Quote of the week: Anwar Shaikh on opposing capitalism

Anwar-InterviewThis week’s quote comes from the New School’s Anwar Shaikh, whose work I have discussed on this blog a number of times. Working in what he has called the ‘Classical Keynesian’ tradition, his efforts to synthesise the work of Adam Smith, David Ricardo, Karl Marx and John Maynard Keynes culminated in his 2016 magnum opus Capitalism. Although he is both highly critical of and well outside the broadly neoclassical mainstream, he remains an independent spirit and has clearly forged his own path through his research and writing.

The extract below is taken from a volume of interviews with leading heterodox economists, and considers the importance of understanding the world as part of the basis for changing it in a progressive direction, with capitalism being the dominant economic system in the world today. Shaikh’s own book is proffered as a contribution towards that endeavour.

Although I have sympathies with Keynesian economists arguing for policies which achieve and sustain full employment, I can also see where Shaikh is coming from when he argues that the sustaining of it under capitalism has been historically problematic. Sooner or later, economic crises occur, either from within the system itself, or through policy responses to, say, high inflation, which undermine its achievement. However, in Capitalism Shaikh does argue that a social pact between government, business and trade unions can mitigate inflation even in the presence of a tight labour market and high employment rates. Historically, this has been achieved in certain countries at certain times, and for reasonably sustained periods. For me, this is worth shooting for as part of a progressive policy package for improved economic and social performance, and, yes, this would be taking place within capitalism.

At the same time, a combination of reforms to, and the evolution of, the capitalist system itself, may ultimately take it beyond its particular limits and towards something else. What exactly that might be, and what it might be called, may be beyond any one individual’s capacity to imagine. I prefer to leave this problem open for now.

“Many people change the world without understanding, but there are consequences of not understanding it, too. I have done my share of demonstrations and marches. I was a founding member of the Union for Radical Political Economics also. But it seemed to me that providing a space for people to oppose capitalism is not the same thing as providing a framework in which this opposition can be located and which the consequences of opposition can be located also. And some of those consequences are consequences people on the left don’t like to hear. They don’t like to hear that Keynesian policy cannot just provide full employment. Well, I happen to believe that capitalism will not sustain full employment and that’s an uncomfortable belief. But I can’t reject it merely because I don’t like that outcome, so I have to deal with the fact that if that’s the case then that’s the limits of capitalism. Where can you go within those limits? And then it also leads you naturally to ask where do you go beyond capitalism, even though my work is not about that. But it seems to me that understanding the limits helps you think about the fact that you can’t go beyond those limits without leaving the system because these are system limits, not human limits.”

‘Anwar Shaikh’, Ch.13 in A. Mearman, S. Berger and D. Guizzo (2019), What is Heterodox Economics? Conversations With Leading Economists, Abingdon: Routledge, p.219.

The Interest Rate and the ECB – The European Central Bank will disgrace itself again and Germany is to blame this time too — flassbeck economics international

Some sensible words below from German left Keynesian economist Heiner Flassbeck, in which he criticises the current policies of the European Central Bank (ECB) and its response to pressure from German media and politicians. For Flassbeck, there is little indication that inflation in the Eurozone, and Germany in particular, is being driven by a wage-price spiral rather than a series of supply shocks. If wages do begin to accelerate in response to rises in the cost of living, then this could become a problem. But for Flassbeck the solution is coordinated wage restraint via cooperation between employers and trade unions, in other words an incomes policy.

As he says, workers need to realise that excessive wage increases are no solution to the current inflation for the economy as a whole, and will simply lead to higher inflation becoming endemic. Interest rate rises by the ECB can certainly reduce inflation, but only indirectly by restricting demand, deflating the economy and raising unemployment, reducing workers’ bargaining power. This should be a last resort.

Part of the response to the cost of living crisis should be government help for the poorest in society who are suffering the most from the cost of living crisis driven by global supply shocks.

The full article can be read at the link below.

