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.
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.
In this short video, Cambridge University’s Ha-Joon Chang, a particularly thoughtful economist whose work I find both interesting and inspiring, discusses the boundaries of the market and the state in modern economies.
He also argues that economic change is inevitably political and makes a strong case against the imposition of ostensibly scientifically derived economic policies on democratic states by unelected technocrats. This happened in nation-states from Greece to Italy in the wake of the eurozone crisis.
“Self-restraint, as the philosophers know, is a rare and bewildering virtue. It is also a virtue that tends to come unstuck the more powerful we become. In this it resembles the relationship between trust and success: the stronger the bonds of trust between us, the greater our collective and individual success. But success breeds greed, and greed is a solvent of trust. Similarly with self-restraint: having it can help one succeed. But then success poses a threat to one’s self-restraint.”
Yanis Varoufakis (2015), The Global Minotaur – America, Europe and the Future of the Global Economy (p.249)
This thought-provoking quote is taken from the postscript of Varoufakis‘s enlightening book on the roots and evolution of the Global Financial Crisis, originally published in 2011.
The author describes how post-war US hegemony produced a ‘Global Plan’ which helped to underpin a successful capitalism for twenty years; its ‘finest hour’, according to Varoufakis, and what has often been called the Golden Age. This gave way to his ‘Global Minotaur’ in the 1970s, which ultimately led us to the crisis of 2008 and its collapse.
The key that links these systemic ideas, and the possibility of a successful global capitalist future is what he calls the ‘global surplus recycling mechanism’ (GSRM). The evolution of the GSRM is the unifying theme which unites the book, which I will discuss in a future post.
Some of The Global Minotaur‘s ideas overlap with those of Michael Pettis, particularly in the latter’s book The Great Rebalancing. In fact the two are largely complementary, as Pettis describes the domestic policies in countries such as China and Germany, which helped to create the financial imbalances that caused the crisis.
Some inspiring words from Nobel prize-winning economist Edmund Phelps, as quoted in Will Hutton‘s How Good Can We Be (p.172):
“[Flourishing is] the heart of prospering – engagement, meeting challenges, self-expression and personal growth…a person’s flourishing comes from the experience of the new: new situations, new problems, new insights and new ideas to develop and share. Similarly, prosperity on a national scale – mass flourishing – comes from broad involvement of people in the processes of innovation; the conception, development and spread of new methods and products – indigenous innovation down to the grass roots.”
Hutton follows with his own take on the mass flourishing which he sees as an essential outcome of the good economy and society:
“…the smart economy, resting on innovation, is coterminous with a society that ceaselessly and restlessly sponsors mass flourishing: they are indispensable and interdependent concepts. This was the heart of the Enlightenment – makers, inventors and philosophers all interconnected, daring to think, to understand and to challenge old boundaries, infecting each other with the enthusiasm for the new while being part of a greater social awakening that affected everyone. This spirit imbued every branch of British economic and social life in the late eighteenth century; it was this as much as cheap labour, water mills and Europe’s first single national market that triggered the Industrial Revolution. Every age is different, but what is not different are the interdependencies between the economic and social that animate and lift the human spirit.”
Michael Hudson, the heterodox economics Professor whose work I have featured on this blog quite a bit this year, wrote a history and critique of theories of trade and development back in 1992. It was reissued in 2009 and I have just finished reading it.
His central thesis is that, to quote the subtitle, “trade and development concentrate economic power in the hands of dominant nations”. I will not be reviewing the book here, but here is an extract, the gist of which I have agreed with since I was a graduate student (p.169-70): Continue reading →
Marxist Professor Fred Moseley’s recent work Money and Totality was 20 years in the making. A couple of weeks ago, in the midst of reading it, I remarked on this blog that it was thoroughly engaging, at least for those interested in Marxist economic theory and its application to the analysis of capitalism. I also promised further comment, once I had finished it, so here goes.
Moseley’s interpretation of Marx’s theory is ‘macro’ ie macroeconomic, in that it begins logically with the operation of the economy as a whole, and then proceeds to the ‘micro’ or the operation of the individual parts of the economy in question.
The interpretation is ‘monetary’ in that it argues that Marx’s theory uses values or prices quantified in terms of money. Capitalism is a money-using system, and in fact Marx defines capital itself as money which is used to make more money, or ‘self-expanding value’.
The title of the book is thus explained: ‘money and totality’, the latter as describing the importance of the macroeconomic system as a whole. Continue reading →