Michael Hudson: Adam Smith was no ‘free market’ economist

hudson-200x300Here are some further enlightening extracts from Michael Hudson’s iconoclastic J is for Junk Economics, this time on Adam Smith (p.28) and the school of Classical Political Economy. Hudson has an extraordinary knowledge of economic history, as can be gathered from viewing any of his interviews on YouTube, or reading his books.

Smith is often falsely regarded as being an advocate of the free market, justifying a libertarian focus on deregulation and minimal levels of taxation. Hudson shows that Smith’s (and the Classical’s) thinking was a bit more complicated: Continue reading

Michael Hudson on the End of History and Fukuyama’s about-face

hudson-200x300Another extract in this occasional series from Michael Hudson’s J is for Junk Economics (p.88-9), a book which aims “to revive a more reality-based analysis and policy-making…[by reconstructing] economics as a discipline, starting with its vocabulary and basic concepts.” This time he considers the phrase famously coined by political scientist Francis Fukuyama in the early 1990s, and how events superseded Fukuyama’s ideas, forcing a change of heart.

End of History: A term reflecting neoliberal hopes that the West’s political evolution will stop once economies are privatized and public regulation of banking and production are dismantled. Writing in the wake of the collapse of the Soviet Union, Francis Fukuyama’s The End of History and the Last Man (1992) coined the term “liberal democracy” to describe a globalized world run by the private sector, implicitly under American hegemony after its victory in today’s clash of civilizations.

It is as if the consolidation of feudal lordship is to be restored as “the end of history,” rolling back the Enlightenment’s centuries of reform. As Margaret Thatcher said in 1985: “There is no alternative” [TINA]. To her and her neoliberal colleagues, one essayist has written “everything else is utopianism, unreason and regression. The virtue of debate and conflicting perspectives are discredited because history is ruled by necessity.”

Fukuyama’s view that history will stop at this point is the opposite of the growing role of democratic government that most 20th century economists had expected to see. Evidently he himself had second thoughts when what he had celebrated as “liberal democracy” turned out to be a financial oligarchy appropriating power for themselves. In 1995, Russia’s economic planning passed into the hands of the “Seven Bankers,” with US advisors overseeing the privatization of post-Soviet land and real estate, natural resources and infrastructure. Russian “liberalism” simply meant an insider kleptocracy spree.

Seeing a similar dynamic in the United States, Fukuyama acknowledged (in a February 1, 2012 interview with Der Spiegel) that his paean to neoliberalism was premature: “Obama had a big opportunity right at the middle of the crisis. That was around the time Newsweek carried the title: ‘We Are All Socialists Now.” Obama’s team could have nationalized the banks and then sold them off piecemeal. But their whole view of what is possible and desirable is still very much shaped by the needs of these big banks.” That mode of “liberal democracy” seems unlikely to be the end of history, unless we are speaking of a permanent Dark Age in which forward momentum simply stops.”

The selfish and the social

Brain-598x342Until recently, much of economic theory has neglected the roles that evolution, psychology and biology play in shaping the economy and its human constituents. This has been detrimental to mainstream economics’ narrow vision of economic man, who is supposed to behave in a selfish, rational fashion as he optimises social outcomes, primarily in the realm of markets.

A notable recent contribution which attempts to counter this conception is Rojhat Avsar’s The Evolutionary Origins of Markets. The book argues that the human brain and human behaviour have evolved in ways which make the creating and sustaining of socioeconomic institutions, not least the market and exchange, outcomes of social motives as much as selfish ones.

Avsar’s short book contains a wealth of ideas and applications of studies of human nature to the economy. I will not attempt to cover more than a few of them, or review the book, in this post. Instead I want to discuss one model of the human brain taken from the book and note its implications for our understanding of man in the economy. I will also introduce some ideas from a similar effort by institutional and evolutionary economist Geoffrey Hodgson, which also employs concepts from biology in its attempt to construct an alternative to homo economicus. Continue reading

Some (political economy) thoughts on the response to Covid-19 – capitalism, socialism and the role of the state

The big state is back with a vengeance, if it ever went away. The apparent suddenness and rapid escalation of the spread of the coronavirus has called forth an almost equally rapid increase in the scope of state intervention in many nations. Countries that had spurned a move to state capitalism have suddenly found themselves having to embrace it.