“Central banks demonstrate their knowledge and their experience by having a clear judgement about economic developments and the causes of significant price increases, and they should also be able to communicate their judgement and its background effectively. A central bank that decides to raise interest rates and then has revise this decision a short time…”

The Interest Rate and the ECB – The European Central Bank will disgrace itself again and Germany is to blame this time too — flassbeck economics international

Say’s Law and the Fundamental Failure of Economics — repost from flassbeck economics international

One would think that “experts” who pretend to understand one thing particularly well and even recommend that thing to economic policymakers would at least be able to comprehend the logical basis of what they are saying. But this has not been the case for decades with the so-called supply theorists. …More …

Say’s Law and the Fundamental Failure of Economics — flassbeck economics international

Considering Keynes’s ‘Liberal Socialism’

Was Keynes a champion of a reformed capitalism or a liberal socialist? He consistently argued for a middle way between laissez-faire and state socialism as a means of achieving the good society. But although he referred to a form of socialism in some of his work, his possible variant of such a system creates some confusion in the use of language and argument. A modern social democratic liberalism retains the core features of capitalism and can continue to draw on the ideas of Keynes, even if it does ultimately evolve into something different.

keynesThe conventional wisdom on Keynes has it that the great economist and statesman argued for a reformed capitalism, in order to save the system from its flaws, and guard against political extremism of the left and right. But some of today’s thinkers make a rather different case. They hold that he wanted to see reform lead the way to what he called ‘liberal socialism’.

James Crotty has turned this idea into a whole book, which I wrote about in this post. But Rod O’Donnell makes a similar argument, following the evolution of Keynes’ output during the 1920s, 30s and 40s, in a short chapter from an edited volume from 1999 honouring the work of the late post-Keynesian Geoff Harcourt. The chapter is titled “Keynes’s Socialism: conception, strategy and espousal”. In it, O’Donnell argues that Keynes consistently made the case for a middle way between (and in the process rejecting) laissez-faire capitalism and state socialism. This was his liberal socialism. Politics and economics were to be the means to achieve an ethical goodness in society. This system should combine the best elements of liberalism and socialism, and discard the worst. Continue reading

Quote of the week: the rise and fall of the Golden Age of capitalism

WhatCapitalismNeedsThis week’s quote is another from the book What Capitalism Needs, in which two sociologists argue that if capitalist economies and societies are to flourish, they need certain degrees of state capacity and social cohesion. When these falter or are insufficient, the system will work poorly with regards to generating sustainable and widely-shared prosperity. Here they summarise the reasons for the rise and fall of the so-called Golden Age of capitalism, which lasted for twenty-five years or so after the Second World War.

As the authors put it, the Golden Age of rapid economic growth, low levels of unemployment and relative equality in many countries was not inevitable and was based on particular institutional and social foundations, both domestically and internationally. But it proved fragile and in the end could not be sustained.

“Sheer hell was followed by decency and prosperity. Some have argued that this postwar period was merely one of catching up, or returning to normal, following the devastation many countries suffered in the Second World War. There may be some truth to that. However, catching up after war is neither automatic nor inevitable; it requires the right state capacities and a modicum of social cohesion. After all, Germany and Japan bounced back much better than did Italy. And there was much less catching up in the capitalist world following the First World War than there was following the Second. So, while there may be some credibility to the catching-up argument, one still needs to understand how state capacities and social cohesion were at work…

[T]hings eventually came unglued after the Golden Age…we can preview at least three critical reasons why this happened that are central…First, the key advance of the period was conjunctural – not fully anchored in permanent structural social change. The fundamental class compromise rested on the greater equality and societal escalator that resulted, in part, from mass participation in warfare. The sense of shared sacrifice that lay behind greater equalization was not to last. Upper classes everywhere almost always find ways of increasing their share of the cake and gaining more for themselves than for the many. The basis of social cohesion was always likely to be challenged. Second, in their push for self-enrichment, the upper classes eventually turned away from Keynesianism and, in doing so, launched an attack on state capacities that weakened the institutional and intellectual foundations of the postwar order. Third, the behaviour of the United States changed. The proponents of “hegemonic stability theory” claim that the stability of capitalist society always depends on a leader capable of providing both a top currency and defense for its allies. The military power and economic leadership of the United States did help capitalism to flourish after 1945. But it is important, as noted, to recognize a crucial contrast between two relatively distinct periods of American hegemony, the benign and the predatory. It was most often in the United States’ interest to act generously in the years immediately after 1945, and that relatively benign role was made possible by the untrammeled power that it then possessed. As the hegemon’s power has diminished, a predatory alternative has become increasingly attractive.

The institutional and social conditions of the Golden Age were never going to last.”

John L. Campbell and John A. Hall (2021), What Capitalism Needs: Forgotten Lessons of Great Economists, Cambridge University Press, p.64-5.

