Quote of the week: Thatcher, monetarism and Marx’s reserve army

Following the last two weeks’ quotes from an interesting chapter by Fabio Petri, this is the third and final extract in this ‘mini’ series. It includes a revealing statement by a top Treasury civil servant under Margaret Thatcher in the 1980s, which saw a severe recession and the return of mass unemployment, topping three million by the middle of the decade, justified by the need bring down inflation.

The use of incomes policies involving negotiations between government, employers and trade unions to limit wage rises and mitigate the wage-price spiral of the time had largely broken down and the new government declared that the monetarist policies championed by Milton Friedman were the only way to do it. But the quote below reveals that Thatcher, rather than strongly adhering to monetarism, saw mass unemployment as an effective way of weakening the power of organised labour and its wage demands.

Inflation did come down, not just due to the renewed weakness of the working class, but also due to the sharp fall in the price of oil and other commodities on global markets, caused by recession across many of the world’s advanced economies. These developments came at great cost, and one must still wonder whether there could have been an alternative to the economic and social brutalities they engendered. Thatcher had declared not, an attitude exemplified by her famous TINA (There Is No Alternative) slogan. The reappearance of what Marx called the ‘reserve army’ of the unemployed, and the end of the post war policy commitment to full employment had been predicted by Michal Kalecki back in 1943.

“The 1970s witnessed the end of the Golden Age. Palma (sic) reports a declaration by Sir Alan Budd (a top civil servant at the British Treasury under Thatcher, and later Provost of Queen’s College, Oxford) on the real reasonings behind the Thatcher government’s use of neoclassical monetarist arguments to justify its brutal restrictive monetary policy:

The Thatcher government never believed for a moment that [monetarism] was the correct way to bring down inflation. They did however see that this would be a very good way to raise unemployment. And raising unemployment was an extremely desirable way of reducing the strength of the working classes…What was engineered – in Marxist terms – was a crisis of capitalism which re-created the reserve army of labour, and has allowed the capitalists to make high profits ever since.”

Fabio Petri (2023), Class struggle and hired prize-fighters, in J. Eatwell, P. Commendatore and N. Salvadori (eds.), Classical Economics, Keynes and Money, Abingdon: Routledge, p.58.

Some recurring themes in Marx versus Keynes: a personal note

Economist John Maynard KeynesToday’s post summarises some of what are for me the most important and interesting topics in economics, in particular those which draw on Marxist and Keynesian thinking. While the approaches and concerns of the two traditions sometimes overlap, they also give rise to tensions.

I have just finished Stephen Marglin’s new book Raising Keynes, which is the Harvard Professor’s attempt to resurrect and reform in modern guise the key ideas of the great man’s General Theory of 1936. On a personal level, the book is my latest foray into what is broadly known as post-Keynesian economics, whose practitioners claim to be the heirs of Keynes and the developers and propagators of his most important ideas. Through his work, Keynes intended to save capitalism by ridding it of some of its most damaging tendencies, such as periodic mass unemployment. This makes his work appealing to progressives and leftists who are uncomfortable with the idea of revolution and are not convinced that socialism, in the form it has taken historically, is the answer to society’s problems. Continue reading

Managing inflation today

Contando_Dinheiro_(8228640)Inflation is determined in the interaction of demand and supply for the economy as a whole. Today’s inflation may call for intervention by governments if it is deemed to be “excessive”. While there are a range of policy responses which can help, there are limits to what states under capitalism are able to achieve. Continue reading

Looking back, looking forward: blogging in 2022

img_0372I have resisted posting my top ten most viewed posts over the last twelve months; nevertheless this post takes a longer view back in time to assess the content and direction of this blog, and looks forward to the year ahead in the worlds of economics and political economy. The Political Economy of Development is perhaps a bit of a mouthful and not very catchy as a blog title, but it was in fact the name of my masters degree course at SOAS in London which, although my studies there finished 20 years ago, continues to inspire my thinking and writing. This blog is an outlet for both. The economics department at SOAS is well known for its focus on development, and on political economy and heterodox or non-mainstream approaches to it in particular.

