Marxism without revolution: Crisis

John, you’re missing the link to your book.

Obviously, those policies broke down in the late 1960s and early 1970s.

I’ve probably been asleep but I know almost nothing about this. Histories of that time I’ve seen lately are more about industrial policy and things that impact unions. Are there one or two books that would be a good place to start?

As for within the system, there was no alternative, I am very dubious about this kind of argument, which in my unhumble opinion is at times spoken in a less theoretical way by people who have idiosyncratic views about what counts as “within the system” either in terms of how things have always been done or in terms of what kinds of change don’t count as challenging the system. It helps explain why things suck while energizing various activities that have the effect of repelling anyone who might help make them suck less bad.

The Busts Keep Getting Bigger Why?

Krugman & Wells NYT review of Jeff Madrick Age of Greed July 14 2011

I don’t think the collapse of capitalism necessarily guarantees the triumph of the proletariat, and I am not sure M-E thought so. Bourgeois liberals can so weaken class consciousness that revolution and socialism impossible to imagine and we devolve into barbarism, war, and neo-feudalism. Or simple feudalism. I kinda expect it, and only hope it happens after me.

Chris Hedges says to set up little Lindisfarnes to preserve progressive values after the deluge.

“One of the most powerful feature of Marxian analysis is the idea that crisis is a normal part of capitalism rather than an aberration resulting from exogenous shocks. Marx asserts that crises arise from inherent contradictions in the system and proposes a dialectical account by which the resolution of one crisis produces the contradictions that set the scene for the next. That seems to me to remain valuable”

I suspect the insight we should be getting is that crisis is a normal part of nearly all human systems rather than an aberration resulting from exogenous shocks. If that insight is true, it has very different implications for policy making. The goal should not to be to move from the scary system which has crises to the better system that doesn’t have crises. The goal should be to let crises shake out, but to mitigate their damage.

The analogy that makes sense to me is the old wildfire policy of the US forest service. By stamping down on every fire, they were successful NOT in avoiding a fire crisis, but rather in putting it off for decades while the fuel built. Eventually it built up so that when a fire came along that couldn’t be controlled, it was enormously more damaging and intense than the little fires that were avoided.

It seems to me, at my medium level of economic understanding, that much of the focus of the 1980s-2000s was operating under a “lets try to avoid all economic crises” mode. This appeared to be successful (the great moderation) but may have just been storing the fuel for an incredibly intense disaster later (the last few years, and if the EU doesn’t meddle through well maybe more intense yet to come). I don’t believe we can avoid the medium crises, and I suspect that by trying to do so we are creating the super-disasters.

Now I’m not at all *sure* that I’m right. But I strongly suspect that at least seriously mulling through it from that perspective might be very beneficial.

JQ I agree with you on the idea of an inherent crisis setup and it seems to have originated (at least in its most powerful and influential form) with Marx – but also, didn’t Keynes and Minsky, among others, basically absorb that? At the very least, there are some Marx-ian folks who are definitely not orthodox Marx-ists who talk about that, it seems like.

Also, I am not an economist and you identify as a Keynesian so I’m probably out of line here but: what do you make of the argument (often deployed by Marxists, incidentally) that the “failure” of Keynesian policy in the Western World had more to do with external events (opening of various markets [I know China’s opening was a little later but there were some other peripheral countries opening up, no?] being a major one) than the effects of the policies themselves? Or sort of the labor aristocracy thing? I see it more as that Keynesian policy is really not workable in a globalized world because the political muscle needed requires intense mass action and the only reason it worked in the “Golden Age” is the mass mobilization memories from the GD + post WWII prosperity + political muscle + limited labor arbitrage opportunities, none of which currently exist anymore.

I guess my personal dilemma is that I agree with the cynical Marxist analysis re: Keynes but I am no Marxist apologist and if Keynesianism really doesn’t work and it’s either a global resistance movement and the neoliberal just-wait-til-growth-makes-it-all-better plan, i have to go with the latter just based on history. What are your thoughts? Doesn’t Dani Rodrik talk about this? I probably should read him I spose.

I think we have to add a further important factor into the present mix: the ecological crisis. Classical Marxism foresaw a future of material abundance and human dominance over nature. Abundance in that sense isn’t going to happen, and the ecological free lunch is over. AFAICS that spells disaster for the social democratic strategy of going for growth and increased consumption and seeking a compromise where the ruling class stays wealthy but everyone gets looked after in the end . That’s not going to work, matters look much more zero sum, and we can already see that the main political parties (certainly in Britain and the US) have now abandoned any aspiration (not commitment!) to ending mass poverty.

Produce for use, not for profit. Profit-based economy is trickery; hoping to fool the gods. Gods are vindictive bastards.

bert @ 7: Remember

Believe it or not, it didn’t come up much in first grade current events.

Modern societies can no longer afford revolutions like in the past. Revolutions (including wars) were too upending and destructive.

Nevertheless, society needs agitation and mini revolutions to keep it from stagnating and atrophying. Capitalism, with its contradictions and crises that it now and then throws our way, fills that ticket.

As for “stagflation,” our seventh grade science teacher’s one lesson about economics involved why when the steelworkers get a raise, the price of Eagles’ tickets go up.

When they don’t, do the ticket prices stay as they are?

#18, #19: It was endogenous to the planet.

I see.
You object to the deployment of the oil shock as an absolving excuse for deeper, preexisting weaknesses.
Is that fair? If so, no disagreement here.

Late in 73, many of the major oil exporters of the world cut off their exports. This caused supply in importing countries to steeply fall. Demand for oil is empirically highly inelastic in the short to medium term. By the most basic principles of supply and demand, the oil cutoff had to result in higher prices, and, indeed, higher prices emerged. The motive for the oil cutoff was to punish the West for its support of Israel in the 73 war, which would be exogenous to any economic factor. Even if commodity prices were rising anyway, indeed, even if they were rising on the same curve and magnitude as oil during this period, which I doubt, all you can say is that oil prices must have fallen otherwise, because the supply shock was real, and if you subtract supply and demand from the standard economic analysis of the market, what is left? If you believe in supply and demand, there was an exogenous oil shock to the system.

