What are capitalism and socialism? Richard Wolff on the difference

A short video below featuring Marxist economist Richard Wolff on what he sees as the difference between capitalism and socialism. Wolff is always thought-provoking and good to listen to, even if one doesn’t agree with everything he says.

For me, it is helpful to see capitalism around the world as coming in many varieties, each with strengths and weaknesses, and as an evolving system, rather than as a pure type. Capitalism hasn’t always existed, and it may transform into something else given time. This would not necessarily be socialism. This line of thinking draws on (old) institutional economics.

Having said that, the essentials of the employment relationship, extensive market exchange, production by firms for profit, private ownership and a legal system which supports individual property rights seem to me to be important in a definition of capitalism. For an in-depth discussion of these issues I can recommend Geoffrey Hodgson’s recent book Conceptualizing Capitalism.

Our resurgent enemy: authoritarian nationalism trumps neoliberalism

Institutionalist economist Geoffrey Hodgson writes a fascinating and highly informative blog entitled New Politics. This post from January discusses the authoritarian nationalist turn in world politics and the vital importance of liberalism in countering this threat. His writing is lucid, compelling, and very well-informed by lessons from history.

Although the post is more about politics than economics, from a political economy perspective, the two are more useful when analysed together. In modern capitalist economies, the role of the state is inseparable from other institutions such as the rule of law and the market.

The debate over economic policy should be thoroughly exercised in the public realm of a healthy democracy. This requires well-educated citizens open to engaging critically in such a debate, allowing space for diversity and pluralism without dictating their terms. Intolerance is present in elements of both left and right and is contrary to the liberal perspective. Continue reading

Geoff Hodgson on capitalism and democracy

9780226419695A quote from my current reading on the nature of capitalism which I found particularly inspiring. Hodgson argues that many thinkers have neglected the institutional diversity of capitalism in their push to promote ‘pure’ versions of either market individualism or socialism:

“As long as we are trapped in the Tweedledum-and-Tweedledee debate between planning and markets, we shall be unable to appreciate the intermediating networks and institutions that have played a vital role in the development of modern capitalism. Experience reveals the limitations of both wholesale socialism and atomized individualism. Along with individual property rights, all successful capitalisms have embraced corporate organization and other intermediate layers of organized power as well as varying measures of state intervention. These are important for both its emergence and its vitality.

But while intermediate organization is necessary, it is not sufficient. It guarantees neither dynamism, democracy, nor legality. The experience of fascism in the twentieth century shows that big business can connive with autocracy against democracy and liberty. As US President Franklin D. Roosevelt argued: “The liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself.” Excessive corporate or military power can also undermine or constrain democracy. Countervailing power has to balance rather than overwhelm other legitimate authority. The maintenance of politicoeconomic systems with their counterbalanced powers requires constant vigilance.”

Geoffrey M. Hodgson (2015), Conceptualizing Capitalism

Neither socialism nor market fundamentalism

51ub7qfxqgl-_sy344_bo1204203200_A brief extract from my current reading which really stood out for me. Economics and Utopia pits the theories and practices of socialism against those of market fundamentalism, and moves towards some sort of third way, encompassing a plurality of institutions, including the market.

“Neither the individual nor the state can be omniscient. What is remarkable about both socialism (in a traditional sense) and market individualism is that they both presume a high degree of capability and enlightenment on the part of one or the other. In socialism the planning committees are assumed to be capable of knowing what is best. In market individualism the individual alone is ascribed with this capability. It is necessary to escape from this false dichotomy.

All knowledge is partial and provisional. Society, and the individuals within it, are involved in an interactive and mutually interdependent process where all are learning on the basis of conjecture, error, experience and experiment. It is suggested here that this open-ended and experimental process cannot be encapsulated adequately in these two systems. Neither a universal system of planning (democratic or otherwise), nor a set of atomistic individuals acting solely through markets and contracts, can give full reign to experimentation and learning. They require a set of varied and pluralistic economic structures, frowned upon by centralist socialists and market individualists alike.”

Geoffrey M. Hodgson (1999), Economics and Utopia, Ch.2, p.79-80

Robert Anton Wilson on the source of wealth


Robert Anton Wilson

A quote from a book which is, for once, not about economics. The book that is, not the quote! Prometheus Rising is an eclectic look at how the human mind works and is both entertaining and enlightening.

“Where does this wealth come from? According to orthodox economics it comes from land, labor and capital. According to Marxists, it comes from land and labor alone, and the capitalist is a thief who has inserted an artificial book-keeping system into the process. Both are wrong. Land and labor alone, and land, labor and capital together, can’t produce new wealth if they are all organised by a fallacious idea, such as searching for oil where oil is not. The real source of wealth is correct ideas: workable ideas: that is, negative entropy – Information.

The origin of these coherent (workable) ideas is the human nervous system. All wealth is created by human beings using their neurons intelligently.

Robert Anton Wilson (1983), Prometheus Rising

I have plenty of time for Marxist thought, not so much for socialism. But the labour theory of value (LTV) is, for me, perhaps not as scientific as Marx and many Marxists make out. The above quote sums it up nicely, suggesting that the LTV is misleading or at best incomplete, and designed to make social injustice and exploitation into something scientific.

If one wishes to fight injustice, including exploitation, that is all to the good. However I am not convinced that surplus value, a key concept in classical political economy and Marx, necessarily originates solely in the efforts of the workers. Management by the capitalists or their representatives is probably necessary for a productive and profitable workplace and can take many forms, coercive or otherwise.

To draw once more on the quote above: in the right political, social and economic environment, capitalists and workers, sometimes in conflict, sometimes cooperating, can be collectively productive if they work (and use their neurons) intelligently.

Keynes on government and the individual under capitalism

Economist John Maynard Keynes“The important thing for Government is not to do things that individuals are doing already, and to do them a little better or a little worse; but to do those things that at present are not done at all.”

John Maynard Keynes (1926), The End of Laissez-Faire

I like this quote from the great economist, but although it may be clear in some instances what is ‘not done at all’ through private initiative, there is still plenty of room for debate about what the state should do.

One must remember that ultimately Keynes worked hard during the latter years of his life to try to save capitalism from itself by remedying its apparent defects, such as mass unemployment and poverty. He lived through two World Wars and the intervening Great Depression of the 1930s. These disasters profoundly shaped his thinking about economics and the role of state intervention in the economy. It is therefore misinformed to decry such intervention as socialist.

The mixed economy of the post-war years in the end outperformed state socialism both materially and socially, although its progress was halted in the 1970s by the crisis of ‘stagflation’ (the novel phenomenon of inflation and unemployment rising together).

I think that Keynes and today’s post-Keynesians are wrong that there is a permanent solution to recession through state intervention, but that despite this, we should not reject the latter which remains vital to the positive evolution of the economy and society.

Socialism no longer ‘whispered’ for Labour

“You no longer have to whisper it, it’s called socialism.” With these words, UK shadow finance minister John McDonnell reconfirmed the Labour Party’s commitment to transforming British society, should they win the next election. On current polling evidence, this seems unlikely.

For those of us more inclined towards the social democratic wing of Labour, this rhetoric is a little dismaying. I am not convinced that the hard left has widespread appeal beyond the party’s core membership. An appeal to ‘middle England’, alongside the working class and those nearer the top of society who see the importance of progressive politics, is vital should they actually want to win the next election and obtain the power required to put policies into action. Continue reading