Quote of the week: Keynesianism and global economic problems

Copland-DouglasFollowing the extracts I have posted in recent weeks, this is the last in the series from the 1947 edited volume The New Economics: Keynes’ Influence on Theory and Public Policy. Once again the piece is from the chapter by Douglas Copland, this time on addressing the problems of the global economy while maintaining a policy of high employment. In particular, Copland discusses the balance of payments and the high demand for imports that will tend to result from such a policy. As before, it is of historical interest, being written while Keynes’ influence was in its ascendency. But it also remains relevant today, in that conflict over international trade is much less likely if the countries concerned are able to achieve full employment. Free trade by itself is not enough and is unlikely to be sustained if it is not associated with high levels of employment and widely-shared prosperity. Continue reading

Reducing regional inequality in an age of multiple crises

Rising inequalities under capitalism have an important regional dimension. After four decades of neoliberal globalisation, today’s interlocking crises offer an opportunity to renew regional policies to reduce uneven development, drawing on the lessons and experiences of the past to shape a more sustainable future.

Global recession, a pandemic, climate change, war. We live in an era of multiple crises. All of these have an uneven impact on our societies; in the absence of policy reforms, they can exacerbate existing inequalities. This is the case at the national level, but also at the level of the regions within particular countries. The latest issue of the Cambridge Journal of Regions, Economy and Society (CJRES) features a range of articles on the rethinking of ‘spatial policy’, or policies which respond to geographical inequalities as an essential part of advancing social justice and sustainability (the editorial pieces are free to view). The editors argue that over the past four decades, geographical inequalities in economic prosperity and social conditions have been rising in almost all capitalist countries, as well as some emerging economies such as China. This is in spite of attempts by many governments to use regional policies to reduce inequality. ‘Left-behind’ regions and communities have experienced diminished social cohesion and bred political disaffection, in some cases undermining support for moderate or traditional political parties and threatening democracy. If the latter is to be sustained and its legitimacy enhanced, capitalism needs to be seen to be delivering prosperity, justice and freedom. Policies which encourage poorer regions to catch up with richer ones within capitalist economies are essential to this end. Continue reading

Quote of the week: public investment and the budget in a full employment policy

Copland-DouglasFollowing on from last week’s extract from the 1947 volume The New Economics: Keynes’ Influence on Theory and Public Policy, here is another from the same chapter by Australian economist and government advisor Douglas Copland. This time, he discusses the role of public investment and the government budget in a policy of high employment. It is, firstly, of historical interest, as this was a time when some aspects of Keynesian thinking were in the ascendance in the realms of both economic theory and public policy. Secondly, it is interesting to reflect on how the ideas propounded below are seen today. In particular, Copland covers the role of budget deficits and surpluses, the importance of substantial public investment in the communities of modern democracies, public ownership of utilities, and the need for a change in the attitude of private business towards the budget and its role in promoting prosperity and high employment. Continue reading

Quote of the week: the administrative problems in achieving full employment

Copland-DouglasDouglas Copland was a Australian academic and economist, who advised a number of his country’s governments during his distinguished career. In this week’s quote, I again draw on the edited 1947 volume The New Economics: Keynes’ Influence on Theory and Public Policy. Here Copland discusses some of the practical administrative problems of the Keynesian policy of achieving full employment in a free democratic society. As he makes clear, it is unlikely to be easy. It requires cooperation between the state and the private sector, including certain controls on free enterprise, which the private sector may well resent or resist. Indeed this resistance, which could be overcome in times of national emergency such as war, is likely to be more challenging in peacetime. This proved to be the case as the post-war period progressed, and eventually the Keynesian social democratic consensus collapsed in the 1970s when it seemed to fail in its aim of securing full employment with moderate inflation, and many industrialised economies were beset by stagflation, with unemployment and inflation rising together. In the 1980s politics in the US and the UK in particular shifted to the right, with the rise of an ideology which argued for the retreat of the state and the restoration of greater freedom to the private sector. Continue reading

Quote of the week: Paul Samuelson on the essential contribution of Keynes’ General Theory

paul samuelsonPaul Samuelson was the high priest of the post-war “neoclassical synthesis” in economics, which combined a particular interpretation of Keynesian macroeconomics with mainstream microeconomics. He was the author of two influential textbooks which were widely used by students on the US side of the Atlantic and, as time went on, on the UK side as well. Keynes’s disciples at Cambridge University, and many of their students, tended to be politically to the left of their American counterparts, and were critical of Samuelson’s approach to Keynesian economics. But fast forward to today, and the left Keynesians, or post-Keynesians, are sadly confined to a heterodoxy with limited influence on the dominant mainstream of the subject.

This week’s quote, by Samuelson, is another from the 1947 collection of essays The New Economics, published not long after Keynes’ death the previous year. It provides a fascinating snapshot of how some of the influential (mostly American-based at the time) voices in academia assessed Keynes’ contribution to economic theory and public policy. It includes essays by Keynes himself, as well as Joan Robinson, one of the founders of the post-Keynesian school at Cambridge. Continue reading