I suppose one could try to finesse this by sticking in a “significantly”, but it won’t stick. The supply drop was clearly significant. To argue for no significant exogenous cause, one has to argue that a sudden, unexpected large drop in supply had no significant effect. It is difficult to see even how this could be so, much less how it is so.

I expect this is half-baked, but still…

May I modestly suggest that crises are endogenous to capitalism, but that some crises can be worse than others because the relevant elites are worse than before (where “worse” means more concerned with the ends of domination and acquisition)?

I know this is old hat (which is not to say, better for that), but here is the addition:

During the Keynesian Era it was not simply competition between systems (Capitalist/Socialist) that did the trick for our elites (meaning them able to perceive through the glass darkly the common or public interest and act, even if as little as possible, on it) but the fact that many of them believed that we had developed 3 institutions that manged to do this without needing any special virtue from anyone, them included – so”, economically, the “free market”, politically the “separation of powers”between legislative, executive and judiciary, and electorally, “representative democracy”.

Now, what happens when this threefold faith is lost? And what happens, most especially, when it is lost to our elites?

I say that what happens is that predation becomes the natural political, economic form. As there is no magic of institutions to turn self-interest into the common good, there is no common good at all, there is only domination and acquisition. (Of course, it helps if the prey are fed the usual 3 institution rubbish (and ill-educated and frightened…)

It’s no wonder you guys are failures.

Nearly all the early (19th Century) anarchists and communists recognized that rent is extracted from the worker primarily through (4) methods:

1. land rights
2. tariffs
3. central banking
4. intellectual property

Now, illegitimate land rights obtained through force (e.g. latifundia) aren’t really a factor in today’s advanced economy — but still is an issue in the third world. And tariffs have pretty much been eliminated, which is a victory for worker purchasing power. There’s a fifth today, and that is restrictions on labor movement, but it didn’t really exist in the 19th Century.

So that leaves Central Banking and Intellectual property. Central Banking is the primary method in which the financial sector loots the other classes. In the absence of centralized fractional reserve banking ( in a hard money deflationary system), wealth accrues to those at the bottom — the worker’s individual savings and frugality.

If you eliminate intellectual property, workers can build anything they want, and their purchasing power goes up due to a drop in prices.

All of you espousing Keynesianism are fools — the Keynesian system merely PROPS UP these privileges with MORE centralized banking, MORE political handouts, and STRONGER intellectual property.

So any real Marxist should be striving to smash central banking, intellectual property, labor mobility restrictions, and what are left of Tariffs. That is what will free the multitude…

basically any real Marxist should take the mutual plunge and synthesize Austrian economics and Marxist class theory. Any and all who support Keynesian policies are propping up privilege.

I think we have to add a further important factor into the present mix: the ecological crisis. Classical Marxism foresaw a future of material abundance and human dominance over nature. Abundance in that sense isn’t going to happen, and the ecological free lunch is over. AFAICS that spells disaster for the social democratic strategy of going for growth and increased consumption and seeking a compromise where the ruling class stays wealthy but everyone gets looked after in the end . That’s not going to work, matters look much more zero sum, and we can already see that the main political parties (certainly in Britain and the US) have now abandoned any aspiration (not commitment!) to ending mass poverty.

I think the two (the ecological question and the current policies of U.S. and British parties) are separate questions, and better be addressed thus. In regard to the ecology, I seriously doubt that absent a catastrophic warming of the planet (if we do nothing) that there will be genuinely be a crisis of material shortages. Basically speaking, human beings are remarkably efficient and ingenious at making more out of less. Britain cut off the supply of rubber to Germany in the Great War, and Germany made synthetic rubber. Fuel became more expensive, and cars started being made that were much more fuel-efficient; presumably at some future point hybrids will become widespread, and the price of hybrids will come down as production moves to the lowest-cost point on the long-term curve. Just take the computer, for example: the computer of today weighs less than most typewriters. TV’s today take much less in terms of raw materials than the old cathode-ray tube ones.

With regard to the political question, I think the problem is that it was never quite possible to comprehensively solve poverty on a scale such as the United States, which is basically a continent. It’s just too big. It would be as if the EU parliament declared that they are going to solve poverty in the furthest corners of Portugal and Greece. Well, not going to happen, is it? Not least because the Portuguese and the Greeks don’t much like you interfering (same with some U.S. states). With regard to Britain, it has some genuine, material relation to the regional aspect. If it were just southern England, there would be no problem and probably even the Tory Party would promise to resolve it, but once you add in the de-industrialized areas then the problem become monumental and entrenched. (Imagine if they were actually to promise to solve poverty: so, what are you going to do about all the areas with 20% unemployment? Provide government jobs? Errrr……no answer. In situations like this, the natural economic outcome is regional economic migration, but that’s not acceptable as government policy.) A country the size of Luxembourg, on the other hand, would always try to solve its own poverty problems.

An obtuse and oversimplified argument would be that Monetarism not only “saved” Keynesian economics, but actually strengthened it. As oxymoronic as it may sound, Monetarism is the “Social Safety Net” for the Keynesians.

Government monetary policies have become a buffer for the worst effects of Keynesian policies. The central banks have become the parents to a bunch of 17-year old market joy riders. They cover their insurance, their gas, and even their speeding tickets. The only consequence for these adolescent gamblers is that they’re only half as rich as they were at the peak. After the crash Mum and Dad even went out and bought them a new car (to wreck again). Almost all the worst principals in the recent crash still ended up better than they were 10 years ago.

These private sector zealots have found a way to terrorize enough of the population – especially enough members of the political class – that their failure will start a chain reaction that will cause everyone to fail. So, despite their “philosophical differences,” they “allow” politicians pass regulations to protect “us” from them. Except all they really do is protect “them” for failure. “Us” can’t be protected from them, because that’s a “Nanny State” and socialism and communism and ant-capitalist and will be the end of democracy. And the idiot politicians fall for it – either the philosophical free-market argument or the economic circuit breakers – every damn time (just ask Elizabeth Warren).

