The domains of ignorance:
Known unknowns: All the things you know you don’t know
Unknown unknowns: All the things you don’t know you don’t know
Errors: All the things you think you know but don’t
Unknown knowns: All the things you don’t know you know
Taboos: Dangerous, polluting or forbidden knowledge
Denials: All the things too painful to know, so you don’t
– from The Domains of Ignorance
The domains of ignorance are relevant to Marx. Some people don’t read it because it is taboo. Some people read it and think they understand it and they don’t. Some people have a superficial knowledge of Marx and think that is good enough. But none of that really explains the extent of the marginalisation of Marx. I think the main issue is that he is difficult to understand. The thing missing from the domains of ignorance is contradictory knowledge.
This problem is not new. Isaac Deutscher provides an anecdote about the knowledge of Marx in that era (the 1930s):
“Capital is a tough nut to crack, opined Ignacy Daszyński, one of the best known socialist “people’s tribunes” around the turn of the 20th century, but anyhow he had not read it. But, he said, Karl Kautsky had read it, and written a popular summary of the first volume. He hadn’t read this either, but Kazimierz Kelles-Krauz, the party theoretician, had read Kautsky’s pamphlet and summarised it. He also had not read Kelles-Krauz’s text, but the financial expert of the party, Hermann Diamand, had read it and had told him, i.e. Daszynski, everything about it”
– http://en.wikipedia.org/wiki/Historical_materialism
Marx’s critique of political economy is old knowledge, forbidden or marginalised knowledge and difficult to understand knowledge. Because it was written 150 years ago many think it is no longer relevant. Because communism is believed to have been tried and found wanting many who want radical change think it could not provide the answers. Because Marxism is an insignificant part of mainstream education and in particular not taught in the economics faculty then it is only going to be accessed by those who think outside of the mainstream. Finally, the many volumes of Capital and related works are difficult to understand for a variety of reasons.
Conceptually the work is very rich and it is difficult to keep the whole of it in your head. Marx uses a method of investigation (his adaptation of Hegelian dialectics) that is unfamiliar to moderns. Much of the language he uses is unfamiliar and this issue is exacerbated through a variety of translations. The prose is dense. Marx established a precise, strict terminology, eg. use value, exchange value, value, relative and absolute surplus value and then uses it rigorously for hundreds of pages. Therefore you must pay close attention, otherwise you are lost. He frequently uses French and Latin quotations. He also employs fascinating, tangential footnotes, which must be read.
The economic crisis which began in 2007 revealed an intellectual crisis, which did already exist, but was not so obvious before the economic crisis. For much of time following WW2 economic crisis was absent, the capitalists had appeared to work out how to stabilise an unstable system. That assumption has now been shown to be false.
My contention is that to understand the inner workings of capitalism you have to understand Marx. Although this will not provide a magical solution to the current issues of ongoing economic crisis it will provide a deep appreciation of the inner contradictions of capitalism that make it forever an unstable and unpredictable system.
Agreed! The philosophical problems concerning cognition and knowledge are central to understanding Marxist economics.
This is just a reminder about Pavel Maksakovsky’s “The Capitalist Cycle” which aims to provide the missing final chapter of Capital elaborating the concrete cyclical dynamics, based on an appreciation of the philosophical logic.
Please click on this link to request that Amazon provide an ebook version even if you don’t order it:
http://www.amazon.co.uk/gp/digital/fiona/detail/request-kindle-edition/ref=dtp_dp_su_9004138242?ie=UTF8&a=9004138242
Also a reminder that the Leningrad textbook of Marxist Philosophy is a useful supplement to Mao’s “On Practice” and “On Contradiction” (which Mao studied when writing those).
http://www.revolutionarydemocracy.org/archive/mpS1.htm
It seems clear there won’t be a much more widespread grasp than that described by Deutscher by the time we are in another depression. It is cheering to note that Maksakovsky was only 28 when he wrote the above and had little opportunity for study of political economy during the bolshevik revolution.
The years of austerity and demobilization during the depression are likely to last long enough for a movement that understands what it needs to in time for revolutionary upheavals during the recovery (which is usually the time for revolutions). Also clarified concepts will propagate rather rapidly through the internet.
