacy of a land tax: “Landlords love to reap where they have not sown, and demand a rent for its (the land’s) natural produce” (Wealth of Nations, Book I, Ch. 6, S.8). Landownership privileges “are founded on the most absurd of all suppositions, the supposition that every successive generation of men has not an equal right to the earth…but that the property of the present generation should be…regulated according to the fancy of those who died…five hundred years ago,” that is, the Norman conquerors (Book III, Ch. 2, S.6). Driving home the point, he adds: “The dearness of house-rent in London arises…above all the dearness of ground-rent, every landlord acting the part of a monopolist” (Ch. 10, S.55). Yet free market economists have tried to appropriate Adam Smith as their mascot, stripping away his critique of ground-rent and monopolies to depict him as a patron saint of deregulation and lower property taxes.
Regarding monopolies, Smith observed that almost every private interest represents its gains as a public benefit, as when CEO Charles Wilson proclaimed that what’s good for General Motors is good for the country. But in reality, Smith noted: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices…though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary” (Book I, Ch. 10, S.82).
Opposing the wars resulting from empire building and colonialism, Smith urged that the American colonies be liberated so as to free Britain from the costs of wars financed by public debts that taxed consumer essentials to carry the interest charges.”
Another brief video from the School of Life Political Theory series, this time on Adam Smith, widely thought of as the founder of modern economics. Smith is included in the school of classical political economy, employing an interdisciplinary analysis, and focusing on class and the role of government among other elements of the emerging industrial economy.
Nowadays he is often co-opted by the right in order to make the case for free markets and individualism as the source of wealth creation.
Interestingly, the video does not mention either. It does focus on another important idea, that of specialisation in production, also known as the increasing division of labour. On the one hand, this is a source of growth in productivity and wealth, but also leads to reduced meaning in the lives of ordinary workers.
Smith’s two most famous works are The Wealth of Nations and The Theory of Moral Sentiments. The latter is often neglected in discussions of Smith, but it made the case for man as a complex social being as much as one interested in personal gain. A clear idea of both sides of humanity are required in considerations of how to achieve the greater good.
The video seems to leave a great deal out, particularly in terms of economics, but also includes political and philosophical ideas that I had not really considered, so it is worth taking a few minutes to watch.
In Tuesday’s post on China’s industrial policy I mentioned the country’s lack of enforcement of Intellectual Property Rights (IPR) as a feature of its development. The US in particular, but also other rich countries, have complained about this for many years.
IPR policy, such as the creation of patents, is intended to encourage innovation by allowing firms to reap profits from the creation of new knowledge and therefore provide them with incentives to innovate. This sounds like a good thing. But managing an IPR regime requires careful judgement. If new ideas are protected for only a short period, firms may not have sufficient monetary incentives to innovate; if they are protected for too long, competition will be stifled and the diffusion of the innovation across the relevant sector or economy, as rival firms compete for a share of the market by copying or adapting it, will be slowed.
Badly designed IPR regimes can therefore slow growth in economy-wide productivity. Innovating firms often have an incentive to lobby policymakers to introduce lengthy and comprehensive patent protection, to their benefit, but to the detriment of the economy and society as a whole. Continue reading →
Following last week’s brief introduction to Keynes, here is one for Karl Marx, along the same lines. This year is the 200th anniversary of Marx’s birth and his work remains important to an understanding of the modern world.
I found this video interesting as it contains some ideas and perspectives on Marx that I hadn’t come across before, so it is well worth viewing.
As the narrator explains, much of Marx’s writing was on capitalism rather than what should replace it, at least in any detail. His magnum opus, Capital, is hard-going but remains an extraordinary achievement, while his and Engels’ earlier work, The Communist Manifesto, is pretty short but also very much a fiery and passionate diatribe.
Marx praised capitalism’s productive powers and, remarkably, predicted that it would sweep the world. He was also its foremost critic, and the video does a good job of outlining many of the flaws he identified.