The real reason there is little threat of a Marxist revolution is that Capitalism is dead. We now live under a Collectivist Oligarchy, where the risk is covered by everyone at the bottom and the reward all goes to those at the top. The Oligarchs leave just enough crumbs and just enough threat to take away those crumbs to keep the majority of the bottom toeing their line.

Is there a better example than Greece? It’s been obvious that those at the top – Germany, France, Italy, and even Britain, are testing the Greeks to see how far they can be pushed. They know that if the Greek economy fails, it will take the Irish and Spaniards with them, which will then kill the strong countries’ economies for the next 5 to 10 years. Once it appears they are pushing Greece over that edge they will pull back, “conceding” to the will of the Greek people. The bourgeois will revel in their “victory” over the central banks, oblivious that their victory was giving up everything they gained the last 20 years instead of 30. Except the rich, who will end up richer.

Then they’ll convince the proletariat that “The good news is you only got shot once!”

In regard to the ecology, I seriously doubt that absent a catastrophic warming of the planet (if we do nothing) that there will be genuinely be a crisis of material shortages

Tell that to the fishes, Myles. And ask yourself why you’re confusing raw materials with ecological services, while you’re at it.

Why don’t we switch to the “No true Keynesianism”-fallacy. If we use in parallel the “No true communism”- and “No true liberalism”-fallacies we might summarize most internet discussions on politics and economics in a maximum of 3 replies.

But to JQ’s point, Keynesianists, and Krugman in particular, were wrong. It’s more than a bit ridiculous that those who advocated a uniform supply-side solution are now attacking ferociously the uniform monetary solution that Europe is trying to hold onto to avoid the issues of competing devaluations that risked making Europe unstable during the 70s. At its worst Keynesianism is tinkering for tinkering’s sake. At its best, Keynesianism is the realization that there are no solutions except ad hoc solutions with a lot of tinkering inside.

The point is where you want to go. Anything that makes the way to go there prominent to the extent of making the end result almost co-incidental is, well, not nice.

“In the absence of a central bank and fractional reserve banking, you would have gentle year over year price deflation—not monetary deflation.”

Eliminating fractional reserve banking certainly is, um, a revolutionary idea. I’m not sure I can picture a modern industrial economy in which financial institutions have a liquidity ratio of 100%, though that may be lack of imagination on my part.

If I’m mistaken you’re merely calling for the elimination of central banks specifically and not fractional reserves in general you’re just setting things up for lots of bank runs and financial chaos. That certainly was the experience of the United States during the “free banking”period after Andrew Jackson killed the second Bank of the United States. That such an environment sucks for the little guy is probably why central banking is one of the demands in the Communist Manifesto.

Nick Bradley –

I really wish more Austrians would read history. Prior to central banking, there wasn’t some worker’s paradise – wealth accrues to those who already have it in a deflationary period, and since workers were poorly paid and creditors to boot, deflation was immensely regressive.

There’s a reason that the 19th century American left were massively in favor of inflation and a democratically-controlled central bank – the powers that be in the 19th century wanted deflation, especially the financial powers. Look at the history of Gold Bugs in American political parties – Wall Street financiers practically to a man.

Myles – poverty in the U.S can be easily eliminated with our current resources; geographic size isn’t a barrier, but rather an asset – costs are spread out rather than concentrated. The idea that decentralization makes it easier to fight poverty is simply ahistorical – state and local governments lack the resources, they run into collective action problems, and they are more easily captured by elites who directly benefit from the existence of poverty.

Well, darn, JQ, I shouldn’t have put supply side in there. My bad. Jargon is always easy to focus on.

Well Trotsky also believed in eugenics.

Are we going to blame that on Marx as well?

@StevenAttewell –

Obviously it wasn’t some workers paradise due to other factors. But without Central Banking the financial sector cannot extract massive rents — it’s that simple.

In addition, under central banking, those with ACCESS to credit benefit the most. Who do you suppose those persons are? Under hard money free banking, we’d have a lot more credit unions where workers provide their own credit.

the Left supported a central bank due to a misunderstanding of the business cycle and the money supply’s role in it. And it’s not so much an issue of inflation vs. deflation, but the cyclical process that fractional reserve banking causes that destroys the worst off and enriches the best off.

All the major financiers pushed for a central bank in the United States, and they all rallied behind the Bank of England to secure their credit lines and profit margins in the 19th Century.

You have failed to address my point that in today’s age, the financial sector is extracting a ton from society without adding anything back. And those activities are all enabled by central bank fractional reserve banking.

*I will add that hard money free banking is only one path to end the money monopoly. The other is the one proposed by Dennis Kucinich and other that calls for the establishment of a 100% reserve standard, with all new dollars being created by the treasury and being distributed to citizens. In the current fractional reserve system the $600bn we create every year first goes to the banks, then to big corporations, then to smaller corporations, then to workers. In this “real dollars” system, the $600bn would be distributed through $2,000 checks to each American every year. The inflation rate wouldn’t change, but income inequality would go down and the financial services sector would contract.

Louis Proyect #27: it is on the contrary easy to find. Google “Adalen 31 tpb”. Second link goes to an active torrent. Enjoy!

As for the topics in the original post, I won’t go into the fray since a fray is no way to carry the day with regard to this thorny topic. There’s not going to come anything productive from a context where comments reeking of machismo and unconstructive approaches to philosophical discussion (e.g. “It’s no wonder you guys are failures” – interesting way to strike up conversation!) are left standing. Most threads on CT seem to suffer from the same defects. If you moderate away 50% of the comments then the discussion might actually start going somewhere.

This is possibly an over-simplistic question; but to what extent were the various social democratic moves in the first part of the 20th century made possible by the solidarity bred by a generation going to war together, mass industrialisation or a combination of the two.

Is it really possible that we can replicate these sorts of things in exactly the same way? As someone pointed out in a previous thread, self-interest mostly trumps solidarity. So crisis on its own is never sufficient.

Nick Bradley at 56-

“without Central Banking the financial sector cannot extract massive rents—.”

Of course they can. J.P Morgan for most of his career didn’t have access to financial bargain, and it didn’t stop him from not merely extracting rents, but reshaping entire industries.