This cannot be an adequate basis to argue the centrality of Marx to the current crisis, since there was no single assumption which has shown to be false.
The system which, in America at least, resulted in significant growth without significant and periodic crises was not the system which was in place prior to, or during, or after, the 2007 crisis. Post crash analyses have focused on the destabilizing influence of deregulation in finance, which occurred largely as a result of the Reagan ascendancy, with which the first of increasingly large financial crises began. Even the high priest of the Austrian/Objectivist school has admitted that he was wrong to think that such markets could regulate themselves. Thus, one could say that this school within the American capitalist class was proved wrong, but this school stands in ideological opposition to others (ie, Keyensian) within the capitalist class.
Now perhaps it can be argued that the failures of the Austrian school were and are endemic to the capitalist class; that would be a more forthright argument to make. But it would have to argue for the claim that the relatively stable post-war decades were illusory, rather than proceed from it. It would in any case be more transparent.
I do agree on the importance of Marx, though I am less convinced of the accuracy of the details of his critique of finance – particularly money, about which Bill’s post on value prefaces nicely. But to my mind, a more pressing question is why should we ignore a perfectly adequate and reasonably well tested and successful explanation of the crisis, in Keynesianism?
I’ve always felt that from a Marxist perspective the larger objections to Keynesianism were about the historical direction of capitalist production, and less about demand problems, balance sheets, and Say’s Law. And I continue to wonder why the emphasis here seems to be on an inability to explain the crisis, which seems a weak criticism occluded by the inexact language above, rather than on developing a stronger criticism on the longer term implications of the confused policy response to the current, and possibly permanent, deviation from historical productivity levels.
lupin3,
I don’t have a good understanding of either Keynes theories or the variants claiming to be Keynesian. Nor do I understand the details of current finance and policy debates about fiscal and monetary policy.
However with overnight interest rates having just gone negative in the U.S. I suspect that nobody really has a grip on it. How do you model negative interest rates!?
My impression of the US politicking between Democrat “Keynesians” and Republican “Austrians” is that its as silly as it looks.
Contrary to your post, my understanding is that the actual policies pursued for decades have resulted in “the usual” – ie massive expansion of “big government” with increased taxes, inflation and growing public debt due to large budgetary deficicits.
Naturally this has been accompanied by purely declaratory proclamations of anti-Keynesian “monetarism” etc.
There has been near unanimity in theoretical opposition to Keynesianism recently, accompanied by complete unanimity in truly massive deficit expansions resorted to by every central bank in unison and even actual “printing money” (“quantiative easing”).
The limits of these policies may not have been reached at zero interest rates with negative growth. But I don’t think they have a clue how to continue with negative interest rates.
I certainly don’t.
Do you?
As I understand it Keynes view was “in the long run, we’re all dead”. Its been quite a long run.
I suggest you reconsider your theory that it was policy changes that resulted in the (ongoing) 2007 crisis. Why not accept that an ongoing boom is always followed by a crisis? Isn’t that what Keynes meant about the long run?
The regulatory changes I have noticed are that banks were recently authorized (and effectively ordered) to cook their books and continue trading while insolvent (by not marking to market etc).
The system was trading while insolvent long before 2007 and it still isn’t clear how long that will continue. What is clear is that it can only result in a bigger crash – as predicted.
Arthur said:
But of course (and this is very easily discernable), negative interest rates are exactly the circumstance Keynes modeled. Contrary to your claims about the lack of theoretical understanding or agreement on this point, Keynes’s general model is the dominant theoretical paradigm among professionals whose reputations depend on the quality of their research and publications – ie, economists. To the extent that there is “near unanimity in […] opposition to Keynesianism,” it is in the political sphere, not the theoretical one. And of course, this became true only after the worst of the crisis seems (it’s not too early to say seemed) over.
Arthur said:
The supposition that policy changes had no bearing on the current crisis does not follow from the boom and bust quality of the business cycle. You are eliding the entire history of how the US finance sector actually worked from 1932, the changes in it that Reagan and Greenspan facilitated, and the fact that in both quantitiy and quality, analyses of the cause of the finance crisis center on regulatory changes initiated by Reagan.