Authoritarian state capitalist, though ostensibly communist, China, took a while to respond to the outbreak, but once it did, it acted forcibly and, for now at least, it seems to have stemmed the tide. But democratic Japan, South Korea and Taiwan seem also to have responded relatively effectively to the outbreak, at least compared with many other countries.

The UK government has so far pledged a massive fiscal programme of stimulus, including wage subsidies, bridging loans for firms, and at the time of writing is about to announce support for the self-employed as well. Private sector rail company franchises have been suspended in the wake of collapsing ticket sales. The health service has been promised whatever it needs financially to deal with the virus. Private firms are being asked to switch production to medical supplies as fast as possible. The post-crash decade of austerity was already somewhat at an end, but now it has been dramatically, inevitably put into reverse gear. Continue reading

Geoffrey Hodgson on Hayek, liberalism and social democracy

Those on the political left are generally not fans of Friedrich Hayek and the Austrian school of economics. So this short lecture by institutional economist Geoffrey Hodgson was something of a surprise. He demonstrates that in many ways, Hayek supported policies which would be described as social democratic, with state provision and regulation of all sorts of aspects of society and the economy, especially as a counter to the possibility of totalitarianism.

Hodgson makes clear where he agrees and disagrees with Hayek, not least on the definition of classical liberalism, and it makes for an interesting argument. He also touches on his own ideas on the role of institutions under capitalism.

The relevant part of the video with Hodgson’s talk starts at 3:15 and finishes at about 31:00.

Financialisation is a problem for capitalism. Is socialism the solution? (Part 2)

In this recent post I outlined some of the ideas in Grace Blakeley’s new book Stolen – How to Save the World from Financialisation. Her answer to the apparent political, social and economic problems with financialisation under capitalism is a transformation towards democratic socialism, starting in the UK and spreading across the world.

In the book she describes a range of policies that would, she hopes, encourage such a trend: a Public Investment Bank; a People’s Asset Manager to encourage the spread of public ownership; an ambitious Green New Deal; changes to corporate governance so that a much wider range of stakeholders are more closely involved in decision-making, not only in non-financial corporations, but also in banks and including the Bank of England. She also argues for the restoration of trade union power and influence, the refinancing of private debt and much tougher regulation of private banking, to encourage definancialisation domestically and ultimately globally. Continue reading

Financialisation is a problem for capitalism. Is socialism the solution? (Part 1)

GraceBlakeleyStolenThe rise of finance across the world economy in recent decades and its spectacular fall from grace as the crisis of 2008 unfolded has given birth to the notion of financialisation in academic circles, particularly among heterodox economists. Grace Blakeley, economics commentator for the New Statesman magazine, research fellow at the IPPR think tank and a rising star on the radical left here in the UK, has written an accessible book which attempts to make sense of this phenomenon and attempts to overcome it. Stolen – How to Save the World from Financialisation is aimed at the intelligent layman rather than being an academic work.

In the book, Blakeley explores the recent history of financialisation and the increasing power of finance in society and its damaging economic, social and political impact, focusing mainly on the UK. She also proposes a solution: democratic socialism. In two posts, of which this is the first, I explore some of the thinking in the book and elsewhere on financialisation and its consequences, as well as potential solutions which aim to mitigate or remove its deleterious nature. Continue reading

David Harvey on the persistence of neoliberalism

David Harvey is a distinguished professor of Anthropology and Geography at the City University of New York Graduate School. He has written extensively on aspects of Marxist political economy, including a number of popular books and guides to Marx’s Capital.

In the first part of this interview with the Real News Network he discusses the persistence of neoliberalism despite its manifold failures.

‘The left must fight for a real Brexit’ – an interview with Costas Lapavitsas

lapavitsasCostas Lapavitsas is a Professor of Economics at SOAS in London and a long-standing critic of the EU. His recent book, The Left Case Against the EU, is an interesting and provocative read, whatever your political orientation.

In this short interview, he argues for a No Deal Brexit from a left perspective, as well as political and economic transformation in countries across Europe that benefits ordinary working people via public ownership of the banks and utilities, industrial policy and redistribution, alongside increased popular and national sovereignty and democratic accountability. Continue reading