Under hard money free banking, we’d have a lot more credit unions where workers provide their own credit.

the Left supported a central bank due to a misunderstanding of the business cycle and the money supply’s role in it.

This is both patronizing to the 19th century Left and ahistorical. Under hard money banking, power flows to those who can hoard hard-money the best (i.e, those who have accumulated capital to begin with) – hence the development of core-periphery systems in New York, London, Paris, etc. Working class people whose incomes typically barely matched their spending needs (if that) were in trouble in a hard-money system because they couldn’t save, because they were dependent on industries for employment who were in turn dependent on credit to finance their high fixed costs, and because they were more likely to be debtors than creditors.

This isn’t very hard to figure out – deflation increases the value of money, inflation decreases it. Which is better for people with money, and which is better for people without?

All the major financiers pushed for a central bank in the United States, and they all rallied behind the Bank of England to secure their credit lines and profit margins in the 19th Century.

What the financiers wanted was a private central bank, what they didn’t want was a public central bank. The Aldrich Plan was for a private central banking system, and its proponents bitterly opposed a public central bank, because a public central bank gives a democratic state independence from the financial markets.

You have failed to address my point that in today’s age, the financial sector is extracting a ton from society without adding anything back. And those activities are all enabled by central bank fractional reserve banking.

And all those extractions could be counter-acted by a public central bank using the powers of fractional reserve banking for the public interest.

The problem isn’t fractional reserve banking, it’s the capture of the reserve banks.

Hidari, no that wasn’t all you were saying. You were saying, or implying, that Marx anticipated the ecological critique of capitalism and that John Bellamy Foster shows this. But I’m unconvinced that there’s much systematic on the subject in Marx, as opposed to this or that passage or remark that we seize on with the benefit of hindsight. But I don’t think it matters all that much. People like Trotsky are relevant just because they read the works Marx chose to publish and took them to be saying certain things. Of course, we might like to find certain other things there, but the fact that Marxists in the 40 or so years after Marx’s death failed to notice them is suggestive of something, though not definitively so.

John, the issue, AFAIC, is that there will be some expansion of the money supply, and it will come from some combination of monetized government debt and multiplier effects as a result of “banking”. Because we think of base expansion as “just printing money”, but do not think of multiplier effects this way, though both expand the supply of money, there is political support for having it all be the banks, which is a huge boon to them. When we see bubbles accompanied by legitimate government tasks unfunded, there is an argument for base expansion with higher reserve rates to tame the expansionary effects. What the term FRB does is make clear that the banks are engaged in monetary expansion. It may be that this is just a matter of rhetoric, but I think it useful rhetoric.

Rudolf Hilferding and the Application of the Political Economy of the Second International
Harold James

@StevenAttewell again –

“Under hard money banking, power flows to those who can hoard hard-money the best (i.e, those who have accumulated capital to begin with) – hence the development of core-periphery systems in New York, London, Paris, etc.”

– massive wealth accrues to those who can speculate or who can arbitrage a large loan into a more profitible investment. And loose money greases this process.

“And all those extractions could be counter-acted by a public central bank using the powers of fractional reserve banking for the public interest.”

– Where in history have central banks not been used for the interests of the elite? Gosbank?

@Martin Bento again –

“I will also agree that “No wonder you guys are all failures” makes the speaker appear very adolescent at the very best.”

– apologize for the coarseness, but it was designed to attract attention, and it worked.

“In the US, at least, the private interest is very real, though not complete, in both dimensions in which ownership is generally constituted: claim on profit and formal control. ”

– any illustion that the Fed is independent of the federal government is blown up after reading Arthur Burns’ memoirs.

@mpowell –

“I have to say that I agree with Martin here that Nick is mistaken in most of the claims he makes. I think Nick is confused on what fractional reserve banking is. Without it, a bank is really nothing more than a fancy security vault. ”

– You are so wrong on that one. a 100% reserve ratio requirement only prevents banks from loaning out demand deposits. If someone wants to buy a CD from a bank at 3% and the bank wants to loan it out at 6%, they can do so.

In reply to John Quiggin.
It seems that the crowd here depends on Sheri Berman’s account of Hilferding’s opposition to Woytinsky’s job creation program (James also speaks of Hilferding’s support of a hard money policy).

But I have some questions.

1. There is no indication that Hilferding was guided as a politician in the 20s and 30s by his theoretical Marxist work; he was, by then, a practical bourgeois politician. James himself raises this objection. The point is that in early theoretical work Finance Capital Hilferding tried to show why balanced growth was not possible and why accumulation would be shot through with crises. Moreover, he provided one of the first analyses of the securitization process and showed how banks could profit handsomely from it. It is a major theoretical contribution.

2. As for what Hilferding proposed (or shot down) and why and what he thought possible given the opposition of the banks to the social democrats and the position of German capital in the world, we don’t know yet in this discussion. We can’t rely on what Woytinsky claims Hilferding said. We have some highly ellipsed quotes from Hilferding that Woytinksy himself provided. It could be that Hilferding did not think he could proceed with huge debt-financed spending for employment without sabotage by powerful bankers, and he just wanted to maintain the illusion of still having the initiative in the crisis. Maybe he wrongly thought that such policy would have had inflationary consequences (it’s easy to understand why he may have been touchy about this), eroded the real wage of the mass of workers, and risked their alienation from the social Democrats. The point is that at present no serious evidence has been presented as to what Hilferding was thinking and whether he was guided by theory, much less his own earlier arguments in Finance Capital.

I am going to read the James account more carefully, but part of the reason that one may be skeptical of the social democratic thesis that there was a New Deal solution available for German capitalism is that the New Deal did not cure even American capitalism. It simply does not hold up to blame the second downturn on FDR’s reversals. The economic contraction was too big to have been caused by that.

But I’m unconvinced that there’s much systematic on the subject in Marx, as opposed to this or that passage or remark that we seize on with the benefit of hindsight.

One approach, not necessarily mine, might be that what’s best in Marx is less what’s systematic and more those passages or remarks that we seize on with the benefit of hindsight.