Now it seems implicit that this is because you don’t acknowledge any essential difference between Wall Street 1932 – 1980 [WS1932] and Wall Street 1980 – today [WS1980]. Assuming you have some understanding of the normative explanation for the crisis, this is the only explanation which occurs to me that explains how you can continue to defend Bill’s assertion. But since the fact that there was, admittedly, a significant moderation of financial crises during WS1932, you must have concluded that the causes of the increasingly frequent and severe crises of WS1980 were endemic to WS1932 as well.
This brings us to your comments about Keynes and being dead in the long run. What he actually said was:
What he is clearly saying is that it is the responsibility of the economist to provide a short term correction to economic crises, not merely to wait until the business cycle completes. That we are dead in the long run refers to the fact that the palliative consequences of a return to growth in the classical school occurs after most of us needlessly suffered through a pointless deflation in our living standards – or worse.
You are attempting to employ Keynes’s quote as evidence – the only evidence – of your implicit assertion that Keynes’s solution comes at the cost of future growth, an assertion which is itself required by your (again, implicit) belief that the policy changes made in WS1980 are immaterial to the current crisis.
As I’ve said before, I agree with the idea that reviewing Marx is important to understanding how to respond to the present crisis. But the formulation for this need, as presented in Bill’s post comments and your posts, is in error, and will lead to a misunderstanding of Marx’s role in shaping the response.
lupin3,
1. I was unaware of Keynes discussion of negative interest.
But I’ve just read Chapter 16 of his General Theory (in isolation); and while I won’t claim to understand it adequately, I think it clearly explains that negative interest rates are NOT a practicable situation:
2. If he, or anyone else, does explain how a financial system could operate with negative interest rates on a sustained basis please provide links. Meanwhile I am assuming they are effectively at a “zero interest limit” beyond which pumping credit into the economy only inflates prices.
3. In actual policy there seems to be complete (not near) unanimity in support of Keynesian measures eg another promise from ALL G20 finance ministers to do again what they did in 2008. Declaratory “politicking” is another matter. Theory another again.
4. That unanimous Keynesianism does seem to be a significant difference from US (and other countries) policies in the 1930s. What I don’t see is the claimed move away from that. Are you suggesting that Reagan, Bush etc did NOT continue running massive deficits? Or that either the administration or its Tea Party opponents are seriously proposing not to run massive deficits now? They just unanimously agreed on raising the borrowing limit above $14 trillion. Surely that would be unnecessary if they were abandoning Keynesian deficit policies? Likewise the European Central Bank has started trying to prop up Spain and Italy with massiv deficits made into an EU wide responsibility.
5. The current situation of sovereign debt crisis seems a natural (and predicted) outcome of the measures taken to postpone crisis in 2007 by bailing out private debts with public debt. Another round might work to postpone the crisis again. But I see no measures that could resolve the crisis and therefore no reason not to expect the problems to return again more quickly and more intractably.
5. I agree that the context of the Keynes quote about the “long run” does not support my use of it. I took it as accepting that such policies could only postpone a crash rather than preventing one forever. That remains the case whether Keynes agreed or not, and despite your demonstration that he did not express agreement in that quote.
PS In case you missed it, I also responded to you in the Eurozone thread.
hi lupin3,
I did read some of Keyne’s “General Theory” as part of my preliminary historical studies but became stuck on his maths. I also bought a couple of books by Hyman Minsky (post Keynes), the titles are “John Maynard Keynes” and “Stabilizing an Unstable Economy”, and have read bits and pieces of them but not systematically so far. I’ve also looked at some other post Keynes authors such as Steve Keen and Paul Davidson. With Steve Keen, once again you need to be on top of the maths to understand him fully and I’m not there yet. I still plan to study Keynes more and thanks for the nudge through your critical comments.
Which works by or about Keynes would you recommend? Minsky and his followers agree that capitalism is an unstable system and their task is to stabilise it. Well, I suppose we can all agree on that!
What happens during economic crisis is that the choices become harder for those running the show and political squabbles intensify. My impression is they don’t deeply understand the system they are running and these political squabbles are inevitable, another manifestation of capitalist competition and a knowledge base that marginalises critical theory which is hostile to capitalism.