Despite the blog’s title, I do not focus exclusively or even mostly on development, developing countries or emerging markets. As something of a get-out, I take the view that the process of economic and social development is ongoing and does not stop if or when countries ‘graduate’ to ‘advanced’ status and relatively high levels of income and wealth. Successful development is also more than a simple rise in GDP or national income. It is a process of socioeconomic transformation, encompassing technological progress, rising productivity and living standards, creative destruction a la Schumpeter (as old industries decline and new ones expand), and social and political change. If such processes are to be successful, we now realise that they need to be sustainable, economically, socially and environmentally, or they will undermine the very basis of human progress. Continue reading

Michael Hudson on socialism

hudson-200x300Another extract in this occasional series from Michael Hudson’s iconoclastic “dictionary” J is for Junk Economics. His economics seems to draw on a vast knowledge of economic history, which often makes for some original ideas and enlightening reading. He appears to be a socialist of the reformist variety and he is right that “socialism” is used as a misleading term of invective by some on the political right. But as Geoffrey Hodgson has reminded me in a number of his books, neoliberalism has become something similar on the left. Using terms in this way becomes emotionally provocative and vastly simplifies debates over their history and meaning. But politics and political persuasion are often as much or more about emotion than a sophisticated analysis of policy. As Hodgson argues in his Liberal Solidarity, most people are not political activists, and perhaps even fewer are professional political or economic analysts. Continue reading

Psychology, economic man and competing schools of thought

rawOne of my favourite non-economics books of all is Prometheus Rising by the late renegade social philosopher Robert Anton Wilson. Its somewhat alternative and enormously eclectic approach to the workings and evolution of the human mind may not appeal to some, and neither may its author, but for me it contains a wealth of stimulating ideas, spanning all sorts of divides. It even contains exercises at the end of each chapter which are designed to push the mind of the reader in new directions. Overall, it is Wilson’s attempt to apply a what he calls a model of brain circuits to the condition of the individual, society and the human race, through its past, present and potential future. His first four circuits provide a compelling description of the range of much of human behaviour.

I have been meaning to try to apply aspects of Wilson’s model to economics for some time, so here goes. Many heterodox economists and other social theorists have long been critical of the focus on the individual and the neglect of the social contained in neoclassical and mainstream economics. However much heterodox economics does not attempt to formulate a new and improved model of the individual in society. It merely explores the importance of the social itself and how economic problems which have a social origin can be remedied by intervention, often by the state. Continue reading

Exploring the economics of good and evil

Economics-Good-EvilThis post is inspired by Tomas Sedlacek’s excellent book Economics of Good and Evil. I have already posted several, for me at least, thought-provoking extracts from the book, and there are more to come. Here I want to discuss some of the issues which arise from considering how economics is impossible to separate from ethics, though many of its modern practitioners would think otherwise. Even if they do acknowledge this truth, the ethics of modern economics are generally unspoken or presupposed. They exist, but are not often considered open to debate, except by those inclined to more heterodox perspectives.

The goods

What is counted as good in modern economics? To start with, most policymakers prioritise GDP growth, or perhaps growth in productivity, given their role in driving material prosperity and creating jobs. Increasing quantities of goods and services produced by a growing economy are part of the result. But it is surely rather short-sighted to assign ‘good’ only to the material aspects of production. Some ecological economists argue that the priority given to continuous growth in economic output are so damaging to planetary ecosystems and resources that we should aim for something like zero growth, or even ‘degrowth’. From their perspective, continued increases in GDP are ultimately unsustainable, and a radically different kind of economy is the required response. Space should be made for the poorest countries to grow, but the richest should radically change tack. Continue reading

Money and Power: the making of history, from “great men” to dialectics

MoneyandPowerFollowing Monday’s post introducing a series inspired by Vince Cable’s new book Money and Power: The World Leaders who Changed Economics, this is the first of several posts in that series. To reiterate, I will not fully review the book, as I am sure that is being done sufficiently elsewhere. Rather I will try to look in depth at some of the key issues tackled in the book, by taking them as a point of departure. Broadly speaking, they are to some degree inspired by the book, but they will also critique it.