On page 113 of the Berman book you will find Berman quotes Hilferding directly from a letter to Karl Kautsky: ‘[W]orst of all in this situation is that we can’t say anything concrete to the people about how and by what means we would end the crisis’. Earlier Hildferding is also quoted referring to the need for the business cycle to take its course.

Hilferding plan for building a socialist planned economy was radical, but it had only a limited role for work-creation programs. Work-creation was central to the labor movement program that Hilferding was attacking.

Nick Bradley’s comments are even better when read like Bela Lugosi’s speech about building an army of atomic supermen.

You are so wrong on that one. a 100% reserve ratio requirement only prevents banks from loaning out demand deposits. If someone wants to buy a CD from a bank at 3% and the bank wants to loan it out at 6%, they can do so

Presumably when the bank made such a loan, it would retain a “reserve”, calculated as a “fraction” of the new loan? What you seem to be describing here is just a fairly draconian regulatory regime over normal banks, not even narrow-banking.

Capitalism is the revolution. It is the ultimate revolution. Nothing has revolutionized the world more. It has been the least violent of revolutions, in the spilling blood sense. It toppled communism without a shot and is a big wedge in revolutionizing the Arab/Muslim world.

I think Marx would be proud of this perpetual revolution that keeps on giving.

Hilferding was for limited work creation programs financed by taxes or forced loans, but why was he not for the kind of deficit financed work programs proposed by Woytinksy ? It can’t be that he thought the Social Democrats should let the business cycle run its course; he had his own radical program that he tried to implement, and he tried to implement it. We know that all Communists were not opposed to Woytinksy’s scheme, so we should avoid the red baiting that Marxists are just like right wing liquidationists,, leaving of course only the liberal left Keynesians as the adults in the room. It could be that Hilferding thought massive deficit financing would have the bankers sabotage the Social Democrats or that such a policy would require cuts into reparation payments that he did not think was politically possible.

Please don’t use abusive language, and why don’t you show me what you are looking for by pointing to me the kind of argument in this discussion that meets your standards. Or perhaps you could make such an argument yourself. Thank you.

@Ed Marshall –

“Nick, nothing is stopping them from operating a negative interest saving account, they have FREEDOM!”

– real interest rates on savings accounts are negative. What’s your point? In a deflationary environment, banks would have to pay savers a yield high enough to talk them out of burying their money in the backyard. Savers get a higher return, banks get a lower return. What this leads to (as I’ve said before) are banking co-ops — credit unions, etc.

“Except if you actually understand capitalism, this is never going to happen. You need the right volume of money, invested in a correct investment at the right time and the ability to recapitalize (and Minsky can tell you how unstable this all is, except in your economic regime it wouldn’t be unstable because capital just wouldn’t move. It’s dead).”

– Minsky’s theories can be described as a synthesis of austrian business cycle theory and kenyesian policy prescriptions. The only difference between mises and minsky is that minsky felt the boom-bust cycle was exogenous to capitalism (caused by central banking) while minsky felt it was endogenous.

@dsquared –

“Presumably when the bank made such a loan, it would retain a “reserve”, calculated as a “fraction” of the new loan? What you seem to be describing here is just a fairly draconian regulatory regime over normal banks, not even narrow-banking.”

No you don’t understand the multiplier effect. under fractional reserve banking, if the reserve req is 10% and deposits total $100, banks can make $1,000 in loans. Under hard money banking, that bank can make $100 in loans.

See this graph from Wiki
http://upload.wikimedia.org/wikipedia/commons/4/42/Fractional_reserve_lending_varyingrates_100base.jpg

Thank you for the thoughtful and important response, Steven Attewell.

Let’s see what we can attribute to the change in government expenditures alone.

Given that real GDP growth fell by 16 percentage points from 1936 to 1938 and the change in government purchases as a share of GDP fell by 2 percentage points (from 3.5 percent to 1.5 percent), how can you say that much of growth change came from the change in government expenditures, even taking multiplier effects into account? But it seems that no more than twenty percent of the fall in GDP growth can be accounted by changes in government expenditures; it’s not clear how much the changes in the monetary base and taxation account for.

And there is also the question of why FDR felt compelled to contract government expenditures. Unemployment had fallen, labor was restive which compounded the problem of low marginal efficiency of capital and (even before the reduction in government expenditures) new investments in plant and equipment were faltering as inventory spending had reached its limit (this is what I remember from reading Sumner Slichter). Business confidence was shaken. FDR made sacrifices to what Krugman calls the confidence fairies, but this leaves open the question of whether the downturn would have even before severe had he not made a turn to austerity.

At any rate, the reversal of the situation was not due to just changes in government expenditures but more importantly war time planning.

Again Berman’s argument makes no sense. That Hilferding did not think a massive debt financed jobs program would be effective or possible (again we don’t know his reasoning) does not mean that he counseled genuflection before the laws of the market. He proposed nationalization, work reduction and work sharing.
The Hilferding quote that you take from Berman has internal ellipses, and Berman has the most important quotation from Hilferding coming from his antagonist.

Again, Steven, Berman’s evidence contradicts itself. She (and Quiggin) claim that Hilferding thought the social Democrats should sit idly be; but then Berman herself outlines Hilferding’s rather radical program that he wrote up as legislation.
It can’t be both; moreover, we are never given a credible account of Hilferding’s political, economic or theoretical grounds for opposition to the deficit financed job creation program. Maybe he thought the banks would sabotage such a program, so he wanted to nationalize them first–hence, his radical proposals? Who knows?
By the way, Sumner Slichter also believed that the experience of the New Deal showed the limits of fiscal policy (or pump priming) and monetary policy. He too did not think that much of the second downturn resulted from government fiscal contraction or veterans’ benefits having already been paid. He sees little evidence that fiscal policy was stimulating actual purchase of capital goods by private firms. He also thinks that loose monetary policy led to a speculative run up in inventories, not real investment in plant and equipment. See
The Downturn of 1937
Sumner H. Slichter
The Review of Economics and Statistics
Vol. 20, No. 3 (Aug., 1938), pp. 97-110
I of course support the second fiscal stimulus that Krugman and DeLong are calling for. I would also pay attention to the problem of competitive devaluation (Stiglitz) and some of the risks of ulta low rates (Rajan). However, I much less confident than Krugman, DeLong and you that the crisis would be so overcome, so I suggest that we must remain open to more far reaching institutional change. Roberto Unger has such a position as well.