If you reread my post you will see that I am arguing that reading Marx is essential to understanding the inner workings of capitalism. From what I have read Keynes and Minsky do not attempt to explain the inner workings of capitalism as a class system with a crazy logic of its own. My post wasn’t about crisis theory as such, which Simon Clarke does point out is an important practical issue arising from Marx but not central to his critical theory. Marx is the only author I am aware of who clearly explains the inner workings of capitalism.
I’ve just discovered that some “serious” people are advocating negative interest rates and am going through the links from here.
A real “sign of the times” – utterly bizarre!
Am interested because although obviously absurd with private owners, a central issue facing a transitional government would be how to remove the value disproportions that produced crisis by devaluation of capital without the stagnation and unemployment that accompanies this in a depression.
Am speculating idly about whether it might be possible for publicly owned enterprises to implement the devaluation while doing calculations with negative interest rates since they could simply be prohibited from from doing what private owners would obviously do when faced with negative interest rates.
I think that negative interest rates are a feature of liquidity traps rather than someting that could be promoted. Negative interest rates occur because there is a difference between real and nominal rates plus people who buy bonds that are negative do so in quite a rational fashion because they are either after the security of say US bonds or as has happened in the last 7 days anyone paying in Aussie dollars for US bonds may have had a slight negative interest rate but a 10% currency appreciation. 10% in one week, I’d take that.
Negative interest rates also show that all the song and dance about the US debt is just ignorance. Here right now we witness people loaning the US government money and paying for the privilage.
Again I point out that servicing the US debt even at current levels is cheaper than it was under previous presidents ( I think I cited Clinton last time). Again I point out that this is all about interest rate levels which are currently negative if you want to use the rate that incorporates the inflation rate.
Steve, I’m not referring to the (unsustainable but not unusual phenomena of negative “real” interest rates (deflated by a price index). I’m referring to the highly unusual phenomena of actual payments required by banks from depositors (with balances over $50 million) at a small rate that recently became (marginally) in excess of the FDIC deposit insurance rates that banks have to pay to the insurers.
The proposals from some “serious” people are that this could be turned from an overnight anomaly into a policy tool that pushes interest rates as far negative as necessary to prevent a crisis. See the link and the links from there.
Arthur I think that the recent media comments on negative nominal rates is a complete side show. Real interest rates have been negative for some time.
It is a tragedy that politicians are putting a political block on a massive debt funded stimulus that people like Stiglitz have called for. The US government could borrow money at zero percent (real and nominal) and invest in much needed infrastructure and put US workers back to work.
Debt is only a problem if you lack the capacity to service it. At zero percent the US has the capacity to service the debt.
The US already has a large but not unsustainable debt brought about but the last president who during a boom decided to deficit fund.
The current level of debt could be managed by returning to Clinton era tax rates but US politics wont wear that.
The running up of debt was a political decision as is the failure to address it.
Steve,
1. They haven’t blocked a massive deficit. They have agreed on raising the borrowing limit above $14 trillion. As usual this is accompanied with pointless waffle about their future intentions, which are so unconvincing that they are no longer rated AAA.
2. The US has, and will most likely continue to “quantiatively ease” (print) money which it lends to itself and to banks at zero interest. Employment has not risen.
3. Your faith that capitalism intrinsically maintains a permanent boom, frustrated only by the errors of politicians, quite comical.
Arthur I do often write for laughs so if you have found my comments comical then no harm has been done.
US politicians have indeed run up a massive deficit. That is not in contention.
The US government has lost it’s AAA rating as judged by the same people that gave a AAA rating to junk derivatives.
The US may well give us more quantitative easing which in my oppinion is far less usefull than embracing Stigliz’s idea of spending money on job creation.
I don’t believe that Capitalism can maintain a permanent boom but I do think that the slumps can be better or more poorly managed.
If I wanted to manage the next slump really poorly I would run up a big deficit during a boom and during a boom I would keep interest rates low while housing prices soared and I would revoke legislation that kept Wall St merchant banks out of the home buying market.
Then when the slump hit I would declare the deficit to be the number one problem and not stimulate the economy with job creation. programmes.