In the book’s introduction, Cable discusses his approach:

“I try to pursue the links between economics and politics through individual politicians. Carlyle once observed that ‘history is the study of great men’ and I adopt that approach. It can reasonably be argued, however, that the study of ‘great men’ (and women) is to trivialize economic history: to reduce it to the world of ‘good’ and ‘bad’ kings in the manner of 1066 and All That. It ignores the power of technological change, demographics and migration, nutrition and medicine, changing social mores and popular movements…much of the critical commentary on the market-based transformations of the last few decades tends to dismiss individual leaders as mere flotsam on a tide of ‘neo-liberalism’.

Yet it is possible to overdo the impersonal. When future generations look back on the twentieth century with the same detachment as we currently see the Middle Ages, it will very likely be a tale of three destructive monsters (Stalin, Hitler and Mao) as well as the less memorable and more anonymous people who helped to create unparalleled prosperity and technological advance in Europe and North America and who lifted poor countries out of centuries of destitution…

Through my examples, I hope to better understand the links between good (and bad) politics and economics…sometimes, politicians emerge who make a big difference. That is my focus here.”

Continue reading

(Briefly) considering Marx – strengths, difficulties and prospects

“It is easy to see why Marx has excited and infuriated so many over the last century and three quarters. His method of thought, always involving a grasp of the totality and the dialectical relationship of the parts, is not easy to grasp. Following his argument can be frustrating for those of conventional training who look for linear logic. Then too the scope of his project his dazzling. There is little about which he did not write. There are many areas of economic theory where he was there first, and often at a very sophisticated level, understanding developments that would not be visible to other economists for many years to come. (It is perhaps enough to remember, as George Lichtheim reminds us, that ‘the German proletariat so confidently invoked by Marx scarcely existed’ in 1848 when he and Engels wrote the Manifesto.)

It is an open question whether with the demise of the communist system Marx’s writings will come to be read with fresh eyes. Much of what he had to say about capitalist development is of contemporary interest. Whether this is enough to overcome the dead hand of Soviet Marxism, and whether Marx’s revolutionary message of the cost humanity pays for accepting class oppression and exploitation, and his vision of an alternative form of economic organisation is simply utopian, have little to do with their intrinsic ‘correctness’, if such a thing can be judged, but are a matter of how correct he proves to be in terms of the trajectory of capitalist development and the consciousness that emerges from a reconstituted working class in a knowledge-driven economy.

The reason Karl Marx, Adam Smith and John Maynard Keynes make up the most popular top triumvirate in so many treatments of the history of economic thought is that they combine a breadth of vision, and each took up the necessary task, as Keynes wrote, of being ‘unorthodox, troublesome, dangerous, disobedient to them that begat us,’ and none more so than Karl Marx.”

William K. Tabb (1999), Reconstructing Political Economy: The great divide in economic thought, Routledge. p.90.

Marxism without guarantees – the economics of Resnick and Wolff

Richard Wolff is perhaps the most prominent Marxist economist in America today. He hosts the weekly program Economic Update, which can be found on YouTube and elsewhere. Whether or not one agrees with his views, he comes across as a thoroughly engaging communicator. With his colleague, the late Stephen Resnick, he developed an original approach to Marxist political economy over the last few decades. He sees political activism and public education as the way to promote and achieve the socially transformative goals which arise from his academic work.

Although I have found there to be much to admire and absorb in Marx and plenty of his multifarious followers, I would not call myself a Marxist. Wolf unashamedly does so, in his quest to end exploitation in the workplace, which he and Resnick see as the key to unlocking the workings of capitalism and ending it in order to achieve greater social justice in a transformed society. Continue reading