Yes it may have been less radical in regards to direct job creation but why was he opposed to it? You say that because not only did he think nothing could be done, he didn’t want anything to be done. His counterproposal was not genuine, you aver.
Maybe, maybe not. Let’s assume so however.

That may have been because he thought the banks would sabotage his proposal just as it would have the job creation proposal. Was he wrong?

Or that he thought deficit financing on a large scale was impossible given reparations payments. Perhaps he feared inflationary consequences. Perhaps rightly, thinking that the erosion of the real wage would deprive the Social Democrats of their main electoral base.

Or maybe he thought the business cycle would soon run its course because he had given up the Marxist theory of catastrophe. This seems quite likely. Hilferding seems to have become increasingly conservative in economic theory in the 1920s,.

Or maybe he could not see how large scale deficit financing would stimulate private investment in those specific conditions.

Our modern statistics do not show that the cut in government expenditures/veterans’ benefits account for much of the contraction in 1936-1938.

What do you make of the ideas that Anatole Kaletsky puts forward in his book, Capitalism 4.0, that capitalism will merely learn from these crises and redevelop itself into a stronger, improved form?

The crucial difference I see between keynesianism and marxism is that Marxism views crises as arising from conflicts within the capitalist system (although recent efforts have also focused on capital accumulation). Now I have to say that there is a case for a conflict-based approach in studying recent crashes/issues. Growing inequality in the US, shifts from fordist production, etc could be argued to have caused a shift to debt-fueled growth, which reached its peak (negative savings rate) before the recent bust. Not saying Marxism is necessarily the way to go, but it is an interesting alternative perspective.

Now for something on the topic of the actual blog post:

My own take as to why Marxism failed as a revolutionary ideology is because it was very successful as a reform movement. When I look back at the list of specific demands made in the Communist Manifesto I find it striking how they’ve either been directly fulfilled (e.g. universal education) or answered in a less radical fashion (e.g. land reform short of full government expropriation). Despite the myriad of problems we have today I wouldn’t hesitate to call the contemporary US and Western Europe workers’ paradises in comparison to the state they were in circa 1840. Keeping the Overton Window open is not a bad triumph.
http://en.wikipedia.org/wiki/Overton_window

I’d also note that in looking at the modern economy, the people who “control the means of production” are most accurately called “managers”. These days the people who own large companies (i.e. the stockholders) are generally separate from the people who actually make the decisions; when there’s an exception it’s generally because the managers used their power to give themselves access to ownership (e.g. stock options). I find this distinction important because it means that government ownership doesn’t end the divergence of interests between managers and employees. It’s also important because you can’t just eliminate managers, you also have to introduce a radical new organizational structure (that’s also I think a major implementation problem Communism had; calling everyone a worker does not magically turn everyone into worker, no matter how many people you shoot).

107: you could of course also go for a simpler solution: keep the structure but change the remuneration/selection of managers in ways that are not aligned with more is better, and free market. Mostly people who become managers become managers because that’s what they like to do.

[Yes, now I have opened myself up for criticism on managers being by definition useless. To this I say: 107.]

Guido Nius 06.28.11 at 8:18 am
“107: you could of course also go for a simpler solution: keep the structure but change the remuneration/selection of managers in ways that are not aligned with more is better, and free market. Mostly people who become managers become managers because that’s what they like to do.”

I was very definitely trying to emphasize that the destruction of the capitalist/managerial class is a bad plan if you don’t have a good idea for the replacement. As I very much do not have such an idea I too would go with reforming existing structures.

There are a couple of ways to change corporate behavior. One as you mention is to change corporate culture so that narcissistic assholes are no longer tolerated; turning Donald Trump from a role model to a bad joke would be a good first start. From my understanding obscenely paid self-promoting jerks like Trump just weren’t tolerated in the executive culture of 30-40 years ago. As for the relentless focus on quarterlies, that could be reduced by changing the standards of fiduciary duty in corporate laws. and so reduce the potential for shareholder lawsuits against management when it decides not to grasp at every last possible cent in a quarter. Rolling back the current trend of every executive insisting they need to be paid above the industry average would also be a good start.

“[Yes, now I have opened myself up for criticism on managers being by definition useless. To this I say: 107.]”

While they can be a pain in the ass, you need people to coordinate everyone
when pursuing large complicated projects. If you eliminated all of the officers in the US Army (pretty equivalent to management IMO) tomorrow you’d cripple it’s ability to do anything

@Heckblazer:

‘My own take as to why Marxism failed as a revolutionary ideology is because it was very successful as a reform movement.’

Precisely. I think it’s so easy to look at the last 200 years and see it as being a triumph of capitalism. But, ipso facto, one could equally well look at at the last 200 years and see a triumph of reformist socialism. After all, when ‘modern’ industrial capitalism began in England it led to a truly awful situation, as documented by Engels. But almost immediately a counter-attack began. As you pointed out, the programme of action of the Communist Manifesto must have seemed impossibly Utopian at the time, but actually almost all its proposals have been implemented. And this process (i.e. of increasing ‘fightback’ AGAINST capitalism) continued throughout the 19th century and throughout the 20th as well, until the late 1960s or, arguably the late 1970s, although obviously the tide ebbed and flowed.

And there was a good reason for this which was (as the initial post argued) Marx demonstrated that capitalism was and is inherently unstable. When Gordon Brown said ‘no return to boom and bust’ he might as well have said ‘no return to capitalism’. Capitalism IS boom and bust. And Marx also pointed out that the general tendency (ceteris paribus) is for these ‘busts’ to ‘get worse’ over time (which doesn’t mean that every recession will be worse than the last one, but that, over time, a trend, of recessions tending to get worse, will become apparent).

What Marx got wrong wasn’t the strength of capitalism but the strength of (reformist) socialism to ameliorate the worst of the capitalist system.

