The current economic crisis has renewed interest in alternative economic ideas. Most conspicuously, Keynesianism has returned from the margins. Unfortunately, particularly in Europe, policymakers quickly abandoned deficit spending programs for austerity and the economic orthodoxy rejected in the Great Depression.
Marxism has also enjoyed a modest revival. It remains a more profoundly unacceptable discourse. Amongst its many crimes, it is charged with propagating a determinist materialism incapable of explaining a complex, multi-dimensional world.
Some Marxists do over-simplify. This can also mirror the mainstream, substituting dissonance wherever orthodox economics sees only harmony. If Marx’s argument could be summarised in a few lines, one also wonders why he used so many. So, Marxism does attempt to identify conceptual priorities and resists the postmodern reduction of social science to an intellectual lucky dip. But we should beware of too short and snappy a summary.
However, three themes seem particularly relevant to the current shemozzle. Firstly - if rather obviously - the capitalist imperative is always to make money. If exotic derivatives can be produced and sold more profitably than palm oil, so be it. Social usefulness is secondary at best. This also means there is no guarantee that anything offered for sale will find a buyer when it is thrown onto the market. Conversely, current demand at best stimulates supply some time later. So money is the end rather than just the means, and is useful as both a medium of exchange and as a store of value.
This immediately makes a nonsense of orthodoxy’s beloved “Say’s law”, which insists on equilibrium because every seller makes money and simultaneously becomes a buyer. As Keynesians would later formalise it, it is quite possible to hold money or “non-produced” goods rather than buying other firms’ products.
So a money economy means the ever-present possibility of crisis. In a sense, the extortions which drove the sub-prime mortgage market in the US are unsurprising. But this says nothing about why or how booms and crashes develop at any particular time. It wasn’t only yesterday that wicked financiers dreamed up the idea of ripping off the poor. To understand finanicalisation in its current form requires investigating the particular reasons why speculation became a better bet than investing in the “real” economy.
Secondly, it is possible to see not simply how capitalism descends into crises, but also how the solutions to one set of problems can send us hurtling down new and unsustainable trajectories. In the 1970s, two theories of crisis based on falling profit rates dominated amongst Marxists. For one, wage rises were responsible. The other described how introducing labour-saving technology made sense for individual capitalists but systemically produced a rising capital composition. This meant proportionally less use of “living labour’”; for Marxists, ultimately the only source of profits. Their proponents probably exaggerated the theories’ general explanatory power and the extent to which they should be seen as alternatives, but each captured an important aspect of the preceding period.
These problems have since been largely overcome. The share of national income going to wages fell in almost all rich-country economies. On average, the high point was 1974. In some places like the US, the fall started earlier; in others, like Australia, a little later. Profit rates rose. Wage pressures have been superseded by problems of stagnant consumer demand, off-set only by accumulations of debt.
Rates of fixed capital formation also fell. Alternative sources of profit became more attractive than long-term speculations on things, such as plant and machinery. Amongst other things, it fuelled financialisation and real estate bubbles. It also encouraged industrial relocation, but rising investment in China and some other poorer countries only partly compensated the decline in the OECD. This also increased the geographic and economic distances between production and consumption.
Notably, China’s success was underpinned by exports to richer markets, particularly the US. If these were sustained by debt, the circle could be squared by China lending its surpluses back to America.
This story of debt and global imbalances is now widely acknowledged. But it was not an unfortunate accident, susceptible to appropriate policy adjustments, as the IMF now implies. Nor was it simply the latest incarnation, as some Marxist and Keynesian views would have it, of perpetual tendencies towards underconsumption. Rather, it is a particular result of the way the last dislocation was resolved.
Similarly, we will - probably, somehow, eventually - escape the current crisis. But solutions are likely to be temporary. Austerity and the restoration of financial confidence deepen the fault-lines that have produced the current mess. Alternatively, strategies of reflation and “rebalancing” threaten profits and growth, not least in those countries which had previously weathered the storm.
Thirdly, and finally, Marxists remain political economists. This continues a tradition predating Marx, which was rejected by the marginalist revolution of the late 19th century. In the name of making economics more “scientific”, messy questions of power and thence the real world were excluded from the subject matter. Rendered into ever more complex mathematics, economics also necessarily became a preserve of experts. Accordingly, technical imperatives - not politics - now compel austerity and the upward redistribution of income.
For Marxists, nor does political economy involve balancing “bad” markets with a “good” state; as it does too often for Keynes. There can certainly be tensions, but there is no necessary antagonism between the interests of capital and the state. States share the economic objectives which make it quite rational to push austerity and to socialise banks’ bad debts.
Most fundamentally, any future economic course will also be a political achievement. It was Margaret Thatcher’s mantra that “there is no alternative” and numerous social scientists have reinforced the idea that effective opposition is now precluded. Labour’s retreat, like everything else, is a simple economic imperative. Here, amidst the destruction, the crisis provides some grounds for optimism. It creates a space for alternative economic ideas: it produces new forms of resistance - notably the Occupy movement - and revives old ones in the demonstrations and strikes sweeping Europe.