Arthur do you believe that nothing we do matters? That Capitalism is completely beyond human control? I still prefer Joe Stiglitz who wrote
When the recession began there were many wise words about having learnt the lessons of both the Great Depression and Japan’s long malaise. Now we know we didn’t learn a thing. Our stimulus was too weak, too short and not well designed. The banks weren’t forced to return to lending. Our leaders tried papering over the economy’s weaknesses – perhaps out of fear that if we were honest about them, already fragile confidence would erode. But that was a gamble we have now lost. Now the scale of the problem is apparent, a new confidence has emerged: confidence that matters will get worse, whatever action we take. A long malaise now seems like the optimistic scenario.
The problem is that running up the deficit has been done during the “boom” because the alternative was to bring on the slump. It wasn’t optional.
The low interest rates to recover from the dot com collapse resulted in a housing bubble. EXACTLY the same is being repeated now, with ZERO interest rates promised for two years in a desperate effort to again stave off a slump by again creating a bubble (or at least preventing deflation). Again, it isn’t optional.
No doubt they are making various mistakes. But I certainly don’t claim sufficient expertize to point them out. But I do know enough not to get distracted by the noise from people who claim they could run capitalism much better than others and understand that ultimately there isn’t any way to run it without slumps.
Its perfectly obvious that no opinions I might express about what “they” should do matters. At least I know that for me “we” is not “they”.
It bothers me more that there is no “we” at present.
Yes Arthur low interest rates were run after the dot com bust (2001) but they were still running in 2007 years after a housing bubble was identified. My point is that this is not rocket science, 2 things exist, sound economic management and stupidity. I think that we the left should support sound economic management and oppose stupidity but only as a starting point because there is so much more that is needed.http://www.salon.com/technology/how_the_world_works/2011/07/25/george_bush_owns_the_deficit
Arthur if you woke up tomorrow and turned on the radio and heard that Obama had introduced tarifs to protect US industry you would join the we in opposing them. If Obama said that the US was going back to the gold standard you would join the we in opposition. If Obama decided to expel immigrants to protect US jobs you would join the we to oppose this. The we is a fluid concept I would hope that you would join the we to oppose economic stupidity but then maybe as you said there is no we.
Agreed, its a fluid concept.
Arthur,
You are conflating the tools governments use to influence economies with Keynesian macroeconomic models. Keynes’s model has less to do with monetary and fiscal policies and deficits, per se, than it has to do with when and how those policies should be employed. Reagan’s massive deficit program wasn’t Keynesian. George W. Bush’s tax cuts weren’t Keynesian. The Bush/Obama bailout and stimulus packages were only partially Keynesian, in that they were designed to backstop the economy, not to encourage demand. Steve is right when he says the US has not engaged in real Keynesian policies, and the raising of the deficit ceiling proves it. None of the additional debt incurred is stimulative in broad sense, and the focus of the budgetary wrangling prior to the vote had to do with managing long term debt. This resulted in anti-stimulative policies which extract funds from the economy, in opposition to Keynes’s model.
The same was done in the UK, with predictable results. The rioting which has occurred since was as predictable as the Tory response to it (“not a result of economic alienation, but rather of a lack of discipline in upbringing”).
The same is being done in Spain. In Italy. In Greece.
Keynes and his followers built a conceptually simple model which explains the kind of severe downturn experienced in the 1930s, as well as now. It models the means by which a financial crisis can create a demand crisis in the real economy. A model which, incidentally, explicitly includes the effect on the economy caused by things like negative interest rates. No Keynesian economist argues for that as any basis of an economy, much less a sustained one. But the models are quite clear on the effects of negative interest rates, their effects, their causes, and their cures.
It’s quite easy to understand too: negative interest rates create a disincentive to invest, as investors seek refuge from the collapse of the real economy. The “zero lower bound” exists because during a deflationary period cash carries no penalty to carry; investors can always buy cash. Or gold. Or whatever commodity they think will best retain its value during the deflation. Thus credit and liquidity is removed from the market, precisely when it is most needed, causing more failures in the real economy, and accelerating deflation. Therefore, governments can sell bonds (another commodity) at relatively high prices and low interest rates, which effectively act as a national savings bank. The funds can be reinvested in various ways to stimulate the economy.