This is why, whatever else one thinks of them, Thatcher and Reagan were amongst the most radical thinkers of the last 200 years. Almost everyone before them had looked at the horrors of early 19th century England and recoiled in horror. In other words they believed in ‘progress’: defined as progress away from ‘laissez-faire’ capitalism.

Thatcher and Reagan alone looked at the slums, the physical and sexual abuse, the poverty, the disease, the filth, the laughable ‘justice’ system, the grotesque gap between rich and poor, and thought ‘Ah yes! That’s where I want to live.’

And that’s what’s been disturbing about politics since 1979. No one could have predicted that the ‘great recession’ was going to happen when it did or how it did. But anyone with even a passing knowledge of Marxism (or the history of capitalism for that matter) could have predicted that something like it was inevitable at some point. We knew, in advance, that eventually the Reagan and Thatcher ‘revolutions’ would end up like this. And yet we did nothing. Well actually we did do lots of things but they invariably made the situation worse.

Luckily, again, reformist socialism to the rescue!

Die hard ‘free traders’ suddenly dusted off their copies of Keynes, nationalised intensively, took control of the economy and ‘we’ were saved.

Well some of us at least.

This would have been the perfect time for democratic socialists to say ‘I told you so’ but of course they were as much in thrall to market lunacy as everyone else. And so we go on much as we did before.

This is disturbing because as Marx has shown we know only one thing: that there will be another gigantic ‘crash’. I don’t know if it will happen in 1 week, 1 year or 10 years, but I do know for a fact that it is coming. I also know that the probability (not certainty but probability) is that it will be worse than the ‘great recession’. And I also know that many of the ‘weapons’ we could have used ‘against it’ have now been used.

I’m very interested in the argument of this thread, because I’m a self described marxist.
There are many points on wich I agree, and many on which I disagree, both in the post and in the comments; however, since I’m late at the party, I’ll just drop in my supercool crisis theory, that I call Marx+Minsky, or M+M.
In Marx’s model, capitalists continuously produce more than what workers can consume, the difference becoming “profits”, and use at least part of the profits to increase their capital stock. This leads to an overaccumulation of capital whith regard to consumption, thus could be seen as an “overproduction” problem in Marx’s terms or as an “underconsuption” problem in more modern words.
However in this model would not produce cyclical crises, this would produce just a permanent depression or a continuous downward spiral.
In my opinion, Marx theory of economic cycles could be explained this way: the capitalist economy is always in recession (thus the law of the diminishing rate of profits), however some exogenous events may happen, that give an upward bump to the system and keep the system afloat (in this sense, it is the specular opposite of “real” business cycle theories).
However what we experience in the real world usually is not a continuous underconsumption problem, but some discontinuous financial crashes.
We could reconcile Marx’s theory adding Minsky’s theory of financial cycles to it, thus obtaining:
1) “capitalists” constantly overproduce stuff with respect to the wages they pay, thus creating the condition of an underconsumption crisis;
2) but then they are demand constrained, so have no incentive to further increase material production. Since they are thrifty and don’t consume all their profits, they use their “excess capital” as financial capital, giving it, for example, to a bank wich pays interest on it.
3) But as they loan the money, the guy who gets the loan spends the money on something, thus the same money is still counted as a credit asset by the capitalist class and used as “demand” to buy the capitalists’s products.
4) this creates a boom period that only lasts as long as the total leverage in the system increases…
5) until the system reaches a Minsky moment and a financial crisis happens.

Thus in my view the financial system hides the “contradictions” of capitalism in financial umbalances, until those umbalances became untenable and we have a crisis, that we perceive as “financial” although its roots are in the umbalances of the “main street” capitalist production.

You might wonder, “what are the advantages of the M+M theory over, say, just Minsky”?
It is interesting, in my opinion, because it helps to explain the problems of both keynesian and monetarist policies:
In keynesian policies the state is supposed to overspend in crisis times and underspend (or overtax) during booms. This however cannot work according to the M+M theory, because the “overproduction of capital” is a continuous process, so that in pratice the state is forced to continuously overspend.
In monetarist policies, the central bank in pratice just avoids the “Minsky moment” by lowering the interest rate, and gives an upward bump to the economy, but then has big problems when it tries to rise the interest rate because it would be very antistimulative, so sooner or later will reach the 0 interest lower bound.

The only remaining solution seems to be a volunatary very inflationistic policy, that in pratice redistributes wealth from financial capital to wages. However also this policy seems to be not sustainable, both because it is clearly redistributive and because “capitalists”, if expect inflation, would simply invest their wealth in some other currency or some other “defensive” investment.

111, heckblazer: I think Donald Trump is a bad example. This could well be a stand-alone sentence but it is also specifically true in this case. He is not ‘just’ a manager. I guess he is not even a manager at all.

One of the things that could be done would be to split managers – and politicians for that matter – as a separate body of people to avoid conflicts of interest. Transitions would be possible only after some kind of grace period ensuring that they remain independent.

Maybe the class of managers could become civil servants with restricted pay scales, eliminating the ‘market’ effects that make managers to confound their personal gain for specific deals with the gain of the unit they are responsible for.

There would be no issue in having the restricted pay scales at levels much higher than the average pay. This would merely acknowledge a reality that even the communists de facto acknowledged.

PS: 30 or 40 years ago Donald Trump was much less of an exception than he is now, it was only done outside of the public eye. I hate assholes but I hate them even more if it is possible that they keep their assholeness to themselves.

@Walt 116
This is the part that comes from Marx, so this is not exactly my theory, but Marx’s theory. It works this way:
Capitalist John invests a certain amount of money X. He does this in order to make a profit, which means that, in due time, he expects to have back X+p money, where p represents profits. If p was 0 then John would have no reason to invest.
X is used to acquire fixed capital (F), buy raw materials or parts (C), and pay workers (W).
W becames demand, since workers are supposed (by both Marx and Minsky) to have no net savings on aggregate.
C and F are produced by someone, usually some other capitalist, and thus will be composed by p’ (profit for the second capitalist), W’, C’ and F’. C’ and F’ will be composed by p”+W”+C”+F” etc., so in the end we just have p° and W° (the total of profits and the total of wages in the chain of production of John’s products).
W° is thus smaller than X, and W°+p° is equal to X but less than X+p, which is what John hopes to gain on the long term.
If all capitalist use all their profits for consumption (what Marx calls “simple reproduction of capital”), they make for the difference between X and W°, and the market is in equilibrium (but not growing).
But in Marx’s opinion, this almost never happens because capitalists use part of their profits to increase their capital, and not for consumption.
The “logic” of this choiche is obvious if you think to financial capital: suppose that I have 100$ of money in a bank, and the bank pays to me a nice 10% interest every year. If I need, for example, only 5$ to live, I could reinvest the 5$ in the bank, so that the next year I would have 10.05$ of interest. Then I could live on arich 5.05$ and still reinvest 5$ etc.

Just on this fractional reserve banking thing, it’s right that at a 10% reserve rate, the banking sector as a whole can create loans up to (nearly) a multiple of 9 times the initial amount of currency (and generally, this factor is = the ratio of loanable:reserve funds, in this case 9/1).

I suppose the idea of hard money loans would be that banks act strictly as financial intermediaries: market makers between lenders and borrowers of cash. The bank doesn’t have a reserve rate because it can lend out all the money it receives, but only once – as if it actually had to hand over the same cash that was deposited with it. And I suppose on that basis it would have to ensure that the money loaned out was due back in before it is due to be repaid to the bank’s creditor.

And such a system could still have a reserve ratio too, I suppose: the real difference is that there is no leverage and no multiplier. And why should there be? And in particular why should the banks run at a factor of 9? Is the idea that the banks are so good at choosing socially efficient investments through their lending decisions, they should be in charge of 90% of all investment (and rake off a hefty commission in the process)?

It is of course multipliers, leverage and positive feedback loops of various kinds that underly the ‘volitility’ of the capitalist system and the refusal of those long-run equilibria, optima, etc to ever be actualised. The ‘business cycle’, I think they call it – also known as ‘constant market failure’.

One point about fractional reserve bashing. All else aside, how do you get from here to there without an absolutely brutal deflation that would utterly mangle everyone but rentiers? Going from 9:1 leverage in the biggest credit creation sector to 1:1 is quite the step. Look how ugly it’s been reducing leverage in the last three years. Then multiply.

Some might think the hard money libertarians who like this actually like it as an excuse to liquidate labour, liquidate the farmers, etc, rather than on its merits whatever they may be. That includes the Ron Paul this decade/Bob McManus types who like left-wing rhetoric but hard-right gold standard let’em starve economics. (Well, Bob did in 2008-2009. More recently he’s been a modern monetary theorist. Whatever.)

Anyway, practicals. How do you eliminate 90% of world credit without slaughtering everyone who benefits from credit creation – i.e. workers, farmers, and entrepreneurs? Do we shift to safety deposit box banking and also increase the monetary base by 90%? Or is the point that credit should be nationalised – in which case you can’t have the other libertarian pony of a balanced budget amendment?

Yes, credit should be nationalised, or merged in some way with the tax/issue system. And yeah, while we’re at it, may as well increase the monetary base by 900% (rather than 90%). I suggest keeping this one quiet until after the election win though, and then acting very quickly indeed, to avoid any unpleasantness.

On firmer but less interesting ground, if a 10% reserve ratio equates to 9:1 leverage, 1:1 l’age is actually equivalent to a reserve ratio of only 50%, not 100%. The latter would be 0:1.

Thanks, JCH.

It would be hard to put it any more clearly. I feel a little sorry for those who try so hard to believe — against their better judgment — that if we could just convince the masses and their representatives to leave the maintenance of our economic machinery to the bushy-tailed disciples of Keynes, all manner of things will be well.

Sorry, but there’s no end of history here, Professor Fukuyama — there’s lots more still to come, and no one we can trust to tell us how it will all turn out. But then Novus Ordo Seclorum has always been the unfulfilled promise, hasn’t it? That’s the beauty of it, I suspect.

@Walt 131
The capitalist cannot “plan” profits, but he invests because he expects some profits.
Obviously it often happens that many capitalist invest their money in projects that end up losing money or have their wealth “freezed” in assets that are “underperforming” with respect to the “average rate of profits”.
However, if the “average rate of profit” turns negative (because too many capitalists are losing money), nobody will invest anymore, thus causing a crisis.
In other words, an healty capitalist world need a positive rate of profits, so that capitalist are “confident” and go on investing. To have a positive average rate of profit, obviously the (real) aggregate total profit must be positive too.

@Walt 133
Your example reminds me more of a socialist economy, since the big company owned by its workers reminds me very much a public company owned by the state, and the small capitalists remind me the kulaks.
I think that in this case a genral “overproduction” crisis could not happen, but the small capitalists would improve their bottling plants in order to increase their share of bottling, at the expense of the other small capitalists. At the end of this process, there would be only a few oligopolists of bottling and some unemployed ex-capitalists.
Would the Coca Cola company hire the ex-capitalists? Would they thus be granted the ownership of the company too, for the only reason that they work there? If so, I think that we should count that as a socialist economy, not a capitalist one.
Obviously socialist economies can have a lot of economic problems, but I think that “general overproduction” is not one of those problems.

@135 — Understood. We’re working at a very abstract level here.

@136 – In the equivalent neoclassical model, “profits” would just be the rents on capital. So in your theory, is it that capitalists try to earn profits above and beyond the rents on capital? And this leads to overproduction and crises?

RL has it slightly wrong here, (though it’s a common mistake). Marx’ account was not one of over-production and under-consumption, but rather about the over-accumulation of capital stocks (of whatever kind), due to the peculiarly capitalist compulsion to maintain the valorization of capital through the rate-of-profit, or, otherwise put, to expand “value” in order to reproduce surplus-value. That relentless drive toward expansion, which tends to over-shoot the mark periodically, if not quite predictably, is what characterizes the distinctiveness of capitalist systems, from which over-production, (excess capacity), and under-consumption, (deficient wage-based demand), are symptoms.