None of this addresses the problem which lead to the financial crisis in the first place. The US government addressed that problem by introducing a series of regulatory requirements for the banking and investment industries in the 1930s, most of which had been compromised or eliminated by 2007.
Lastly, when you say that “I’ve just discovered that some “serious” people are advocating negative interest rates” I just can’t believe you’re serious. Willem Buiter is “serious people?” You may wish to note that Greg Mankiw, the well known conservative economist and arguably a serious person, doesn’t agree with Buiter’s position, despite Buiter’s claim. In fact, the linked article to Mankiw rather contradicts Buiter’s point, and by extension your as well.
What Buiter is really doing is crafting the basis of an economic platform based on politics rather than on economic theory. It is designed to constrain Keynesian policies, and thereby the political opposition to unrestrained capitalists. This, like the ECB actions in Europe and the Tories in the UK, is an attack on social welfare programs benefitting the working class.
Whatever one might think of the necessity for a social and economic revolution against capitalism, in the absence of any even foreseeable revolution, it’s the present conditions one must turn one’s attention to. In that regard, repeatedly attacking the ideological straw men of the right (Keynes = deficits, Keynesianism doesn’t work, etc) only serves to make one an enemy of their enemy.
Bill,
Thanks for the encouraging comments, and I look forward to hearing your opinions on Keynesian theory. By sometime next week I hope to put together a small reading list which can perhaps help to create a coordinated study library – together with selections from Marx and Simon Clarke and others. It would be nice to see, somewhere, a graphical map of economic theory relating to the crisis with the core ideas drawn out in comparison to one another, and references to further reading.
I will include a reference to Krugman’s speech “Keynes and the Moderns,” which gives a simplified overview of Keynes’s contribution to our contemporary understanding of financial crises. It’s a good place to start.
I agree with your description of Marx being the only author to describe the (complete) inner workings of capitalism, and I agree too that Keynes and Minsky weren’t interested in the broader critique of capitalism – at least in their theoretical work. However, I’m not sure of the significance of that. It isn’t necessary that a scientist, for example, have a comprehensive understanding of physics for her to improve our understanding of part of it.
I’m also not convinced that because Marx did attempt such a comprehensive analysis, that all of his details are correct. I have real doubts about his theory of value, in so far as it pertains to money. While I haven’t done a formal, explicit analysis yet, my understanding of Keynes (and Marx, and Mill, and Say, and Ricardo) suggests Marx may well be in error.
But would that really make a difference in how we should perceive Marx today? In what Marx can teach us? I doubt it.
Somehow I omitted the link to Krugman: Keynes and the Moderns ~ http://www.princeton.edu/~pkrugman/keynes_and_the_moderns.pdf
Lupin3:
I hope to eventually publish notes about Marx on money. If you haven’t seen it then I suggest you get Suzanne de Brunhoff’s Marx on Money, which is recommended by David Harvey.
If a modern scientist subscribed to the phlogiston theory or an earth centred solar system then I wouldn’t take their other views very seriously. If you agree that Marx articulated the fundamental workings of capitalism better than others (and that most of the others have not even tried) then surely that ought to be our starting point for further analysis and understanding of the modern economy. The problem with the dismal science is that it is mainly smoke and mirrors and the work of Marx who did understand the inner workings of the system is marginalised. It is as though we had scientists working today who still believed in an earth centered solar system or the phlogiston theory. Totally absurd.
Lupin3,
Thanks for the Rogoff link on Keynes and moderns which I will finish before responding properly.
I look forward to a protracted correspondence re Keynesianism and related topics. Some of my questions will reflect genuine ignorance, others will be socratic or sometimes sarcastic.
Unfortunately I’m falling behind on reading so it will have to be delayed as well as protracted in both the two threads (and others).
I was not suggesting that Buiter is some major figure, but I certainly do believe he is a “serious” analyst as distinct from just a bloviating blogger or journo. Despite the sheer absurdity of his proposal I honestly don’t see how you can dispute this:
Checkout his full NBER bio for other extensive qualifications.
The Mankiw article I read was more whimsically toying with the ideas but supportively rather than opposing.
BTW I’m currently reading Hilferding’s Finance Capital. Although not finished yet I would definately add that to my recommended reading list.